Joint businesses and/or partnerships do not always work out. When assets are combined, there can be varying disagreements on the management of the business, allocation of resources and personnel, shareholder control among a host of other aspects. Businesses can start off with the best of relationships and intentions, but can over time, decay into disputes from the minor to the major. In some instances, disputes can arise from simple carelessness or innocent mistakes. In others, officers, directors or shareholders may be liable for intentional mishandling, misallocation or outright fraud as against other shareholders.
Our New York City business litigation attorneys have handled numerous business unwinds, from the innocent to the fraudulent, in both litigation and pre-litigation negotiation. While it is always preferable to resolve a matter prior to, or shortly after filing litigation to avoid seemingly never-ending attorneys’ fees, depending on the stakes of the parties and the nature of the business, litigation may be the only way out. While Courts might not want to force unhappy partners to continue doing business together, Courts may not want to dissolve a profitable business that may perhaps be improved going forward. We have handled cases for both minority and majority shareholders looking to protect their investment and/or income short and long term.
A common problem amongst shareholders in our experience has been “self-dealing.” Self-dealing arises when a managing party i.e. one who has supervision or control over company assets and operation mishandles his duties or money. The situation may continue for months or years unbeknownst to the victim-shareholder. If caught in time, assets may be sought to be preserved until a Court determines who gets what. One of the many causes of action for an aggrieved shareholder is an accounting. This action seeks the Court to require the controlling party to “open the books” to the complaining party and explain how the assets were used and how profit distributions were made.
Our New York City business litigation lawyers have found most effective an immediate motion to appoint a receiver and freezing of assets of a company pending court decision. Even if unsuccessful, such a motion brings the parties to the negotiating table immediately before the hemorrhaging of attorneys’ fees begins.
The victimized shareholder’s claim may be based on a written or oral agreement, such as a partnership agreement, a shareholders agreement or a joint venture agreement. But a claim may also be based upon e.g. the Business Corporation Law or the Partnership law even without a written contract. The law has also recognized a fiduciary duty among partners, which can give rise to a claim for a breach of a trust relationship. An example we have litigated is where a managing partner, with ready access and control of the business assets and contracts self-deals, or otherwise acts in conflict with the best interests of the corporation or partnership. This can lead to a minority or non-managing partner(s) substantial money damage.
Another issue we have confronted is where one of the investors in a business attempts to characterize his/her investment as a loan rather than an investment. If the investor #1 and #2 combine their capital to start a business, and there is profit, one of the investors may try to reclassify his investment as a loan thereby limiting the company's liability as timely repayment of the loan. If the inverse is true and the business is not profitable, another type of investor may then try to do the same thing, and “call-in” for the loan’s repayment thereby avoiding his capital loss from an underwater business. Our business litigation attorneys in New York City can help distinguish a loan from an investment.
The most extreme remedy in a partnership dispute is dissolution i.e. a Court order disbanding he business and distributing what’s left. Court’s are typically loathe to unwind a profitable business. However, dissolution may be the only remedy available if there are truly irreconcilable differences.
Benjamin Hart, P.C. lawyers handle partnership disputes in the various New York Supreme Courts. We serve the New York City five boroughs and the collar counties, including Manhattan, Brooklyn, Queens, Kings, Bronx, Staten Island, New York counties, Long Island’s Nassau & Suffolk Counties, Westchester, Orange, Rockland and certain up-state New York counties.