Legal Question in Business Law in California

Breach of operating agreement
In 2005 I entered into a verbal agreement with a coworker to become partners in a business venture. Subsequent to our discussions we entered into a purchase agreement for a bulk sale on two businesses. Our intention both capital and operational was to contribute 50% each capital as well as 100% operational once we closed escrow or began operating the businesses.Since then I terminated him in the LLC due to the lack of his contribution both financially as well as operationally. He is suing me for Fraud as well as wrongfully terminating him in the LLC. We are in the deposition stage and going for arbitration. The question I have is after singlely running the enterprise and because
he has had to participation since sept., I have a major loss and unable to close escrow. The seller has cancelled the escrow and been informed by his legal counsel to hold off any further transactions on this property. If I dissolved the LLC or filed bankruptcy how might this affect the pending litigation with my ex partnner , and would the seller be compromised to sell to me without the expartner even thouhg his signature is on the purchase agreement. Thank you.

Asked on 4/06/06, 8:21 am

4 Answers from Attorneys

Amy Ghosh Law Offices of Amy Ghosh

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Re: Breach of operating agreement

This question is too complicated to answer in a BBS. Seller is not obligated to sell you without partner's signature. Filing BK will stall the lawsuit for a while..if you do chapter 7...you cannot continue to operate the business. I am not sure whether I got the facts right or not!!!!

Answered on 4/06/06, 9:39 am

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Roy Hoffman Law Offices of Roy A. Hoffman

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Re: Breach of operating agreement

These are questions you should be asking the lawyer representing you in your litigation against your ex-partner. Ms. Ghosh is absolutely correct, this question is far to complicated for any attorney to provide you with any reasonably thorough answer. If you don't have an attorney in your litigation with your ex-partner, you would be well advised to obtain one immediately.

Answered on 4/06/06, 1:49 pm

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Bryan Whipple Bryan R. R. Whipple, Attorney at Law

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Re: Breach of operating agreement

Are you representing yourself if the fraud and wrongful termination case? If so, get an attorney now! If not, why can't you get the answers you need from your present lawyer?

You start out talking about a partnership, but then shift gears and call it an LLC. Which is it? The laws governing each are quite different.

If the partnership agreement or LLC operating agreement were professionally prepared, either would contain terms covering mandatory initial capital contributions, and failure of either co-venturer to make his required contribution would have well-defined consequences, including perhaps the right of the other to terminate him. If your agreement(s) are all oral and/or incompletely or amateurishly written up, the outcome of the present suit is in doubt.

I can't be sure you would have the right or power to dissolve the LLC without more facts. If you did so, I cannot imagine it would help you in the litigation; it would either have little effect at all or perhaps would give the other person an additional cause of action.

Filing bankruptcy would at least temporarily halt the suit against you, but you would have to discuss the long-term detriments of BK with a lawyer in that field, which has changed drastically with the new legislation last fall.

Your agreement with the business seller is probably breached to the point where the seller is no longer obligated to sell to the LLC or either of you, acting singly or together. It may be possible, of course, to renegotiate and still accomplish a purchase.

Answered on 4/06/06, 2:19 pm

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