Legal Question in Business Law in California

Illegal? No. Nothing criminal here.

Possible violation of his duties to you and the old arrangement? Maybe. That could be grounds for suit if the conduct is improper competition with the old company and costing it money. If serious about getting legal help, and if this is in SoCal, feel free to contact me.

Doesn't have to be criminal to be illegal, Terry. It is a breach of his fiduciary duty to the questioner as partners, it is a trademark violation, it is a misappropriation of the questioner's business good will, and it is possibly an unfair business practice under the Business and Professions Code. Those are just the things that come right to mind.

I agree with Mr. McCormick. The breach of a fiduciary duty and potential trademark violation probably have the most teeth are are, typically, easier to prove. Let me know if you need any help with this.

Breach of fiduciary duty is what comes to mind most prominently here. Partners are fiduciaries of one another and of the partnership. One of the duties a partner owes is to avoid usurping or misappropriating business opportunities. This would also be a species of fraud (constructive fraud, Civil Code section 1573). These are the most likely causes of action for a civil lawsuit.

Lawyers sometimes restrict the use of the term "illegal" to acts and omissions that are criminal, as did Mr. Nelson (and I would kind of side with him that that's preferable), but also the term "illegal" can also mean "contrary to law" in a much more general way, including torts like negligence, and even breaches of contract, as Mr. McCormick prefers.

You should be aware that partnership law is largely codified, for California general partnerships the applicable law being the Revised Uniform Partnership Act, which appears in the Corporations Code (?!) as its sections 16100 et seq. Of course, for every major provision of the RUPA there are dozens and dozens of cases providing interpretations and additional rules.

The main RUPA section dealing with fiduciary duties is 16404, and you might look in particular at subsections 16404(b)(2) and (3). You can and should look them up on line or at a law library.

Also note that the RUPA has a fairly comprehensive set of rules, and its own confusing set of terminology, covering the breakup of partnerships. I'd advise you to take the time to become familiar with sections 11601 to 16807 and to note things like the difference between the right of a partner to dissociate and his power to dissociate; the difference between rightful and wrongful dissociation; the fine-line distinction between withdrawal and dissociation (the former being a subset of the latter); and the distinctions between dissociation, dissolution, winding up and termination of a partnership.

A correction and an afterthought. I noticed I said "sections 11601 to 16807" but meant to say "16601 to 16807." The afterthought is that if suit is necessary, you and your attorney should look to see which causes of action might allow recovery of attorney fees, especially if you have a strong case and are likely to win. Unless your partnership agreement contains an attorney-fee clause, you should probably try to focus on constructive fraud, which is a consequence of profiting by a breach of fiduciary duty. I should also note that when a two-partner general partnership loses one partner through dissociation, it ceases to be a partnership under most interpretations of the California RUPA (although I don't know if this observation is applicable here).