Legal Question in Business Law in California

You need to hire an attorney right away. This is not a self-help or internet advice situation. You need immediate legal action to remove him from managment and participation in the LLC and to enjoin his contacts with your clients. Every day that he is dealing with your customers against the LLC's interests is harming your business. You have specific legal rights to stop what he is doing, but you absolutely will need a lawyer to enforce those rights.

You need to have an attorney review your LLC's Operating Agreement. You need to gather up your evidence and take action to remove your brother-in-law as CEO as soon as possible to prevent further damage.

Also, you need to gather as much information/documentation as possible showing the actions taken by him that violate his duties as CEO.

HIGHLY recommend finding a local attorney immediately.

I can handle this but you'd save money on my travel by going more local since you are in Riverside County.

Let me know if you have any questions.

Caleb

As always, your options are to do nothing, negotiate a resolution, or sue. You need to consult with a business litigation attorney to help make your choices. If serious about doing so, feel free to contact me.

Limited liability companies are a relatively recent creation of statute, first authorized in California by the Beverly-Killea Limited Liability Company Act in 1994. It is codified in the Corporations Code as sections 17000 to 17656, forty-plus pages of fine print.

LLCs have members, managers and officers. Often, the capacities overlap, with the same person(s) being, for example, both a member and a manager. These participation categories are set up by law and the LLC's organizational documents will specify in which capacities your brother-in-law acts. The reason I mention this first is that the duties owed to the LLC and its other participants varies, with a manager apparently having the highest degree of fiduciary duty to the LLC and the (other) members. I'm assuming your brother-in-law probably hss the statutory capacity of "manager" due to his title, but not necessarily. The terms are defined in Corporations Code section 17001, subsections (w), (x) and (aa).

Corporations Code section 17153 says LLC managers owe the same fiduciary duties to the LLC and its members as a partner owes to a partnership and its other partners. Those duties are, in turn, spelled out in partnership statutes (Corporations Code section 16404, for example) and a bunch of case law.

Clearly, "misappropriation of business opportunities" is a major and fairly frequently occurring breach of the fiduciary duties of a partner (or an LLC manager). CC 16404(b)(3) says a partner must "refrain from competing with the partnership...."

A good business attorney could, after interview, advise you on the extent of injunctive and monetary relief the LLC might obtain by suit. Additional remedies such as expulsion of the brother-in-law are also very possible. Discussion of protecting the LLC's business methods by patent are somewhat beyond the scope of this answer, and my expertise, but I do think there is sufficient merit in that idea so that the other three LLC members should talk to a patent attorney.

The relative voting strengths of the four members, and any family or business loyalties that may exist, would be a factor in deciding what is practical and best for all concerned here, but some kind of lawsuit seems indicated.

If interested, contact me directly by e-mail with additional information and we may be able to work out a representation and fee agreement without any travel expense at all. I have represented clients in courts in Victorville, Joshua Tree, El Centro and elsewhere in Southern California without travel charges.