Legal Question in Business Law in California

Re: Partner ''calls'' note

from the facts give thus far, it definitely sounds like your company attorney who represents the business interests as well as one of the partner's interests as well has a major conflict of interest in which he/she should remove himself from this particular dispute. my best recommendation would be to have your interests represented by a new independent counsel, apart from the "company attorney" asap. you need have this attorney ascertain what the agreement was, if there was some form of writing present to render the agreement enforceable or unenforceable, and to draft guidelines to be followed to prevent this from occurring again in the future. if you would like further assistance or representation in this matter, email my office today with more details.

Re: Partner ''calls'' note

There is clearly a conflict of interest, and independent representation is needed.

Parternship/corporate disputes like this can only be accurately analyzed after a careful review of the relevant LLC documents, as well as the applicable laws and surrounding facts.

My office routinely handles business disputes. Please feel free to give us a call for a free consultation.

Re: Partner ''calls'' note

I see from your zip code you are from the Murrieta area. I imagine there are not hundreds of qualified lawyers there as there are here in Los Angeles.

Itt sounds like your "partner" is willing to breach his fiduciary duties to the LLC and to its members. The lawyer for the company cannot continue representing the company or the "partner" if you do not consent to the dual representation. The conflict of interest is clear and uncertain. I would suggest you notify your "partner" that, at least with respect to this issue, the company and he obtain separate legal counsel, as so should you. The respective lawyers with their clients should get together to see if they can resolve this potentially business ruining dispute at an informal meeting. Perhaps all can agree to mediation if no agreement is reached. Otherwise, the LLC is heading toward dissolution and loss of enterprise value.

Let me know if you would like me to get involved on your behalf.

Re: Partner ''calls'' note

there is a conflict.

No he cannot.

Will have to look at company documents to determine accurately.

Joel Selik

www.SelikLaw.com

800-894-2889

Re: Partner ''calls'' note

An attorney cannot simultaneously represent a member of an LLC and the LLC itself in any matter where the interests of the member differ from the interests of the LLC itself. The attorney must withdraw from one representation or the other, and perhaps both if he has been exposed to confidential information about the dispute, which is likely. Continued representation would subject the attorney to discipline.

The analysis of the LLC situation itself begins with these basics. California law allows LLCs to be formed and operated almost "free form;" the participants themselves can contract to run the LLC almost any way they choose.

Participants are classed as either "members" or "managers." Each LLC needs at least one of each, but one person can be the sole member-manager. Members are owners and can vote. Managers manage. There can also be owners of economic interests who are neither member nor manager, e.g someone who inherits from a member.

Every LLC must have an operating agreement ("OA"), which should, but need not, be in writing. The OA says who is a member, who is a manager, and who is both. It delineates the matters the manager or managers can handle, and what matters require a vote of the members.

Most LLC OAs drafted by lawyers will contain provisions limiting borrowing, and also restricting the rights of members to make additional voluntary contributions to capital which might increase their percentage interests in the LLC.

Even where the OA fails to limit or prohibit conduct such as this CFO of yours has engaged in, each member would be considered the fiduciary of each other member with respect to LLC affairs. He who acts in a capacity such as the LLC's CFO has a duty of loyalty and a duty of care, owed to the LLC itself and to the other members. Self-dealing such as making loans and then calling them in unilaterally is probably -- well, almost certainly -- an abuse of responsibility, probably actionable.

Re: Partner ''calls'' note

This is the second half of my response. I had to divide it in two because it exceeds the LawGuru length limit.

I have myself, as a small business co-owner, dipped into my own pocket to meet payroll, but always upon an understanding with the co-owner that I would repay myself, without interest or other perk, when funds came in. Lending money to a business without consent of the other owners is not quite as bad a transgression as borrowing from it, but as you see here, there are ways to use a debt owed to you as a means to shake down or intimidate the debtor and its other owners.

Further, it would be interesting to see how any so-called "note" was written -- sounds like the borrower and the lender would have the same signature!

Since the entire series of transactions is probably improper (the only saving grace would be if the OA permitted these loan transactions, which is unlikely), you have one or more seemingly solid defenses and shouldn't have to kowtow to the demands.

Without research, I couldn't say whether the CFO is entitled to eventual reimbursement or whether he has made the LLC a $250,000 gift, or somewhere in between. However, the LLC and the other members would be protected by a court order from any sudden adverse result.

I specialize in preventing and fixing business disputes. Please contact me for a free initial consultation if you wish.