Partnership Litigation: What Is A Fiduciary Relationship?

What Your Business Litigation Attorney Should Tell You about Your Partnership Obligations

Partnership litigation in California often involves claims of breach of fiduciary duty.  But what is a fiduciary duty and who is in a fiduciary relationship?  Moreover, how do you breach a fiduciary duty?  While business litigation attorneys who handle partnership disputes understand what constitutes a breach of fiduciary duty, most lay men and women who are in partnerships have never had their obligations explained to them.  Here is a primer on what a fiduciary duty is and what it means to partners in California partnerships.

California law states that a partnership is a fiduciary relationship.  In general this fiduciary relationship means that the partners may not take advantage of their partners or the partnership for their own gain.  A partner has to act in good faith towards his partners and the partnership.

On the other hand Delaware law allows a lot more freedom to contracting parties to agree amongst themselves as to duties and obligations owed.  For example, certain limited liability companies that have their principal place of business in California are actually Delaware LLCs that are governed by Delaware law.  An experienced partnership lawyer will be able to advise you of the duties owed in a Delaware LLC operating in California as opposed to a California LLC.

California’s Revised Uniform Partnership Act, which is a part of the California Corporations Code, sets forth the duties that California imposes on partners in the conduct of their business.  For limited liability companies California has a Revised Limited Liability Company Act.  In many respects the legal concepts behind the two Acts are similar and the term ‘partner’ here also includes a member in a limited liability company.

In general a partner must (1) account to the partnership, (2) refrain from acting on behalf of an adverse party to the partnership, and (3) refrain from competing with the partnership in the conduct of the partnership.

A partner must furnish any information concerning the partnership’s business and affairs reasonably required for the proper exercise of the partner’s rights and duties under the partnership agreement or the Revised Uniform Partnership Act.

 A partner must act with good faith and fair dealing.

Business litigation attorneys who handle partnership lawsuits will look to the partnership agreement (or, in many cases, an Operating Agreement in the case of limited liability companies) to determine what the parties have agreed upon with regard to their relationship.  However, California law does not allow the parties to use their written agreement to waive their fiduciary duties towards each other.  The Revised Uniform Partnership Act sets forth basic terms which govern each partnership, regardless of what the parties have agreed upon.

Many cases of breach of fiduciary duty in a partnership lawsuit involve intentional acts where a partner took a partnership opportunity for himself or herself or where a partner has shut out another partner from the business.  A common ground for partnership lawsuits involves a partner who simply stops accounting to and paying another partner.  The partner in control often compounds the error by later refusing to allow the complaining partner to view the company’s books and records.

Partnership Litigation Lawyer Los Angeles:  Laine T. Wagenseller specializes in real estate and partnership litigation in downtown Los Angeles.  Attorney Wagenseller is the founder of Wagenseller Law Firm.  For more information on the firm and more articles on business litigation issues, please visit www.wagensellerlaw.com or contact Mr. Wagenseller at ltw@wagensellerlaw.com.