Partnership Litigation: Suing Your Partner

Partnerships are the source of much heated business litigation. Business lawyers who deal with partnership and corporate shareholder litigation must be both consummate trial attorneys and trusted advisors. Partnership litigation involves more than just business disputes. The acrimony between partners arises from feelings of betrayal and broken trust. A business litigation attorney who deals with partnership disputes must therefore take great care in the initial analysis of a case—what is the end result of the litigation, what is the game plan to get there and how much will it cost?

What is the end result of your partnership litigation?

Partnership litigation often takes on a life of its own. The end result gets lost in the bitter fighting, often to the detriment of a reasonable resolution. By determining a reasonable resolution early in the litigation, a partner will be in a better position to analyze potential settlement offers and proposed trial strategy. Often this is easier said than done. In one case we are dealing with now, the three partners agreed to sell the partnership property through auction but got stuck on whether the closing would be 30 or 45 days after the auction. While the distinction sounds trivial, the issue was one of pride and control. Neither side wanted to compromise. As a result the case will proceed to a court partition. Although the partition process will involve the hiring of an expensive referee and take a minimum of several months, the partners would rather incur the expense and waste the extra months in lieu of letting the other side get the best of them. From a neutral perspective, either side should have been willing to agree to the other’s demand since the end result would have been better than what they are getting through the court’s partition process.

What is the game plan on how you will reach your desired end result?

The driver who heads from Los Angeles to New York by planning a route and following his map has a much better chance of arriving at his destination than the driver who just heads east. Business litigation is the same. A thorough analysis of the case is a must. What are the elements of each of the causes of action? What evidence is needed to prove a breach of fiduciary duty? Who will be the witnesses who will testify to a breach of the partnership agreement? What accounting information is needed to determine each partners’ share of the company proceeds? The business lawyer should ascertain what is needed from documents, depositions and written discovery long before it is actually needed. A good litigation plan will also lessen the chances that the attorneys get side tracked by petty fights that cost a lot of money but do not advance the case towards the end result.

How much will it all cost?

Obviously there are a lot of factors that go into determining the cost of business litigation, especially in a partnership lawsuit. However, the end result certainly has an economic aspect to it. A lawsuit against a partner that succeeds in depleting the company’s assets through attorneys’ fees and costs is usually not part of the desired result. Oftentimes the gap between one party’s settlement demand and the others settlement offer is less than the cost of litigating the matter through trial. If the end result includes recovering as much money as possible, it can sometimes make sense to compromise during settlement negotiations if the alternative will be more expensive and include more risk. The potential to recover attorneys’ fees—while not available in many partnership lawsuits—will make a big difference in the economic analysis of the case.

Partners looking to sue the partnership or their partner should work with their business attorney to figure out the best result, the plan on how to get that result and the budget needed to reach it. While the analysis of the legal underpinnings of the case will require a burst of work at the beginning of the case, the subsequent savings will more than make up for it. Ask your business lawyer for a written analysis and budget and then spend the time to discuss it with him or her. A good plan in partnership litigation, like everything else, is the best way to succeed in reaching your litigation goal.