Introduction to Partnership Conflicts
Disputes among partners typically erupt over profit allocations, management control, capital calls, or alleged breaches of fiduciary duty. California hears many of the most high-value “business divorces” in the country.
Fiduciary Duties and Statutory Standards
Partners typically owe one another duties of loyalty and care plus an obligation to act with “good faith and fair dealing” in business affairs. When these duties are breached, common claims include self-dealing, diversion of corporate opportunities, and misuse of partnership funds.
Key Remedies Under California Law
- Judicial Dissolution. Partners may petition the court to dissolve when the enterprise’s purpose is frustrated or management is deadlocked.
- Buyout Rights. A dissociated partner can demand a fair-value buyout, which generally excludes minority or marketability discounts.
- Accounting & Constructive Trusts. Courts can compel an equitable accounting to trace funds and may impose a constructive trust over misappropriated assets.
- Provisional Relief. California courts frequently grant TROs, receiverships, or mandatory injunctions to preserve going-concern value during litigation.
Early-Case Strategy
A swift review of the partnership/shareholder/operating agreement is essential; many contain arbitration clauses, capital-call provisions, or drag-along rights that shape litigation posture. Drafting a stand-alone “business divorce” checklist for exit scenarios speeds motions for provisional relief.
Valuation Challenges
Determining fair value requires forensic accountants who adjust for goodwill, synergy premiums, and California-specific comparables. Courts rarely apply minority discounts when the sale is involuntary or stems from wrongful conduct.
Protecting Ongoing Operations
Temporary management orders or neutral receiverships can stabilize day-to-day operations, preventing asset dissipation while partners litigate ownership issues. Los Angeles judges in the Complex Civil Program report that provisional control measures often prompt faster settlements.
Practical Tips for California Partners
- Maintain detailed, real-time financial records—clean books are indispensable when seeking or resisting an accounting claim.
- Include explicit buy-sell triggers and valuation formulas in the partnership agreement to limit later litigation.
- Document all major decisions via unanimous written consents or meeting minutes; good documentation rebuts fiduciary-breach allegations.
Final Thoughts & Disclaimer
California partnership disputes blend nuanced statutes with a fast-moving local economy. Early forensic preservation, strategic use of remedies, and familiarity with the procedures give litigants a decisive edge. This overview is for general information only and does not constitute legal advice; consult qualified counsel about your specific situation.
FAQ
What triggers judicial dissolution in California?
Any partner can petition if the business purpose is frustrated, a partner engages in conduct that makes it impracticable to carry on, or partners are deadlocked over essential matters.
How is a partner’s buyout price calculated?
By default, fair value is determined from the company’s total assets and liabilities, without minority or marketability discounts, unless the partnership agreement specifies otherwise.
Can the court appoint a receiver during a dispute?
Yes. Courts frequently appoint neutral receivers or grant TROs to protect assets and maintain operations while litigation is pending.
Are arbitration clauses enforceable in partnership agreements?
Generally yes, but parties can still seek provisional remedies in court if needed to prevent irreparable harm before arbitration concludes.
How long do Complex Civil cases take in Los Angeles?
Complex business-divorce matters typically resolve—through settlement or judgment—within 24–30 months, faster when provisional relief stabilizes operations early.
