QUESTION
Former Managing LLC Member creates competing business
Asked on Jul 31st, 2015 on Business Law - California
More details to this question:
A former member of our LLC has created a competing business selling the same merchandise with a different product name but still within the same markets and channels. After coming to a decision that he was going to separate his ties with the LLC the same day went to the bank and took out a significant amount of money, and no longer wishes to complete his forfeiture of his share. Are there legal grounds to sue this individual? As technically he has not forfeited his stake in the company would this constitute a breech in his fiduciary duties? If there is grounds to sue him for damages done to the company, due to his competing brand which has significantly lowered revenue we are willing to offer up to 60% of all claimed damages earned.
2 ANSWERS
Estate Litigation Attorney serving Redlands, CA
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Price Law Firm, APC
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You have a complex case. I see issues of improper disassociation from the LLC, taking a significant amount of money from the bank, possible breach of the fiduciary duty of loyalty by breaching the duty not to compete, tortious interference with a prospective economic advantage,and the possible taking of intellectual property in the form of trade secrets, customer lists, and/or products. You'll need to sit down with an attorney to discuss the facts and circumstances of your case and to get a full consultation.
Answered on Aug 29th, 2015 at 3:01 PM
Business Transactions Attorney serving Los Angeles, CA
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Doland & Fraade
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There is something known as the "corporate opportunity doctrine" which prohibits what you have described. By remaining in the old LLC as a Member, there's no fiduciary duty there, but if he remained as a manager you are correct there would be a breach of fiduciary duty.
This is not an abstract matter but merits a review of the documentation and an interview to ascertain facts. You should creat a written narrative of the history of the old LLC, the problems leading to the departure, the problems you cescribe above, and you should annotate your writing with references to the documents and emails that support your description.
Answered on Aug 03rd, 2015 at 9:59 AM