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Dimitry K., Esq.
Dimitry K., Esq., Attorney
Category: Business Law
Satisfied Customers: 41221
Experience:  Run my own successful business/contract law practice.
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Until three weeks ago when I resigned, I was a junior partner

Customer Question

Until three weeks ago when I resigned, I was a junior partner in a small investment firm. I decided to resign because I did not agree with the fund performance data that was being reported to investors. I told the Managing Partner my reason for resigning in my resignation letter.
Since resigning, I have been discussing the terms of a separation agreement with the Managing Partner. We both agree that it may be worthwhile to reiterate the terms of our existing General Partnership Operating Agreement and a Side Letter Agreement between us. These agreements state that if I leave the partnership for any reason, I am free of any obligation to invest more money. (I have already invested $40K out of a $150K commitment.) The agreements also state that I retain part of my interest in the fund and can receive a partial refund of the $40K.
The separation agreement will also deal with other issues. For example, I was prepaid for the fourth quarter of 2009. In my resignation letter, I offered that I would continue to work until the end the year, but the Managing Partner has cut me off from doing any further work. So, this needs to be resolved.
Regarding the separation agreement, the Managing Partner said last week that he would “turn the issue over to an attorney”, apparently to review all previous documents and to draft the separation agreement. The Operating Agreement states that any disputes will be resolved via arbitration, but it has not yet come to that.
I have three questions about this situation.
1. Today the Managing Partner sent me an email asking me to immediately turn over all accounting and financial files to him. I had previously told him that I would transfer all of these files as part of the settlement agreement. This is my main source of bargaining leverage. How should I respond? Can I continue to say that the files will be transferred as part of the agreement?
2. What about the wages I have been prepaid? Will I need to return the money if I am willing to work but I am prevented from doing so?
3. I told two friends my reason for leaving the firm and somehow this information got back to the Managing Partner. He is upset about this. Do I have any risk because of this? I said nothing that is not true.
Submitted: 7 years ago.
Category: Business Law
Expert:  INFOLAWYER replied 7 years ago.
To the extent is belongs to the partnership, you should return it. i understand your wanting to use it as leverage, but if you do not return it you risk being sued. Alternatively consider using a business lawyer to immediately negotiate a settlement and along with it return the subject materials.
Customer: replied 7 years ago.
I don't understand how a business lawyer would be able to immediately negotiate a settlement if the other side is demanding immediate return of the materials. Can you explain further?

What do you think about my second and third questions?
Expert:  INFOLAWYER replied 7 years ago.
The lawyer cannot do much more than you can unless you have a claim against them for monies owed. Absent a claim I dont see leverage and more reason not to hang onto the materials.

prepaid wages would need to be repaid if demanded back except if you can show a breach on their end warranting your right to keep it. Here, if they are operating improperly forcing you to resign you can use that leverage

You should not speak to others about the company negatively. This can give rise to a slander claim but I would not worry since element if financial injury is needed in a slander claim.
Customer: replied 7 years ago.
Regarding returning of the materials, another lawyer advised me to hang on as long as I can to push for a universal settlement and if their lawyer calls me on it to then obtain my own attorney. This would make them angry, but if I return the materials I will have no leverage in the negotiation.

I thought the basis for slander was saying something that is not true. Also, what responsibility would my friend have for passing my comments along?
Expert:  INFOLAWYER replied 7 years ago.
That is correct, to address your last point, the comment would need to be false to be slanderous but then you would be litigating if the statement is false or not. Better to avoid it.

On the return of the items. Legally, you should return it. Practically, it does give leverage in negotiation but also exposes you to lawsuit.
Customer: replied 7 years ago.
I would like to get another opinion.
Expert:  Dimitry K., Esq. replied 7 years ago.
I see that you opted out from your first Expert. How can I assist you?


Dimitry Alexander Kaplun, Esq.
Customer: replied 7 years ago.
Yes, thank you. Could you please provide your views on my three questions? Thank you.
Expert:  Dimitry K., Esq. replied 7 years ago.
My sincere apologies on the delay. I was having difficulty logging into the site.

Please allow me to take your questions one at a time.

1. I completely concur with my colleague. If the documents and reports belong to the company, you have no legal right to hold onto them, and you are courting a suit if you do not return them. Your attorney friend is partially correct as far it may be used as leverage; what he or she fails to disclose is that if the financial files belong to the company, you can be sued and criminal charged should you intentionally withhold documents from your employer (at the very least, this may be termed theft or embezzlement).

2. If you were prepaid but did not perform the work, you must return the funds back to the company, since it is you who is leaving the company. You could have argued, although most likely unsuccessfully, that if you were terminated then the company loses the right to wages; since in this case you are leaving voluntarily, you are required to return the money.

3. Here the question is murky. Slander, by definition, must be false statements. However, the company may still sue you for slander and attempt to force you to prove that the comments you stated were true. If they have deeper pockets they may prevail. Additionally they can always sue you for invasion of privacy and also possible tortuous interference with a business interest.


Dimitry Alexander Kaplun, Esq.
Customer: replied 7 years ago.
Thank you.

Regarding point #2, I have offered to work until the end of the year, but the Managing Partner says he does not want me to do so. He seems to be trying to punish me for resigning and "blowing the whistle". Does this make a difference in whether I need to return the funds?

Also, the "prepayment" was made in 2008 and deducted on the firm's 2008 tax return. Technically, expenses should not be deducted until services are performed, so this is a violation of IRS code. Does this make a difference?

Also, as I mentioned in my intial question, the reason I left the firm is because the Managing Partner was misrepresenting the performance of the fund to investors. I assume I ought to be able to use this to my advantage somehow. Does this have any bearing on the negotiation?

Lastly, the Managing Partner has not fulfilled several aspects of the Limited Partnership Agreement. Does this give me any leverage?
Customer: replied 7 years ago.
In case it matters, the agreement includes the following language regarding disputes
OMNI Operating Agreement

11.15 Arbitration.

Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration in Newark, NJ, in accordance with the rules, then obtaining, of the American Arbitration Association. Any award shall be final, binding and conclusive upon the parties. A judgment upon the award rendered may be entered in any court having jurisdiction thereof.

Expert:  Dimitry K., Esq. replied 7 years ago.
Thank you for your follow-up. As it pertains to your second point, if you resigned voluntarily, the company is no longer required to allow you to finish off your hours--even if you wish to work but the company does not (or the manager), the entity is free to terminate and then request that you pay them back the amount owed.

The IRS violation makes no difference when it comes to your agreement.

If you feel that there was mismanagement and deception, you may have some protection as a "whistleblower" but for that you would have to contact both unemployment and Dept of Labor as well as the Attorney General or other governing bodies and have them begin an investigation.

This depending on what was done or not--if the conditions that were not filled were "material" to the contract, then you may have cause to walk away, but you would still have to return their documents and their money in the process.


Dimitry Alexander Kaplun, Esq.


Please click "accept" so I can be compensated for my assistance. Thank you!
Customer: replied 7 years ago.
I am sure the Managing Partner would not want anyone to know about many improper things he has done. For example, he has intentionally and repeatedly misrepresented the performance of the fund to investors. He incorrectly prepaid for services and claimed $100,000's in business expenses inappropriately and in violation of IRS code. He has also not fulfilled certain management responsibilities in the Partnership Agreement such as creating an oversight board.

From what you have said, if I told anyone about these things I would risk being sued. This does not seem right. I resigned to avoid being associated with a firm that was not acting properly. It seems that the law should be on my side, but you seem to be saying that I have no bargaining leverage at all.
Expert:  Dimitry K., Esq. replied 7 years ago.
You can tell those things to the IRS or other governing bodies so they can make a determination and investigation into your allegations. Telling about it to third parties will get you sued, as you are making allegations without substance (regardless of their facts or not). Additionally, if items belong to them, you cannot hold onto to them, as you risk being sued for theft, misappropriation, and other charges.

I realize this is not the information you wanted to hear, but it makes it no less valid.

Kindly press "accept" so I can be compensated for my assistance. Thank you!


Dimitry Alexander Kaplun, Esq.
Customer: replied 7 years ago.
Venture capital funds are not regulated by the SEC, so to whom would one report fraudlent marketing?

Since I am an investor in the fund, can I sue on behalf of all of the Limited Partners?
Expert:  Dimitry K., Esq. replied 7 years ago.
I am sorry, those questions are out of scope from the original questions that you posed both to myself and the previous Expert. I will be happy to assist you further but first I must ask that you compensate me for my prior assistance. Thank you.


Dimitry Alexander Kaplun, Esq.

Edited by Dimitry Alexander Kaplun on 11/13/2009 at 10:45 PM EST

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