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CalAttorney2, Attorney
Category: Legal
Satisfied Customers: 10244
Experience:  Civil litigation attorney for individuals and businesses.
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I invested 15k in a business that went Dow the owner is in

Customer Question

I invested 15k in a business that went Dow the owner is in the red and filing bankruptcy what can I do?
Submitted: 2 years ago.
Category: Legal
Expert:  CalAttorney2 replied 2 years ago.
Unfortunately, in most cases, when an investment is made in a business that is going bankrupt, the investors lose their investment.However, it is usually a good idea to ask for a copy of the business' current records and get an accounting so that you can actually confirm your standing - you may be entitled to a distribution when the business winds down as opposed to walking away with nothing - but the only way to know is to actually get an accounting from the business.In most cases, the business owner is not going to be personally liable to the investors for their investment - the primary exception is where there is an issue of fraud (the owner either misrepresented a material term to the investors, or has been embezzling funds from the company, in either of these two cases, the investor is entitled to pursue the investor for these debts personally, and this intentional conduct is not going to be dischargeable in bankruptcy).So I would advise starting with getting some more information regarding the business' current accountings - in most cases, an owner who is truly facing a hardship will hand these over (he may be disappointed or embarassed, but he will provide them to you), if he tries to hide them, that may be time to pursue it further (frankly $15k is probably a little small to warrant pursuit in civil court (it will cost you more to litigate than you will recover), but you can try mediation - contact your local bar association for referrals to local business law mediators as a third party neutral may be able to help you work out a resolution with an owner that is acting intracticably.But hopefully the owner will be cooperative with you.
Customer: replied 2 years ago.
He has lost everything, the business is in IL and I live in CA is there anything I can do? I did this investment because of an ex
Expert:  CalAttorney2 replied 2 years ago.
If he lost everything, and the business is gone, the investment is lost (unless you can prove fraud, but as noted above, this is not likely to be cost effective - particularly if you are living out of state, even if you can prove fraud).However, you can speak with your tax professional (CPA or accountant) regarding claiming this loss on your taxes - it can be deducted from your tax liability (I suggest working with a local accountant as they can ensure that you are able to maximize your deduction based on your actual financial portfolio as opposed to a generic statement that the loss is deductible, but see generally:
Customer: replied 2 years ago.
Can I take him to court ?
Customer: replied 2 years ago.
I sent him an email asking for my money back that is went he told me he is at a lost of over 100k.
Expert:  CalAttorney2 replied 2 years ago.
Yes, but you would need to prove that he committed fraud (again, either he promised you something that was false (a material misrepresentation regarding the company - not "mere puffery" promising a "good investment" or similar promotion, you would need a specific factual misrepresentation), or embezzlement.Otherwise, no, you can't sue him simply because the business was unsuccessful (even if it was unsuccessful because he wasn't very good at managing the business) - you have to show he did something intentionally wrong, such as diverted money to insiders, friends or family. All of this would take time and money, fraud, embezzlement, and breach of fiduciary duty claims are costly to bring, you would be suing this person out of state, so you definitely would want to hire an attorney, you would probably need an expert (if not more than one) to testify regarding standard of care, and accounting, and the litigation costs would quickly outpace your recovery. There is no statutory right to attorney's fees, and unless your investment contract has an "attorney's fees clause" or "prevailing party clause" (very few do) the "American Rule" would control and each party would be liable for their own litigation expenses, including attorney's fees, so you would end up spending more money to prove your case than you would recover.
Customer: replied 2 years ago.
This was not a proper contract by any means it was less than a page long it was notarized
Expert:  CalAttorney2 replied 2 years ago.
I highly doubt that there is going to be a cause of action here (again unless you can prove that the person was actually stealing money from you, and even if they were, your case is one where it is going to cost more to sue than you are going to recover).Unfortunately, in cases of an investment that is unsuccessful, the business owner is not required to act as a surety for the investors (they are not liable if the business fails due to misfortune or bad luck), they are liable if they engage in wrongdoing, such as misappropriating corporate funds, or if they mislead investors into making the investment in the first place by misrepresenting a material fact, but short of that, there is not going to be recourse against the owner.I am very sorry.
Customer: replied 2 years ago.
I know this is bad for me, I have seen the place that was rented for the business I also saw the problems they had. All the contract had was the amount I lent and that I would get 10% annual from the company. They never got open at all
Expert:  CalAttorney2 replied 2 years ago.
I am sorry to learn of this, unfortunately I do agree with your assessment. It is highly unlikely that you are going to get any return on this. However, do follow up with your CPA or accountant as you can use this loss to offset income for tax purposes, and at least mitigate some of the income loss. (I know it isn't the same, but do not overlook it).
Customer: replied 2 years ago.
He has a next business can I go after that?
Expert:  CalAttorney2 replied 2 years ago.
Most likely no.If it was a corporation, or an LLC that you invested in, your investment is going to be limited to that business.If it was a partnership or similar unincorporated entity, and the owner filed bankruptcy, including any liabilities from the former business in his bankruptcy filing - then no.Based on the way that you described the investment contract above (and the way most investment contracts are written), I would still speculate that the answer was "no" even if it was an unincorporated or non-LLC entity even if he wasn't filing bankruptcy. An investment really is a risk taking venture, and the investor risks their capital in the hopes of making a return, when the business fails, the investor's capital is generally lost (other creditors have a superior claim to assets over the investors - so if there was a landlord, suppliers, or similar services rendered to the business - those creditors have a superior claim to the business' assets over you and your fellow investors).