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I am currently in the process of suing my soon to be former…

I am currently in the...
I am currently in the process of suing my soon to be former business partners. In July, they shut me out of business. They withdrew money from the bank account and then began overspending. They also started diverting all payables to either themselves or another account that they opened without my knowledge or permission. I have only received a few stray checks that have been mailed and equate to about 1/2 a month's salary. At the end of August, they had a client's (a title agency that handles real estate closings) in-house attorney send me a letter stating that I was no longer part of the business. The message said that I had misappropriated funds, which I did not and that was reasonably easy to prove. That is what they told this client, his in-house attorney, and quite possibly the rest of the office staff.Approximately two weeks before receiving the letter, I discovered that this attorney had also helped them to incorporate another agency. I assumed at the time that they were intending to begin using this agency. About this same time, one of the partners completed a letter to the Georgia Secretary of State and filed an amendment to the LLC. The change removed my name as the registered agent and updated the registered agent to the 3rd business partner. The address was also updated to the client's address.About a month later, I discovered another agency that was organized as [the name of our company] + Worldwide and using the client's address. The in-house attorney was listed as the registered agent, and the client was listed as the organizer. Neither of my partners was listed, but that is not uncommon.Also, I am getting collection calls from a vendor that we signed a contract with for virtual office space for this same client. They are collecting money from the client, but they are not paying the bills.I am worried because the process is taking so long. While my business partners are hiring housekeeper's and going on vacations, I am sinking deeper in debt. I have paid a $3,500 retainer of which now is over 1/3 gone. They have retained another attorney, however they are not being cooperative, for example ignoring our requests about their intentions to file the 1099's in January, and K-1's. I can only assume that they either didn't file them or if they did they were not accurate.So, after all that -
1) I am thinking that if we suggest that we are contacting the client regarding liability for the vendor payments, that this may entice them to cooperate and possibly get some negotiations going. Partner #2 is not going to want me to contact the client, who is his long-time friend.2) Can the assets of the company be frozen? As hitting them in the pocketbook might also encourage them to quit stalling.3) I am certain that the client is continuing to pay them, as since my departure they have launched a website for another company that this client had just started. However, I received a 1099 from each of his companies and the amount only reflected what I could account for and that was received prior to the end of July. I find this very suspicious and am blown away as to the lengths tht this client has gone to help out these two business partners. So, is there any laws that the client has broken besides being an ass. Involving his in-house attorney, help to organize another business, and eluding to the fact that he has not paid the company any additional funds. I feel that once we get our hands on the financials, bank statements, etc that we will discover that payments were issued to the business that he helped organize. [my company name] + Worldwide. I am not certain if he just organized the company on paper or if he has possibly invested in the company. But regardless, he has aided my partners in this whole scheme.I apologize for the length.Thanks
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Answered in 4 hours by:
3/5/2018
Michael J., Esq.
Category: Legal
Satisfied Customers: 3,514
Experience: Licensed attorney; represented hundreds of clients in my private practice.
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Hello and thank you for contacting JustAnswer. My name is Michael; I look forward to assisting you today.
By continuing, you acknowledge that I am not providing legal advice and can only comment on the law in general.

Really sorry to hear about this situation.

1) This wasn't a question, but I understand where you're going with this line of thinking. This type of strategy is not uncommon when money is owed and someone doesn't want to pay up.

2) Pursuant to a successful lawsuit and judgment against a business, a lien can be placed on that businesses bank account, yes.

3) On the face, I don't see anything illegal about what this client did. This client has no obligation towards your business. If your business partners want to create a new company (without you), they have the legal right to do that, and the client has the right to assist them. That being said, if the client owed your previous business money, and they are acting as if they only owe you part, they could be liable for the rest still. In this type of situation, as you previously mentioned, discovery pursuant to a civil lawsuit would reveal what you're actually owed, and if you find they are diverting payments elsewhere, those payments could possibly be recovered.

I hope this helps!

If you valued my time, please consider rating me positively at the top of the page. Experts don't get credit for our answers until you do. If you have further questions, please continue to ask them until you're completely satisfied.

Michael

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DISCLAIMER: This is not legal advice and I am not your lawyer. The information I provide is based on my knowledge of the jurisdiction where I am admitted to practice, my experience on this site over several years, and research on the relevant laws and statutes for your jurisdiction, if any. My information is not advice and you should always speak to local counsel before you act.

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Customer reply replied 1 month ago
Thank you, ***** ***** it.
Customer reply replied 1 month ago
I would just like to clarify. You stated that they have the right to start another business without me, but isn't wouldn't this be viewed as a violation of their fiduciary duties?
And if you don't mind what are your thoughts relating to the in-laws house real estate attorney taking on my business partners as clients and informing me that I had no rights to the business? Clearly they did not have the right to do that.

Thanks for your response.

Typically that action (starting a new company) would not violate their fiduciary duties to the members of the old company, because they have nothing to do with each other. But there are other issues ... stealing clients, using confidential company information, stiffing you on profits ... that would be illegal. That's why I mentioned that "on the face", this doesn't appear illegal. There may very well be illegal things going on, but starting another business with the help of a client does not appear to be illegal per se.

As for the final question, can you please restate it with all the pertinent info. I may be misunderstanding exactly what happened. Thanks.

Michael J., Esq.
Category: Legal
Satisfied Customers: 3,514
Experience: Licensed attorney; represented hundreds of clients in my private practice.
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