A business dispute can change quickly when one participant believes another has taken company revenue, diverted a business opportunity, collected customer payments personally, or used business assets for personal benefit.

For partnerships, California law expressly imposes fiduciary duties of loyalty and care. Corporations Code section 16404 provides, among other things, that a partner’s duty of loyalty includes accounting to the partnership for certain property, profits or benefits derived from partnership business and refraining from appropriating a partnership opportunity.

California courts also treat joint venturers as fiduciaries. The California Supreme Court has stated that joint venturers, like partners, have duties of disclosure and may be required to account for profits. Weiner v. Fleischman (1991) 54 Cal.3d 476, 482.

Start With the Records

The first factual question is usually where the money went.

Bank statements, customer payments, invoices, accounting records, contracts, distributions and communications concerning individual transactions may show whether a payment was business revenue and what happened to it.

The characterization of a transaction also matters. One participant may characterize a payment as diverted revenue while another claims it was authorized compensation, reimbursement, repayment of a loan or a proper distribution.

Was There a Fiduciary Relationship?

A breach-of-fiduciary-duty claim requires a fiduciary duty in the first place. California courts generally identify the elements as the existence of a fiduciary duty, breach and resulting damage. Pellegrini v. Weiss (2008) 165 Cal.App.4th 515.

Whether that duty exists can itself be disputed. In a claimed joint venture, for example, the parties may first have to establish that the joint venture actually existed.

For that reason, these disputes often require examination of both the financial transactions and the legal relationship among the people involved.

Authorities: Cal. Corp. Code § 16404; Weiner v. Fleischman (1991) 54 Cal.3d 476; Pellegrini v. Weiss (2008) 165 Cal.App.4th 515.

Related practice areas: Corporate Governance & Shareholder Disputes · Civil Litigation

This publication provides general information about California law. It is not legal advice and does not address any particular person’s circumstances. Reading this publication or contacting the firm does not, by itself, create an attorney‑client relationship.

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