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Can I Sue My Partner for a Violation of CUTPA? (I Know, You'd Rather Hit Him)

Posted August 6, 2017
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 Yes, of course you can, if he or she is doing some very bad things.  You see, partners get into disputes all the time. Disagreements happen, whether they are between partners in a limited liability company, a true partnership, or shareholders in a closely-held corporation. And sometimes those disagreements are pretty serious, like when one partner steals money from the company. Or, maybe one of the partners starts a competing business and takes away the company’s customers. That kind of stuff gets serious, and is not the kind of behavior partners can (or should) turn their back on.

The question becomes: what’s the partner to sue for? Damages. Yes, I suppose. Dissolution of the business? But why kill the golden goose? An accounting? Sure, and let some court-appointed CPA make a lot of money going through the company’s books. You see, all of this costs money in attorney’s fees, and typically a lot of money. So if you’re representing the wronged partner, you want to find a sledgehammer, so the other side thinks that if they lose they might have to pay your client’s attorney’s fees also. 

That’s where Connecticut’s unfair trade practice act comes into play. CUTPA its called. You can do some catch-up reading about CUTPA here, here and here.  Not every intra-corporate dispute rises to the level of an unfair trade practice, and there are some decent obstacles to proving such a claim. First, most trial court decisions in Connecticut hold that disputes over the ownership structure of the organization are not covered by CUTPA. Things like improperly disbursing funds to other companies, or incompetent management of the business are not unfair trade practices. In fact, Connecticut’s Supreme Court has applied a standard requiring “aggravating unscrupulous conduct” in one case between two members of a limited liability company.  One of the partners had been running their bar pretty loosely, not keeping track of expenses, allowing customers to run high tabs, paying some employees in cash, and the other partner wasn’t happy.  The unhappy partner sued and won. Great you say. Well, she won only a little over $10,000, and she probably spent five times that in attorney’s fees. Because she didn’t prove an unfair trade practice, proving her point probably cost her $40,000.

So, think very hard about going to court if your partner is just doing a really bad job, and not doing things like stealing from the business, or funneling customers to a competing business. While you can try to prove an unfair trade practice, that “aggravating unscrupulous conduct” standard could come back to haunt you. You might want to simply offer to buy your partner out (maybe with a credit to the purchase price for the cost of their “wrongful” conduct.)  You can read a little about that process here.

LESSON LEARNED: Unless your partner is doing very bad things, you are probably going to spend a lot of money proving your point with nothing much in return.  Keep the business going and try to work it out through mediation, before going to court.

 

About the Author

Business and Employment Litigation Attorney Anthony Minchella

Tony represents Fortune 50 financial services companies, retail giants, and small and large specialty products companies in employment litigation, trade secret and non-competition litigation, and unfair trade practice issues. When acting as local counsel, Tony, an adjunct professor of law on Connecticut Civil Procedure at Quinnipiac Law School, helps lead counsel navigate the nuances of Connecticut state and federal court practice. Tony graduated magna cum laude from Quinnipiac University School of Law. He passed the New Jersey, New York and Connecticut bar exams and then moved on to careers with large and small firms which led to his boutique litigation practice.