Who gets to keep the store? The owner, or the brother's ex-wife?
October 7, 2010 2:50 PM Subscribe
[Family Court, California] Lawyer gave advice to do something. We did it. Now the judge is saying it might be fraud. What's the best course of action?
(Sorry for the length. I tried to keep it to just a recitation of facts, with no special snoflake details.)
Asking for family members: Man and woman are married. They take out a loan from man's parents to buy a business, which woman is going to run. Woman soon shows little interest in running business - she opens late, closes early, starts not opening on Saturdays (the only day most working people can get there.) Business drops off severely. After 6 months, she just doesn't show up at all, and runs off with another man. Man's brother agrees to run business for 3 months until divorce is settled. Woman goes to bank and cleans out business accounts, more than once. An additional loan is taken from man's parents to enable business to pay its accounts and keep it afloat.
However, business is still in limbo after divorce is final, and brother is still running it two years later. During this time, many court dates are set and postponed. Several times it's because the judge is sick, or is too busy. During this time, brother works hard to build business back up, in order to protect loan parents made to man and woman. Brother didn’t take a salary at all for about 6 months, and took a very small salary for quite a while after that. (He has never taken much money at all from it – most of it was put back into the business.) Man, brother and father remodel business. At the time the woman cleaned out the bank accounts, the lawyer advised them to close all bank accounts and accounts with vendors, and reopen them in a new business name. This is to keep woman from taking money, and to establish this as a completely different business from the one that woman was running. Months later, lawyer advises them to shut down and move to a new location with another set of new accounts and a new business name, all registered to the brother. Again, this is to establish it as an entirely different business. They do this - the brother opens the whole nine yards under his already-existing LLC, and lawyer send woman a letter saying they can no longer run the original business, and are turning it over to her at the end of the month. She can either run it, or they can sell it. (Woman has been insisting all along that it can be sold for an inflated price that is more than 3 times what they paid for it - and that was before she ran all the customers off with bad service and by not being open. And before the current recession.) Man and father help remodel new location, but other than that, are not involved with new business. New business belongs entirely to brother. Brother spends a lot of time and money on remodeling, and equipment and supplies. End of the month passes, woman does nothing with old business, and an eviction notice is served on it by the old landlord.
Suddenly, lawyer sends letter to man saying judge decides that by opening the new business, maybe fraud has been committed, and has scheduled an evidentiary hearing. Lawyer, who advised them to open new business, now says that judge can award custody of both old and new business to woman, and lawyer thinks they should go to mediation. Lawyer is also saying that business would stay under brother’s name, which would then enable woman to ruin brother’s credit rating if she chose to run off with all the money again.
So now they are at a loss as to what to do. Go with mediation? Find a new lawyer? (There’s not really any money left for that.) Sue the current lawyer? Turn the whole thing over to woman and consider it a hard lesson learned? Have brother declare bankruptcy?
Can a Family Court judge take a business away from someone and award it to a woman he was never married to?
This is in southern California, in Family Court. YANAL. YANML. YANAcaliforniaL. The court date, which has been postponed 6 months at a time on multiple occasions, is now suddenly scheduled for October 21.
Business is primarily a service business, with little product inventory, similar to a shoe repair business: shoe repair businesses primarily repair shoes, but they also sell a little polish and shoelaces. And they have inventory of new soles and heels, and the equipment to do the repair work. This business is not shoe repair, but functions in a similar manner.
Thank you in advance for any help! It’s incredibly frustrating to think of all the hard work and money that’s been put into this just being turned over to her, while brother would then have to start from scratch and try to find a job in this economy.
(Sorry for the length. I tried to keep it to just a recitation of facts, with no special snoflake details.)
Asking for family members: Man and woman are married. They take out a loan from man's parents to buy a business, which woman is going to run. Woman soon shows little interest in running business - she opens late, closes early, starts not opening on Saturdays (the only day most working people can get there.) Business drops off severely. After 6 months, she just doesn't show up at all, and runs off with another man. Man's brother agrees to run business for 3 months until divorce is settled. Woman goes to bank and cleans out business accounts, more than once. An additional loan is taken from man's parents to enable business to pay its accounts and keep it afloat.
However, business is still in limbo after divorce is final, and brother is still running it two years later. During this time, many court dates are set and postponed. Several times it's because the judge is sick, or is too busy. During this time, brother works hard to build business back up, in order to protect loan parents made to man and woman. Brother didn’t take a salary at all for about 6 months, and took a very small salary for quite a while after that. (He has never taken much money at all from it – most of it was put back into the business.) Man, brother and father remodel business. At the time the woman cleaned out the bank accounts, the lawyer advised them to close all bank accounts and accounts with vendors, and reopen them in a new business name. This is to keep woman from taking money, and to establish this as a completely different business from the one that woman was running. Months later, lawyer advises them to shut down and move to a new location with another set of new accounts and a new business name, all registered to the brother. Again, this is to establish it as an entirely different business. They do this - the brother opens the whole nine yards under his already-existing LLC, and lawyer send woman a letter saying they can no longer run the original business, and are turning it over to her at the end of the month. She can either run it, or they can sell it. (Woman has been insisting all along that it can be sold for an inflated price that is more than 3 times what they paid for it - and that was before she ran all the customers off with bad service and by not being open. And before the current recession.) Man and father help remodel new location, but other than that, are not involved with new business. New business belongs entirely to brother. Brother spends a lot of time and money on remodeling, and equipment and supplies. End of the month passes, woman does nothing with old business, and an eviction notice is served on it by the old landlord.
Suddenly, lawyer sends letter to man saying judge decides that by opening the new business, maybe fraud has been committed, and has scheduled an evidentiary hearing. Lawyer, who advised them to open new business, now says that judge can award custody of both old and new business to woman, and lawyer thinks they should go to mediation. Lawyer is also saying that business would stay under brother’s name, which would then enable woman to ruin brother’s credit rating if she chose to run off with all the money again.
So now they are at a loss as to what to do. Go with mediation? Find a new lawyer? (There’s not really any money left for that.) Sue the current lawyer? Turn the whole thing over to woman and consider it a hard lesson learned? Have brother declare bankruptcy?
Can a Family Court judge take a business away from someone and award it to a woman he was never married to?
This is in southern California, in Family Court. YANAL. YANML. YANAcaliforniaL. The court date, which has been postponed 6 months at a time on multiple occasions, is now suddenly scheduled for October 21.
Business is primarily a service business, with little product inventory, similar to a shoe repair business: shoe repair businesses primarily repair shoes, but they also sell a little polish and shoelaces. And they have inventory of new soles and heels, and the equipment to do the repair work. This business is not shoe repair, but functions in a similar manner.
Thank you in advance for any help! It’s incredibly frustrating to think of all the hard work and money that’s been put into this just being turned over to her, while brother would then have to start from scratch and try to find a job in this economy.
Best answer: That sounds awful. What kind of lawyer is this person? If the lawyer is a family court practitioner, he may be out of his depth with CA business organizations law and may have given bad advice. If the lawyer is someone who never practices in family court, that can also be a problem if he's not familiar with the court's powers and practices. It's also possible that the advice was fine, but that things are going south in court due to no fault of the lawyer.
If it were me, I would get a second opinion for something that's bet-the-company litigation. I know you said there's not money for that, but how else are these people going to figure out what to do next? There are lawyers that specialize in professional malpractice and it may be worthwhile to get a consultation to see if the lawyer's on the wrong track or whether it's a mess and it's not really the lawyer's fault. You can check the state or local bar association website for referrals.
posted by *s at 3:10 PM on October 7, 2010 [1 favorite]
If it were me, I would get a second opinion for something that's bet-the-company litigation. I know you said there's not money for that, but how else are these people going to figure out what to do next? There are lawyers that specialize in professional malpractice and it may be worthwhile to get a consultation to see if the lawyer's on the wrong track or whether it's a mess and it's not really the lawyer's fault. You can check the state or local bar association website for referrals.
posted by *s at 3:10 PM on October 7, 2010 [1 favorite]
Best answer: Call around and get consultations. Have those letters and documents handy for someone to evaluate.
IANAL - But I personally know of a situation where friend "A" loaned friend "B" $400K to open a restaurant. Restaurant was plagued with problems. Friend A's very wise business manager (or lawyer, can't remember now) put a lien on the restaurant. THIS WAS A BOON FOR FRIEND B! It saved the restaurant from multiple problems because the large lien prevented other owed parties from going after the business, since the lien would always take precedent in any dissolution or sale of the restaurant. In other words, I wonder if the parents can put a lien on the store since they are actually owed money from the two loans?? A good lawyer will know.
posted by jbenben at 3:18 PM on October 7, 2010
IANAL - But I personally know of a situation where friend "A" loaned friend "B" $400K to open a restaurant. Restaurant was plagued with problems. Friend A's very wise business manager (or lawyer, can't remember now) put a lien on the restaurant. THIS WAS A BOON FOR FRIEND B! It saved the restaurant from multiple problems because the large lien prevented other owed parties from going after the business, since the lien would always take precedent in any dissolution or sale of the restaurant. In other words, I wonder if the parents can put a lien on the store since they are actually owed money from the two loans?? A good lawyer will know.
posted by jbenben at 3:18 PM on October 7, 2010
Best answer: They need to consult the state bar to see if the first lawyer committed malpractice, and a business lawyer to get a gist of whether this was fraud and where the business goes. Whether or not they end up retaining another lawyer, they should be able to get a grounding on the situation for little or no money.
posted by freshwater at 3:57 PM on October 7, 2010
posted by freshwater at 3:57 PM on October 7, 2010
Best answer: The lawyer who gave the advice now has a conflict of interest, and he/she should no longer be representing you. As crappy as it is, you really need to get a new lawyer.
As to whether it is fraud, it might depend on whether the new business took anything from the original business, e.g its customer base or client lists, good will, employees, equipment, etc. If it is really a new, independently-formed business, I have a hard time seeing where the fraud is, but then I don't know all the details (for example, the ownership structure of the original business).
posted by mikeand1 at 4:14 PM on October 7, 2010
As to whether it is fraud, it might depend on whether the new business took anything from the original business, e.g its customer base or client lists, good will, employees, equipment, etc. If it is really a new, independently-formed business, I have a hard time seeing where the fraud is, but then I don't know all the details (for example, the ownership structure of the original business).
posted by mikeand1 at 4:14 PM on October 7, 2010
Best answer: All I have to say is I am so sorry for brother. This is truly a mess. I know that money is probably tight, but a totally new lawyer is definitely my advice as well.
Normally I hate malpractice suits, but this just screams malpractice. I don't understand what a lawyer is for if they land you in a situation like that.
Please let us know how this turns out. I'll be praying.
posted by magnoliasouth at 10:50 PM on October 7, 2010
Normally I hate malpractice suits, but this just screams malpractice. I don't understand what a lawyer is for if they land you in a situation like that.
Please let us know how this turns out. I'll be praying.
posted by magnoliasouth at 10:50 PM on October 7, 2010
Response by poster: Thank you, everyone, for your ideas and kind thoughts! They're going to try the lien idea, but they also got an email from the lawyer yesterday informing them that the judge could decide to wipe out the ex-wife's obligation to pay back the loan. We're hoping that when the judge hears that in order to make the loan to the couple, the (elderly, retired) parents took out a second mortgage on a house that they were already renting to the couple at a ridiculously low price, she will see that the parents still have to pay that second mortgage, and she won't let the ex-wife off the hook.
I'm not marking any best answers yet because I don't want to discourage anyone else from posting any ideas they have. But thanks, you guys are great!
Oh, also - they've consulted a couple other lawyers, but so far haven't really gotten anywhere.
posted by MexicanYenta at 6:43 AM on October 8, 2010
I'm not marking any best answers yet because I don't want to discourage anyone else from posting any ideas they have. But thanks, you guys are great!
Oh, also - they've consulted a couple other lawyers, but so far haven't really gotten anywhere.
posted by MexicanYenta at 6:43 AM on October 8, 2010
Best answer: I am a lawyer, and what I'm saying is not legal advice (seriously, I'm trying very had to tell you only some about what has happened in the past, without letting you know what you should do about it. draw your own conclusions.)
Basically, your lawyer was trying to get you to hide the business from the court in a very crude way. He failed. He sounds like an idiot. Now, the judge has figured that out, and the lawyer is (rightfully) freaking out, and trying to figure out how to minimize the damage. I say again, your current lawyer is an idiot. You seem to have begun suspecting that this is all true.
posted by kingjoeshmoe at 8:32 AM on October 8, 2010
Basically, your lawyer was trying to get you to hide the business from the court in a very crude way. He failed. He sounds like an idiot. Now, the judge has figured that out, and the lawyer is (rightfully) freaking out, and trying to figure out how to minimize the damage. I say again, your current lawyer is an idiot. You seem to have begun suspecting that this is all true.
posted by kingjoeshmoe at 8:32 AM on October 8, 2010
Response by poster: [Update] The court date is today. Court starts at 9 a.m. California time, but we don't know what time they're actually going to hear this particular case. Please think good thoughts for them, and keep your fingers and toes crossed! I'll update again afterwards.
posted by MexicanYenta at 6:52 AM on October 21, 2010
posted by MexicanYenta at 6:52 AM on October 21, 2010
Response by poster: [Update, Part II] So. Court was...inconclusive. The judge decided that it didn't appear that they had intended to commit fraud when they opened the new business. That's pretty much all that was decided yesterday. She did officially attach Brother's new business to the case, which sounds like a bad thing, but is apparently a good thing - because now Brother can get his own lawyer, and is allowed to argue for himself that this new business is his. A new court date has been set for the beginning of December, and the judge says that this will be the final date, and everything will be decided.
So the soap opera continues. But without going into too much detail, it does seem like there was some progress made and that the judge might possibly be beginning to see the light.
posted by MexicanYenta at 7:05 AM on October 22, 2010
So the soap opera continues. But without going into too much detail, it does seem like there was some progress made and that the judge might possibly be beginning to see the light.
posted by MexicanYenta at 7:05 AM on October 22, 2010
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posted by majortom1981 at 3:09 PM on October 7, 2010