Embezzling co-owner trying to kick partner out of business, help!

February 16, 2020 2:59 PM

My cousin, "Sandy," opened a business in 50-50 with a partner, "Andy", who has turned out to be dishonest, erratic, and unstable. The business is a year old and had become extremely lucrative thanks to my cousin's business smarts. Basically the business started becoming very successful, Andy was onsite more than Sandy, and he (unstable and possibly nursing a drug addiction, I think) started embezzling money, underreporting profits, the whole bit. Andy also got the bright idea to kick Sandy out of the business. Andy has more money (sudden windfall) than my cousin and knows it, has shut the whole thing down and REFUSES to buy Sandy out (but will only allow Sandy to buy HIM out for ~$250,000, which is money he knows she does not have) out hoping to starve her out so he gives up and leaves. WTF?

Basically, the last few months have been a nightmare. Cousin, Sandy, has gone significantly into debt after investing in this business, has a job in a dying industry that will not support her much longer, and would have a hard time finding any other job to support her because of health reasons.

She had finally struck gold with a meticulously-researched business idea and went in with an equal partner. She's co-owner and his name is on everything as having 50% ownership with Andy. Business is wildly successful and starts to look like it will be for quite some time. She starts to get a bad feeling about Andy (he's onsite more than Sandy is, who has to work when the business is open) because she notices he's behaving strangely, posting all over business' social media as if he's the sole owner, posting things without consulting her (not to mention sketchy gofundmes begging for donations? when they are doing very well financially?). I met Andy and got a terrible feeling too -- I think (but cannot prove, not that it would matter) he's developed a drug addiction that is causing him to behave erratically. She does some digging and finds Andy's been embezzling *substantial* amounts of money, not logging anything paid for in cash, and so on.

She confronts him, they now hate each other, and in response Andy's been on a campaign to get Sandy kicked out without buying him out. He's given her the option of either paying HIM a huge sum of money, accepting a "buy out" of 1/25th what she expects from him (like $10,000, just ridiculous), or agreeing to sell the business for what appaers to be barely anything to an outsider. Sandy's on the hook for half the substantial rent for the business in the meantime. She's drowning. The main leverage she has over Andy is that as co-owner she can keep the business shut down indefinitely, and Andy is eager to open back up and get things started again.

Sandy's meeting with a lawyer for a free consultation, but any advice about how to proceed, or resources to look for (this is in SoCal)? Is this the sort of case lawyers could take on contingency? We are not legally savvy people here and are sort of flying blind here. TIA!

posted by shaademaan to Law & Government (10 answers total)

Best answer: My first thought is that Sandy should make sure to make copies of abolutely everything related to the business and it's finances. Especially any evidence that Andy is embezzling. That is a criminal act so Sandy should do whatever she can to preserve evidence. Then, when she sees the lawyer, she can ask about reporting this to the police in addition to whatever other recourse she might have.
posted by metahawk at 3:10 PM on February 16, 2020 [12 favorites]

Best answer: It seems to me there is nothing to do except hire a lawyer and threaten to sue, or, barring that, sue. An important issue will be how the company was organized. Is it an LLC? A partnership? A corporation? Nothing? Does Sandy have an ownership interest? Hopefully Sandy has some kind of ownership interest, such as shares or a membership in an LLC. If she does, then this would seem to be a "business divorce" or "joint venture dispute" case, which is a fairly common type of business dispute for small businesses. A lot will depend on how the business was organized and what Sandy's formal ownership/rights are in the business. If she is a partner or LLC member, for example, she could ask a court to throw Andy out of the business and pay back everything he took from it.
posted by Mid at 3:20 PM on February 16, 2020 [2 favorites]

Best answer: This is very much a situation for the lawyers. I want to second metahawk's advice about getting copies of every shred of documentation she can about absolutely everything; in the meantime, don't speak with Andy at all. However, while this may indeed be a criminal matter, please be aware that in many states it's potentially lawyer misconduct to threaten to bring a criminal case to gain leverage in a civil dispute, so Sandy should not toss such language around.
posted by praemunire at 3:30 PM on February 16, 2020 [10 favorites]

Best answer: She needs to document everything and find a lawyer quickly. And protect as much intellectual property as she can so she can restart. But be aware, this may be the end of the business, and it's a shame Andy is ruining it for everyone.

I had a family member in a similar situation, except that the business in question was a 70 year old family business. The partnership agreement was with an outsider for one small bit of business. That went south, and the outsider pushed my family member out of the business. then closed it. My family member completely triumphed in court, but the 70 year old family business was gone by that point.
posted by banjonaut at 3:38 PM on February 16, 2020 [3 favorites]

Best answer: She needs to get a lawyer right now. Seriously the minute you see this, call Sandy and tell her to GET A LAWYER. She can't handle this on her own. Do it yesterday.
posted by tzikeh at 5:54 PM on February 16, 2020 [12 favorites]

Best answer: This post reminds me of the nauseous feeling I had right before ending up in a lawsuit with people I had heretofore trusted. In addition to the other good advice, I'll add: she should keep as much money in her pocket as she can. While it might seem that questions like "who does the money legally belong to? who owes whom how much?" will get sorted out eventually such that it'll come out the same in the end, that discounts (a) the irrationality and emotions inherent in certain aspects of the legal process, such as coming to a settlement agreement, (b) the time value of money in relation to a (what? two?)-year timetable to a legal judgment, and (c) the difficulty in collecting.
posted by slidell at 7:48 PM on February 16, 2020 [3 favorites]

Best answer: The MeFi Wiki Get a Lawyer page offers information about finding a lawyer, and links to resources, such as attorneys who represent crime victims, who may accept a personal injury case on a contingency fee basis.
posted by katra at 7:52 PM on February 16, 2020 [1 favorite]

Best answer: This story is a good reason for always going to a lawyer to draw up a partnership agreement before you start your business. Among other things, a good partnership agreement will have guidelines for adding and withdrawing partners, both voluntary and involuntary withdrawals, and partnership dissolution. Doing it after the fact can be a legal quagmire.
posted by JackFlash at 8:01 PM on February 16, 2020 [2 favorites]

Best answer: Since it might be morning before she can get a lawyer, what she should be doing in the next few hours is making photocopies, taking pictures, squirreling away emails, and basically getting a full snapshot of everything. If Andy is smart he will have already destroyed the most important stuff, but you never know.
posted by Tell Me No Lies at 10:47 PM on February 16, 2020 [4 favorites]

Response by poster: Thank you, everyone! I think we managed to figure it out thanks, in no small part, to the advice on this thread.
posted by shaademaan at 7:26 PM on March 27, 2020 [1 favorite]