Partnership Dispute Response Guide

You Received a Partnership Dispute Demand Letter

Your partner or their attorney is making claims against you. This guide helps you understand your rights, evaluate defenses, and respond strategically under California's Revised Uniform Partnership Act (RUPA).

✍️ Need to Send a Partnership Dispute Demand Letter? See my guides on Startup Cofounder IP Disputes → and Deadlock & Non-Responsive Partner Letters →

Understanding the Claims Against You

Do Not Ignore This Letter: Partnership dispute demand letters are often precursors to litigation. While receiving such a letter is stressful, you have time to respond thoughtfully. Most demand letters give 10-30 days to respond. Use this time to understand the claims, gather evidence, and formulate your response strategy.

Common Types of Partnership Claims

Claim Type What They Are Alleging Your Initial Focus
Breach of Fiduciary Duty You allegedly self-dealt, competed with the partnership, misappropriated funds, or concealed material information Review all transactions; gather evidence of disclosure, consent, or fair dealing
Misappropriation You allegedly took partnership property, funds, or opportunities for personal benefit Document legitimate business purposes; show proper authorization
Accounting Demand They claim you refuse to provide financial records or are hiding information Prepare complete financial records; document any prior disclosures
Profit Distribution You allegedly failed to distribute profits they are owed Review partnership agreement terms; document legitimate reserves or expenses
Dissolution Request They want to end the partnership and demand buyout or liquidation Consider whether to agree, propose alternative terms, or contest grounds
Breach of Agreement You allegedly violated specific partnership agreement provisions Review agreement carefully; identify defenses or counter-breaches

California RUPA Legal Framework

Corporations Code 16100-16962: California's Revised Uniform Partnership Act (RUPA) governs partnership relationships. Understanding these provisions is essential for evaluating the claims against you and identifying your defenses. Key sections you should know include:
  • Corp. Code 16404 - Fiduciary Duties: Partners owe duties of loyalty, care, and good faith. However, the scope of these duties has limits, and specific activities may be authorized by the partnership agreement or partner consent.
  • Corp. Code 16401 - Partner Rights: Partners share equally in profits and management unless otherwise agreed. Understanding what "otherwise agreed" means in your partnership is critical.
  • Corp. Code 16403 - Information Rights: Partners have the right to information, but this right has reasonable limits based on business purposes.
  • Corp. Code 16405 - Accounting: Partners may seek an accounting, but the right is not absolute and depends on circumstances.
  • Corp. Code 16801 - Dissolution: Specifies when dissolution may occur and the limited grounds for judicial dissolution.

Fiduciary Duties: Understanding the Standard

While partners owe fiduciary duties, these duties have important limitations under California law:

Not Every Dispute Is a Fiduciary Breach: Partners may disagree about business decisions without either party breaching fiduciary duties. The duty of care only requires avoiding grossly negligent or reckless conduct. Reasonable business decisions made in good faith are generally protected, even if they turn out poorly.
Duty Requirement Key Limitations
Duty of Loyalty Account for partnership property; avoid self-dealing; avoid competition Partnership agreement may authorize specific activities; consent cures many violations
Duty of Care Avoid gross negligence, recklessness, intentional misconduct Ordinary negligence is NOT a breach; honest mistakes are generally protected
Good Faith Act honestly and fairly in partnership dealings Does not require self-sacrifice; partners may pursue their own interests within limits

Immediate Steps After Receiving the Letter

  • Note All Deadlines: While demand letter deadlines are typically set by the sender (not legally binding), failing to respond may escalate the matter to litigation.
  • Preserve All Documents: Do not delete emails, destroy records, or alter documents. This could be considered spoliation of evidence.
  • Locate Your Partnership Agreement: This document is critical for understanding your rights and obligations.
  • Gather Financial Records: Bank statements, tax returns, profit/loss statements, and distribution records.
  • Do Not Discuss With Other Partners: Anything you say may be used against you. Communicate through counsel if possible.

Evaluating Your Legal Position

Honest Self-Assessment: Before responding, you must honestly evaluate the claims against you. This is not about being "right" or "wrong" - it is about understanding your actual legal position so you can respond strategically. Some claims may have merit; others may be completely unfounded.

Step 1: Review the Partnership Agreement

Your partnership agreement is the primary source of your rights and obligations. Carefully review:

  • Profit and Loss Sharing: Does the agreement specify how profits are calculated and distributed? Are there provisions for reserves or reinvestment?
  • Management and Voting: What decisions require unanimous consent vs. majority vote? Did you have authority for the actions in question?
  • Authorized Activities: Does the agreement authorize any activities that might otherwise be self-dealing or competition?
  • Capital Contributions: What were each partner's contributions? How do they affect profit sharing?
  • Dissolution Provisions: What triggers dissolution? What are the buyout procedures?
  • Dispute Resolution: Does the agreement require mediation or arbitration before litigation?
  • Amendment History: Have there been any amendments that affect the claims?
Written Modifications Matter: Partnerships often operate differently from their written agreements. If partners have consistently followed practices that differ from the written agreement, this course of dealing may modify the original terms. Document any such practices.

Step 2: Analyze the Specific Allegations

For each claim in the demand letter, evaluate:

Question Why It Matters
Is the factual allegation accurate? If the underlying facts are wrong, the claim fails regardless of the legal theory
Did you have authorization? Partner consent or agreement provisions may authorize the conduct
Was there disclosure? Full disclosure to partners often defeats fiduciary breach claims
Did the partnership benefit? Actions that benefited the partnership may not be breaches even if they also benefited you
What was the business purpose? Legitimate business purposes support good faith defense
Did they participate or consent? Partners who participated in or consented to conduct may be estopped from complaining

Step 3: Assess Fiduciary Duty Claims

If you are accused of breaching fiduciary duties, consider:

Self-Dealing Allegations

Did you contract with the partnership? Was the transaction fair? Did you disclose your interest? Did partners consent? Fair terms + disclosure often defeats these claims.

Competition Claims

Were you operating a competing business? Was it authorized by the agreement? Did it predate the partnership? Was it disclosed and acquiesced to by partners?

Usurpation of Opportunity

Was the opportunity presented to the partnership first? Did the partnership lack capacity to pursue it? Was it outside the partnership's line of business?

Misappropriation Claims

Were the funds or property actually partnership assets? Were you authorized to use them? Did the partnership receive value in return?

Step 4: Review Capital and Profit Disputes

For claims about money:

  • Capital Contribution Records: Document exactly what each partner contributed and when.
  • Profit Calculations: Review how profits have been calculated historically. Is there a consistent methodology?
  • Legitimate Business Reserves: Were profits retained for legitimate business purposes (expansion, contingencies, operating capital)?
  • Expense Allocations: Are claimed expenses legitimate partnership expenses? Is there supporting documentation?
  • Prior Distribution Patterns: How have profits been distributed in the past? Has the pattern changed?

Step 5: Evaluate Dissolution Demands

If they are demanding dissolution:

Judicial Dissolution Is Not Automatic: Under Corp. Code 16801(5), a court will only order dissolution if: (A) the partnership's economic purpose is likely to be unreasonably frustrated; (B) a partner's conduct makes it not reasonably practicable to continue business; or (C) it is otherwise not reasonably practicable to operate in conformity with the agreement. These are high bars.
  • At-Will Partnership: If there is no term or particular undertaking, either partner may withdraw, but this does not necessarily force dissolution if you wish to continue.
  • Term Partnership: Withdrawal before the term expires may be wrongful dissociation, exposing the withdrawing partner to damages.
  • Buyout vs. Liquidation: Consider whether a buyout of one partner's interest is preferable to full liquidation.

Step 6: Identify Counter-Claims

Has the demanding partner breached any duties? Common counter-claims include:

  • Their own breach of fiduciary duties
  • Failure to perform partnership responsibilities
  • Improper interference with partnership business
  • Breach of non-compete or confidentiality provisions
  • Contribution failures
  • Unauthorized actions binding the partnership

Response Strategies

Choose Your Strategy Wisely: Your response should align with your ultimate goals. Are you trying to preserve the partnership? Exit on favorable terms? Defend against litigation? Different goals require different approaches.

Strategy 1: Deny Allegations

When the claims against you are factually wrong or legally insufficient:

  • Factual Denial: If the facts alleged are simply incorrect, state this clearly with supporting evidence.
  • Legal Insufficiency: Even if some facts are true, they may not constitute a breach. For example, ordinary business decisions that turn out poorly are not fiduciary breaches.
  • Authorization Defense: Show that your conduct was authorized by the partnership agreement or partner consent.
  • Demand Evidence: Require them to support their allegations with specific evidence.
Tone Matters: Even when firmly denying allegations, maintain a professional tone. Your response may be read by a judge or mediator. Avoid personal attacks or inflammatory language.

Strategy 2: Request or Provide Accounting

When the dispute involves financial matters:

  • Proactive Disclosure: If you have nothing to hide, offering a full accounting demonstrates good faith and may defuse the dispute.
  • Conditional Accounting: Agree to an accounting but with reasonable conditions (cost sharing, scope limitations, confidentiality).
  • Request Mutual Accounting: If they also managed funds or made decisions, request an accounting of their actions as well.
  • Propose Independent Accountant: Suggest a mutually agreed CPA to conduct the accounting.

Strategy 3: Propose Mediation

Mediation offers significant advantages in partnership disputes:

Why Mediation Works: Partnership disputes often involve complex relationships and emotions that litigation inflames. A skilled mediator can help parties find creative solutions that a court cannot order. Mediation is also private, faster, and less expensive than litigation.
  • Check Agreement First: Your partnership agreement may require mediation before litigation.
  • Propose Specific Mediators: Suggest mediators with partnership dispute experience.
  • Set Ground Rules: Agree on confidentiality, cost sharing, and scope of mediation.
  • Prepare Position Statement: Outline your position and desired outcomes before mediation.

Strategy 4: Counter-Dissolution Proposal

If they want dissolution but you want to continue the business:

  • Offer to Buy Them Out: Propose purchasing their interest at fair value, allowing you to continue the business.
  • Propose Valuation Process: Suggest independent appraisal or agreed valuation methodology.
  • Structure Payment Terms: Offer reasonable payment terms if immediate buyout is not feasible.
  • Address Their Concerns: If their dissatisfaction is based on specific issues, propose changes that address those concerns without dissolving.
Buyout Valuation (Corp. Code 16701): If a partner dissociates, the buyout price equals the amount distributable if the partnership were dissolved on the dissociation date, typically based on liquidation value or value based on the right to share in distributions. Goodwill may or may not be included depending on circumstances.

Strategy 5: Buyout Negotiation

If you want to exit the partnership:

  • Demand Fair Value: Insist on proper valuation of your interest, including goodwill if appropriate.
  • Negotiate Payment Terms: Consider down payment, installment payments, interest, and security.
  • Release of Obligations: Ensure you are released from personal guarantees and future partnership liabilities.
  • Non-Compete Terms: Negotiate reasonable scope and duration of any non-compete provisions.
  • Transition Provisions: Address client notifications, transition assistance, and intellectual property rights.

Strategy 6: Assert Counter-Claims

When you have claims against the demanding partner:

  • Document Their Breaches: Gather evidence of their fiduciary breaches, contribution failures, or agreement violations.
  • Calculate Your Damages: Quantify losses you have suffered due to their conduct.
  • Leverage in Negotiation: Counter-claims can create leverage for settlement negotiations.
  • Offset Claims: Your claims may offset or exceed their claims, changing the negotiation dynamics.

Response Timeline

Timeframe Action
Days 1-3 Read letter carefully; note deadlines; preserve all documents; locate partnership agreement
Days 4-7 Gather financial records; review agreement provisions; identify potential defenses
Days 8-14 Evaluate claims honestly; develop response strategy; consider consulting attorney
Days 15-21 Draft response letter; gather supporting documentation; review and refine
Days 22-30 Send response; propose next steps (mediation, accounting, negotiation); document delivery

Sample Response Letters

Customize These Templates: These sample letters provide frameworks for common response scenarios. You must customize them to your specific facts and circumstances. Consider having an attorney review your response before sending, especially for high-value disputes or complex legal issues.

Sample 1: Denial of Fiduciary Breach with Counter-Allegations

[Your Name] [Your Address] [City, State ZIP] [Phone Number] [Email Address] [Date] VIA CERTIFIED MAIL, RETURN RECEIPT REQUESTED AND EMAIL [Partner/Attorney Name] [Address] [City, State ZIP] RE: RESPONSE TO DEMAND LETTER DATED [DATE] Partnership: [Partnership Name] Your Allegations of Fiduciary Breach Dear [Name]: I am in receipt of your letter dated [Date] alleging that I have breached fiduciary duties owed to you and [Partnership Name] (the "Partnership"). I have carefully reviewed your allegations, and I must respectfully but firmly dispute them. DENIAL OF ALLEGATIONS The allegations in your letter are factually inaccurate and legally unfounded. Specifically: 1. REGARDING THE [SPECIFIC TRANSACTION]: You allege that I engaged in self-dealing by [describe allegation]. This is false. [Explain the actual facts, e.g., "This transaction was fully disclosed at our partner meeting on [Date]. You participated in the discussion, reviewed the terms, and expressly approved the transaction. Meeting minutes documenting your approval are enclosed."] 2. REGARDING [SECOND ALLEGATION]: You claim that [describe allegation]. In fact, [provide factual response, e.g., "I was authorized to take this action under Section [X] of our Partnership Agreement, which grants managing partners authority to [relevant provision]. Moreover, this action resulted in [benefit to partnership]."] 3. REGARDING [THIRD ALLEGATION]: Your assertion that [allegation] is contradicted by [evidence, e.g., "the email chain dated [Date] in which you acknowledged and accepted this arrangement"]. LEGAL RESPONSE Under California Corporations Code Section 16404, the duty of care requires only that partners avoid grossly negligent or reckless conduct. Reasonable business decisions made in good faith - even those that in hindsight may not have achieved optimal results - do not constitute fiduciary breaches. All actions I have taken as a partner have been in good faith for the benefit of the Partnership. Furthermore, to the extent any of my actions could theoretically be questioned, they were either: (a) expressly authorized by our Partnership Agreement; (b) disclosed to and approved by you; or (c) ratified through your subsequent conduct and acceptance of benefits. COUNTER-ALLEGATIONS While defending against your unfounded claims, I must note that you have engaged in conduct that calls your claims into serious question: 1. [Describe their misconduct, e.g., "Since [Date], you have failed to perform your agreed responsibilities as [role], leaving [describe burden] entirely to me."] 2. [Additional counter-allegation, e.g., "You have taken partnership funds totaling $[Amount] for personal expenses without disclosure or authorization."] 3. [Additional counter-allegation if applicable] RESPONSE TO YOUR DEMANDS I reject your demand for $[Amount] in its entirety. Your calculation is based on false premises and unsupported allegations. I am willing to engage in good faith discussions to address any legitimate concerns about Partnership operations. However, I will not capitulate to demands based on mischaracterizations of my conduct. PROPOSED RESOLUTION I propose that we engage a mutually agreed mediator to discuss our respective concerns and attempt to resolve this dispute without litigation. If you are unwilling to mediate, I am prepared to vigorously defend against any claims you may bring and to assert my own claims against you. This letter is not intended to waive any rights or remedies available to me under law or the Partnership Agreement, all of which are expressly reserved. Any further claims against me will be met with appropriate legal action, including pursuit of my claims against you. Please respond within fourteen (14) days indicating whether you are willing to mediate this dispute. Sincerely, [Your Signature] [Your Printed Name] Enclosures: [List supporting documents] cc: [Your Attorney, if applicable]

Sample 2: Agreement to Accounting with Conditions

[Your Name] [Your Address] [City, State ZIP] [Phone Number] [Email Address] [Date] VIA EMAIL AND CERTIFIED MAIL [Partner Name] [Address] [City, State ZIP] RE: RESPONSE TO ACCOUNTING DEMAND Partnership: [Partnership Name] Proposal for Mutual Accounting Dear [Name]: I am responding to your letter dated [Date] demanding an accounting of [Partnership Name] (the "Partnership") finances. While I dispute several characterizations in your letter, I am willing to provide a complete accounting, subject to reasonable conditions. RESPONSE TO YOUR CLAIMS First, I must address certain inaccuracies in your letter: 1. You claim you have been "excluded" from Partnership financial records. In fact, [describe actual access provided, e.g., "I have provided you with quarterly financial statements throughout our partnership. Copies of the statements I sent you on [Dates] are enclosed."] 2. Your allegation that I have refused to provide information is incorrect. [Describe actual communications, e.g., "On [Date], I responded to your inquiry about [topic] with [describe response]."] That said, I recognize your statutory right to a full accounting under California Corporations Code Section 16405, and I am prepared to provide one. PROPOSED ACCOUNTING TERMS I propose the following conditions for the accounting: 1. SCOPE: The accounting will cover the period from [Start Date] through [End Date], which encompasses [describe period, e.g., "the entire operation of the Partnership" or "the period since your last approved financial statement"]. 2. INDEPENDENT ACCOUNTANT: I propose we retain [CPA Name/Firm] or another mutually agreed independent Certified Public Accountant to conduct the accounting. This will ensure objectivity and prevent disputes about methodology. 3. COST SHARING: Each partner shall bear 50% of the accounting costs, consistent with our equal interests in the Partnership. 4. MUTUAL ACCOUNTING: The accounting shall include a complete review of all Partnership transactions, including any transactions in which you were involved. If you have concerns about my conduct, I have equal right to review yours. 5. TIMELINE: The accountant shall complete the accounting within sixty (60) days of engagement. 6. CONFIDENTIALITY: Both parties agree to maintain confidentiality of Partnership financial information and not to disclose it to third parties except as required by law or in connection with legal proceedings. DOCUMENTS TO BE PROVIDED I am prepared to provide the following documents to the independent accountant: - All bank statements for Partnership accounts - All financial statements prepared during the accounting period - Tax returns (federal and state) for the Partnership - All invoices and receipts for expenses exceeding $[Amount] - Records of all distributions to partners - Contracts and agreements to which the Partnership is a party - Accounts receivable and payable records - Profit and loss statements REQUEST FOR YOUR RECORDS In connection with this mutual accounting, please provide: - Records of any Partnership funds you have received or expended - Documentation of your capital contributions - Records of any transactions you conducted on behalf of the Partnership - Any Partnership property in your possession TIMELINE FOR RESPONSE Please respond within fourteen (14) days indicating: 1. Your agreement to the proposed terms, or 2. Specific modifications you propose to the terms, or 3. Names of alternative CPAs you would accept. If we cannot agree on terms within thirty (30) days, I will proceed to seek judicial appointment of an accountant as provided by Corporations Code Section 16405. I remain committed to transparency and fair dealing in all Partnership matters. I trust we can resolve this matter cooperatively. Sincerely, [Your Signature] [Your Printed Name] Enclosures: [Prior financial statements provided, if applicable]

Sample 3: Dissolution Response with Buyout Proposal

[Your Name] [Your Address] [City, State ZIP] [Phone Number] [Email Address] [Date] VIA CERTIFIED MAIL, RETURN RECEIPT REQUESTED [Partner Name] [Address] [City, State ZIP] RE: RESPONSE TO DISSOLUTION DEMAND Partnership: [Partnership Name] Buyout Proposal Dear [Name]: I have received your letter dated [Date] demanding dissolution of [Partnership Name] (the "Partnership") and liquidation of its assets. After careful consideration, I am responding with a counter-proposal that I believe serves both our interests better than forced liquidation. RESPONSE TO DISSOLUTION DEMAND While I acknowledge that our working relationship has become difficult, I do not agree that dissolution and liquidation is the appropriate remedy. Liquidation would destroy the going-concern value of the Partnership, harm our employees and clients, and result in a significantly lower recovery for both of us than an orderly buyout. Under California Corporations Code Section 16801, judicial dissolution is available only when: (A) the partnership's economic purpose would be unreasonably frustrated; (B) a partner's conduct makes it not reasonably practicable to continue; or (C) it is otherwise not reasonably practicable to operate per the agreement. None of these conditions exist here. The Partnership remains profitable and viable. BUYOUT PROPOSAL I propose to purchase your [percentage]% interest in the Partnership under the following terms: PURCHASE PRICE: I propose that the purchase price be determined as follows: - Partnership net asset value as of the closing date, PLUS - Goodwill calculated as [methodology, e.g., "1.5 times average annual net profits for the past three years"] - Your proportionate share: [percentage]% of the total Based on preliminary calculations, I estimate your interest value at approximately $[Amount]. However, I am willing to have this valuation confirmed by an independent appraiser. ALTERNATIVE VALUATION: If you disagree with this methodology, I propose: 1. Each party selects an independent appraiser 2. The two appraisers select a third appraiser 3. The three appraisers determine fair market value 4. Each party pays half the appraisal costs PAYMENT TERMS: - [Percentage]% of purchase price at closing ($[Amount]) - Balance paid in [number] equal [monthly/quarterly] installments - Interest on unpaid balance at [rate]% per annum - Security: [describe security offered, e.g., "Personal guarantee and UCC filing on Partnership assets"] CLOSING CONDITIONS: - Closing within [60/90] days of agreement on price - Your execution of general release of claims against me and the Partnership - Non-compete agreement for [duration] within [geographic area] - Transition assistance for [period] to ensure smooth client transition - Mutual non-disparagement agreement RELEASE OF OBLIGATIONS: Upon closing, you will be released from: - Any personal guarantees on Partnership obligations - Ongoing liability for Partnership debts and obligations arising after closing - [Other specific obligations] ALTERNATIVE: YOUR BUYOUT OF MY INTEREST If you prefer, I am willing to consider selling my interest to you on comparable terms. Please indicate if you would like to make a counter-proposal along these lines. RESPONSE TO YOUR ALLEGATIONS While I am proposing a buyout in good faith, I do not accept the allegations in your letter regarding [summarize allegations]. These claims are [disputed/inaccurate/exaggerated] and should not affect the valuation. If you pursue these claims, I will defend vigorously and assert my own claims against you. TIMELINE Please respond within twenty-one (21) days with: 1. Acceptance of this proposal; OR 2. Counter-proposal with specific alternative terms; OR 3. Indication that you prefer to sell your interest to me If we cannot reach agreement, I am prepared to defend against any dissolution petition and, if necessary, seek judicial resolution of the fair buyout price under Corporations Code Section 16701. I hope we can resolve this matter professionally and preserve some of the value we have built together. Sincerely, [Your Signature] [Your Printed Name] cc: [Your Attorney, if applicable]

Legal Defenses to Partnership Claims

Defense Strategy: Partnership disputes often involve multiple potential defenses. Some defenses attack the underlying claims; others limit damages or bar the action entirely. Understanding the full range of available defenses helps you develop a comprehensive response strategy.

Business Judgment Rule

What It Protects

Honest business decisions made in good faith, even if they turn out poorly. Partners are not guarantors of success - they are only required to exercise reasonable judgment.

When It Applies

Decision made in good faith, without self-interest, with reasonable basis for the decision, and with appropriate care in the decision-making process.

Corp. Code 16404(c): The duty of care only prohibits "grossly negligent or reckless conduct, intentional misconduct, or knowing violation of law." Ordinary negligence or poor judgment - even costly mistakes - is NOT a breach of the duty of care.

Consent and Ratification

Partner consent is a powerful defense to many fiduciary duty claims:

  • Express Consent: If partners expressly approved the challenged conduct, there is generally no breach. Document all partner approvals in writing.
  • Informed Consent: Consent must be based on full disclosure of material facts. Document what information was provided.
  • Ratification: Partners who knowingly accept benefits from a transaction may ratify it, barring later challenges.
  • Acquiescence: Long-term awareness of conduct without objection may constitute implied consent.
Document Disclosure: The key to consent defenses is proving that partners had full information when they consented. Preserve emails, meeting minutes, and other evidence showing what was disclosed.

Statute of Limitations

Claims may be time-barred if not brought within the applicable limitations period:

Claim Type Period Accrual
Written Contract Breach 4 years Date of breach (CCP 337)
Oral Contract Breach 2 years Date of breach (CCP 339)
Breach of Fiduciary Duty 4 years (or 3 from discovery) Date of breach or discovery (CCP 343)
Fraud 3 years from discovery Discovery of facts (CCP 338(d))
Accounting 4 years When right to accounting arises (CCP 337)

Waiver and Estoppel

Waiver

A partner who knowingly relinquishes a right cannot later assert it. Look for evidence that the complaining partner previously waived the claims they now assert.

Equitable Estoppel

A partner who induced you to act in a certain way through their representations or conduct may be estopped from complaining about that conduct.

Laches

Unreasonable Delay Doctrine: Even if a claim is within the statute of limitations, a partner who unreasonably delays in asserting their rights may be barred by laches if: (1) they knew of the alleged wrong; (2) they unreasonably delayed in asserting their claim; and (3) you were prejudiced by the delay.

Evidence supporting laches defense:

  • When did they first know or should have known of the alleged conduct?
  • How long did they wait before complaining?
  • Did they continue participating in the partnership during this period?
  • What prejudice have you suffered due to the delay (lost evidence, changed position, etc.)?

In Pari Delicto (Equal Fault)

A partner who participated in the alleged wrongdoing cannot recover from you for that same conduct:

  • Joint Participation: If both partners engaged in the challenged conduct, neither can sue the other for it.
  • Equal Knowledge: A partner who knew and approved of conduct cannot claim they were harmed by it.
  • Unclean Hands: Courts may deny relief to a party who has acted inequitably in the matter at issue.

Partnership Agreement Defenses

Review your partnership agreement for provisions that support your defense:

  • Authorized Activities: Agreement provisions that specifically authorize the challenged conduct.
  • Limitation of Liability: Clauses limiting partner liability for certain conduct (within RUPA limits).
  • Exculpation Provisions: Provisions excusing liability for negligent or non-intentional conduct.
  • Indemnification Rights: If you are entitled to indemnification from the partnership.
  • Arbitration Clauses: Requirements to arbitrate disputes may affect procedural strategy.
Non-Waivable Duties (Corp. Code 16103(b)): Certain provisions cannot be waived: the duty of loyalty (though specific activities may be authorized), duty of care (though not unreasonably reduced), good faith obligation, right to judicial dissolution, right to accounting, and power to dissociate. Any waiver of these is unenforceable.

Damages Defenses

Even if liability is established, you may limit damages:

  • No Actual Damages: The claiming partner must prove they suffered actual, quantifiable damages.
  • Causation: Damages must be caused by the alleged breach, not other factors.
  • Mitigation: The claiming partner had a duty to mitigate damages and cannot recover for losses that could have been avoided.
  • Speculation: Damages based on speculation or guesswork are not recoverable.
  • Offset: Your claims against them may offset their claims against you.

Attorney Services

Facing Partnership Dispute Claims?

Partnership disputes are among the most complex business litigation matters. The fiduciary duties involved, the intertwined financial relationships, and the emotional dynamics between partners require experienced guidance. I help partners defend against claims, assert counter-claims, and negotiate resolutions that protect their interests.

Why Partnership Disputes Require Experienced Counsel

  • Complex Fiduciary Standards: California applies stringent fiduciary duty standards to partners. Understanding the nuances of these duties - and their limitations - is critical to mounting an effective defense.
  • Intertwined Finances: Partnership accounting disputes require forensic analysis of financial records and understanding of proper accounting methodologies.
  • Valuation Challenges: Buyout disputes often hinge on complex business valuation questions involving goodwill, discounts, and methodology disputes.
  • Strategic Positioning: Every communication and action affects your negotiating position. Early strategic decisions can determine the outcome.
  • Counter-Claim Development: Identifying and asserting your own claims creates leverage and may offset the claims against you.

How I Can Help

  • Demand Letter Analysis: I review the claims against you, identify weaknesses, and develop a response strategy.
  • Response Drafting: I prepare professional response letters that protect your legal position while pursuing your objectives.
  • Defense Development: I analyze available defenses including consent, statute of limitations, laches, waiver, and others.
  • Counter-Claim Identification: I identify and develop claims you may have against the other partner.
  • Negotiation: I negotiate buyouts, dissolutions, and settlements on favorable terms.
  • Mediation Representation: I represent you in mediation sessions to resolve disputes efficiently.
  • Litigation Defense: If litigation becomes necessary, I provide aggressive defense of your interests.

Schedule a Consultation

Book a call to discuss the claims against you and your options. I will review your situation, explain the strengths and weaknesses of both sides' positions, and recommend a strategic approach.

Contact Information

Email: owner@terms.law

Frequently Asked Questions

While you are not required to have a lawyer to respond to a demand letter, fiduciary duty claims are among the most serious allegations a business partner can face. The potential for personal liability, the complexity of the legal standards, and the importance of early strategic decisions make legal guidance strongly advisable. Statements you make in response could be used against you in litigation. At minimum, consider a consultation to understand your exposure and options before responding.
Many partnership disputes involve claims that are partially accurate but exaggerated or taken out of context. Even if some facts are true, there may be defenses: the conduct may have been authorized, consented to, or ratified by partners; the demanding partner may have participated in or known about the conduct; or the conduct may not actually constitute a legal breach. Additionally, the damages claimed are often inflated. An experienced attorney can help you separate legitimate concerns from overreach and develop an appropriate response.
In a general partnership, partners are jointly and severally liable for partnership obligations. This means creditors can pursue any partner for the full amount of partnership debts. However, claims by one partner against another are typically limited to that partner's share of any judgment. If you are personally liable for partnership debts and concerned about your exposure, you should discuss asset protection strategies with an attorney. Limited partnerships and LLCs offer greater personal liability protection, though there are exceptions.
If your partnership is at-will (no fixed term), your partner generally has the right to dissociate, but this does not necessarily force dissolution. Under RUPA, you may have the option to continue the business by buying out the dissociating partner's interest. The buyout price is determined under Corp. Code 16701, generally based on the amount distributable if the partnership were dissolved. If you cannot agree on a price, either party can seek judicial determination. Alternatively, you may be able to negotiate terms that address your partner's concerns while preserving the partnership.
Deadlines in demand letters are typically set by the sender and are not legally binding. However, failing to respond may cause the other party to escalate to litigation. Most demand letters give 10-30 days to respond. While you can request additional time if needed, you should not ignore the letter entirely. A professional, timely response demonstrates good faith and may create opportunities for resolution. If you need more time to gather documents or consult counsel, communicate this to the other party.
Mediation is often advantageous in partnership disputes. It is private (unlike litigation), typically faster and less expensive, and allows for creative solutions a court cannot order. Many partnership agreements require mediation before litigation. Even if not required, mediation demonstrates good faith and may resolve the dispute without the cost and uncertainty of litigation. However, you should prepare thoroughly for mediation and consider having an attorney represent you. The mediator facilitates discussion but does not decide the case - you retain control over any settlement.
The limitations period depends on the type of claim. Breach of a written partnership agreement has a 4-year period. Breach of an oral agreement has a 2-year period. Breach of fiduciary duty claims generally have a 4-year period, but the clock may not start until the injured party discovers or should have discovered the breach. Fraud claims have a 3-year period from discovery. If you believe claims against you may be time-barred, this is a potentially complete defense that should be raised in your response.