Trust is the pillar of all business relationships. When one partner violates that trust by engaging in self-dealing, breaching their fiduciary duties, or committing other wrongdoing, the financial consequences can be serious and long-lasting. Under New York law, a business may be entitled to recover lost profits caused by a partner’s misconduct — but this requires careful proof of causation, foreseeability, and damages. If you’re a business owner facing a partner’s misconduct, it’s crucial to understand what types of claims you may be entitled to assert and how to protect your rights.
Legal Grounds for Recovering Lost Profits
Lost profits refer to the income a business would have earned, but for another party’s misconduct. When it comes to disputes between business partners, damages involving lost profits often arise when one partner’s actions interfere with the company’s ability to operate, secure deals, or maintain relationships. Notably, business partners owe each other fiduciary duties, including duties of loyalty, care, and good faith. When a partner acts in their own interest, they can be held liable for the resulting financial harm.
To recover lost profits in New York, a plaintiff must typically establish an underlying legal claim, such as the following:
- Breach of fiduciary duty
- ·Unfair competition
- Misappropriation of business opportunities
In situations involving a partner’s misconduct, the business may not only be harmed by the specific wrongdoing itself, but also by profits it never had the opportunity to realize.
What Must Be Proven to Recover Lost Profits?
Under New York law, the following three elements must be established to recover lost profits caused by a partner’s misconduct:
- The losses were caused by the business partner’s misconduct: You must establish that the lost profits were the direct result of the partner’s actions, rather than market conditions.
- The loss was foreseeable: The damages must have been a foreseeable consequence of the partner’s misconduct. For instance, if a partner diverts a major client, it is foreseeable that the business would suffer the financial losses associated with that relationship.
- Damages are reasonably certain: Lost profits must be supported by objective evidence, such as past performance, internal projections, or industry benchmarks.
Calculating the extent of lost profits is often one of the most contested aspects of these cases. Courts may consider evidence of the company’s past earnings history, the value of specific lost contracts, the duration of the loss, and the company’s growth trajectory. In addition, expert testimony from accountants and financial analysts may be used to quantify damages and demonstrate that the claimed losses are supported by reliable data.
Remedies Available for Lost Profits Caused by Business Partner Misconduct
If it can be shown that a business partner’s wrongful actions caused the company to suffer loss of profits, a New York court may impose a variety of legal and equitable remedies. Depending on the facts of the case, a judge may order:
- Damages suffered due to loss of business
- Disgorgement of profits wrongfully obtained by the partner
- An accounting of the partner’s financial activities
- Injunctive relief to stop ongoing misconduct
- ·Punitive damages, if the conduct was malicious, fraudulent, or particularly egregious
Claims involving lost profits are complex. Establishing causation, proving damages, and navigating the litigation process typically requires the guidance of a knowledgeable business litigation attorney. An experienced attorney can investigate the misconduct, help preserve key evidence, work with financial experts to calculate damages, and develop a strategy to maximize recovery while protecting the future of your business.
Contact an Experienced Long Island Business Litigation Attorney
If you suspect your business partner is committing misconduct that is harming your company’s bottom line, it’s essential to have a skilled business litigation attorney by your side. At Barnes & Barnes, P.C., we offer knowledgeable counsel and high-quality legal services for a wide range of commercial matters across Long Island, including those involving partnership disputes. Contact us at (516) 673-0674 to schedule a consultation.
