In any business partnership, trust is not simply an expectation. It forms the foundation of the business relationship. When a business partner steps outside their fiduciary role and launches a competing venture or diverts valuable business opportunities for personal gain, the impact can be significant. Not only does such conduct undermine the integrity of the business, but it can also harm its reputation, financial stability, and future growth. In these situations, it’s important to understand the legal remedies available to protect your business and profit margin.
A Business Partner’s Duty of Loyalty
Under New York law, a business partner is required to act in the best interests of the company and refrain from engaging in conduct that would cause financial or reputational harm. Whether they start a rival business, divert clients, or usurp a business opportunity for themselves, a partner who competes against their own business violates their duty of loyalty toward the company and other partners.
Legal Claims You May Have if a Partner Competes Against the Business
New York law provides multiple avenues of relief when a partner competes against a business, based on the nature of the misconduct, the agreements between the parties, and the resulting harm to the company. In many cases, a single set of facts may give rise to several overlapping claims that address different aspects of the competing partner’s conduct.
Depending on the facts of the case, the following claims may be brought against a competing business partner:
- Breach of fiduciary duty: This cause of action can arise when a partner places their own interests above the company, such as by competing directly or diverting opportunities that belong to the business.
- Breach of contract: If a partnership agreement is in place, a partner who violates its terms may be held liable for the breach and any resulting damages.
- Unfair competition: A business partner may pursue a claim for unfair competition against a competing partner if they exploit the company’s goodwill, reputation, or proprietary information to gain an unfair advantage.
- Misappropriation of trade secrets: In cases where a partner uses or discloses confidential business information or trade secrets for personal gain or to benefit a competing venture, a claim for misappropriation of trade secrets may arise.
- Tortious interference with business relationships: If a partner intentionally disrupts the company’s relationship with clients, vendors, or other third parties and causes economic harm, the business may have a claim for tortious interference.
- Fraud or fraudulent inducement: A claim for fraud or fraudulent inducement may exist when a competing partner’s conduct involves intentional deception, such as when a partner knowingly makes false statements or conceals material facts with the intent to deceive other partners.
A court may impose both legal and equitable remedies, based on the nature and severity of the business partner’s misconduct. Remedies may include monetary damages and disgorgement of profits, which would require the competing partner to turn over any profits wrongfully obtained. If the competitive conduct is ongoing, a court may also grant injunctive relief to stop the partner’s competitive conduct and prevent further harm. Other remedies may include a constructive trust, a formal accounting, or, in extreme cases, dissolution of the business.
Contact an Experienced Long Island Business Litigation Attorney
If your business has suffered harm due to a competing partner’s wrongful conduct, it’s essential to have a skilled business litigation attorney who can evaluate your legal options, identify all viable claims, and help protect your business. At Barnes & Barnes, P.C., we provide dedicated counsel and high-quality legal services to business owners for a broad range of commercial matters on Long Island. Contact us at (516) 673-0674 to schedule a consultation.
