A business partnership depends on more than splitting profits and sharing responsibilities.
Each partner also has legal obligations to the others and to the partnership itself. When one partner diverts money, takes a business opportunity, competes behind the scenes, or uses partnership property for personal gain, the issue may go beyond a business disagreement.
Louisiana law imposes fiduciary duties on partners from the time the partnership exists. Those duties include loyalty, good faith, reasonable care, and disclosure. A violation can expose the offending partner to an accounting, repayment of improperly obtained profits, damages, and other remedies.
Hymel Davis & Petersen handles business disputes involving partners, fiduciary obligations, and contested financial interests. Our attorneys have experience on both sides of fiduciary litigation, including backgrounds as former federal prosecutors.
If you are concerned about what a partner has done with partnership money, property, clients, or opportunities, an initial consultation can help you understand the legal issues before the dispute moves further.
Key Takeaways
- Louisiana partners owe fiduciary duties once the partnership exists, even without a written partnership agreement
- Self-dealing, undisclosed competition, and taking partnership opportunities for personal benefit are common forms of alleged misconduct
- The time to bring a fiduciary-duty claim can vary based on whether the conduct was intentional or merely negligent
- A successful claim may involve recovery of profits earned by the disloyal partner, not only losses suffered by the partnership
- Removing a partner, forcing a buyout, dissolving the partnership, and pursuing damages can overlap in the same dispute
If you suspect a partner has acted against the partnership’s interests, the business litigation team at Hymel Davis & Petersen can review the circumstances and explain the options available in your initial consultation.
What Fiduciary Duties Do Business Partners Owe Each Other?
A fiduciary relationship begins when the Louisiana partnership begins.
The obligation does not depend on whether the partners signed a detailed agreement setting out every responsibility.
Louisiana Civil Code Article 2809 prohibits a partner from engaging in activity for personal benefit or for another person’s benefit when that activity conflicts with the partner’s fiduciary duty and harms the partnership. The partner may then have to account to the partnership and the other partners for what was gained.
That rule can reach many forms of misconduct. A partner might redirect a partnership client to another company he owns, use business funds to cover personal expenses, or arrange for a valuable contract to benefit a separate enterprise.
The central issue is whether the partner used a position of trust to advance a personal interest at the partnership’s expense.
Where Loyalty Problems Usually Appear
Fiduciary disputes often begin with financial activity or business decisions that do not make sense from the partnership’s perspective. Three recurring areas deserve close attention.
Using Partnership Assets for Personal Benefit
Self-dealing occurs when a partner puts partnership money, property, time, or business relationships to personal use.
That could include charging personal expenses to a business account, directing a profitable contract toward another company the partner owns, or moving partnership funds through personal accounts.
Commingling can make the problem harder to identify because the records may no longer show clearly where the money went.
What first looks like a bookkeeping discrepancy can become a much larger issue once the underlying transactions are traced.
Running a Competing Business Without Disclosure
A partner who launches a competing venture while continuing to participate in the partnership may create a direct conflict of interest.
The concern is not limited to whether the competing business actually takes customers. A partner’s undisclosed involvement in another business can raise questions about whether partnership clients, information, opportunities, employees, or resources were being used for another venture.
Louisiana’s Secretary of State maintains a public business filings database that can help identify companies associated with a partner.
Taking a Partnership Opportunity
Some opportunities belong to the partnership because of the partnership’s existing business, relationships, resources, or activities.
Consider a new location offered to the partnership, a valuable referral, or a significant supplier arrangement. If a partner quietly takes that opportunity personally or redirects it to someone else, the conduct may amount to an improper diversion of a partnership opportunity.
These cases often turn on the details surrounding how the opportunity arose, who received it, and what the partner disclosed to the others.
Hymel Davis & Petersen’s team of experienced Baton Rouge Fiduciary Litigation Attorneys represents clients in fiduciary disputes involving both allegations of misconduct and defenses against those allegations. That experience can be important when the dispute turns on competing accounts of what a partner knew, disclosed, or intended.
Signs That Deserve a Closer Look
Fiduciary misconduct is not always obvious at first. Certain changes in the business records or a partner’s conduct may warrant further investigation.
- Financial statements no longer reconcile with bank records
- A partner becomes evasive about financial or operational decisions
- New vendors or contracts appear without a clear business explanation
- A partner’s name appears in the filings of another company
- Distributions do not correspond with the partnership agreement or established practice
- Partnership clients or opportunities begin moving to another business
- Business funds appear in accounts that are not clearly connected to the partnership
A single item does not establish a breach by itself. The surrounding records, agreements, communications, and financial transactions can determine what the conduct means legally.
How Louisiana’s Partnership Rules Differ
Louisiana’s partnership law operates within the state’s Civil Code rather than the common-law framework used in many other states.
Louisiana Civil Code Article 2801 treats the partnership as a legal person separate from the partners who created it. That distinction can affect how a fiduciary-duty dispute is framed because misconduct may injure the partnership itself rather than only an individual partner.
Understanding who suffered the legal injury can affect the claims available, the requested remedies, and the way the case proceeds.
The Duties of Care and Disclosure
Fiduciary responsibility extends beyond loyalty. Partners also have obligations involving care, good faith, and disclosure.
A poor business decision is not automatically a fiduciary breach. The circumstances surrounding the decision matter.
For example, a partner who openly proposes putting $15,000 of partnership funds into a risky business venture and informs the other partners about the potential loss has a very different situation from a partner who makes the same investment secretly, conceals the loss for months, and gives false information when questioned about it.
The difference can come down to transparency, the partner’s authority, the purpose of the transaction, and whether the conduct was undertaken for the partnership or for personal benefit.
How Long Do You Have to Bring a Claim?
The applicable prescriptive period can depend on the nature of the alleged breach.
When a Ten-Year Period May Apply
The source of a partner’s fiduciary obligation can affect prescription. Louisiana courts have generally treated deliberate misconduct, such as self-dealing, secret competition, and fraud, as a personal action subject to a ten-year prescriptive period under Louisiana Civil Code Article 3499.
The timing analysis can also involve when the conduct occurred and when it reasonably could have been discovered. A breach that is merely negligent or careless, rather than deliberate, is treated differently and can prescribe in as little as one year.
Because prescription can turn on the specific legal theory and facts, waiting to investigate a suspected breach can create unnecessary risk.
For disputes arising in East Baton Rouge Parish, a fiduciary-duty claim is filed in the 19th Judicial District Court, the parish’s court of general civil jurisdiction.
Why the Deadline Is Only Part of the Problem
Prescription is not the only reason to address suspected misconduct promptly.
Financial records can become harder to obtain. Employees may leave. Emails and other communications may become more difficult to locate. Meanwhile, the partnership may continue operating under the same conditions that created the dispute.
A partnership can also dissolve, sell assets, restructure, or change ownership while a suspected breach remains unresolved. Those changes can affect what remains available to recover and how a claim should be pursued.
What Can a Wronged Partner Recover?
The remedy depends on the conduct, the resulting harm, and the claims established in the case. Potential relief can include:
- An accounting of partnership finances
- Disgorgement of profits obtained through disloyal conduct
- Compensatory damages for harm suffered by the partnership
- Removal of a partner where the applicable requirements are met
- Dissolution of the partnership
- A court-ordered buyout in appropriate circumstances
- Attorney’s fees in cases involving qualifying fraud
The goal is not limited to calculating a single lost payment. A proper accounting may reveal profits, transactions, diverted opportunities, or other financial consequences that are not apparent from the first set of records reviewed.
FAQs About What Counts as a Breach of Fiduciary Duty in a Business Partnership
Can I sue my business partner if we never signed a written partnership agreement?
A written agreement is not required for fiduciary duties to exist between Louisiana partners. Those obligations arise as soon as the partnership itself exists, not when the partners get around to writing everything down.
Whether a partnership exists in the first place, what duties applied, and what remedies are available will depend on the facts and applicable Louisiana law.
What if my partner says the partnership agreement permitted the conduct?
The language of the agreement matters. A provision that expressly authorizes particular conduct may affect the analysis, while a vague provision may not provide the protection a partner claims it does.
The agreement should be reviewed alongside the transactions, communications, financial records, and other circumstances surrounding the disputed conduct.
Can I remove my partner instead of filing a lawsuit?
That depends on the partnership agreement and the circumstances.
Some agreements contain removal or buyout provisions that establish a process for addressing a partner’s conduct. When the agreement does not provide a workable mechanism, court involvement may become necessary.
A removal or buyout issue can also exist alongside a claim for damages or an accounting, rather than replacing those claims altogether.
Do these rules apply if we operate as an LLC?
Louisiana LLCs have their own governing rules. LLC members generally owe duties of loyalty and care similar to a partner’s, though the exact source of that duty shifts to the operating agreement and Louisiana’s LLC statutes rather than the Civil Code’s partnership articles.
The operating agreement should be reviewed before assuming that partnership rules apply to an LLC in the same way.
How much does a breach of fiduciary duty case cost?
There is not a universal figure that applies to every case. Costs can depend on the number of transactions involved, the amount of financial investigation required, the availability of records, the number of parties, and whether the dispute proceeds toward litigation or resolves earlier.
Baton Rouge Fiduciary Litigation Lawyers at Hymel Davis & Petersen
A partnership dispute can become difficult to untangle when financial records, competing businesses, and personal relationships overlap.
The first step is identifying what the partner actually did, what duties applied, and how the conduct affected the partnership.
Hymel Davis & Petersen has represented parties on both sides of fiduciary litigation, including matters involving partners accused of misconduct and partners seeking to hold another fiduciary accountable. The firm’s attorneys also bring experience from federal prosecutorial work to business disputes where financial records and competing explanations need careful examination.
If you have concerns about a partner’s use of business funds, clients, property, contracts, or opportunities, bring the records you have to a consultation, however incomplete they are. Contact Hymel Davis & Petersen to schedule a consultation and find out what your options look like.
