Common Lawsuits Between Business Partners In New Jersey

Common Lawsuits Between Business Partners In New Jersey

Understanding the Legal Remedies Available When a Partnership Fails

When individuals go into business together, they rarely expect to become adversaries. Yet, disputes between business partners are among the most common and disruptive forms of commercial litigation in New Jersey. These cases often arise from broken trust, unclear agreements, financial disagreements, or unequal contributions of time and capital. When communication breaks down and informal resolutions fail, partners may be forced to resort to litigation to protect their interests, recover losses, or unwind the business relationship altogether.

New Jersey law provides a range of causes of action that business partners can assert against one another, depending on the nature of the dispute and the partnership's structure. These claims may be brought individually or in combination, and each carries different legal standards and potential remedies. What follows is an overview of the most common types of lawsuits between business partners, accompanied by examples that illustrate how these disputes arise in practice.

Breach of Partnership Agreement

The most straightforward claim in a partnership dispute is for breach of contract, typically arising from the terms of a written partnership agreement. If the agreement specifies how profits are to be shared, how decisions are to be made, or how a partner may exit the business, then a violation of those terms may support a breach of contract claim.

For example, if the agreement states that each partner is entitled to 50 percent of the profits, but one partner diverts income to a separate bank account and withholds distributions, the wronged partner may sue for breach of the partnership agreement. Similarly, if the agreement requires unanimous consent for major financial decisions and one partner secures a loan or enters into a lease without approval, that conduct may constitute a breach.

A breach of contract claim allows the injured partner to seek damages, compel specific performance, or pursue other remedies outlined in the agreement itself.

Breach of Fiduciary Duty

In the absence of a written agreement, or even in addition to one, partners owe each other fiduciary duties. These include the duty of loyalty, the duty of care, the duty to act in good faith, and the duty to disclose material information affecting the partnership. A breach of fiduciary duty occurs when one partner acts in their interest at the expense of the partnership or the other partner.

A common example involves self-dealing, such as when a partner diverts clients from the partnership to a competing business they secretly operate. Another example includes a partner who fails to disclose critical financial issues, such as outstanding tax liabilities or lawsuits against the business, depriving the other partner of the ability to make informed decisions.

Claims for breach of fiduciary duty are often accompanied by demands for an accounting, the return of diverted funds, the imposition of a constructive trust, or the judicial dissolution of the partnership.

Conversion or Misappropriation of Partnership Assets

When a partner wrongfully takes possession of business funds, equipment, or inventory for personal use or refuses to return partnership property upon demand, the injured partner may bring a claim for conversion or misappropriation. These claims focus on the unauthorized taking or control of tangible or intangible assets belonging to the partnership.

For instance, if a partner withdraws money from the business account to pay for personal expenses and fails to repay it, or if they transfer customer lists or intellectual property to a new business without consent, a claim for conversion may be appropriate. In such cases, the injured partner can seek the return of the property or the monetary equivalent of its value.

Fraud and Misrepresentation

In more egregious cases, one partner may accuse the other of fraudulent inducement, misrepresentation, or concealment. These claims are based on intentional deception and require a higher standard of proof. A fraud claim may arise if one partner was misled into investing in the business based on false financial statements or if a partner concealed debts or liabilities prior to formation.

For example, if a partner falsely represents that the business has secured a government contract in order to convince another individual to join and contribute capital, the deceived partner may bring an action for fraud. Remedies in fraud cases may include rescission of the agreement, recovery of damages, and in some cases, punitive damages.

Judicial Dissolution and Winding Up

If the partnership has become dysfunctional and cannot continue operating due to ongoing disputes, misconduct, or deadlock, a partner may petition the court for judicial dissolution. This is not a claim for monetary damages but rather a request for the court to dissolve the partnership and oversee the winding up of its affairs.

Under the New Jersey Uniform Partnership Act and similar statutes applicable to LLCs and corporations, a court may dissolve the entity if it is no longer practicable to carry on the business, if misconduct has occurred, or if the partners are unable to make essential decisions. Once dissolved, the business assets are liquidated, debts are settled, and the remaining value is distributed in proportion to the partners’ interests.

Accounting

A claim for an accounting allows a partner to compel the other to disclose detailed financial information, often as part of a broader claim for breach of fiduciary duty or misappropriation. This is a common request in partnership disputes where one partner has managed the finances and the other has been excluded from access to the records.

Courts can order a formal accounting to determine the true financial status of the business, trace missing funds, or evaluate whether profits were distributed correctly. In some cases, the court may appoint a neutral accountant or forensic expert to perform this task.

Expulsion or Buyout Litigation

Where permitted by the partnership agreement or statute, a partner may seek to expel another partner for misconduct, non-participation, or breach of duty. These claims often turn into disputes over the value of the departing partner’s ownership interest. If there is no clear buy-sell agreement, the expelled partner may sue for wrongful expulsion or demand a judicial valuation and forced buyout.

For example, if a majority partner locks out a minority partner, changes the business locks, and notifies customers that the minority partner is no longer involved, the excluded partner may sue for breach of fiduciary duty, conversion, and seek reinstatement or fair compensation for their interest.

Unjust Enrichment

In the absence of a formal agreement or where legal claims are barred by procedural issues, a partner may pursue an unjust enrichment claim. This is an equitable remedy that applies when one party has unfairly benefited at the expense of another. The plaintiff must show that they conferred a benefit, that the defendant accepted it, and that retaining the benefit would be unjust without compensation.

An unjust enrichment claim may be appropriate where a partner contributes time, labor, or capital to the business but is excluded from profits, and there is no written agreement governing their share. These claims are often advanced as an alternative theory of recovery when contract or tort claims are uncertain.

Conclusion: Disputes Between Partners Require Strategic, Fact-Driven Litigation

Partnership litigation is rarely confined to a single cause of action. Most cases involve overlapping claims for breach of contract, breach of fiduciary duty, and misappropriation of assets, along with requests for dissolution, accounting, or equitable relief. The key to success in these matters lies in the documentation—emails, financial records, agreements, internal communications—and in the strategic use of discovery to uncover hidden conduct.

For business owners, the best protection against these types of lawsuits is a comprehensive, written partnership agreement that clearly addresses profit-sharing, decision-making authority, capital contributions, dispute resolution procedures, and buyout rights. For litigants, clarity in legal theories, timely legal action, and a documented history of events are critical to building a strong case.

For more information about your legal rights or to schedule a consultation, please contact the Law Offices of Peter J. Lamont at www.pjlesq.com, call 201-904-2211, or email info@pjlesq.com.

Contact us today to discuss your business or legal matter. Put our 20+ years of legal experience to work for you.

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For detailed insights and legal assistance on topics discussed in this post, including litigation, contact the Law Offices of Peter J. Lamont at our Bergen County Office. We're here to answer your questions and provide legal advice. Contact us at (201) 904-2211 or email us at  info@pjlesq.com.

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About Peter J. Lamont, Esq.

Peter J. Lamont is a nationally recognized attorney with significant experience in business, contract, litigation, and real estate law. With over two decades of legal practice, he has represented a wide array of businesses, including large international corporations. Peter is known for his practical legal and business advice, prioritizing efficient and cost-effective solutions for his clients.

Peter has an Avvo 10.0 Rating and has been acknowledged as one of America's Most Honored Lawyers since 2011. 201 Magazine and Lawyers of Distinction have also recognized him for being one of the top business and litigation attorneys in New Jersey. His commitment to his clients and the legal community is further evidenced by his active role as a speaker, lecturer, and published author in various legal and business publications.

As the founder of the Law Offices of Peter J. Lamont, Peter brings his Wall Street experience and client-focused approach to New Jersey, offering personalized legal services that align with each client's unique needs and goals​.

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