Do I have a lawsuit claim against a competing company with a former partner?

I run a paid service that helps customers maximize their profits on certain items using custom software and consultations. We have a few competitors in our industry and recently the person who I co-founded and co-owned the company with had decided to leave. The reason he said he was leaving was just that he was going into a different venture, leaving me full ownership rights. Little did I know that he had been secretly creating the same exact company competing with me for a few months prior. As soon as he leaves, I noticed majority of our clients also left and had joined his services. Essentially, what has happened is he just recreated our company in order to cut me out. To top it off, my former co-owner, in the client’s community chat with all the customers which provides help and engagement, many clients, paid administrators, and even the owner himself has been defaming my company. This may complicate it but my company is based

in DE and his is in MD. Do I have legal grounds to file a lawsuit? I can prove that he directly solicited clients and employees away while he still co-owned the company with me and prove I incurred damages from a loss in revenue.

Asked on January 6, 2019 under Business Law, Maryland

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 2 years ago | Contributor

While much depends on the nature of the business relationship/entity (was it an LLC? a corporation? a general partnership), as a general matter, an owner of a company has a "fiduciary duty" to his/her fellow-owners and the company to act with a certain degree of loyalty to them. That fiduciary duty may well be violated by steps taken while still an owner to divert business or resources away from the company to that owner's own personal benefit (e.g. another business venture he has or is starting). So if you can prove that your partner did these things while still co-owner, you may have a viable lawsuit and it would be worth your while to consult with an attorney about the situation.
Note that after he leaves, he is free to compete, solicit, etc. unless he had an agreement (e.g. a non-competition or non-solicitation agreement) to the contrary; therefore, it is only his while co-owning actions that may give rise to liability.
For future reference: it is good for co-owners and key employees to have non-competition or -solicitation agreements.


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