Businesses of all sizes can face different types of disputes, and these disputes can end up as business litigation if the disputes are not resolved. Business litigation can be a lawsuit between two businesses (i.e. vendor and customer), a customer and a business, employee and employer, or even between business partners. Typically, business disputes revolve around a contract or a business relationship where one or both parties are seeking monetary damages for a failure in performance. Business disputes can relate to intangible property (intellectual property such as trademarks or patents) as well.
Common Types of Business Litigation
Breach of Contract
The most common type of business litigation is breach of contract. In a breach of contract case, the parties enter into a contract – either written or oral – and one party fails to fully perform. To establish a breach of contract claim, the Plaintiff must prove the existence of a valid contract, a failure to perform by the other party, and harm that was caused by the failure to perform. A failure to perform could be a failure to pay for goods or services provided, failure to deliver a purchased product, a failure to meet delivery timelines, or the failure to comply with any material term in a contract. Contract terms are first interpreted by the judge to determine the parties’ responsibilities, unless someone argues the terms are vague and ambiguous. Under Texas law, the winning side can request recovery of their attorneys’ fees. If under $20,000, the plaintiff can file in small claims court, but the $20,000 is the maximum amount the Court can award, including attorneys’ fees.
If a contract exists, the contract usually controls the business relationship. However, a party can commit fraud that may allow a separate claim in a lawsuit. To prove fraud, a plaintiff needs to prove that the other party made a material representation, that is false, that the plaintiff relied on the false representation to enter into the transaction, and that the representation directly caused the plaintiff harm. Fraud is typically more difficult to prove than a breach of contract. The false representation must be material, must be a statement of fact and not an opinion. A good example is if someone sells a car and states the car is an automatic transmission, but in reality the car has a standard transmission. In this scenario, the purchaser relied on the statement that the car was an automatic transmission, that statement was false and received goods that were not as represented. In a fraud case, the winning party is not entitled to their attorneys’ fees, but can ask for an award of punitive or exemplary damages as a punishment, if the fraud was committed knowingly, intentionally, or with malice. In Texas, there are other state laws that allow for different claims based on false representations.
Breach Of Fiduciary Duty
Certain individuals owe fiduciary duties to others. These duties can be based on statements of law and by circumstance (i.e. a relationship built on trust). If a fiduciary relationship exists, the fiduciary owes duties of not self-dealing, to deal fairly and honestly, good faith and loyalty, full disclosure and candor, and to act with strict integrity. In a business, directors, officers, and partners owe each other some or all of the fiduciary duties. To establish breach of a fiduciary duty, a plaintiff would need to prove that a fiduciary relationship exists, that the defendant violated one of the duties, and that the violation caused harm to the plaintiff. Common fiduciary relationships include: attorney-client; holder of a durable power of attorney; trustee – beneficiary; business partners to each other; officers – company (shareholders); and employee – employer (in certain situations). A common fiduciary situation arises when one business partner commits the company to a transaction that benefits another company owned by the same business partner, without disclosing the dual ownership, the partner may have breached their fiduciary duty to their other partners.
A business partnership can be like a family or a marriage, as long as everyone is happy and healthy, it flourishes and thrives. But sometimes, when adversity strikes, partners can blame one another, have different ideas of how to move forward, or not to move forward at all. Unlike family, business partners, even friends, may not have the necessary connections to weather a storm. Problems can also arise when one partner is breaching their fiduciary duties and the other partner discovers the bad acts. When this happens, the partners need to find a way to “divorce.” If the business was formed correctly, the company will have either a company agreement or bylaws that control how the split up should happen. Hopefully, the partners also entered into a buy-sell agreement that gives clear direction on the conclusion of the relationship. This agreement provides that one partner can buy out the other partner, and how to value the ownership and terms for purchase. If there is no such agreement, the partners can file suit to have the Court determine how to split up the company. These disputes are typically very expensive and involve multiple expert witnesses to address the value of the company, and how to distribute the business. Ultimately, such a dispute can lead to the dissolution of the company and both partners losing in the end. Even if you are in business with family or your best friend, following through with documents that control such possibilities will protect the partners from a destructive mess.
Why Do You Need a Litigation Lawyer for Your Business Disputes?
Business litigation and/or disputes can be complicated and can implicate many Texas laws. It is important to work with a qualified attorney to properly set up your business relationships, enter into contractual relationships, to understand fiduciary duties owed to others, and if necessary to guide you through a complicated litigation process. A business litigator can help you determine the proper court to file, the best claims to bring, and then work towards a full resolution or a final trial.