BREACH OF FIDUCIARY DUTY

The cats returned from their winter vacation in Mexico to find that they had been sued by Bowser for the $30,000, plus interest, seized by the bank from Bowser’s accounts in order to satisfy the cats’ loan that Bowser guaranteed.  Bowser’s lawsuit alleges that the cats’ failure to make the loan payments and their using the money for a month-long vacation at a resort in Mexico was a breach of their fiduciary duty to Bowser.

The cats were incredulous.  “The bank loaned the money to us,” they said.  “It was our money, and we spent it as we saw fit. Bowser is just a crybaby. No one forced him to guarantee our loan, and we gave him 5% of our business venture as consideration for his loan guarantee. We’re not responsible for his loss.”

I suggested that the cats obtain legal advice, but their San Francisco attorneys wouldn’t take their call because the cats had failed to pay a bill for $187.50 for an email advising the cats that they didn’t have a claim against me for failure to provide habitable premises due to my refusal to install a cat door in the French doors leading to the deck so that they could come in and out at will, without having to demean themselves by meowing to be let in and out. Reluctantly, they consulted me.

I informed the cats that they had a fiduciary duty to Bowser, as their minority partner, to use the loan proceeds in the best interests of the enterprise and their minority partner, Bowser, and that their failing to use the money to make the loan payments and their spending the money to stay at a resort in Mexico for the month of January was a breach of their fiduciary duty, and that Bowser had a valid claim against them for his losses resulting from that breach.

The cats didn’t like this advice and decided to pay the money that they owed their San Francisco attorneys in order to get a second opinion.  I warned the cats that they had a limited time to file an answer to Bowser’s complaint and that if they failed to do so within the time required that Bowser could take a default judgment against them, but the cats were already on their way down the stairs to the TV room.  Their favorite program, “Dumb Dog Videos,” was on.

Allen Drescher has practiced law in Ashland and Southern Oregon since 1973.  His practice areas include real estate and business law, estate planning and elder law.

© Allen Drescher