Many clients who come in to discuss a possible business divorce action are already anticipating obstacles to their own case. Having a foresighted, prepared client is wonderful. But when those clients take matters into their own hands before even coming into my office, sometimes they have harmed more than helped their own case.
Business owners who regularly read this blog know that the other side may assert knowledge or acquiescence to the alleged wrongful action as a defense to a shareholder oppression action. In other words, when you complain of your business partner’s wrongdoing, he may say you knew about it and were okay with it. The yearly family trip to Disney paid for by the company? You knew he had been doing that for the past five years, and you never once complained. The $50,000 bonus that he gave to himself last year that he swore to you he was not taking? Not only did you know about it, but it was your idea. You get the picture.
One potentially effective way of dealing with such dishonest behavior is, of course, a surreptitiously recorded conversation in which you get your business partner to admit the truth – on tape. Case closed, right?
Not so fast. Several of my clients have attempted to do this and have screwed it up royally (to use the technical legal term). They have asked questions that allowed wiggle room in the answer, so the answer could be interpreted two ways. They have asked questions in a way that let the business partner realize that he is being recorded. One client recorded an entire conversation where the most amazing concessions were obtained. His brother was claiming that my client wasn’t even a shareholder, despite all the evidence to the contrary. In the recorded conversation, his brother admitted up-and-down that my client was, in fact, a shareholder. But the conversation was in the context of settlement discussions, making the entire conversation potentially inadmissible in court. And, in the worst possible scenario, one client in a New Jersey company recorded a phone call with his business partner while his partner was on vacation in Florida. While New Jersey is a state that allows conversations to be recorded with only one-party consent, Florida is a two-party consent state. Thus, not only was the recording inadmissible, but possibly also constituted a crime. (Please keep in mind that the legality of recording such conversations varies from state-to-state. Please check with a local attorney if you are outside of New Jersey.)
Before you start recording evidence, thinking that will help your attorney, meet with your attorney first. He or she will help decide if a recorded conversation is appropriate in your case, and will guide you in making sure it is helpful, admissible, and legal.
If you have any questions about this post or any other related matters, please contact me at email@example.com.