5 Ways to Handle a Partnership Dispute When Mediation Isn’t an Option

Business partnerships can be challenging, especially when communication breaks down and conflicts arise. One of the most frustrating scenarios business owners face is when a partner refuses to come to the negotiating table or participate in mediation to resolve disputes. This resistance can stall business operations, damage relationships, and threaten the company’s very existence.

If you’re facing an uncooperative business partner in California, you have several legal options available. Understanding these options can help you protect your interests and move forward, even when your partner refuses to engage constructively.

Why Partners Resist Negotiation

Before exploring your legal options, it’s helpful to understand why business partners might refuse to negotiate or mediate:

• They believe they have a stronger position by maintaining the status quo
• Emotional factors like anger, resentment, or fear are driving their decisions
• They may be receiving poor legal advice suggesting non-cooperation
• They might be hiding financial improprieties or breaches of duty
• They could be stalling while preparing their own legal strategy

Regardless of their reasons, their refusal to participate in good-faith discussions does not leave you without recourse.

Legal Options When Your Business Partner Refuses to Cooperate

1. Enforce Dispute Resolution Provisions in Your Agreement

If your partnership agreement, operating agreement, or shareholders’ agreement contains mandatory dispute resolution provisions, these may provide leverage to compel your partner’s participation.

California courts generally enforce properly drafted dispute resolution clauses, particularly when they specify:

• Mandatory mediation before litigation
• Binding arbitration requirements
• Stepped dispute resolution procedures
• Consequences for refusing to participate

How to enforce these provisions:

1. Review your business documents with an attorney to identify applicable clauses
2. Formally invoke these provisions through proper written notice
3. If your partner still refuses, you may petition a court to enforce the agreement
4. California Code of Civil Procedure Section 1281.2 provides the authority for courts to compel arbitration when parties have agreed to arbitrate disputes

A court order compelling mediation or arbitration can be powerful leverage, as refusing to comply with such an order can result in sanctions or other adverse consequences.

2. Pursue a Declaratory Judgment Action

When direct resolution attempts fail, a declaratory judgment action allows you to ask a court to determine the rights and obligations of all parties involved in the dispute without immediately seeking damages.

Under California Code of Civil Procedure Section 1060, you can seek judicial determination of:

• The interpretation of your business agreements
• The validity of contested actions or decisions
• The parties’ respective rights and duties
• Proper governance procedures
• Ownership percentages and distribution rights

This approach can break through impasses by establishing a clear legal framework that all parties must follow, even if your partner initially refuses to engage.

3. File for Judicial Dissolution

In severe cases, California law permits business owners to petition for judicial dissolution of the business entity. This is particularly relevant when:

• Your partner’s conduct makes it “not reasonably practicable” to carry on the business
• There is persistent deadlock in management
• There has been persistent fraud, mismanagement, or abuse of authority
• The company assets are being wasted or misapplied

For California LLCs, Corporations Code Section 17707.03 governs judicial dissolution, while Section 1800 applies to corporations.

Judicial dissolution is a significant step that can prompt reluctant partners to negotiate rather than risk the court-supervised winding up of the business. Courts may also order alternative remedies, such as a buyout, instead of full dissolution.

4. Seek Appointment of a Receiver or Custodian

When business operations are at risk due to partner conflicts, California courts have the authority to appoint a receiver or custodian to:

• Temporarily manage the business
• Preserve company assets
• Ensure business continuity during disputes
• Provide neutral oversight of operations
• Facilitate resolution of deadlocks

California Code of Civil Procedure Sections 564-570 governs the appointment of receivers. This remedy can be particularly effective when:

• One partner is blocking essential business decisions
• There are allegations of financial impropriety
• Day-to-day operations are suffering due to the conflict
• The business might otherwise fail during prolonged litigation

A receiver can maintain business operations while you pursue more permanent resolution options, effectively removing your uncooperative partner’s ability to harm the business through inaction or obstruction.

5. Pursue a Forced Buyout

In many business disputes, the ultimate goal is separation from your partner. California law provides several mechanisms to force a buyout of either your interest or your partner’s interest:

• For corporations, a court may order a buyout as an alternative to dissolution under Corporations Code Section 2000
• For LLCs, similar provisions exist under Corporations Code Section 17707.03
• Courts may order a buyout based on breach of fiduciary duty or other misconduct
• Buy-sell provisions in your agreement may be triggered by certain events, even without mutual consent

A forced buyout typically involves:

1. Valuation of the business interest (often by a court-appointed appraiser)
2. Determination of payment terms
3. Court supervision of the transfer process
4. Resolution of outstanding company obligations

While this outcome represents a significant change to your business, it often provides a clean break that allows all parties to move forward.

Strategic Considerations Before Taking Legal Action

Before pursuing legal remedies, consider these strategic factors:

Document Everything

• Maintain records of all attempts to resolve the dispute
• Preserve evidence of your partner’s refusal to participate
• Keep detailed business records showing the impact of the impasse
• Save all communications regarding the dispute

Assess Business Continuity Risks

• Determine how legal action might affect ongoing operations
• Identify critical business functions that need protection
• Consider customer and supplier relationships
• Evaluate employee concerns and retention issues

Examine Your Leverage Points

• Review your position under the business agreements
• Assess your voting and management rights
• Consider your access to business information and resources
• Identify your financial position relative to your partner

Consider Tax and Financial Implications

• Understand tax consequences of different outcomes
• Assess your financial ability to sustain litigation
• Evaluate potential business valuation issues
• Consider post-resolution financial planning

How TONG LAW Can Help Resolve Your Partnership Dispute

At TONG LAW, our business litigation attorneys have extensive experience helping clients navigate complex partnership disputes, particularly when one party refuses to negotiate or mediate. We understand the business realities and legal intricacies involved in these situations.

Our approach focuses on protecting your business interests while pursuing the most efficient resolution path possible. We can help you:

• Analyze your business agreements to identify leverage points
• Develop a strategic litigation plan that preserves business value
• Represent you in court proceedings when necessary
• Negotiate from a position of strength
• Structure settlements that protect your interests

If you’re dealing with an uncooperative business partner who refuses to negotiate in good faith, contact TONG LAW today to schedule a consultation. With offices in Oakland and Sacramento, we serve clients throughout California who are facing business partnership challenges.