Usurpation of Corporate Opportunities: When a Partner Steals Business for Themselves in WA

When you go into business with someone, there is an implicit and legal expectation of trust. You are building a company together, pooling resources, and sharing the risks. But what happens when your business partner discovers a highly profitable deal and, instead of bringing it to the company, quietly takes it for themselves? In Washington State, this is known as the "usurpation of a corporate opportunity," and it is a severe breach of legal trust.

Whether you are running a real estate development firm, a tech startup, or a government contracting business, stealing a business opportunity strikes at the heart of the company's potential to succeed. Washington courts take these betrayals seriously. If you suspect your partner is self-dealing or diverting clients to a secret side business, you need to understand your legal rights and how to hold them accountable under state law.

The Fiduciary Duty of Loyalty in Washington

In Washington, members and managers of a limited liability company owe specific fiduciary duties to the business and to each other. Under Wash. Rev. Code § 25.15.038, the duty of loyalty explicitly prohibits a member from competing with the LLC or dealing with the company on behalf of a party with an adverse interest.

To determine if an opportunity was illegally stolen, Washington courts generally apply the "line of business" test, as explored in cases like Noble v. Lubrin, 114 Wash. App. 812 (WA Court of Appeals 2003). This test asks whether the stolen opportunity was closely related to the company's current or prospective business activities. If the company had the financial ability to pursue the deal, and the deal fits within its natural line of business, the partner must offer it to the company first. Failing to do so constitutes usurpation.

Real Estate Partners Secretly Buying Adjacent Lots

Consider a joint venture formed to develop a commercial shopping center in Bellevue. If one partner discovers that the adjacent lot is up for sale at a heavy discount and buys it secretly under their own personal LLC, they have usurped a corporate opportunity. Because expanding the shopping center is directly within the joint venture's "line of business," the partner had a legal obligation to present the purchase to the company first.

Government Contractors Bidding Under a Separate Entity

Government contracting is highly competitive. If a partner in an established defense contracting firm learns of a lucrative new state contract and submits a bid using a completely separate shadow company they created, this is a direct violation of their duty of loyalty. They are using their insider knowledge and competing directly against their own business.

Software Developers Patenting Company Code Privately

In the tech industry, ideas move fast. If a partner in a software development LLC uses company time and resources to develop a new application, but then privately files a patent or copyright under their own name to reap the future licensing fees, they have stolen a corporate asset. The intellectual property belongs to the LLC, and the partner can be sued for misappropriation and breach of fiduciary duty.

Step-by-Step Guide to Taking Action (Seattle, Bellevue, Vancouver)

If you discover that your partner is stealing business opportunities, you must act quickly to protect the company's future. Here is how the process generally works in Washington.

Step 1: Document the Stolen Opportunity

Gather all evidence before confronting your partner. Secure company emails, financial records, client communications, and any public records (like new LLC filings with the Secretary of State) that prove your partner took the deal for themselves.

Step 2: Issue a Cease and Desist

Have a business litigation attorney draft a formal demand letter insisting that the partner immediately cease their competing activities and transfer the profits or the asset back to the company.

Step 3: File a Derivative Lawsuit

If the partner refuses to cooperate, you can file a derivative lawsuit on behalf of the company. This action can be filed in the local superior court, such as the King County Superior Court, Seattle, or the Clark County Superior Court, Vancouver. You will start the litigation by serving a civil summons drafted pursuant to Wash. Super. Ct. Civ. R. 4 along with your complaint.

Step 4: Seek an Injunction

Your attorney can ask the judge for an emergency injunction to stop the partner from finalizing the stolen deal or spending the illegal profits while the lawsuit is pending.

Step 5: Demand Disgorgement of Profits

At trial, you will ask the court for "disgorgement." This is a legal remedy where the judge forces the offending partner to surrender all profits they made from the stolen opportunity and pay them directly back to the company.

How Much Does it Cost to Sue for Usurpation in Washington?

Litigating a breach of fiduciary duty is a complex process. The costs will depend on the extent of the theft and how aggressively the partner fights back.

How Long Does the Litigation Take?

An emergency injunction can be granted in a matter of weeks, immediately stopping the partner's rogue activities. However, reaching a final settlement or securing a trial verdict for a usurpation claim typically takes between 12 and 24 months in Washington state courts, as these cases require extensive financial discovery and depositions.

Frequently Asked Questions (FAQ)