Stopping a Business Partner's Side Deal Before It Closed

The situation

There were eleven days left before a signing deadline on the largest contract the consultancy had ever been offered, a multi-unit retrofit worth close to $600,000 in fees over its life, when Edgardo learned that his colleague, Deniz, had already registered a separate company under his own name and was quietly positioning to have that same contract signed with the new company instead.

Ayse, a chiropractor, had founded the consultancy nine years earlier in Deep River, combining rehabilitation consulting with accessibility-focused design work for clients modifying homes after injury or for aging in place. Edgardo, an architect, joined within the first year as her first hire and became the practice's lead designer, and was later made an officer of the corporation with his own signing authority in recognition of that role, though he held no ownership stake and was paid, like every other member of staff, a salary rather than a share of the business. Deniz, brought on four years in as the business grew, managed client relationships, contracts, and day-to-day operations, and had been given the same kind of officer title and signing authority to make that role workable.

The retrofit contract had been in development for months, the product of a relationship Deniz had built with a property developer over several smaller jobs. Edgardo had assumed, reasonably, that the deal would close in the consultancy's name, the same as every other contract Deniz had brought in. What changed his assumption was a stray email, forwarded to the shared office inbox by mistake, that referenced a signing date, a company name Edgardo did not recognize, and Deniz's name as the sole director. Edgardo read the email twice before he understood what he was looking at, then forwarded it to Ayse without comment and called our office the same afternoon.

With the deadline eleven days out, Edgardo did not have time to quietly investigate; he needed to understand, fast, whether the email meant what it appeared to mean, and whether there was still time to stop the contract from moving to a company Deniz had set up without telling either of his partners. The consultancy's ongoing projects, five active retrofits and two more in design, still needed Edgardo's and Ayse's attention every day regardless of what was happening with Deniz, and neither of them could set that work aside while the question of the new contract got sorted out.

What was actually at stake

The immediate risk was the retrofit contract itself, worth an estimated $550,000 to $650,000 in fees over the life of the project, moving to a competing company before Edgardo and Ayse had any chance to intervene. But the more serious risk sat underneath that one. If Deniz had already registered a competing company and lined up one major contract to move there, there was no reason to assume that was the only relationship he had been quietly redirecting; as an officer with signing authority and full access to the client list, he had the practical ability to have shifted other work, or laid the groundwork to shift it, over a longer period without either partner noticing.

Deniz owed the consultancy a fiduciary duty as an officer of the corporation, a legal obligation that goes beyond ordinary honesty and requires putting the company's interests ahead of his own in exactly this kind of situation, not competing against it while still employed by it and drawing income from it. That duty does not depend on a written non-compete clause; it exists because of the position of trust an officer holds, with access to confidential client relationships and the authority to bind the company. What made the situation urgent rather than simply troubling was that the duty, and any remedy for breaching it, is far more useful stopped before a competing contract is signed than pursued afterward as a claim for damages once the relationship and the fees are already gone.

There was also a practical business reality neither Edgardo nor Ayse could ignore: the consultancy could not simply stop operating while this got sorted out. Clients with active retrofits needed site visits, permit follow-ups, and design revisions on schedule, and Deniz, whatever he had been doing on the side, was still the person clients called for scheduling and contract questions. Removing him abruptly, before there was a clear plan, risked disrupting live projects and alarming clients in ways that could do more damage than the competing contract itself. The challenge was moving quickly enough to stop the immediate loss without destabilizing a business that had no capacity to pause.

Finally, there was a question of proof. A single forwarded email suggested a problem; it did not, on its own, establish what Deniz had actually done, how long it had been going on, or whether the new company had already been used for anything beyond preparation. Acting too aggressively on incomplete information risked accusing a partner of nine years of something that needed to be confirmed quickly and carefully, within a very short window, before the contract deadline closed that window entirely.

What we did

1. Moved immediately to confirm what the email actually showed. Within a day of being retained, we reviewed the forwarded email and had Edgardo pull the consultancy's corporate registry search on the company Deniz had named, which confirmed Deniz was its sole director and that it had been incorporated four months earlier. This gave Edgardo and Ayse a factual basis, not just a suspicion, before anyone confronted Deniz directly, and it meant the first real conversation with Deniz could start from documented facts rather than an accusation neither of them had verified.
2. Assessed the officer's fiduciary exposure before acting. We reviewed the consultancy's corporate records, Deniz's officer role, and his signing authority to confirm he owed the company a clear fiduciary duty that his conduct, if the email reflected reality, would breach. This let us advise Edgardo and Ayse on solid ground about what remedies were realistically available and how quickly they needed to move, rather than guessing at how strong the position actually was under pressure.
3. Sent an urgent, narrowly targeted letter rather than a public confrontation. With days left before the contract deadline, we sent Deniz a formal letter setting out the fiduciary duty he owed, referencing the new company and the pending contract, and demanding written confirmation that the retrofit deal would proceed in the consultancy's name, without accusing him publicly to clients or staff before he had a chance to respond.
4. Prepared, in parallel, for urgent court intervention if needed. Because the contract deadline could not be extended by asking politely, we prepared the materials for an urgent application to restrain Deniz from completing the competing contract, so that if he did not respond appropriately within days, Edgardo and Ayse were not left starting from nothing with the deadline nearly gone. Having those materials ready before the letter went out also meant the threat of court action was real, not theoretical, if Deniz chose to stall.
5. Kept the operating business running on a separate track. We advised Edgardo and Ayse on a short-term plan to manage client-facing work directly during the dispute, redirecting scheduling and contract communications away from Deniz without alerting clients to an internal conflict. This mattered because the consultancy could not afford to look unstable to clients mid-project, and it meant the legal issue with Deniz stayed a private matter between the partners while live projects continued without disruption or delay.
6. Negotiated a resolution that protected the contract and the business. Once Deniz understood the strength of the fiduciary claim and the readiness to seek urgent court relief, we negotiated his exit from the consultancy on terms that included the retrofit contract proceeding in the consultancy's name, a wind-down of the competing company's use of any consultancy client relationships, and a confidentiality undertaking covering the client list.
7. Documented the resolution to close off future disputes. We put the full exit agreement in writing, covering the contract, client relationships, and Deniz's departure, so there was no ambiguity later about what had been agreed. A negotiated result that only exists as a verbal understanding tends to unravel the moment memories diverge, so committing every term to a signed document protected Edgardo and Ayse from having to revisit the same dispute months after Deniz had already left the business.

The outcome

The retrofit contract closed on schedule, in the consultancy's name, five days before the original deadline, with the developer never made aware that anything had been in question. Deniz left the business within three weeks of the initial letter, under a negotiated exit that included his resignation as an officer and director, confirmation that the competing company would not pursue any client relationship built through his time at the consultancy, and a confidentiality undertaking covering the client list and pricing information.

Because the matter was resolved before the competing contract was signed, there was no damages claim to pursue and no need to prove, in court, exactly how much business had already moved or how long the diversion had been going on, which would have been a much harder and slower case to make after the fact. Edgardo and Ayse did not recover any money from Deniz, since there was, in the end, nothing to recover; the value of the outcome was in what did not happen rather than in a settlement figure, which is the nature of a prevention case rather than a damages claim.

The consultancy's active projects continued without interruption throughout the three weeks the matter took to resolve, and clients were told only that Deniz had moved on to a new venture, which was, in a narrow sense, true. Edgardo and Ayse restructured signing authority afterward so no single officer other than the two of them could bind the company to a contract without both of their sign-off, a change they made permanent rather than temporary once the immediate matter closed. For Edgardo, the case also underscored how much weight an officer's fiduciary duty carries even without a signed non-compete, and how much faster a prevention strategy can move than a claim for damages once a competing contract is already signed.

What you can learn from this