4

In a legal proceeding a couple of months ago, I was unfortunately at the disadvantage of not being represented by my attorney. (There is a reason which is unrelated to this question.)

I'm not a lawyer; I have no idea how things are supposed to proceed in court. I'm also a CEO of a startup which was pre-revenue and at the time of this event, had not yet closed our current round. As is the way of startups, our owners' draw was less than $500 a month for both myself and my co-founder for the entire preceding year; neither of us had been paid in a very long time.

I am not the only managing member of our company, and while technically I could access any aspect of the company I demand, our CFO has authority over all of our financial concerns and my co-founder, our COO, manages our day-to-day operations. Of the money in the business bank account, every last dime came from accredited angel investors on convertible promissory notes (preferred - all the investors have repayment preference.) At the time of this event, our company was still formed as an LLC.

My question is this: the judge asserted that simply because technically I have access to do so, I could be expected to clean out the business bank account to address whatever individual, personal matters were at hand.

  • Surely I can't be ordered to steal from our investors? Cleaning out the business bank account would be embezzling or fraud or both?
  • Is there a remedy for a judge who "orders" you to break the law? (Not asking if the order would be tossed out - asking if any kind of rebuke exists)

Noteworthy: Since no circumstances exist under which I will be compelled to rip off my investors, I simply proposed a settlement that leveraged an inheritance, hence this question is not an issue of my personal circumstances; I'm just curious.

  • 3
    To see if I understand the underlaying issue: You (personally) are required to pay a given amount due to an issue unrelated to your business, you have no alternate means of paying it and the judge is saying that you should get the money out your company? Do you have shares of it? – SJuan76 Mar 10 '18 at 13:22
  • 1
    To clarify: were it not for that inheritance, I would have been personally financially exhausted and lacking representation, incapable of fighting on my own. Since the sum exceeded the disputed concern, I simply presented the opposing side with an offer to settle by leveraging it. The company was, at the time, an LLC formed in Texas, meaning no shares or any concept of shares, only equity, of which I held roughly 55% at formation. It is important to note that all of the business' liquidity exists from investment capital using convertible promissory notes with preferred shares at conversion. – OpenSorceress Mar 10 '18 at 15:22
3

Judges often issue orders and warrants that require people or entities to transfer property from one party to another. For example, a search warrant allows law enforcement to seize personal property. A garnishment requires an employer to transfer a worker's wages to someone else. A judgment can affirm that property was stolen and thereby invalidate what was previously good title to the property.

Like any judicial order, such judgments can be found to be invalid and/or illegal. But unless and until they are modified, a judicial order is presumed to be lawful. In fact, it has the force of law. (It is not inaccurate to say a judgment is "law.")

There are a few remedies for unfair, improper, or illegal judgments. The most common include:

  1. Motions for reconsideration. If a court makes a mistake of fact or law, this is the most expedient way to bring that to its attention and ask for an appropriate modification to the judgment.

  2. Appeals. Any party adversely affected by a judgment can usually find grounds to appeal it to a higher court.


Of course, things can get messy for affected parties in scenarios like you describe. If a court orders you to transfer money from one person to another, then you cannot be found guilty of a crime for complying with the letter of that order. But depending on the broader circumstances you could later be found personally liable to the proper owners of the money. E.g., they might assert any number of legal claims that result in a court granting another judgment against you for restitution to them.

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.