A C&D letter will not get your money back nor prevent this person from continuing to injure your business. If this person ran off with your money and client lists, a C&D letter certainly won't stop that conduct, and even the vendors are under no obligation to do what you ask of them if they're copied on the letter. You will need to file for injunctive relief to remedy this.
The foregoing is not legal advice nor is it in any manner whatsoever meant to create or impute an attorney/client relationship.
A C&D letter to government orgs will likely be ineffective as indicated. Whether the non-compete is effective and whether you have a cause of action to recover for the appropriate of the business name and assets should be discussed with legal counsel.
Disclosure: This answer and any information contained in this answer is not intended to be treated as legal advice. It is for informational purposes to educate about legal issues. You should contact an attorney for specific legal advice for your situation. Specific legal advice based on full knowledge of your specific situation and all facts may differ from general information. This posting does not create an attorney-client relationship or privilege of any kind. This attorney actively licensed only in the State of Georgia. If this is a Georgia matter, you may of course contact me to discuss possible representation. FEEDBACK: Both AVVO and other readers are interested in your feedback on the quality of the answers. Please check the “thumbs up” symbol if you find an answer helpful.
It is unlikely that either a C&D letter or a TPO will do any good, although you could certainly try the letter. The issues here are between the two members and not Member 2 and any outside party. However, Member 1 would have a claim against Member 2 for breach of contract, breach of fiduciary duty, and possibly others. Consult with a local business attorney.