Thursday, December 20, 2007

Partners Without Written Agreements

The New York Court of Appeals held today that New York partnership law "does not shield a general partner in a registered limited liability partnership from personal liability for breaches of the partnership's or partners' obligations to each other." The case involves a bitter law firm breakup where there was no written partnership agreement. After the two warring partners became an LLP, three new lawyers were admitted to the partnership.The departing partner claimed he left over a dispute in the representation of a firm client; the remaining original partner claimed that he had left "because the LLP  was cash strapped, and blames [the departing partner] for this purported state of affairs." The departing partner sued for an accounting and breach of the partnership agreement.

The court warns: "In closing, we emphasize that the law of partnerships contemplates a written agreement between partners specifying the terms of their relationship.The Partnership Law's provisions are, for the most part, default requirements that come into play in the absence of an agreement...In this case, however, there was no written partnership agreement; therefore, the provisions of the Partnership Law govern."

A dissent takes issue with the majority's interpretation of that law: "If the...firm had remained a professional corporation, instead of turning itself into a limited liability partnership, the result in this case would not be in question: the individual shareholders of the corporation would not be liable for its obligations to [the departing partner]. I do not see why the partners of an LLP have have an obligation that the shareholders of a PC do not, and I therefore dissent. (Mike Frisch)

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