Law Firms

Defunct law firm must still pay for sublease in Manhattan, court rules

Corrected: An appellate court has ruled that defunct law firm Arkin Kaplan Rice cannot escape paying the sublease on its former office space in Manhattan.

On Thursday, the New York State Supreme Court Appellate Division, First Department, ruled that the defunct firm is on the hook for its sublease for space on the 35th floor of 590 Madison Ave. in Manhattan, until it expires in June 2015. In an unsigned order, the four-judge panel reversed a June 2013 ruling (PDF) from Acting Manhattan Supreme Court Justice O. Peter Sherwood, disagreeing with Sherwood’s finding that because AKR had never signed the sublease, its liability ended once the firm dissolved in May 2012. “From 2006 until its dissolution in 2012, AKR’s payment of rent while in possession of the premises created a presumption of an assignment of the sublease,” the panel held in its order (PDF).

The panel addressed other issues relating to the effect of AKR’s dissolution on the sublease. AKR essentially split in two with name partners Howard Kaplan and Michelle Rice, leaving in May 2012 to start their own firm, Kaplan Rice. Name partner Stanley Arkin then formed Arkin Solbakken along with partner Lisa Solbakken. The two sides have been embroiled in a legal feud since then, with Arkin Solbakken accusing Kaplan Rice of refusing to vacate the premises.

The panel reversed Sherwood and held that Arkin Solbakken was not the successor entity to AKR. Sherwood had ruled that Arkin Solbakken had assumed AKR’s obligations and was liable for the rent after AKR’s dissolution. The panel, however, found that Arkin and Solbakken had intended to create a new entity with Arkin Solbakken, and was not looking to continue AKR under a new name. Even though Arkin Solbakken remained in the office space, the panel found that it had not taken sole possession of the lease and noted that Kaplan Rice had also stayed put. The panel also pointed to a new filing with the Secretary of State identifying Arkin Solbakken as a limited liability partnership as evidence that it was a intended to be a new entity.

The panel, however, partially agreed with Sherwood and found that Kaplan and Rice had been discharged from any future liability under the sublease upon leaving the firm in May 2012. “The plain language of section 24(B) of the sublease releases any withdrawing partner, other than Arkin, from any further rights or obligations under the sublease upon the date of withdrawal,” the panel wrote in its order.

According to the court filings, Kaplan represented himself and Rice. Kaplan Rice did not immediately respond to a request for comment.

Meanwhile, AKR’s lawyer, Michael Bowe of Kasowitz, Benson, Torres & Friedman, said that the appellate ruling “repudiates” Kaplan and Rice’s claims to disputed partnership assets. In a letter (PDF) filed with State Supreme Court, Bowe wrote: “Although Kaplan and Rice have no sublease liability ‘in their individual capacity’ as sublease signatories, their liability ‘as partners of AKR’ remains.”

Updated Aug. 28 to correctly state that the Appellate Division reversed the 2013 decision, include information from those court opinions as well as a statement from Kasowitz, Benson, Torres & Friedman.

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