LLP Partners Not Protected in Accounting Suit, N.Y. Top Court Rules
New York’s highest court has ruled that law firm partners sued for an accounting by a lawyer who leaves the firm are not protected from liability because they are organized as a limited liability partnership.
The majority decision (PDF) held that the state’s LLP statute was intended to protect partners from liability for third-party claims, rather than to interfere with their fiduciary duties to one another, the New York Law Journal reports.
Most major New York law firms have chosen LLP status to protect partners from joint and several liability for malpractice and other third-party claims. Partners who themselves are negligent or guilty of wrongful acts, however, are not protected.
Texas was the first state to adopt limited liability protection for partnerships after the savings and loan crisis, which threatened law and accounting firms with ruinous judgments, the opinion explained. New York adopted its LLP statute in 1994.
Louis Ederer, the plaintiff, sued for an accounting after he left the now defunct firm of Gursky & Ederer and became a partner with Arnold & Porter. The firm’s partners asserted they were protected by the LLP law, a novel claim.
“Nowhere in the voluminous commentary on limited liability partnerships has anyone suggested that New York (or any other state) has adopted a statute expanding the concept of limited liability in the way asserted by defendants,” the court said.
Two dissenters said that as a former partner, Ederer should be considered a third-party claimant. “A former partner is a third party where the partnership is concerned, and there is no good reason to treat him more favorably than any other third party,” according to the dissent.
