Former Dewey & LeBoeuf partners not liable for unpaid rent, judge rules
In a ruling that took hundreds of former partners of Dewey & LeBoeuf and predecessor firms off the hook, a New York judge on Monday held that an office lease did not impose personal liability on them for rent that wasn’t paid after Dewey filed for bankruptcy.
The original 1989 lease with a predecessor firm did provide for personal liability of partners, in lieu of a security deposit. However, more than a dozen changes were made to the lease subsequently, and the structure of the firm and state law changed in the meantime, too, reports the New York Law Journal (sub. req.).
For such a personal liability provision to be effective under New York partnership law, a majority of the members of a limited liability partnership must agree to waive state-law protections against personal liability. But in the 15 years since the law governing LLPs went into effect no vote or other agreement to personal liability was ever obtained from Dewey’s partners. Hence, the lease provision providing for personal liability is ineffective, ruled Manhattan Supreme Court Justice Saliann Scarpulla.
A total of 426 former partners initially faced the landlord’s suit, but the number of defendants was later reduced to 327.
“This was an extremely important decision because it affects a lot of law firms in Manhattan,” partner Daniel Kornstein of Emery Celli Brinckerhoff & Abady told the legal publication. He represents about 37 former Dewey Ballantine partners who exited in September 2007, before the merger with LeBoeuf, Lamb, Greene & MacRae that set the stage for the combined firm’s 2012 bankruptcy.
Partner Howard Kingsley of Rosenberg & Estis represents the landlord. He said they are reviewing the decision.
While former partners of Dewey aren’t liable for office rent, they have had to deal with clawbacks and, in some cases, unpaid loans for capital contributions when they joined the firm.
Related coverage:
ABAJournal.com: “Did lease make 450 Dewey partners personally liable for default? Suit seeks unpaid rent”
See also:
ABA Journal: “How Dewey management’s rosy picture masked an ugly truth”
ABAJournal.com: “Judge OKs liquidation plan in Dewey & LeBoeuf’s bankruptcy case”