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The New York Court of Appeals ruled Dec. 20 that partners in a law firm operating as a limited-liability partnership are not shielded from personal liability in disputes with each other. The court’s 5-2 decision in Ederer v. Gursky, 133, stems from a 2003 lawsuit filed by intellectual property lawyer Louis Ederer against his former partners at the now-defunct Gursky & Ederer. Now a partner in the New York office of Arnold & Porter, Ederer sought an accounting, claiming he was owed money pursuant to the agreement by which he withdrew from the firm. The defendants, Steven Gursky, Mitchell Stern, Martin Feinberg and Michael Levine, who all joined Dreier in 2005, disputed Ederer’s claims but also asserted that they were shielded by Gursky & Ederer’s status as an LLP. Over the past decade, most major law firms in New York have adopted LLP status, which limits personal liability to those partners directly involved in a claim. In the few firms still operating as general partnerships, all partners are jointly and severally liable for claims against the firm or another partner. In its decision, the Court of Appeals noted that the LLP form came into being after the savings-and-loan crisis of the late 1980s, when many law firms that had represented failed thrifts were targeted by regulators in lawsuits seeking unprecedented damages. In a decision written by Judge Susan Read on behalf of a majority that also included Judges Victoria Graffeo, Carmen Ciparick, Theodore Jones, and Eugene Pigott, the court said the legislative intent behind the 1994 New York LLP statute was clearly to protect partners from these kinds of third-party claims, not to interfere with their fiduciary duties to one another as partners. “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,” Read wrote. But in a dissent in which Chief Judge Judith Kaye concurred, Judge Robert Smith said the majority had failed to account for the fact that Ederer was a former partner and should be considered a third-party claimant. Smith said the majority’s decision amounted to giving preferential treatment to former partners over both current partners and other third-party creditors. He noted in particular that the decision might produce especially unfair results for partners with small equity stakes. Those partners, he said, could become personally liable for the claims of ex-partners who had much larger interests in the firm. Ederer was represented by J. Christopher Jensen of Cowan Liebowitz & Latman. The defendants were represented by Ira Sacks of Dreier.
Anthony Lin is a reporter for the New York Law Journal , an ALM affiliate.

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