On April 1, 2016, Justice Scarpulla of the New York County Commercial Division issued a Decision & Order in 130 Properties Owner, LP, v. Abelson, 2016 NY Slip Op 50446(U) granting a motion to dismiss.
The plaintiff in the action was Dewey & LeBoeuf LLP’s landlord. When Dewey LeBoeuf declared bankruptcy, plaintiff was not paid all the money it was owed, so it commenced this action to recoup its losses from the partners of Dewey LeBoeuf and various predecessor Dewey entities, based upon a term in the lease providing that the partners were jointly & severally liable for amounts owed. The partners moved to dismiss under several legal theories, including that the lease did not satisfy the LLP law’s requirements for imposing joint & several liability upon the partners of an LLP.
The lease was first signed by a Dewey predecessor in 1989, which was at that time a general partnership. The lease provided that “the liability of each of the parties comprising Partnership Tenant shall be joint and several . . . .” In 1997, Dewey Ballantine converted to a limited liability partnership, Dewey Ballantine LLP, but the personal liability provision was not changed in a series of amendments to the lease. Plaintiff argued that this evinced the parties’ intent to continue imposing personal liability, regardless of Dewey’s conversion to an LLP.
The Court rejected this argument, on the grounds that the lease provision did not comply with Partnership Law § 26, which provides that personal liability for the debts of the partnership can only be imposed on the partners of an LLP “to the extent at least a majority of the partners shall have agreed.” The court found that this section “sets forth a statutory procedure for imposing personal liability on partners of an LLP, not merely a default rule that parties may contract around.”
While there may have been a reasonable time period following Dewey Ballantine’s conversion to a limited liability partnership during which the parties may have continued to rely on the personal liability provisions in the lease, that time period has long since elapsed. After Dewey Ballantine’s conversion to an LLP in 1997, the contracting parties had ample opportunity to upgrade the lease and comply with Partnership Law § 26 by securing a majority or other agreement among the partners to be held personally liable. The contracting parties, however, failed to do so, even in the fifteen intervening years after the LLP law went into effect . . . . Sophisticated parties—such as the contracting parties here—are under a continuing legal obligation to ensure that their contracts comply with New York law . . . . parties contracting with LLPs must ensure that their contracts seeking to impose personal liability on partners comply with the Partnership Law. The individual partners of an LLP have a legitimate expectation that they are protected from personal liability, unless they agree to the contrary through a majority agreement among the partners.
Accordingly, the claims against the individual partners were dismissed.