In a decision last week that should gratify partners in law and other professional firms organized as limited liability partnerships, the Supreme Court of the State of New York (Justice Saliann Scarpulla) ruled, in effect, that the requirement of section 26(d) of the New York Partnership Law for a majority vote of partners in order to create personal liability on the part of the partners in a New York limited liability partnership was not met by the limited liability partnership’s becoming the tenant under and then repeatedly amending in other respects a lease which provided that all of the tenant partners were personally liable.
The effect of this ruling is to confirm that the partners in Dewey & LeBouef LLP and its immediate predecessor Dewey LLP are not personally liable on the lease.
To have held otherwise would have upended the entire limited liability structure of limited liability partnerships.
Here are the essential facts:
In 1989 the landlord leased premises to a New York general partnership (herein “Dewey GP“). That lease provided that all the partners in any partnership tenant were jointly and severally liable but then exculpated the partners in the Original Tenant (defined in the lease as the firm which signed the lease, as same may be reconstituted in connection with the admission of new partners).
In 1994 New York adopted its limited liability partnership law.
In 1997 Dewey GP converted into a limited liability partnership (herein “Dewey LLP“).
In 2007 the lease passed from Dewey LLP to Dewey & LeBouef LLP.
The lease was amended 12 times between its original execution and 2012 when the tenant became insolvent.
In this action by the landlord against the individual partners in Dewey LLP and Dewey & LeBouef LLP, the court ruled:
- neither Dewey LLP nor Dewey & LeBouef LLP qualified as an Original Tenant (as that term is defined in the lease) and therefore, in so far as the terms of the lease are concerned, the partners in those firms were personally liable. (This part of the decision is not particularly persuasive (i.e., I think it would have been correct to hold that Dewey LLP is the same firm as Dewey GP and thus does fall within the term Original Tenant), but it sets the stage for the next part.)
- neither the terms of the lease (which, as noted above, provide for personal liability of partners except in the case of the Original Tenant) nor the fact that after the conversion of the tenant into an LLP the lease was repeatedly amended without eliminating or modifying that provision is sufficient to satisfy the requirement of section 26(d) of the Partnership Law that, in order to impose personal liability of the partners in an LLP, there must be a majority vote of the partners to that effect.
In addition to being sound as a legal matter, the decision is fair and consistent with the original bargain, which was that the partners in the original general partnership tenant and its successors with the defined term Original Tenant were not to be personally liable. To have held that converting the partnership from a general partnership to a limited liability partnership, resulting in its no longer qualifying as Original Tenant, causes the partners to become liable, would have been a windfall to the landlord.
One hopes that the decision will not be disturbed on appeal.
1301 Properties Owner LP vs. Philip Abelson, et al. (NY Supreme Court, NY County, Index 653342/2013)
*Apologies to the Chicago Tribune
Commercial Tenant Notes 