Court Opinion

ID: 9705236
Source: CourtListenerOpinion
Date Created: 2023-08-26 01:00:28.650592+00
Date Added: 2024-06-11T18:22:09.135282
License: Public Domain

Smith, J. (dissenting).
The text of Partnership Law § 26 (b) seems clear to me: “no partner of a partnership which is a registered limited liability partnership is liable . . . for any debts, obligations or liabilities of . . . the registered limited liability partnership . . . whether arising in tort, contract or otherwise.” The statute contains two specific exceptions, applicable when a partner acts wrongfully or when partners agree to vary the liability scheme (Partnership Law § 26 [c], [d]), but there is no exception for liabilities to former partners claiming a share of the partnership’s net assets. We should not create an exception that the Legislature did not (see We're Assoc. Co. v Cohen, Strocher & Bloom, 65 NY2d 148, 151 [1985]). The majority draws a distinction between liability to “third parties” and liabilities to former partners (majority op at 524)—but 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.
No one suggests that section 26 (b) exempts partners from any of their fiduciary duties; if a partner has diverted partnership funds to himself, or otherwise received more than his fair *527share, he will not escape liability and his former partners, as well as his existing partners, will be made whole. The issue is whether a former partner claiming his partnership share may reach the personal assets of partners who are no more blameworthy, and have no more been unjustly enriched, than he has.
I can think of two situations in which this issue may be important. First, without any fault by any partner, the business of the partnership may go badly after a partner withdraws from the firm but before he is paid his share, leaving the firm without enough assets to satisfy his claim. (This is apparently what happened here.) Secondly, the partnership’s insolvency may result from the fault of a partner who is himself insolvent; in that case, the question is whether the former partner can proceed against the innocent remaining partners.
In the first case, there is no apparent reason why a former partner should be allowed to collect his debt when other third-party creditors may not; in fact, the Partnership Law provides in another context that debts to nonpartners have a preferred status (Partnership Law § 71 [b]). In the second case, the rule adopted by the majority can produce even more clearly perverse results. Take an extreme example: Suppose there are three partners, two with a 49% interest each and one with a 2% interest. One of the 49% partners withdraws, and is entitled to 49% of the firm’s assets. Before he can be paid, however, it is found that the other 49% partner has stolen all of those assets, lost them at a casino and gone bankrupt. Why should the innocent 2% partner have to make good the former partner’s large loss?
If the Gursky & Ederer firm had remained a professional corporation, instead of turning itself into a limited liability partnership, the result in this case would not be in question: the individual shareholders of the corporation would not be liable for its obligation to Ederer. I do not see why the partners of an LLP should have an obligation that the shareholders of a PC do not, and I therefore dissent.
Judges Ciparick, Graffeo, Pigott and Jones concur with Judge Read; Judge Smith dissents in a separate opinion in which Chief Judge Kaye concurs.
Order, insofar as appealed from, affirmed, etc.
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