Law School Case Brief
Ederer v. Gursky - 2007 NY Slip Op 9960, 9 N.Y.3d 514, 851 N.Y.S.2d 108, 881 N.E.2d 204
Partnership Law § 26 has always been understood to mean what it plainly says: general partners are jointly and severally liable to non-partner creditors for all wrongful acts and breaches of trust committed by their partners in carrying out the partnership's business, and jointly liable for all other debts to third parties. This proposition follows naturally from the very nature of a partnership, which is based on the law of principal and agent. Just as a principal is liable for the acts of its agents, each partner is personally responsible for the acts of other partners in the ordinary course of the partnership's business. In addition to this vicarious liability to non-partner creditors, each partner concomitantly has an obligation to share or bear the losses of the partnership through contribution and indemnification in the context of an ongoing partnership.
Plaintiff Ederer, a withdrawing partner of a Limited Liability Partnership, filed a suit for accounting and breach of contract against defendant partners. The trial court had determined that plaintiff was entitled to an accounting against all defendants because Partnership Law § 26, which placed limits on the personal liability of partners in a LLP, applied to debts of the partnership or the partners to third parties and had nothing to do with a partner's fiduciary obligation to account to his partners for the assets of the partnership. The Appellate Division affirmed Supreme Court's order, concluding that Partnership Law § 26(b) did not exempt . . . partners from their individual obligations to account to a withdrawing partner under the earlier enacted and unamended Partnership Law § 74" and "does not exempt the individual defendants from liability to plaintiff for breaches of firm-related agreements between them." individual defendants argued that they had not entered into any agreements with plaintiff. Defendants subsequently moved in the Appellate Division for leave to appeal to the Court of Appeals, which the Appellate Division granted.
Does Partnership Law § 26 shield a general partner in a registered LLP from personal liability for breaches of the partnership's or partners' obligations to each other?
The Court of Appeals of New York rejected defendants' argument and held that the phrase "any debts" in part of § 26 always and only governed a partner's liability to third parties. This proposition follows naturally from the very nature of a partnership, which is based on the law of principal and agent. Just as a principal is liable for the acts of its agents, each partner is personally responsible for the acts of other partners in the ordinary course of the partnership's business.
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