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Keck, Mahin & Cate v. Billauer (In re Keck, Mahin & Cate) - 274 B.R. 740 (Bankr. N.D. Ill. 2002)

Rule:

A partner cannot escape liability simply by leaving the partnership after the malpractice is committed but before the client wins or settles a malpractice claim. Within the context of partnership dissolution, withdrawing partners remain liable for matters pending at the time of dissolution. Liability under 805 Ill. Comp. Stat. 205/13 of the Illinois Uniform Partnership Act arises at the time of the offending conduct. 

Facts:

Jacob Brandzel's filed an adversary complaint seeking a determination of defendants' liability under the Illinois Uniform Partnership Act (IUPA), 805 ILCS 205/1 et seq. (West 1993). Brandzel is the plan administrator for the debtor Keck, Mahin & Cate (Keck) pursuant to the chapter 11 plan (Plan) confirmed by the bankruptcy court on December 16, 1999. Brandzel sought recovery for malpractice claims filed by Bank of Orange County and Pacific Inland Bancorp (Pacific Inland) and Wozniak Industries, Inc. (Wozniak), a claim filed by Citizens Commercial Leasing Corporation (Citizens) and administrative claims allowed in the bankruptcy case as of December 16, 1999. Defendants Barbara P. Billauer and Thomas E. Ho'okano are former capital partners of Keck. Pursuant to the Plan, Brandzel is the assignee of all allowed claims, and has the right to seek recovery from partners who did not participate in a settlement of partners' outstanding liabilities. Defendants Billauer and Ho'okano dispute any liability for allowed claims against Keck.

Issue:

Were the defendants liable to the administrator for the administrative claims, and for two of the creditors' claims?

Answer:

Yes

Conclusion:

The court held that defendants could not escape liability by leaving the firm after the malpractice was committed, but before the client won a malpractice claim. Under 805 Ill. Comp. Stat. 205/13, liability arose at the time of the malpractice, not a subsequent liquidation of damages. Two creditors' claims arose before defendants left the firm. Defendants were liable for the full amount of those claims. But, there was no evidence as to how much was owed the third creditor while the defendants were partners. Dissolution did not of itself discharge the existing liability of any partners under 805 Ill. Comp. Stat. 205/36(1). The plan stated that to the extent the plan was inconsistent with any other document, the plan was controlling. The plan prevailed over any limitation under the partnership agreement. Because the court had approved the settlements with the creditors, defendants could not raise defenses to the underlying claims. The debtor had entered into a tolling agreement and defendants were not relieved from liability simply because they did not expressly consent to the tolling or settlement agreements. And, a statute of limitations defense had no merit.

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