From Partnership to Personal Liability

“Winding up” refers to the process of settling partnership affairs that occurs between dissolution and termination of the partnership. During this time, the partnership completes old business, collects and pays debts and obligations, and distributes any remaining assets to the partners. See, e.g., Adams v. U.S., 218 F.3d 383, 388 (5th Cir. 2000); Ellebracht v. Siebring, 525 F. Supp. 113, 116 (W.D. Mo. 1981) (interpreting Iowa law). Cases pending prior to the dissolution of the law firm partnership must be seen to their conclusion before the winding up process can be completed. See, e.g., Dow v. Jones, 311 F. Supp. 2d 461, 472 (D. Md. 2004)(citing cases).

In an illustration of the problem of liability of a withdrawn partner, attorneys A and B form a general partnership (“Firm”). Client C approaches Attorney B and they agree to have Firm represent Client C in a matter. Attorney B exclusively handles Client C's matter. Attorneys A and B decide to dissolve the partnership and A withdraws from the Firm. At that time, Attorney B begins winding up the Firm's affairs. Attorney A is not involved in winding up the partnership's affairs. During the course of that winding up, Attorney B commits malpractice in matter of Client C. If Client C chose to name Attorney A as a defendant in a malpractice lawsuit, most courts would find A liable. See, e.g., Redman v. Walters, 88 Cal. App. 3d 448, 152 Cal. Rptr. 42 (1979). If Client C did not name Attorney A as a defendant, but won a judgment against B, Attorney B could bring suit against Attorney A to collect. For Attorney A to protect himself from liability, he must understand the reason why he would be held liable as well as any action he might take to shield himself from suit.

Under the Uniform Partnership Act (“UPA”), enacted by almost all states, a general partnership continues following dissolution until the winding up is complete. UPA ' 30 (1914) (see also Revised Unif. P'ship Act (“RUPA”) ' 802(a) (1997), adopted by a majority of states). Per the UPA, dissolution is caused by any partner ceasing to be associated with the partnership. UPA ' 29. Under RUPA, a partnership need not be terminated when a partner ceases to be associated with it (which would be a disassociation under ' 601), which allows the partnership to continue as an entity. However, should the partner wish to terminate the relationship and dissolution ensues, a winding up period still must occur before termination. RUPA ' 802(a). Liability may still accrue for the partner in the firm who is conducting the winding up affairs. Further, during the course of the partnership, any partner is jointly and severally liable for any penalty incurred for the wrongful act or omission of his partner in the ordinary course of partnership business where such conduct leads to loss or injury to a non-partner. UPA ” 13, 15. Moreover, both UPA ' 18(b) and RUPA ' 401(c) state that, subject to any agreements between the partners, a partnership shall indemnify a partner for liabilities incurred in the ordinary conduct of its business or for the preservation of its business or property. Thus partners are liable for contributing to the indemnification of another partner's liability.

As several courts have noted, the withdrawing partner thus would be found to have joint and several liability for malpractice claims occurring after dissolution, but before completion of winding up. Such liability would attach regardless of whether it is UPA or RUPA that defines the obligations and liabilities of the parties. See UPA ” 13, 15; RUPA ' 306.

For example, in Redman v. Walters, a firm agreed to represent a client in a litigation. 88 Cal. App. 3d 448, 152 Cal. Rptr. 42 (1979). One year later, a partner (Walters) withdrew from the firm. Walters had not worked on and was in fact unaware of that litigation. Following the dissolution, the resulting firm continued representing the client whose claim was dismissed for failure to bring the action to trial within the required period. The client sued for malpractice both Walters and the firm that resulted from his withdrawal. The California Court of Appeals reversed summary judgment in favor of Walters. The appellate court noted that the partnership was not terminated with respect to its duty to fulfill its contractual obligation to its client and that the partnership was obliged to perform this duty while it was “winding up.” With respect to the client in this matter, Walters remained a partner of the firm and the client did not give Walters express or implied consent releasing him from his duty to perform. Hence, the California Court of Appeals found Walters liable for a claim of malpractice that arose four years after he left the firm. Thus, in the hypothetical illustration above, withdrawn Attorney A may be held jointly and severally liable for malpractice that occurred after his withdrawal by the partner(s) winding up.

Attorney A may also be held jointly and severally liable for malpractice that occurred after he left the partnership if he did not notify the clients of his withdrawal prior to the alleged malpractice; such liability may attach even if Attorney A was prevented from accessing the clients' information to send notice. In Palomba v. Barish, the court denied the motion for summary judgment brought by Daniels, the withdrawn partner, with respect to a malpractice claim. 626 F. Supp. 722 (E.D. Pa. 1985). In Palomba, the clients sued over alleged malpractice two years after Daniels withdrew. Another partner represented the clients on their original claims. The court noted that the dissolution “will not relieve an individual partner of a duty under a contract entered into before the partnership was dissolved,” and thus the two-year difference between his withdrawal and alleged negligent acts “is of little moment.” Id. at 725. The court would not impute to the clients' knowledge of Daniels' departure, and stated that he could (and probably should) have contacted the clients to inform them of his departure. The courts so concluded even if the firm had prevented Daniels from obtaining the clients' contact information.

These outcomes above should not be surprising, because through the winding up period, partners, both those who withdraw and those who wind up the firm's affairs, maintain a fiduciary relationship with each other as well as with clients who retained the firm prior to dissolution. For example, in Volgraff v. Block, the court denied the withdrawn attorney's motion to dismiss the complaint in a malpractice action. 458 N.Y.S.2d 437 (1982). In Volgraff, a partnership had been formed pursuant to an oral agreement and dissolved about 14 months later. During the partnership, clients retained the law firm to prosecute their personal injury action. At the time of dissolution, all partners went their separate ways and no successor firm was named. The clients were not informed of the dissolution; none of the former attorneys proceeded with the matter; and the personal injury action became time-barred.

The court noted that while liability claims arising after dissolution in ordinary business relationships involving partnerships and third persons may be waived, the relationship between a law firm and its clients is not an ordinary business relationship; there is “a fiduciary relationship [that] requires a high degree of fidelity and good faith.” Id. at 440. The court concluded that “the fiduciary relationship is breached if a law partnership's clients are not advised of the partnership's dissolution and some prejudice thereby results,” and thus “the mere dissolution” of the partnership is “ineffective to terminate the partners' obligations as attorneys toward partnership clients.” Id.

Suggested Precautions for Withdrawing Attorneys

The withdrawn attorney will typically get none of the economic benefit of work done during the winding up period, but may be found liable for wrongs committed during that time. However, an attorney who is anticipating forming a general partnership law firm, or is already a partner in one, does have several possible ways to avoid liability that he or she might face as a withdrawn partner for malpractice committed during the winding up period. Although each action alone may not be enough to allow the withdrawn partner to avoid both economic and professional liability, the partnership should consider taking these actions prior to any dissolution.

In lieu of completing pending work, a dissolved partnership may afford the client an opportunity to seek other counsel. However, especially for smaller partnerships, it may be difficult for the individual attorneys or resulting firms to withdraw from such representation. Simply put, it may not be feasible to start completely anew. As long as the remaining attorney or resulting firm adequately continues to represent the client's interests, there may be scant incentive to suggest alternative counsel.

As is apparent from the Redman, Palomba, and Volsgraf decisions (as well as from UPA ' 36(2)), notice to the client, informing him or her of the withdrawal of the partner, may allow for informed consent to release either the prior firm or the departing lawyer from liability for later actions. Such notification may allow the winding up period, where the partners are still associated, to conclude earlier for that particular client and to allow the client's matter to be considered new business for either the departing lawyer or any resulting firm. Such notification leading to client choice is permissible under the Model Rules, so long as any such agreement limiting liability is made by a client who was independently represented with respect to the agreement. See MODEL RULES OF PROF'L CONDUCT R. 1.8(h) (2008).

However, it is unlikely that a client will consent to releasing the former partner or firm from liability in the event of malpractice in the winding up period. A client would have little incentive to eliminate a possible source of recovery; such consent may bar recovery in the malpractice action when any recovery in the underlying action has been lost due to the remaining attorneys' malpractice. For example, if the withdrawing partner has significant personal assets, and the winding up firm and partner(s) do not, a release of the withdrawn partner would prevent the client from reaching all persons who would otherwise be liable under partnership law, and thus severely limit any possible recovery for malpractice.

Prior to dissolution, the partners should examine their malpractice insurance coverage to ascertain whether a withdrawn partner would be covered for malpractice committed by his partners during the winding up period. Partners should determine when they would be covered, whether they would be covered for claims asserted after withdrawal, and how long their coverage would extend after withdrawal. It may be wise for every partner, both those who withdraw and those who wind up the firm's affairs, to purchase additional coverage for liabilities asserted at a later time that arose during the winding up period. Such a precaution may ensure that there is no gap in coverage for any of the partners in the former partnership.

A firm may also be able to create an indemnification agreement among its partners to discharge the departing attorney from liability to the firm incurred after her withdrawal. Many law firm partnership agreements do not address through indemnification provisions the risk of malpractice liability for a withdrawing partner. Such a provision would best be included in an agreement upon the formation of the partnership when it is unclear who, if anyone, would be a withdrawing partner (and thereby benefit from the provision) and who would be charged with winding up the business of the partnership (and thus be responsible to indemnify the withdrawn partner(s)). Of course such indemnification may do little to protect the withdrawn attorney from the client's suit against him or her personally. Should the assets of the remaining members or former firm not cover the liability incurred, an indemnification provision will not protect the withdrawn attorney's assets, as he or she will be unable to recover anything from the remaining partners.

LLPs

Perhaps the best way that a withdrawing partner may protect his or her personal assets from later malpractice liability by others is to form a limited liability partnership (“LLP”). Certain criteria that vary by state must be met to create and maintain an LLP status; they may include registration, a specific form, and insurance coverage. Under that structure, the withdrawing partner whose former firm commits malpractice may have his personal assets protected. However, LLP status does not necessarily protect against liability for ethical violations. In the 1990s, states began allowing partnerships to form as LLPs. See, e.g., Fla. Stat. Ann. ” 620.8101 to 620.9902.; Tex. Rev. Civ. Stat. Ann. ” 6132b-1.01 to 6132b-11.05. Such structures best protect withdrawn partners from vicarious liability for malpractice claims for conduct after dissolution. Indeed in 1997, RUPA included provisions discussing limited liability partnerships. Section 306(c) both makes obligations LLP partnerships owe solely the obligation of the firm, and also precludes personal liability for partners for an obligation otherwise applicable solely by reason of being or acting as a partner in the LLP. However, LLP status will not insulate the partners from malpractice committed prior to the partnership becoming an LLP.

Although not all states have allowed law firms to form LLPs, such structures have become more common. As of 2002, of the more than 65,000 law firms in the country, 26% (17,055) were general partnerships and 9% (6,083) were LLPs; 48% were organized as professional corporations and 7% as limited liability companies. See Robert W. Hillman, Organizational Choices of Professional Services Firms: An Empirical Study, 58 Bus. Law. 1387, 1398 (2003). In the wake of corporate scandals and dissolutions like the Enron and Arthur Andersen collapses, LLPs may make up a larger percentage of law firms in the country today, and general partnerships a smaller percentage. See, e.g., Anthony Lin, Two Firms Move to Limit Their Liability, N.Y.L.J., Jan. 9, 2003, at 1, col. 3. In concept, an LLP is subject to general partnership law except with respect to third party (vicarious) liability. See Dow v. Jones, 311 F. Supp. 2d 461 (D. Md. 2004)(applying UPA provisions in District of Columbia to dissolved LLP law firm); Mudge Rose Guthrie Alexander & Ferdon v. Pickett, 11 F. Supp. 2d 449 (S.D.N.Y. 1998)(applying New York partnership law to LLP firm). Where the LLP provisions are silent, either UPA or RUPA provisions will be applied, absent partner agreement, to fill in the gaps. Thus, upon a withdrawal, partners in an LLP can continue with only some state-dependent formalities that will let them maintain the LLP status. Like a general partnership, a dissolving LLP must wind up its affairs and would be liable for any malpractice committed during this time.

Personal liability is not always avoided if there is a judgment against an LLP, as courts in some circumstances may allow the plaintiff to pierce the corporate veil and reach a partner's personal assets. See, e.g., Mudge Rose, 11 F. Supp. 2d at 453, n.18 (under New York law, limited liability protection does not cover, and therefore leaves partners liable for obligations incurred prior to registration of the partnership as an LLP, malpractice committed by them or those under their supervision, and any firm liabilities that a majority of the partners agreed upon); Ederer v. Gursky, 9 N.Y.3d 514, 881 N.E.2d 204 (2007) (under New York law, in the absence of an agreement, partners in an LLP are not shielded from personal liability for breaches of the partners' obligations to each other). Further, many states require the LLP to maintain a minimum amount of insurance coverage. See, e.g., Cal. Corp. Code ' 16956(a)(2)(a)(insurance coverage for an LLP law firm must be a minimum of $1 million, with the minimum increasing $100,000 per additional licensee, but is not required to exceed $7.5 million); W. Va. Code Ann. ' 47B-10-5 (minimum of $1 million coverage for all LLPs). Where the insurance is legally inadequate, or where malpractice claims arise during dissolution that are well above the amount of insurance, the court may pierce the corporate veil. Because LLPs are still a relatively new phenomenon, it will be interesting to see how far courts may be willing to go to obtain restitution for clients injured by malpractice by a dissolving LLP.

Debra L. Raskin, a member of this newsletter's Board of Editors, is a partner at Vladeck, Waldman, Elias & Engelhard, P.C., New York. She can be reached at [email protected]. Mark A. Keurian is a graduate of Fordham University School of Law and a law clerk at the firm.

When drafting a contract for a client, a lawyer knows to anticipate and address many issues that may arise under the binding agreement. Such attention avoids problems that may result from a breach or termination of the contract. However, in many cases, lawyers do not anticipate or address these concerns in their own agreements.

Partnership and Liability

Law firm partnerships are created with the hope that the union will bring the partners prosperity, both professionally and economically. Unfortunately, in many instances and for a variety of reasons, these goals are not achieved and the partners choose to dissolve their partnership and “wind up” their affairs. Unfortunately during the current economic downturn, dissolution seems like too common an outcome for many partnerships. As partnerships may come closer to dissolution, or new partnerships may be formed, they should plan for what effect a possible dissolution will have. Lawyers should especially consider an area commonly overlooked concerning partners who withdraw from a general partnership during the winding up period: liability for malpractice by the remaining partner(s).

“Winding up” refers to the process of settling partnership affairs that occurs between dissolution and termination of the partnership. During this time, the partnership completes old business, collects and pays debts and obligations, and distributes any remaining assets to the partners. See, e.g., Adams v. U.S. , 218 F.3d 383, 388 (5th Cir. 2000); Ellebracht v. Siebring , 525 F. Supp. 113, 116 (W.D. Mo. 1981) (interpreting Iowa law). Cases pending prior to the dissolution of the law firm partnership must be seen to their conclusion before the winding up process can be completed. See, e.g., Dow v. Jones , 311 F. Supp. 2d 461, 472 (D. Md. 2004)(citing cases).

In an illustration of the problem of liability of a withdrawn partner, attorneys A and B form a general partnership (“Firm”). Client C approaches Attorney B and they agree to have Firm represent Client C in a matter. Attorney B exclusively handles Client C's matter. Attorneys A and B decide to dissolve the partnership and A withdraws from the Firm. At that time, Attorney B begins winding up the Firm's affairs. Attorney A is not involved in winding up the partnership's affairs. During the course of that winding up, Attorney B commits malpractice in matter of Client C. If Client C chose to name Attorney A as a defendant in a malpractice lawsuit, most courts would find A liable. See, e.g., Redman v. Walters , 88 Cal. App. 3d 448, 152 Cal. Rptr. 42 (1979). If Client C did not name Attorney A as a defendant, but won a judgment against B, Attorney B could bring suit against Attorney A to collect. For Attorney A to protect himself from liability, he must understand the reason why he would be held liable as well as any action he might take to shield himself from suit.

Under the Uniform Partnership Act (“UPA”), enacted by almost all states, a general partnership continues following dissolution until the winding up is complete. UPA ' 30 (1914) (see also Revised Unif. P'ship Act (“RUPA”) ' 802(a) (1997), adopted by a majority of states). Per the UPA, dissolution is caused by any partner ceasing to be associated with the partnership. UPA ' 29. Under RUPA, a partnership need not be terminated when a partner ceases to be associated with it (which would be a disassociation under ' 601), which allows the partnership to continue as an entity. However, should the partner wish to terminate the relationship and dissolution ensues, a winding up period still must occur before termination. RUPA ' 802(a). Liability may still accrue for the partner in the firm who is conducting the winding up affairs. Further, during the course of the partnership, any partner is jointly and severally liable for any penalty incurred for the wrongful act or omission of his partner in the ordinary course of partnership business where such conduct leads to loss or injury to a non-partner. UPA ” 13, 15. Moreover, both UPA ' 18(b) and RUPA ' 401(c) state that, subject to any agreements between the partners, a partnership shall indemnify a partner for liabilities incurred in the ordinary conduct of its business or for the preservation of its business or property. Thus partners are liable for contributing to the indemnification of another partner's liability.

As several courts have noted, the withdrawing partner thus would be found to have joint and several liability for malpractice claims occurring after dissolution, but before completion of winding up. Such liability would attach regardless of whether it is UPA or RUPA that defines the obligations and liabilities of the parties. See UPA ” 13, 15; RUPA ' 306.

For example, in Redman v. Walters, a firm agreed to represent a client in a litigation. 88 Cal. App. 3d 448, 152 Cal. Rptr. 42 (1979). One year later, a partner (Walters) withdrew from the firm. Walters had not worked on and was in fact unaware of that litigation. Following the dissolution, the resulting firm continued representing the client whose claim was dismissed for failure to bring the action to trial within the required period. The client sued for malpractice both Walters and the firm that resulted from his withdrawal. The California Court of Appeals reversed summary judgment in favor of Walters. The appellate court noted that the partnership was not terminated with respect to its duty to fulfill its contractual obligation to its client and that the partnership was obliged to perform this duty while it was “winding up.” With respect to the client in this matter, Walters remained a partner of the firm and the client did not give Walters express or implied consent releasing him from his duty to perform. Hence, the California Court of Appeals found Walters liable for a claim of malpractice that arose four years after he left the firm. Thus, in the hypothetical illustration above, withdrawn Attorney A may be held jointly and severally liable for malpractice that occurred after his withdrawal by the partner(s) winding up.

Attorney A may also be held jointly and severally liable for malpractice that occurred after he left the partnership if he did not notify the clients of his withdrawal prior to the alleged malpractice; such liability may attach even if Attorney A was prevented from accessing the clients' information to send notice. In Palomba v. Barish, the court denied the motion for summary judgment brought by Daniels, the withdrawn partner, with respect to a malpractice claim. 626 F. Supp. 722 (E.D. Pa. 1985). In Palomba, the clients sued over alleged malpractice two years after Daniels withdrew. Another partner represented the clients on their original claims. The court noted that the dissolution “will not relieve an individual partner of a duty under a contract entered into before the partnership was dissolved,” and thus the two-year difference between his withdrawal and alleged negligent acts “is of little moment.” Id. at 725. The court would not impute to the clients' knowledge of Daniels' departure, and stated that he could (and probably should) have contacted the clients to inform them of his departure. The courts so concluded even if the firm had prevented Daniels from obtaining the clients' contact information.

These outcomes above should not be surprising, because through the winding up period, partners, both those who withdraw and those who wind up the firm's affairs, maintain a fiduciary relationship with each other as well as with clients who retained the firm prior to dissolution. For example, in Volgraff v. Block, the court denied the withdrawn attorney's motion to dismiss the complaint in a malpractice action. 458 N.Y.S.2d 437 (1982). In Volgraff, a partnership had been formed pursuant to an oral agreement and dissolved about 14 months later. During the partnership, clients retained the law firm to prosecute their personal injury action. At the time of dissolution, all partners went their separate ways and no successor firm was named. The clients were not informed of the dissolution; none of the former attorneys proceeded with the matter; and the personal injury action became time-barred.

The court noted that while liability claims arising after dissolution in ordinary business relationships involving partnerships and third persons may be waived, the relationship between a law firm and its clients is not an ordinary business relationship; there is “a fiduciary relationship [that] requires a high degree of fidelity and good faith.” Id. at 440. The court concluded that “the fiduciary relationship is breached if a law partnership's clients are not advised of the partnership's dissolution and some prejudice thereby results,” and thus “the mere dissolution” of the partnership is “ineffective to terminate the partners' obligations as attorneys toward partnership clients.” Id.

Suggested Precautions for Withdrawing Attorneys

The withdrawn attorney will typically get none of the economic benefit of work done during the winding up period, but may be found liable for wrongs committed during that time. However, an attorney who is anticipating forming a general partnership law firm, or is already a partner in one, does have several possible ways to avoid liability that he or she might face as a withdrawn partner for malpractice committed during the winding up period. Although each action alone may not be enough to allow the withdrawn partner to avoid both economic and professional liability, the partnership should consider taking these actions prior to any dissolution.

In lieu of completing pending work, a dissolved partnership may afford the client an opportunity to seek other counsel. However, especially for smaller partnerships, it may be difficult for the individual attorneys or resulting firms to withdraw from such representation. Simply put, it may not be feasible to start completely anew. As long as the remaining attorney or resulting firm adequately continues to represent the client's interests, there may be scant incentive to suggest alternative counsel.

As is apparent from the Redman, Palomba, and Volsgraf decisions (as well as from UPA ' 36(2)), notice to the client, informing him or her of the withdrawal of the partner, may allow for informed consent to release either the prior firm or the departing lawyer from liability for later actions. Such notification may allow the winding up period, where the partners are still associated, to conclude earlier for that particular client and to allow the client's matter to be considered new business for either the departing lawyer or any resulting firm. Such notification leading to client choice is permissible under the Model Rules, so long as any such agreement limiting liability is made by a client who was independently represented with respect to the agreement. See MODEL RULES OF PROF'L CONDUCT R. 1.8(h) (2008).

However, it is unlikely that a client will consent to releasing the former partner or firm from liability in the event of malpractice in the winding up period. A client would have little incentive to eliminate a possible source of recovery; such consent may bar recovery in the malpractice action when any recovery in the underlying action has been lost due to the remaining attorneys' malpractice. For example, if the withdrawing partner has significant personal assets, and the winding up firm and partner(s) do not, a release of the withdrawn partner would prevent the client from reaching all persons who would otherwise be liable under partnership law, and thus severely limit any possible recovery for malpractice.

Prior to dissolution, the partners should examine their malpractice insurance coverage to ascertain whether a withdrawn partner would be covered for malpractice committed by his partners during the winding up period. Partners should determine when they would be covered, whether they would be covered for claims asserted after withdrawal, and how long their coverage would extend after withdrawal. It may be wise for every partner, both those who withdraw and those who wind up the firm's affairs, to purchase additional coverage for liabilities asserted at a later time that arose during the winding up period. Such a precaution may ensure that there is no gap in coverage for any of the partners in the former partnership.

A firm may also be able to create an indemnification agreement among its partners to discharge the departing attorney from liability to the firm incurred after her withdrawal. Many law firm partnership agreements do not address through indemnification provisions the risk of malpractice liability for a withdrawing partner. Such a provision would best be included in an agreement upon the formation of the partnership when it is unclear who, if anyone, would be a withdrawing partner (and thereby benefit from the provision) and who would be charged with winding up the business of the partnership (and thus be responsible to indemnify the withdrawn partner(s)). Of course such indemnification may do little to protect the withdrawn attorney from the client's suit against him or her personally. Should the assets of the remaining members or former firm not cover the liability incurred, an indemnification provision will not protect the withdrawn attorney's assets, as he or she will be unable to recover anything from the remaining partners.

LLPs

Perhaps the best way that a withdrawing partner may protect his or her personal assets from later malpractice liability by others is to form a limited liability partnership (“LLP”). Certain criteria that vary by state must be met to create and maintain an LLP status; they may include registration, a specific form, and insurance coverage. Under that structure, the withdrawing partner whose former firm commits malpractice may have his personal assets protected. However, LLP status does not necessarily protect against liability for ethical violations. In the 1990s, states began allowing partnerships to form as LLPs. See, e.g., Fla. Stat. Ann. ” 620.8101 to 620.9902.; Tex. Rev. Civ. Stat. Ann. ” 6132b-1.01 to 6132b-11.05. Such structures best protect withdrawn partners from vicarious liability for malpractice claims for conduct after dissolution. Indeed in 1997, RUPA included provisions discussing limited liability partnerships. Section 306(c) both makes obligations LLP partnerships owe solely the obligation of the firm, and also precludes personal liability for partners for an obligation otherwise applicable solely by reason of being or acting as a partner in the LLP. However, LLP status will not insulate the partners from malpractice committed prior to the partnership becoming an LLP.

Although not all states have allowed law firms to form LLPs, such structures have become more common. As of 2002, of the more than 65,000 law firms in the country, 26% (17,055) were general partnerships and 9% (6,083) were LLPs; 48% were organized as professional corporations and 7% as limited liability companies. See Robert W. Hillman, Organizational Choices of Professional Services Firms: An Empirical Study, 58 Bus. Law. 1387, 1398 (2003). In the wake of corporate scandals and dissolutions like the Enron and Arthur Andersen collapses, LLPs may make up a larger percentage of law firms in the country today, and general partnerships a smaller percentage. See, e.g., Anthony Lin, Two Firms Move to Limit Their Liability, N.Y.L.J., Jan. 9, 2003, at 1, col. 3. In concept, an LLP is subject to general partnership law except with respect to third party (vicarious) liability. See Dow v. Jones , 311 F. Supp. 2d 461 (D. Md. 2004)(applying UPA provisions in District of Columbia to dissolved LLP law firm); Mudge Rose Guthrie Alexander & Ferdon v. Pickett , 11 F. Supp. 2d 449 (S.D.N.Y. 1998)(applying New York partnership law to LLP firm). Where the LLP provisions are silent, either UPA or RUPA provisions will be applied, absent partner agreement, to fill in the gaps. Thus, upon a withdrawal, partners in an LLP can continue with only some state-dependent formalities that will let them maintain the LLP status. Like a general partnership, a dissolving LLP must wind up its affairs and would be liable for any malpractice committed during this time.

Personal liability is not always avoided if there is a judgment against an LLP, as courts in some circumstances may allow the plaintiff to pierce the corporate veil and reach a partner's personal assets. See, e.g., Mudge Rose, 11 F. Supp. 2d at 453, n.18 (under New York law, limited liability protection does not cover, and therefore leaves partners liable for obligations incurred prior to registration of the partnership as an LLP, malpractice committed by them or those under their supervision, and any firm liabilities that a majority of the partners agreed upon); Ederer v. Gursky , 9 N.Y.3d 514, 881 N.E.2d 204 (2007) (under New York law, in the absence of an agreement, partners in an LLP are not shielded from personal liability for breaches of the partners' obligations to each other). Further, many states require the LLP to maintain a minimum amount of insurance coverage. See, e.g., Cal. Corp. Code ' 16956(a)(2)(a)(insurance coverage for an LLP law firm must be a minimum of $1 million, with the minimum increasing $100,000 per additional licensee, but is not required to exceed $7.5 million); W. Va. Code Ann. ' 47B-10-5 (minimum of $1 million coverage for all LLPs). Where the insurance is legally inadequate, or where malpractice claims arise during dissolution that are well above the amount of insurance, the court may pierce the corporate veil. Because LLPs are still a relatively new phenomenon, it will be interesting to see how far courts may be willing to go to obtain restitution for clients injured by malpractice by a dissolving LLP.

Debra L. Raskin, a member of this newsletter's Board of Editors, is a partner at Vladeck, Waldman, Elias & Engelhard, P.C., New York. She can be reached at [email protected]. Mark A. Keurian is a graduate of Fordham University School of Law and a law clerk at the firm.