## Facts

- Louis S. Ederer joined a law firm in 1998 as a salaried, nonequity contract partner with an understanding he would become an equity partner.
- In 2000, the founding lawyer, Steven R. Gursky, orally agreed Ederer would receive a 30% ownership interest, financed through reduced distributions over four years.
- In 2001, the firm converted from a professional corporation to a registered limited liability partnership, without a written partnership agreement.
- Three additional attorneys became LLP partners in 2001; ownership interests were allocated among Gursky, Ederer, and the new partners.
- The firm and its principals engaged in internal financial arrangements, including partner loans connected to firm assets and start-up funding.
- In June 2003, Ederer decided to leave; the parties executed a withdrawal agreement providing for specified post-withdrawal compensation and repayment of sums allegedly owed.
- Ederer sued the firm entities and individual partners, alleging breach of the withdrawal agreement and related failures to pay amounts due.
- The individual partners asserted that Partnership Law § 26(b) insulated them from personal liability because the firm was a registered LLP.

## Issues

1. Whether New York Partnership Law § 26(b) shields partners in a registered LLP from personal liability for breaches of obligations owed internally by the partnership or other partners to a partner.

## Decision

- The Court of Appeals affirmed the order denying dismissal of claims against the individual partners.
- The court held that Partnership Law § 26(b) does not shield an LLP partner from personal liability for breaches of the partnership’s or partners’ obligations to each other.
- Ederer’s claims based on the withdrawal agreement and other internal obligations could proceed against the individual partners.

## Legal Principles

- Partnership Law § 26(b) limits partners’ vicarious liability primarily with respect to third-party claims against the LLP, not claims among partners arising from internal obligations.
- Statutory context and structure may narrow broad terms such as “any debts, obligations or liabilities” when the provision’s function is to address external creditor exposure.
- Absent a written partnership agreement, default partnership statutes govern partners’ rights and duties, including enforcement of internal contractual and fiduciary obligations.
- Interpreting § 26(b) to bar internal claims would conflict with statutory mechanisms preserving intra-partnership accountability, including the right to seek an accounting.

## Conclusion

The court held that New York’s LLP liability protection does not create immunity among partners; partners may still face personal liability to each other for breaches of internal obligations, including withdrawal-related payment commitments.


Ederer v. Gursky, 9 N.Y.3d 514 (N.Y. 2007)