## Facts

- Keck, Mahin & Cate (Keck) was an Illinois law-firm partnership.
- Keck’s creditors filed an involuntary bankruptcy petition; the case was converted to a Chapter 11 proceeding.
- The bankruptcy court confirmed a Chapter 11 plan on December 16, 1999, and appointed Jacob Brandzel as plan administrator.
- The plan created a mechanism for the plan administrator to pursue certain former partners who did not participate in a global partner settlement (referred to as non-participating partners).
- Brandzel sued former Keck partners Barbara P. Billauer and Thomas E. Ho’okano in an adversary proceeding, seeking to hold them jointly and severally liable for specified Keck obligations under the Illinois Uniform Partnership Act (IUPA).
- The asserted obligations included malpractice-based claims involving Pacific Inland Bancorp and Wozniak Industries, Inc., certain administrative claims allowed in the bankruptcy case as of plan confirmation, and a claim asserted by Citizens Commercial Leasing Corporation.
- Billauer and Ho’okano argued they were not liable because the claims did not “accrue” until after they withdrew from the partnership and because a successor/newly formed partnership allegedly assumed Keck’s debts.
- The bankruptcy court conducted a trial on the merits and issued findings of fact, conclusions of law, and a judgment order.

## Issues

1. Under the Illinois Uniform Partnership Act, does a former partner remain personally (jointly and severally) liable for malpractice-based partnership obligations when the wrongful acts or omissions occurred while the person was a partner, even if the claim was later settled, reduced to judgment, or allowed in bankruptcy after the partner withdrew?
2. Can the plan administrator, consistent with the confirmed Chapter 11 plan and Illinois partnership law, recover from non-participating former partners for allowed administrative claims attributable to partnership obligations arising during their tenure as partners?
3. Did the plan administrator prove that the Citizens Commercial Leasing Corporation claim arose from conduct or obligations incurred while Billauer and Ho’okano were partners, such that liability could be imposed under the IUPA?
4. Does a partner’s withdrawal from the partnership, or an alleged assumption of liabilities by a successor partnership, relieve the withdrawing partner of liability for partnership obligations tied to acts occurring during the partner’s tenure?

## Decision

- The court entered judgment for the plan administrator and held Billauer and Ho’okano jointly and severally liable for partnership obligations totaling $3,777,787.73.
- The court awarded $775,000.00 on the Wozniak Industries, Inc. claim and $825,000.00 on the Pacific Inland Bancorp claim.
- The court awarded $2,177,787.73 for administrative claims allowed in the bankruptcy case as of plan confirmation, finding the plan and Illinois partnership law permitted recovery from non-participating partners for those obligations.
- The court found for the defendants on the Citizens Commercial Leasing Corporation claim, concluding the plan administrator did not prove that claim arose while Billauer and Ho’okano were partners.
- The court rejected defenses based on withdrawal and alleged successor-partnership assumption, concluding those facts did not eliminate liability for obligations arising from acts that occurred while defendants were partners.
- The court dismissed Billauer’s counterclaims with prejudice.

## Legal Principles

- Under the Illinois Uniform Partnership Act, partners are personally liable, jointly and severally, for partnership obligations arising from wrongful acts or omissions committed in the ordinary course of the partnership’s business while they are partners.
- For malpractice-based partnership obligations, partner liability is tied to the timing of the wrongful act or omission, not to the later date a claim is settled, reduced to judgment, or allowed in bankruptcy.
- A partner’s withdrawal (and partnership dissolution or reorganization) does not by itself extinguish the partner’s liability for partnership obligations that arose during the partner’s tenure.
- A successor partnership’s alleged assumption of debts does not automatically relieve former partners of statutory liability for obligations arising from pre-withdrawal conduct.
- The party seeking to impose former-partner liability must prove the underlying obligation arose during the period of partnership; if that proof is lacking, liability is not imposed for that claim.
- A confirmed Chapter 11 plan may authorize a plan administrator to pursue non-participating former partners for specified categories of partnership obligations, including certain allowed administrative claims, to the extent state partnership law supports that liability.

## Conclusion

In re Keck, Mahin & Cate held that, under the Illinois Uniform Partnership Act and Keck’s confirmed Chapter 11 plan, former partners Billauer and Ho’okano remained jointly and severally liable for malpractice-based obligations and certain allowed administrative claims tied to acts occurring while they were partners, but they were not liable for the Citizens claim because the plan administrator failed to prove it arose during their partnership tenure.


In re Keck, Mahin & Cate, 274 B.R. 740 (2002)