## Facts

- Promedicus Health Group, LLP (Promedicus) was a New York registered limited liability partnership (RLLP) whose partners included physicians.
- Promedicus filed a bankruptcy case in the U.S. Bankruptcy Court for the Western District of New York.
- In an adversary proceeding, the chapter 7 trustee (Wallach) sought relief tied to avoidance and recovery theories that required proof that Promedicus was “insolvent” when certain transactions occurred.
- Creditors and defendants argued that the debtor’s insolvency had to be measured using the Bankruptcy Code’s partnership definition of “insolvent,” which (for partnerships with general partners) can require adding each general partner’s excess non-partnership property to the debtor’s assets. See 11 U.S.C. § 101(32)(B)(ii).
- The trustee argued that, because New York’s RLLP statute generally shields partners from liability for partnership debts, Promedicus should be treated as a “corporation” under the Bankruptcy Code’s definition, which includes a “partnership association organized under a law that makes only the capital subscribed responsible for the debts of such association.” 11 U.S.C. § 101(9)(A)(ii).
- The defendants relied on New York Partnership Law provisions identifying an RLLP as a “partnership without limited partners,” and also pointed to statutory carve-outs that preserve personal liability for a partner’s own negligent or wrongful acts (and certain acts under a partner’s supervision) while rendering professional services. See N.Y. Partnership Law § 26(c).
- The dispute was a threshold statutory classification question: whether insolvency should be assessed by reference only to Promedicus’s own balance sheet, or whether the partners’ personal assets had to be aggregated into the insolvency analysis.

## Issues

1. For Bankruptcy Code insolvency purposes, is a New York registered limited liability partnership evaluated under the partnership insolvency definition in 11 U.S.C. § 101(32)(B)(ii) (including certain partner non-partnership assets), or treated as a “corporation” under 11 U.S.C. § 101(9)(A)(ii) (excluding those personal assets)?
2. Does the fact that New York law preserves personal liability for a partner’s own professional negligence prevent an RLLP from qualifying as a “corporation” under § 101(9)(A)(ii)’s “capital subscribed” language?

## Decision

- The court held that, for purposes of determining “insolvent” under the Bankruptcy Code, Promedicus (a New York RLLP) is treated as a “corporation” within the meaning of 11 U.S.C. § 101(9)(A)(ii).
- Because Promedicus was treated as a “corporation” for this definition, the partnership-specific insolvency mechanism in 11 U.S.C. § 101(32)(B)(ii) did not apply.
- As a result, the insolvency analysis proceeds without adding the partners’ personal, non-partnership assets to the debtor’s balance sheet.
- The court rejected the argument that state-law labels alone (e.g., calling the members “general partners”) required importing traditional partnership insolvency rules when the state’s RLLP regime materially limits partner exposure for partnership debts.
- The court concluded that residual personal liability for a partner’s own misconduct under N.Y. Partnership Law § 26(c) did not defeat treatment of the RLLP as a § 101(9)(A)(ii) “corporation” for this insolvency question.

## Legal Principles

- Bankruptcy Code classification questions are governed by federal statutory definitions; state-law terminology is not controlling when the liability structure differs from the traditional form.
- A partnership entity may fall within the Code’s definition of “corporation” under 11 U.S.C. § 101(9)(A)(ii) when it is organized under a law that generally limits owners’ liability so creditors ordinarily must look to the entity’s capital rather than owners’ personal property.
- The partnership insolvency definition in 11 U.S.C. § 101(32)(B)(ii), which can add general partners’ excess non-partnership property to the debtor’s assets, is not applied where the governing LLP statute largely shields those assets from creditor claims for partnership debts.
- The phrase “only the capital subscribed responsible for the debts” in § 101(9)(A)(ii) does not require absolute immunity for every possible claim; limited carve-outs for an individual partner’s own negligence are consistent with treating an LLP as a § 101(9)(A)(ii) entity for insolvency classification.
- Insolvency analysis should focus on assets that are realistically available to satisfy creditor claims against the debtor entity; counting wealth that creditors generally cannot reach distorts the balance-sheet test.

## Conclusion

In In re Promedicus Health Group, LLP, the bankruptcy court held that a New York registered limited liability partnership is treated as a “corporation” for purposes of the Bankruptcy Code’s insolvency definition, so the partners’ personal, non-partnership assets are not added to the debtor’s assets under § 101(32)(B)(ii) when testing insolvency in the trustee’s avoidance litigation.


In re Promedicus Health Group, LLP, 416 B.R. 389 (2009)