New York's LLP law may have played a role

It possibly made it too easy for partners to jump ship; had it been harder, the mass exodus might have been avoided.

, The National Law Journal


It possibly made it too easy for partners to jump ship; had it been harder, the mass exodus might have been avoided.

This content has been archived. It is available exclusively through our partner LexisNexis®.

To view this content, please continue to Lexis Advance®.

Continue to Lexis Advance®

Not a Lexis Advance® Subscriber? Subscribe Now

Why am I seeing this?

LexisNexis® is now the exclusive third party online distributor of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® customers will be able to access and use ALM's content by subscribing to the LexisNexis® services via Lexis Advance®. This includes content from the National Law Journal®, The American Lawyer®, Law Technology News®, The New York Law Journal® and Corporate Counsel®, as well as ALM's other newspapers, directories, legal treatises, published and unpublished court opinions, and other sources of legal information.

ALM's content plays a significant role in your work and research, and now through this alliance LexisNexis® will bring you access to an even more comprehensive collection of legal content.

For questions call 1-877-256-2472 or contact us at customercare@alm.com

What's being said

  • Retired Biglaw Partner

    Professor Cole's argument is hopelessly flawed. Blaming DL's demise on the departures of its partners is like saying that it was the landing that killed the person who fell from the top of a 20 story building rather than the push or the jump. The real cause is the many accumulating factors that apparently prompted the partners to leave--the guarantees, the recruitment of highly-paid laterals who didn't perform as projected, excessive funded debt, enormous unfunded pension obligations, failure to merge cultures after the Dewey and LeBeouf firms merged, ineffective management, allegations of breaches of fiduciary duties by certain partners to other partners, and, most importantly, failure to have paid many partners their substantial undrawn earnings for a year or more. The surprise is that more partners didn't leave sooner. Certainly, if DL were operating through a vehicle that did not limit partner liability for commercial debts, the result would have been the same--see, e.g., Finley Kumble, Mudge Rose, et al. which flamed out long before LLPs arrived on the scene. More fundamentally, Professor Cole puts forth a false premise--that lawyers , merely because they are in the practice of law, should be unable to limit their liability for their commercial, non-malpractice, debts the way their commercial and corporate clients can do so via a corporation, limited liability company or limited partnership. Why should that be so? Anyone doing business with a LLP knows its partners are not liable for the entity's commercial debts. Creditors can decide whether or not to extend credit to the LLP taking that limited recourse into account. They can also condition extending credit on getting partial or full guarantees from the LLP's partners. DL's biggest consensual commercial creditors--its bondholders, bank lenders and landlords--had the ability to demand credit enhancement if they felt that the inability to have recourse to the partners directly made their deals uncreditworthy. Presumably, these intelligent and experienced parties evaluated the credit risk and the competitive environment and then decided not to require guarantees. That they made what turns out in retrospect to have been a bad bargain doesn't mean that lawyers, as a class, should be denied the benefit of conducting business through a vehicle that has limited liability for commercial debts if commercial creditors determine that the risk is nevertheless worth assuming to win the business. Indeed, even before LLPs were invented, many large law firms demanded, and got, covenants from their large commercial creditors to limit, or not to seek any, recourse against the partners as a price for getting the deal. LLP solution merely formalizes that arrangement and makes it available to practitioners in smaller firms. Moreover, banning limitations on the liability of partners for the commercial debts of their firms in order to glue them to those firms violates the spirit of the rules of professional conduct, which prohibit restrictive covenants and gardening leave provisions that have the exact same goal. The death of DL is a shame, and other firms and lawyers need to learn from the object lesson it provides. That lesson, though, relates to the many fundamental causes that impelled DL's partners to pick up stakes and leave, not to the departures, which were just the most public symptom of the firm's fatal disease.

Comments are not moderated. To report offensive comments, click here.

Preparing comment abuse report for Article #1202559658351

Thank you!

This article's comments will be reviewed.