Ederer v. Gursky

Facts

Ederer (P) affiliated with the law firm Gursky & Associates P.C. which changed its name to Gursky and Ederer. P joined as a nonequity contract partner with the understanding from Gursky that he would become a full equity party in about two years time if things developed as anticipated. Two years later, it was agreed to make P a 30% shareholder in the PC. P was to purchase his 30% interest for $600,000, by Gursky's taking an additional $150,000 from the PC's yearly distributions for each of the following four years. Gursky agreed that when the EC took on additional partners, his 70% equity interest would be diluted up to 25% before P's 30% interest was reduced. In February 2001, the PC became a registered limited liability partnership, and there was no written partnership agreement. The LLP admitted three new partners, defendants Stern, Feinberg and Levine. They collectively acquired a 15% interest in the LLP, leaving Gursky with a 55% interest while P retained his 30% interest. In 2002, both P and Gursky loaned the PC a portion of their respective shares of the PC's profits. Sometime prior to June 30, 2003, the LLP assumed these loans in exchange for the furniture, fixtures, and equipment that it acquired from the PC. In July 2002, the LLP increased P's annual compensation by about 28%. Gursky also agreed to forgive the remaining $300,000 owed by P for the purchase of his 30% equity interest. P characterizes this gesture as an acknowledgment of his major contributions to the firm's revenue growth; Gursky, as a concession made solely upon P's assurances that he was committed to remaining with the LLP to assure its long-term success. In June 2003, P advised Gursky that he was withdrawing as a partner in the LLP and a shareholder in the PC. P entered into a withdrawal agreement with the PC and the LLP, which Gursky signed as president of the PC and a partner in the LLP. P agreed to remain a partner in the LLP so as to serve as lead counsel for a trial scheduled to commence in Georgia on June 30, 2003, although he was not obligated to delay his withdrawal from the LLP beyond July 8. In exchange, the LLP agreed to 'continue to pay regular draw and other compensation through the date of his withdrawal. The PC was dissolved on June 30, 2003. P withdrew from the LLP on or about July 4, 2003, after having helped secure a $2 million verdict in the Georgia trial, which generated a $600,000 contingency fee for the LLP. The LLP ceased operations on March 1, 2005. In December 2003, P commenced this action against the PC, the LLP Gursky & Partners, LLP and Gursky, Stern, Feinberg, and Levine, seeking an accounting and asserting breach of the withdrawal agreement. Ds also counterclaimed for a declaration that the withdrawal agreement was void because entered into under the duress of P's alleged threat not to try the case in Georgia. Ds moved to dismiss the complaint as to defendants Gursky, Stern, Feinberg and Levine. Ds argued that P's complaint set forth no cognizable causes of action upon which relief could be granted against the individual defendants because Partnership Law § 26(b) shielded them from any personal liability. The Court determined that P was entitled to an accounting against all defendants because Partnership Law § 26, which places limits on the personal liability of partners in an LLP applies 'to debts of the partnership or the partners to third parties' and 'has nothing to do with a partner's fiduciary obligation to account to his partners for the assets of the partnership.' The Appellate Division affirmed Supreme Court's order on December 5, 2006, concluding that 'Partnership Law § 26(b), limiting the liability of partners of a limited liability partnership, does not exempt . . . partners from their individual obligations to account to a withdrawing partner under the earlier enacted and unamended Partnership Law § 74. This appeal resulted.

Issues

Rule of Law

Holding and Decision

Legal Analysis

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