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April 28, 2012


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Great observation that partners in law firms are more like non-managerial shareholders than partners. Yet there is an important difference -- shareholders are not liable for the acts of the corporation, while partners may be liable for the acts of the law firm.

Bernie Burk

Thanks for this perspective point. However, the liability of general partners for a partnership's debts is of almost no practical import in contemporary large law firms. That's because almost all large firms are organized as Limited Liability Partnerships (LLPs), in which partners enjoy limited liability comparable to a corporate shareholder's. Substantial amounts of professional liability insurance soften most gaps and differences.

There are a few larger firms that remain true general partnerships; they are mostly a handful of super-elite New York firms.

Some students of the large law firm, most outspokenly the prolific and (sadly) recently deceased Larry Ribstein, suggested that a general partner's general liability was an important economic incentive to quality monitoring in a large law firm. I always doubted this, owing to likely optimism and presentism biases among the partners as well as the classic collective action problem the situation presents. But to the extent Larry was right (and/or I'm right regarding the powerful competitive forces described in the post), we should be seeing an increasing number of the kinds of cases suggested by the DA's Dewey investigation among larger law firms in coming years.



It is true that limited liability statutes have reduced the exposure of law firm partners, but have not eliminated it. Partners are subject to recurring capital calls (unlike most shareholders), and risk the loss of their capital accounts to satisfy firm debt. I would also wager that the Dewey partners are personally liable on the law firm's bank note, a likely requirement of the lender.


What planet am I from? Shouldn't the $3 Billion dollar suit sponsored by the Insurance Department of Missouri be a factor in any evaluation of the flaws of Dewey LeBoeuf? This is not your average slip and fall suit, but scorching allegations of favored treatment to undisclosed (hidden) clients sworn above the signatures of prominent lawyers. Remember the fairly standard ABA model rules that require every potential conflict to be released only after signed fully disclosed consents. It's clearly alleged that Dewey advised General American Mutual Insurance to issue puttable bonds which benefited their simultaneous secret client, followed by a seemingly coordinated wall street run on GenAm's bond creating a short term liquidity crisis. Dewey then advises GenAm into an unwarranted receivership, thereby forcing a FireSale at a $1 Billion dollar discount to yet another secret client. It's like a movie plot to outlandish to believe, and screams of RICO level crimes. Sure, there hasn't been a disclosure of the target of the investigation. Perhaps Law and Finance are genuinely unperturbed when common people are defrauded out of their mutual insurance equity. However, there will be so many lawyers screwed by this matter that we shouldn't be surprised if another "group" of lawyers from the firm plays the informant card.

class action lawyer

this may be a classic example of a law firm that has been badly managed. Manhattan DA will need a handful of time to investigate and find out how the litigation will push through.

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