Former Dewey Partners Off the Hook for NY Lease, Judge Rules

There was a blast of good news for 377 former Dewey & LeBoeuf partners on Monday: A New York state judge ruled that their former landlord, 1301 Properties Owner, isn’t entitled to recover rent payments lost in the law firm’s collapse because the partners aren’t personally liable.

In 2013, the landlord initially had sued 426 former Dewey partners for $220 million claiming the partners were personally liable for Dewey’s rent payments.

But in an order filed with the court on Monday, Judge Saliann Scarpulla ruled the plaintiff’s theory was flawed, and pointed to New York Partnership Law as protecting the partners from personal liability for the payments.

“I find that the lease is not enforceable to hold the individual partners of Dewey Ballantine LLP and Dewey & LeBoeuf LLP personally liable for the lease due to the contracting parties’ failure to comply with Partnership Law,” Scarpulla wrote in the ruling.

The New York partnership law Scarpulla referred to stipulates that partners in an LLP must take a majority vote to make themselves personally liable for lease obligations — something that the Dewey partners said didn’t happen.

“The ruling is a great relief for the former partners of Dewey & LeBoeuf who suffered tremendously when the firm collapsed,” said Robert Abrahams, the co-chair of the litigation group at Schulte Roth & Zabel who represented 173 former Dewey partners in the dispute.

The firm’s lease was originally signed in 1989 by Dewey Ballantine Bushby Palmer & Wood LLP, successor to Dewey Ballantine LLP, according to the judge’s ruling.

“There is no doubt that the lease language — drafted in 1989, prior to the passage of the LLP statute — sought to impose personal liability on the partners of ‘Tenant,’” wrote Scarpulla. “It is clear from this language that the contracting parties sought to personally bind, in advance and without notice, the individual partners.”

But Scarpulla said that since the lease was signed, the terms of the agreement were amended 12 times, parties changed and New York Legislature amended partnership law to permit the organization of registered limited liability partnerships.

“This statute is designed to safeguard partners and provide them with fair notice of the circumstances under which they will be held personally liable for the partnership’s debts, against their ordinary and reasonable expectation that they are otherwise protected from personal liability as partners of an LLP,” said Scarpulla.

Warren Estis, an attorney with Rosenberg & Estis for the landlord 1103 Properties, did not respond to a request for comment.