Nov. 17— An LLP's failure to maintain malpractice insurance as required by a New Jersey rule does not defeat a partner's individual immunity from liability for another partner's malpractice, the New Jersey Superior Court, Appellate Division, held Nov. 14.
The court ruled that a law firm structured as a limited liability partnership does not convert to a general partnership when it drops or loses its coverage. Instead, Judge Douglas M. Fasciale said, the penalty is specified in the rule itself: the firm's right to practice may be terminated or it may be disciplined by the New Jersey Supreme Court.
The court concluded that the LLP liability shield in the state's Uniform Partnership Act protects attorney John Ward from personal liability for the alleged malpractice of his former partner John Olivo in a client's patent infringement action, even though the lawyers' LLP became uninsured after they stopped practicing together and did not buy tail coverage.
N.J. Stat. Ann. §42:1a-18(c) plainly expresses legislative intent that the partners of an LLP are shielded from personal liability for a fellow partner's act, the court said.
Fasciale acknowledged that law firms are required to obtain and maintain liability insurance under N.J. R. 1:21-1C(a)(3), which is part of the court rule that regulates law firm LLPs. However, an LLP is not relegated to the status of a general partnership if it fails to do so, he said.
Fasciale pointed out that according to the state UPA, the status of an LLP remains effective until the LLP itself cancels it or the status is revoked by the state treasury department for failing to file an annual report or required filing fees.
“Nowhere in the UPA did the Legislature state that, when attorneys practice as an LLP, the LLP reverts to a GP if it fails to maintain professional liability insurance, as required by the court rules,” Fasciale wrote.
The court also noted that the court rule on law firm LLPs provides that a firm's violation of the rule “shall be grounds for the Supreme Court to terminate or suspend the limited liability partnership's right to practice law or otherwise to discipline it.” N.J. R. 1:21-1C(a)(2).
“The Court did not include as a sanction the conversion of an LLP into a GP, thereby removing the protection afforded to a partner in an LLP under the UPA, when attorneys practice as an LLP without maintaining professional liability insurance,” Fasciale said.
The court noted that the rule enumerating sanctions for a law firm's noncompliance with LLP requirements was adopted in 1996, yet the legislature never amended the UPA to require an LLP to revert to general partnership status as a sanction for failing to maintain insurance.
In addition, it said, the committee report that proposed the rule on law firm LLPs does not suggest any intent to convert an LLP into a general partnership if the entity fails to carry the required malpractice insurance.
“Thus, if attorneys practice as an LLP, and the LLP fails to maintain malpractice insurance as required by the court rules, then the Supreme Court may terminate or suspend the LLP's right to practice law or otherwise discipline it,” the court said. “As currently written, however, the court rules do not authorize a trial court to sanction a partner of an LLP for practicing law as an LLP without the required professional liability insurance by converting an otherwise properly organized LLP into a GP,” Fasciale wrote.
Judges Joseph L. Yannotti and Richard S. Hoffman concurred in the opinion.
Piro, Zinna, Cifelli, Paris & Genitempo LLC represented Ward. Pashman Stein P.C. represented the plaintiff, Mortgage Grader Inc.
Copyright 2014, the American Bar Association and The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)