Also known as: limited liability partnerships · LLP · LLPs
Written by attorneys — see sources below.
A form of general partnership that registers with the state to shield its partners from personal liability for debts, obligations, or other liabilities incurred by the partnership or by other partners. The shield applies solely by reason of partner status and does not protect a partner who personally breaches duties owed to the partnership, such as by consenting to an improper distribution.
Lumen Capital operates as a registered limited liability partnership. After a contract dispute, a supplier obtains a large judgment against the firm. The supplier then attempts to collect the judgment from partner Leah Lamb personally. Because the obligation arose while the firm was an LLP, Leah faces no personal liability solely by reason of her partner status.
Lotus Pharmaceuticals, an LLP, issues financial statements that investors later claim contained material misrepresentations. Several investors sue the firm and its partners. The partners who did not participate in preparing the statements invoke the LLP shield and are not held personally liable for the firm's obligations arising from the statements.
Stoneridge Investment Partners, LLC, a Delaware limited liability company, served as lead plaintiff in a class action filed in the United States District Court for the Eastern District of Missouri on behalf of purchasers of Charter Communications, Inc., common stock. The suit named as defendants Charter itself, some of its executives, its independent auditor Arthur Andersen LLP, and two other companies that had acted as both suppliers and customers of Charter. Charter, a cable operator, engaged in a variety of fraudulent accounting practices throughout 2000 so that its quarterly reports would meet Wall Street expectations for subscriber growth and operating cash flow. By late 2000 Charter executives realized that these practices would still leave the company short of projected operating cash flow by fifteen to twenty million dollars. To close the gap, Charter entered into arrangements with Scientific-Atlanta, Inc., and Motorola, Inc., under which Charter overpaid the respondents twenty dollars for each digital cable converter box it purchased through the end of the year. In return, the respondents agreed to purchase advertising time from Charter at prices higher than fair value, with the transactions documented through backdated contracts and false statements about increased production costs. The arrangements had no economic substance, yet Charter recorded the advertising purchases as revenue and capitalized its purchases of the set-top boxes, thereby inflating reported revenues and operating cash flow by approximately seventeen million dollars on financial statements filed with the Securities and Exchange Commission and disseminated to the public. Respondents had no role in preparing or disseminating Charter's financial statements, and they recorded the transactions as a wash on their own books under generally accepted accounting principles. It is alleged that respondents knew or were in reckless disregard of Charter's intention to use the transactions to mislead research analysts and investors. The District Court granted respondents' motion to dismiss for failure to state a claim. The Court of Appeals for the Eighth Circuit affirmed, holding that the allegations showed at most aiding and abetting by respondents. The Supreme Court granted certiorari to review the judgment.
View caseLunar Dynamics, an LLP, faces a competitor's lawsuit alleging unfair competition. The court examines whether the competitor has standing to pursue claims against the firm and its partners. The LLP structure limits the partners' exposure to the competitor's claims that rest solely on partner status.
Lexmark International, Inc. manufactures and sells laser printers along with the toner cartridges designed exclusively for those printers. It introduced a Prebate program that offered customers a 20-percent discount on new cartridges if they agreed to return the empty cartridges to Lexmark once used. The program terms were communicated to consumers through notices printed on the toner-cartridge boxes. Static Control Components, Inc. manufactures and sells components necessary for remanufacturers to refurbish used Lexmark toner cartridges. Static Control developed a microchip that could mimic the microchip in Lexmark Prebate cartridges, enabling remanufacturers to refurbish and resell those cartridges after replacing the original chip. In 2002 Lexmark sued Static Control alleging violations of the Copyright Act and the Digital Millennium Copyright Act. Static Control counterclaimed under section 43(a) of the Lanham Act, alleging that Lexmark misled end-users into believing they are legally bound by the Prebate terms. Static Control further alleged that Lexmark sent letters to remanufacturers falsely advising that it was illegal to sell refurbished Prebate cartridges and to use Static Control products. Static Control alleged that these statements caused it lost sales and damage to its business reputation. The district court granted Lexmark’s motion to dismiss the Lanham Act counterclaim on prudential standing grounds. The Sixth Circuit reversed after applying the reasonable-interest test. The Supreme Court granted certiorari to decide the appropriate analytical framework.
View caseLattice Systems, an LLP, holds a partners' meeting to approve a large cash distribution. Managing partners Logan Lane and Latoya Lane receive warnings that the distribution will leave the firm insolvent. They approve it anyway. After insolvency, the trustee sues the managing partners, who remain personally liable for the improper distribution despite the LLP shield.
Doran Malone, Joseph P. Danielle, and Adrienne M. Danielle filed an individual and class action in the Court of Chancery on behalf of themselves and all persons who owned common stock of Mercury Finance Company from 1993 through the present. The named defendants were the directors of Mercury, specifically John N. Brincat, Dennis H. Chookaszian, William C. Croft, Clifford R. Johnson, Andrew McNally IV, Bruce I. McPhee, Fred G. Steingraber, and Phillip J. Wicklander, along with KPMG Peat Marwick LLP. The complaint alleged that the director defendants knowingly and intentionally caused Mercury to disseminate materially false information about the company's earnings and financial condition in SEC filings and communications to shareholders since 1994. Mercury's 1996 earnings were reported as $120.7 million but were actually only $56.7 million. Mercury's 1995 earnings were reported as $98.9 million but were actually $76.9 million. Mercury's 1994 earnings were reported as $86.5 million but were actually $83 million. Mercury's 1993 earnings were reported as $64.9 million but were actually $64.2 million. Shareholders' equity on December 31, 1996, was reported as $353 million but was actually $263 million or less. All of the inaccurate information appeared in virtually every SEC filing and communication from the directors to shareholders during the period. The complaint further alleged that as a direct result of the false disclosures the company lost all or virtually all of its value, approximately $2 billion. The suit sought damages on behalf of the named plaintiffs and the putative class. The director defendants moved to dismiss on the ground that they owed no fiduciary duty of disclosure under the circumstances alleged. KPMG moved to dismiss the aiding and abetting claim asserted against it. After briefing and oral argument, the Court of Chancery granted both motions to dismiss with prejudice pursuant to Chancery Rule 12(b)(6). The plaintiffs appealed to the Supreme Court of Delaware.
View caseLola Langley serves as managing partner of an LLP subject to oversight by a regulatory board. The board attempts to remove her for cause under statutory procedures. The LLP's limited-liability structure does not alter the removal standards that apply to her position.
In 2002 Congress enacted the Sarbanes-Oxley Act, which created the Public Company Accounting Oversight Board as a five-member entity appointed by the Securities and Exchange Commission. The Board oversees audits of public companies and possesses authority to inspect registered accounting firms, initiate investigations, and issue sanctions. Beckstead and Watts, LLP, a Nevada accounting firm, registered with the Board. The Board inspected the firm, released a report critical of its auditing procedures, and began a formal investigation. Free Enterprise Fund, a nonprofit organization of which the firm is a member, and Beckstead and Watts sued the Board and its members, the Commission, and the United States in federal district court. They sought declaratory and injunctive relief alleging that the Board's structure violated the Constitution. The district court determined it had jurisdiction and granted summary judgment to the defendants. The Court of Appeals for the District of Columbia Circuit affirmed the district court's judgment in full. The Supreme Court granted certiorari.
View caseLucy Liu, a partner in an LLP, is named in a complaint alleging the firm engaged in parallel anticompetitive conduct. The complaint contains only conclusory allegations of agreement. The court applies heightened pleading standards and dismisses the claims against Lucy because the allegations fail to suggest she acted beyond her partner status.
In 1984 the divestiture of AT&T's local telephone business created seven regional service monopolies known as Regional Bell Operating Companies or Incumbent Local Exchange Carriers. More than a decade later Congress enacted the Telecommunications Act of 1996 which restructured local telephone markets and imposed duties on the ILECs to facilitate entry by competitive local exchange carriers through resale of services at wholesale rates, leasing of unbundled network elements, or interconnection of facilities. William Twombly and Lawrence Marcus filed suit in the United States District Court for the Southern District of New York on behalf of a putative class of all subscribers of local telephone and high-speed internet services from February 8, 1996 to the present. They named as defendants four consolidated ILECs: BellSouth Corporation, Qwest Communications International Inc., SBC Communications Inc., and Verizon Communications Inc. The complaint alleged that these ILECs conspired to restrain trade by engaging in parallel conduct to inhibit CLECs, including unfair agreements for network access, inferior connections, overcharging, and billing practices designed to sabotage CLEC customer relations. The complaint further alleged that the ILECs agreed not to compete against one another in their respective territories. This agreement was inferred from their common failure to pursue business opportunities in contiguous markets and from a statement by Qwest CEO Richard Notebaert that competing in another ILEC's territory might be a good way to turn a quick dollar but that does not make it right. The complaint asserted that in light of the absence of meaningful competition among the ILECs and their parallel course of conduct the defendants had entered into a contract combination or conspiracy to prevent competitive entry and to allocate customers and markets. The district court dismissed the complaint for failure to state a claim. It concluded that the alleged parallel behavior was fully explained by each ILEC's independent interest in defending its own territory and that the complaint did not allege facts suggesting the decision to refrain from competing elsewhere was contrary to the ILECs' apparent economic interests. The Court of Appeals for the Second Circuit reversed, holding that plus factors need not be pleaded and that allegations of parallel conduct suffice if they leave open the possibility of collusion. The Supreme Court granted certiorari to address the proper standard for pleading an antitrust conspiracy through allegations of parallel conduct.
View caseNo. The statutory shield protects partners from personal liability for ordinary firm debts and obligations incurred solely by reason of partner status. It does not protect a partner who consents to a distribution that violates statutory solvency rules and who fails to exercise due care in doing so. Such a partner remains personally liable to the partnership for the improper amount.
Supporting sources
No. Under the governing statute a liability incurred while the partnership is an LLP is solely the debt of the limited liability partnership. A partner is not personally liable for that liability solely by reason of being or acting as a partner. Non-treating partners therefore face no personal liability for the employee's malpractice.
Supporting sources
No. The statute expressly provides that the failure of a limited liability partnership to observe formalities relating to the exercise of its powers or management of its business is not a ground for imposing liability on a partner. Partners therefore remain protected even when the firm lacks written protocols or holds no formal meetings.
Supporting sources
…each ILEC's obligation to share its network with competitors, Verizon Communications Inc. v. Law Offices of Curtis V. Trinko, LLP , 540 U.S. 398 (2004), which came to be known as "competitive local exchange carriers" (CLECs). A CLEC could make use of an ILEC's network in any of three ways: by (1) purchasing local…