The endgame of TPW, LLP

It looks like the end for Thacher Proffitt & Wood, which had survived 160 years and the destruction of its headquarters on 9/11. Many of its lawyers are moving to Sonnenschein, Nath & Rosenthal. But, per NYT:

Sonnenschein, based in Chicago, is not acquiring Thacher, choosing instead to take on the lawyers who formed the core of its real estate, finance and corporate practices. * * * “We’re still working on what happens to Thacher,” said Robert E. McCarthy, the chairman of Thacher’s planning committee, who is joining Sonnenschein. “Its viability going forward was not likely.” * * *A handful of partners will be left at Thacher after the moves.

Note that the Sonnenschein transaction is taking place after a merger of the firm with King & Spalding reportedly foundered, per AmLaw Daily, when “King & Spalding grew wary of the bank debt and lease exposure that an outright acquisition would entail, and instead proposed a deal in which it would take a group of approximately 75 Thacher lawyers as lateral hires.”

Thacher is an LLP. This means that, like most law firms these days, its partners have limited liability. If Thacher had been an old-style general partnership, its partners would have vicarious liability for the firm’s debts, and those liabilities would follow the individual partners to their new firm or firms.

Even as an LLP, if TPW had merged with SNR or KS, the firm’s liabilities would move to the new firm. But if the partners individually move to SNR or wherever, the liabilities stay behind, unless the partners have obligated themselves individually.

In other words, the LLP structure enables the firm’s main assets (its lawyers) to walk away from creditors. In the old days, the lawyers arguably had more of an incentive to keep the firm together.

I’m not, however, knocking the firms or the lawyers for adopting this structure. And how could I, given that I’ve got a treatise on it (Bromberg & Ribstein on LLPs)? In fact, as detailed in the treatise, the development and spread of law firm LLPs was a predictable reaction to the ratcheting up of potential lawyer liability in the s & l crisis of the early 1990s. And this, of course, is only one example of how limited liability developed in response to the expansion of tort liability. So if you don’t like limited liability, you should know what to blame.

I should add that LLPs are not the last word in this dialectic. I predict there will be a boom in litigation and case law regarding law partnership bankruptcy (just as during the s & l blowup), as well as on the extent of LLP partner liability. Although LLP partners have no vicarious liability, they can be liable for their own misdeeds, including negligent monitoring and supervision (see Bromberg & Ribstein, section 3.04). Expect plaintiffs’ lawyers to push these individual liability exceptions to the limited liability shield. And then expect a structural response to these new liabilities.

Update:  More on Thacher from Bruce MacEwen. 

Comments

[Bob Bryant]

How would you "merge" two LLPs if applicable partnership statutes don't address mergers?