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Partner Lacks Standing to Sue Former Partner over Law Firm Dissolution
By Mariel J. Giletto on December 22, 2015

A recent Pennsylvania Superior Court ruling found that an attorney does not have standing to sue his former law firm partner over issues related to their firm’s dissolution. Affirming the trial court decision, the three-judge panel determined that an attorney who first sued his former partner over the law firm’s dissolution, did not have individual standing to sue.

A recent Pennsylvania Superior Court ruling found that an attorney does not have standing to sue his former law firm partner over issues related to their firm’s dissolution.  Affirming the trial court decision, the three-judge panel determined that an attorney who first sued his former partner over the law firm’s dissolution, did not have individual standing to sue.

The law firm at issue was established in approximately 1996 and based in Philadelphia.  The plaintiff was the majority stockholder, holding sixty percent (60%) of the stock, while one of the defendants held twenty percent (20%) of the stock.  Prior to its dissolution, the law firm incurred numerous unpaid debts from vendors and individuals, which the majority shareholder alleged were left unpaid because one of the minority shareholders used the firm’s funds to pay for personal expenses.

The majority shareholder filed a lawsuit against the former law firm, the minority shareholder individually, and the minority shareholder’s new law firm contending that, as a minority shareholder, the defendant was required to contribute to the firm’s debt payments.  The majority shareholder further alleged that the minority shareholder withheld money, failed to pay vendors and creditors, and failed to comply with payment agreements to the detriment of the firm.  The complaint did not include claims brought on behalf of the now defunct, former law firm.

The minority shareholder filed a motion for summary judgment alleging that the majority shareholder lacked standing to sue and that his claims were not made within the statute of limitations.  The minority shareholder’s summary judgment argument was that the alleged injuries were sustained by the law firm, not the majority shareholder individually, and therefore, the majority shareholder lacked standing to sue.  The minority shareholder counterclaimed, contending that the majority shareholder had an affair and used firm money to make child support payments.  He further alleged that the majority shareholder used firm money for personal expenses and diverted funds from case settlements without shareholder permission.

Philadelphia Court of Common Pleas Judge Pamela Pryor Dembe denied the majority shareholder’s claims for unjust enrichment, conversion, and breach of contract and fiduciary duty, as well as the minority shareholder’s counterclaims for fraud, conversion, misrepresentation, and negligence.  In granting the minority shareholder’s motion for summary judgment, Judge Dembe determined that the applicable statute of limitations had expired.

On appeal, the majority shareholder argued he should have been granted leave to amend his complaint so he could bring claims on behalf of the former law firm.  The minority shareholder’s counsel noted that the majority shareholder never made a formal petition to amend his complaint.  Further, defense counsel pointed to case law stating that a plaintiff cannot add a new defendant after the applicable statute of limitations had run and the lower court’s ruling that the statute of limitation period had expired.

The appellate court held that only the corporation and a shareholder acting on behalf of the corporation have standing to bring a lawsuit to recover injuries suffered by the corporation.  A shareholder has individual standing only when the injury is to the plaintiff as a stockholder or to him or her individually, and not to the corporation.

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