On July 9, 2024, Justice Chan of the New York County Commercial Division issued a decision in Jefferies Leveraged Credit Prods., LLC v. Invictus Global Mgt., LLC, 2024 NY Slip Op. 32620(U), holding that a general partner can be sued based on the general partnership’s contracts, explaining:
At its core, the crux of the motions to dismiss Jefferies breach of contract and promissory estoppel claims is that, given the lack of any breaching conduct or express promise traceable to either IGP or TREO GP, Jefferies has failed to plead any basis to impute liability on an agency theory. Specifically, both IGP and TREO GP aver that, as disclosed principals to the Master Fund, they cannot be held liable on contractual/quasi-contractual claims, and nothing in the F AC reflects an intent on the part of either IGP or TREO GP to be individually bound to such obligations.
It is, of course, well established that officers or agents of a company are not personally liable on contractual or quasi contractual claims if they do not purport to bind themselves. And for this reason, agents cannot be sued for breach of contract or promissory estoppel unless there is some separate basis for the agent’s liability, such as when the agent manifests a clear and explicit intent to be bound by the agreement.
Jefferies does not seriously challenge these well-established legal principles. It does, however, make clear in its opposition that it is not attempting to impute contractual or quasi-contractual liability over IGP and TREO GP on an agency theory. Instead, Jefferies argues, both IGP, as former general partner, and TREO GP, as current general partner, are individually liable for the Master Funds partnership obligations. The court agrees.
Pursuant to Section 26 of the Partnership Law, all partners are liable jointly for all other debts and obligations of the partnership. Creditors therefore may look to the separate property of any general partner for the whole amount of every debt, rather than the proportionate amount, but only if the partnership property is inadequate to pay partnership debts or it appears that there could be no effective remedy without resorting to individual properties. This framework regarding general partner liability for partnership obligations extends to a person admitted as a partner into an existing partnership, except that such liability shall be satisfied only out of partnership property.
Here, as alleged in Jefferies newly added breach of contract and promissory estoppel claims, the Master Fund, a limited partnership, is the entity in actual breach of contract or promise to the extent Invictus Global was acting on behalf of the Master Fund at the time it allegedly reneged on the obligation and/or promise to buy the LATAM Claims. IGP and TREO GPs inclusion in these causes of action is, in turn, in their capacity as general partner of the Master Fund liable for the contractual breaches committed by the Master Fund. Although it is true that the FAC fails to attribute any breaching conduct to IGP or TREO GP, such failure to allege any specific wrongdoing by these entities is not a basis for dismissal at this juncture. Rather, as case law makes clear, general partners must be named and personally served with process to the extent Jeffries seeks to enforce any judgment against them in their capacity as partners of the Master Fund.To avoid this conclusion, Movants argue that even if a general partner can be liable for post-judgment recovery from a limited partnership, a standalone breach of contract or promissory estoppel claim against a general partner must fail unless the complaint specifically alleges that the partnership lacks sufficient assets to pay its obligations. And because the FAC lacks any allegations concerning the sufficiency of partnership assets to pay for the Master Funds purported contractual obligation, Movants posit that any claims against IGP and TREO GP necessarily must be dismissed. Movant’s contention, however, misapprehends the relevant law on this issue.
Generally, under New York law, a cause of action against a partnership for breach of contract does not lie against the individual partners absent an allegation that the partnership is insolvent or otherwise unable to pay its obligations. Put differently, absent such an allegation of partnership insolvency or inability to pay, an action solely against an individual partner based on the contractual obligation of the partnership is subject to dismissal. This rule of pleading, however, does not apply where a plaintiff has named the partnership as a party defendant, along with the individual partner. Indeed, in such circumstances, it is unnecessary to aver the insufficiency of partnership assets to satisfy the claim. Such is the case here. The FAC alleges, and Movants do not dispute, that the Master Fund is a general partnership, IGP is its former general partner, and TREO GP is its current general partner. Accordingly, even without any allegation of the Master Funds insolvency or inability to pay its obligations, both IGP and TREO GP are properly included part of Jefferies breach of contract and promissory estoppel claims against the Master Fund.
(Internal quotations and citations omitted).