CASE SUMMARY $14\mathrm{.}4$ First American Title v$.$ Lawson, $827$ A$\mathrm{.}2$d $230($N$.$J$.2003)$

LLP INNOCENT PARTNERS

Wheeler, Lawson, and Snyder formed an LLP for their law practice. Wheeler was the managing partner for the LLP and oversaw the firm's business affairs, including malpractice insurance coverage. When applying to First American Title for the firm's malpractice insurance, Wheeler made a material misrepresentation on the insurance application. Both Wheeler and Lawson engaged in unethical and illegal conduct by failing to properly administer client trust funds and using the funds for their own benefit. Snyder was located at a separate office and had little contact with his partners and no knowledge of their misrepresentations or illegal conduct. Eventually,

the firm was sued for malpractice and damages by various clients. First American Title paid out several claims and then sought recovery from each of the partners and canceled their policy based on the misrepresentation by Wheeler. Snyder argued that he should not be liable for the negligent or intentional acts of his partners.

CASE QUESTIONS

Does the LLP shield protect Snyder's personal assets from negligence committed by other partners?

Should Snyder have been more active in regard to being aware of his partners' deeds? Did he have a duty to inquire?

$484$

UNIT FOUR I Business Entities, Securities Regulation, and Corporate Governance