But, IS Loss Sharing An "Indispensable Element" Of Partnership? Not If You Contract Around It.

Happy 2026 to all!

A new year offers a new opportunity to shed the old and embrace the new. So, it is fitting that we kick off another year on New York Business porce with a case that involves a little old and a little new.

First, the old: In the world of partnerships, as we have commented on many times before, it can be surprisingly tricky to answer some of the most basic questions: Is this a partnership? Am I a partner?

This trickiness is often compounded by the fact that many partnerships don't have written partnership agreements. Courts are, therefore, left to examine the indicia of partnership to determine whether a partnership in fact exists, and who the partners are. In the absence of such indicia, no partnership.

But, is there a partnership when there is a written partnership agreement, but it does not contain a provision covering one of the "indispensable elements" of partnership—the sharing of profits and losses?

In Epstein v Cantor (a case Peter Mahler posted on twice before, see here and here)—a dispute arising out of the dissolution of the law firm Cantor, Epstein & Mazzola LLP—these exact questions have plagued the parties and the court for over 4 years, between dismissal motions, reargument motions, and now, an appeal.

And now, the new: In the case's latest chapter—Epstein v Cantor, 2025 NY Slip Op 06990 (2d Dept 2025)—the Second Department held that under Congel v Malfitano, a landmark 2018 New York Court of Appeals decision, parties can contract around the default provisions of the Partnership Law, including profit and loss sharing. So long as there is a written partnership agreement that governs the parties' relationship, the contract controls.

Dismissal Decision: The Court Dismisses Epstein's Claims Against the Cantor Defendants.

Plaintiff Epstein sued his former partner, Cantor, and Cantor's new law firm, as well as former partner (lowercase 'p') Mazzola, and Mazzola's new law firm, to recover millions in damages for breaches of the partnership agreement, and for various breaches of fiduciary duties, and an accounting.

Cantor moved to dismiss, taking the position that CEM was not a partnership as defined by law and, in any event, Epstein was not a Partner (capital 'P'). Specifically, Cantor argued that although the written partnership agreement referred to the firm as a "Partnership" and Epstein as a "Partner," it did not contain key provisions demonstrating the existence of a joint venture, most notably, a profit and loss sharing provision.

The court agreed, dismissing the claims against the Cantor Defendants. The court held that "case law makes it clear that sharing in profits and losses is a critical element of a partnership" citing Steinbeck v Gerosa, 4 NY2d (1958).

The absence of a profit and loss sharing provision, as well as the fact that Epstein did not make capital contributions, "lack[ed] control and responsibility for the ongoing operations of the firm," and never exercised a written election to become an "equal partner with Cantor in the Partnership, with each having an equal say in the management, operation and running of the Partnership," rendered the court unable to "find that the relationship between Epstein and Cantor was a partnership or joint venture."

Reargument Decision: The Court Reinstates Epstein's Claims Against the Cantor Defendants

Epstein moved to reargue.

Epstein argued that under long-standing New York jurisprudence, Lanier v Bowdoin, a 1939 New York Court of Appeals case, as recently and notably reinforced in 2018 by Congel v Malfitano: "The partners of either a general or limited partnership, as between themselves, may include in the partnership articles any agreement they wish concerning the sharing of profits and losses, priorities of distribution on winding up of the partnership affairs and other matters. If complete, as between the partners, the agreement so made controls." Congel endorses partners' freedom to contract, specifically to allocate profits and losses as they wish. Congel, thus, controls when there is a written partnership agreement. Epstein further argued that courts should only look to Steinbeck and its progeny in the absence of a clear and unambiguous written partnership agreement.

Cantor took the position that profit and loss sharing is a long-standing "essential element" of partnership that, effectively, cannot be contracted away. Cantor further argued that Congel and Lanier did not involve partnership agreements that were devoid of key provisions (including loss sharing provisions), and that post-Congel decisions continue to apply Steinbeck's rule that one of the essential elements of partnership includes sharing of both profits and losses.

The court was swayed by Cantor's position, and found it unclear whether "Congel controls when the very issue is whether a partnership was formed or whether a partnership agreement can include that no profits and losses would be shared."

But, instead of adhering to its original decision, the court took a middle ground approach, and applied the multi-factor test under Brodsky v Stadlen (which test includes profit and loss sharing as a factor) and found that the factors cut both ways, with no one factor being dispositive.

The court ultimately reinstated Epstein's claims against the Cantor Defendants since, "issues of fact abound" warranting the reinstatement.

Not surprisingly, appeals followed. Read the appeal briefs here (Epstein), here (Cantor), here (Mazzola), here (Epstein's reply), and here (Cantor's reply).

The Appeal: Second Department Affirms Motion Court's Decision "In Effect," But Not Its Reasoning.

The Second Department affirmed that portion of the motion court's reargument decision that, "in effect," denied dismissal of Epstein's claims against the Cantor Defendants.

Though it affirmed the outcome, the appellate court did not adopt the motion court's reasoning, instead endorsing Epstein's argument that Congel controls where there exists a written partnership agreement, even where there is a dispute as to the existence of a partnership in fact and where that agreement does not have a profit / loss sharing provision.

With repeat citations to Congel throughout the decision (and none to Steinbeck), the Second Department opined:

Only "when there is no written partnership agreement between the parties" should the court examine the "conduct, intention, and relationship between the parties" to determine the existence of a partnership.

The appellate court, thus, looked only to the 1995 Partnership Agreement between Cantor and Epstein to find that CEM was a partnership and Epstein was an equity partner:

Tellingly, the decision was silent as to the fact Epstein did not make the written election to become an "equal partner with Cantor"; did not make any capital contributions to the firm; and did not share in the profits and losses of the firm (i.e. the motion court's reasoning in its original dismissal decision).

The decision was also silent as to any discussion about post-Congel court decisions that follow Steinbeck's rule that an essential element of partnership includes profit and loss sharing. Nor did the Court apply the multi-factor test under Brodsky v Stadlen (i.e., the motion court's reasoning in its reargument decision).

The appellate court concluded, with yet another citation to Congel (get the hint?):

Final Thoughts

It is hard to overstate the import and the impact of Congel on partnership litigation, marking a firm shift from a statutory approach, to a more contract-centric approach in evaluating partnerships and partnership disputes.

That is, when the parties actually have a written partnership agreement. As we've lamented many times over, we've encountered too many scenarios where a "partnership" is put together by the proverbial duct tape and bubble gum, or even less. A written partnership agreement is key, especially if the partnership deviates from the default rules.

In fact, in Epstein's reply appellate brief, he points to Cantor's failure to cite a single post-Congel decision in which the parties signed a written partnership agreement and the court nonetheless engaged in an "indicia of partnership" exercise. That's because there are none.

Other than Epstein, the only other post-Congel case that tested a modification of the default provisions in the Partnership Law in the parties' written partnership agreement was Zohar v LaRock, a case Frank McRoberts previously wrote on. Citing Congel (and consistent with today's Epstein decision), the Zohar court found, "Here, the partnership agreement expressly provides that the partnership 'shall not be dissolved' upon the resignation of a partner. The terms of the partnership agreement take precedence over Partnership Law § 62, which permits a partnership to be dissolved at any time by any partner."

2026 New Year's resolution: Get it in writing.

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