555 N.E.2d 263 (N.Y. 1990)





Defendant, an investment adviser for small pension and profit-sharing funds, was the sole general partner in

Stonehenge Investment Notes 1, Ltd., a limited partnership; defendant himself was a significant investor in the firm. In January 1987, after the limited partners and their insurers exhausted their efforts to recoup the funds defendant had allegedly embezzled, defendant was indicted for two counts of grand larceny in the second degree. Specifically, the indictment accused defendant of stealing $1,050,000 from the partnership by writing two checks on its money market account---one for $250,000 in April 1984, the other for $800,000 three months later. Defendant, who had authority under the partnership agreement to borrow firm funds, claimed that these were partnership investments.


At trial, upon the close of the People's case, defendant moved to dismiss the indictment on the ground that, as a general partner, he was a "joint or common" owner of the partnership's property and, thus, under the Penal Law could not be prosecuted for larceny even if he had misappropriated partnership property. The court reserved decision and submitted the case to the jury, which convicted defendant of both counts of the indictment. After the verdict, Supreme Court denied defendant's motion to dismiss and the Appellate Division affirmed the conviction, concluding that the general partner in a limited partnership could be prosecuted for larceny for stealing partnership property. We now reverse.


Larceny is committed when one wrongfully takes, obtains or withholds "property from an owner thereof with intent to deprive the owner of it, or appropriate it to oneself or another (Penal Law 5 155.05[1]). "Owner" is defined in Penal Law 5 155.00(5) as one "who has a right to possession [of the property taken] superior to that of the taker, obtainer or withholder." This broad definition is immediately qualified by the declaration that "[a] joint or common owner of property shall not be deemed to have a right of possession thereto superior to that of any other joint or common owner thereof. "


In that partners under the Partnership Law are "co-owners" of firm property (see, Partnership Law SS 10,

51[11), defendant contends that he cannot be charged with having committed larceny as against his limited partners, because all of the partners have an equal right of ownership.


At common law, no less than today, the requirement that the victim of a theft be an "owner" of the stolen property was an indispensable element of the crime of larceny. The idea behind this requirement was that the property alleged to be stolen had to "belong" to a party other than the accused. If the defendant was the owner of the property and entitled to possession at the time of the taking, there could be no larceny. From this principle emerged the rule that if property was owned by two or more persons, none of the owners could commit larceny from the others. In the words of Lord Hale: "Regularly a man cannot commit felony of the goods, wherein he hath a property." (Hale, History of Pleas of the Crown, at 513 [16831)


Consistent with this principle was the common-law view that a partner could not be convicted of larceny for the misappropriation of partnership assets; because each partner held title to an undivided interest in the partnership, the theory was that partners could not misappropriate what was already theirs. This view has been widely recognized throughout the common-law world. Even as States began codifying larceny, the common-law rule continued to flourish. In the absence of a legislative expression to the contrary, courts have ordinarily held that a partner cannot be guilty of larceny for misappropriating firm property, with any such defalcations left for resolution in the civil arena.


Such has been the history of the law in this State: it is surely no accident that the People cite no reported New York case where a partner has been convicted of larceny for taking partnership property. Since 1881, larceny has been defined by statute in terms of a wrongful taking or withholding from the possession of the "owner" or "true owner." For more than 80 years the Legislature made no effort to define these terms. As in other States, the courts of this State consistently regarded the common-law definition of owner as controlling, concluding that partners could not be prosecuted for stealing firm property.


A decision not to extend the larceny statute to partnership disputes commonly litigated in civil courts-is, moreover, consistent with the Legislature's reluctance to elevate civil wrongs to the level of criminal larceny. In particular, the Legislature was concerned both about the effects of criminalizing

conduct arising out of legitimate business activities-where there can often be close questions as to intent-and the effects of offering defeated litigants in civil suits the opportunity to seek retaliation by criminal actions. Allowing larceny prosecutions against partners is, of course, contrary to those legislative concerns.


Thus, it is clear that, in New York, partners cannot be charged with larceny for misappropriating firm assets. Indeed, while not alone in this view, New York, is widely recognized as a prime example of a State that has enacted in statutory form the common-law rule that a partner "could not steal partnership property." Since 1965, "[several states have followed the lead of New York on this point in recent enactments and proposals" (Model Penal Code 5 223.2, revised comment, at 170, n 15 [citing statutes of Ariz., Conn., Ore., Tex., Ill.% and many other State courts have continued to follow or have recently adopted the New York rule.


Against this backdrop, the People's arguments for criminal liability must fail. [The indictment is dismissed.]