Metropolitan News-Enterprise
Tuesday, March
6, 2018
Page 1
California Supreme Court:
Dissolved Law Firm Has No Property Interest in Its Cases
Advises
Ninth Circuit That Under California Law, Hourly Fees Earned on Cases Former
Partners Take With Them to New Firms Need Not Be Shared With Bankruptcy Estate
of Former Firm
By a MetNews
Staff Writer
A dissolved law
partnership has no property interest in fees earned on hourly bases by its
former partners on cases they took with them to their new firms, the California
Supreme Court declared yesterday.
The
opinion, by Justice Mariano-Florentino Cullar, comes in response to an inquiry
from the Ninth U.S. Circuit Court of Appeals. The administrator of the
bankruptcy estate of Heller Ehrmanonce a global law firm with more than 730
attorneysis insisting that that Heller is entitled to a share of fees earned
in cases that were in progress when it dissolved in 2008.
In
Hellers name, the administrator brought suit against 16 firms to which its
former partners relocated. All entered into settlements except four: Davis
Wright Tremaine LLP; Jones Day; Orrick, Herrington & Sutcliffe LLP;
and Foley & Lardner LLP.
Under
the 1984 Court of Appeal decision in Jewel v. Boxer, a former law firm
retains an interest in cases it had been handling absent a waiver. The
administrator sought to invalidate a Jewel waiver by Hellers partners on the
ground that it created a fraudulent transfer of estate assets to the new firms.
The
bankruptcy court agreed with that contention. U.S. District Judge Charles
Breyer of the Northern District of California did not.
District Court
Opinion
He
declared on June 11, 2014, that neither law, equity, nor policy recognizes a
law firms property interest in hourly fee matters. He observed that the
California Supreme Court would likely hold that hourly fee matters are not
partnership property and therefore are not unfinished business subject
to any duty to account.
The
administrator appealed and the Ninth Circuit in 2016 certified to the
California Supreme Court this question: Under California law, does a dissolved
law firm have a property interest in legal matters that are in progress but not
completed at the time the law firm is dissolved, when the dissolved law firm
had been retained to handle the matters on an hourly basis?
The
state high courtwhich on Aug. 31, 2016 granted the request that it decide the
questionyesterday answered it in the negative.
Supreme Court
Decision
Cullar
wrote:
What
we conclude is that a dissolved law partnership is not entitled to profits
derived from its former partners work on unfinished hourly fee matters. Any
expectation the law firm had in continuing the legal matters cannot
be deemed sufficiently strong to constitute a property interest allowing
it to have an ownership stake in fees earned by its former partners, now
situated at new firms, working on what was formerly the dissolved
firms cases.
He
went on to say:
What
Heller claims here is not merely that a firm has a legitimate interest in the
hourly matters on which it is working. Rather, Heller claims a legitimate
interest in the hourly matters on which it is not workingand on which it
cannot work, because it is a firm in dissolution that has ceased operations. In
doing so, it seeks remuneration for work that someone else now must undertake.
Because such a view is unlikely to be shared by either reasonable clients or
lawyers seeking to continue working on these legal matters at a clients
behest, Hellers expectation is best understood as essentially unilateral.
Jewel Is Inapposite
With
respect to Jewel, Cullar noted:
Jewel
dealt with contingency fee matters, and whether our conclusion in this
case extends to such matters is a question we need not address here.
Suffice to say that we find nothing in Jewel to advance Hellers position
regarding hourly fee cases.
The
jurist quoted, with approval, Breyers statement that Heller should bill and
be paid for the time its lawyers spent filing motions for continuances,
noticing parties and courts that it was withdrawing as counsel, packing up and
shipping client files back to the clients or to new counsel, and getting new
counsel up to speed on pending matters. He said the erstwhile firm should also
be able to collect sums due for work performed before the dissolution though
not yet billed.
But,
he said, it cannot seek recompense for substantive legal work done on hourly
fee matters in cases that had previously been handled by the firm.
Winding
up implies the conclusion of a firms business, not its indefinite
continuation, he remarked.
The
case is Heller Ehrman LLP v. Davis Wright Tremaine LLP, 2018 S.O.S.
1071.
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2018, Metropolitan News Company