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Law Firm Clients Defeat Bankruptcy Trustees in New York Court of Appeals
The New York Court of Appeals, on July 1, 2014, in response to questions certified by the U.S. Court of Appeals for the Second Circuit, held that “pending hourly fee matters are not [a dissolved law firm's] 'property' or 'unfinished business'” under New York's Partnership Law. In re Thelen LLP, _________ N.Y.3d _________, 2014 N.Y. LEXIS 1577, *1 (July 1, 2014). See In re Thelen LLP , 213 F.3d 213, 216 (2d Cir. 2013). A federal district court had applied California law to reach the same conclusion in a similar case three weeks earlier. In re Heller Ehrman, 2014 U.S. Dist. LEXIS 81087, *2 (N.D. Cal. June 11, 2014) (“A law firm ' and its attorneys ' do not own the matters on which they perform their legal services. Their clients do.”)
The bankruptcy trustees of two dissolved law firms (Thelen LLP and Coudert Brothers) raised the issue when they sought to recover profits that other law firms had earned on hourly fee matters brought to those firms by departing Thelen and Coudert partners. According to the trustees: 1) pending hourly fee matters that were taken to the new firms were Thelen and Coudert property; and 2) the new firms had to account for their earnings on those matters. As The Wall Street Journal noted on July 7, 2014, the trustees were trying to “claw back money earned on pending matters for the benefit of [the dissolved firms'] creditors.”
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