SAN FRANCISCO — In a closely watched law firm bankruptcy case, the California Supreme Court on Monday held that dissolved firms aren't entitled to a portion of unfinished hourly fee matters that departing partners take with them to new firms.

“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 firm's cases,” wrote Justice Mariano-Florentino Cuéllar in a unanimous opinion.

The underlying case stems from Heller Ehrman's 2008 dissolution. The trustee charged with unwinding the Heller estate sued 16 law firms that recruited partners after the firm filed for bankruptcy, claiming that the estate was owed profits from ongoing hourly matters that partners took with them.

All but four of the firms settled. The four remaining firms—Orrick, Herrington & Sutcliffe; Jones Day; Davis Wright Tremaine; and Foley & Lardner—won a ruling in 2014 from U.S. District Judge Charles Breyer of the Northern District of California, who found that attorneys and firms don't have a property interest in ongoing client matters.

Heller's bankruptcy trustee appealed Breyer's ruling to the U.S. Court of Appeals for the Ninth Circuit, which in turn certified the following question to California's highest court in 2016: 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?

In Monday's opinion, Cuéllar wrote that the Heller estate was asking for an interest in matters that it didn't work on and that, in fact, it couldn't work on since it had ceased operation. “In doing so, it seeks remuneration for work that someone else now must undertake,” Cuéllar wrote. “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 client's behest, Heller's expectation is best understood as essentially unilateral.”

Cuéllar wrote that a contrary finding would make it difficult for former partners to bring unfinished matters with them to new firms and for clients to choose their own lawyer. The court, however, did hold that the Heller estate should be able to bill and collect on a “narrow category of winding up activities”—things such as filing motions for continuances, and packing and shipping client files, which were necessary to “preserve the partnership business.”

Jones Day's Shay Dvoretzky, who represented his firm at oral argument in the case late last year, said that the law firm defendants were pleased with the decision because it sided with them on an important principle. “As lawyers, we serve our clients' interest and clients own their matters—not lawyers,” he said.

Orrick's Eric Shumsky, who argued on behalf of his firm as well, said that the decision “establishes, once and for all, the commonsense proposition that the firm that does the work is the firm that gets paid.”

“It enables lawyers to move to the firms that are the best fit for them and their clients, and it makes sure that clients have control over who handles their matters and who gets paid for doing so,” Shumsky said.

Diamond McCarthy's Christopher Sullivan, who represents the Heller bankruptcy trustee, said that he was “disappointed by the ruling but proud of the fight that we put up for our clients.”

“This is the death knell to the unfinished business claims” in law firm bankruptcy, said Blank Rome's Leslie Corwin. Corwin, who drafted Heller Ehrman's dissolution plan back when he practiced at Greenberg Traurig, said that recruiting law firms wouldn't be willing to take on lawyers and staff from dissolving firms if they had to hand over profits from ongoing hourly matters.

Unfinished business claims, which had become a staple of law firm bankruptcies over the past decade or so, have recently started to fizzle in the wake of a stream of critical decisions. According to a search of public unfinished business settlements on large-firm bankruptcy dockets by The American Lawyer, firms had paid out $35.5 million to bankruptcy trustees in settlements as of October 2012.

Large law firms, however, started to fight claims rather than settle shortly thereafter. The New York Court of Appeals found in 2014 that dissolving law firms Coudert Brothers and Thelen did not have a right to hourly fees earned by former partners once at their new firms under New York law. Following that decision, two U.S. district judges in San Francisco—Breyer and James Donato—tossed out unfinished business claims in Heller Ehrman and Howrey, which were governed by California and District of Columbia partnership law, respectively. Just last week the Ninth Circuit certified a similar question to the District of Columbia Court of Appeals in the bankruptcy of IP and litigation firm Howrey.

University of California, Davis, School of Law professor Robert Hillman, the author of a treatise on lawyer mobility, said that Monday's decision treats law firms differently than other partnerships. While the decision takes into account the rights of clients to choose their own law firm, he said it ignores the rights of former employees, associates and creditors who face losses when law firms dissolve.

“I think what they've done in the opinion is continue the judiciary's creation of special rules for lawyers,” Hillman said.