Jones Day's MP on Why Firm's Fight Against Heller Trustee Was Good for Clients
Jones Day's managing partner, Stephen Brogan, explains why his firm refused to settle with the trustee of bankrupt law firm Heller and why his firm's win last week in the California Supreme Court is good for clients.
March 13, 2018 at 12:20 PM
5 minute read
Last week's unanimous decision by the California Supreme Court reaffirmed a principle that Jones Day fought for years to defend: Clients (and their matters) are not the property of the lawyers who represent them. The ruling represents a win not only for the law firm defendants in the case, but for their clients and for the legal profession as a whole.
In the aftermath of the financial crisis, a number of law firms failed. Many of their partners joined other firms that had better planned for and weathered the storm, including Jones Day. Clients made their own choices about which firms would represent them going forward. But the bankruptcy estates of the defunct law firms wanted to reach out from the grave and claim a property interest in the work that was done by other firms after the bankrupt firms dissolved.
The first time in recent history that this issue was litigated came in the wake of the 2003 fall of Brobeck, Phleger & Harrison. In that case, the bankruptcy court held, under Jewel v. Boxer (a case from California's intermediate appellate court), that the matters Brobeck was handling at the time of its dissolution were its property. That meant that its former partners had a duty to account to the bankrupt firm's estate for profits generated by “completing” the “unfinished business” at their new firms. Ironically, Brobeck itself had waived that duty (so as to facilitate partners moving to other firms and to ensure that clients would receive the best possible service), but the bankruptcy court deemed the waiver a “fraudulent transfer.” After that ruling, the affected firms settled, which scuttled appellate review and emboldened bankruptcy trustees in future cases.
Fast-forward to the demise of Heller Ehrman in 2008. Seeking to apply the Jewel doctrine, the trustee for Heller's bankruptcy estate claimed that hourly matters that Heller was unable to handle as a result of its financial collapse were Heller's “property.” The trustee further claimed that Heller was entitled to profits earned by dozens of other law firms, including Jones Day, after the clients retained those firms to work on the matters that Heller abandoned. The vast majority of the defendant firms settled. As one article put it at the time, “risk-averse law firms so far have proven largely disinclined to litigate these matters, resulting in dozens of settlements and very little case law to guide other firms' behavior.”
But we chose to fight. And though the case has spanned nearly a decade, the California Supreme Court's opinion vindicates our decision. The court's unanimous opinion puts to rest years of litigation by holding what Jones Day has argued all along: “A dissolved law firm does not have a property interest in legal matters handled on an hourly basis, or in the profits generated by former partners who continue to work on these hourly fee matters after they are transferred to the partners' new firms.”
To hold otherwise, the court said, would cause “perverse” consequences for “the freedom that clients have in choosing attorneys,” for the “mobility of lawyers,” and for the “stability of law firms.” As to Jewel, the court explained, “Suffice to say that we find nothing in Jewel to advance Heller's position regarding hourly fee matters.” Finally, pointing out the unreasonableness of Heller's position, the court added, “What Heller claims here” is an “interest in the hourly matters on which it is not working—and on which it cannot work, because it is a firm in dissolution that has ceased operations.” Such a claim amounts to seeking “remuneration for work that someone else now must undertake.” Neither “reasonable clients” nor “lawyers seeking to continue working on these legal matters” would share this view. “Heller's expectation is best understood as essentially unilateral.” Such “speculative” hope does “not amount to a property interest.”
The court joined the likewise unanimous New York Court of Appeals, which in 2014 ruled in favor of Jones Day and rejected these types of claims in the bankruptcy of Coudert Brothers. As that court explained, too, holding that law firms own client matters would contravene “basic principles that govern the attorney-client relationship,” award an “unjust windfall” to dissolving firms, and interfere with the “strong public policy encouraging client choice.”
These rulings have important consequences for the profession. Firms sometimes collapse. Lawyers also move from one firm to another for myriad other reasons. When that happens, clients must be able to decide which firm will handle their matters (and will be paid for doing so). Recognizing the basic truth that clients, not lawyers or law firms, own their matters protects clients' access to the counsel of their choice.
Indeed, in many contexts—ranging from these kinds of claims to various rankings of law firms and lawyers—some people seem to forget the primacy of clients. Virtually everyone would agree that clients can hire and fire lawyers at will. Yet there have developed ways of talking about the practice of law that assume that individual lawyers have the power to move client matters from one firm to another, and therefore control the revenues generated from client matters. That same flawed concept lies behind the claim that the California Supreme Court rejected.
Clients are the ones who enlist our services. As lawyers, we serve their interests for as long as they entrust their matters to us. Those matters are not our property. They belong to the client. Though it has taken many years to make that point, it was a point worth making.
Stephen Brogan is the managing partner of Jones Day.
This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.
To view this content, please continue to their sites.
Not a Lexis Subscriber?
Subscribe Now
Not a Bloomberg Law Subscriber?
Subscribe Now
NOT FOR REPRINT
© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
You Might Like
View AllNo 'Gray Area' In Lawyers' Oversight of Investigators, Commentator Argues
Trending Stories
- 1NY Requiring Lawyers to Report Out-of-State Admissions, Public Discipline
- 2Man Hits Cow in Case That Tests 'Unrealistic Delivery Times'
- 3DC Judge, Applying 'Loper Bright,' Dismisses Complaint in Medicare Drug-Classification Dispute
- 4Environmental Law in Trump’s Second Term
- 5Lock-Maker's Veteran GC Takes Old Job Back After Successor Lasts Just 3 Months
Who Got The Work
Michael G. Bongiorno, Andrew Scott Dulberg and Elizabeth E. Driscoll from Wilmer Cutler Pickering Hale and Dorr have stepped in to represent Symbotic Inc., an A.I.-enabled technology platform that focuses on increasing supply chain efficiency, and other defendants in a pending shareholder derivative lawsuit. The case, filed Oct. 2 in Massachusetts District Court by the Brown Law Firm on behalf of Stephen Austen, accuses certain officers and directors of misleading investors in regard to Symbotic's potential for margin growth by failing to disclose that the company was not equipped to timely deploy its systems or manage expenses through project delays. The case, assigned to U.S. District Judge Nathaniel M. Gorton, is 1:24-cv-12522, Austen v. Cohen et al.
Who Got The Work
Edmund Polubinski and Marie Killmond of Davis Polk & Wardwell have entered appearances for data platform software development company MongoDB and other defendants in a pending shareholder derivative lawsuit. The action, filed Oct. 7 in New York Southern District Court by the Brown Law Firm, accuses the company's directors and/or officers of falsely expressing confidence in the company’s restructuring of its sales incentive plan and downplaying the severity of decreases in its upfront commitments. The case is 1:24-cv-07594, Roy v. Ittycheria et al.
Who Got The Work
Amy O. Bruchs and Kurt F. Ellison of Michael Best & Friedrich have entered appearances for Epic Systems Corp. in a pending employment discrimination lawsuit. The suit was filed Sept. 7 in Wisconsin Western District Court by Levine Eisberner LLC and Siri & Glimstad on behalf of a project manager who claims that he was wrongfully terminated after applying for a religious exemption to the defendant's COVID-19 vaccine mandate. The case, assigned to U.S. Magistrate Judge Anita Marie Boor, is 3:24-cv-00630, Secker, Nathan v. Epic Systems Corporation.
Who Got The Work
David X. Sullivan, Thomas J. Finn and Gregory A. Hall from McCarter & English have entered appearances for Sunrun Installation Services in a pending civil rights lawsuit. The complaint was filed Sept. 4 in Connecticut District Court by attorney Robert M. Berke on behalf of former employee George Edward Steins, who was arrested and charged with employing an unregistered home improvement salesperson. The complaint alleges that had Sunrun informed the Connecticut Department of Consumer Protection that the plaintiff's employment had ended in 2017 and that he no longer held Sunrun's home improvement contractor license, he would not have been hit with charges, which were dismissed in May 2024. The case, assigned to U.S. District Judge Jeffrey A. Meyer, is 3:24-cv-01423, Steins v. Sunrun, Inc. et al.
Who Got The Work
Greenberg Traurig shareholder Joshua L. Raskin has entered an appearance for boohoo.com UK Ltd. in a pending patent infringement lawsuit. The suit, filed Sept. 3 in Texas Eastern District Court by Rozier Hardt McDonough on behalf of Alto Dynamics, asserts five patents related to an online shopping platform. The case, assigned to U.S. District Judge Rodney Gilstrap, is 2:24-cv-00719, Alto Dynamics, LLC v. boohoo.com UK Limited.
Featured Firms
Law Offices of Gary Martin Hays & Associates, P.C.
(470) 294-1674
Law Offices of Mark E. Salomone
(857) 444-6468
Smith & Hassler
(713) 739-1250