Photo: Diego M. Radzinschi/ALM

The American Bar Association has urged an appeals court in Washington, D.C., to rule against Howrey's bankruptcy estate and prevent dissolved law firms from claiming a portion of fees from hourly matters that partners bring with them to a new firm.

In an amicus brief filed late Thursday, the ABA, represented by Reed Smith and Orrick, Herrington & Sutcliffe, weighed in on the so-called unfinished business doctrine, the idea that a defunct law firm's bills for ongoing matters qualify as assets for the bankrupt firm. The ABA wrote that client matters should be considered the property of the clients themselves and that a ruling otherwise would run counter to legal ethics rules and the reality of running a modern-day law practice.

The bar association's amicus brief, in the District of Columbia Court of Appeals, comes after the California Supreme Court ruled in March on the unfinished business doctrine in litigation involving the estate of another bankrupt law firm, Heller Ehrman. The California ruling was prompted by the U.S. Court of Appeals for the Ninth Circuit, which asked the state high court to consider the unfinished business doctrine in the Heller case. The Ninth Circuit also certified related questions to the D.C. appeals court in the Howrey case because that firm's partnership was subject to D.C. law.

In California, the state high court came down against the Heller bankruptcy trustee, finding that dissolved firms are not entitled to a portion of unfinished hourly fee matters that departing partners take with them.

The ABA's amicus brief, which comes as the D.C. Circuit considers the Ninth Circuit's questions, argues for a similar approach in the Howrey case. The bar group said a position taken by the Howrey bankruptcy trustee Allan Diamond of Diamond McCarthy is “flatly inconsistent with the ethical rules that apply in this case.”

Diamond, represented by a team from his own firm led by partner Christopher Sullivan, has argued that the bankruptcy estates have a property interest in clients' matters that were pending at the time of a law firm's dissolution. But the ABA disagrees with that notion, saying that law firms don't own the matters and, instead, clients are the ones who maintain ownership and can hire or fire a lawyer at any time.

“The importance of client choice underpins multiple black-letter ethical rules, including the rules protecting a client's right to terminate her lawyer, the rules limiting the use of restrictive covenants, and the rules specifying the permissible methods of fee splitting,” the ABA wrote. “Any rule that would entitle a terminated law firm—much less the estate of a defunct law firm—to claim a property interest over the fees earned by another law firm, after a former client fired the old firm and hired the new one, cannot be reconciled with these ethical requirements.”

Sullivan, who represents the Howrey trustee and also represented the bankruptcy trustee in the Heller case, was not immediately available for comment.

As The American Lawyer reported earlier this year, questions about the unfinished business doctrine may partially explain why fewer law firms have entered official bankruptcies in recent years.

In addition to the closely watched California case involving Heller's bankruptcy estate, the New York Court of Appeals had previously ruled that firms don't have ownership of client matters, and that lawyers are entitled only to fees they earn from working on a specific matter. The New York case arose out of the bankruptcies of Thelen and Coudert Brothers.

With courts continuing to line up against the doctrine, bankruptcy trustees will likely have fewer assets to try to recover in clawback litigation, one lawyer with experience in law firm insolvencies told The American Lawyer in January. That, in turn, could help make the entire bankruptcy process a less appealing approach to dissolving a law firm.

Correction: A previous version of this article misidentified the court in which the ABA filed its brief. It is the District of Columbia Court of Appeals, not a federal appeals court. We regret the error.