The U.S. Court of Appeals for the Ninth Circuit has found that law firms have no claims to unfinished hourly matters that departing partners take with them to new firms under the partnership laws of the District of Columbia.

In the bankruptcy case of former Am Law 100 firm Howrey, a three-judge Ninth Circuit panel on Thursday issued a unanimous order adopting the position of the D.C. Court of Appeals. The D.C. court found earlier this month that clients, not firms, control ongoing matters in response to the Ninth Circuit's request that it weigh in on this issue of first impression under D.C. law.

The Howrey law firm shuttered in bankruptcy in 2011. Thursday's ruling turns back claims brought by Allan Diamond, the managing partner of Diamond McCarthy and Chapter 7 trustee overseeing the unwinding of the Howrey estate, who claimed that a waiver adopted upon the firm's dissolution to claims for unfinished business amounted to a fraudulent transfer of Howrey funds to firms where partners landed. In bankruptcy proceedings, Diamond's firm had brought claims for profits from ongoing hourly business that Howrey partners took with them to firms including Jones Day; Hogan Lovells; Kasowitz Benson Torres; Neal, Gerber & Eisenberg; Perkins Coie; Pillsbury Winthrop Shaw Pittman; Sheppard Mullin; and Seyfarth Shaw.

Writing for the D.C. Court in a Feb. 13 opinion, Chief Judge Anna Blackburne-Rigsby of the D.C. Court of Appeals held that law firms don't have a "legitimate claim of entitlement" to hourly billed matters since clients have the right to control any given representation. "A law firm's belief that it will continue working on such hourly-billed client matters into the future constitutes no more than an 'abstract need' or 'unilateral expectation,'" she wrote.

Thursday's Ninth Circuit order "expressly adopts" the D.C. court's positions on the matter and republished its decision in full as an appendix.

The D.C. decision marks the third time a high court has rejected so-called "unfinished business" claims. The New York Court of Appeals and the California Supreme Court made similar findings in July 2014 and March 2018 in bankruptcies involving Thelen and Coudert Brothers, and Heller Ehrman, respectively.

Jones Day has been leading the coalition of firms pushing back against unfinished business claims in law firm bankruptcies. Shay Dvoretzky, a Jones Day partner who argued the case before the D.C. court, told the American Lawyer earlier this month that bankrupt firms "don't have the right to collect work they didn't perform." Dvoretzky didn't immediately respond to a message seeking comment Thursday.

Christopher Sullivan of Diamond McCarthy, who represents the Howrey trustee, likewise didn't immediately respond to a request for comment.

|

Read More

DC Court Shoots Down Bankrupt Howrey's 'Unfinished Business' Claims