Law Firms

Defunct law firm isn't entitled to profits from hourly-fee cases taken to new firms, ABA brief says

The unfinished business rule doesn’t entitle a dissolved law firm to profits in hourly fee matters that are earned by new firms handling the cases, the ABA asserts in an amicus brief.

The dissolved law firm’s interest in such cases should be limited to the work it has already performed, the ABA says in the brief (PDF), filed with the New York Court of Appeals in litigation involving the defunct Coudert Brothers law firm. An ABA press release summarizes the argument.

The brief addresses two questions by the New York-based 2nd U.S. Circuit Court of Appeals that were certified to New York’s top court. The first question asks whether New York law entitles a dissolved law firm in bankruptcy proceedings to profits in hourly-fee matters as unfinished business. If the answer is yes, the second question asks how New York law defines a client matter and what proportion of the profit may be retained by the new firm in an ongoing case.

The ABA brief bases its conclusions on the principle that clients have the right to retain counsel of choice. “The contention that an unfinished hourly rate client matter of a dissolved law firm is the property of the dissolved firm conflicts directly with the long-standing principle that the client has the right to control its relationship with its attorney,” the brief says. “The dissolution of a client’s prior law firm provides no basis to override this fundamental and deeply held principle.”

The principle of client choice is enshrined in the ABA Model Rules of Professional Conduct, the brief says. New York ethics rules and case law support the conclusion that hourly-fee matters belong to the client, not the law firm, according to the brief. A federal court had reached a contrary conclusion in the litigation.

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