ABA amicus: DC Circuit should reject bankruptcy trustee's claim on 'unfinished business' profits
The American Bar Association has filed an amicus brief arguing that the U.S. Court of Appeals for the District of Columbia Circuit should reject a bankruptcy trustee’s attempt to capture profits earned by law firms from clients previously served by the now-defunct Howrey law firm.
“The ABA is asking the courts to reject the trustee’s rule and affirm that the profits in question are not the property of the dissolved firm and subject to claims by creditors,” an ABA news release stated.
The ABA brief argued that to accept the trustee’s rule would say that firms own client matters, and that this is in direct conflict with the ABA Model Rules of Professional Conduct regarding client choice and client ownership of their matters and D.C. Rules of Professional Conduct premised on the model rules.
“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,” the brief argued.
Howrey, which dissolved in 2011, saw partners flee after the financial crisis ravaged the firm. In doing so, they took as many existing clients as they could to new firms. The bankruptcy trustee argued that the creditors were entitled to profits made from those clients under the “unfinished business rule” of partnership law.
U.S. Bankruptcy Judge Dennis Montali of the Northern District of California agreed, allowing the trustee to subpoena law firms that took in Howrey partners for billing records of former Howrey clients. Forbes discussed the history of the unfinished business rule affecting dissolved partnerships back in 2012 when this decision was made.
“Treating a client’s pending hourly-rate matters as the property of a law firm would severely undermine client control of matters and the ethical rules governing the practice of law,” the brief stated.
On review from the San Francisco-based 9th U.S. Circuit Court of Appeals, the case sits in front of the D.C. Circuit Court because the issue rests on D.C. partnership law, according to the ABA news release.
