Thursday, June 21, 2012

Do We See a Precedent Here?

On May 24, 2012, Judge McMahon of the United States District Court for the Southern District of New York rendered a decision in the Coudert Brothers, LLP bankruptcy case holding that, in the absence of a partnership agreement provision to the contrary, upon dissolution of a law firm partnership, unfinished business, specifically hourly billed client representations still in progress, constitutes an asset of the partnership and partners who took that business with them to other law firms, and those other law firms, must account for the profits realized in finishing that work.  Further, in calculating the profit realized from work in progress, the partners who complete the work at another law firm would not be entitled to compensation.  The Court also held it would not use a quantum meruit analytic to measure the profit which would have compensated the law firms for the work performed.

In so ruling the Court determined that there was no distinction between contingent fee and hourly billed work and that the No-Compensation Rule, which is and which requires a partner to complete the work in progress without compensation applies which is the default provision under the Uniform Partnership Act and which requires in the absence of a partnership agreement provision to the contrary.  Further, the Court held the application of the No-Compensation Rule was not contrary to public policy as impinging upon a client’s right to select the lawyer of their choice, despite the argument that not paying said lawyer created a disincentive to continue the client representation.

Thus, the District Court for the Southern District of New York followed the decision of Jewel v. Boxer, 156 Cal. App. 3d 171 (Cal. App. 1984), and other courts which had ruled similarly in other law firm dissolution cases.

This ruling will have a highly persuasive impact in the pending liquidation of Dewey LaBoeuf.  Further it should stir law firms on a preemptive basis to amend their partnership agreements as the default provisions of the Uniform Partnership Act apply only in the absence of an agreement to the contrary.  An appropriate amendment at a time when a law firm is solvent could eliminate this type of litigation.  Such advice is also appropriate for other professional service organizations organized as partnerships, such as architects, engineers and accountants.

Eckert Seamans Cherin & Mellott, LLC

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