Tuesday, July 1, 2014

Trustee Claims Against Dissolved Law Firms Rejected

The New York Court of Appeals has answered a question posed by the United States Court of appeals for the Second Circuit as follows

We hold that pending hourly fee matters are not partnership "property" or "unfinished business" within the meaning of New York's Partnership Law. A law firm does not own a client or an engagement, and is only entitled to be paid for services actually rendered.

The litigation involved trustee claims against Thelan and Coudert Brothers.

The court

The notion that law firms will hire departing partners or accept client engagements without the promise of compensation ignores commonsense and marketplace realities. Followed to its logical conclusion, the trustees' approach would cause clients, lawyers and law firms to suffer, all without producing the sought-after financial rewards for the estates of bankrupt firms.

Treating a dissolved firm's pending hourly fee matters as partnership property, as the trustees urge, would have numerous perverse effects, and conflicts with basic principles that govern the attorney-client relationship under New York law and the Rules of Professional Conduct. By allowing former partners of a dissolved firm to profit from work they do not perform, all at the expense of a former partner and his new firm, the trustees' approach creates an "unjust windfall," as remarked upon by the District Court Judge in Geron (476 BR at 740)...

Ultimately, what the trustees ask us to endorse conflicts with New York's strong public policy encouraging client choice and, concomitantly, attorney mobility...

(Mike Frisch)

http://lawprofessors.typepad.com/legal_profession/2014/07/the-new-york-court-of-appeals-has-answered-a-question-posed-by-the-united-states-court-of-appeals-for-the-second-circuit.html

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