CTQ-2013-00009
Court of Appeals
of the State of New York
YANN GERON, as Chapter 7 Trustee of the Estate of Thelen LLP,
Plaintiff-Appellant,
– v. –
SEYFARTH SHAW LLP,
Defendant-Respondent.
On Appeal from the Questions Certified by the U.S. Court of Appeals for the Second Circuit in Docket No. 12-4138-BK
BRIEF FOR AMICI CURIAE
James M. Catterson Margaret A. Rogers KAYE SCHOLER LLP 425 Park Avenue New York, New York 10022 Tel.: (212) 836-7252 Fax: (212) 836-6589 Attorneys for Amicus Curiae Kaye Scholer LLP
Date completed: April 10, 2014
(Additional Counsel on the Reverse) DLA PIPER LLP (US) DRINKER BIDDLE &REATH LLP 1251 Avenue of the Americas 1177 Avenue of the Americas New York, New York 10020 New York, New York 10036 Tel.: (212) 335-4500 Tel.: (212) 248-3140 Fax: (212) 884-8480 Fax: (212) 248-3141 Attorneys for Amicus Curiae Attorneys for Amicus Curiae DLA Piper LLP (US) Drinker Biddle & Reath LLP
HOGAN LOVELLS US LLP HOLLAND &KNIGHT LLP 875 Third Avenue 31 West 52nd Street New York, New York 10022 New York, New York 10019 Tel.: (212) 918-3000 Tel.: (212) 513-3200 Fax: (212) 918-3100 Fax: (212) 385-9010 Attorneys for Amicus Curiae Attorneys for Amicus Curiae Hogan Lovells US LLP Holland and Knight LLP
MAYER BROWN LLP PROSKAUER ROSE LLP 1675 Broadway 11 Times Square New York, NY 10019 New York, New York 10036 Tel.: (212) 506-2500 Tel.: (212) 969-3000 Fax: (212) 849-5593 Fax: (212) 969-2900 Attorneys for Amicus Curiae Attorneys for Amicus Curiae Mayer Brown LLP Proskauer Rose LLP
SCHULTE ROTH &ZABEL LLP SUTHERLAND ASBILL &BRENNAN LLP 919 Third Avenue 1114 Avenue of the Americas New York, New York 10022 New York, New York 10036 Tel.: (212) 756-2000 Tel.: (212) 389-5000 Fax: (212) 593-5955 Fax: (212) 389-5099 Attorneys for Amicus Curiae Attorneys for Amicus Curiae Schulte Roth & Zabel LLP Sutherland Asbill & Brennan LLP
VENABLE LLP WEIL,GOTSHAL &MANGES LLP Rockefeller Center 767 Fifth Avenue 1270 Ave. of the Americas, 24th Floor New York, New York 10153 New York, New York 10020 Tel.: (212) 310-8000 Tel.: (212) 307-5500 Fax: (212) 310-8007 Fax: (212) 307-5598 Attorneys for Amicus Curiae Attorneys for Amicus Curiae Weil, Gotshal & Manges LLP Venable LLP WILLKIE FARR &GALLAGHER LLP 787 Seventh Avenue New York, New York 10019 Telephone (212) 728-8000 Facsimile (212) 728-8111 Attorneys for Amicus Curiae Willkie Farr & Gallagher LLP DISCLOSURE STATEMENT Amicus Curiae DLA Piper LLP (US) has no parent corporations, subsidiaries or affiliates.
Amicus Curiae Drinker Biddle & Reath LLP is a limited liability partnership formed under the laws of the State of Delaware. Drinker Biddle & Reath LLP has no corporate parent or affiliates. Drinker Biddle & Reath LLP has the following wholly owned subsidiaries: Innovative Health Strategies, LLC, Drinker Biddle &
Reath (U.K.) LLC, Tritura Information Governance LLC, Delaware VDA
Administrators LLC, BGLC LLC, and Drinker Biddle Alliance LLC.
Amicus Curiae Hogan Lovells US LLP states that it is a District of
Columbia limited liability partnership, that it has no parents and no subsidiaries, and that its affiliates are as follows: Despacho de Abogados Miembro de Hogan
Lovells (Venezuela); Hogan Lovells Consultores em Direito Estrangeiro/Direito
Norte-Americano and HL Consultoria em Negócios Ltda (Brazil).
Amicus Curiae Holland & Knight LLP is a limited liability partnership formed under the laws of the State of Florida and has no parent entity. Holland &
Knight LLP has wholly owned subsidiaries and other affiliated business entities in
Florida and various locations outside the United States that are organized as required by applicable local legislation or regulations pertaining to the practice of law.
i Amicus Curiae Kaye Scholer LLP is a general partnership organized under the laws of the State of New York. Kaye Scholer LLP has no corporate parent or subsidiaries. Kaye Scholer LLP has affiliated entities pertaining to the practice of law in various locations around the world, all of which are closely held.
Amicus Curiae Mayer Brown LLP is a limited liability partnership organized under the laws of the State of Illinois and does not have any parents or subsidiaries.
Mayer Brown LLP does have affiliations with various foreign entities organized under the laws of their respective foreign jurisdictions, including Mayer Brown
International LLP, Mayer Brown-JSM, and Tauil & Chequer Advogados.
Amicus Curiae Proskauer Rose LLP states that it has the following affiliates:
Proskauer Rose LLP (United Kingdom); Proskauer Rose (Hong Kong); Proskauer
Rose Servicos Ltda (Brazil) and Proskauer Rose LLP-Consultores em Dirieto
Estrangiero/Dirieto Norte-Americano e Dirieto Ingles (Brazil).
Amicus Curiae Schulte Roth & Zabel LLP has no parents, subsidiaries or affiliates.
Amicus Curiae Sutherland Asbill & Brennan LLP advises the Court that it has one affiliate: Arbis Sutherland LLP.
Amicus Curiae Venable LLP does not have any subsidiaries or parent.
Amicus Curiae Weil, Gotshal & Manges LLP states that it is a New York limited liability partnership. Weil, Gotshal & Manges LLP has no parents,
ii subsidiaries, or affiliates within the United States. Weil, Gotshal & Manges LLP has the following foreign affiliates in connection with the firm’s international offices:
1. WGM LLP is a Branch located in Hungary. WGM LLP operates as a
branch of its United States parent, Weil Gotshal & Manges LLP.
2. WGM LLP is a Branch located in Dubai, United Arab Emirates.
WGM LLP operates as a branch of its United States parent, Weil,
Gotshal & Manges LLP.
3. WGM LLP is a Branch located in Germany. WGM LLP operates as a
branch of its United States parent, Weil, Gotshal & Manges LLP.
4. WGM s.r.o. is a Legal Entity organized under the laws of the Czech
Republic.
5. WGM Secretaries Limited is a Legal Entity organized under the laws
of the United Kingdom.
6. Weil Secretaries Limited is a Legal Entity organized under the laws of
the United Kingdom.
7. WGM (Properties) Limited is a Legal Entity organized under the laws
of the United Kingdom.
8. Weil Properties Limited is a Legal Entity organized under the laws of
the United Kingdom.
iii 9. WGM Nominees Limited is a Legal Entity organized under the laws
of the United Kingdom.
10.Weil Nominees Limited is a Legal Entity organized under the laws of
the United Kingdom.
11.Weil Gotshal & Manges Limited is a Legal Entity organized under the
laws of the United Kingdom.
12.WGM GP is a Legal Entity organized under the laws of the United
Kingdom.
13.WGM LLP is a Branch located in France. WGM LLP operates as a
branch of its United States parent, Weil, Gotshal & Manges LLP.
14.WGM GP is a Legal Entity organized under the laws of Hong Kong.
15.WGM LLP is a Branch located in Beijing, China. WGM LLP operates
as a branch of its United States parent, Weil, Gotshal & Manges LLP.
16.WGM LLP is a Branch located in Shanghai, China. WGM LLP
operates as a branch of its United States parent, Weil, Gotshal &
Manges LLP.
17.WGM Limited is a Legal Entity organized under the laws of Ireland.
18.Interaktywny Wehikul Administracyjny SP. Z o.o is a Legal Entity
organized under the laws of Poland.
19.WGM Sp.k is a Legal Entity organized under the laws of Poland.
iv 20.WGM LLP is a Branch located in Canada. WGM LLP operates as a
branch of its United States parent, Weil, Gotshal & Manges LLP.
Amicus Curiae Willkie Farr & Gallagher LLP is a limited liability partnership organized under the laws of Delaware for the practice of law, and has no corporate parent or subsidiary. Willkie Farr & Gallagher LLP has an affiliate,
Willkie Farr & Gallagher (UK) LLP, a Delaware Limited Liability Partnership with an office in London.
RELATED LITIGATION This case presents the same certified questions as in In re Coudert Brothers
LLP, No. 12-4916, slip op. 2 (2d Cir. Dec. 2, 2013). This Court accepted certification of In re Coudert Brothers LLP on January 14, 2014, and it has been docketed as CTQ-2013-00010.
v TABLE OF CONTENTS Page
DISCLOSURE STATEMENT ...... i
RELATED LITIGATION...... v
QUESTIONS PRESENTED...... 1
INTEREST OF AMICI CURIAE ...... 2
INTRODUCTION ...... 3
ARGUMENT ...... 5 POINT 1 FROM THE BEGINNING OF THE COMMON LAW CLIENTS HAVE HAD THE UNFETTERED RIGHT TO CHOOSE THEIR COUNSEL...... 5
A. First Recordings of the Client’s Right to Choose Counsel ...... 6
B. Client’s Right to Choose Firmly Cemented By Nineteenth Century...... 8
C. The Same Rule Applies in Nineteenth and Early Twentieth Century New York...... 11
D. In the Twentieth Century the Client’s Right to Choose Counsel Underpins Ethical Regulation of the Attorney- Client Relationship ...... 14
E. By the late Twentieth Century this Court Repeatedly Prohibited Practices Infringing on the Client’s Right to Choose Counsel ...... 18
F. The Only Exception To the Rule Applies When the Attorney of Choice is Conflicted Out of Representing A Litigant ...... 20
POINT 2 THE TRUSTEE’S APPLICATION OF THE UNFINISHED BUSINESS RULE TO HOURLY FEE MATTERS INFRINGES ON THE CLIENT’S RIGHT TO CHOOSE HIS COUNSEL...... 21
vi Page
POINT 3 PROHIBITING THELEN FROM OBTAINING PROFITS EARNED BY THE FIRMS IS CONSISTENT WITH APPLICATION OF THE UNFINISHED BUSINESS RULE TO CONTINGENT FEE MATTERS...... 24
CONCLUSION ...... 27
vii TABLE OF AUTHORITIES Page(s) CASES Bogardus v. Trinity Church, 4 Paige Ch. 178 (1833) ...... 11
Callahan v. Cowley & Riddle, 117 Okla. 58 (Okla. 1926) ...... 14
Cent. Trust Co. of New York v. Burke, 3 Ohio N.P. 214 (Ohio Ct. Com. Pl. 1896)...... 14
Cohen v. Lord, Day & Lord, 75 N.Y.2d 95 (1989)...... 6, 19, 24
De Witt v. Steuder, Rep. at 541-42 (N.Y. Sup. Ct. 3d Dep’t May 27, 1889) ...... 12
Demov, Morris, Levin & Shein v. Glantz, 53 N.Y.2d 553 (1981)...... 18, 24
Denburg v. Parker Chapin Flattau & Klimpl, 82 N.Y.2d 375 (1993)...... 6, 19 Dev. Specialists, Inc. v. Akin Gum Strauss Hauer & Feld LLP, 477 B.R. 318 (S.D.N.Y. 2012)...... 4, 22
Dwyer v. Jung, 336 A.2d 498 (N.J. Super. Ct. Ch. Div. 1975), aff’d 348 A.2d 208 (N.J. Super. Ct. App. Div. 1975) ...... 19
Fischer-Hansen v. Brooklyn Heights R. Co., 173 N.Y. 492 (1903)...... 26
Gelder Med. Grp. v. Webber, 41 N.Y.2d 680 (1977)...... 15
Geron v. Robinson & Cole, LLP, 476 B.R. 732 (S.D.N.Y. 2012)...... 4
viii Page(s)
Graubard Mollen Horowitz Pomeranz & Shapiro v. Moskovitz, 149 Misc. 2d 481 (N.Y. Sup. Ct. 1990)...... 19
Hauser v. Sec. Credit Co., 266 N.W. 104 (N.D. 1936)...... 14
In re Cooperman, 83 N.Y.2d 465 (1994)...... 18
In re Dunn, 205 N.Y. 398 (1912)...... 13 In re Oaths To Be Taken By Attorneys And Counselors, 20 Johns. 492 (N.Y. Sup. Ct. 1823)...... 11, 12
In re Thelen LLP, 736 F. 3d 213 (2d Cir. 2013)...... 4
In re Snyder, 190 N.Y. 66 (1907)...... 25
J.G. Wentworth S.S.C. Ltd. P’ship v. Serio, 33 A.D.3d 761 (2d Dep’t 2006) ...... 21
Jacob v. Norris, McLaughlin & Marcus, 607 A.2d 142 (N.J. 1992)...... 17
Jemmison v. Kennedy, Hun Rep., Vol. LXII, at 50 (N.Y. Sup. Ct. Gen. Term 5th Dep’t Dec. 1889) ...... 13
Judge v. Bartlett, Pontiff, Stewart & Rhodes, P.C., 197 A.D.2d 148 (3d Dep’t 1994) ...... 19
King v. Fox, 7 N.Y.3d 181 (2006)...... 25
Kirsch v. Leventhal, 181 A.D.2d 222 (3d Dep’t 1992) ...... 25, 26 Marshall v. Romano, 10 N.J. Misc. 113 (N.J. Ct. Com. Pl. Jan. 14, 1932)...... 14
ix Page(s)
Martin v. Camp, 219 N.Y. 170 (1916)...... 13
Melcher v. Greenberg Traurig, LLP, 2014 N.Y. Lexis 581, N.Y. slip op. 2213 (April 1, 2014)...... 11
Missan v. Schoenfeld, 111 Misc. 2d 1022 (N.Y. Sup. Ct. 1981)...... 18
Neal v. Ecolab Inc., 252 A.D.2d 716 (3d Dep’t 1998) ...... 21 Nixon Peabody LLP v. de Senilhes, Valsamdidis, Amsallem, Jonath, Flaicher Assocs., 20 Misc. 3d 1145(A) (N.Y. Sup. Ct. 2008) ...... 19
Perkins v. Elbilia, 90 A.D.3d 543 (1st Dep’t 2011)...... 21
Schulder v. Ellis, 243 P. 391 (Utah 1925)...... 14 Sexter v. Kimmelman, Sexter, Warmflash & Leitner, 19 A.D.3d 298 (1st Dep’t 2005)...... 26 Shandell v. Katz, 217 A.D.2d 472 (1st Dep’t 1995)...... 25, 26
Smith v. The Earl of Effingham, 50 Eng. Rep. 627, 10 Beav. 378 (1847) ...... 9
Solow v. W.R. Grace & Co., 83 N.Y.2d 303 (1994)...... 20
Tekni-Plex, Inc. v. Meyner & Landis, 89 N.Y.2d 123 (1996)...... 20, 21
Tenney v. Berger, 93 N.Y. 524 (1883)...... 12, 13, 23 Trust v. Repoor, 15 How. Pr. 570 (N.Y. Sup. Ct. 1856) ...... 12
x Page(s)
U.S. Sav. Bank v. Pittman, 86 So. 567 (Fla. 1920)...... 14
White v. Aiken, 28 S.E.2d 263 (Ga. 1943)...... 14
STATUTES New York Partnership Law § 40(6) ...... 4
OTHER AUTHORITIES
Sir William Holdsworth, A HISTORY OF ENGLISH LAW (3d Ed. 1944)...... 8
Anton-Hermann Chroust, The Legal Profession During the Middle Ages: The Emergence of the English Lawyer Prior to 1400, 31 NOTRE DAME L. Rev. 537 (1956)...... 7
Henry S. Drinker, LEGAL ETHICS (1953)...... 14
Herman Cohen, A HISTORY OF THE ENGLISH BAR AND ATTORNATUS TO 1450 (1929) ...... 5
J.H. Baker, THE LEGAL PROFESSION AND THE COMMON LAW (1986)...... 20
John Beames, A TRANSLATION OF GLANVILLE (1900)...... 6, 7
Quarterly Review of Jurisprudence,THE LAW MAGAZINE, Vol. XXI. (1839)....9, 10
Paul Brand, THE ORIGINS OF THE ENGLISH LEGAL PROFESSION (1992)...... 10
Roscoe Pound, THE LAWYER FROM ANTIQUITY TO MODERN TIMES (1953) ...... 7
THE LAW ADVERTISER FOR THE YEAR 1826, Appendix Containing the Report of the Chancery Commissioners, Vol IV (1826)...... 8
Appeals to the House of Lords, Third Article, 1. Choice of A Solicitor or Agent, 2. Retaining Counsel,THE LEGAL REPORTER, Vol. I, 1 Legal Rep. 205-07 (1841) ...... 10-11
xi QUESTIONS PRESENTED The Second Circuit certified two questions to this Court:
I. Under New York law, is a client matter that is billed on an hourly basis the property of a law firm, such that, upon dissolution and in related bankruptcy proceedings, the law firm is entitled to the profit earned on such matters as the “unfinished business” of the firm?
This Court should answer the first certified question in the negative and not reach the second certified question.
II. If so, how does New York law define a “client matter” for purposes of the unfinished business doctrine and what proportion of the profit derived from an ongoing hourly matter may the new law firm retain?
1 INTEREST OF AMICI CURIAE This memorandum is submitted on behalf of DLA Piper LLP (US), Drinker
Biddle & Reath LLP, Hogan Lovells US LLP, Holland & Knight LLP, Kaye
Scholer LLP, Mayer Brown LLP, Proskauer Rose LLP, Schulte Roth & Zabel
LLP, Sutherland Asbill & Brennan LLP, Venable LLP, Weil, Gotshal & Manges
LLP, and Willkie Farr & Gallagher LLP. We are all law firms that have agreed to represent clients whose former firm has failed and dissolved and that have hired partners from those failed firms.
The parties in this case represent only a small portion of the law firms that will be impacted by this Court’s ruling. This Court’s decision will affect not only all New York law partnerships but a vast number of clients of those firms; clients that were formerly represented by Thelen LLP, Coudert Brothers, Dewey &
LeBoeuf LLP or any other law firm that has recently dissolved. Furthermore, and perhaps more importantly, the Court’s decision will affect the rights of clients represented by firms that have not yet dissolved. While the amici curiae may have interests in the outcome of the underlying case, the firms nonetheless represent the interests of clients in their choice of counsel and in sodoing seek to assist the Court in addressing the issues presented.
61926028.docx 2 INTRODUCTION This case comes before this Court on the following question certified by the
Second Circuit Court of Appeals:
Under New York law, is a client matter that is billed on an hourly basis the property of a law firm, such that, upon dissolution and in related bankruptcy proceedings, the law firm is entitled to the profit earned on such matters as the “unfinished business” of the firm?
An unbroken line of precedent from the very beginnings of the common law should compel the Court to answer the question in the negative. It is a bedrock principle of the law in New York that clients enjoy an unfettered right to select the attorney of his or her choice. The “unfinished business” rule cannot be imposed on that attorney-client relationship without greatly impacting the client’s right to choose counsel. Should this Court concur, the second certified question is moot.
The certified question arises from adversary proceedings commenced against law firms that had hired former partners of Thelen LLP, a now dissolved bicoastal law firm with principal offices in New York and San Francisco. On
September 18, 2009, Thelen petitioned for Chapter 7 bankruptcy relief in the
United States Bankruptcy Court for the Southern District of New York. On
October 28, 2008, the partners voted to dissolve the firm. Several partners left the defunct firm and joined Seyfarth Shaw LLP and Robinson & Cole LLP
(hereinafter referred to as the “Firms”) where they continued to represent clients in
61926028.docx 3 hourly fee matters that were pending at Thelen before dissolution. The Chapter 7 trustee, Yann Geron (hereinafter referred to as the “Trustee”) appointed to protect the bankruptcy estate commenced adversary proceedings against the Firms. The
Trustee brought claims seeking to recover profits from fees received for work performed by the former partners after Thelen dissolved.1 The beneficiaries of any recovered profits would be the creditors left in Thelen’s wake.
Relying on New York partnership law, the Trustee argued that the former partners’ new firms are required to turnover to creditors all of the “profits” (if any) earned for work performed after dissolution. The Trustee’s theory is that these hourly fee matters constitute the “unfinished business” and property of Thelen. In other words, the Trustee argued that Thelen’s property includes profits from work performed by other firms after Thelen dissolved and could not any longer do that work itself. Thus, the Trustee asked the Court to take profits earned for legal
1 The distinction between “fees” and “profits” has received different treatment in the Federal District Courts. In Development Specialists, Inc. v. Akin Gump Strauss Hauer & Feld, LLP, 480, B.R. 145, 158 (S.D.N.Y. 2012), Judge McMahon discussed the “no compensation” rule under New York Partnership Law § 40(6). She found that in practical application, the rule was flexible enough to reduce the amount of post dissolution fees that the former partner would have to account for. In Geron v. Robinson & Cole, LLP, 476 B.R. 732, 739 (S.D.N.Y. 2012), Judge Pauley characterized the Trustee’s demand for “profits” from post dissolution fees, but observed that New York Partnership Law still imposed a “no compensation” rule for post dissolution fees. The circuit appears to have contemplated a “substantial portion of the resulting profits . . . .” In re Thelen LLP, 736 F. 3d 213, 223 (2d Cir. 2013). Thus, for purposes of the argument here, the Amici have utilized “profits” throughout except where the context requires otherwise.
61926028.docx 4 representation occurring after dissolution and apply any profit derived from those fees to the antecedent debt of the now defunct law firm – debt, which by definition is completely unrelated to the representation now being provided. If the Court were to find that New York law permitted such a result, it would impose a monetary penalty on firms agreeing to represent clients who, through no fault of their own, happened to be represented at one time by attorneys whose former law firm failed. This cannot be.
The Trustee’s proposition must fail because diverting attorney compensation to the repayment of debt unrelated to the representation, will prevent attorneys from representing clients who desire their services, thereby running afoul of nearly a thousand years of jurisprudence upholding the right of clients to retain the counsel of their choice.
ARGUMENT
POINT 1
FROM THE BEGINNING OF THE COMMON LAW CLIENTS HAVE HAD THE UNFETTERED RIGHT TO CHOOSE THEIR COUNSEL It has been the rule for nearly a millennium that a litigant may retain the attorney of his or her choice. This cardinal principle was first recorded by Ranulf de Glanville; “the father of the study of the English Common law” at the end of
Henry II’s reign. See Herman Cohen, A HISTORY OF THE ENGLISH BAR AND
61926028.docx 5 2 ATTORNATUS TO 1450, 84-85 (1929); C1, C4-5. The principle was also recognized throughout the middle ages by the clergy in their governance of the ecclesiastical courts and it pervades the case law and commentaries of nineteenth century Great Britain and New York. The client’s unfettered right to choose his counsel also became a core principle of this nation’s ethical rules and regulations of the legal profession. Standing on this precedent, this Court has jealously guarded this fundamental right by striking down any practice that would in effect impede the client’s right to choose, change, or terminate his counsel. See, e.g.,
Cohen v. Lord, Day & Lord, 75 N.Y.2d 95, 98 (1989); see also Denburg v. Parker
Chapin Flattau & Klimpl, 82 N.Y.2d 375, 381-82 (1993).
A. First Recordings of the Client’s Right to Choose Counsel In his treatise on the practice of law (circa 1190), Glanville recorded the first instance in which a code permitted a litigant to use a representative in court.
Cohen at 85; C1, C5. Under this code, if a defendant could not appear or make a proper excuse for his absence, he was ordered to “send a fit Attorney in his place, to gain or lose for him.” John Beames, A TRANSLATION OF GLANVILLE, Book 1,
Chap. XII 11(1900); C7, C10. The court, in turn, would receive his representative, “whoever on the appointed day may appear,” as long as it was
2 Citations beginning with “C” refer to the “Compendium of Cited Materials” that are not readily available. Citations shall be to the first page in which the document appears in the compendium followed by a pin-cite.
61926028.docx 6 known that the representative was “allied” with the litigant. Id. Thus, since the recognition of the litigant’s right to rely on a representative rather than having to appear in person, the litigant has had the right to choose – and the court would receive – whomever the litigant wished to “gain or lose for him.” Id.
This principle was subsequently explicitly recognized throughout the development of the common law. For example, the right of each party to choose his counsel was recognized by the clergy in their regulation of ecclesiastical litigation. See Anton-Hermann Chroust, The Legal Profession During the Middle
Ages: The Emergence of the English Lawyer Prior to 1400, 31 NOTRE DAME L.
Rev. 537, 555 (1956); C12, C15; see also Roscoe Pound, THE LAWYER FROM
ANTIQUITY TO MODERN TIMES 65 (1953) (“[A] party could choose his own proctor.”); C21, C24. King Edward I,3 ruled in England at the end of the thirteenth and beginning of the fourteenth century, during a period generally credited as the formative years of the common law and the law as a profession, see Chroust, at
574; C12, C17. He recognized the right of “a petitioner to appoint as his own attornatus any person he wished to select.” Id. at 592; C12, C19.
3 Edward I (June 17, 1239 - July 7, 1307) also known as Edward Longshanks and the Hammer of the Scots (Malleus Scotorum).
61926028.docx 7 B. Client’s Right to Choose Firmly Cemented by Nineteenth Century By the nineteenth century, the client’s right to select his own attorney had become a bedrock principle appearing in numerous legal commentaries and cases.
It had become so ingrained in the fabric of the common law in Great Britain that it was referenced in various contexts without dispute or question. For example, in
1826, John Beames Esq. – commissioner appointed to recommend reforms in the
Court of Chancery – supported a proposition to limit the number of attorneys that could be heard in a single case on behalf of a party to two unless otherwise ordered
4 by the court. See THE LAW ADVERTISER FOR THE YEAR 1826, Appendix
Containing the Report of the Chancery Commissioners, Vol IV, appendix, xxiii;
C26, C29. Beames argued that the limitation to only two counsel should in no way affect the client’s right to choose which counsel represented him. Specifically, regardless of which counsel was selected (either from the inner or outer bar), the
4 In the early 1800s, a committee of commissioners were tasked with studying and recommending changes to the practices of the Court of Chancery. A report of the commissioners dated March 2, 1826, set out 188 proposals, each with an explanatory note by John Beames, Esq. See THE LAW ADVERTISER FOR THE YEAR 1826, Appendix Containing the Report of the Chancery Commissioners, Vol IV, appendix; C26, C28-30. Proposition 139 addressed a controversial practice that was permitted in the Court of Chancery – but not in the House of Lords or the courts of common law – the employment of as many counsel as litigants pleased. Id. at xxiii (proposition 139); see also Sir William Holdsworth, A HISTORY OF ENGLISH LAW, Vol IX 366 (3d Ed. 1944); C34, C37. The practice increased the expense of litigation and delayed the resolution of cases because numerous counsel sought to be heard. Further, because the losing party was responsible for the legal fees of his opponent, he bore the costs of such increased expense. Thus, the practice of retaining multiple attorneys generated further litigation concerning the propriety of certain cost awards by “Taxing Masters.”
61926028.docx 8 party should be allowed the same costs to ensure that the new practice would be
“consistent, not only with the due administration of justice, but with the honour of the bar itself, that the suitor should be wholly unfettered in his choice of those advocates to whom he delegates the conduct of his cause.” Id. at xl; C26, C32.
The client’s right to choose his counsel was also carefully guarded by the
Courts of Chancery in their review of cost awards by Taxing Masters. See Nickels v. Haslam, 71 Eng. Rep. 929, 930, 2 holt, Eq. 418 (1845) (“I think that a serious blow would be given to the liberties of the people of England, as represented by the body of counsel, if I were to interfere in the manner asked on this petition, and to say that every suitor who comes into this Court shall not be at liberty to choose his own counsel.”); C39, C43; see also Smith v. The Earl of Effingham, 50 Eng.
Rep. 627, 630, 10 Beav. 378 (1847) (“Parties have a right to be heard by any counsel they think proper to retain, and, in a case like the present, where they are to receive costs from the adverse party, they ought to be allowed such necessary and proper fees as they have paid for the counsel they have employed.”); C44, C50.
Indeed, the very notion that a client’s right to choose his counsel could be in any way limited was deemed “very strange” by legal commentators. Quarterly
Review of Jurisprudence,THE LAW MAGAZINE, Vol. XXI. 227 (1839); C53, C54.
61926028.docx 9 In 1839, a group of serjeants-at-law5 challenged a royal mandate opening the practice of law in the superior courts of justice to other legal professionals. The serjeants claimed the change was unlawful and in any event did not improve the
“greater dispatch of business” either as to the quantity of matters heard or the time to resolve them. Id. According to the commentator, the serjeants’ position – effectively restricting a client’s right to choose his counsel – could not be supported:
If [the serjeants] refer to time, we answer that the business is dispatched more rapidly at present than under the old regime, that serjeants were always celebrated for the goodness of their wind, and that it is the judges’ own fault if they are kept waiting for the bar, if to quantity, that more is done in point of fact, and that restricting the suitor in his choice of counsel, or compelling him to employ different counsel in the different stages of his cause, is a very strange mode of bringing business to a Court.
21 Law Mag. Quart. Rev. Juris. 227, 227 (1839) (emphasis supplied); C53, C54.
Apparently, at this point in time there was such an abundance of legal professionals, and the right of litigants to choose their counsel was so ingrained, that some “impartial journalists” were inspired to prepare a how-to guide on selecting a solicitor or agent to handle one’s legal matters. Appeals to the House of
5 Serjeants-at-law were an exclusive group of attorneys who began to monopolize the practice of law in the Common Bench at the end of the thirteenth century. See Paul Brand, THE ORIGINS OF THE ENGLISH LEGAL PROFESSION 76 (1992); C58, C60.
61926028.docx 10 Lords, Third Article, 1. Choice of A Solicitor or Agent, 2. Retaining Counsel,THE
LEGAL REPORTER, Vol. I, 1 Legal Rep. 205-07 (1841), C61, C62-64.
C. The Same Rule Applies in Nineteenth and Early Twentieth Century New York This Court recently observed that, “English statutory and common law became New York common law as part of the colonial-era incorporation on
‘reception’ of English law into New York.” Melcher v. Greenberg Traurig, LLP,
2014 N.Y. Lexis 581, N.Y. slip op. 2213, at *5 (April 1, 2014); see Bogardus v.
Trinity Church, 4 Paige Ch. 178, 198 (1833). The common law right to choose one’s own counsel also became incorporated into the common law of New York.
In the early nineteenth century, New York considered the relations between client and counsel – recognizing the attorney’s privilege of serving clients who may choose to employ them – when comparing the role of attorneys with public officials. See In re Oaths To Be Taken By Attorneys And Counselors, 20 Johns.
492 (N.Y. Sup. Ct. 1823). In 1816, New York enacted a statute to suppress the practice of duelling which required public officials and attorneys “to take an oath that he has not been engaged in a duel.” Id. at 492-93. Thereafter, a sixth article was added to New York’s constitution that required certain public officials to take an oath in support of the constitution of the United States and of New York State.
That article provided that no other oath should be required as a qualification for any “office or public trust.” Id. at 493. The question before the court was whether
61926028.docx 11 the sixth article repealed the oath provision of the act to suppress the practice of duelling as applied to attorneys. To answer this question, the court examined whether an attorney holds an “office or public trust,” and concluded an attorney does not. Id. at 493 (emphasis in original). Rather, an attorney “exercises a privilege or franchise. As attorneys or counselors, they perform no duties on behalf of the government; they execute no public trust. They enjoy the exclusive privilege of prosecuting and defending suits for clients, who may choose to employ them.” Id. (emphasis in original).
By mid- to late-nineteenth century New York, the rights of clients with respect to their counsel was addressed by courts when the relationship had soured.
Regardless of context, no new rule was fashioned. The courts strongly and repeatedly upheld the client’s right at common law to choose, change, or terminate his attorney even on a whim. See Trust v. Repoor, 15 How. Pr. 570 (N.Y. Sup. Ct.
1856) (“That a client has a right to change his attorney at his own volition whatever may be his motives; whether a mere caprice or a substantial reason. The relation requires the most unlimited confidence and perfect harmony.”); De Witt v.
Steuder, Rep. at 541-42 (N.Y. Sup. Ct. 3d Dep’t May 27, 1889) (“The right of the defendant to change her attorney cannot be disputed . . . .”); C65, C66; see also
Tenney v. Berger, 93 N.Y. 524, 529 (1883) (“[I]t is held that a client may discharge his attorney, arbitrarily, without any cause, at any time, and be liable to pay him
61926028.docx 12 only for the services which he has rendered up to the time of his discharge.”); In re
Dunn, 205 N.Y. 398, 402 (1912) (same); Martin v. Camp, 219 N.Y. 170, 174
(1916) (same).
By 1883, this Court recognized that the right of the client to choose his counsel was “undoubted” and so firmly established it required no citation. Tenney v. Berger, 93 N.Y. at 530. In Tenney, an attorney sued to recover legal fees after he had withdrawn from representing his client because she had hired a new attorney without his knowledge or approval. Concluding the attorney had just cause to withdraw his representation, this Court explained:
The relations between attorney and counsel, too, are of a delicate and confidential nature. They should have faith in each other, and their relations should be such that they can cordially co-operate. While a client has the undoubted right to employ any counsel he chooses, yet it is fair and proper, and professional etiquette requires, that he should consult the attorney, and other counsel in the case so that they can withdraw, if for any reason they do not desire to be associated with him.
Id. at 530 (emphasis added); see also Jemmison v. Kennedy, Hun Rep., Vol. LXII, at 50 (N.Y. Sup. Ct. Gen. Term 5th Dep’t Dec. 1889) (concluding Native
American could maintain action in the “same manner” as white citizen;
61926028.docx 13 specifically, the right of the plaintiff to appear “in person or by his chosen attorney, was not subject to question”); C67, C72.6
D. In the Twentieth Century the Client’s Right to Choose Counsel Underpins Ethical Regulation of the Attorney-Client Relationship The right of clients to choose their counsel also underlies the development of the ethical rules and guidelines governing attorney conduct. It can be found, for example, as a principle behind the duties of superseding and superseded lawyers as provided in Canon 7 of the Canons of Professional Ethics adopted by the American
Bar Association (“ABA”) in 1908. See Henry S. Drinker, LEGAL ETHICS 198, 199
(1953) (explaining superseded attorney may not object if a client shares information learned from that attorney with new attorney because the client “at all times [is] entitled to be represented by such lawyers as he chooses”); C73, C79-80; see also id. at 94 (commentary on Canon 11 noting that lawyer may insert provision in will requiring executor to employ him as counsel for estate, but
6 The client’s right to choose has been recognized throughout the country. See, e.g., U.S. Sav. Bank v. Pittman, 86 So. 567, 573 (Fla. 1920) (“The authorities universally recognize the right of a client to terminate the relationship between himself and his attorney at his election, with or without cause . . . . The right of a client to change his attorney at will is based on necessity, in view of both of the delicate and confidential relation between them and of the evil engendered by friction and distrust.”); White v. Aiken, 28 S.E.2d 263, 267 (Ga. 1943) (collecting cases); Marshall v. Romano, 10 N.J. Misc. 113, 114 (N.J. Ct. Com. Pl. Jan. 14, 1932) (upholding right of client “to be represented by attorneys of his own choosing”); Hauser v. Sec. Credit Co., 266 N.W. 104, 108 (N.D. 1936); Cent. Trust Co. of New York v. Burke, 3 Ohio N.P. 214 (Ohio Ct. Com. Pl. 1896) (recognizing “rule that a suitor, a client, has the liberty to dispense with his attorney when he chooses”); Callahan v. Cowley & Riddle, 117 Okla. 58 (Okla. 1926); Schulder v. Ellis, 243 P. 391, 391 (Utah 1925) (stating that when firms dissolve, business goes to the attorneys of the “clients’ own choosing”).
61926028.docx 14 provision will be non-binding because executor “will be free to choose his own counsel”); C73, C77.
The client’s right to choose his counsel is also the raison d’être for the public policy against the use of restrictive covenants in partnership and other attorney employment agreements. This is a notable exception to the general rule permitting the use of restrictive covenants to protect firms and employers from competition from departing employees. See, e.g., Gelder Med. Grp. v. Webber, 41 N.Y.2d 680,
683 (1977) (“Covenants restricting a professional, and in particular a physician, from competing with a former employer or associate are common and generally acceptable.”).
In a series of opinions by the ABA standing committee on ethics and professional responsibility, the committee determined that the use of restrictive covenants was unethical because, among other reasons, preventing attorneys from practicing is the same as preventing clients from retaining the counsel of their choice, a principle that cannot be overrun by the monetary interests of the employer or remaining partnership. Rather, the interest of clients must come first.
In the first opinion concluding that it was unethical for an attorney to include a restrictive covenant in an employment contract with another attorney, the ABA explained:
The practice of law . . . is a profession, not a business or commercial enterprise . . .
61926028.docx 15 ‘Clients are not merchandise. Lawyers are not tradesmen. They have nothing to sell but personal service. An attempt, therefore, to barter in clients, would appear to be inconsistent with the best concepts of our professional status.’
ABA Comm. on Prof’l Ethics, Formal Op. 300 (1961) (quoting the Committee on
Prof’l Ethics of the N.Y. Cnty. Lawyer’s Assoc., Op. 109 (1943)); C82, C82, 95.
Attorneys cannot barter in clients because it is the client who chooses whom he will retain.
The second opinion advised that restrictive covenants in partnership agreements were just as unethical:
We believe the above principles applicable to the present inquiry and see no difference, so far as the ethical question is concerned, whether the restrictive covenant is an agreement between a lawyer-employer and a lawyer- employee or is an agreement between lawyer-partners on equal footing. It seems to the Committee that the ultimate questions and considerations are the same. The right to practice law is a privilege granted by the State, and so long as a lawyer holds his license to practice, this right cannot and should not be restricted by such an agreement. The attorneys should not engage in an attempt to barter in clients, nor should their practice be restricted. The attorney must remain free to practice when and where he will and to be available to prospective clients who might desire to engage his services.
ABA Comm. on Prof’l Ethics, Informal Op. 1072 (1968) (emphasis supplied);
C84, C86; see also ABA Comm. on Prof’l Ethics, Informal Op. 1171 (1971)
(restrictive covenant unethical); C87; ABA Comm. on Prof’l Ethics, Informal Op.
61926028.docx 16 1417 (1978) (restricting departing partners from hiring firm associates unethical);
C88.
This prohibition on restrictive covenants was later codified in Disciplinary
Rule 2-108 of the Model Code of Professional Responsibility (1969),7 and again in
Rule 5.6 when the Model Rules of Professional Conduct replaced the Model Code in 1983.8
7 Rule 2-108 provided:
(A) A lawyer shall not be a party to or participate in a partnership or employment agreement with another lawyer that restricts the right of the lawyer to practice law after the termination of a relationship created by the agreement, except as a condition to payment of retirement benefits.
(B) In connection with the settlement of a controversy or suit, a lawyer shall not enter into an agreement that restricts the right of a lawyer to practice law.
8 Rule 5.6 as adopted in New York currently provides:
(a) A lawyer shall not participate in offering or making:
(1) a partnership, shareholder, operating, employment, or other similar type of agreement that restricts the right of a lawyer to practice after termination of the relationship, except an agreement concerning benefits upon retirement; or
(2) an agreement in which a restriction on a lawyer’s right to practice is part of the settlement of a client controversy.
(b) This Rule does not prohibit restrictions that may be included in the terms of the sale of a law practice pursuant to Rule 1.17.
See also Jacob v. Norris, McLaughlin & Marcus, 607 A.2d 142, 146 (N.J. 1992) (“The history behind the [rule 5.6] and its precursors reveals that the [rule’s] underlying purpose is to ensure the freedom of clients to select counsel of their choice, despite its wording in terms of the lawyer’s right to practice. The [rule] is thus designed to serve the public interest in maximum access to lawyers and to preclude commercial arrangements that interfere with that goal.”).
61926028.docx 17 E. By the late Twentieth Century this Court Repeatedly Prohibited Practices Infringing on the Client’s Right to Choose Counsel Adhering to the precedent developed over the nineteenth and early twentieth century – both the case law and ethical rules – this Court struck down as unsupportable any practice that had the effect of infringing on the client’s right to choose or terminate his counsel. See, e.g., In re Cooperman, 83 N.Y.2d 465, 473
(1994) (prohibiting nonrefundable retainer fee agreements as against public policy because “the reality of the economic coercion” is that the agreement effectively interferes with the right of the client to terminate counsel); Demov, Morris, Levin
& Shein v. Glantz, 53 N.Y.2d 553, 557 (1981) (holding attorney cannot maintain action against former client for fraudulently inducing the attorney to enter into a retainer agreement reasoning “any result which inhibits the exercise of this essential right [to terminate one’s counsel] is patently unsupportable.”); see also
Missan v. Schoenfeld, 111 Misc. 2d 1022, 1026 (N.Y. Sup. Ct. 1981) (no cause of action when partners of dissolved partnership did not use their best efforts to encourage clients to retain former partner because lawyers “cannot and do not control the clients involved, who may at any time discharge their counsel”; there is no legal redress when “clients voluntarily cho[o]se new counsel after . . . partnership dissolution”).
Citing the ABA ethics opinions and Disciplinary Rule 2-108(A), this Court further struck down provisions in partnership agreements that restricted
61926028.docx 18 withdrawing partners from engaging in the practice of law because, once again, in effect, those provisions would run afoul of the client’s right to choose his counsel.
See Cohen, 75 N.Y.2d at 98 (1989); see also Denburg, 82 N.Y.2d at 381 (1993)
(“focus should essentially be not on the intent of the clause but on its effect”).9 In
Cohen, the partnership agreement conditioned payment of partnership revenues upon the departing partner’s refraining from competing with the law firm. Thus, the partnership agreement did not expressly restrict the right of the lawyer to practice law as proscribed by Rule 2-108(A). Relying on the public policy underlying the purpose of Rule 2-108, this Court concluded that although the provision did not expressly prohibit the partner from practicing law, because the monetary penalty “would functionally and realistically discourage and foreclose a withdrawing partner from serving clients who might wish to continue to be represented,” it ran afoul of client’s right to choose his counsel and was, therefore, unenforceable as against public policy. Cohen, 75 N.Y. 2d at 98.
9 See also Dwyer v. Jung, 336 A.2d 498, 500 (N.J. Super. Ct. Ch. Div. 1975) (striking down restrictive covenant in partnership agreement reasoning: “The attorney-client relationship is consensual, highly fiduciary on the part of counsel, and he may do nothing which restricts the right of the client to repose confidence in any counsel of his choice. No concept of the practice of law is more deeply rooted.”) (citation omitted), aff’d 348 A.2d 208 (N.J. Super. Ct. App. Div. 1975); Judge v. Bartlett, Pontiff, Stewart & Rhodes, P.C., 197 A.D.2d 148, 150-51 (3d Dep’t 1994) (restriction that imposed financial disincentives against competition was void and unenforceable as a violation against the client’s right to choose counsel); Nixon Peabody LLP v. de Senilhes, Valsamdidis, Amsallem, Jonath, Flaicher Assocs., 20 Misc. 3d 1145(A), *7 (N.Y. Sup. Ct. 2008); Graubard Mollen Horowitz Pomeranz & Shapiro v. Moskovitz, 149 Misc. 2d 481, 485 (N.Y. Sup. Ct. 1990).
61926028.docx 19 F. The Only Exception to the Rule Applies When the Attorney of Choice is Conflicted Out of Representing a Litigant This Court has recognized only one scenario where a client is prohibited from retaining his counsel of choice. If the chosen attorney will have a conflict with an existing client, it will prevent the attorney from representing the new client. See Solow v. W.R. Grace & Co., 83 N.Y.2d 303, 306 (1994) (“A lawyer may not both appear for and oppose a client on substantially related matters when the client’s interests are adverse.”). In other words, the only exception to the rule is meant to protect the choice of the client who retained the attorney first and reposed confidence in that attorney. Indeed, as far back as the middle ages, the common law barred conflicting loyalties in counsel. Thus, clients were known to engage attorneys permanently so as to secure their choice of counsel. See J.H.
Baker, THE LEGAL PROFESSION AND THE COMMON LAW 102 (1986) (explicating the use of retainers in the middle ages: “The retainer might be for life, or a terms of years, or for a particular purpose such as an assize. An advantage of the permanent retainer was that a person of substance could secure to himself the counsel of his choice and prevent future adversaries from obtaining their services against him.”)
(footnote omitted); C90, C93.
Further, because “[d]isqualification of counsel conflicts with the general policy favoring a party’s right to representation by counsel of choice,” Tekni-Plex,
Inc. v. Meyner & Landis, 89 N.Y.2d 123, 131 (1996), it may only be accomplished
61926028.docx 20 upon satisfying a three part test in which courts engage in “careful appraisal of the interests involved.” Id. at 132.
Thus, the only exception to the right of a client to choose his or her own counsel, is really a method of prioritizing and protecting the rights of clients with respect to each other.10
POINT 2
THE TRUSTEE’S APPLICATION OF THE UNFINISHED BUSINESS RULE TO HOURLY FEE MATTERS INFRINGES ON THE CLIENT’S RIGHT TO CHOOSE HIS COUNSEL The Trustee’s core argument is that the unfinished business rule requires that this Court answer the certified question in the affirmative so that money earned post dissolution will flow to Thelen’s creditors to be applied to pre-dissolution debt. The unfinished business rule is “[t]he general rule [] that the business of a partnership that is unfinished on the date the partnership dissolves is an asset of the partnership, and must be concluded for the benefit of the dissolved partnership.”
10 Pro hac vice admissions also “furthers this State’s policy favoring representation by counsel of one’s choosing.” Neal v. Ecolab Inc., 252 A.D.2d 716, 716 (3d Dep’t 1998); see also Perkins v. Elbilia, 90 A.D.3d 543, 544 (1st Dep’t 2011) (reversing denial of motion as an abuse of discretion); J.G. Wentworth S.S.C. Ltd. P’ship v. Serio, 33 A.D.3d 761, 762 (2d Dep’t 2006) (reversing revocation of admission as an abuse of discretion). However, a litigant’s desire to employ counsel admitted outside of New York may be limited when doing so would adversely affect judicial efficiency or the court’s control of its courtroom or calendar (e.g., when late admission would disrupt trial). See Neal v. Ecolab Inc., 252 A.D.2d at 716 (affirming denial of motion for pro hac vice admission made two and half years into litigation and on the eve of trial, and when role of attorneys to be assumed at trial was not clarified for the court).
61926028.docx 21 Dev. Specialists, Inc. v. Akin Gum Strauss Hauer & Feld LLP, 477 B.R. 318, 332
(S.D.N.Y. 2012) (citing Stem v. Warren, 227 N.Y. 538 (1920)).
The Trustee argues that the profits derived from work performed on an hourly fee basis for clients who were clients of the firm at the time of Thelen’s dissolution constitute unfinished business of Thelen and therefore assets of the dissolved firm. Specifically, the Trustee posits that any future profits are Thelen’s partnership assets and asks the Court to answer yes to the certified question so that the trustee can apply those profits (if any) – earned by the Firms after Thelen’s dissolution – to Thelen’s antecedent and unrelated debt. The Trustee argues application of the unfinished business rule in this way does not prevent an attorney from continuing to represent his or her clients because according to the Trustee,
“[a] lawyer’s compensation is simply not connected with the client’s right to choose a lawyer.”11 This is preposterous.
The result of any ruling in the Trustee’s favor would be that the partners and
Firms that agreed to continue to represent former Thelen clients for work going forward, would in fact be forced to work without profiting from that representation. Indeed, the Firms will merely become a pass-through for the benefit of Thelen’s creditors for debts unrelated to the work now performed.
11 Brief for Plaintiff-Appellant at 33, Geron v. Seyfarth Shaw, LLP, No. CTQ-2013-00009 (2014).
61926028.docx 22 Thelen’s creditors have provided absolutely no services in connection with the work performed after Thelen’s dissolution. Under the Trustee’s view or the state of the law, unless former partners are motivated to work at a discount far below market, they and their new firms have no incentive to take on the representation.
Thus, the effect on the legal market would be to completely discourage any law firm from accepting lawyers and client matters from dissolving firms.
Furthermore, attorneys will invariably be faced with the difficult choice of either accepting work from a former client where any profit component of the fee may go back to Thelen or accepting work on unrelated new matters where the fee will not be reduced or sent to Thelen. In this way, application of the unfinished business rule adds insult to injury for clients who had the misfortune of hiring firms that ultimately failed. They cannot obtain representation from the defunct firm and other firms that hired attorneys from the failed firm may hesitate to represent them.
This is simply not supportable.
The Trustee’s application must fail because it runs afoul of nearly a thousand years of jurisprudence honoring the right of clients to retain the counsel of their choice from the days of Edward Longshanks to the present. For over a century, this Court has recognized that it is the client’s “undoubted” right to choose who will represent him. Tenney v. Berger, 93 N.Y. at 530. This he cannot do, however, if the attorney he seeks to retain will not be fairly compensated for his or
61926028.docx 23 her services merely because the client’s former law firm dissolved and that lawyer worked for the failed firm. Because the reality and practical effect of the application of the unfinished business rule urged by the Trustee is to deny clients the “essential right” to counsel of their choice, it is “patently unsupportable.”
Demov, Morris, Levin & Shein, 53 N.Y. 2d at 556; see also Cohen, 75 N.Y.2d at
98 (striking down restrictive covenant that “would functionally and realistically discourage and foreclose a withdrawing partner from serving clients who might wish to continue to be represented”).
Accordingly, there can be no answer to the first certified question other than
“No,” a client matter that is billed on an hourly basis is not the property of a law firm, and upon dissolution and in related bankruptcy proceedings, the dissolved law firm is not entitled to any profit earned on such matters.
POINT 3
PROHIBITING THELEN FROM OBTAINING PROFITS EARNED BY THE FIRMS IS CONSISTENT WITH APPLICATION OF THE UNFINISHED BUSINESS RULE TO CONTINGENT FEE MATTERS For all of the foregoing reasons, among others, the unfinished business rule should not be applied to a law firm’s client matters. While the nature of the attorney-client relationship in contingency fee matters is meaningfully different from the relationship in hourly fee matters, denying Thelen the fees earned by the
61926028.docx 24 Firms for post-dissolution hourly fee work is nonetheless consistent with application of the unfinished business rule to contingency fee matters.
“[T]he system of contingent compensation has the merit of affording to certain classes of persons the opportunity to procure that prosecution of their claims which otherwise would be beyond their means . . . .” In re Snyder, 190
N.Y. 66, 71 (1907). “In entering into contingent fee agreements, attorneys risk their time and resources in endeavors that may ultimately be fruitless.” King v.
Fox, 7 N.Y.3d 181, 192 (2006). Attorneys bear the risk of prosecuting contingent fee cases because they receive no compensation for their representation unless and until their client either wins or favorably settles the case. Thus, unlike hourly fee case representation which generates receivables for services provided before dissolution, unresolved contingent fee matters may generate no receivables for services provided before dissolution.
Application of the unfinished business rule to contingency fee cases permits the dissolved firm to recover the value properly attributed to the work and risk borne by the dissolved firm for which it has never received any compensation.
See, e.g., Shandell v. Katz, 217 A.D.2d 472, 473 (1st Dep’t 1995); Kirsch v.
Leventhal, 181 A.D.2d 222, 226 (3d Dep’t 1992). In Shandell, the court explained that the former partner is entitled to “the value of each contingent fee case at the time of dissolution with interest, or his partnership interest in such fee without
61926028.docx 25 interest and with a deduction for overhead, subject to the rule of Kirsch.”
Shandell, 217 A.D.2d at 473. In other words, the dissolved firm is entitled to the value of each contingent fee case at the time of dissolution with interest. Further, under the rule in Kirsch, the dissolved firm is not entitled to the fee generated by the surviving partner’s “post dissolution efforts, skill and diligence” because that fee is not “attributable to the use of [the partnership’s] right in the property of the dissolved partnership.” Id. (quotations omitted).12
In hourly fee cases, by contrast, there is no work or risk for which the dissolved firm has not already been compensated. Thus, application of the unfinished business rule to permit recovery of the value of each hourly fee case at the time of dissolution with interest would result in no recovery other than for that work billed prior to dissolution. Any prospective work on hourly fee matters would, like contingency fee matters, be the “post dissolution efforts, skill and diligence” of the new Firms.
12 To be clear, several courts in these contingency fee cases have loosely referred to client matters as an “asset” of the dissolved firm. However, a close reading reveals that the so- called “asset” is really the work or risk borne by the firm for which it has never received any compensation. See, e.g., Sexter v. Kimmelman, Sexter, Warmflash & Leitner, 19 A.D.3d 298, 299 (1st Dep’t 2005). None of these cases purports to change the longstanding rule that a client’s cause of action is the property of the client. See Fischer- Hansen v. Brooklyn Heights R. Co., 173 N.Y. 492, 500 (1903) (“A cause of action is not the property of the attorney, but of the client. The attorney owns no part of it, for a lien does not give a right to property, but a charge upon it.”).
61926028.docx 26 Therefore, declining to award Thelen any profits earned after Thelen's dissolution on hourly rate matters is consistent with New York's application of the unfinished business rule to contingency fee cases.
CONCLUSION
For all the foregoing reasons, we request the Court answer the first certified question in the negative and hold that a client matter that is billed on an hourly basis is not the property of a law firm, such that, upon dissolution and in related bankruptcy proceedings, the law firm is entitled to the profit earned on such matters as the "unfinished business" of the firm.
Dated: April 10, 2014
Respectfully Submitted,
J~ mes~ M. Cattersond~AA 61926028.docx 27 Joshua S. Sprague Michael P. Pompeo DLA PIPER LLP (US) DRINKER BIDDLE &REATH LLP 1251 Avenue of the Americas 1177 Avenue of the Americas New York, New York 10020 New York, New York 10036 Tel.: (212) 335-4500 Tel.: (212) 248-3140 Fax: (212) 884-8480 Fax: (212) 248-3141 Attorneys for Amicus Curiae Attorneys for Amicus Curiae DLA Piper LLP (US) Drinker Biddle & Reath LLP Scott W. Reynolds Barbra R. Parlin HOGAN LOVELLS US LLP HOLLAND &KNIGHT LLP 875 Third Avenue 31 West 52nd Street New York, New York 10022 New York, New York 10019 Tel.: (212) 918-3000 Tel.: (212) 513-3200 Fax: (212) 918-3100 Fax: (212) 385-9010 Attorneys for Amicus Curiae Attorneys for Amicus Curiae Hogan Lovells US LLP Holland and Knight LLP Michael O. Ware Steven E. Obus MAYER BROWN LLP PROSKAUER ROSE LLP 1675 Broadway 11 Times Square New York, NY 10019 New York, New York 10036 Tel.: (212) 506-2500 Tel.: (212) 969-3000 Fax: (212) 849-5593 Fax: (212) 969-2900 Attorneys for Amicus Curiae Attorneys for Amicus Curiae Mayer Brown LLP Proskauer Rose LLP Michael L. Cook Robert D. Owen David M. Hillman SUTHERLAND ASBILL &BRENNAN LLP SCHULTE ROTH &ZABEL LLP 1114 Avenue of the Americas 919 Third Avenue New York, New York 10036 New York, New York 10022 Tel.: (212) 389-5000 Tel.: (212) 756-2000 Fax: (212) 389-5099 Fax: (212) 593-5955 Attorneys for Amicus Curiae Attorneys for Amicus Curiae Sutherland Asbill & Brennan LLP Schulte Roth & Zabel LLP 61926028.docx 28 Lawrence H. Cooke II Mindy J. Spector VENABLE LLP Michael F. Walsh Rockefeller Center WEIL,GOTSHAL &MANGES LLP 1270 Ave. of the Americas, 767 Fifth Avenue 24th Floor New York, New York 10153 New York, New York 10020 Tel.: (212) 310-8000 Tel.: (212) 307-5500 Fax: (212) 310-8007 Fax: (212) 307-5598 Attorneys for Amicus Curiae Attorneys for Amicus Curiae Weil, Gotshal & Manges LLP Venable LLP John C. Longmire Stephen Greiner WILLKIE FARR &GALLAGHER LLP 787 Seventh Avenue New York, New York 10019 Tel.: (212) 728-8000 Fax: (212) 728-8111 Attorneys for Amicus Curiae Willkie Farr & Gallagher LLP 61926028.docx 29