Overview
McDermott pro bono clients, the Bar Association of San Francisco (BASF) and the Los Angeles County Bar Association (LACBA), represented by A. Marisa Chun and two outside attorneys, secured a victory at the California Supreme Court in the closely-watched case of Heller Ehrman LLP v. Davis Wright Tremaine LLP, — P. 3d –, 2018 WL 1146649 (Mar. 5, 2018).
In a unanimous decision authored by Justice Mariano-Florentino Cuéllar, the state Supreme Court held that, under California law, a dissolved law firm does not have a property interest in legal matters handled on an hourly basis or in the profits generated by former partners who continue to work on these matters at their new firms.In so holding, the state Supreme Court sustained the position urged by BASF and LACBA asamici curiae, in support of four law firms, which were sued by the bankruptcy trustee of the dissolved Heller law firm.The ruling settles an important legal question that has complicated many law firm dissolutions and breakups over the past 15 years. A copy of the Court’s decision is here.
“We are gratified that the Supreme Court recognized the vital importance of client choice of counsel and minimizing law firm instability, by rejecting the notion that a dissolved law firm has an interest in the hourly fees generated by a client’s new law firm in completing the matter,” said Chun.
After the Heller firm filed for bankruptcy in 2010, its trustee filed adversary proceedings against numerous former Heller partners and their new firms, seeking to claw back revenues generated in the hourly-fee cases which had originated at Heller. Four firms refused to settle with Heller in bankruptcy court, which found for Heller.That decision was appealed to the US District Court for the Northern District of California, which found for the firms and then appealed to the US Court of Appeals for the Ninth Circuit, which asked the state’s high court to rule on the “unfinished business” question under California partnership law.
In rejecting Heller’s position, the Court’s decision adopted the arguments advanced by clients BASF and LACBA, concerning the ways in which recognizing a dissolved firm’s continuing interest in hourly fee matters would contravene basic client-protecting ethical principles, while harming the interests of law firms, lawyers and the legal profession by exacerbating firm instability by incentivizing partners to “jump ship” at the first sign of financial trouble.
In addition to McDermott, California’s two largest nonprofit voluntary bar associations, BASF and LACBA, were represented by Taylor & Patchen attorneys Stephen Bundy and Josh Benson.A copy of McDermott’s brief on behalf of BASF and LACBA can be found here.