So who is entitled to the profits for “unfinished business” in the bankruptcy of a major law firm? That is the $64,000 question that was recently answered by a New York judge in the bankruptcy case of the firm of Dewey & LeBoeuf LLP.
The issue at stake is when partners leaving a defunct law firm bring unresolved cases with them to their new law firm, which law firm is entitled to the profits – the old defunct firm or the new one? The trustee for former New York firm Coudert Brothers LLP had sued 10 firms that hired former Coudert partners in an effort to recover those profits. While no dollar amount was specified, as the firms did not provide documents outlining how much money they made, a federal judge in Manhattan ruled on Thursday that that the proceeds from those cases did indeed belong to Coudert Brothers.
District Judge Colleen McMahon made her decision on the following basis:
“Because the Client Matters belonged to Coudert on the Dissolution Date, and because the Coudert Partnership calls for the application of the Partnership Law to determine the post-dissolution rights of the partners, the Former Coudert Partners have a duty to account for profits they earned completing the Client Matters at the Firms,”
Judge McMahon’s decision sets a major precedent (particularly in New York) as it reaffirms a 1984 California case known as Jewel v. Boxer that had been adopted in several other states.
For additional information, please see the Wall Street Journal Law Blog article written by Jennifer Smith entitled: Profits from Unfinished Business Belong to Dissolved Law Firm, NY Judge Says