Dissolved law firm has no right to profits in hourly fee matters taken to new firm, appeals court says
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The bankruptcy trustee for the dissolved Howrey law firm has lost another round in his bid to claw back profits from partners who took hourly matters with them to new law firms.
Departing partners don’t have to return profits for hourly fee matters performed after their departure, according to the District of Columbia Court of Appeals.
Clients have the right to choose counsel, and their hourly billed matters are not “property” of the former law firm, the court ruled last Thursday.
The District of Columbia Court of Appeals ruled against trustee Allan Diamond on certified questions by the San Francisco-based 9th U.S. Circuit Court of Appeals, report Law360 and Law.com.
The 9th Circuit asked the D.C. Court of Appeals to answer questions about Washington, D.C., partnership law to help it resolve Diamond’s claims. Howrey was founded in Washington, D.C.
Howrey dissolved in 2011. The case before the appeals court involved eight law firms fighting Diamond’s claims for profits on unfinished business.
The ABA had filed an amicus brief with the D.C. Court of Appeals urging the court to rule against Diamond. The ABA had argued that Diamond’s position undermined the principle that clients own and control their matters, and have the unfettered right to counsel of their choice.
Courts have rejected claims to fees by dissolved law firms in other cases. The New York Court of Appeals ruled in 2014 that Thelen and Coudert Brothers wasn’t entitled to claw back unfinished business profits in hourly fee matters. The California Supreme Court ruled similarly in a 2018 decision involving the dissolved law firm Heller Ehrman.
Jones Day partner Shay Dvoretzky had represented his law firm in opposing Diamond’s clawback claims before the D.C. Court of Appeals.
“This decision is a significant recognition of the rights of clients to have the counsel of their choice,” Dvoretzky told Law360. “If I was a trustee [for a dissolved firm] considering this kind of claim, I wouldn’t bother at this point.”
