Robert T Abney & Associates bankruptcy law:

When law firms go bankrupt

When a law firm throws in the towel, what happens to its lawyers? They
move on, thats what. And a lot of times, their clients and cases move right
along with them to their new firms.

In the wake of a recent New York decision, those new firms may be resting
a bit easier. But here in Maryland, theres a 33-year-old reason to toss and
turn.

First, the news: As Bloomberg reported, New Yorks highest court has
rejected the notion that a bankrupt firm has any claim on the hourly-fee
matters the partners take with them, aside from payment for past services.

The bankruptcy trustees for Thelen LLP and Coudert Brothers LLP had
argued that the pending matters were partnership property or unfinished
business that belonged to the defunct firm under New York law. The cases
resulted in a split that went to the 2nd U.S. Circuit Court of Appeals, which
asked the New York Court of Appeals to interpret the state law.

Pending hourly fee matters are not partnership property or unfinished
business within the meaning of New Yorks Partnership Law, the New
York Court of Appeals decided (pdf). A law firm does not own a client or
an engagement, and is only entitled to be paid for services actually
rendered.

That tracked closely the reasoning of the American Bar Association, which
filed an amicus brief in the matter. (HT: ABA Journals Law News Now).

Here in Maryland, however, the Court of Special Appeals expressly rejected
the clients-right-to-choose argument in a 1981 decision, Murray I. Resnick
v. Solomon Kaplan et al.

The proposition [that a client has the right to elect the attorney he
prefers] is sound; but it does not mean, as appellant contends, that the fees
thereafter earned by the partner chosen by the client are not subject to
division in accordance with the partnership agreement. Nor does it mean
that the fiduciary duty imposed upon partners to render a faithful
accounting to the partnership for fees earned is diminished in the
slightest.

The court in Resnick affirmed a summary judgment ruling in favor of the
partnership.

Now, 1981 was a long time ago, but Resnick v. Kaplan is still a factor in
disputes over law firms unfinished business on dissolution, showing up
in footnotes as recently as this year.

In writing about the New York case, Bloombergs Bill Rochelle noted that it
gives comfort to the legal community, which has been roiled for 30 years
by an obscure California decision from 1984, Jewel v. Boxer.

Now, Jewel not only cites Resnick but discusses it at some length, and
concludes, The decision in Resnick v. Kaplan is closely analogous to the
present case and The reasoning in Resnick is sound.

Jewel, of course, was never binding on New York courts. No decision of the
New York Court of Appeals, or the 2nd Circuit, can overturn Jewel. Nor are
the decisions of the New York Court of Appeals and the 2nd Circuit binding
in Maryland courts or the federal courts here.