The 'Unfinished Business' of Failed Law Firms

Recently, two New York federal district courts reached conflicting decisions in the Coudert Brothers LLP (Coudert) and Thelen LLP (Thelen) bankruptcy cases with respect to a law firm's purported ownership interest in future profits from its former clients' matters pending on the date of the law firm's dissolution, or “unfinished business.” In Coudert, United States District Court Judge Colleen McMahon held that in her view, New York courts would recognize unfinished business claims for hourly matters. In Thelen, United States District Judge William H. Pauley III held that New York courts have not and, in his opinion, would not recognize claims for unfinished business for hourly matters based on New York's strong policies regarding client choice and lawyer mobility. However, in a companion case interpreting California law, Judge Pauley held that to the extent that a law firm earned profits from the former firm's client matters exceeding “reasonable compensation,” California law dictates that those profits belong to the former firm. Both judges have certified interlocutory appeals to the Second Circuit Court of Appeals.