Partners recruited from dissolved law firms might bring more than just a book of business to a new firm. These partners and their new firms could be required to share the fruits of the recruited partner’s labor with his or her former partners. So, before you hire a partner from a dissolved law firm with the promise of an established book of business, check to make sure that the partner’s former partnership agreement contains a Jewel v. Boxer waiver. Otherwise, in addition to generating new business, your new recruit could expose you to expensive litigation over attorneys’ fees related to transferred matters.
According to Jewel’s unfinished business rule, attorneys’ fees received on cases in progress upon the dissolution of a law firm partnership must be shared amongst the former partners according to their right to fees in the former partnership. The rule applies even where the partner that originated the business is the partner that takes the business to the new firm. In that case, the partner still must share the matters’ attorneys’ fees with the partner’s former partners. Courts have applied the unfinished business rule to the dissolutions of law firms organized as both professional corporations and LLCs. State laws should be consulted to determine whether a particular state has adopted the unfinished business rule.
But, don’t think that a Jewel waiver added to a partnership agreement on the eve of a law firm’s dissolution will protect you. One court found that a law firm’s addition of a Jewel waiver to the firm’s partnership agreement on the eve of bankruptcy was actually a fraudulent transfer of the firm’s assets.
On the flip side, a law firm may be able avoid the impact of the unfinished business rule by including a Jewel waiver in its partnership agreement. A typical Jewel waiver might look like this:
Except as specifically set forth below, neither the Partners nor the Partnership shall have any claim or entitlement to clients, cases or matters ongoing at the time of the dissolution of the Partnership other than the entitlement for collections of amounts due for work performed by the Partners and other partnership personnel on behalf of the Partnership prior to their departure from the Partnership. The provisions of this Section are intended to expressly waive, opt out of and be in lieu of any right any Partner or the Partnership may have to “unfinished business” of the Partnership, as that term is defined in Jewel v. Boxer.
A law firm that wants to protect some of its “unfinished business” might also carve out any significant contingent fee matters by specifically excluding such cases from the waiver in the agreement.