On Wednesday, the Second Circuit Court of Appeals put a nail in the coffin of the attempt by Thelen LLP’s bankruptcy trustee to claw back fees on work that the firm’s former partners took with them to their new firm, Seyfarth Shaw LLP. Here’s the opinion.
The Second Circuit ruling came after it asked the New York Court of Appeals to decide whether the trustee had a property interest in the fees, under the unfinished-business doctrine. The state court unanimously answered “No.” We posted on that ruling here.
In its brief opinion, the Second Circuit quoted the state court’s ruling, saying
Under New York law, the unfinished business doctrine does not apply to a dissolving law firm’s pending hourly fee matters, and … a partnership does not retain any property interest in outstanding hourly fee matters upon the firm’s dissolution.
The Second Circuit’s decision follows the California district court’s refusal last month to allow the administrator for the bankrupt Heller Ehrman firm to claw back profits from former partners. That ruling is on appeal to the Ninth Circuit Court of Appeals.
Seyfarth Shaw’s successful challenge to the unfinished-business doctrine in New York may be the beginning of the end of a line that began with the 1984 Jewel v. Boxer case, which first established the concept.