Cases & Deals

Jones Day prevails in Coudert Brothers "unfinished business" case in unanimous New York Court of Appeals ruling

Clients Jones Day

On July 1, 2014, the New York Court of Appeals unanimously adopted Jones Day's arguments in the long-running "unfinished business" suit brought by the Trustee of the Bankruptcy Estate of Coudert Brothers LLP. The New York Court of Appeals' decision comes just weeks after Jones Day's summary judgment win in the Heller Ehrman bankruptcy, a case that raised similar claims under California law. These consecutive victories vindicate Jones Day's decision to fight these cases as a matter of principle, even as the vast majority of other similarly situated firms chose to settle.

In its lawsuit, filed in Bankruptcy Court in 2008, the Trustee of Coudert's Estate claimed that hourly-rate matters that Coudert was unable to continue handling because of its financial collapse and dissolution were nevertheless Coudert's "property." The Trustee therefore asserted that, under New York Partnership Law, Coudert was entitled to all profits earned by Jones Day after clients retained Jones Day to handle the matters that Coudert abandoned. The U.S. Court of Appeals for the Second Circuit certified the case to the New York Court of Appeals, asking whether, under New York law, a dissolved firm has a property interest in pending hourly-fee matters. This is the first case in which the highest court of any state has considered the state-law underpinnings of the Trustees' claims in this and other recent law firm bankruptcies.

The New York Court of Appeals' answer could not be clearer: "a client's legal matter belongs to the client, not the lawyer." The New York Court of Appeals agreed with Jones Day that "[a] law firm does not own a client or an engagement," that "pending hourly fee matters are not partnership 'property' or 'unfinished business,'" and that a law firm "is only entitled to be paid for services actually rendered." The Court further explained that the Trustee's position would create "numerous perverse effects," such as awarding an "unjust windfall" to dissolving firms, destabilizing existing law firms, hampering attorney mobility, and impinging upon a client's right to choose counsel. Focusing principally on the impact on clients, the Court refused to endorse a rule that would contravene "basic principles that govern the attorney-client relationship," undermine "the client's unfettered right to hire and fire counsel," and interfere with "New York's strong public policy encouraging client choice."

Jones Day represented itself in the Bankruptcy Court, the District Court, the U.S. Court of Appeals for the Second Circuit, and the New York Court of Appeals. Shay Dvoretzky argued the case before the New York Court of Appeals.

Developmental Specialists, Inc. v. Jones Day, Case No. CTQ-2013-00010 (N.Y.)

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