Jones Day prevails before California Supreme Court in Heller Ehrman "unfinished business" case
Client(s) Jones Day
On March 5, 2018, the California Supreme Court unanimously ruled in favor of Jones Day in the long-running suit brought by the bankruptcy estate of Heller Ehrman LLP asserting claims for so-called "unfinished business." The ruling is a complete victory for Jones Day. The California Supreme Court joins the unanimous New York Court of Appeals, which, in a 2014 decision, rejected these types of claims in the bankruptcy of Coudert Brothers LLP; Jones Day is the only law firm involved in both bankruptcies, and litigated these cases rather than settling as a matter of principle.
In its suit, filed eight years ago, the Heller estate claimed that hourly matters that Heller was unable to handle as a result of its financial collapse and dissolution were Heller's "property." The estate further claimed that Heller was entitled to profits earned by Jones Day after the clients retained Jones Day to work on the matters that Heller abandoned. Heller based this claim on Jewel v. Boxer, an opinion from an intermediate appellate court in California, and related cases.
Rejecting Heller's claim, the California Supreme Court explained, "Suffice to say that we find nothing in Jewel to advance Heller's position regarding hourly fee matters." The court's opinion puts to rest years of litigation by holding what Jones Day has argued all along: "A dissolved law firm does not have a property interest in legal matters handled on an hourly basis, or in the profits generated by former partners who continue to work on these hourly fee matters after they are transferred to the partners' new firms."
Pointing out the unreasonableness of Heller's claim, the court wrote, "What Heller claims here" is an "interest in the hourly matters on which it is not working—and on which it cannot work, because it is a firm in dissolution that has ceased operations." Such a claim amounts to seeking "remuneration for work that someone else now must undertake." Neither "reasonable clients" nor "lawyers seeking to continue working on these legal matters" would share this view. "Heller's expectation is best understood as essentially unilateral." Such "speculative" hope does "not amount to a property interest."
Jones Day represented itself at every stage of the litigation, from the bankruptcy court and the district court, through the Ninth Circuit, and before the California Supreme Court. Shay Dvoretzky, a Jones Day Issues & Appeals partner who represented the Firm and argued before the California Supreme Court, said, "We are pleased with the California Supreme Court's opinion, which reaffirms an important principle: as lawyers, we serve our clients' interests, and they—not their law firms—own their matters. That is why, as the court recognized, a law firm that dissolves and abandons its clients and their matters has no claim against another law firm that clients hire to handle those matters."
Heller Ehrman LLP v. Jones Day, Case No. S236208 (Cal.); Case No. 3:14-cv-01237-CRB (N.D. Cal.)