Jones Day secures third-in-a-row victory defeating bankrupt law firms' claims over former clients' matters
Clients Jones Day
On February 13, 2020, the D.C. Court of Appeals unanimously ruled in favor of Jones Day in the years-long lawsuit brought by the bankruptcy estate of Howrey LLP asserting claims for so-called "unfinished business." This is a complete victory for Jones Day, our clients, and the profession as a whole. The D.C. Court of Appeals joined the unanimous California Supreme Court and the unanimous New York Court of Appeals in rejecting these types of claims. Jones Day is the only firm involved in all three lawsuits. And while most firms settled these claims, Jones Day litigated them as a matter of principle. This brings to a close these law firm bankruptcy cases, which Jones Day has been litigating for nearly a decade.
Following the 2008 financial crisis, several major law firms failed. Howrey was one of them. Some partners from Howrey chose to join Jones Day, both before and after Howrey collapsed. Clients made their own choices about which firms would represent them going forward. But the bankruptcy estate of Howrey wanted to reach from the grave and claim a property interest in the work Jones Day was performing on the matters Howrey once handled. As the D.C. court explained, "The crux of the Trustee's argument is that a former partner who leaves the firm, but who continues to work on hourly-billed client matters that began at the firm, has a continuing duty of loyalty to remit to the former firm the fees earned from such matters."
Rejecting that claim, and agreeing with Jones Day, the D.C. Court of Appeals held, "[H]ourly-billed client matters are not partnership property." Relying on the decisions from New York's and California's high courts, D.C.'s high court explained that hourly-billed client matters could not be "partnership property because, under established rules of attorney-client relations and professional responsibility, a law firm does not own client legal matters, clients own their matter—clients have the right to transfer their matters to new counsel, to terminate representation, and to hire new counsel." Law firms' speculative interest in future work is insufficient "to create a present or future property interest."
This decision is an important victory. It not only swells the growing chorus rejecting these claims, but it also creates a broader rule than previous decisions. In the California and New York cases, the trustees sought fees only on matters that left the firms after they collapsed. Howrey's trustee, however, sought fees on matters that left even before Howrey dissolved. The D.C. Court of Appeals' firm rejection of that rule is crucial to putting these unfinished-business claims to bed.
Howrey LLP v. Jones Day, Nos. 18-SP-0218 (D.C.); 15-16326 (9th Cir.)