Dewey & LeBoeuf — Continued

A few additional notes on the matter I blogged about last week: the efforts of the CRO in the Dewey bankruptcy to seek profits realized by those law firms that took in departing Dewey partners and completed work that began at Dewey but transferred, with those partners, to their new law law firms.

First, I dug up the names of some of those earlier bankruptcy cases in which this tactic — which is growing exponentially in its use — has been tried.  In particular, this device has been employed in the Coudert Brothers bankruptcy, the Heller bankruptcy, and, most currently, in the Howrey bankruptcy proceeding.

Second, I just posted to our Facebook account (but I will not duplicate here, in order to assure that we are complying with the material use restrictions of that site, which encourages on its face linking articles through Facebook and Twitter, among other social media) a connection to a good, short memo prepared by the Cadwalader firm about how recent litigation over the so-called "unfinished business doctrine" is leading to a surge in the use of this tactic.  As that memorandum observes, the broad extension of that doctrine hasn't been well litigated yet, but undoubtedly will be soon.

That memorandum mentions at least one nonjudicial change that may begin soon: amendments of law firm partnership agreements to specifically disclaim that legal matters existing at the dissolution of the partnership comprise "assets" of the partnership, which is the foundation upon which this rickety "unfinished business" doctrine resides.

The memorandum also notes that the court considered what it called a strong policy argument, that the application of the doctrine in the context of law firms might impinge upon clients' rights to counsel, and discarded that argument here without reaching its merits, on the ground that no client had demonstrated that it was adversely effected by the policy.  Likewise, the court left open the door to a previously raised exception to the policy: where the profits sought were the result, in part at least, of the skill and efforts of the departed attorney applied without the assistance of his prior law firm, then it would be inequitable to allow the prior partnership to take and retain all those profits for itself.

Those points all sound similar to arguments made in our prior weblog on the topic, and I am encouraged to think that the new crop of defendants the Howrey trustee is now lining up will develop them as counterarguments.

 

 

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