Unfinished Business Doctrine in NY

I wrote blogs last year about the unfinished business doctrine as applied to defunct law firms.  To summarize: I am strongly against it, both on legal grounds and on practical, economic grounds.

Now we await a major decision in the development of that doctrine as it may or may not apply to law firms.

On June 4, 2014, New York's Court of Appeals (the highest state court) heard oral arguments on whether or not the doctrine should apply in the disposition of Coudert Brothers and Thelen LLP.  As The Wall Street Journal wrote last week, the court's decision "will provide clarity into how much money, if any, should flow back to [those defunct firms'] creditors" but more importantly, whether New York law firms "risk serious financial consequences if they recruit lateral talent" from law firms that are at or near insolvency.

Arguments against applying the doctrine (as California has done) include the unique nature of legal services, in particular that clients have the right to choose their attorneys and if those attorneys depart from a collapsing enterprise they  "and their new employers shouldn't be punished for sticking with an assignment after a law firm collapses."

Those successor firms argued that client work is NOT a property like a piece of real estate, but rather is a service, and  the attorney and firm which perform the service have the right to be paid for their work, as matters of law, of good public policy, and of the ethical rules governing attorneys.

(If the arguments above and below against the doctrine sound familiar, remember, you read them in my earlier blogs.)

Creditors' and estates' attorneys argued that this was ridiculous, and that there exists "no evidence anywhere" that the client's freedom to select counsel of his choosing had been affected in the slightest.  (What planet are they from?)  Bankruptcy trustees in the Dewey, Howrey and Heller bankruptcies demanded that New York follow California on this question, offering this absurd argument: "If a partner understands that his fiduciary duty to his … dying law firm does not end by him simply walking out the door, [he] will be incentivized to address the underlying problems … rather than flee at the first sign of trouble."  (In other words, he will NOT enjoy any of the rights of free association and market movement that other professional and employees have, but will be forever chained to a company -  often very large, with many offices around the globe, whose financial distresses he did not create nor can he improve — AND, by the way, his clients will be very happy if he (A) remains and their cases suffer disastrously for that reason or (B) they have to find new counsel elsewhere at great expense and possibly great harm to their pending matters.)

Fortunately, at the hearing, the Court judges asked some common sense questions, like “Isn’t this [the unfinished business doctrine] an anachronism in the world we have today where we value the mobility of lawyers?” and “How does it [the unfinished business doctrine] benefit a client?”  An attorney for one of the firms that hired "fleeing" laterals tried to explain that if the doctrine is widely accepted, it will have the effect of creating a non-competition agreement that would block attorneys from moving to new firms.

Thankfully, the Court seemed skeptical of the arguments advanced by the trustees and creditors.

We will have to wait for the decision.

 

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