CTQ-2013-00009

Court of AppealsSTATE OF NEW YORK

YANN GERON, as Chapter 7 Trustee of the Estate of Thelen LLP,

Plaintiff-Appellant,—against—

SEYFARTH SHAW LLP,Defendant-Respondent.

ON APPEAL FROM THE QUESTIONS CERTIFIED BY THE UNITED STATES COURT OFAPPEALS FOR THE SECOND CIRCUIT IN DOCKET NO. 12-4138-BK

AMICI CURIAE BRIEF IN SUPPORT OFPLAINTIFF-APPELLANT’S BRIEF ON THE

CERTIFIED QUESTIONS FROM THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

d

ANDREW B. RYAN, ESQ.JAMES D. SHEPPARD, ESQ.MICHAEL FISHEL, ESQ.DIAMOND MCCARTHY LLP1201 Elm Street, Suite 3400Dallas, Texas 75270 Telephone: (214) 389-5300 Facsimile: (214) 389-5399

Counsel for Allan B. Diamond,Chapter 11 Trustee for Howrey LLP

CHRISTOPHER D. SULLIVAN, ESQ.GREENFIELD SULLIVAN150 California Street, Suite 220San Francisco, California 94111Telephone: (415) 283-1776Facsimile: (415) 283-1777

Special Litigation Counsel for Heller Ehrman LLP, by andthrough Michael Burkhart, Plan Administrator

ALLAN B. DIAMOND, ESQ.HOWARD D. RESSLER, ESQ.ANDREW B. RYAN, ESQ.DIAMOND MCCARTHY LLP620 Eighth Avenue, 39th FloorNew York, New York 10018Telephone: (212) 430-5400 Facsimile: (212) 430-5499

Counsel for Alan M. Jacobs,Liquidating Trustee for the Dewey & LeBoeuf Liquidation Trust

April 25, 2014

TABLE OF CONTENTS

TABLE OF AUTHORITIES .................................................................................... .ii

DISCLOSURE STATEMENT .............................................................................. viii

INTRODUCTION .................................................................................................... ix

INTERESTS OF THE AMICI CURIAE .................................................................. xii

ARGUMENT ............................................................................................................. !

I. A Defunct Law Firm's Pending Client Matters Constitute the Firm's Unfinished Business, Entitling the Defunct Law Firm to the Profits Earned from the Completion Of those Client Matters ............................................................................................................. I

A. Partnership Law, as Codified by the Uniform Partnership Act, Has Consistently Applied the Unfinished Business Rule to a Legal Matter, Whether Contingent or Hourly Fee ...................................................................... I

B. Judge Pauley Has Not Provided a Valid Reason for New York to Become An Outlier and Reject the Application of the Unfinished Business Rule To a Law Firm's Hourly Matters ........................................................................... 9

C. Uniform Application of the Unfinished Business Rule Strengthens Law Partnerships and Fairly Compensates Creditors, While a Disjointed Application of the Rule Would Lead to Absurd Results ........................................................... 1 7

II. Under the No Compensation Rule, the New Law Firm Cannot Retain Any of the Profits Derived From Completing The Old Firm's Unfinished Business ......................................................................... 22

CONCLUSION ........................................................................................................ 26

TABLE OF AUTHORITIES

Cases

Bader v. Cox, 701 S.W.2d 677 (Tex. App.-Dallas 1985, writ refd n.r.e.) ....................... 25

Beckman v. Farmer, 579 A.2d 618 (D.C. 1990) ................................................................... 5, 23-24

Collins v. Shayne, No. 78AP-50, 1978 WL 217287 (Ohio App. Dec. 28, 1978) ........................ .4

Denver v. Roane, 99 U.S. 355 (1878) .................................................................................. 1, 2, 22

Development Specialists, Inc. v. Akin Gump Strauss Hauer & Feld LLP (In re Coudert Brothers LLP),

480 B.R. 145 (S.D.N.Y. 2012) .............................................................. .passim

Development Specialists, Inc. v. Akin Gump Strauss Hauer & Feld LLP (In re Coudert Brothers LLP), Adv. No. 08-1490 (DE# 13-1) (Banla. S.D.N.Y. Jan. 19, 2010) ............. 7, 11

Diamond v. Pillsbury Winthrop Shaw Pittman LLP (In re Howrey LLP), Adv. No. 13-3095DM, 2014 WL 507511 (Banla. N.D. Cal. Feb. 7, 2014) ................................. 14-15

Ellerby v. Spiezer,

485 N.E.2d 413 (Ill. App. 1985) ..................................................................... .4

Fox v. Abrams, 163 Cal. App. 3d 610 (1985) ......................................................................... 21

11

Frates v. Nichols, 167 So.2d 77 (Fla. App. 1964) ....................................................................... .4

Geist v. Burnstine, 19 N.Y.S.2d 76 (Sup. Ct., Queens County 1940) ..................................... 3, 23

Geron v. Robinson & Cole LLP (Jn re Thelen LLP), 476 B.R. 732 (S.D.N.Y. 2012) ...................................................... 9-10, 16, 17

Greenspan v. Orrick, Herrington & Sutcliffe LLP (In re Brobeck, Phleger & Harison LLP), 408 B.R. 318 (Banla. N.D. Cal. 2009) ............................................................ 6

Heller Ehrman LLP v. Arnold & Porter LLP (In re Heller Ehrman LLP), Adv. No. 10-3203DM, 2011 WL 1539796 (Banla. N.D. Cal. Apr. 22, 2011) .......................... 20

Heller Ehrman LLP v. Jones Day (Jn re Heller Ehrman LLP), Adv. No. 10-322 IDM, 2013 WL 951706 (Banla. N.D. Cal. Mar. 11, 2013) ...................................... 6

Huber v. Etkin,

58 A.2d 772 (Pa. Super. 2012) ...................................................................... 13

Hughes v. Aycock, 598 S.W.2d 370 (Tex. App.-Houston [14th Dist.] 1980, writ ref d n.r.e.) ............................ 25

In re Coudert Brothers LLP Law Firm Adversary Proceedings,

447 B.R. 706 (S.D.N.Y. 2011) ........................................................................ 7

In re Mondale and Johnson,

437 P.2d 636 (Mont. 1968) .............................................................................. 5

In re Thelen LLP,

736 F.3d 213 (2d Cir. 2013) ........................................................ 1, 6, 8, 19, 22

lll

Jewel v. Boxer,

156 Cal. App. 3d 171 (1984) .................................................................. passim

King v. Leighton,

100 N.Y. 386 (1885) .................................................................................. 1, 23

Kirsch v. Leventhal, 181A.D.2d222 (3d Dep't 1992) ........................................... 10-11, 12, 24-25

LaFond v. Sweeney, No. 10CA2005, 2012 WL 503655 (Colo. App. Feb. 16, 2012) ............. 13, 20

Lingle v. Norge Div. of Magic Chef, Inc., 486 U.S. 399 (1988) ...................................................................................... 17

Little v. Caldwell, 101 Cal. 553 (1894) ......................................................................................... 2

Niesig v. Team I,

76 N.Y.2d 363 (1990) .................................................................................... 16

Nixon Peabody LLP v. de Senilhes, Valsamdidis, Amsallem, Jonath, Flaicher Associes, No. 2008/10374, 2008 WL 4256476 (Sup. Ct., Monroe County Sept. 16, 2008) ................... 15

Official Comm. Of Unsecured Creditors v. Ashdale (In re Labrum & Doak, LLP),

227 B.R. 391 (Bankr. E.D. Pa. 1998) ..................................................... passim

People of State of NY. v. O'Neill,

359 U.S. 1 (1959) ............................................................................................ 2

People v. Herr,

86 N.Y.2d 638 (1995) .................................................................................... 16

lV

People v. Martynov,

No. 199/2010, 2012 WL 2899027 (Sup. Ct., Kings County Mar. 6, 2012) .......................... 16

Platt v. Henderson,

361 P.2d 73 (Or. 1961) .................................................................................... 5

Resnick v. Kaplan,

434 A.2d 582 (Md. App. 1981) ...................................................................... .4

Rhein v. Peeso,

194 A.D. 274 (1st Dep't 1920) .................................................................. 1, 23

Robinson v. Nussbaum,

11 F. Supp. 2d 1 (D.D.C. 1997) .................................................................. 6-7

Rosenfeld, Meyer & Susman v. Cohen,

146 Cal. App. 3d 200 (1983) .......................................................................... .4

Rothman v. Dolin,

20 Cal. App. 4th 755 (1993) ...................................................................... 6, 20

Santalucia v. Seabright Transp., Inc.,

232 F.3d 293 (2d Cir. 2000) .............................................................. 11, 12, 25

Shandell v. Katz,

217 A.D.2d 472 (1st Dep't 1995) .................................... 10-11, 24-25

Sheresky v. Sheresky Aronson Mayefsky & Sloan LLP, No. 150178/10, 2011 WL 7574999 (Sup. Ct., N.Y. County Sept. 13, 2011) ................... 13-16

Stem v. Warren,

227 N.Y. 538 (1920) ........................................................................................ 1

v

Timmerman v. Timmerman,

538 P.2d 1254 (Or. 1975) .............................................................................. 25

Ueland v. US.,

291F.3d993 (7th Cir. 2002) ........................................................................... 5

Weisbrod v. Ely, 767 P.2d 171 (Wyo. 1989) ............................................................................ 25

Welman v. Parker,

328 S.W.3d 451 (Mo. App. 2010) ........................................................... 11-13

Uniform Laws, New York Statutes, or Ethics Rules

N.Y. EXEC. LAW§ 165 ....................................................................................... 17-18

New York Partnership Law§ 2 ............................................................................. 1-2

New York Partnership Law Section 4(4) ...................................................... .3, 16, 17

New York Partnership Law Section 40( 6) ................................................... 22, 24, 25

New York Partnership Law Section 43(1) .......................................... .3, 9, 10, 11, 13

New York Partnership Law Section 73 .................................................. 10-11, 24-25

New York Rule of Professional Conduct 1.5 .................................................... 14, 16

New York Rule of Professional Conduct 5.6 .................................................... 14-16

Revised Uniform Partnership Act§ 404(b)(l) .......................................................... 9

Uniform Partnership Act§ 18(£) .............................................................................. 22

Uniform Partnership Act § 21 .................................................................................... 9

Uniform Partnership Act § 42 .................................................................................. 25

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Other Authorities

Alan R. Bromberg & Larry E. Ribstein,

BROMBERG & RlBSTEIN ON LIMITED LIABILITY PARTNERSHIPS

ANDTHEREVISEDUNIFORMPARTNERSHIPACT § 1.01 (2008 ed.) .......... 18-19

Douglas R. Richmond, Migratory Law Partners and The Glue of Unfinished Business, 39 N. KY. L. REV. 359 (2012) ................. 11

Geoffrey C. Hazard, Jr. & W. William Hodes,

THE LAW OF LAWYERING§ 47.4 (3d ed. 2001) ............................................. 15

Larry E. Ribstein, The Death of Big Law, (2010) (University of Illinois - College

of Law) .......................................................................................................... 20

Mark H. Epstein & Brandon Wisoff, Winding Up Dissolved Law Partnerships: The No-Compensation Rule and Client Choice, 73 Cal. L. Rev. 1597 (1985) .......................................................................... 23

Mark Harris, Why More Law Firms Will Go The Way of Dewey & LeBoeuf, Forbes, (May 8, 2012) ................................................................................... 20

Michael D. DeBaecke & Victoria A. Guilfoyle, Law Firm Dissolutions:

When the Music Stops, Does Anyone Need to Account For Any Unfinished Business?, 14 DEL. L. REV. 41 (2013) .......................... 11

Steven J. Harper, The Lawyer Bubble: A Profession in Crisis (2013) .................... 19

Susan Fortney, Seeking Shelter in the Minefield of Unintended Consequences -the Traps of Limited Liability Law Firms, 54 WASH. & LEE L. REV. 717 (1997) ..................................................... 18-19

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DISCLOSURE STATEMENT PURSUANT TO 22 NYCRR 500.1(0

Pursuant to Rule 500.l(f) of the Rules of Practice of the Court of Appeals,

the Amici Curiae make the following disclosure:

The Dewey & LeBoeuf LLP Liquidation Trust, the Estate of Howrey LLP

and the Heller Ehrman LLP Liquidation Trust are represented by court-appointed

trustees or plan administrators and do not have a parent corporation, subsidiary, or

corporate affiliate.

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INTRODUCTION

The Trustee Amici join the arguments of their colleague, Yann Geron, the

chapter 7 trustee of the estate of Thelen LLP ("Thelen"), but write separately to

highlight the importance of uniform application of partnership statutes to national

law firms and why uniform application of these laws benefits the legal profession.

The breakup of a law firm partnership is not a new phenomenon. What has

changed in the past decade, however, is the ripple-effects of the largest law firm

breakups and dissolutions. The dissolution of a large law firm is not a simple or

amicable separation between partners. When a law firm with hundreds of partners

and dozens of offices dissolves and enters bankruptcy, the impact is enormous.

Hundreds, if not thousands of employees lose their jobs. Retired partners see their

pensions disappear. Landlords, lenders, and trade creditors are not paid. The total

debt owed by these defunct law firms can reach hundreds of millions of dollars.

To blunt the impact of these law firm bankruptcies, the Trustee Amici have

sought to enforce the fiduciary duty to account that partners owe each other and

their partnerships under the uniform partnership statutes. This duty to account

requires the former partners to hold any profits earned from the completion of

ongoing client matters for the benefit of the dissolved partnership (the "Unfinished

Business Rule"). Until Judge Pauley's decision in the Thelen LLP bankruptcy,

three federal judges had ruled that New York would apply the Unfinished Business

IX

Rule to a law firm's hourly matters and every court in every major urban or

financial center - from California to Washington D.C. to Illinois and Pennsylvania

- had applied the Unfinished Business Rule to law firms, regardless of whether

ongoing client matters were billed on a contingent or hourly basis. This uniform

application of the Unfinished Business Rule permits the Trustee Amici to seek to

recover the profits from the bankrupt law firm's pending matters, regardless of

where the former partner or his or her successor firm was located. In the fall of

2012, Judge Pauley's decision brought chaos where there was once order by

finding that New York, the epicenter of the U.S. legal market, would not abide by

the uniform application of the Unfinished Business Rule.

The Trustee Amici argue that this Court should conclude that New York law

compels an application of the Unfinished Business Rule to a law firm's hourly

matters. In short, the Trustee Amici present three arguments. First, neither the

Law Firms nor Judge Pauley provide a sufficient reason (or, often, any reason) to

countermand the rationales ofNew York's sister states that have confirmed that the

Unfinished Business Rule applies to all of a law firm's pending matters. Second,

the uniform application of the Unfinished Business Rule strengthens law

partnerships and fairly compensates creditors while, on the other hand, the

disjointed application of the Unfinished Business Rule urged by the Law Firms

(i.e., applying the Rule only to contingent matters, or only to attorneys from

x

national law firms who do not reside in New York) would lead to absurd results.

Third, this Court must follow the plain language of New York's Partnership Law

and conclude that a partner who completes pending matters during a law firm's

winding up is not entitled to any compensation for his or her services (hereinafter,

the "No Compensation Rule"). For these reasons, as discussed fully below, the

Trustee Amici urge this Court to answer the Second Circuit's certified questions in

favor of Yann Geron, the chapter 7 trustee of the estate of Thelen LLP

Xl

INTERESTS OF THE AMICI CURIAE

The Trustee Amici are the three court-appointed trustees or plan

administrators of the largest law firm bankruptcies in U.S. history. As fiduciaries

with the responsibility to marshal all assets available to their respective estates

(including claims related to the Unfinished Business Rule), the Trustee Amici have

a significant academic and financial interest in this Court's resolution of the

certified questions. The Trustee Amici are:

• Michael Burkhart, Plan Administrator, Heller Ehrman LLP Liquidation Trust. Heller Ehrman LLP was a California-based law firm with over 600 lawyers and 670 staff when it dissolved in 2008 with at least $54 million in secured debt and $5.9 million more in unsecured claims. Mr. Burkhart was appointed the Plan Administrator of the Heller Ehrman LLP Liquidation Trust on August 9, 2010.

• Allan Diamond, Chapter 11 Trustee, Howrey LLP. Howrey LLP was a Washington, D.C.-based law firm with over 750 lawyers and 1,200 staff when it dissolved in March 2011. At its dissolution, Howrey had approximately $80 million in secured debt and $100 million more in unsecured claims. Mr. Diamond was appointed the Chapter 11 trustee of Howrey LLP on October 12, 2011.

• Alan M. Jacobs, Trustee of the Dewey & LeBoeuf LLP Liquidation Trust. Dewey & LeBoeuf LLP was a New York-based law firm with over 1,3 00 lawyers before it filed for bankruptcy in May 2012. At the time of its dissolution, Dewey had approximately $250 million in secured debt and approximately $400 million more in unsecured claims. Mr. Jacobs was appointed the Trustee of the Dewey & LeBoeuf LLP Liquidation Trust on March 22, 2013.

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ARGUMENT

I. A Defunct Law Firm's Pending Client Matters Constitute the Firm's Unfinished Business, Entitling the Defunct Law Firm to the Profits Earned from the Completion of those Client Matters.

A. Partnership Law, as Codified by the Uniform Partnership Act, Has Consistently Applied the Unfinished Business Rule to a Legal Matter, Whether Contingent or Hourly Fee.

Long before uniform statutes codified the common law of partnerships, New

York courts applied the Unfinished Business Rule to the winding up of various

partnerships. See, e.g., King v. Leighton, 100 N.Y. 386, 393 (1885) (applying

unfinished business doctrine to bridge-building partnership); Stem v. Warren, 227

N.Y. 538, 540 (1920) ("In completing the [architecture partnership's] unfinished

business, not only is the surviving partner precluded from making an individual

profit at the expense of the firm, but upon him is imposed the duty of completion

of the unfinished business without personal recompense."); Rhein v. Peeso, 194

A.D. 274, 277 (1st Dep't 1920) (applying Stem to dental partnership). As the

Supreme Court of the United States and the Second Circuit have noted, there is no

reason - under the Unfinished Business Rule or general partnership law - to

distinguish between "commercial partnerships" and "partnerships between

lawyers." Denver v. Roane, 99 U.S. 355, 358-59 (1878); see also In re Thelen

LLP, 736 F.3d 213, 222 (2d Cir. 2013) ("Thelen If') ("[T]he New York Partnership

Law, which, to reiterate, sets only default rules, makes no distinction between

1

types of partnerships.") (citing NEW YORK PARTNERSHIP LAW § 2) (hereinafter

"NYPL"). Unsurprisingly, long before the enactment of uniform partnership

statutes, the common law was "well settled in regard to commercial partnerships

that the surviving partner must complete all executory contracts of the firm which

remain in force after the death of a partner, and must settle the business of the

partnership without charge against the partnership for his personal services." Little

v. Caldwell, 101 Cal. 553, 559 (1894) (citing Denver to require accounting for a

law firm's contingent fee case).

The adoption of uniform partnership statutes did nothing to change the

common law or its application to law partnerships. Indeed, the Uniform

Partnership Act of 1914 (the "UPA") was a codification of common law precedent

applicable to partnerships. The UP A's purpose - similar to other uniform laws -

was to provide an identical set of rules that would, across the many states, allow

for predictability and certainty regarding the obligations and rights of partners. See

People of State of NY. v. O'Neill, 359 U.S. 1, 10 (1959) ("The uniform laws

proposed by the National Conference of Commissioners on Uniform State Laws

and adopted by individual States have (among other benefits) increased ease of

interstate commercial relationships by providing uniformity in commercial laws ..

. . "). The New York Legislature adopted the UPA as part of the New York

2

Partnership Law in the fall of 1919. By the 1970's, nearly every state had adopted

the UPA.1

With one exception that is not at issue here,2 NYPL codifies fiduciary duties

among partners during the dissolution or wind up of the partnership and holds that

partners owe each other (and the partnership) the duty to account for "any benefit"

or "any profits" derived from the use of partnership property. See NYPL § 43(1).

Although few New York courts have applied NYPL § 43(1) to law firms, the New

York Legislature included the express legislative directive - outlined in Section

4( 4) - that the provisions of NYPL be applied and construed uniformly with the

other states that adopted the UP A. See NYPL § 4( 4) ("This chapter shall be so

interpreted and construed as to effect its general purpose to make uniform the law

of those states which enact it."). Further, New York's sister states have repeatedly

and uniformly extended the UPA's duty to account to a law firm's pending client

matters, regardless of whether the fee was contingent or hourly.

The most well-known of these decisions is Jewel v. Boxer, 156 Cal. App. 3d

171 (1984). Jewel applied the Unfinished Business Rule to cases that were

Over ten states adopted the UPA between 1915 and 1919 which included Alaska, Idaho, Illinois, Maryland, Michigan, New Jersey, New York, Pennsylvania, Tennessee, Virginia, Wisconsin, and Wyoming. By 1976, a total of 49 of the 50 states enacted statutes that followed the UPA. 2 The NYPL "made only one change in the common law" related to post-dissolution duties - that only a surviving partner can receive compensation in winding up the firm's affairs. See Geist v. Burnstine, 19 N.Y.S.2d 76, 77 (Sup. Ct., Queens County 1940) (dissolution of two­person law partnership). See infra at p. 22.

3

completed after the dissolution of a four-lawyer firm. Id. at 174 ("In this case, we

hold that in the absence of a partnership agreement, the Uniform Partnership Act

requires that attorneys' fees received on cases in progress upon dissolution of a law

partnership are to be shared by the former partners according to their right to fees

in the former partnership, regardless of which former partner provides legal

services in the case after the dissolution."). But Jewel was not unique - in fact,

multiple courts had applied the Unfinished Business Rule to a law firm's

contingent fee matters long before Jewel. See, e.g., Frates v. Nichols, 167 So.2d

77, 80-81 (Fla. App. 1964); Collins v. Shayne, No. 78AP-50, 1978 WL 217287, at

*2 (Ohio App. Dec. 28, 1978) ("[One partner] is required to account to the

partnership for contingent fee cases handled by him, just as [the other two partners]

are required to account for partnership cases handled by them during the winding

up process."); Resnick v. Kaplan, 434 A.2d 582, 587 (Md. App. 1981); Rosenfeld,

Meyer & Susman v. Cohen, 146 Cal. App. 3d 200, 219 (1983). In the thirty years

since Jewel, UPA states have (with one exception that is discussed at length below)

held that fees obtained by contingent fee matters are assets of a dissolved (or

winding up) law firm that are subject to distribution in accordance with the

partnership statute. See, e.g., Ellerby v. Spiezer, 485 N.E.2d 413, 416 (Ill. App.

1985) (citing Jewel with approval); Official Comm. Of Unsecured Creditors v.

4

Ashdale (Jn re Labrum & Doak, LLP), 227 B.R. 391, 405-06 (Bankr. E.D. Pa.

1998) (same).

As Unfinished Business Rule cases developed, law firm defendants began to

argue that these fiduciary principles should be limited to contingent fee cases and

not applied to a law firm's hourly matters. But this argument could not be squared

either with prior case law or the underlying rationale for the Unfinished Business

Rule. As an initial matter, many UP A jurisdictions had applied the Unfinished

Business Rule to law partnerships without any distinction between (or reference to)

how the client compensated the firm-whether a flat-fee, hourly rate, or contingent

fee arrangement. See, e.g., Platt v. Henderson, 361 P.2d 73, 81-82 (Or. 1961) (fees

collected from forty cases finished by one partner must be accounted back to the

original firm); In re Mondale and Johnson, 437 P.2d 636, 640-41 (Mont. 1968)

(post-dissolution fees collected on firm matters must be split equally among

partners of dissolved firm); Beckman v. Farmer, 579 A.2d 618, 639 (D.C. 1990)

(unfinished business doctrine applied to "all work" performed by the law firm).

That these cases did not distinguish between contingent and hourly matters "does

more to show that the proposition is too clear to be questioned than to show that it

is debatable." Uelandv. US., 291F.3d993, 997 (7th Cir. 2002) (Easterbrook, J.).

And when faced with the supposed distinction between contingent and

hourly matters, numerous courts applying the UP A have confirmed that the

5

Unfinished Business Rule applies to hourly matters. See, e.g., Rothman v. Dolin,

20 Cal. App. 4th 755, 759 (1993) ("That one matter is to be compensated at an

hourly rate and another on a contingency basis is of no consequence in determining

whether a matter is unfinished business."); Greenspan v. Orrick, Herrington &

Sutcliffe LLP (Jn re Brobeck, Phleger & Harison LLP), 408 B.R. 318, 333 (Ban1cr.

N.D. Cal. 2009) (same); Heller Ehrman LLP v. Jones Day (Jn re Heller Ehrman

LLP), Adv. No. 10-3221DM, 2013 WL 951706, at *4 (Banlcr. N.D. Cal. Mar. 11,

2013) (same); Robinson v. Nussbaum, 11 F. Supp. 2d 1, 5 (D.D.C. 1997) (same,

applying D.C. law); In re Labrum & Doak, LLP, 227 B.R. at 405 (same, applying

Pennsylvania law). Indeed, UPA courts had - until Judge Pauley in Thelen I -

universally determined that the Unfinished Business Rule also applied to a law

firm's hourly matters. See, e.g., Thelen II, 736 F.3d at 222 n.10 (collecting cases).

Two of the foregoing cases are especially instructive on this point. In

Robinson, the court "seriously considered" whether it would be "unfair" to apply

the Unfinished Business Rule to hourly matters, but concluded the defendant's

concerns were unwarranted for three reasons: (1) partners "are free (indeed

encouraged)" to resolve unfinished business disputes through written partnership

agreements; (2) the unfinished business doctrine does not apply to new matters

brought into the successor firm after dissolution of the old firm; and (3) if applied

to all former partners, the unfinished business doctrine is equitable. 11 F. Supp. 2d

6

at 6. And in In re Labrum & Doak, LLP, the court - after noting that "every other

court confronted with the issue . . . has held that pending" hourly cases are

partnership assets subject to wind up and distribution - criticized the law firm

defendant's "sky is falling" argument by noting the defendant was "unable to point

to any disasters which have developed in any of the many jurisdictions [that

recognize that the unfinished business doctrine applies to hourly fee cases]." 227

B.R. at 407-09.

Based on these cases, three New York decisions have already applied the

Unfinished Business Rule to a law firm's hourly matters. See, e.g., Development

Specialists, Inc. v. Akin Gump Strauss Hauer & Feld LLP (In re Coudert Brothers

LLP), Adv. No. 08-1490 (DE# 13-1) (Bankr. S.D.N.Y. Jan. 19, 2010) (Drain, J.)

("Coudert f') (denying law firms' motion to dismiss, endorsing "highly persuasive

precedents" and "well-reasoned authority from other jurisdictions applying the

same 'unfinished business' theory to hourly fee matters"); In re Coudert Brothers

LLP Law Firm Adversary Proceedings, 447 B.R. 706, 712-13 (S.D.N.Y. 2011)

(Marrero, J.) (considering law firms' motion for leave to appeal to Second Circuit,

noting "[t]he Law Firms have not cited any authority ... that conflicts with the

decision of [Judge Drain in Coudert I]. Rather, authorities in other jurisdictions

uniformly hold that the unfinished business doctrine applies to hourly fee matters

as well as contingency fee matters."); Development Specialists, Inc. v. Akin Gump

7

Strauss Hauer & Feld LLP (In re Coudert Brothers LLP), 480 B.R. 145, 173

(S.D.N.Y. 2012) (McMahon, J.) ("I believe that if faced with the issue, the New

York Court of Appeals would apply the same rule to hourly billed cases as its

Appellate Divisions apply to contingency fee cases: they are unfinished business

assets subject to distribution unless a contrary intention appears.") (hereinafter

"Coudert III"). Even the Second Circuit recognized "[a] substantial majority" of

courts apply the Unfinished Business Rule to hourly rate cases which "suggest[ s]

that the New York Court of Appeals would decline to create an exception to the

usual partnership rule for lawyers who bill their clients on an hourly basis." See

Thelen 11, 736 F.3d at 222.

Thus, the question for this Court is whether it should hold hourly rate

matters are law firm assets that are subject to a duty to account- like the courts of

California, the District of Columbia, Florida, Illinois, Indiana, Massachusetts,

Maryland, Montana, Oregon, and Pennsylvania - or whether to contradict decades

of persuasive and well-reasoned authority in order to join outliers from Missouri's

intermediate appellate court and an unpublished New York trial court decision that

form the basis of Judge Pauley's decision. For the reasons stated below, Judge

Pauley's rationale - echoed by the Law Firms - does not provide a valid basis for

New York to refuse to apply the Unfinished Business Rule to a law firm's hourly

matters.

8

B. Judge Pauley Has Not Provided a Valid Reason for New York to Become an Outlier and Reject the Application of the Unfinished Business Rule to a Law Firm's Hourly Matters.

In order to avoid acknowledging that his ruling departed from the

overwhelming majority of UP A decisions from New York's sister states, Judge

Pauley attempts to characterize the Law Firms' argument as having support in the

case law. But even a cursory review of these cases reveals four fundamental

analytical errors - errors that Judge Pauley then repeated - which require rejecting

the Law Firms' argument that the Unfinished Business Rule should not apply to a

law firm's hourly matters.

First, Judge Pauley made a fundamental error in Geron v. Robinson & Cole

LLP {In re Thelen LLP), 476 B.R. 732 (S.D.N.Y. 2012) ("Thelen I"), because he

did not analyze the correct provision of the NYPL that imposes the duty to

account. Courts examine the unfinished business doctrine by looking at the state

statute that mirrors Section 21 of the UP A or Section 404 of the Revised Uniform

Partnership Act ("RUP A"). These two provisions create the Unfinished Business

Rule by imposing upon partners a duty to account for profits derived from the

winding up of partnership business. &e UP A § 21; RUP A § 404(b )(1 ). Section

43(1) of the NYPL contains the identical provision to UPA § 21 that holds a

partner accountable, as a fiduciary, for the partnership's profits in completing the

firm's matters. But Judge Pauley's decision in Thelen I omits any reference to

9

NYPL § 43(1). Instead, Judge Pauley relied on NYPL § 73 - a statute applicable

only to the valuation of a partnership interest that is made when a partner retires or

dies. Compare NYPL § 73 (titled: "Rights of retiring or estate of deceased partner

when the business is continued") with NYPL § 43 (titled: "Partner accountable as a

fiduciary").

Judge Pauley' s invocation of NYPL § 73 is apparent by his reliance on two

New York Supreme Court decisions: Kirsch v. Leventhal, 181 A.D.2d 222 (3d

Dep't 1992) and Shandell v. Katz, 217 A.D.2d 472 (1st Dep't 1995). Although

Judge Pauley cited both cases for the proposition that New York would not apply

the Unfinished Business Rule to a law firm's hourly matters, both Kirsch and

Shandell involved contingency fee cases and said nothing about hourly matters.

Compare Thelen I, 476 B.R. at 741 with Kirsch, 181 A.D.2d at 225 (requiring

accounting for case "under a contingent fee arrangement"); Shandell, 217 A.D.2d

at 4 72 (requiring accounting for "substantial number of cases taken on

contingency").

Neither Kirsch nor Shandell analyzed the duty to account imposed under

NYPL § 43. Despite there being a voluntary partner withdrawal in both cases

(thus, triggering NYPL § 43), Kirsch and Shandell relied on NYPL § 73. See

Kirsch, 181 A.D.2d at 225 (citing NYPL § 73); Shandell, 217 A.D.2d at 472-73

(quoting NYPL § 73). That is a plain error of statutory interpretation because a

10

voluntary withdrawal or dissolution triggers a duty to account under NYPL § 43,

while a partner's death or retirement brings about a valuation under NYPL § 73.

Accordingly, neither Kirsch nor Shandell provide any substantive guidance on

whether New York should apply the Unfinished Business Rule to hourly matters.

See Santalucia v. Seabright Transp., Inc., 232 F.3d 293, 300 (2d Cir. 2000)

(explaining NYPL § 73 "is not the source of the duty of a lawyer to account to his

former partners"). 3

Second, Judge Pauley's desire to follow blindly the Law Firms' arguments is

evidenced by his reliance on a Missouri appellate court decision in Welman v.

Parker, 328 S.W.3d 451, 458 (Mo. App. 2010). But Welman is a well-known

outlier (characterized as being "deeply flawed"), and subject to criticism by legal

scholars who caution: "courts that are inclined to resist application of the

unfinished business doctrine should search for different authority for doing so."

See Douglas R. Richmond, Migratory Law Partners and the Glue of Unfinished

Business, 39 N. KY. L. REV. 359, 379-81.4 This Court should not - and cannot -

3 As discussed infra at pp. 22-25, Judge Pauley's reliance on Kirsch and Shandell also gives rise to his unjustified rejection of the No Compensation Rule. Moreover, in Coudert I, Judge Drain also recognized that "Section 73 is not the source of the duty of a lawyer to account to his former partners." See Coudert I, Modified Bench Ruling at pp. 47-48; see also id. at p. 50 ("But, of course, the unfinished business rule applies to firms in dissolution, in keeping with New York Partnership Law Section 43(1), which applies specifically to firms in liquidation."). 4 See also Michael D. DeBaecke & Victoria A. Guilfoyle, Law Firm Dissolutions: When the Music Stops, Does Anyone Need to Account For Any Unfinished Business?, 14 DEL. L. REV. 41, 47 & n.36 (2013) ("The reasoning in Welman has its critics.").

11

rely on Welman because it does not address the first certified question and directly

contradicts existing New York partnership law.

As an initial matter, Welman addressed the allocation of a contingent fee

matter, so it does nothing to counter the weight of authority applying the

Unfinished Business Rule to a law firm's hourly matters. 328 S.W.3d at 454. But

even Welman 's holding fails to comply with established New York law. Welman

held that the dissolved firm's contingency case was not a firm asset and permitted

certain partners to only a quantum meruit recovery for pre-dissolution work on that

matter. 328 S.W.3d at 456; but see Santalucia, 232 F.3d at 300-01 (holding that

"when a professional corporation of lawyers dissolves and a lawyer leaves with a

contingent fee case, ... that case remains a firm asset");5 see also Coudert III, 480

B.R. at 157 (collecting five New York cases rejecting a quantum meruit allocation

when accounting for an unfinished contingent fee case).6 Thus, Judge Pauley's

5 To further understand why Welman is criticized, the Missouri appellate court commented that its ruling - that a contingent fee matter is not a firm assert - was justified because, otherwise, the responsible partner would be obligated to compensate both firms. 328 S.W.3d at 457 (justifying result as trying to prevent withdrawing partner from having "to pay a double contingent fee"). But such a statement merely shows that Welman failed to understand that the withdrawing partner would have shared just one contingent fee - split in accordance with the former partners' rights to the fees. 6 Even a flawed case like Kirsch flatly rejected quantum meruit damages in the context of a contingent fee cause because: (1) it is inconsistent with a partner's fiduciary duty to wind up the partnership affairs; and (2) it would encourage unethical battles among partners of a law firm facing dissolution over the clients of the firm. 181 A.D.2d at 225-26 (citing Aurnou v. Greenspan, 161 A.D.2d 438 (1st Dep't 1990)); see also Santalucia, 232 F.3d at 297-98 ("The [Shandell] court flatly rejected a quantum meruit rule that a lawyer could share in contingent fees

12

reliance on a Welman is questionable at best. Unsurprisingly, courts that are

confronted with the holding in Welman have rejected its flawed analysis. See, e.g.,

LaFond v. Sweeney, No. 10CA2005, 2012 WL 503655, at **12-13 (Colo. App.

Feb. 16, 2012) (rejecting Welman for multiple reasons, including well-established

opinions that confirm "a contingent fee earned by a partner who has departed a law

firm is an asset that belongs to the law firm"), cert granted in part, No. 12SC205,

2013 WL 4008757 (Colo. Aug. 5, 2013); see also Huber v. Etkin, 58 A.2d 772,

781-82 (Pa. Super. 2012) (same).

Third, Judge Pauley did not (and could not) cite to any logical appellate court

decision that rejects the application of the Unfinished Business Rule to hourly

matters and, thus, was left with no choice but to tum to an unpublished trial court

opinion: Sheresky v. Sheresky Aronson Mayefsky & Sloan LLP, No. 150178/10,

2011 WL 7574999 (Sup. Ct., N.Y. County Sept. 13, 2011). Sheresky, however,

only included about three paragraphs of analysis on the unfinished business

doctrine and that analysis has been refuted by appellate decisions in New York's

sister states.

Like Thelen, the flaws in Sheresky begin with its failure to discuss - let alone

distinguish- NYPL § 43. Instead of analyzing the proper section of the UPA (and

collected after dissolution .... [and] concluded that the sounder rule was that pending contingent fees are firm assets .... ").

13

case law in states applying it to a law firm's hourly matters), Sheresky confined its

analysis to New York case law and determined "the unfinished business. [doctrine]

for hourly fee cases ... [has] not been recognized by the New York courts." Id. at

*6. But Sheresky 's rejection of the Unfinished Business Rule to hourly matters is

based on a misguided belief that the Unfinished Business Rule conflicts with the

ethical rules governing attorneys - specifically Rule 1.5 (prohibiting fee splitting)

and Rule 5.6 (forbidding agreements that restrict lawyer mobility). It does not.

Generally, the Trustee Amici submit that the unfinished business doctrine (duties

between partners in a partnership) and a lawyer's ethical obligations (duties owed

by an attorney to a client) are separate and distinct and do not offend each other.

Specifically, though, the fee splitting and lawyer mobility arguments advanced by

Sheresky (and adopted in Thelen J) are not well reasoned.

For example, New York Rule 1.5 on fee splitting ensures that lawyers at

different firms inform their client about the nature of a joint representation and

sharing of fees. Simply put, Rule 1.5 is about client consent - not fee sharing

between partners in accordance with their fiduciary duties. Not surprisingly, other

courts applying ethics rules similar to Rule 1.5 have concluded that remitting

profits from unfinished business does not amount to fee splitting. See, e.g.,

Diamond v. Pillsbury Winthrop Shaw Pittman LLP (In re Howrey LLP), Adv. No.

13-3095DM, 2014 WL 507511, at **7-8 (Bankr. N.D. Cal. Feb. 7, 2014) (rejecting

14

the fee-splitting argument as "unpersuasive"); In re Labrum & Doak, LLP, 227

B.R. at 413-14 (collecting cases and authority that reject fee-splitting defense to

unfinished business doctrine). 7

Likewise, Rule 5.6 prohibits a lawyer from "offering or making" a

partnership agreement that "restricts the right of a lawyer to practice after" leaving

the firm. New York courts summarize the purpose of Rule 5.6 was:

designed, in part, to protect lawyers, particularly young lawyers, from bargaining away their right to open their own offices after they end an association with a firm or other legal employer.

See Nixon Peabody LLP v. de Senilhes, Valsamdidis, Amsallem, Jonath, Flaicher

Associes, No. 2008/10374, 2008 WL 4256476, at *7 (Sup. Ct., Monroe County

Sept. 16, 2008) (citing Geoffrey C. Hazard, Jr. & W. William Hodes, THE LA w OF

LAWYERING § 47.4 (3d ed. 2001) (concluding an "out-right prohibition on the

practice of law" would violate Rule 5.6)). There is no overlap between the stated

goal of Rule 5.6 (protecting young lawyers) and the unfinished business doctrine

(duty to account to partnership). Simply put, the unfinished business doctrine does

not restrict a lawyer's right to practice. Other courts applying ethics rules

analogous to Rule 5.6 have concluded that similar arguments advanced in Thelen I

7 Additionally, the fee-sharing argument in Sheresky contradicts itself. On the one hand, Sheresky says sharing fees for post-dissolution hourly work would violate New York's ethical rules, yet it also approves an alternative option that the law firm could have divided such post­dissolution hourly fees under a partnership agreement - even though such an agreement would, according to Sheresky, violate ethics rules.

15

and Sheresky are "unimpressive." See In re Labrum & Doak, LLP, 227 B.R. at 415

(rejecting application of the Model Rules of Professional Conduct 5.4 or 5.6(a) to

unfinished business case); Coudert III, 480 B.R. at 169-70 (rejecting application of

Rule 5.6(a) to unfinished business cases).

Moreover, and even assuming his interpretation of these ethics rules were

correct, in discussing both Rules 1.5 and 5.6, Judge Pauley admits that New York

ethics rules "lack the force of law." Thelen I, 476 B.R. at 740 (citing Niesig v.

Team I, 76 N.Y.2d 363, 369 (1990)).8 A plain reading of this Court's decision in

Niesig demonstrates the clear difference between a statute ("the will of the

legislature") and a disciplinary rule ("essentially the legal profession's document

of self-governance"). 76 N.Y.2d at 369. Because the New York Rules of

Professional Conduct "have a different provenance and purpose," Niesig

determined that it "does not have the force of law." Id. This Court's decision in

Niesig confirms that Judge Pauley' s reliance on the New York ethics rules cannot

override a partnership statute enacted by the New York legislature.

Fourth, Judge Pauley did not give any weight to NYPL § 4(4), a provision

where the New York Legislature required that the state's partnership law "shall be

8 See also People v. Herr, 86 N.Y.2d 638, 641-42 (1995) (citing Neisig with approval, rejecting defendant's reliance on a New York State Bar Professional Ethics opinion because "such opinions - like the [Rules of Professional Conduct] on which they are based - do not have the effect oflaw"); People v. Martynov, No. 199/2010, 2012 WL 2899027, at *3 (Sup. Ct., Kings County Mar. 6, 2012) ("The Rules of Professional Conduct, are a disciplinary rule, not a statute.").

16

so interpreted and construed as to effect its general purpose to make uniform the

law of those states which enact it." Instead, Judge Pauley claimed that the

overwhelming and consistent authority from multiple jurisdictions did "not

represent the consensus view," and instead sided with two wrongly decided cases

to justify his holding. Thelen I, 476 B.R. at 742. NYPL § 4(4) instructs this Court

to put New York on the side of uniformity, not with a cast of outliers. As Judge

McMahon found in Coudert III, NYPL § 4(4) is a "powerful reason to conclude

that the New York Court of Appeals would reach the same result [as other UP A

jurisdictions]." 480 B.R. at 164. By deciding to have New York cast its lot with a

single intermediate Missouri appellate court instead of its sister courts in over a

dozen states, Judge Pauley's decision in Thelen I eviscerates NYPL § 4(4). If

upheld, Judge Pauley's holding would have a devastating impact on the

administration of the estates of bankrupt law firms.

C. Uniform Application of the Unfinished Business Rule Strengthens Law Partnerships and Fairly Compensates Creditors, While a Disjointed Application of the Rule Would Lead to Absurd Results.

The purpose of a uniform act like the UP A is to "promote the peaceable,

consistent resolution of ... disputes." See Lingle v. Norge Div. of Magic Chef,

Inc., 486 U.S. 399, 404 (1988).9 Here, New York's joining of its sister states in the

9 See also N.Y. EXEC. LAW § 165 (establishing commission on uniform state laws "to examine various statutes and fields of law and to consult and cooperate with similar commissions

17

uniform application of the Unfinished Business Rule promotes the consistent

resolution of dispute and benefits the legal profession in three ways. First, the

universal application of the Unfinished Business Rule to a law firm's hourly

matters strengthens law partnerships, incentivizes partners to weather tough times

together, and creates a way to fairly compensate creditors whose essential

functions allow firms to operate. Second, exempting hourly matters from the

Unfinished Business Rule would result in disorderly law firm dissolutions, with

partners competing for lucrative hourly matters while abandoning contingent ones.

Third, absurd results will follow if this Court makes New York the only

commercial center in the U.S. that does not apply the Unfinished Business Rule to

a law firm's hourly matters - the Rule would apply only in some states, to some

partners, and to some matters, even though the firm's practice may be national or

international in scope.

First, uniform application of the Unfinished Business Rule is good for the

legal profession. Stated simply, modem law firms are unstable. Rather than

continuing as general partnerships where each partner is liable for the entire firm's

debt, law firms have adopted a limited liability structure that, ironically, was the

result of the 1980's savings and loan crisis that saw bank after bank fail. See Alan

R. Bromberg & Larry E. Ribstein, BROMBERG & RIBSTEIN ON LIMITED LIABILITY

in other states with a view to promoting uniform legislation throughout the United States whenever practicable").

18

PARTNERSHIPS AND THE REVISED UNIFORM PARTNERSHIP ACT, § 1.01 (2008 ed.)

(discussing the history of limited liability partnerships); see also Susan Fortney,

Seeking Shelter in the Minefield of Unintended Consequences - the Traps of

Limited Liability Law Firms, 54 WASH. & LEE L. REV. 717, 724-26 (1997). This

new limited liability structure has allowed firms to gamble with a growth strategy

that results in high overhead, but revenue that is dependent upon retaining partners

- yet, perversely, permits the partners to jump ship without concern for the firm's

liabilities. See Larry E. Ribstein, The Death of Big Law, at p. 15 (2010)

(University of Illinois College of Law) (available at:

http://works.bepress.com/ribstein/22). Law firms built by free agency further

destabilize limited liability partnerships: when the bonds of partnership are no

stronger than last year's IRS Form K-1 statement, the essential attributes of

partnership are missing. Steven J. Harper, The Lawyer Bubble: A Profession in

Crisis xiii (2013).10 "Traditional partnership principles of mutual respect and

support yield to unrestrained self-interest. Eventually, everyone loses ... [and]

firms lose the stability that comes with loyal partners and clients." Id. at 190.

Uniform application of Unfinished Business Rule blunts - but admittedly

cannot reverse - this weakening of partnership bonds. Dying law firms plunge into

10 See also Thelen II, 736 F.3d at 222 n.11 ("The portability of the partner's 'book' has weakened the bonds that hold firms together and threatens the identity of the law firm as we know it.") (citing Mark Harris, Why More Law Firms Will Go The Way of Dewey & LeBoeuf, Forbes, May 8, 2012); see also Coudert III, 480 B.R. at 159 (same).

19

dissolution and bankruptcy as partners scramble to leave the weakened firm with

"their" books of business (forgetting, perhaps, that "their" books were built with

the capital, support, and reputation of their fellow partners). If a partner

understands that his fiduciary duty to his or her dying law firm does not end by

him simply walking out the door, the partner will be incentivized to address the

underlying problems at his firm rather than flee at the first sign of trouble. The

partnership would be strengthened, orderly dissolution would be promoted, and

law firm creditors would be repaid in whole or in greater part.

Second, uniform application of the Unfinished Business Rule to both hourly

and contingent matters is beneficial to partners and their clients because all matters

would be treated equally. It is bad public policy to subject certain cases

(contingent fee matters) to the Unfinished Business Rule while exempting others

(hourly cases). Such a distinction would incentivize partners to scramble to solicit

clients or obtain hourly matters rather than contingency fee cases upon dissolution.

See, e.g., Jn re Labrum & Doak, LLP, 227 B.R. at 415 (noting unfinished business

doctrine has "discouraged former partners from scrambling to take [files] and

seeking personal gain by soliciting a firm's existing clients upon dissolution").11

ll Coudert III, 480 B.R. at 165 (discussing public policy to prevent "scrambling" of partners to obtain hourly matters rather than contingency fee cases upon dissolution) (citing Rohman v. Dolin, 20 Cal. App. 4th 755, 758 (1993)); LaFond, 2012 WL 503655, at *11 (citing "important policy reasons" to treat contingent fees as assets of firm to prevent partners of a dissolving law

firm to "scramble" to seize client files and solicit clients); Heller Ehrman LLP v. Arnold &

20

Many other courts follow this rationale expressed in Jewel that it is fair to both

lawyers and clients to prevent scrambling for work in process as the law firm

breaks up. See Fox v. Abrams, 163 Cal. App. 3d 610, 616 (1985) (citing Jewel).

Indeed, if partners of a struggling firm are considering plans for the future (or even

dissolution), exempting hourly matters will create a deep divide between attorneys

(or entire practice groups) based solely upon how the clients choose to compensate

the law firm. Likewise, treating hourly fee cases the same as contingency matters

thus prevents partners from angling to get the hourly cases rather than the

contingency cases upon dissolution. See Coudert III, 480 B.R. at 165

Third, a disjointed application of the Unfinished Business Rule would lead

to absurd results. If New York refuses to join its sister states in uniformly applying

the Unfinished Business Rule, large law firms will have some partners that are

exempt from a duty to account while others that are bound by their fiduciary duty

under the UP A. A partnership cannot effectively manage itself during a crisis

when some partners (in New York) believe that they are immune from the

Unfinished Business Rule while their fellow partners (in California, D.C., Illinois,

and elsewhere) must account back to the firm.

Porter LLP (In re Heller Ehrman LLP), Adv. No. 10-3203DM, 2011 WL 1539796, at *2 (Bankr. N.D. Cal. Apr. 22, 2011) (noting that "sound public policy" in Jewel "discourages former members of the firm from scrambling to take [files or clients]").

21

For these policy reasons - as well as the legal reasons discussed at length

above - this Court should answer the first certified question in favor of Trustee

Geron and conclude that New York applies the Unfinished Business to Rule to a

law firm's hourly matters.

II. Under the No Compensation Rule, the New Law Firm Cannot Retain Any of the Profits Derived From Completing The Old Firm's Unfinished Business.

The Trustee Amici contend that another New York statute answers the

second certified question about the proportion of profit allocated to the

withdrawing partner or the successor law firm. 12 The simple answer is that a

partner in a dissolved partnership is not entitled to any compensation for winding

up the partnership business. Over 135 years ago, the Supreme Court summarized

the common law No Compensation Rule: "[W]here partnerships are equal, as was

true in the present case, and there is no stipulation in the partnership agreement for

compensation to a surviving partner for settling up the partnership business, he is

entitled to no compensation." Denver, 99 U.S. at 358. The No Compensation Rule

was later codified in Section 18(f) of the UPA, which the New York legislature

adopted without modification in Section 40( 6) of the New York Partnership Law.

NYPL § 40(6) states:

12 Thelen IL 736 F.3d at 225 ("[W]hat proportion of the profit derived from an ongoing hourly matter may the new law firm retain?").

22

No partner is entitled to remuneration for acting in the partnership business, except that a surviving partner is entitled to reasonable compensation for his services in winding up the partnership affairs.

Consistent with the common law and NYPL § 40(6), New York courts have long

affirmed the No Compensation Rule, including its application to law firms. See

Geist, 19 N.Y.S.2d at 77 ("[I]t is clear that the only partner who is entitled to

compensation for winding up the affairs of a partnership, in the absence of a

special agreement, is a surviving partner."); King, 100 N.Y. at 393 (applying No

Compensation Rule to bridge-building partnership); Rhein, 194 A.D. at 277

(applying No Compensation Rule to dental practice); accord Coudert III, 480 B.R.

at 158 (same). Despite its seemingly harsh consequences, courts in every other

UP A jurisdiction uniformly follow the No Compensation Rule. See Mark H.

Epstein & Brandon Wisoff, Winding Up Dissolved Law Partnerships: The No-

Compensation Rule and Client Choice, 73 Cal. L. Rev. 1597, 1613 & n.93 (1985)

("[T]he majority of courts considering [partner compensation] after adoption of the

[Uniform Partnership] Act have held that compensation is unavailable regardless

of the inequalities of winding-up burdens .... "); Jewel, 156 Cal. App. at 180

(acknowledging that while the No Compensation Rule might appear unfair, it

"prevent[ s] a partner from refusing to furnish any work and imposing this

obligation totally on the other partners, thus unfairly benefitting from [the other

partners] efforts while putting forth none of his or her own"); Beckman v. Farmer,

23

579 A.2d at 640 (confirming application of No Compensation Rule under D.C. law

because it "is a creature of statute and that attempts by courts to evade it are

inappropriate" and collecting similar cases in Maryland, Florida, Texas, and

Illinois).

Notwithstanding the well-settled history of the No Compensation Rule, its

uniform application under the UP A, and its codification in New York Partnership

Law, there is one aberrant decision by an intermediate appellate court - Kirsch v.

Leventhal - that has injected needless uncertainty into the unfinished business

discussion. 13 Kirsch, however, can be dispensed with easily because it is flawed in

one obvious and incontrovertible respect: it applied the wrong part of the NYPL to

the unfinished business dispute. As a result, Kirsch cannot be reconciled with -

and must yield to NYPL § 40( 6).

Faced with how to allocate a contingent fee earned from an unfinished

business matter, the Kirsch court permitted a partner to be compensated for his

post-dissolution "effort, skill, and diligence" in completing the case. Kirsch, 181

A.D.2d at 226. To reach this conclusion, Kirsch failed to cite or discuss the No

Compensation Rule codified in NYPL § 40( 6). Id. Instead, it relied on NYPL § 73

- a provision of the UP A that is inapplicable both to the facts in Kirsch and

13 See also Shandell, 217 A.D.2d at 473. Because Shandell relied on Kirsch without discussion or analysis, the Trustee Amici treat the decisions as one. If Kirsch fails, as it must, so goes Shandell.

24

unfinished business law. That is, Kirsch looked to NYPL § 73 which concerns the

valuation of a partnership interest "[ w ]hen any partner retires or dies" and the

business is continued. Id. But Kirsch was a dissolution case - it did not involve

the continuation of a law partnership after the retirement or death of one of the

partners.14 And even if it did, NYPL § 73 (the parallel to UPA § 42) would not

apply because it "is not the source of the duty of a lawyer to account to his former

partners." Santalucia, 232 F.3d at 300.15 On the other hand, NYPL § 40(6)

governs whether a partner is entitled to compensation for his efforts in winding up

unfinished business matters, and clearly adopts the No Compensation Rule.

Unsurprisingly, the New York Court of Appeals has never endorsed the

tortured logic in Kirsch to create a judicial exception to the No Compensation

14 Kirsch also cited to a Texas appellate court decision for the proposition that a partner is entitled to post-dissolution compensation. 586 N.Y.S.2d at 333 (citing Bader v. Cox, 701 S.W.2d 677, 681 (Tex. App.-Dallas 1985, writ refd n.r.e.)). The appeal in Bader involved the valuation of a deceased partner's interest in contingent fee cases under UPA § 42 (identical to NYPL § 73). 701 S.W.2d at 681. Thus, Bader discounted the interest of the deceased partner's estate "to the profits attributable to the labor and management of the remaining partners." Id. at 684 (citing Hughes v. Aycock, 598 S.W.2d 370, 372 (Tex. App.-Houston [14th Dist.] 1980, writ refd n.r.e.) (also applying UPA § 42)). This is because the Texas appellate court concluded that the estate of the deceased partner cannot recover profits resulting from the surviving partners that "expend a significantly greater effort winding up the pending cases than they would have if the decedent [partner] were still alive." Bader, 701 S.W.2d at 683. This rationale does not apply to dissolved law firms where every partner survives because all of the partners of the dissolved firm have a duty to account for profits earned when winding up the old firm's unfinished business. See generally, Jewel, 156 Cal. App. 3d at 176. 15 Similar to Kirsch, Bader, and Hughes, there are other inapposite decisions that rely on UPA § 42 in the context of a partnership dispute. See, e.g., Weisbrod v. Ely, 767 P.2d 171, 175 (Wyo. 1989) (citing Wyoming statute that mirrors UPA § 42); Timmerman v. Timmerman, 538 P.2d 1254, 1260 n.3 (Or. 1975) (citing Oregon statute that mirrors UPA § 42 and applicable only "[w]hen any partner retires or dies").

25

Rule. See Coudert III, 480 B.R. at 156. It should decline to do so here. As with

the Second Circuit's first certified question, uniformity among UP A jurisdictions

demands that this Court apply the No Compensation Rule as enacted by the New

York Legislature and implemented in every other UP A jurisdiction.

CONCLUSION

This Court should answer the certified questions in favor of Trustee Geron

and conclude that New York applies the Unfinished Business to Rule to a law

firm's hourly matters and, moreover, the New York Legislature affirmed the No

Compensation Rule for a partnership dissolution by enactment ofNYPL § 40(6).

Dated: April 25, 2014

Andrew B. Ryan, Esq. James D. Sheppard, Esq. Michael Fishel, Esq. DIAMOND McCARTHY LLP 1201 Elm Street, Suite 3400 Dallas, Texas 75270 Counsel for Allan B. Diamond, Chapter 11 Trustee for Howrey LLP

Respectfully submitted,

Allan B. Diamond, Esq. Howard Ressler, Esq. Andrew B. Ryan, Esq. DIAMOND McCARTHY LLP 620 Eighth Avenue, 39th Floor New York, New York 10018 Counsel for Alan M Jacobs, Liquidating Trustee for the Dewey & LeBoeuf Liquidation Trust

Christopher D. Sullivan, Esq. GREENFIELD SULLIVAN 150 California Street, Suite 220 San Francisco, CA 94111 Special Litigation Counsel/or Heller Ehrman LLP, by and through Michael Burkhart, Plan Administrator

26