Dewey Cited in Coudert Brothers’ Case for Clawback Clarification

06/11/12

The judgment of the New York federal district court in the Coudert Brothers' case holding that a law firm bankruptcy estate has rights, title and interests in matters that were taken to other firms by exiting partners has stirred up fears and controversies.


The landmark demise of Dewey and its Chapter 11 proceedings has former partners jittering in fear and uncertainty as to the results if the Coudert Brothers' judgment is applied to the Dewey estate. And the chances seem too high for that to happen. It is no surprise then, that defendant firms in the Coudert case are seeking permission to appeal the judgment in the Coudert's case. The firms have argued that the case is ready for review, especially, following the insolvency of Dewey LeBoeuf LLP.

On Wednesday, the defendant firms filed a request for permission to appeal the Coudert Brothers' judgment before the 2nd Circuit Court of Appeals. They mentioned that it is possible the Dewey estate would file claims similar in nature to those brought in the Coudert Brothers' matter, in respect to “unfinished business actions.”

Lawyers for the law firm defendants wrote in the petition seeking permission to appeal the Coudert Brothers' judgment that
“These cases are now at the forefront of what could be numerous actions in this Court that will raise the same difficult questions of law.” The defendants stressed that appellate review of the Couderts' decision “would clarify the law and materially advance, if not resolve entirely, all of these actions and threatened actions.”

The reference to Dewey's demise was apparently made in response to the judge's insistence to learn what had changed to grant a review of the judgment.

In her decision on May 24, just days before Dewey filed for Chapter 11, McMahon had rejected the argument of the defendant law firms in the Coudert Brothers' case that the Coudert estate could not claim profits on ‘unfinished business' claimed on a contingency fee basis, as the firm had been using a billable model.

In her earlier rejection of arguments of the defendant law firms, McMahon had written, “All client matters pending on the date of dissolution are assets of the firm -- regardless of how the firm was to be compensated for the work.”

If the principles are applied to the insolvency of Dewey and other matters, it is going to affect the fabric of law firm practice and the lateral mobility of rainmaker attorneys.

The cases are Development Specialists Inc v. Akin Gump Strauss Hauer & Feld et al, U.S. District Court for the Southern District of New York, Nos 11-5994, 5973, 5995, 5969, 5974, 5972, 5968, 5970, 5993, 5985, 5971, 5983, 5984.