After California and New York courts in June and July tossed out “unfinished business” claims by trustees of failed firms against former partners and the firms they fled to, all eyes are now fixed on the outcome of a hearing today in the one remaining large firm bankruptcy where such claims are still being fought: the Howrey chapter 11 proceeding, American Lawyer reported today. A decision by U.S. Bankruptcy Judge Dennis Montali on a motion to dismiss could go one of two ways: provide trustees outside New York with a new path forward to press such suits, or put the last nail in the coffin on such litigation nationally. Unfinished business claims have cropped up in every major law firm bankruptcy over the past decade, from Coudert Brothers to Dewey & LeBoeuf. Most are based on precedent established in 1984 in the California case Jewel v. Boxer, which allowed trustees to claw back profits owed from unfinished matters that former partners took with them when they joined other firms. A 2008 decision by Judge Montali in the liquidation of Brobeck in 2003 affirming the applicability of Jewel v. Boxer emboldened trustees nationally to go after those firms. Judge Montali held that at the time of Brobeck's dissolution, partners owed the estate profits from unfinished matters, even though they had signed a waiver of that duty. Judge Montali found that the waiver constituted a fraudulent transfer of Brobeck property under bankruptcy laws. In New York in 2012, one federal district judge also sided with trustees that unfinished business belongs to the liquidated firm.
