In a unanimous decision related to the Thelen bankruptcy, a three-judge federal appellate panel ruled Friday that a New York appeals court should decide whether the remnants of law firms that dissolve in the state have an ownership right to fees earned from hourly matters taken by their former partners to new firms, American Law Daily reported today. Writing for the panel, U.S. Court of Appeals for the Second Circuit Judge Gerard Lynch underscored the importance of creating clarity on the issue, saying that "the bankruptcy of major law firms is, sadly, a phenomenon that has occurred with distressing frequency in recent years." In addition to Thelen, other Am Law 200 firms to fail in recent years include Heller Ehrman, Howrey, and the biggest of them all, Dewey & LeBoeuf, which filed for chapter 11 protection in May 2012. In each case, trustees seeking to recover funds for creditors have pressed "unfinished business claims" against firms that inherited income-generating work when they hired lawyers from the failing firms. Friday's ruling stems from a closely watched case brought by Thelen trustee Yann Geron against Seyfarth Shaw, which hired 11 partners from the firm following its October 2008 dissolution. (The firm filed for chapter 7 bankruptcy protection in New York a year later.) In addition to seeking an unspecified amount of money from work those partners took to Seyfarth, Geron argues that a waiver the partners signed once the firm knew it was dissolving in an effort to shield themselves from unfinished business claims should be considered a constructive fraudulent transfer. In September 2012, U.S. District Judge William Pauley handed Seyfarth Shaw a win in the case, ruling that the unfinished business doctrine does not apply to a dissolving law firm's pending hourly fee matters. Thelen appealed Pauley's decision, and the Second Circuit panel heard arguments from both sides in early October.
