In a decision likely to influence future litigation over failed law firms, a federal judge in San Francisco ruled that the defunct Heller Ehrman LLP has no right to profits from unfinished legal work its ex-partners brought to their new firms, the Wall Street Journal reported today. U.S. District Judge Charles Breyer yesterday rejected the theory behind those claims — which bankruptcy trustees have used to recover millions on behalf of creditors left in the lurch when law firms fail — and dismissed the Heller trustee's lawsuits against law firms Davis Wright Tremaine LLP, Jones Day, Foley & Lardner LLP and Orrick, Herrington & Sutcliffe LLP. "Heller ceased to be able to represent its clients, leaving them with no choice but to seek representation elsewhere," Judge Breyer wrote in his order. "Defendants came to the rescue of these clients and provided them with legal services on ongoing matters…. Defendants did the work that generated the fees at issue here. With the defendants those fees should stay." The decision could bolster arguments made by big law firms that hired partners from bankrupt rivals, then pushed back against claims for the profits from legal work that originated at the failed firms. Forcing partners' new employers to pay the money back to a failed firm's creditors, they say, unfairly restricts lawyers' mobility and clients' right to hire whatever lawyers they please. Judge Breyer's ruling goes against a position taken earlier this year by the bankruptcy judge overseeing the Heller case, who rejected attempts to dismiss the unfinished-business claims. Law-firm bankruptcy trustees say unfinished legal work is an asset that rightfully belongs to the failed firm, citing a 1984 case out of California that involved the breakup of a four-partner firm called Jewel, Boxer & Elkind.
