830 F.3d 964
9th Cir.2016Background
- Heller Ehrman LLP (large global law firm) dissolved in 2008; partners moved to other firms and many clients signed new fee agreements.
- Heller’s dissolution agreement included a waiver disclaiming any post-departure rights to fees from non-contingency (hourly) matters (citing Jewel doctrine).
- Heller entered Chapter 11; its plan administrator sued successor firms seeking to avoid the waiver as a fraudulent transfer, claiming Heller had a property interest in fees from unfinished hourly matters at dissolution.
- Bankruptcy court certified related factual and legal issues; district court held RUPA changed the law and granted summary judgment to successor firms, finding no property interest in unfinished hourly matters.
- Ninth Circuit concluded California Supreme Court has not squarely answered whether a dissolved law firm retains a property interest in pending hourly matters post-dissolution and certified that question to the California Supreme Court.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a dissolved law firm has a property interest under California law in legal matters pending at dissolution when retained on an hourly basis | Heller: Jewel still controls; RUPA §16401(h) only permits reasonable compensation but does not eliminate partnership property claim — unpaid profits beyond compensation remain firm property | Defendants: RUPA entitles winding-up partners to reasonable compensation (their hourly rate), leaving no continuing property interest in future hourly fees; recognizing such property would chill representation and client choice | Ninth Circuit: State law unsettled post-RUPA; certified the specific question to the California Supreme Court rather than decide itself |
Key Cases Cited
- Osment v. McElrath, 68 Cal. 466 (Cal. 1886) (early California Supreme Court decision recognizing partnership rights in unfinished contingency matters)
- Little v. Caldwell, 101 Cal. 553 (Cal. 1894) (surviving partner must complete unfinished contingency contracts; such contracts treated as partnership assets)
- Jacobson v. Wikholm, 29 Cal.2d 24 (Cal. 1946) (interpreting partners’ entitlement to compensation for winding up under prior law)
- Jewel v. Boxer, 156 Cal. App.3d 171 (Cal. Ct. App. 1984) (California Court of Appeal rule that former partners share fees from unfinished firm business according to partnership interests)
- Rothman v. Dolin, 20 Cal. App.4th 755 (Cal. Ct. App. 1993) (applied Jewel’s allocation rule to hourly matters)
- Howard v. Babcock, 6 Cal.4th 409 (Cal. 1993) (acknowledged Jewel principle in discussing partner withdrawal agreements)
- In re Brobeck, Phleger & Harrison LLP, 408 B.R. 318 (Bankr. N.D. Cal. 2009) (bankruptcy court applied Jewel to avoid dissolution waiver as a fraudulent transfer)
- In re Thelen LLP, 24 N.Y.3d 16 (N.Y. 2014) (New York Court of Appeals held dissolved firms have no property interest in future hourly fees)
- Thelen v. Cal. State Comptroller (In re Thelen LLP), 736 F.3d 213 (2d Cir. 2013) (Second Circuit certified the question to New York Court of Appeals)
- Begier v. IRS, 496 U.S. 53 (U.S. 1990) (property interests for bankruptcy avoidance defined by state law)
- Butner v. United States, 440 U.S. 48 (U.S. 1979) (state law governs property interests in bankruptcy)