Heller Ehrman LLP v. Davis Wright Tremaine LLP
229 Cal. Rptr. 3d 371
| Cal. | 2018Background
- Heller Ehrman LLP, a large law partnership, dissolved in 2008 amid financial distress; it notified clients it could no longer provide services after Oct. 31, 2008.
- Heller’s dissolution plan included a "Jewel waiver" purporting to waive Heller’s rights to fees generated after a partner’s departure for matters billed on a non-contingency (hourly) basis to encourage shareholders to move clients/staff to new firms.
- Former Heller partners joined other firms; many clients signed new retainer agreements with those firms.
- Heller filed Chapter 11; the bankruptcy plan administrator sued successor firms to recover fees/rescind the Jewel waiver as a fraudulent transfer of Heller’s alleged postdissolution fee rights.
- Lower courts split: the bankruptcy judge sided with Heller; the district court reversed, holding RUPA and property principles foreclosed a dissolved firm’s property interest in unfinished hourly-fee matters; Ninth Circuit certified the question to the California Supreme Court.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a dissolved law firm has a property interest in unfinished hourly-fee matters and their future profits | Heller: partnership had a property interest in pending matters; Jewel waiver transferred that interest so successor firms received Heller’s property | Respondents: clients own matters; any firm interest was only an expectancy; RUPA does not create an ownership right in postdissolution hourly fees | Held: No property interest in unfinished hourly-fee matters or their prospective profits; only an expectancy exists |
| Scope of "winding up" under RUPA — does it include continuing substantive hourly work postdissolution | Heller: continuation of matters could be part of winding up; fees from such work belong to partnership | Respondents: winding up is limited (preserve/transfer matters, collect pretransfer fees); substantive continuation is outside winding up | Held: Winding up limited to preserving/transfer, effectuating transfer, collecting pretransfer fees; substantive hourly work postdissolution not included |
| Effect of RUPA on prior case law (e.g., Jewel / Osment / Little) re: postdissolution fees | Heller: Jewel and earlier cases support sharing fees from unfinished matters among former partners | Respondents: RUPA’s text and policy undermine extending Jewel to hourly matters | Held: Jewel's rule for contingency matters not extended to hourly matters; RUPA supports limiting postdissolution partnership interests |
| Whether the Jewel waiver constituted a fraudulent transfer under Bankruptcy Code (dependent on property interest) | Heller/administrator: waiver transferred Heller’s property to departing partners and successor firms; therefore avoidable | Respondents: no partnership property was transferred because no property interest existed | Held: Because no property interest existed in hourly-fee matters, there was no fraudulent transfer of such property |
Key Cases Cited
- Osment v. McElrath, 68 Cal. 466 (1886) (early rule allocating fees from unfinished contingency matters among former partners)
- Little v. Caldwell, 101 Cal. 553 (1894) (same rule as Osment for contingency matters)
- Jewel v. Boxer, 156 Cal.App.3d 171 (1984) (Court of Appeal holding fees from contingency matters pending at dissolution are shared among former partners)
- Rothman v. Dolin, 20 Cal.App.4th 755 (1993) (Court of Appeal applied Jewel to hourly matters; disapproved to the extent inconsistent with this opinion)
- Jacobson v. Wikholm, 29 Cal.2d 24 (1946) (discussing preservation of common-law partnership principles under UPA)
- General Dynamics Corp. v. Superior Court, 7 Cal.4th 1164 (1994) (confirming client’s right to terminate counsel at will)
- Fracasse v. Brent, 6 Cal.3d 784 (1972) (recognizing client’s statutory/case-law right to discharge attorneys)