SAN FRANCISCO — U.S. District Judge Saundra Brown Armstrong of the Northern District of California has denied bids by several firms embroiled in lingering Howrey clawback cases to bypass U.S. bankruptcy court and instead have their cases heard by a district judge.
The order issued Tuesday comes almost a month after U.S. District Judge Charles Breyer repudiated the so-called Jewel doctrine, which law firm bankruptcy trustees have invoked to pursue “unfinished business” claims in California after the dissolutions of Howrey, Heller Ehrman, and Brobeck, Phleger & Harrison.
Attorneys for Jones Day argued that withdrawing their case from U.S. Bankruptcy Judge Dennis Montali would promote efficiency because any ruling from the bankruptcy court would be reviewed de novo by a district judge.
Armstrong disagreed, concluding Montali’s expertise on the matter would provide for the least delay, the most efficiency, and allow for the most uniformity across the multiple bankruptcy cases and decisions.
“The bankruptcy court, unlike this court, is familiar with the facts and issues in this case, which has been pending before the bankruptcy court since April 2011,” Armstrong wrote. “Further, the bankruptcy court, unlike this court, has considerable experience with law firm bankruptcies and fraudulent conveyance claims in the context of law firm bankruptcy.”
The order disposes similar withdrawal motions in the Howrey bankruptcy made by Hogan Lovells, Pillsbury Winthrop Shaw Pittman, Reed Smith, Perkins Coie and other firms facing clawback actions.
Jones Day partner Robert Mittelstaedt, who represents his firm, could not be reached for comment. Howrey estate trustee Allan Diamond, a Diamond McCarthy partner, also could not be reached.
On July 10, attorneys for Jones Day asked to provide supplemental briefing on Breyer’s decision in the Heller Ehrman bankruptcy, which took issue with Montali’s interpretation of Jewel v. Boxer. Montali had ruled that Jewel, a 1984 ruling from California’s First District Court of Appeal, permitted the Heller estate to recover profits from business that former partners took with them to new employers.
Breyer sided with Orrick, Herrington & Sutcliffe, Davis Wright Tremaine and Jones Day. “A law firm—and its attorneys—do not own matters on which they perform their legal services,” Breyer wrote. “Their clients do.”
But Armstrong only mentioned Breyer’s decision in a footnote: “The court finds that supplemental briefing is not warranted.”
Breyer had also turned down prior requests by firms looking to short circuit the bankruptcy court proceedings, intervening in the Heller case only after Montali had ruled. The New York Court of Appeals also issued a decision this month finding client matters cannot be considered property of the defunct firm in a case stemming from the dissolutions of Coudert Brothers and Thelan.
“My view is that both Judge Breyer’s and the New York Court of Appeals decisions were based on partnership law principles that are universally applicable, not just from state to state,” Jonathan Hughes of Arnold & Porter, who represents Reed Smith and Hogan Lovells. “Those decisions will stand as persuasive authority for the Howrey cases.”
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