SAN FRANCISCO — As the Howrey estate rakes in settlements, a handful of firms are still trying to tear down a controversial bankruptcy doctrine that has vexed the legal industry for years.
Six firms that hired former Howrey partners urged U.S. Bankruptcy Judge Dennis Montali of the Northern District of California at a hearing on Wednesday to dismiss the claims filed against them by the now-defunct firm’s bankruptcy trustee, Allan Diamond. Suing under the unfinished business doctrine, Diamond seeks to recover profits from the work that former Howrey partners brought with them to their new firms, arguing that it is property of the estate.
But the chorus of law firm defendants insisted that position flies in the face of legal ethics rules, which favor clients’ unfettered freedom to hire and fire legal counsel.
The law in Washington D.C., which governs Howrey’s partnership agreement, also shuns rules that restrict clients’ ability to choose their counsel, said Pillsbury Winthrop Shaw Pittman partner David Keyko, who argued on behalf of his firm.
Representing Hogan Lovells, Arnold & Porter partner Jonathan Hughes told Montali that partners’ duties to their former firms must be defined narrowly so they are free to reach out to clients after they move on. “If you read it broadly, it would be a breach of your duty of loyalty to solicit clients when you leave, and yet the American Bar Association and other bar associations around the country are telling lawyers to do just that,” he said.
Hogan Lovells, Jones Day and Haynes & Boone argued their motions to dismiss independently before Montali. Earlier in the day, Pillsbury, Neal Gerber & Eisenberg and Kasowitz, Benson, Torres & Friedman presented a joint motion to dismiss the unfinished business claims against them. The coalition shrunk this week when Ropes & Gray, Venable and Shearman & Sterling informed the court that they had settled with Diamond. Diamond has netted more than $2 million in settlements this week.
Many of the firms that are still putting up a fight hired partners who left Howrey before the partnership voted to dissolve in March 2011. The Heller Ehrman bankruptcy estate pursued only partners who left after the vote to dissolve, but Diamond has taken a more aggressive line. Daniel Zinman of Kasowitz said the unfinished business doctrine does not support attacks on partners who got out the door before the firm imploded.
“The only logical conclusion is that you have to measure things at the date of dissolution,” he said. “That’s how the unfinished business doctrine works.”
Diamond McCarthy partner Andrew Ryan, who argued for the Howrey estate, insisted its zealous pursuit is justified. The bustling lateral market bolsters his argument, he added.
“The fact that you’re free to compete doesn’t mean that you’re free to take the unfinished business matters without accounting back,” he said.
Diamond’s team also argued in court papers that if the unfinished business doctrine is not upheld, partners would be encouraged to stream out of firms at the first sign of financial trouble.
“More law firms will fail if this court rewards partners who leave a struggling law firm with immunity from unfinished business claims,” the estate argued in opposition to the motion to dismiss.
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This story has been corrected. Due to a reporting error, an earlier version incorrectly stated attorney Daniel Zinman’s firm affiliation. He is special counsel at Kasowitz, Benson, Torres and Friedman.