July 23, 2018

ABA urges D.C. court to reject trustee claim to profits on clients’ unfinished hourly rate matters

CHICAGO, July 13, 2018 — The American Bar Association late Thursday filed an amicus brief in the
District of Columbia Court of Appeals, asking the court to reject a bankruptcy trustee’s rule to capture profits earned by new law firms from clients previously served by the dissolved firm Howrey LLP.

Howrey, which was based in the District of Columbia, dissolved in March 2011. The issue is whether D.C. law gives a dissolved firm a property interest in “substantively new representations undertaken by third-party firms.” The bankruptcy trustee contends it does and wants to impose on former Howery partners and the partners’ new firms a duty to pay to the dissolved Howrey firm all profits earned by them on the hourly rate matters of Howrey’s former clients.

In a related case in February, the U.S. Court of Appeals for the Ninth Circuit said the trustee’s position rests on D.C. partnership law. It asked the D.C. court to answer certain questions concerning the scope of the interest, if any, that a partnership has in client matters started at the partnership but completed at another firm. The 9th Circuit said it would resolve its case once the D.C. court considers these questions.

The ABA maintains, consistent with its position in a handful of similar suits, that the trustee’s position undermines the fundamental principle that clients own and control their matters, and have the unfettered right to counsel of their choice. This principle is supported by both ABA Model Rules of Professional Conduct and D.C. Rules premised upon the model rules, the ABA contends.

The ABA brief added the trustee’s proposed ruling would run afoul of those rules and impede the way the modern legal industry serves clients. In this series of cases, the ABA is asking the courts to reject the trustee’s rule and affirm that the profits in question are not the property of the dissolved firm and subject to claims by creditors.

“The better rule is one that follows the time-honored principle that clients – not lawyers or law firms – own their matters and are free to hire or fire counsel of their choice for any reason at any time,” the ABA brief said.

The latest ABA amicus brief, Allan B. Diamond, Chapter 7 Trustee for Howrey LLP v. Hogan Lovells U.S, LLP is available here.

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