Commercial Division Blog

Posted: November 19, 2013 / Categories EDNY, Law Firms and Professional Ethics

Second Circuit Certifies Question on Unfinished Business Doctrine to Court of Appeals

On November 15, 2013, the Second Circuit issued a decision in In re: Thelen LLP, Docket No. 12‐4138‐bk, certifying the following questions to the New York Court of Appeals:

Under New York law, is a client matter that is billed on an hourly basis the property of a law firm, such that, upon dissolution and in related bankruptcy proceedings, the law firm is entitled to the profit earned on such matters as the "unfinished business" of the firm?

If so, how does New York law define a "client matter" for purposes of the unfinished business doctrine and what proportion of the profit derived from an ongoing hourly matter may the new law firm retain?

The Second Circuit started with the proposition that under the unfinished business doctrine, “in the absence of an agreement to the contrary, pending contingent fee cases of a dissolved partnership are firm assets subject to distribution” in bankruptcy. (Emphasis added). Thus, “where a lawyer departs from a dissolved partnership and takes with him a contingent fee case which he then litigates to settlement, the dissolved firm is entitled only to the value of the case at the date of dissolution, with interest.” (Emphasis added).

The question posed in Thelen was whether the same rule applied to “hourly fee matters.” The Second Circuit noted that “there is scant New York authority” on the question and addressed the pros and cons of finding that hourly fee matters are unfinished business of the dissolved firm, an interesting discussion that we will not repeat here but that is well worth reading in the linked opinion.