NEW YORK, July 20 (Reuters) - A federal judge in Manhattan
on Thursday allowed the appeal of a decision permitting the
estate of Coudert Brothers to claw back profits from legal
matters its former lawyers took to rival firms after Coudert
U.S. District Judge Colleen McMahon said law firms including
Dechert and DLA Piper may appeal her earlier ruling allowing the
Coudert estate to pursue money earned from the unfinished
business, a ruling which could affect the ability of Dewey & LeBoeuf, which filed for bankruptcy in May, to repay its
While McMahon said she believed her original decision
allowing the lawsuits to move forward was correct, she said
"existing law does not give a clear-cut answer" to whether the
unfinished legal business was an asset of a bankrupt law firm's
The firms are now expected to ask the 2nd Circuit Court of
Appeals to take the case up in the next 10 days. McMahon wrote
that the appellate court should in turn ask the New York Court
of Appeals to address how New York law treats a dissolved law
firm's unfinished legal business.
How courts deal with claims like Coudert's looms over not
just its bankruptcy but that of other law firms, including Dewey
& LeBoeuf, which in May became the largest law firm to fail in
U.S. history. Dewey's wind-down team told former partners at a
meeting July 11 that it plans to seek $60 million to compensate
the estate for its potential unfinished business claims.
McMahon did not mention Dewey in her decision, but she cited
proceedings in the bankruptcy of Thelen, which is also seeking
to reclaim unfinished business profits from other firms. The
judge also cited a news account that the trustee for the
bankrupt firm Howrey had subpoenaed 70 law firms on Monday in an
effort to begin clawing back profits.
"An interlocutory answer to whether an unfinished client
matter should be treated as an 'asset' of a dissolved law
partnership has the potential to affect a large number of cases
-- some of which are already pending in this Court," McMahon
In an unusual twist, McMahon also urged the 2nd Circuit to
reverse part of her decision, which held the former partners
could subtract from any profits they earned on unfinished
business a sum that accounts for their "efforts, skill and
diligence" following their departure from Coudert.
McMahon said she was compelled to follow a 1992 intermediate
New York state appellate court ruling that adopted that
standard, which could create a "protracted and expensive"
process for resolving unfinished business claims in a law firm
McMahon denied a separate motion by Jones Day to reconsider
or send to the appellate court her holding that it is jointly
liable with former partners of Coudert it hired for any
liability they incurred by working on their clients' matters at
their new law firm.
A lawyer for Coudert's liquidation plan administrator,
Development Specialists Inc, David Adler of McCarter & English,
Claire Huene of Miller & Wrubel, who represented Dechert and
took the lead for the law firms in the case, declined comment.
The cases are Development Specialists Inc v. Akin Gump
Strauss Hauer & Feld et al, U.S. District Court for the Southern
District of New York, Nos. 11-5994, 5973, 5995, 5969, 5974,
5972, 5968, 5970, 5993, 5985, 5971, 5983, 5984.
For Development Specialists Inc: David Adler of McCarter &
English in New York.
For Dechert: Claire Huene of Miller & Wrubel in New York.
(Reporting By Nate Raymond)
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