As Dewey & LeBoeuf spirals downward, more than 40 law firms are placing bets that their rival's one-time partners will help boost their revenues in a stagnant legal market. There's just one catch: Those profits might be eroded by clawback suits if Dewey goes into Chapter 11.

Clawback claims over so-called unfinished business have become a regular feature of the bankruptcies of large law firms, as trustees seek to recover billings by former partners in order to pay the bankrupt firm's creditors. But those claims are almost universally based on a 1984 decision by a state court in California in a case called Jewel v. Boxer. In New York, the law isn't as clear. So former Dewey partners and their new firms will want to look closely at what happens in the bankruptcies of two New York firms -- Coudert Brothers and Thelen.

Some of the firms that hired partners from Coudert and Thelen are now fighting to hold onto billings by laterals who brought clients with them. Seyfarth Shaw, for instance, hired 11 lawyers from Thelen when the firm went under in October 2008. In a brief filed Monday in federal district court in Manhattan, Seyfarth contended that Thelen's trustee, Yann Geron of Fox Rothschild, "cannot be right" that the dead law firm is owed fees for work its partners billed after it collapsed.

Almost all of the other firms that hired Thelen lawyers, however, caved to the trustee's demands. Seyfarth is one of only two firms challenging the trustee's claims, Geron said. The others have either settled or entered agreements to toll the statute of limitations. Courtdocuments show Geron has so far recovered $904,086 from 16 firms, including O'Melveny & Myers and Troutman Sanders. That sum, the documents state, represent nearly 70 percent of the profits those firms earned from Thelen laterals' unfinished business, less expenses.

"Most of (the claims) are being settled because the majority of the law firms are recognizing that the claims are legitimate," Geron said. Thelen was a California partnership, and Geron said its partnership agreement calls for claims to be interpreted under California law, which means California's Jewel precedent holds.

Not according to Seyfarth, which contends that Thelen's preponderance of New York lawyers and clients means New York law should apply to claims in the bankruptcy. And, under New York precedent, Geron doesn't have a right to go after profits on work billed by the hour, Seyfarth partner Robert Dremulk argued. Dremulk and lawyers at Thomson Hine are representing Seyfarth in the Thelen clawback litigation.

Seyfarth's brief pointed to a September 2011 ruling in a case stemming from the breakup of Sheresky Aronson Mayefsky & Sloan, a prominent Manhattan divorce firm that represented the ex-wives of James Gandolfini and Dustin Hoffman. In a 26-pageopinion in the Sheresky case, New York State Supreme Court Justice Eileen Bransten concluded that, under New York law, unfinished business claims apply only to pending contingency-fee work, not to hourly billings. U.S. District Judge William Pauley of Manhattan federal court withdrew Seyfarth's case from bankruptcy court in March. He's scheduled to hear Seyfarth's argument for dismissal on July 13.

If Geron is right about California law applying in the Thelen case, Coudert clawbacks may turn out to be a more helpful test case for Dewey laterals. Seven firms that hired Coudert lawyers when that firm dissolved in 2005 are challenging unfinished business claims by Coudert's administrator. U.S. Bankruptcy Judge Robert Drain denied a motion to dismiss those clawback claims in August 2009. But thanks to the U.S. Supreme Court's 2011 ruling in Stern v. Marshall, which limits the authority of bankruptcy judges to interpret uncharted areas of the law, the law firm clawback defendants succeeded in moving their cases to federal court in Manhattan in November. A motion for summary judgment in the Coudert case has been fully briefed before U.S. District Judge Colleen McMahon.

"We think the (Jewel) theory is unworkable and shouldn't be enforced in New York," said Joel Miller of Miller & Wrubel, who is defending Dechert in the Coudert clawback litigation.

David Adler of McCarter & English, counsel to Coudert liquidation plan administrator Development Specialists Inc, declined to comment.

(Reporting by Nate Raymond)

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