Dev. Specialists, Inc. v. Akin Gump Strauss Hauer & Feld LLP

• Decision Date: 18 July 2012
• Docket Number: No. 11 civ. 5971(CM).,No. 11 civ. 5972(CM).,No. 11 civ. 5993(CM).,No. 11 civ. 5985(CM).,No. 11 civ. 5974(CM).,No. 11 civ. 5983(CM).,No. 11 civ. 5973(CM).,No. 11 civ. 5968(CM).,No. 11 civ. 5994(CM).,No. 11 civ. 5995(CM).,No. 11 civ. 5984(CM).,No. 11 civ. 5970(CM).,No. 11 civ. 5969(CM).,11 civ. 5969(CM).,11 civ. 5968(CM).,11 civ. 5985(CM).,11 civ. 5983(CM).,11 civ. 5984(CM).,11 civ. 5994(CM).,11 civ. 5995(CM).,11 civ. 5993(CM).,11 civ. 5973(CM).,11 civ. 5974(CM).,11 civ. 5972(CM).,11 civ. 5970(CM).,11 civ. 5971(CM).
• Citation: 480 B.R. 145
• Parties: DEVELOPMENT SPECIALISTS, INC., in its capacity as Plan Administrator for Coudert Brothers LLP, Plaintiff, v. AKIN GUMP STRAUSS HAUER & FELD LLP, Defendant. Development Specialists, Inc., in its capacity as Plan Administrator for Coudert Brothers LLP, Plaintiff, v. Arent Fox LLP, Defendant. Development Specialists, Inc., in its capacity as Plan Administrator for Coudert Brothers LLP, Plaintiff, v. Dorsey & Whitney LLP, Defendant. Development Specialists, Inc., in its capacity as Plan Administrator for Coudert Brothers LLP, Plaintiff, v. Duane Morris LLP, Defendant. Development Specialists, Inc., in its capacity as Plan Administrator for Coudert Brothers LLP, Plaintiff, v. Jones Day, Defendant. Development Specialists, Inc., in its capacity as Plan Administrator for Coudert Brothers LLP, Plaintiff, v. Jones Day and Scott Jones, Defendants. Development Specialists, Inc., in its capacity as Plan Administrator for Coudert Brothers LLP, Plaintiff, v. Jones Day and Geoffrey de Foestraets, Defendants. Development Specialists, Inc., in its capacity as Plan Administrator for Coudert Brothers LLP, Plaintiff, v. Jones Day and Jingzhou Tao, Defendants. Development Specialists, Inc., in its capacity as Plan Administrator for Coudert Brothers LLP, Plaintiff, v. K & L Gates LLP, Defendant. Development Specialists, Inc., in its capacity as Plan Administrator for Coudert Brothers LLP, Plaintiff, v. Morrison & Foerster LLP, Defendant. Development Specialists, Inc., in its capacity as Plan Administrator for Coudert Brothers LLP, Plaintiff, v. Sheppard Mullin Richter & Hampton LLP, Defendant. Development Specialists, Inc., in its capacity as Plan Administrator for Coudert Brothers LLP, Plaintiff, v. DLA Piper (US) LLP, Defendant. Development Specialists, Inc., in its capacity as Plan Administrator for Coudert Brothers LLP, Plaintiff, v. Dechert LLP, Defendant.
• Court: U.S. District Court — Southern District of New York

480 B.R. 145

DEVELOPMENT SPECIALISTS, INC., in its capacity as Plan Administrator for Coudert Brothers LLP, Plaintiff,

v.AKIN GUMP STRAUSS HAUER & FELD LLP, Defendant.

Development Specialists, Inc., in its capacity as Plan Administrator for Coudert Brothers LLP, Plaintiff,

v.Arent Fox LLP, Defendant.

Development Specialists, Inc., in its capacity as Plan Administrator for Coudert Brothers LLP, Plaintiff,

v.Dorsey & Whitney LLP, Defendant.

Development Specialists, Inc., in its capacity as Plan Administrator for Coudert Brothers LLP, Plaintiff,

v.Duane Morris LLP, Defendant.

Development Specialists, Inc., in its capacity as Plan Administrator for Coudert Brothers LLP, Plaintiff,

v.Jones Day, Defendant.

Development Specialists, Inc., in its capacity as Plan Administrator for Coudert Brothers LLP, Plaintiff,

v.Jones Day and Scott Jones, Defendants.

Development Specialists, Inc., in its capacity as Plan Administrator for Coudert Brothers LLP, Plaintiff,

v.Jones Day and Geoffrey de Foestraets, Defendants.

Development Specialists, Inc., in its capacity as Plan Administrator for Coudert Brothers LLP, Plaintiff,

v.Jones Day and Jingzhou Tao, Defendants.

Development Specialists, Inc., in its capacity as Plan Administrator for Coudert Brothers LLP, Plaintiff,

v.K & L Gates LLP, Defendant.

Development Specialists, Inc., in its capacity as Plan Administrator for Coudert Brothers LLP, Plaintiff,

v.Morrison & Foerster LLP, Defendant.

Development Specialists, Inc., in its capacity as Plan Administrator for Coudert Brothers LLP, Plaintiff,

v.Sheppard Mullin Richter & Hampton LLP, Defendant.

Development Specialists, Inc., in its capacity as Plan Administrator for Coudert Brothers LLP, Plaintiff,

v.DLA Piper (US) LLP, Defendant.

Development Specialists, Inc., in its capacity as Plan Administrator for Coudert Brothers LLP, Plaintiff,

v.Dechert LLP, Defendant.

Nos. 11 civ. 5994(CM), 11 civ. 5973(CM), 11 civ. 5995(CM), 11 civ. 5969(CM), 11 civ. 5974(CM), 11 civ. 5972(CM), 11 civ. 5968(CM), 11 civ. 5970(CM), 11 civ. 5993(CM), 11 civ. 5985(CM), 11 civ. 5971(CM), 11 civ. 5983(CM), 11 civ. 5984(CM).

United States District Court, S.D. New York.

July 18, 2012.

David Jeffrey Adler, McCarter & English, LLP, New York, NY, for Development Specialists, Inc.

Eric M. Kay, Susheel Kirpalani, Quinn Emmanuel Urquhart Oliver & Hedges, LLP, New York, NY, for Akin Gump Strauss Hauer & Feld LLP.

Jessica Deborah Mikhailevich, Dorsey & Whitney LLP, New York, NY, for Dorsey & Whitney LLP.

Geoffrey Shannon Stewart, Steven C. Bennett, Jones Day, New York, NY, for Jones Day, Geoffroy de Foestraets, and Jingzhou Tao.

Jeffrey N. Rich, K&L Gates LLP, New York, NY, for K&L Gates LLP.

Allen Gary Reiter, SNR Denton US LLP, New York, NY, George Peter Angelich Arent Fox LLP, Matthew Scott Trokenheim, Arent Fox LLP, New York, NY, for Arent Fox LLP.

Lawrence Joel Kotler, Duane Morris LLP, Philadelphia, PA, for Duane Morris LLP.

AMENDED DECISION AND ORDER DENYING GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTIONS FOR SUMMARY JUDGMENT, AND GRANTING PLAINTIFF'S CROSS–MOTION FOR A DECLARATION

McMAHON, District Judge.

I. INTRODUCTION

Plaintiff Development Specialists Inc. (“DSI”), in its role as administrator of the bankruptcy estate of the dissolved law firm Coudert Brothers LLP (“Coudert”) brought this suit against ten law firms—Defendants Akin Gump Strauss Hauer & Feld LLP, Arent Fox LLP, Dorsey & Whitney LLP, Duane Morris LLP, Jones Day, K & L Gates LLP, Morrison & Foerster LLP, Sheppard Mullin Richter & Hampton LLP, DLA Piper (US) LLP, and Dechert LLP (the “Firms” herein)—to recover from the Firms profits that former Coudert partners earned while completing client matters of Coudert that were pending but uncompleted on the date of its dissolution.

Presently before the Court are the Firms' motions for summary judgment dismissing the complaint, and DSI's cross-motion for a declaration that the unfinished client matters were Coudert's property on the day it dissolved. For the reasons discussed below, the Firms' motions are granted in part and denied in part, and DSI's cross-motion is granted.

II. BACKGROUND

The following facts are undisputed, unless otherwise noted.

A. Facts

Coudert is a law partnership first organized in 1853. ( See e.g., DSI's 56.1 (Jones Day) ¶ 1; Jones Day's Resp. 56.1 ¶ 1.) Although it is presently dissolved, it maintains a legal existence, because it is not yet “terminated.” See infra.

At all times relevant to this case, Coudert operated under a written partnership agreement, last amended December 30, 2004 (the “Coudert Partnership Agreement”). ( See, e.g., DSI's 56.1 (Jones Day) ¶ 2 (citing Keefe Decl. ¶ 7, Ex. A (Coudert Partnership Agreement, or CPA in citations)); Jones Day's Resp. 56.1 ¶ 2.) It includes several provisions relevant to these motions, which are addressed further below.

In accordance with the terms of Article 10 of the Coudert Partnership Agreement, Coudert dissolved on August 16, 2005 (the “Dissolution Date”). (DSI's 56.1 (Jones Day) ¶¶ 8–9; Jones Day's Resp. 56.1 ¶¶ 8–9.) On the Dissolution Date, the equity partners adopted a “Special Authorization,” which provides, as relevant, the following:

The Equity Partners ... hereby authorize the Executive Board ... to take such actions as it may deem necessary and appropriate, including, without limitation, the granting of waivers, notwithstanding any provisions to the contrary in the Partnership Agreement ..., in order to:

a. ... sell all or substantially all of the assets of ... the Firm to other firms or service providers, in order to maximize the value of the Firm's assets and business;

b. wind down the business of the Firm with a view to continuing the provision of legal services to clients and the orderly transition of client matters to other firms or service providers, in order to maximize the value of the Firm's assets and business to the extent possible ....

(Keefe Decl., Ex. A, at 76.)

Some of Coudert partners who were with the Firm on the Dissolution Date were subsequently hired by the Defendant Firms. ( See, e.g., Akin Gump 56.1 ¶ 3; Sheppard Mullin 56.1 ¶ 4; Arent Fox 56.1 ¶ 3; DLA Piper ¶ 3; Morrison & Foerster 56.1 ¶ 3; Dechert 56.1 ¶ 3; Dorsey & Whitney ¶ 3; K & L Gates 56.1 ¶ 4; Duane Morris 56.1 ¶ 3.) They are referred to herein as the “Former Coudert Partners.” ¹

On the Dissolution Date, there remained, between Coudert and its clients, partly performed contracts for the provision of legal services. These matters were part of the “business of the Firm” that the Executive Board was authorized to “wind down.” When the Former Coudert Partners joined the Firms, the Firms were retained by Coudert's (former) clients to conclude some of the legal matters left unfinished by Coudert on the Dissolution Date. ( See, e.g., Sheppard Mullin 56.1 ¶ 5; Arent Fox 56.1 ¶ 4; DLA Piper 56.1 ¶ 4; Morrison & Foerster 56.1 ¶ 4; Dechert 56.1 ¶ 4; Dorsey & Whitney 56.1 ¶ 3; K & L Gates 56.1 ¶ 5; Duane Morris 56.1 ¶ 4; Jones Day 56.1 ¶ 4.) These are referred to herein as the “Client Matters.” ²

The Firms completed the Client Matters. The Firms submitted testimony that they billed all of the Client Matters (with two exceptions) on an hourly basis. ( See, e.g., Akin Gump 56.1 ¶ 5; Sheppard Mullin 56.1 ¶¶ 6–7; Arent Fox 56.1 ¶ 5; DLA Piper 56.1 ¶¶ 5–6; Morrison & Foerster 56.1 ¶ 5; Dechert 56.1 ¶¶ 5–6; Dorsey & Whitney 56.1 ¶¶ 4–5; K & L Gates ¶ 5; Duane Morris 56.1 ¶¶ 5–6; Jones Day 56.1 ¶ 5; but see DLA Piper 56.1 ¶ 7 (acknowledging “incentive fee” matter); Jones Day 56.1 ¶ 7 (acknowledging “flat fee” matter).) The Court assumes, for purposes of this motion, that this is true. The complaint does not reveal whether Coudert billed the Client Matters on an hourly basis, though I would be surprised to learn otherwise.

The record does not reveal the extent of any profits gained (or losses sustained) by the Firms while completing the Client Matters.

B. Prior proceedings

Coudert filed for Chapter 11 bankruptcy in this District in September 2006. See In re Coudert Bros. LLP (Retired Partners), 2011 WL 5593147, at *1 (S.D.N.Y. Sept. 23, 2011). On August 27, 2008, the Bankruptcy Court entered an order confirming the First Amended Liquidation Plan. ( See Adler Decl. Ex. 1.) That plan became effective on September 8, 2008, and DSI was appointed as Plan Administrator of the Coudert bankruptcy estate. In that role, DSI is empowered to act on behalf of the Coudert bankruptcy estate.

The procedural path from the interposition of DSI's claims in this matter as adversary proceedings in the Bankruptcy Court to the decision on this motion is convoluted. For additional background, see this Court's prior orders in these (and related) matters. See Development Specialists, Inc. v. Orrick, Herrington & Sutcliffe, LLP, 2011 WL 6780600 (S.D.N.Y. Dec. 23, 2011); Development Specialists, Inc. v. Akin Gump Strauss Hauer & Feld LLP, 462 B.R. 457 (S.D.N.Y.2011) (“ DSI v. Firms” herein). Insofar as is relevant here, DSI brought thirteen separate adversary proceedings against the Firms, premised on the “unfinished business doctrine;” it argued that the Firms are liable to Coudert for any profits derived from completing the Client Matters that the Former Coudert Partners brought to the Firms. The complaints lodged claims under New York law and Federal bankruptcy law for an accounting, turnover, unjust enrichment, and conversion. (Huene Decl., Exs. A–M); see generally DSI v. Firms, 462 B.R. at 460–62.

The Firms moved to dismiss the complaints, arguing primarily that the unfinished business doctrine on which DSI relieddid not apply to the Client Matters, because they were billed by the hour rather than taken on contingency. An all day hearing was held on the motions on July 31, 2009. On August 7, 2009 the Bankruptcy Court (Drain, J.) denied the motions to dismiss in a bench ruling.

Judge Drain acknowledged that the application of the unfinished business doctrine to non-contingency cases had not been addressed by the New York Court of...