736 F.3d 213 (2nd Cir. 2013), 12-4138-bk, In re Thelen LLP

Docket Nº:12-4138-bk.
Citation:736 F.3d 213
Opinion Judge:GERARD E. LYNCH, Circuit Judge:
Party Name:In re THELEN LLP v. Seyfarth Shaw LLP, Defendant-Appellee.[*] Yann Geron, as Chapter 7 Trustee of the Estate of Thelen LLP, Plaintiff-Appellant,
Attorney:Howard P. Magaliff, Rich Michaelson Magaliff Moser, LLP, New York, NY, for Plaintiff-Appellant. Thomas Feher, Thompson Hine LLP, Cleveland, OH, (M. Ryan Pinkston, Chicago, IL, and Robert W. Dremluk, Seyfarth Shaw LLP, NY, on the brief), for Defendant-Appellee. Damian Schaible (David A. Lewis, on ...
Judge Panel:Before: LYNCH, CHIN, and CARNEY, Circuit Judges.
Case Date:November 15, 2013
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

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736 F.3d 213 (2nd Cir. 2013)


Yann Geron, as Chapter 7 Trustee of the Estate of Thelen LLP, Plaintiff-Appellant,


Seyfarth Shaw LLP, Defendant-Appellee.[*]

No. 12-4138-bk.

United States Court of Appeals, Second Circuit

November 15, 2013

Argued: Oct. 7, 2013.

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[Copyrighted Material Omitted]

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[Copyrighted Material Omitted]

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Howard P. Magaliff, Rich Michaelson Magaliff Moser, LLP, New York, NY, for Plaintiff-Appellant.

Thomas Feher, Thompson Hine LLP, Cleveland, OH, (M. Ryan Pinkston, Chicago, IL, and Robert W. Dremluk, Seyfarth Shaw LLP, NY, on the brief), for Defendant-Appellee.

Damian Schaible (David A. Lewis, on the brief), The Association of the Bar of the City of New York, New York, New York for Amicus Curiae in support of Defendant-Appellee.

Before: LYNCH, CHIN, and CARNEY, Circuit Judges.

GERARD E. LYNCH, Circuit Judge:

This case requires us to decide whether, for purposes of administering the firm's related bankruptcy, New York law treats a dissolved law firm's pending hourly fee matters as its property. Because we conclude that we cannot definitively answer that question without the guidance of the New York Court of Appeals, we certify controlling questions of law to that court.


I. Facts

On October 28, 2008, the partners of the law firm Thelen LLP (" Thelen" ), a registered limited liability partnership governed by California law, voted to dissolve the firm, which was insolvent. In effectuating the dissolution, Thelen's partners adopted the Fourth Amended and Restated Limited Liability Partnership Agreement (the " Fourth Partnership Agreement" ) and a written Plan of Dissolution. The Fourth Partnership Agreement provided that it was governed by California law.

Unlike Thelen's previous partnership agreements, the Fourth Partnership Agreement contained an " Unfinished Business Waiver," 1 which provides:

Neither the Partners nor the Partnership shall have any claim or entitlement

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to clients, cases or matters ongoing at the time of the dissolution of the Partnership other than the entitlement for collection of amounts due for work performed by the Partners and other Partnership personnel prior to their departure from the Partnership. The provisions of this [section] are intended to expressly waive, opt out of and be in lieu of any rights any Partner or the Partnership may have to " unfinished business" of the Partnership, as the term is defined in Jewel v. Boxer, 156 Cal.App.3d 171 [203 Cal.Rptr. 13] (Cal.App. 1 Dist.1984), or as otherwise might be provided in the absence of this provision through the interpretation of the [California Uniform Partnership Act of 1994, as amended].

Compl. ¶ 34. The Partnership adopted the waiver with the

hope that [it would] serve as an inducement to encourage Partners to move their clients to other law firms and to move Associates and Staff with them, the effect of which will be to reduce expenses to the Partnership, and to assure that client matters are attended to in the most efficient and effective manner possible, and to help ensure collection of existing accounts receivable and unbilled time with respect to such clients.

Compl. ¶ 35.

Following Thelen's dissolution, eleven Thelen partners joined Seyfarth Shaw LLP (" Seyfarth" ), ten in its New York office and one in California. The former partners transferred to Seyfarth unfinished matters from Thelen, and Seyfarth billed clients for their services.

II. Prior Proceedings

Thelen filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York (Allan L. Gropper, Judge ). At that time, Thelen stated in its petition that it " has been domiciled or has had a residence, principal place of business, or principal assets" in the Southern District of New York. Following his appointment as the Chapter 7 trustee of Thelen's bankruptcy estate, Yann Geron (the " Trustee" ) commenced an adversary proceeding against Seyfarth. 2 The Trustee sought to avoid the Unfinished Business Waiver as a constructive fraudulent transfer under 11 U.S.C. §§ 544 and 548(a)(1)(B) and California state law, and to recover the value of Thelen's unfinished business for the benefit of the estate's creditors. See 11 U.S.C. § 704(a)(1). Proceeding from the assumption that pending hourly matters were among a law firm's assets, the Trustee contended that Thelen fraudulently transferred those assets to individual partners without consideration when its partners adopted the Unfinished Business Waiver on the eve of dissolution, when the firm was insolvent.3

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Seyfarth moved for judgment on the pleadings under Fed.R.Civ.P. 12(c). Seyfarth argued, and the district court found, that New York law governed the dispute. The district court noted that under New York law, " it is well settled that ‘ [a]bsent an agreement to the contrary, pending contingent fee cases of a dissolved partnership are assets subject to distribution.’ " Geron v. Robinson & Cole LLP, 476 B.R. 732, 739 (S.D.N.Y.2012) (emphasis in Geron ), quoting Santalucia v. Sebright Transp., Inc., 232 F.3d 293, 297 (2d Cir.2000). The district court correctly noted, however, that New York courts have not authoritatively resolved whether the unfinished business doctrine applies to pending hourly fee matters. The court held that recognizing a property right in unfinished hourly fee matters would " conflict[ ] with New York's strong public policy in favor of client autonomy and attorney mobility," id. at 742-43, and that " applying the unfinished business doctrine to pending hourly fee matters would result in an unjust windfall for the Thelen estate, as ‘ compensating a former partner out of that fee would reduce the compensation of the attorneys performing the work,’ " id. at 740, quoting Sheresky v. Sheresky Aronson Mayefsky & Sloan, LLP, No. 150178/10, 35 Misc.3d 1201(A), 2011 WL 7574999, at *5 (N.Y.Sup.Ct. Sept. 13, 2011).

In reaching this conclusion, the district court expressly disagreed with the decision of another court in the same district in Development Specialists, Inc. v. Akin Gump Strauss Hauer & Feld LLP (" Coudert Brothers " ), which had held that pending hourly matters were law firm assets, in part, because " the method by which the Client Matters were billed does not alter the nature of [a law firm's] property interest in them." 480 B.R. 145, 154 (S.D.N.Y.2012). 4 The district court therefore granted Seyfarth's motion for judgment on the pleadings, finding that the Trustee's complaint was deficient because it " fail[ed] to distinguish between pending contingency fee matters and hourly fee matters." Geron, 476 B.R. at 743. The district court withdrew the reference to the bankruptcy court, and entered a final judgment dismissing the Trustee's claims. The Trustee timely appealed.


I. Standard of Review

" We review de novo a district court's decision to grant a motion for judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c)." Hayden v. Paterson, 594 F.3d 150, 160 (2d Cir.2010). In deciding a Rule 12(c) motion, we " employ[ ] the same standard applicable to dismissals pursuant to Fed.R.Civ.P. 12(b)(6)." Johnson v. Rowley, 569 F.3d 40, 43 (2d Cir.2009) (internal quotation marks and alteration omitted). Thus, we accept all factual allegations in the complaint as true and draw all reasonable inferences in plaintiff's favor. Hayden, 594 F.3d at 160. " To survive a Rule 12(c) motion ... [a] ‘ complaint must contain sufficient

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factual matter, accepted as true, to state a claim to relief that is plausible on its face.’ " Johnson, 569 F.3d at 44, quoting Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). In adjudicating a motion to dismiss, a court may consider only the complaint, any written instrument attached to the complaint as an exhibit, any statements or documents incorporated in it by reference, and any document upon which the complaint heavily relies. See Chambers v. Time Warner, Inc., 282 F.3d 147, 152-53 (2d Cir.2002). " [M]atters judicially noticed by the District Court are not considered matters outside the pleadings." Staehr v. Hartford Fin. Servs. Grp., Inc., 547 F.3d 406, 426 (2d Cir.2008).

" We review the district court's interpretation and application of state law de novo." Santalucia, 232 F.3d at 297. To conduct our inquiry, " we of course look to the state's decisional law, as well as to its constitution and statutes." Id. Where state law is unsettled, we are obligated to " carefully ... predict how the state's highest court would resolve the uncertainty or ambiguity." Maska U.S., Inc. v. Kansa Gen. Ins. Co., 198 F.3d 74, 78 (2d Cir.1999) (internal quotation marks omitted). Where, as here, a state's highest court has not spoken on an issue, we give " proper regard" to the relevant rulings of a state's lower courts. Travelers Ins. Co. v. 633 Third Assocs., 14 F.3d 114, 119 (2d Cir.1994) (internal quotation marks omitted). " We may also consider decisions in other jurisdictions on the same or analogous issues." Maska U.S., 198 F.3d at 78 (internal quotation marks omitted).

II. Analysis

A. Choice of Law

As a threshold matter, we must determine whether New York or California law governs this dispute. " [W]here no significant federal policy, calling for the imposition of a federal conflicts rule, exists," Bianco v. Erkins (In re Gaston & Snow), 243 F.3d 599, 607 (2d Cir.2001), a bankruptcy court must apply the...

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