Dev. Specialists, Inc. v. Akin Gump Strauss Hauer & Feld LLP, s. 11 civ. 5994 (CM)

• Decision Date: 02 November 2011
• Docket Number: 11 civ. 5985 (CM),11 civ. 5984 (CM).,11 civ. 5974 (CM),11 civ. 5969 (CM),11 civ. 5993 (CM),11 civ. 5970 (CM),11 civ. 5983 (CM),11 civ. 5968 (CM),Nos. 11 civ. 5994 (CM),11 civ. 5972 (CM),11 civ. 5971 (CM),11 civ. 5995 (CM),11 civ. 5973 (CM),s. 11 civ. 5994 (CM)
• Citation: 462 B.R. 457
• 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

462 B.R. 457

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.

Nov. 2, 2011.

MEMORANDUM ORDER GRANTING DEFENDANTS' JOINT MOTION TO WITHDRAW THE BANKRUPTCY REFERENCE AND DENYING DEFENDANTS' JOINT MOTION FOR ABSTENTION

McMAHON, District Judge.

BACKGROUND

Before the Court are thirteen related matters arising out of the Chapter 11 bankruptcy petition filed by Coudert Brothers LLP (“Coudert”). Coudert was a limited liability partnership practicing law in New York before its voluntary bankruptcy filing in September 2006. (Decl. of Alder, ¶ 3.)

Plaintiff Development Specialists, Inc. (“DSI”) is the Plan Administrator of the Coudert bankruptcy estate. Insofar as is relevant here, it brought thirteen separate adversary proceedings 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”). ( Id., ¶¶ 6–7; Decl. of Huene, Exhs. A, B.)

DSI's theory of recovery was that the Firms were liable to Coudert for certain “unfinished business” former Coudert Partners took with them to their new homes at the Firms (the “Unfinished Business Claims”). The Unfinished Business Claims, which are based on New York state partnership and contract law, seek to hold the Firms liable for any fees earned on matters Coudert's former partners brought with them to the Firms. DSI additionally asserts fraudulent conveyance claims under New York's Debtor & Creditor Law against Defendant Dechert. (Decl. of Huene, Exh. B.) All DSI's claims were interposed in late 2008 and 2009, after confirmation of Coudert's liquidation plan.

The Firms moved to dismiss in two groups in January and June 2009. (Decl. of Adler, ¶¶ 10–14.) They argued that the “unfinished business doctrine” in New York applies only to contingency fee cases. For example, if Firm A does 100 hours of work on a contingency basis, then dissolves, and a departing partner takes that case with her to Firm B, where it yields a large settlement, Firm B may be liable to Firm A's liquidation estate, under the “unfinished business doctrine,” for the value of the 100 hours of previous work on the case. See, e.g., Santalucia v. Sebright Transp., Inc., 232 F.3d 293, 297–298 (2d Cir.2000) (applying New York law). The Firms argued that the doctrine rests on principles of quantum meruit, compensating the dissolved Firm A for the value of work actually performed toward generating the settlement for Firm B.

However, the Firms argued, the doctrine does not extend to cases where the client is required to pay for service rendered on an hourly basis, rather than having no obligation to pay unless a favorable result is achieved. Thus, the Firms argued, if Firm A bills 100 hours on a case, and a partner then takes that case to Firm B and bills another 100 hours on it, Firm A's bankruptcy estate is not entitled to anything except payment from the client (not firm B) for the 100 hours of work firm A performed on the client's behalf. Firm B has no liability to the estate, because hourly fees generated by the work performed by the departed partner and his colleagues after the move to Firm B are entirely attributable to work done at Firm B. The Firms therefore sought dismissal of DSI's claims to the extent they sought profits earned on hours billed after Coudert dissolved and its partners went their separate ways.

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. (Decl. of Adler, Exhs. 4, 5.) Judge Drain acknowledged that the application of the unfinished business doctrine to non-contingency cases has not been addressed in New York. Given the lack of clarity regarding the doctrine more generally, Judge Drain observed, “[I]f I had the power, this would be a case for certification to the New York Court of Appeals; however, the New York Constitution precludes that course except for requests by the Second Circuit.” (Decl. of Adler, Exh. 5, at 35.)

Nevertheless, relying on authority from other jurisdictions—which, like New York, base their partnership law on the Uniform Partnership Act—Judge Drain concluded that New York's highest court would, if faced with the issue, allow a claim to proceed for unfinished business, even for non-contingency cases. ( Id. at 35–42.) In doing so, he rejected the Firms' argument that the doctrine is essentially based on quantum meruit principles. Rather, Judge Drain found that liability follows from a partner's continuing duties to her former firm, including the duty to account for profits earned as a result of the dissolved firm's former business—profits that could be attributed in part to the work done while the partner was at the now-defunct former firm ( Id. at 42–51.) As will be seen, the merits of Judge Drain's decision are not before the Court on this motion.

In late 2009 and early 2010, the Firms filed answers to DSI's complaints. ( See Decl. of Adler, Exhs. 6–15.) In them, the Firms other than Dorsey & Whitney denied or refused to respond to each complaint's legal conclusion that the proceedings qualified as “core” under 28 U.S.C. § 157. ( See S.D.N.Y. Bnkr. Case No. 06–12226, Docket No. 983, ¶ 13, also available at Adv. Case No. 08–1492, Docket No. 1, ¶ 13 (DSI's complaint against Dorsey, alleging “core” jurisdiction); Decl. of Adler, Exh. 8, ¶ 13 (Dorsey & Whitney's answer, admitting foregoing allegation).) ¹ Among the Firms, only DLA Piper asked for a jury trial of all matters so triable. ( See Decl. of Adler, Exh. 14, pg. 10.)

An amended bench ruling superseded the original decision in January 2010. After it was entered the Firms moved for direct certification of the issue to the Second Circuit Court of Appeals under 28 U.S.C. § 158(d)(2), on the basis that New York law on the issues raised was unsettled. (Deck of Adler, Exh. 16.) Judge Drain denied the motion. ( Id., Exh. 17, at 31–44.) The Honorable Victor Marrero, of this Court, subsequently denied the Firms' motion for leave to appeal Judge's Drain's non-final order denying the motion to dismiss the complaints:

The Court is not persuaded that the Orders present a controlling issue of law, that an interlocutory appeal would terminate the Adversary Proceedings or advance their termination, or that there is substantial ground for difference of opinion on the questions presented. Moreover, even if the Law Firms could satisfy § 1292(b), the Court would exercise its discretion to deny leave to appeal because, in the Court's view of the record, this case does not present exceptional circumstances to depart from the final judgment rule.

In re Coudert Bros. LLP Law Firm Adversary Proceedings, 447 B.R. 706, 712 (S.D.N.Y.2011).

On June 23, 2011 the United States Supreme Court issued its decision in Stern v. Marshall, ––– U.S. ––––, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011), the import of which is discussed below. Shortly thereafter, the Firms asked this Court to withdraw the bankruptcy reference, and either to abstain from hearing the Unfinished Business Claims in favor of the New York state courts or to review the merits of Judge Drain's ruling de novo.

DISCUSSION

A. Motion to withdraw the reference

The United States District Court has original jurisdiction over matters “related to” a case arising under the Bankruptcy Code. 28 U.S.C. § 1334(b). In the Second Circuit, “a civil proceeding is related to a title 11 case if the action's outcome might have any conceivable effect on the bankrupt estate.” Parmalat Capital Finance Ltd. v. Bank of America Corp., 639 F.3d 572, 579 (2d Cir.2011) (internal quotation marks omitted) (emphasis added). The parties agree, and this Court finds, that the captioned proceedings are “related to” the Coudert bankruptcy estate that they augment for the benefit of...