Diamond v. Hogan Lovells US LLP
| Decision Date | 27 February 2018 |
| Docket Number | No. 15-16329, No. 15-16331, No. 15-16330, No. 15-16333, No. 15-16328, No. 15-16332, No. 15-16327,No. 15-16326,15-16326 |
| Citation | 883 F.3d 1140 |
| Court | U.S. Court of Appeals — Ninth Circuit |
| Parties | Allan B. DIAMOND, Chapter 7 Trustee of the Estate of Howrey LLP, Plaintiff-Appellant, v. HOGAN LOVELLS US LLP, Defendant-Appellee. Allan B. Diamond, Chapter 7 Trustee of the Estate of Howrey LLP, Plaintiff-Appellant, v. Pillsbury Winthrop Shaw Pittman LLP, Defendant-Appellee. Allan B. Diamond, Chapter 7 Trustee of the Estate of Howrey LLP, Plaintiff-Appellant, v. Seyfarth Shaw LLP, Defendant-Appellee. Allan B. Diamond, Chapter 7 Trustee of the Estate of Howrey LLP, Plaintiff-Appellant, v. Perkins Coie LLP, Defendant-Appellee. Allan B. Diamond, Chapter 7 Trustee of the Estate of Howrey LLP, Plaintiff-Appellant, v. Neal, Gerber & Eisenberg LLP, Defendant-Appellee. Allan B. Diamond, Chapter 7 Trustee of the Estate of Howrey LLP, Plaintiff-Appellant, v. Kasowitz Benson Torres LLP, Defendant-Appellee. Allan B. Diamond, Chapter 7 Trustee of the Estate of Howrey LLP, Plaintiff-Appellant, v. Sheppard Mullin Richter & Hampton LLP, Defendant-Appellee. Allan B. Diamond, Chapter 7 Trustee of the Estate of Howrey LLP, Plaintiff-Appellant, v. Jones Day, Defendant-Appellee. |
Christopher D. Sullivan (argued), Diamond McCarthy LLP, San Francisco, California; Christopher R. Murray and Michael D. Fritz, Diamond McCarthy LLP, Houston, Texas; for Plaintiff-Appellant.
Shay Dvoretzky (argued) and Emily J. Kennedy, Jones Day, Washington, D.C.; Robert A. Mittelstaedt and Jason McDonnell, Jones Day, San Francisco, California; for Defendant-Appellee Jones Day.
Jonathan W. Hughes and Pamela Phillips, Arnold & Porter LLP, San Francisco, California; Robert Reeves Anderson, Arnold & Porter LLP, Denver, Colorado; for Defendant-Appellee Hogan Lovells US LLP.
David G. Keyko, Pillsbury Winthrop Shaw Pittman LLP, New York, New York; John M. Grenfell and G. Allen Brandt, Pillsbury Winthrop Shaw Pittman LLP, San Francisco, California; for Defendant-Appellee Pillsbury Winthrop Shaw Pittman LLP.
Lori L. Roeser, Seyfarth Shaw LLP, Chicago, Illinois, for Defendant-Appellee Seyfarth Shaw LLP.
Ronald A. McIntire and Judith B. Gitterman, Perkins Coie LLP, Los Angeles, California, for Defendant-Appellee Perkins Coie LLP.
Nancy J. Newman, Hanson Bridgett LLP, San Francisco, California; Robert Radasevich, Neal Gerber & Eisenberg LLP, Chicago, Illinois; for Defendant-Appellee Neal Gerber & Eisenberg LLP.
Margaret A. Ziemianek, Kasowitz Benson Torres & Friedman LLP, San Francisco, California; Robert M. Novick, Kasowitz Benson Torres & Friedman LLP, New York, New York; for Defendant-Appellee Kasowitz Benson Torres & Friedman LLP.
Richard W. Brunette and Michael M. Lauter, Sheppard Mullin Richter & Hampton LLP, Los Angeles, California, for Defendant-Appellee Sheppard Mullin Richter & Hampton LLP.
Paulette Brown, President; Eric A. Shumsky, Christopher J. Cariello, and Anjali S. Dalal, Of Counsel; American Bar Association, Chicago, Illinois; for Amicus Curiae American Bar Association.
David C. Tingstad, Beresford Booth PLLC, Edmonds, Washington, for Amici Curiae Various Practitioners and Academics.
Before: Ronald M. Gould and Mary H. Murguia, Circuit Judges, and Nancy Freudenthal,* Chief District Judge.
Alan B. Diamond, Trustee for Howrey LLP's bankruptcy estate, seeks to recover profits earned from hourly-billed client matters started at Howrey, but completed at other firms that hired the former Howrey partners. He raises both a fraudulent transfer and an unjust enrichment theory of recovery. The viability of both theories turns on the answers to unresolved questions of D.C. partnership law concerning the scope of the interest, if any, that a partnership has in client matters started at the partnership but completed at another firm.
Pursuant to D.C. Code § 11-723 we respectfully ask the District of Columbia Court of Appeals to resolve three questions of District of Columbia law that "may be determinative" of this bankruptcy appeal. D.C. Code § 11-723(a) :
Our phrasing of the questions should not restrict the Court's consideration of the issues. The Court may rephrase a question as it sees fit in order to best address the contentions of the parties or the specifics of D.C. law.1 If the District of Columbia Court of Appeals resolves these questions we will resolve the issue in our case in accordance with its answers.
We offer the following statement of the "facts relevant to the questions certified and the nature of the controversy in which the questions arose." D.C. Code § 11-723(c).
Howrey LLP, a law firm organized under D.C. law, faced significant financial difficulties after the economic crisis of 2008. By early 2010 the firm was insolvent, and in March 2011 Citibank prohibited Howrey from using any cash collateral without permission. Howrey's partners voted to dissolve the firm effective March 15, 2011. As part of its dissolution, Howrey's partners amended their partnership agreement to include a " Jewell waiver" which would free any departing partner from any obligation to account for profits related to the winding up of unfinished business.2 In April of 2011, Howrey's creditors filed an involuntary petition for bankruptcy against the firm.
Partners left Howrey both before and after dissolution of the firm and started to work for other law firms. In many instances, these former Howrey partners continued to work on client matters that were formerly Howrey business.
In 2013, the bankruptcy estate's Trustee brought adversary proceedings against firms that had hired Howrey partners and had profited from work done on client matters that had been started at Howrey ("defendant firms"), attempting to recover portions of payments made by former Howrey clients for work done on those ongoing matters.3 The Trustee presented two different legal theories of recovery depending on whether a partner left before or after Howrey's dissolution.
To summarize briefly, the Trustee argues that partners who dissociated pre-dissolution had a duty to account for profits earned on ongoing client matters, and that Howrey can recover those profits from the defendant firms under an unjust enrichment theory. The Trustee argues that partners who left after the March 15, 2011 dissolution had a duty to account to Howrey for any profits earned on ongoing client matters, that the Jewel waiver constituted a fraudulent transfer of that interest from Howrey to the partners under 11 U.S.C. § 548, and that the Trustee can recover from the defendant firms as subsequent transferees under 11 U.S.C. § 550.
The law firms moved to dismiss the adversary proceedings. The bankruptcy court denied the motion to dismiss the post-dissolution claims on grounds that the unfinished business rule as articulated in Beckman v. Farmer , 579 A.2d 618 (D.C. 1990), and Young v. Delaney , 647 A.2d 784 (D.C. 1994) —cases involving contingency fee matters—applied with equal force to client matters billed on an hourly basis, and that therefore the Trustee could seek to recover profits from partners who left after the Jewel waiver passed under a fraudulent transfer theory. The bankruptcy court also held that the Trustee had stated a valid claim for unjust enrichment.
The law firms appealed, and the district court reversed. The district court held that profits generated from ongoing legal matters were not subject to the duty to account where the client had entered into a new retainer agreement with a different firm. For that reason, it rejected both the pre-dissolution unjust enrichment claim and the post-dissolution fraudulent transfer claim.
Section 404(b)(1) of the Revised Uniform Partnership Act ("RUPA") ( D.C. Code § 29-604.07(b)(1) ) imposes a duty on a partner "to account to the partnership and hold as trustee for it any property, profit, or benefit derived by the partner in the conduct and winding up of the partnership business." Section 603(b) of the RUPA ( D.C. Code § 29-606.03(b) ) governs the duties of dissociating partners. It holds that "[t]he [dissociating] partner's duty of loyalty under Section 404(b)(1) and (2) and duty of care under Section 404(c) continue only with regard to matters arising and events occurring before a partner's dissociation, unless the partner participates in winding up of the partnership's business."4
The Trustee argues that ongoing hourly-billed client matters were "matters arising" before the partner's dissociation, and, hence, the partner had a duty to account for profits earned from those matters.
The defendant firms, in contrast, contend that "matters arising" should be interpreted narrowly to include only work actually performed prior to dissociation. On this interpretation, the duty to account would apply only to payments made after dissociation for work performed before dissociation. Our review of District of Columbia case law has found no case resolving...
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