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Heller Ehrman LLP v. Davis Wright Tremaine LLP

Filed 3/5/18 IN THE SUPREME COURT OF CALIFORNIA HELLER EHRMAN LLP, ) S236208 ) Plaintiff and Appellant, ) ) v. ) 9th Cir. Nos. 14-16314, ) 14-16315, 14-16317, 14-16318 DAVIS WRIGHT TREMAINE LLP, ) ) Defendant and Respondent. ) ) AND RELATED CASES. ) ____________________________________) Like “cloud-capp’d towers,” “gorgeous palaces,” and perhaps someday even “the great globe itself,” many arrangements endure for some time but eventually dissolve.1 So too with certain law partnerships –– including firms that are retained, before they dissolve, to handle matters on an hourly basis. The question before us is whether a dissolved law firm retains a property interest in such legal matters that are in progress –– but not completed –– at the time of dissolution. The United States Court of Appeals for the Ninth Circuit asks us to answer this question, which implicates both common law principles and statutory rules of partnership law, and has implications for the competing interests of ongoing and dissolved law partnerships, partners and firm employees, creditors and clients. 1 “The cloud-capp’d towers, the gorgeous palaces, / The solemn temples, the great globe itself, / Yea, all which it inherit, shall dissolve.” (Shakespeare, The Tempest, act IV, scene I, lines 152–154.) 1 What we hold is that under California law, a dissolved law firm has no property interest in legal matters handled on an hourly basis, and therefore, no property interest in the profits generated by its former partners’ work on hourly fee matters pending at the time of the firm’s dissolution. The partnership has no more than an expectation that it may continue to work on such matters, and that expectation may be dashed at any time by a client’s choice to remove its business. As such, the firm’s expectation — a mere possibility of unearned, prospective fees — cannot constitute a property interest. To the extent the law firm has a claim, its claim is limited to the work necessary for preserving legal matters so they can be transferred to new counsel of the client’s choice (or the client itself), effectuating such a transfer, or collecting on work done pretransfer. I. Petitioner Heller Ehrman (Heller) was a global law partnership with more than 700 attorneys. By August 31, 2008, the firm was in financial distress. Heller’s creditors soon declared it in default, and Heller’s shareholders — lawyers responsible for running the firm and providing legal services to its clients — voted to dissolve the firm. Heller notified its clients that as of October 31, 2008, it would no longer be able to provide any legal services. Heller’s dissolution plan included a provision known as a Jewel waiver. Named after the case of Jewel v. Boxer (1984) 156 Cal.App.3d 171 (Jewel), the provision purported to waive any rights and claims Heller may have had “to seek payment of legal fees generated after the departure date of any lawyer or group of lawyers with respect to non-contingency/non-success fee matters only.” The waiver was intended as “an inducement to encourage Shareholders …
Original document
Source: California Supreme Court