2nd Circuit to Decide the Fate of Coudert Brothers’ Clawbacks

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On Thursday, U.S. District judge Colleen McMahon said that the law firms affected by her decision in the Coudert Brothers’ case may appeal her earlier ruling. Her earlier controversial decision had allowed the estate of now defunct law firm Coudert Brothers to pursue the claw back of profits from legal matters that former lawyers of the firm took to rival firms at the time of the firm’s collapse. Major law firms, including Dechert and DLA Piper would be appealing her earlier decision.

This new turn of events regarding claw back claims can also affect the ongoing settlement talks between Dewey & LeBoeuf and its former partners, as well as affect the fate of the Dewey estate. The controversial decision in the Coudert Brothers’ case allowed the Coudert estate to pursue money earned from unfinished business of the firm to repay its creditors.

The judge said that she believed her original decision allowing the claw back suits to move forward was correct. However, she admitted “existing law does not give a clear-cut answer” to whether the unfinished legal business was an asset of a bankrupt law firm’s estate. Until now, this had been the line taken by the Dewey estate, but things are bound to change considering that the judge had certified the decision for appeal.

  

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The firms affected by the earlier decision in the Coudert Brothers’ case would be asking the 2^nd Circuit Court of Appeals to take up the case within the next 10 days. The judge also wrote that the appellate court should, in its turn, ask the New York Court of Appeals on how New York law treats the unfinished legal business of a dissolved law firm.

The earlier decision in the Coudert Brothers’ case had cast considerable shadow over the mobility of lawyers and rainmakers with ‘portable’ portfolios of clients. The judge acceded the fact and wrote “An interlocutory answer to whether an unfinished client matter should be treated as an ‘asset’ of a dissolved law partnership has the potential to affect a large number of cases – some of which are already pending in this Court.”

However, in a bizarre twist, while certifying the case for appeal, the judge also requested the 2^nd Circuit to reverse part of her decision which had allowed former partners to subtract a sum for their “efforts, skill and diligence” from any profits they earned on unfinished business.