In a rare move, the American Bar Association has filed an amicus brief with the New York Court of Appeals in an appeal stemming from the Coudert Brothers LLP’s bankruptcy. The ABA has taken the stand in support of the view that the dissolution of a law firm should not affect the principle “that the client has the right to control its relationship with its attorney, and to select and retain or change counsel at any time.”
If matters move the way ABA wants, then the legal industry can heave a collective sigh of relief about this grey area, where lawyers leaving bankrupt law firms with their clients are pursued for recovery of profits. At least in the wake of Dewey’s demise, few raised this angle that clients should have their own freedom to choose, and it’s not all between lawyers and law firms to decide who should own the revenue.
The Coudert Brothers LLP sought Chapter 11 protection in 2006, and the process of repaying creditors is still ongoing. In 2012, a New York federal district court gave Coudert the right to collect proceeds from unfinished businesses, but after a few months later, in another matter, the same court issued a conflicting decision.
The issue is extremely important for law firms, and last year, the Second Circuit asked the New York Court of Appeals to give its guidance on the issue as to whether law firms in bankruptcy in the state can collect on pending assignments, and how they should collect and apportion the money between stakeholders.
The ABA has strongly urged the court to find that law firms cannot become owners of legal matters irrespective of whether they are fully functioning law firms or in bankruptcy. The group says that rules of professional conduct and ethics dictate that clients cannot be held as commodities “that can be bought and sold at will.”