Coudert Partner’s Judgment Can Change the Fabric of Law Firm Practice

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On Thursday, in a clawback case brought by the trustee for former New York law firm Coudert Brothers LLP against Dechert LLP, Jones Day and Arent Fox LLP, a federal judge in Manhattan ruled that the money generated on unresolved cases brought into new firms by partners leaving a firm in financial trouble, belongs to the former firm. The judgment, if it passes subsequent appeals can change the rules of the game in the law firm industry making law practice truly firm-based than lawyer-based.

The judgment can spell trouble for firms accommodating partners leaving sinking ships like Dewey. In the instant case, brought by the trustee of failed law firm Coudert Brothers LLP, the court held:

“Because the Client Matters belonged to Coudert on the Dissolution Date, and because the Coudert Partnership calls for the application of the Partnership Law to determine the post-dissolution rights of the partners, the Former Coudert Partners have a duty to account for profits they earned completing the Client Matters at the Firms.”

  

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The decision becomes significant in that it recognizes the claim of law firms in client matters as law firm assets. Claire Huene, a partner with Miller & Wrubel P.C. told the WSJ that “If Dewey were to file for bankruptcy, the firms joined by former Dewey partners could well face these types of claims.” The concept can well be extended to the normal leaving of a partner from a firm along with his/her business. It can also slow lateral mobility of “rainmakers” and make firms think twice before “poaching” key employees from other law firms. As Ms. Huene told, “The concept that a law firm has a property interest in its client matters, and is entitled to profits on hours worked on such matters by its former partners at new law firms, has significance for all law firms, and we believe should be certified for appeal.”

Development Specialists Inc. which is representing the trustee of Coudert Brothers LLP and managed to receive this landmark decision had been earlier hired by Dewey and then fired in favor of Zolfo Cooper at the urging of lenders.

For those who understand the implications, the judgment, if it upholds in the superior courts can change the entire fabric of law firm practice and rainmaker runaways.