Opinion
For Banc of America Leasing & Capital, LLC, c/o Serlin & Whiteford, LLP, Creditor (3:11bk31376): Mark A. Serlin, Law Offices of Serlin and Whiteford, Sacramento CA.
For Citibank, N.A., Creditor (3:11bk31376): Kelley A. Cornish, Paul, Weiss, Rifkind, Wharton & Garrison, New York NY; Scott H. McNutt, McNutt Law Group, San Francisco CA; Diane Meyers, Lead Attorney, Paul, Weiss, Rifkind, Wharton & Garrison, New York NY.
For Give Something Back, Inc., Mike Hannigan, President, Petitioning Creditor (3:11bk31376): Maureen A. Harrington, Trepel McGrane Greenfield LLP, San Francisco CA; William McGrane, Lead Attorney, McGrane LLP, San Francisco CA; Christopher D. Sullivan, Greenfield Sullivan Draa and Harrington, San Francisco CA; Frank R. Ubhaus, Law Offices of Berliner and Cohen, San Jose CA.
For Western Messenger Service, Inc., Petitioning Creditor (3:11bk31376): Maureen A. Harrington, Trepel McGrane Greenfield LLP, San Francisco CA; William McGrane, Lead Attorney, McGrane LLP, San Francisco CA; Christopher D. Sullivan, Greenfield Sullivan Draa and Harrington, San Francisco CA; Frank R. Ubhaus, Law Offices of Berliner and Cohen, San Jose CA.
For Dewey & LeBoeuf LLP, Creditor (3:11bk31376): Paul S. Jasper, Dewey and LeBoeuf, San Francisco CA.
For Warner Investments, L.P., Creditor (3:11bk31376): Michael A. Isaacs, McKenna Long and Aldridge LLP, San Francisco CA; Gregg S. Kleiner, McKenna Long and Aldridge LLP, San Francisco CA.
For U.S. Bank National Association, as Trustee, for the registered holders of GS Mortgage Securities Corporation II, CM Certificates Series 2007-GG10, Creditor (3:11bk31376): David J. Gold, Perkins Coie LLP, Chicago IL; Gabriel Liao, Law Offices of Perkins Coie, Santa Monica CA.
For Texas Comptroller of Public Accounts, Creditor (3:11bk31376): Kimberly Walsh, Assistant Attorney Gene, Austin TX.
For Protiviti Inc., Creditor (3:11bk31376): John D. Fiero, Pachulski, Stang, Ziehl, and Jones, San Francisco CA.
For Hines REIT 321 North Clark Street, LLC, Creditor (3:11bk31376): Frank T. Pepler, DLA Piper LLP, San Francisco CA.
For Advanced Discovery LLC, Creditor (3:11bk31376): Maureen A. Harrington, Trepel McGrane Greenfield LLP, San Francisco CA; William McGrane, McGrane LLP, San Francisco CA; Christopher D. Sullivan, Greenfield Sullivan Draa and Harrington, San Francisco CA.
For Advanced Discovery LLC, Petitioning Creditor (3:11bk31376): Maureen A. Harrington, Trepel McGrane Greenfield LLP, San Francisco CA; William McGrane, Lead Attorney, McGrane LLP, San Francisco CA; Christopher D. Sullivan, Greenfield Sullivan Draa and Harrington, San Francisco CA; Frank R. Ubhaus, Law Offices of Berliner and Cohen, San Jose CA.
For Attorneys Liability Assurance Society, Inc., A Risk Retention Group c/o Perkins Coie LLP, Creditor (3:11bk31376): Alan D. Smith, Perkins Coie LLP, Seattle WA.
For Bp/Cgcenter I Llc c/o IVAN M. GOLD, Creditor (3:11bk31376): William W. Huckins, Allen, Matkins, Leck, Gamble and Mallory, San Francisco CA; Douglas B. Rosner, Lead Attorney, Law Offices of Goulston and Storrs, Boston MA.
For Iron Mountain Information Management, Inc. c/o Frank F. McGinn, Esq., Creditor (3:11bk31376): Frank F. McGinn, Bartlett, Hackett and Feinberg, Boston MA.
For Jan Brown & Associates, Jan Brown Jones, Owner, Petitioning Creditor (3:11bk31376): Maureen A. Harrington, Trepel McGrane Greenfield LLP, San Francisco CA; Christopher D. Sullivan, Greenfield Sullivan Draa and Harrington, San Francisco CA.
For Kent Daniels and Associates, Inc., Creditor (3:11bk31376): Maureen A. Harrington, Trepel McGrane Greenfield LLP, San Francisco CA; William McGrane, McGrane LLP, San Francisco CA; Christopher D. Sullivan, Greenfield Sullivan Draa and Harrington, San Francisco CA.
For Kent Daniels and Associates, Inc., Petitioning Creditor (3:11bk31376): Maureen A. Harrington, Trepel McGrane Greenfield LLP, San Francisco CA; William McGrane, Lead Attorney, McGrane LLP, San Francisco CA; Christopher D. Sullivan, Greenfield Sullivan Draa and Harrington, San Francisco CA; Frank R. Ubhaus, Law Offices of Berliner and Cohen, San Jose CA.
For Knickerbocker Properties, Inc. XXXIII c/o Thomas J. Masenga, Esq., Creditor (3:11bk31376): Scott Olson, Seyfarth Shaw LLP, San Francisco CA.
For L.A. Best Photocopies, Inc., Creditor (3:11bk31376): Maureen A. Harrington, Trepel McGrane Greenfield LLP, San Francisco CA; William McGrane, McGrane LLP, San Francisco CA; Christopher D. Sullivan, Greenfield Sullivan Draa and Harrington, San Francisco CA.
For L.A. Best Photocopies, Inc., Petitioning Creditor (3:11bk31376): Maureen A. Harrington, Trepel McGrane Greenfield LLP, San Francisco CA; William McGrane, Lead Attorney, McGrane LLP, San Francisco CA; Christopher D. Sullivan, Greenfield Sullivan Draa and Harrington, San Francisco CA; Frank R. Ubhaus, Law Offices of Berliner and Cohen, San Jose CA.
For Stephanie Langley c/o Rene S. Roupinian, Creditor (3:11bk31376): Jack A. Raisner, Lead Attorney, Outten and Golden LLP, New York NY; Rene S. Roupinian, Lead Attorney, Outten and Golden LLP, New York NY; James D. Wood, Law Offices of James D. Wood, Oakland CA.
For Matura Farrington Staffing Services, Inc., Petitioning Creditor (3:11bk31376): Wondie Russell, Lead Attorney, Law Offices of Wondie Russell, San Francisco CA; Frank R. Ubhaus, Law Offices of Berliner and Cohen, San Jose CA.
For Pension Benefit Guaranty Corporation, Creditor (3:11bk31376): John Holland Ginsberg, Lead Attorney, Pension Benefit Guaranty Corp., Washington DC.
For The Irvine Company LLC c/o Michael S. Greger, Esq., Creditor (3:11bk31376): Michael S. Greger, Allen, Matkins, Leck, Gamble et al, Irvine CA; William W. Huckins, Allen, Matkins, Leck, Gamble and Mallory, San Francisco CA.
For Western Messenger Service, Inc., Creditor (3:11bk31376): Maureen A. Harrington, Trepel McGrane Greenfield LLP, San Francisco CA; William McGrane, McGrane LLP, San Francisco CA; Christopher D. Sullivan, Greenfield Sullivan Draa and Harrington, San Francisco CA.
For 200 S. Main Street Investors, LLC C/O Rebecca J. Winthrop, Creditor (3:11bk31376): Penny M. Costa, Ballard Sparhr LLP, Los Angeles CA; Rebecca J. Winthrop, Fulbright & Jaworski LLP, Los Angeles CA.
For Amy J. Fink, Creditor (3:11bk31376): Robert A. Trodella, Jr., Lead Attorney, Jones Day, San Francisco CA.
For Oracle America, Inc., Creditor (3:11bk31376): Shawn M. Christianson, Buchalter, Nemer, Fields and Younger, San Francisco CA.
For Harris County c/o John P. Dillman, Creditor (3:11bk31376): John P. Dillman, Linebarger, Googan, Blair and Sampson, Houston TX.
For Cooper US, Inc., Creditor (3:11bk31376): Paula Beck Whitten, Cooper Industries, Houston TX.
For Howrey Claims, LLC c/o Landmark Realty, Creditor (3:11bk31376): William McGrane, McGrane LLP, San Francisco CA; Frank R. Ubhaus, Law Offices of Berliner and Cohen, San Jose CA.
For Rami Dalal, Creditor (3:11bk31376): Teresa A. Blasberg, Blasberg and Associates, Los Angeles CA.
For Metlife, Inc., Creditor (3:11bk31376): Janine M. Figueiredo, Hahn and Hessen LLP, New York NY.
For Metropolitan Life Insurance Company, Creditor (3:11bk31376): Janine M. Figueiredo, Hahn and Hessen LLP, New York NY.
For Verizon Communications Inc., Creditor (3:11bk31376): Dennis D. Davis, Goldberg, Stinnett, Davis and Linchey, San Francisco CA.
For Watt Companies, Inc. c/o Katten Muchin Rosenman LLP, Creditor (3:11bk31376): Dustin P. Branch, Katten, Muchin, Rosenman LLP, Los Angeles CA.
For Ad Hoc Committee of Certain Former Howrey Partners c/o John H. MacConaghy, Esq., Interested Party (3:11bk31376): John H. MacConaghy, MacConaghy and Barnier, Sonoma CA.
For Certain Former Partners of Day Casebeer Madrid & Batchelder LLP c/o G. Larry Engel, Interested Party (3:11bk31376): G. Larry Engel, Law Offices of Morrison and Foerster, San Francisco CA; Kristin A. Hiensch, Morrison and Foerster LLP, San Francisco CA; Vincent J. Novak, Morrison and Foerster LLP, San Francisco CA.
For Connecticut General Life Insurance Company, Interested Party (3:11bk31376): Melissa Lor, Schnader Harrison Segal and Lewis LLP, San Francisco CA; Jeffrey C. Wisler, Connolly Bove Lodge & Hutz LLP, Wilmington DE.
For Teresa Corbin, Interested Party (3:11bk31376): Robert E. Clark, Dumas and Clark, San Francisco CA.
For Allan Diamond, Trustee (3:11bk31376): Jon Maxwell Beatty, Diamond McCarthy LLP, Houston TX; Michael Fishel, Diamond McCarthy LLP, Houston TX; Jason P. Fulton, Diamond McCarthy LLP, Dallas TX; Andrea L. Kim, Lead Attorney, Diamond McCarthy LLP, Houston TX; Mark J. Krum, Diamond McCarthy LLP, New York NY; Chris D. Kuhner, Kornfield, Nyberg, Bendes and Kuhner, Oakland CA; Stephen T. Loden, Diamond McCarthy LLP, Houston TX; Steven T. Loden, Lead Attorney, Diamond McCarthy LLP, Houston TX; Eric D. Madden, Diamond McCarthy LLP, Dallas TX; Christopher R. Murray, Diamond McCarthy LLP, Houston TX; Eric A. Nyberg, Kornfield, Nyberg, Bendes and Kuhner, Oakland CA; Howard D. Ressler, Lead Attorney, Diamond McCarthy LLP, New York NY; Charles M. Rubio, Lead Attorney, Diamond McCarthy LLP, Houston TX; Jason M. Rudd, Diamond McCarthy LLP, Houston TX; Andrew B. Ryan, Diamond McCarthy LLP, Dallas TX; James D. Sheppard, Lead Attorney, Diamond McCarthy LLP, Dallas TX; Anna B. Welch, Lead Attorney, Diamond McCarthy LLP, Dallas TX.
For Diamond McCarthy LLP, Spec. Counsel (3:11bk31376): Jason M. Rudd, Diamond McCarthy LLP, Houston TX.
For Greenfield Draa & Harrington LLP, Attorney (3:11bk31376): Maureen A. Harrington, Trepel McGrane Greenfield LLP, San Francisco CA.
For Haynes and Boone, LLP, Interested Party (3:11bk31376): Scott W. Everett, Lead Attorney, Haynes and Boone, LLP, Dallas TX; Jeremy D. Kernodle, Haynes and Boone, LLP, Dallas TX; Stephen J. Manz, Lead Attorney, Haynes and Boone, LLP, Dallas TX; Robin E. Phelan, Lead Attorney, Haynes and Boone, LLP, Dallas TX; Alan R. Wechsler, Haynes And Boone, LLP, Irvine CA.
For Howrey LLP, Debtor (3:11bk31376): Joel D. Adler, Adler Law Firm, San Francisco CA; Jenny L. Fountain, Murray & Murray, A Professional Corp., Cupertino CA; Robert A. Franklin, Murray & Murray, A Professional Corp., Cupertino CA; H. Jason Gold, Lead Attorney, Wiley Rein LLP, Washington DC; Geoffrey A. Heaton, Duane Morris LLP, San Francisco CA; James P. Hollihan, Lead Attorney, Duane Morris LLP, Pittsburgh PA; Eve I. Klein, Lead Attorney, Law Offices of Duane Morris, New York NY; Alexander M. Laughlin, Wiley Rein LLP, McLean VA; Valerie P. Morrison, Lead Attorney, Wiley Rein LLP, McLean VA; Aron M. Oliner, Law Offices of Duane Morris, San Francisco CA; Kimberly A. Posin, Latham and Watkins LLP, Los Angeles CA; Craig M. Prim, Murray & Murray, A Professional Corp., Cupertino CA; Dylan G. Trache, Lead Attorney, Wiley Rein LLP, McLean VA; Joel M. Walker, Lead Attorney, Duane Morris LLP, Pittsburgh PA.
For Informal Group of Certain Former Howrey Attorneys Dumas & Clark LLP, Interested Party (3:11bk31376): Robert E. Clark, Dumas and Clark, San Francisco CA; Cecily A. Dumas, Dumas and Clark LLP, San Francisco CA.
For Informal Group of Former Level II Howrey Partners, Interested Party (3:11bk31376): Matthew Heyn, Klee, Tuchin, Bogdanoff and Stern, Los Angeles CA.
For Kasowitz Benson Torres & Friedman LLP, Interested Party (3:11bk31376): Jeffrey R. Gleit, Kasowitz, Benson, Torres and Friedman, New York NY; Robert M. Novick, Lead Attorney, Kasowitz, Benson, Torres and Friedman, New York NY; Margaret Ziemianek, Kasowitz, Benson, Torres & Friedman LLP, San Francisco CA.
For Michael Knospe c/o Charles M. Tatelbaum, Esq., Interested Party (3:11bk31376): Allison D. Rhodes, Lead Attorney, Hinshaw and Culbertson LLP, San Francisco CA; Charles M. Tatelbaum, Hinshaw & Colbertson, Fort Lauderdale FL.
For William McGrane, Interested Party (3:11bk31376): Howard M. Garfield, Lead Attorney, Meckler Bulger Tilson Marick & Pearson L, San Francisco CA; William McGrane, McGrane LLP, San Francisco CA.
For McGrane LLP, Other Prof. (3:11bk31376): Howard M. Garfield, Lead Attorney, Long and Levit LLP, San Francisco CA; William Joseph Walraven, McGrane LLP, San Francisco CA.
For McKenna Long and Aldridge LLP, Attorney (3:11bk31376): Michael A. Isaacs, Lead Attorney, McKenna Long and Aldridge LLP, San Francisco CA.
For Medco Health Solutions, Inc., Interested Party (3:11bk31376): Matthew Gartner, Husch Blackwell LLP, St. Louis MO; Michael B. Ijams, Curtis Legal Group, Modesto CA; Marshall C. Turner, Husch Blackwell LLP, St. Louis MO.
For Jackie N. Nakamura c/o Michelson Law Group, Interested Party (3:11bk31376): Randy Michelson, Michelson Law Group, San Francisco CA.
For Neal, Gerber & Eisenberg LLP c/o Hanson Bridgett, Attn Nancy Newman, Interested Party (3:11bk31376): Nancy J. Newman, Hanson Bridgett, San Francisco CA.
For Kenneth Oestreicher, Attorney (3:11bk31376): Bradford F. Englander, Whiteford, Taylor and Preston, LLP, Falls Church VA.
For Office of the U.S. Trustee / SF U.S. Trustee (3:11bk31376): Minnie Loo, Office of the U.S. Trustee, San Francisco CA; Donna S. Tamanaha, Office of the U.S. Trustee, San Francisco CA.
For Official Committee of Unsecured Creditors c/o Bradford F. Englander, Creditor Committee (3:11bk31376): John F. Carlton, Whiteford Taylor and Preston, LLP, Baltimore MD; Bradford F. Englander, Whiteford, Taylor and Preston, LLP, Falls Church VA; Bradford F. Englander, Lead Attorney, Falls Church VA; Martin T. Fletcher, Whiteford Taylor and Preston, LLP, Baltimore MD; Christopher A. Jones, Whiteford Taylor & Preston, LLP, Falls Church VA.
For Ropes & Gray LLP, Interested Party (3:11bk31376): Steven T. Hoort, Law Offices of Ropes and Gray, Boston MA; Eric R. Hubbard, Ropes & Gray LLP, New York NY.
For SJ Berwin LLP c/o Charles M. Tatelbaum, Esq., Interested Party (3:11bk31376): Allison D. Rhodes, Lead Attorney, Hinshaw and Culbertson LLP, San Francisco CA; Charles M. Tatelbaum, Hinshaw & Colbertson, Fort Lauderdale FL.
For Sap America, Inc. c/o Peter C. Califano, Esq., Interested Party (3:11bk31376): Peter C. Califano, Cooper, White and Cooper, San Francisco CA; Donald K. Ludman, Brown and Connery, LLP, Woodbury NJ; Kenneth J. Schweiker, Jr., Brown & Connery, LLP, Woodbury NJ.
For UNUM Life Ins. Co. of America, Interested Party (3:11bk31376): David C. Johnson, Lead Attorney, Marcus Clegg & Mistretta, P.A., Portland ME.
For Whiteford, Taylor & Preston, LLP, Attorney (3:11bk31376): Bradford F. Englander, Whiteford, Taylor and Preston, LLP, Falls Church VA.
For Allan B. Diamond, Chapter 11 Trustee, Plaintiff (13-03093): Andrew B. Ryan, Diamond McCarthy LLP, Dallas, TX.
For Jones Day LLP, Defendant (13-03093): Shay Dvoretzky, LEAD ATTORNEY, Warren Postman, Jones Day, Washington, DC; Jason McDonell, LEAD ATTORNEY, Brian D. McDonald, Robert A. Trodella, Jr., Jones Day, San Francisco, CA.
MEMORANDUM DECISION ON MOTIONS TO DISMISS
DENNIS MONTALI, U.S. Bankruptcy Judge.
I. INTRODUCTION
Plaintiff Allan B. Diamond, chapter 11 Trustee (" Trustee" ) for debtor Howrey LLP (" Howrey" or " Debtor" ), filed multiple nearly identical complaints for avoidance and recovery of actual and constructive fraudulent transfers and for an accounting and turnover and other relief, seeking to recover from several law firm defendants the value of profits received by them with respect to unfinished business that previously had been handled by Debtor. Relying on District of Columbia law which in turn relies on Jewel v. Boxer, 156 Cal.App.3d 171, 203 Cal.Rptr. 13 (1984), Trustee seeks to recover profits realized or to be realized by the defendant law firms from Debtor's unfinished business (" Howrey Unfinished Business" ). Trustee alleges that pre-petition waivers executed by Howrey partners relieving them of their duty to account for profits made on the Howrey Unfinished Business (the " Jewel Waiver" ) constituted fraudulent transfers, and that the defendant law firms are liable as subsequent transferees. Several defendants moved for dismissal of the complaints, and on February 7, 2014, this court issued a memorandum decision (" First MTD Decision" ) explaining why it was denying the motions in part and granting them in part, with leave to amend. See Diamond v. Pillsbury Winthrop Shaw Pittman, LLP, 2014 WL 507511 (Bankr. N.D. Cal. Feb. 7, 2014).
The court entered the First MTD Decision and separate orders in the following adversary proceedings: A.P. No. 13-3056 (Haynes & Boone LLP); A.P. No. 13-3057 (Neal, Gerber & Eisenberg LLP); A.P. No. 13-3060 (Kasowitz Benson Torres & Friedman LLP); A.P. No. 13-3093 (Jones Day LLP); A.P. No. 13-3094 (Hogan Lovells U.S.); and A.P. No. 13-3095 (Pillsbury Winthrop Shaw Pittman LLP).
In the First MTD Decision, the court relied in part on its prior decisions in Greenspan v. Orrick, Herrington & Sutcliffe LLP (In re Brobeck, Phleger & Harrison LLP, 408 B.R. 318 (Bankr. N.D. Cal. 2009) (" Brobeck " ); Heller Ehrman LLP v. Arnold & Porter LLP (In re Heller Ehrman LLP), 2011 WL 1539796 (Bankr. N.D. Cal. Apr. 22, 2011) (" Heller I " ); Heller Ehrman LLP v. Jones Day (In re Heller Ehrman LLP), 2013 WL 951706 (Bankr. N.D. Cal. Mar. 11, 2013) (" Heller II " ); and Heller Ehrman LLP v. Day (In re Heller Ehrman LLP), 2014 WL 323068 (Bankr. N.D. Cal. Jan. 28, 2014). The Brobeck and Heller actions pertained to unfinished business that was acquired by defendant law firms after the dates of dissolution of the debtor law firms. In the Howrey case, however, Trustee is also seeking recovery of profits made by several defendant law firms on Howrey Unfinished Business brought to them by partners who departed before dissolution.
After the First MTD Decision, Trustee amended his complaints in his actions against various law firms, including seven of the eight defendant law firms that have filed the underlying motions to dismiss: Neal, Gerber & Eisenberg LLP (A.P. No. 13-3057) (" Neal" ); Kasowitz Benson Torres & Friedman LLP (A.P. No. 13-3060) (" Kasowitz" ); Sheppard Mullin Richter & Hampton LLP (A.P. No. 13-3062) (" Sheppard" ); Jones Day LLP (A.P. No. 13-3093) (" Jones Day" ); Hogan Lovells U.S. (A.P. No. 13-3094) (" Hogan" ); Pillsbury Winthrop Shaw Pittman LLP (A.P. No. 13-3095) (" Pillsbury" ); and Seyfarth Shaw LLP (A.P. No. 13-3254)(" Seyfarth" ). He filed a new action against Perkins Coie LLP (A.P. No. 14-3032) (" Perkins" ). Five of these eight firms (Neal, Kasowitz, Sheppard, Hogan, and Seyfarth) solely acquired Howrey partners prior to dissolution; the other three (Jones Day, Pillsbury, and Perkins) acquired Howrey partners both pre- and post-dissolution.
Trustee asserts four claims against all of the defendants based on their acquisition of Howrey Unfinished Business from partners who departed prior to dissolution: (1) for an accounting of unfinished business under 11 U.S.C. § 542; (2) for a turnover of profits under 11 U.S.C. § 542; (3) for an equitable accounting; and (4) for unjust enrichment. Trustee asserts an additional four claims for profits on Howrey Unfinished Business against the three firms that acquired post-dissolution partners: (1) for avoidance and recovery of the Jewel Waiver as an actual fraudulent transfer under 11 U.S.C. § § 548(a)(1)(A) and 550; (2) for avoidance and recovery of the Jewel Waiver as an actual fraudulent transfer under 11 U.S.C. § § 544 and 550 and D.C. Code § 28-3104(a); (3) for avoidance and recovery of the Jewel Waiver as a constructively fraudulent transfer under 11 U.S.C. § § 548(a)(1)(B) and 550; (4) for avoidance and recovery of the Jewel Waiver as a constructively fraudulent transfer under 11 U.S.C. § § 544 and 550 and D.C. Code § 28-3104(a).
The motions to dismiss the various complaints filed by the eight identified defendant law firms focused primarily on the claims relating to the pre-dissolution partners. However, after the motions to dismiss were filed, the United States District Court for the Northern District of California issued a decision in four " unfinished business" adversary proceedings in Heller Ehrman, LLP, holding that the defunct law firm could not recover profits generated by hourly rate matters brought by departing attorneys to new firms. Heller Ehrman LLP v. Davis, Wright, Tremaine, LLP, __ B.R. __, 2014 WL 2609743 (N.D. Cal. June 11, 2014) (the " Heller USDC Decision" ). In addition, the New York Court of Appeals, in response to certifications of questions by the Second Circuit in the cases of Thelen LLP and Coudert Brothers LLP, held that a dissolved law firm's pending hourly fee matters are not partnership " property" or " unfinished business" within the meaning of New York partnership law. In re Thelen LLP, __ N.E.3d __, 2014 WL 2931526 (N.Y. July 1, 2014) (" Thelen " ). As a consequence of the intervening case law, Trustee and the three movants who acquired post-dissolution partners expanded the scope of the briefing to address the new decisions and their applicability in the Howrey case. On July 29, 2014, the court held a hearing on the motions to dismiss. For the reasons stated below, the court is granting the motions to dismiss the section 542 accounting and turnover claims and the equitable accounting claims arising from pre-dissolution acquisition of former Howrey partners. It is denying the balance of the motions to dismiss.
In A.P. No. 13-3095, Trustee asserts various claims against certain former Debtor partners who joined Pillsbury. Those claims are not part of Pillsbury's motion to dismiss and are not dealt with in this memorandum decision.
The eight adversary proceedings have not been consolidated but the motions were argued together. This Memorandum Decision is being filed in each of those adversary proceedings, with changes only in the caption of each.
II. DISCUSSION
A. Trustee Has Asserted Cognizable Claims Relating to Unfinished Business Acquired Post-Dissolution
The Heller USDC Decision holds that under California law the " unfinished business rule" of Jewel and its progeny is inapplicable when attorneys from a dissolving law firm join other law firms and bring with them work that the dissolving law firm necessarily could not complete. The Thelen decision deals with New York law and holds that the unfinished business rule does not apply to hourly rate matters.
Here, however, the law of the District of Columbia governs, and the District of Columbia courts have applied the unfinished business rule to hourly and contingency fee cases, have rejected the position that " new retention agreements" executed by former clients preclude enforcement of the unfinished business rule, and have overruled policy objections similar to those underlying the Heller USDC Decision. See, Beckman v. Farmer, 579 A.2d 618 (D.C. 1992) and Robinson v. Nussbaum, 11 F.Supp.2d 1, (D. D.C. 1997)(both discussed in more detail in the First MTD Decision).
Notwithstanding the interpretation of California law in the Heller USDC Decision and the change in New York law by the Thelen decision, no party has cited, and the court has not found, any change in the law of the District of Columbia since the First MTD Decision. Therefore, the court will adhere to District of Columbia law as set forth in that decision. The motions to dismiss the claims based on Howrey Unfinished Business acquired post-dissolution will be DENIED.
B. Trustee Has Not Asserted Cognizable Claims Relating to Unfinished Business Acquired Pre-Dissolution Under Bankruptcy Code Section 542
In the First MTD Decision, the court rejected the Trustee's attempt to use fraudulent transfer laws to recover profits on pre-dissolution matters that " no longer belonged to Debtor on the date of the critical transfer" (i.e., March 9, 2011, the date that the Howrey partners voted to dissolve the firm and adopted the Jewel Waiver). First MTD Decision at 20. The court continued:
Stated otherwise, when partners left Debtor prior to dissolution, taking Howrey Unfinished Business with them, that business itself and any future profits to be realized on it was no longer property of Debtor that could have been subsequently disposed of by the Jewel Waiver, a fraudulent transfer. Heller II, 2013 WL 951706 at *5; Heller I, 2011 WL 1539796 at *5; Brobeck, 408 B.R. at 338.
Id. (emphasis added).
As the " business itself and any future profits" from it were not property of the Debtor as of the date of dissolution, the court held that the Trustee's section 542 claims were unsustainable. Id. at 24-25. The court also observed that " on the date of the Jewel Waiver the Howrey Unfinished Business that had already been taken by previously departed partners did not belong to Debtor and thus there was no transfer" ). Id. Trustee still has not demonstrated how the business taken by pre-dissolution partners was property of Debtor at the time of dissolution, and the court will abide by its prior holdings in the First MTD. The motions to dismiss the section 542 claims will be GRANTED without leave to amend.
C. Trustee Has Not Asserted Cognizable Claims For An Equitable Accounting Relating to Unfinished Business Acquired Pre-Dissolution
Trustee alleges that when the pre-dissolution partners left Debtor, they had a duty to account for and turn over any profits generated on account of pre-dissolution matters pursuant to D.C. Code § § 33-104.04(b)(1) and 33-106.03(b)(3). This is based on the premise that those pre-dissolution partners had a duty of loyalty to Debtor under that law to account to the partnership and hold as trustee any property, profit or benefit derived by the partner in the conduct and winding up of the partnership business.
The duty to account for profits by those partners is found in D.C. Code § 33-106.03(b)(3), which states in relevant part:
Upon a partner's dissociation . . . [t]he partner's duty of loyalty under § 33-104.04(b)(1) [to account for partnership profits] . . . continue[s] only with regard to matters arising and events occurring before the partner's dissociation. . . .
D.C. Code § 33-106.03(b)(3) (emphasis added).
Trustee argues that those pre-dissolution partners therefore had a statutory duty of loyalty to Debtor with respect to " matters arising" prior to their departure, and alleges that the law firm defendants have collected revenues and/or profits relating to the pre-dissolution matters. Without an accounting from those law firm defendants, Trustee allegedly cannot determine the amount of the revenue received or the status of those pre-dissolution matters. He asserts that because the partners themselves had fiduciary duties to account, the law firm defendants must provide an accounting or Trustee will not have an adequate remedy at law.
The court rejects the Trustee's theory as it attempts to impose fiduciary duties owed by individual departing partners on the defendant law firms, when no such duty exists. As stated in Heller II, the law firm defendants do not have fiduciary obligations to the Debtor or the Trustee. Heller II, Id. at *5 (Defendant firm contended " that it had no fiduciary duty to Heller. The court agrees." ) Because an accounting is a remedy imposed upon fiduciaries, it cannot be imposed upon those defendants here.
While the Trustee cites scant authority for the proposition that an accounting can be acquired from a non-fiduciary, that principle does not hold up under further examination. Although this court relied on Development Specialists, Inc. v. Akin Gump Strauss Hauer & Feld LLP (In re Coudert Brothers LLP), 480 B.R. 145, 160-61 (S.D.N.Y.2012) in the First MTD Decision, its reasoning was rejected in Thelen. Despite Trustee's reliance on Robinson, that case did not extend the duty to account to a third party not previously a member of the partnership formed by the litigants.
Further, older decisions that predate modern discovery seem out of date. More persuasive are the recent decisions relied upon by Defendants, including Haynes v. Navy Federal Credit Union, F.Supp.2d, 2014 WL 2591371 (D. D.C. June 10, 2014). There the district court rejected an aggrieved mortgagor's claim for an accounting, holding:
Plaintiff's request for an accounting in equity as part of the overall relief in this case also fails, as this is a remedy premised on a breach of fiduciary duty or contract that Plaintiff does not establish. 'An accounting is a detailed statement of debits and credits between parties arising out of a contract or a fiduciary relation.' Bates v. Nw. Human Servs., Inc., 466 F.Supp.2d 69, 103 (D.D.C. 2006). Such relief may be obtained at the close of litigation ... as long as the plaintiff is able to show that the remedy at law is inadequate. (Quotation marks omitted; emphasis added.)
Haynes, 2014 WL 2591371, *7.
Although the Trustee's claim under this theory must fail, as discussed below, he may have an adequate remedy at law on his remaining count.
D. Trustee Has Asserted Cognizable Claims For Unjust Enrichment Relating to Howrey Unfinished Business Acquired Pre-Dissolution
In the similar counts in the complaints under this theory, the Trustee alleges that when the pre-dissolution partners left Howrey and joined their respective law firms, they transferred or caused a transfer of revenue and/or profits on the Howrey Unfinished Business to their new law firms. He contends that because the partners failed to account for the revenue and/or profits, a benefit has been conferred upon the respective defendants and he has a superior claim to those profits because those pre-dissolution partners had a duty to hold profits in trust as required by District of Columbia law. Because he assets that if the defendants are allowed to retain those benefits the result will be unjust and inequitable, he seeks restitution of the amounts of profits collected and a judgment against the respective law firms in an amount of their gain.
Defendants argue that unjust enrichment under District of Columbia law requires that the plaintiff have parted with some value. They rely on cases such as Nevius v. Africa Inland Mission Intn'l, 511 F.Supp.2d 114 (D.D.C. 2007) and Oceanic Exploration Co. v. ConocoPhillips, Inc., 2006 WL 2711527 (D.D.C. Sept. 21, 2006).
Those cases state that an element of unjust enrichment is that the plaintiff confer a benefit. But those cases do not rule out the situation where a plaintiff has an expectation of the benefit that it loses to a third party. In Nevius and Oceanic, the parties who bestowed the benefit had no connection with the plaintiff, nor did they deprive the plaintiff of anything it was otherwise entitled to. In contrast, cases cited by the Trustee do not state the rule in the active voice, viz., plaintiff conferred a benefit; they do so in the passive voice, viz., a benefit was conferred upon the defendant. See, for example, State Farm Gen'l Ins. Co. v. Stewart, 288 Ill.App.3d 678, 681 N.E.2d 625, 224 Ill.Dec. 310 (1997) for the proposition that:
A plaintiff alleging an unjust enrichment may be seeking to recovery benefits which he gave directly to the defendant, or one which was transferred to the defendant by a third party.
288 Ill.App.3d at 691, citing HPI Health Care Servs., 131 Ill.2d 145, 137 Ill.Dec. 19, 545 N.E.2d 672.
Under District of Columbia law, in Ellipso, Inc. v. Mann, 460 F.Supp.2d 99 (D.D.C. 2006), the court described an unjust enrichment action as a quasi-contract, a contract implied in law, when a person retains a benefit (usually money) which in justice and equity belongs to another. Id. at 104, citing 4934, Inc. v. District of Columbia Dept. Of Employment Servs., 605 A.2d 50, 55 (D.C. 1992).
The court recognized that the elements of unjust enrichment are similar to those of quantum meruit, with the added element that the plaintiff must show that it would be unjust for the recipient of a benefit to retain that benefit. Id., citing United States v. Ideal Electronics Security Co., Inc., 81 F.3d 240, 317 U.S.App.D.C. 145 (D.C. Cir. 1996) (internal quotation marks omitted). Similarly, the district court in Bates v. Nw. Human Servs., Inc., 466 F.Supp.2d 69 (D.D.C. 2006), cited Ellipso and noted that the District of Columbia Court of Appeals requires that plaintiff bringing a claim for unjust enrichment show that the plaintiff had a reasonable expectation of payment, the defendant should reasonably have expected to pay, or society's reasonable expectations of person and property would be defeated by nonpayment, citing Heller v. Fortis Benefits Ins. Co., 142 F.3d 487, 495, 330 U.S.App.D.C. 39 (D.C. Cir. 1998).
The rule has been stated slightly otherwise in Health Care Serv. Corp. v. Mylan Labs, Inc. (In re Lorazepam & Clorasepate Antitrust Litig., 295 F.Supp.2d 30 (D.D.C. 2003). There the court stated that to articulate a general claim for unjust enrichment, plaintiffs must establish that they conferred a legally cognizable benefit upon defendants; defendants possessed an appreciation or knowledge of the benefit; and defendants accepted or retained the benefit under inequitable circumstances.
This result is consistent with the Restatement of Restitution and Unjust Enrichment which states that if third party makes a payment to a defendant, a claimant with a better legal or equitable right is entitled to restitution from the defendant to prevent unjust enrichment. See, RESTATEMENT (THIRD) OF RESTITUTION AND UNJUST ENRICHMENT § 48 (2011).
Defendants argue that the District of Columbia has not adopted this section of the Restatement. The Trustee argues persuasively that other provision have been adopted and this one like would be adopted too.
Taking all of this together, the court is satisfied that the Trustee has the better argument here and that he has properly stated a claim for unjust enrichment.
The pre-dissolution partners who left Debtor abrogated their responsibility under applicable District of Columbia law and as alleged, deprived Debtor of pre-dissolution partnership profits with regard to " matters arising" (namely Howrey Unfinished Business) before the partners' dissociation.
See, D.C. Code § 33-106.03(b)(3), quoted, infra.
With Debtor's expectations frustrated, it follows that the law firm defendants do not have a greater legal or equitable claim to the profits the pre-dissolution partners brought with them, away from Debtor.
Finally, the court will not conclude that, on the mere allegations of the complaints alone, that retention of such profits by the law firm defendants is " just" rather than what the Trustee contends is " unjust." Whether the Trustee may only recover profits on Howrey Unfinished Business attributed to the former Debtor partners themselves or he may recover all profits realized by the law firms may require the finder of fact to determine how much would be " just" to return to the Trustee and how much would be " unjust" to take from the defendants. The motions to dismiss this claim will be DENIED.
III. CONCLUSION
Counsel for the Trustee should serve and upload orders disposing of the motions to dismiss in each adversary proceeding consistent with this Memorandum Decision. The court will hold status conferences in each adversary proceeding on October 22, 2014, at 9:30 a.m.