In re: Coudert Brothers LLP, Debtor. -------------------------------- Development Specialists, Inc., Respondent-Appellant, -------------------------------- K&L Gates LLP et al., Appellants-Respondents, -------------------------------- Akin Gump Strauss Hauer & Feld LLP, et al., Appellants-Respondents.BriefN.Y.June 4, 2014To Be Argued By: DAVID J. ADLER Time Requested: 30 Minutes CTQ-2013-00010 USCOA Docket No. 12-4916-bk Court of Appeals STATE OF NEW YORK IN THE MATTER OF: COUDERT BROTHERS LLP, Debtor. DEVELOPMENT SPECIALISTS, INC., Respondent-Appellant. (caption continued on inside cover) ON QUESTIONS CERTIFIED BY THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT (USCOA DOCKET NO. 12-4916-BK) BRIEF FOR RESPONDENT-APPELLANT d DAVID J. ADLER JOSEPH R. SCHOLZ EDUARDO GLAS MCCARTER & ENGLISH, LLP 245 Park Avenue, 27th Floor New York, New York 10167 Telephone: (212) 609-6800 Facsimile: (212) 609-6921 Attorneys for Respondent-Appellant Date Completed: April 21, 2014 GEOFFROY DE FOESTRAETS, JINGZHOU TAO, Defendants, —and— K&L GATES LLP, MORRISON & FOERSTER LLP, Appellants-Respondents. JONES DAY, ARENT FOX LLP, DLA PIPER LLP, DORSEY & WHITNEY LLP, DECHERT LLP, SHEPPARD MULLIN RICHTER & HAMPTON, LLP, SCOTT JONES, DUANE MORRIS LLP, AKIN GUMP STRAUSS HAUER & FELD LLP, Appellants-Respondents. i CORPORATE DISCLOSURE STATEMENT Pursuant to New York Court of Appeals Rule 500.1(f), Respondent- Appellant Development Specialists, Inc. (“DSI”) states that it has no parent corporations and there are no publicly held companies that own ten percent or more of its stock. STATEMENT OF RELATED LITIGATION Pursuant to Rule 500.13, DSI states that the certified questions accepted by this Court in this matter, set forth below, are the same the questions certified from the United States Court of Appeals for the Second Circuit (the “Second Circuit”) on November 15, 2013 in I re Thelen LLP, 736 F.3d 213 (2d Cir. 2013) and accepted by this Court on December 12, 2013. See In re Thelen LLP, 22 N.Y.3d 1017 (2013). Appdx. A11.1 The Thelen case has been docketed in this Court as CTQ-2013-00009. 1 “Appdx.” refers to the Law Firms’ Appendix; “RA.” refers to DSI’s Respondent Appendix. ii TABLE OF CONTENTS Page CORPORATE DISCLOSURE STATEMENT .......................................................... i STATEMENT OF RELATED LITIGATION ........................................................ i TABLE OF AUTHORITIES ............................................................................. v JURISDICTIONAL STATEMENT .......................................................................... 1 QUESTIONS CERTIFIED FOR REVIEW AND SHORT ANSWERS ..... ........... 1 STATEMENT OF THE CASE ........................................................................... 3 A. Relevant Facts ............................................................................ 3 B. Relevant Procedural History ...................................................... 4 SUMMARY OF ARGUMENT ............................................................................. 8 POINT I GENERAL PRINCIPLES OF NEW YORK PARTNERSHIP LAW........ 13 A. New York’s Adoption of the UPA ............................................. 13 B. Nature Of Partnership And Partnership Property .......................... 14 C. Fiduciary Duties ............................................................................. 15 D. Dissolution ................................................................................ 16 E. Fiduciary Duties Post Dissolution ............................................ 18 F. A Dissolution And Liquidation Is Distinct From A Continuation ................................................................................... 20 POINT II THE CLIENT MATTERS ARE PARTNERSHIP PROPERTY OF COUDERT ......................................................................................... 22 A. This Court’s Ruling in Stem v. Warren Confirms tha the Unfinished Business of a Dissolved Firm Remains An Asset of the Firm ................................................................................. 22 B. Stem Remains The Governing Law Of New York ........................ 25 C. The New York Contingency Cases Confirm That The Cli nt Matters Are Partnership Property .................. ......................... 27 D. The Law Firms’ Remaining Arguments On Partnership Property Are Without Basis ........................................................... 33 iii E. Law Firms Can Agree on the Allocation of Post-Dissolution Fees ........................................................................................... 38 POINT III DECISIONS FROM OTHER UPA JURISDICTIONS CONSISTENTLY REACH THE SAME RESULT ON THE ISSUE BEFORE THE COURT .............................................................................. 40 A. Partnership Law § 4(4) Requires That New York Courts Interpret Its Provisions In A Uniform Manner ......................... 40 B. The Law Firms Fail to Cite Any Contrary Out-of State Authority ........................................................................................ 44 POINT IV THE TRIAL COURT DECISIONS IN SHERESKY AND BURKE ARE MISPLACED ......................................................... 48 POINT V APPLICATION OF THE PARTNERSHIP LAW TO THE CLIENT MATTERS IS CONSISTENT WITH NEW YORK LAW AND POLICY CONCERNING THE ATTORNEY CLIENT RELATIONSHIP ........................................................................................ 50 A. The New York Rules of Professional Conduct Do Not Prohibit the Application of the Partnership Law to Hourly Matters ........... 50 B. The RPC Cannot Create an Exception to the Partnership Law ............................................................................................ 58 C. New York Public Policy Requires Application of the Partnership Law to the Client Matters ........................................... 59 POINT VI IN A DISSOLUTION AND LIQUIDATION, THE NO COMPENSATION RULE APPLIES .................................... 64 A. What is a Client Matter? ................................................................ 64 B. The No Compensation Rule Applies In A Dissolution And Liquidation ..................................................................................... 65 iv C. The Authorities Relied On By The Law Firms Are Consistent With The Application Of The No Compensation Rule ................................................................................................ 67 D. The District Court Ordered The Coudert Partners To Provide An Accounting And Found That The Law Firms Were Jointly Liable Under The Partnership Law .............................. 68 CONCLUSION .............................................................................................. 70 v TABLE OF AUTHORITIES Page(s) FEDERAL CASES Consaul v. Cummings, 222 U.S. 262 (1911) ................................................................................. 19 In re Coudert Brothers LLP Adversary Proceedings, 447 B.R. 706 (S.D.N.Y. 2011) ................................................................. 5, 40 Denver v. Roane, 99 U.S. 355 (1878) .............................................................................. 18,44 Development Specialists, Inc. v. Akin Gump Strauss Hauer & Feld, LLP, 2012 WL 2952929 (S.D.N.Y. July 18, 2012) ..................................... 7, 65, 69 Development Specialists, Inc. v. Akin Gump Strauss Hauer & Feld LLP, 462 B.R. 457 (S.D.N.Y. 2011) ................................................................... 5 Development Specialists, Inc. v. Akin Gump Strauss Hauer & Feld, LLP, 477 B.R. 318 (S.D.N.Y. 2012), amended 480 B.R. 145 (S.D.N.Y. 2012) .............................................................passim Geron v. Seyfarth Shaw LLP, 476 B.R. 732 (S.D.N.Y. 2012) ..............................................................passim Greenspan v. Orrick Herrington & Sutcliffe, LLP (In re Brobeck, Phleger & Harrison LLP), 408 B.R. 318 (Bankr. N.D.Cal. 2009) .......................................................... 41 Heller Ehrmann LLP v. Arnold & Porter (In re Heller Ehrmann), 2011 WL 1539796 (Bankr. N.D.Cal. 2011) ................................................. 57 Official Committee of Unsecured Creditors v. Ashdale, (In re Labrum & Doak), 227 B.R. 391 (Bankr. E.D. Pa. 1998) ............... ....................40, 42, 55, 56 57 RLS Associates, LLC v. United Bank of Kuwait PLC, 417 F.Supp.2d 417 (S.D.N.Y. 2006) ................. .......................................... 35 vi Robinson v. Nussbaum, 11 F.Supp.2d 1 (D.C. 1997) ........................................................15, 35, 40, 41, 42 Santalucia v. Sebright Transportation, Inc., 232 F.3d 293 (2d Cir. 2000) ..................................................................passim Scholastic, Inc. v. Harris, 259 F.3d 73 (2d Cir. 2001) ..................................................................... 36, 56 Sriaman v. Patel, 761 F. Supp. 2d 7 (E.D.N.Y. 2011) .............................................................. 25 Stern v. Marshall, 131 S. Ct. 2594 (2011) ..................................................................................... 5 Sufrin v.Hosier, 896 F.Supp. 766 (N.D. Ill. 1995) .................................................................. 42, 57 In re Thelen LLP, 736 F.3d 213 (2d Cir. 2013) ...................................................................... 8 Zimmerman v. Harding, 227 U.S. 489 (1913) ................................................................................. 17 STATE CASES Ajettix, Inc. v. Raub, 9 Misc.3d 908 (Sup. Ct. 2005) .................................................................. 17 Aurnou v. Greenspan, 16 A.D.2d 438 (1st Dep’t 1990) ................................................... 28, 29, 43, 48 Bader v. Cox, 701 S.W. 2d 677 (Tex App. 1985) ...................................................................... 42 Beckman v. Farmer, 579 A.2d 618 (D.C. 1990) .....................................................................passim Benjamin v. Koeppel, 85 N.Y.2d 49 (1995) ...................................................................................... 56 Matter of Brown, 242 N.Y. 1 (1926) .......................................................................................... 14 vii Burke v. Clifton, Budd & DeMaria, Index No. 1454-91-002 (Sup. Ct. N.Y. County 1991) ........................... 48, 49, 50 Bushard v. Reisman, 800 N.W.2d 373 (Wis. 2011) ............................................................ 60, 67, 8 Castle v. Marks, 50 App. Div. 320 (1st Dep’t 1900) ..................................................... 20, 25, 37 Cohen v. Grainger, Tesoriero & Bell, 81 N.Y.2d 655 (1993) .............................. ................................................ 31 Cohen v. Lord, Day & Lord, 75 N.Y.2d 95 (1989) ......................................................................... 50, 51, 2, 53 In re Coudert Bros. LLP, 22 N.Y.3d 1053 (2014) .............................................................................. 1 Dawson v. White & Case, 88 N.Y. 2d 666 (1996) ............................. ................................................ 14 DelCasino v. Koeppel, 207 A.D.2d 374 (2d Dep’t 1994) .................... ........................................ 27, 29 Denburg v. Parker, Chapin, Flattau & Klimpl, 82 N.Y.2d 375 (1993) .............................. .............................50, 51, 52, 53, 4 Dwyer v. Nicholson, 89 A.D.2d 597 (2d Dept’ 1982) ........................................................................ 26 Dwyer v Nicholson, 193 A.D.2d 70 (2d Dep’t 1993) .............................................................. 27, 29, 43 Ederer v. Gursky, 9 N.Y.3d 514 (2007) .................................................................................. 14, 61 Ellerby v. Spiezer, 485 N.E.2d 413 (Ct. App. Ill. 1985) .................................................. 42, 57, 67 Essay v. Essay, 123 N.W.2d 648 (Neb. 1963) ........................................................... 47, 67, 68 viii Frates v. Nichols, 167 So.2d 77 (Fla. Dist. Ct. 1964) .......................................................... 38, 42, 5 Geist v. Burnstine, 19 N.Y.S.2d 76 (Sup. Ct. 1940) ...................................................................passim Grant v. Heit, 263 A.D.2d 388 (1st Dep’t 1999) ............................................................. 27, 29 Graubard Mollen Dannett & Horowitz v. Moskovitz, 86 N.Y.2d 112 (1995) .............................. ................................................ 16 Matter of Greene, 54 N.Y.2d 118 (1981) .............................. ......................................... 50,58, 59 Gull v. Van Epps, 517 N.W.2d 531 (Wis. Ct. App. 1994) ....................................... 42, 57, 60, 66 Hammes v. Frank, 579 N.E.2d 1348 (Ind. Ct. App. 1991) ................................................... 41, 67 Huber v. Etkin, 58 A.3d 772 (Pa. Super. 2012) .............................................................. 42, 48 Hurwitz v. Padden, 581 N.W.2d 359 (Minn. Ct. App. 1998) ............................................................. 42 Jewel v. Boxer, 156 Cal.App.3d 171 (Cal. App. 1984) .................................................... 42, 45 Kelly v. Smith, 611 N.E.2d 118 (Ind. 1993) ..................................................................... 45 Kennedy v. Porter, 109 N. Y. 526 (N.Y. 1888) ....................................................................... 20 King v Leighton, 100 N.Y. 386 (1885) ..................................................................................passim Kirsch v. Leventhal, 181 A.D.2d 222 (3rd Dep’t 1992) ............................................................passim ix Liddle, Robinson & Shoemaker v. Shoemaker, 309 A.D.2d 688 (1st Dep’t 2003) ................................................................ 27 Marr v. Langhoff, 322 Md. 657 (Md. 1991) ................................................................................ 42 Martin v. Curran, 303 N.Y. 276 (1951) ...................................................................................... 60 McDonald v. Fenzel, 233 A.D.2d 219 (1st Dep't 1996) ................................................................ 27 Meinhard v. Salmon, 249 N.Y. 458 (1928) ..................................................................................passim Messersmith v. American Fidelity Co., 232 N.Y. 161 (1921) .................................................................................. 52, 59 In re Mondale & Johnson, 150 Mont. 534 (1968) ....................................................................... 41,45, 46 Mooney v. Shaw, 4 N.Y.S.2d 563 (Sup. Ct. 1938) ....................................................................... 39 Murov v. Ades, 12 A.D.3d 654 (2d Dep’t 2004) ........................................................................ 27 Nishman v. DeMarco, 62 N.Y.2d 926 (1984) .............................. ......................................... 38,49, 52 Palladino v. CNY Centro, Inc., 2014 WL 1356239 (N.Y. April 8, 2014) ................................................. 60, 61 Platt v. Henderson, 361 P.2d 73 (Or. 1961) ..................................................................... 41, 44, 45, 7 Resnick v. Kaplan, 434 A.2d 582 (Md. 1981) ........................... ............................................. 42 Rhein v. Peeso, 194 A.D. 274 (1st Dep’t 1920) ........................................................... 16, 18, 25 x Rosen Trust v. Rosen, 53 A.D.2d 342 (4th Dep't 1976) ................................................................. 18 Rosenfeld, Meyer & Susman v. Cohen, 146 Cal.App.3d 200, 194 Cal.Rptr. 180 (1983) ....... .................................... 65 Rothman v. Dolin, 20 Cal.App.4th 755 (Cal. App. 1993) ............................................... 33, 40, 65 Schrempp & Salerno v. Gross, 529 N.W.2d 764 (Neb. 1995) ................................................................. 42,47 Sexter v. Kimmelman, 19 A.D. 3d 298 (1st Dep’t 2005) .................................................................... 29 Shandell v. Katz, 217 A.D.2d 472 (1st Dep’t 1995) ..........................................................passim Sheresky v. Sheresky Aronson Mayefsky & Sloan LLP, 35 Misc. 3d 1201A (Sup. Ct. 2011) .................................................. 48, 49, 50 Smith Keller & Assoc. v. Dorr & Assoc., 875 P.2d 1258 (Wyo. 1994) ............................................................................ 47 Smith v. Oglive, 127 N.Y (1891) ......................................................................................... 17 Spears v. Willis, 151 N.Y. 443 (N.Y. 1897) ........................................................................ 20 Stem v. Warren, 185 A.D. 823 (1st Dep’t 1919) ........................................................................ 23 Stem v. Warren, 227 N.Y. 538 (1920) ..................................................................................passim Sullivan v. Bodney, 820 P.2d 1248 (Kan. Ct. App. 1991) .................................................................. 42 Talley v. Lamb, 100 N.Y.S.2d 112 (Sup. Ct. 1940) ..................................................................... 39 xi Timmerman v. Timmerman, 272 Or. 613 (1975) ............................................................................ 47, 67, 68 Vowell v. Beddow, 679 So.2d 637 (Ala. 1996) ....................................................................... 46 Weisbrod v. Ely, 767 P.2d 171 (Wyo. 1989) ...................................................................... 47, 67, 8 Welman v. Parker, 328 S.W.3d 451 (Mo. Ct. App. 2010) .................................................... 47, 48 Young v. Delaney, 647 A.2d 784 (D.C.Ct. App. 1994) ............................................................... 40 FEDERAL STATUTES 28 U.S.C. § 158(a)(3) ...................................................................................... 5 STATE STATUTES New York Partnership Law § 1 .................................................................... 14 New York Partnership Law § 2 ............................................................. 14, 51, 69 New York Partnership Law § 4(4) ..............................................................passim New York Partnership Law § 10 .................................................................. 14 New York Partnership Law § 12 ................................................................. 14, 39 New York Partnership Law § 12(1) ............................................................... 39 New York Partnership Law § 24 .................................................................. 69 New York Partnership Law § 40(6) ...........................................................passim New York Partnership Law § 43(1) ............................................................passim New York Partnership Law § 60 ................................................................. 16, 20 New York Partnership Law § 61 .................................................................. 16 New York Partnership Law § 62 .................................................................. 16 xii New York Partnership Law § 66(1)(a) ............................................................ 17 New York Partnership Law § 71 .................................................................. 17 New York Partnership Law § 72 .................................................................. 21 New York Partnership Law § 73 ................................................................passim RULES Second Circuit Local Rule 27.2 ...................................................................... 1 New York Court of Appeals Rule 500.1(f) .............................................................. i New York Court of Appeals Rule 500.13 .......................................................... i New York Rule of Professional Conduct 1.5(g) .................................... 49, 56, 57 New York Rule of Professional Conduct 5.6 .............................................. 50, 51, 53 REGULATIONS 22 N.Y.C.R.R. 500.27 ..................................................................................... 1 CONSTITUTIONAL PROVISIONS Article 6, § 3(b)(9) of New York State Constitution ................................................. 1 OTHER AUTHORITIES Alan R. Bromberg & Larry E. Ribstein, Bromberg and Ribstein on Partnership (2014) ...........................................passim D. Richmond, Migratory Law Partners And The Glue Of Unfinished Business, 39 N. Ky. L. Rev 359 (2012) ........................................................ 43, 57 P. Rogers, Who Gets The Jewels When A Law Firm Dissolves? The Unfinished Business Doctrine And Hourly Matters, 108 Nw. U. L. Rev. 311 (2014) ...................................................................................................... 61 NYC Eth. Op. 1988-4, 1988 WL 490014 (June 3, 1988) ....................................... 35 Brief of Appellants Vowell & Meelheim, P.C. and J, Scott Vowell, 1995 WL 17974300 (March 28, 1995) ............................................................... 46 1 JURISDICTIONAL STATEMENT This Court has jurisdiction over the certified questions set forth below pursuant to Article 6, Section 3(b)(9) of the New York State Constitution. By Order dated December 2, 2013, the Second Circuit cert fied to this Court the certified questions pursuant to Local Rule 27.2 of that Court. By Order dated January 14, 2014, this Court accepted the certified questions pursuant to 22 N.Y.C.R.R. 500.27. See In re Coudert Bros. LLP, 22 N.Y.3d 1053 (2014). Appdx. A157-159. QUESTIONS CERTIFIED FOR REVIEW AND SHORT ANSWERS 1. Under New York law, is a client matter that is billed on an hourly basis the property of a law firm, such that, upon dissolution and in related bankruptcy proceedings, the law firm is entitled to the profit earned on such matters as the “unfinished business” of the firm? Answer: Yes, unless there is an agreement to the contrary. All unfinished client matters of a law firm partnership as of the date of dissolution, regardless of the manner in which they are billed, are presumptively partnership property of the dissolved partnership. Upon dissolution, partners have a fiduciary duty to take possession of the firm’s assets (including its client matters), complete them, and account for the profits to the dissolved partnership pursuant to New York Partnership Law § 40(6) (the “No Compensation Rule”) and Partnership Law § 2 43(1) (the “Duty To Account”; together, the “Fiduciary Duties”). The Fiduciary Duties have been recognized at common law for over 100 years in New York, see King v. Leighton, 100 N.Y. 386 (1885) and Stem v. Warren, 227 N.Y. 538 (1920), and are codified in the Partnership Law. In addition, even if client matters were not presumptively partnership property, partners can nonetheless agree inter se to treat them as partnership property. The partners of Coudert Brothers LLP (“Coudert” or “Firm”) did so, as the District Court determined in this case. 2. If so, how does New York law define a “client matter” for purposes of the unfinished business doctrine and what proportion of the profit derived from an ongoing hourly matter may the new law firm retain? Answer: For purposes of the unfinished business doctrine, a “client matter” consists of the pending but unfinished engagements to perform legal services on the dissolution date. In the absence of an agreement to the contrary, when a partnership dissolves and liquidates like Coudert (as compared to a technical dissolution in which a successor firm continues the business), the dissolved firm’s partners are obligated to complete the Client Matters and account for their use of partnership property under Partnership Law § 43(1). In such an accounting, the No Compensation Rule applies, and the winding up partner (and in this case, his new law firm) must remit the profit on the Client Matters, after deduction of reasonable 3 overhead expenses, without retaining any extra compensation. These rul s apply to partners who depart on or after a law firm dissolves and liquidates. STATEMENT OF THE CASE A. Relevant Facts 1. Coudert Brothers LLP And Its Partnership Agreement At all times relevant here, Coudert’s affairs were governed by a partnership agreement dated December 30, 2004, as amended (the “Agreement”). RA. A9-77. The business of Coudert was to provide legal servics. In connection with the provision of legal services, Coudert’s clients entered into engagement agreements with Coudert. RA. A4. The partners of Coudert agreed, inter se, that those engagements were the partnership property of Coudert: “[t]he property of the partnership belongs to the Partnership and not to the Partners.” RA. A43. Article 10 of the Agreement addresses the method for dissolving the Firm and provides only that the dissolution and wind up of Coudert will be governed by the Partnership Law. RA. A45. The Agreement does not address the duties and the obligations of the partners post- dissolution. RA. A3. 2. The Dissolution And Wind Up Authorization In accordance with Article 10 of the Agreement, on August 16, 2005 (the “Dissolution Date”), the partners of Coudert voted o dissolve and liquidate the firm (the “Dissolution”) and adopted a special authorization (the “Wind-Up 4 Authorization”) that, among other things, authorized the Executive Board to wind- up the business of Coudert. RA. A76-77. The Dissolution established the “wind up” of Coudert but did not terminate the partnership. RA. A9. As of the Dissolution Date, Coudert had a number of pending but incomplete client matters (i.e. partly performed contracts for the provision of legal services by Coudert to its clients) which were part of the business of the firm to be wound up (the “Client Matters”). 3. Coudert Partners Join The Law Firms Following the Dissolution, certain partners from Coudert (“Coudert Partners”) joined the defendant law firms (“Law Firms”) and completed the Client Matters at the Law Firms. RA. A6. Coudert remains in existence today and continues to wind up its affairs, including liquidating its assets. The Coudert Partners are still partners in Coudert and continue to r ceive K-1 tax statements every year. RA. A5. B. Relevant Procedural History 1. Proceedings in the Bankruptcy Court Coudert filed for bankruptcy under chapter 11 in the United States Bankruptcy Court for the Southern District of New York (Drain, J.) (the “Bankruptcy Court”) on September 22, 2006. On August 27, 2008, the Bankruptcy Court entered an Order confirming the First Amended Plan of Liquidation dated May 9, 2008 (as Modified) (the “Plan”). RA. A94-135. The 5 Plan went effective on September 8, 2008, and DSI was appointed as Coudert’s Plan Administrator as of that date. RA. A90, A112-13. The Plan Administrator commenced actions against the Law Firms in the Bankruptcy Court. RA. A90. In these actions, DSI seeks, among other things, an accounting and the recovery of profits from the Client Matters.2 The Law Firms moved to dismiss the actions. The Bankruptcy Court (Drain, J.) found that the Client Matters were assets of Coudert under the Partnership Law, and denied the motions. That decision was embodied in a modified b nch order (the “Bankruptcy Court Decision”).3 RA. A229-282. 2. Proceedings in the District Court Following the United States Supreme Court’s decision in Stern v. Marshall, 131 S. Ct. 2594 (2011), the District Court withdrew the reference of the actions to the District Court on November 2, 2011. Dev. Specialists, Inc. v. Akin Gump Strauss Hauer & Feld LLP, 462 B.R. 457 (S.D.N.Y. 2011). The Law Firms thereafter filed motions for summary judgment, and DSI cross-moved for partial summary judgment. Appdx. A87. 2 DSI has not commenced actions against partners who wit drew prior to the Dissolution Date. RA. A209. 3 Following the Bankruptcy Court Decision, the Law Firms moved for direct certification of the Bankruptcy Court Decision to the Second Circuit, which was denied on February 5, 2010. RA. A407-452. The Law Firms also sought leave to appeal th Bankruptcy Court Decision pursuant to 28 U.S.C. § 158(a)(3), which was denied by the District Court (Marrero, J.). In re Coudert Brothers LLP Adversary Proceedings, 447 B.R. 706 (S.D.N.Y. 2011). 6 On May 24, 2012, Judge McMahon issued a 55-page decision granting DSI’s motions for partial summary judgment and granting in part, and denying in part, the Law Firms’ motions for partial summary judgment.4 Dev. Specialists, Inc. v. Akin Gump Strauss Hauer & Feld, LLP, 477 B.R. 318 (S.D.N.Y. 2012), amended 480 B.R. 145 (S.D.N.Y. 2012) (“DSI”). Appdx. A78-13 . In DSI, Judge McMahon concluded that under New York law, the Client Matters were Coudert’s partnership property as of the Dissolution Date. That determination was based on a comprehensive and reason d analysis of New York case law (including the decisions of this Court holding that a dissolved partnership’s uncompleted contracts are partnership pro erty), the nature of a partnership and applicable sections of the Partnership Law, New York case law concerning contingency matters, and the decisions of the many courts from jurisdictions outside New York which have interpreted the identical provisions of the UPA and reached the same conclusion on this quetion. DSI, 480 B.R. at 154- 59. Judge McMahon further determined that the partners intended that the Client Matters be treated as partnership property: “[i]f there were any doubt that Coudert partners thought their client matters were firm property, the [Wind-Up] Authorization dispels it.” Id. at 173. 4 In its decision, the District Court dismissed three of DSI’s claims, without prejudice as “duplicative and unnecessary” in light of the accounting claim. 7 Judge McMahon found that while the No Compensation Rule prohibits any compensation to Coudert’s partners, New York courts have, in certain instances, permitted a credit to the former partner for post-di solution “skills, efforts and diligence” (the “Kirsch Rule”). Id. at 158. Judge McMahon expressed “serious doubts on whether the New York Court of Appeals would adopt the rationale of these cases, either in the contingency fee context or in the billable hours context”, because that rationale was contrary to the plain terms of the Partnership Law. Id. at 178. Nonetheless, Judge McMahon “felt constrained” to apply the Kirsch Rule because it had been applied by the Second Circuit in Santalucia v. Sebright Transportation, Inc., 232 F.3d 293 (2d Cir. 2000). On July 18, 2012, the Court issued a Decision and Order Granting the Law Firms’ Motion for Certification Of An Interlocutory Appeal (the “Cert. Decision”). Dev. Specialists, Inc. v. Akin Gump Strauss Hauer & Feld, LLP, 2012 WL 2952929 (S.D.N.Y. July 18, 2012). Appdx. A132–A141. The Law Firms sought interlocutory review and DSI filed a cross-petition. On December 18, 2012, the Second Circuit granted the petitions and the cross-petitions. Appdx. A151-152. 3. Proceedings in Geron v. Seyfarth Shaw On September 4, 2012, the District Court (Pauley, J.) issued an opinion in Geron v. Seyfarth Shaw LLP, 476 B.R. 732 (S.D.N.Y. 2012). In Geron, Judge 8 Pauley concluded that Thelen did not have a property interest in its hourly cases, and certified his decision for interlocutory appeal to the Second Circuit. 4. Proceedings in the Second Circuit On November 15, 2013, the Second Circuit certified the questions stated above to this Court in the Geron matter (see In re Thelen, LLP, 736 F.3d 213 (2d Cir. 2013)), which this Court accepted on December 13, 2013. On December 2, 2013, the Second Circuit certified the same question t this Court in this matter, which this Court accepted on January 14, 2014. Appdx. A157-158. SUMMARY OF ARGUMENT First Certified Question. The Partnership Law is applicable to law partnerships. The Partnership Law and this Court’s decisions mandate the conclusion that all unfinished client engagements of a law partnership pending on the dissolution date are partnership property. In the absence of an agreement to the contrary, upon dissolution, the Fiduciary Duties require the partners to complete outstanding client contracts and account for the resulting profits. See Point I. As this Court made clear in the seminal case of Stem v. Warren, 227 N.Y. 538 (1920), partnership business that is unfinished on the date of dissolution is an asset of the partnership and must be concluded for the benefit of the dissolved partnership. Unfinished client engagements are not terminated by dissolution, and partners who complete the unfinished contracts of the partnership do so as trustees 9 subject to a continuing fiduciary duty. In dissolutions like Coudert’s where the partnership liquidates, the partners are not allowed extra compensation unless provided for in the partnership agreement. The No Compensation Rule and Duty To Account are codified in the Partnership Law. SeePoints II.A, II.B, IV. The overwhelming body of cases decided by New York c urts and the Second Circuit in the contingency fee context have uniformly concluded that these cases are assets of the dissolved firm under the Partnership Law for which the partner must account. Those courts have repeatedly r jected the assertion that the dissolved law firm’s property interest in such cases is limited to quantum meruit for work performed prior to dissolution. Those decisions are consistent with this Court’s decision in Stem, in which this Court found that there was a duty to account for post-dissolution profits from the uncompleted contract, even though the dissolved firm had been fully compensated for its pre-dissolution efforts. See Point II.C.1. Because the Duty To Account is rooted in the fiduciary duties of partners, the logic of the New York contingency cases applies equally to partners who work on hourly cases, and there is no principled basis for creating an exception for hourly cases. Disparate treatment based on the manner in which a matter is billed would lead to the anomalous result that one set of lawyers has a duty to account to 10 their partners for client matters after dissolution, while another set of lawyers does not. See Point II.C.2. Even if client matters were not presumptively partne ship property, partners can nonetheless agree inter se to treat them as partnership property (as Coudert did). This Court and numerous other New York courts have held that an agreement between partners on the division of post-dis olution fees is enforceable. See Point II.E. The Partnership Law, a uniform statute based on the UPA, contains a provision requiring that it must “be so interpreted and construed as to effect its general purpose to make uniform the law of the state that have enacted it.” Partnership Law § 4(4). The courts of other UPA jurisdictions that have addressed this question all reached the same conclusion as the District Court did in this case. See Point III. The Law Firms’ request that the Court create an exception to the Partnership Law based on New York’s Rules of Professional Conduct (the “RPC”) and public policy are foreclosed by numerous decisions of this Court. The RPC do not preclude application of the provisions of the Partnership Law to require an accounting for hourly cases. In any case, the RPC cannot amend or limit a statute adopted by the Legislature. See Point V.A, V.B. 11 Public policy strongly supports the application of Partnership Law to all matters, however they are billed. By enacting the Partnership Law, the Legislature has plainly spoken as to New York’s public policy. The Legislature’s statement of that policy is reinforced by the Legislature’s decision not to enact the Uniform Partnership Law of 1997 (“RUPA”), which permits reasonable compensation to any winding up partner (and which has been adopted in 37 states).5 To the extent that the Law Firms seek an exception to the Fiduciary Duties, it should come from the Legislature, not from this Court. See Point V.C. Additionally, because the Partnership Law sets default rules, law partnerships can amend their partnership agreements to provide that their partners have no duty to account for unfinished business, which this Court has encouraged partnerships to do. See Point V.C. Application of the Partnership Law will not be inequitable. The Law Firms were aware of the terms of Partnership Law, the nature of fiduciary duties and their application to unfinished business of law firms in decisions rendered over the preceding century when they admitted the Coudert Partners, and still chose to admit those partners. It would be far more inequitable to require lawyers handling contingency cases to comply with the Partnership Law, yet exempt the Coudert 5 See Legislative Fact Sheet for RUPA available at the Uniform Law Commission. See http://www.uniformlaws.org/LegislativeFactSheet.aspx?title=Partnership%20Act 12 Partners (and mega-firms like the Law Firms) from their duties given that Coudert’s creditors have not been paid. See Point V.C. Those who choose to operate in the partnership formhave agreed to common ownership, benefits and obligations, which continue beyond dissolution. Unless the partners agree to limit those obligations, they are defined by the Partnership Law and the fiduciary duties famously enunciated by this Court in, among other cases, Meinhard v. Salmon, 249 N.Y. 458 (1928). This Court has long been in the vanguard in defining, upholding and e forcing the fiduciary duties of partners. As this Court stated in Meinhard: “the level of conduct for fiduciaries [has] been kept at a level higher than that trodden by the crowd. It will not consciously be lowered by any judgment of this court.” Id. at 464 (emphasis added). The Court should not depart from these principles by making an exception to those duties for the Law Firms. See Point V.C. Certified Question 2. A “client matter” consists of the pending but unfinished engagements to perform legal services on the dissolution date. See Point VI.A. The No Compensation Rule allows reasonable compensatio for a “surviving partner.” Because Coudert’s dissolution was not caused by death, the Coudert Partners (and the Law Firms) are not entitld to extra compensation for the winding up of Client Matters, but may be reimbursed for reasonable overhead 13 expenses before remitting the profit to Coudert. In the absence of an agreement to the contrary, when a partnership dissolves and liquidates (as compared to a dissolution and continuation), the No Compensation Rule applies, and the winding up partners (and in this case the Law Firms) who complete the client matters are required to account for the profit6 to the dissolved law firm. See Point VI.B, VI.D. Some courts have applied the so-called Kirsch Rule in contingency cases to permit a credit for the post-dissolution “skills, efforts and diligence” of the winding up partner in an accounting governed by Partnership Law § 73. That section does not apply when the business is liquidated (like Coudert’s). See Point VI.B, VI.C. POINT I GENERAL PRINCIPLES OF NEW YORK PARTNERSHIP LAW To put the arguments in context, a brief discussion of the pertinent provisions of the Partnership Law governing the questions at issue is set forth below. A. New York’s Adoption of the UPA In 1914, the Conference of Commissioners on Uniform State Laws passed a resolution recommending the UPA for adoption to the legislatures of all the States. Prior to the adoption of RUPA, the UPA had been enacted in every state except Louisiana. 6 The Second Circuit has not certified the question of how profits are determined and this brief does not address this fact intensive issue. 14 In 1919, the New York Legislature adopted the UPA as the Partnership Law. See Partnership Law § 1. The Partnership Law expressly applies to law partnerships. See Partnership Law § 2 (“profession” defined as “ny practice as an attorney and counsellor at law….”)(emphasis supplied). B. Nature Of Partnership And Partnership Property A partnership “is an association of two or more persons to carry on as co- owners a business for profit.” Partnership Law § 10. The Partnership Law “serves as a ‘standard form’ contract which controls the rights and duties among the partners in the absence of an agreement to the contrary.” Alan Bromberg and Larry Ribstein, 2 Bromberg and Ribstein on Partnership, § 6.01[b], at 6:4 (2014)(“Bromberg on Partnership”) ; Ederer v. Gursky, 9 N.Y.3d 514, 526 (2007). Pursuant to Partnership Law § 12(2), there is a presumption that partnership property includes property acquired with partnership funds or incidental to the partnership business, such as the client matters. Partnership Law § 12(2); see also Matter of Brown, 242 N.Y. 1, 6 (1926) (Cardozo, C.J.)(“[g]ood will, when it exists as incidental to the business of a partnership, is re umptively an asset to be accounted for like any other by those who liquidate the business”)(emphasis supplied); Dawson v. White & Case, 88 N.Y.2d 666 (1996)(Ciprack, J.)(law firm’s goodwill subject to valuation). 15 Contracts between the partnership and third parties elated to the partnership business are presumptively partnership property. See Stem, 227 N.Y. at 546-47 (1920)(contract to provide architectural services is partnership property); King, 100 N.Y. at 393-94 (contracts related to the partnership business are partnership property). Contracts which remain unfinished at the time of dissolution remain partnership property. Stem, 227 N.Y. at 546-47; DSI, 480 B.R. at 164. Accord Robinson v. Nussbaum, 11 F.Supp.2d 1, 6 (D.C. 1997); Beckman v. Farmer, 579 A.2d 618, 636 (D.C. 1990). C. Fiduciary Duties The Partnership Law provides that partners have certain fiduciary duties: • No Compensation Rule -- no partner is entitled to remuneration for acting in the partnership business, except that a surviving partner7 is entitled to reasonable compensation for his services in winding up the partnership affairs. Partnership Law § 40(6).8 • The Duty To Account -- every partner must account to the partnership for any benefit, and hold as trustee for it any profits derived by him without consent of the other partners from any transaction onnected with the formation, conduct or liquidation of the partnership or from any use by him of its property. Partnership Law § 43(1).9 7 The exception to the No Compensation Rule for a surviving partner does not apply here since Coudert was not dissolved by the death of a partner. 8 Comment 9 to RUPA § 401 states that: “subsection (h) deletes the reference to a “surviving” partner. That means any partner winding up the business is entitled to compensation, not just a surviving partner winding up after the death of another partner.” See 2 Bromberg on Partnership, Appendix A-2, at A-2:78 (emphasis added). 9 The Official Comment to UPA §21 (i.e. Partnership Law § 43) notes that the phrase “‘and hol as trustee for the partnership any profits’ indicate clearly that the partnership can claim as their own any property or money that can be traced.” 16 The Fiduciary Duties apply to all entities subject to Partnership Law. See Stem, 227 N.Y. at 538 (architects); Rhein v. Peeso, 194 A.D. 274 (1st Dep’t 1920)(dental practice); Geist v. Burnstine, 19 N.Y.S.2d 76 (Sup. Ct. 1940)(law firm). “Law partners, no less than any other business or professional partners, are bound by a fiduciary duty requiring ‘the punctilio of an honor the most sensitive.’” Graubard Mollen Dannett & Horowitz v. Moskovitz, 86 N.Y.2d 112 (1995) (quoting Meinhard, 249 N.Y. at 458). As more fully explained below, law partners are subject to the Fiduciary Duties. D. Dissolution Under the Partnership Law, a partnership can dissolve in several ways, including by an agreement to liquidate the partnership, death of a partner, or the decision of a partner to withdraw. See Partnership Law § 62. Partnership Law § 60 defines dissolution as “the change in the relation of the partners caused by any partner ceasing to be associated in the carrying on as distinguished from the winding up of the business.” Winding up is the period between dissolution and termination during which partnership affairs are settled, which include completing contracts, reducing the assets to cash, paying credito s, and distributing to partners their respective interests. Partnership Law § 61. The business activity of a partnership in windup is limited to “winding up the partnership affairs and completing transactions unfinished at dissolution.” 17 Partnership Law § 66(1)(a)(emphasis supplied); King, 100 N.Y. at 393-94 (upon dissolution “it is the [d]uty of the surviving ... members to take possession of the firm assets and perform its contracts, extinguish it liabilities, and … share in the profits of all business unfinished at the dissolutin, but completed afterwards”). In settling accounts between partners after dissolution, Partnership Law § 71 provides that the “assets of the partnership are ...[t]he partnership property.” Partnership property remains partnership property following dissolution. See Zimmerman v. Harding, 227 U.S. 489, 33 S. Ct. 387, 390 (1913)(“[t]he partnership property continue[s] to be partnership property after as well as before dissolution”); see also Bromberg on Partnership, § 6.07(C) at 6:136.7 (“[b]ecause the partners’ fiduciary duties continue ... during the winding up period, a partner cannot take partnership property after dissolution, including a law firm’s case that is in process prior to dissolution and completed as part of the winding up of the firm or a partnership contract”). Upon dissolution, partners owe a continuing fiduciary duty to one another with respect to the winding up of the partnership business and the preservation of partnership assets. See DSI, 480 B.R. at 156; Smith v. Oglive, 127 N.Y. 143 (1891); Ajettix, Inc. v. Raub, 9 Misc.3d 908 (Sup. Ct. 2005).10 10 Thus, Jones Day’s suggestion that the fiduciary duties of partners end at dissolution is incorrect. 18 E. Fiduciary Duties Post Dissolution Because it is well-settled in New York that dissoluti n does not terminate a partnership’s pre-existing contracts with its clients (Point II.D infra), those uncompleted contracts remain assets of the dissolved partnership, and the partners who perform under such contracts after dissolution d so as fiduciaries for the benefit of the dissolved partnership and are requird to account. See, e.g., King, 100 N.Y. at 393; Stem, 227 N.Y. at 546-47; Rhein, 194 A.D. at 274; Rosen Trust v. Rosen, 53 A.D.2d 342 (4th Dep't 1976). The No Compensation Rule existed at common law long before the UPA’s enactment. In Denver v. Roane, 99 U.S. 355 (1878), the United States Supreme Court explained the rationale for the No Compensation Rule, relying on New York law: Having jointly undertaken the business intrusted to the partnership, all the parties were under obligation to conduct it o the end. This duty they owed to the clients and to each other. And as to the unfinished business remaining with the firm on [the date of dissolution], the duty continued. ‘As there is an implied obligation on every partner to exercise due diligence and skill, and to devote his services and l bors for the promotion of the common benefit of the concern, it follows that he must do it without any rewards or compensation, unless there be an express stipulation for compensation.’ Story, Partn., sects. 182, 331; Caldwell v. Leiber, 7 Paige (N.Y.), 483. [Where] there is no stipulation in the partnership agreement for compensation to a surviving partner for settling up the partnership business, he is entitled to no compensation. Brown v. McFarlam, Executor, 41 Pa. St. 129; Beatty v. Wray, 19 id. 516; Johnson v. Hartshorne, 52 N. Y. 173. 19 Id. at 358-59 (emphases added). Similarly, in Consaul v. Cummings, 222 U.S. 262 (1911), a law partnership had been formed in 1888 to prosecute certain claims on contingency dissolved in 1891 when one of the partners, Edmonds, “was adjudged a lunatic.” Id. at 263. After the other partner, Moyers, worked for 8 years on the matters post-dissolution and “collected a large amount,” Edmonds’ estate sought an accounting. Id. at 264. Moyers asserted that he should be permitted extra compensation for his post- dissolution services. The Supreme Court disagreed: [Extra compensation claims] are not favored.... In [wi ding up the partnership], the [surviving partner] only carries out an obligation implied in the partnership relation, and is therefo entitled to no compensation for thus doing what he was bound to do…. Id. at 269-70. This Court applied those same principles in K g. There, a partnership was formed for “the business of building bridges together.” King 100 N.Y. at 386, 389. The partnership was dissolved when King became bankrupt and his assignee sought an accounting. This Court (Ruger, C.J.) held that the contracts of the partnership were assets of the partnership and remain d so after dissolution: After [dissolution], the solvent or remaining members become trustees of the assets for the purpose of winding up its affairs and distributing its effects, and they will not be allowed to reap a rofit made by the use of the partnership assets after dissolution…. If at the time of such bankruptcy there are adventures, contracts, or enterprises, outstanding unperformed, the assignee is required to wait until they 20 are concluded and adjusted, and then collect the share or interest of the bankrupt as shown by the result. Pars. Partn. 503. Id. at 393 (emphasis added). New York courts have reaffirmed this principle repeatedly. See Kennedy v. Porter, 109 N.Y. 526, 552 (1888)(dissolved firm remains bound to perform antecedent engagements); Spears v. Willis, 151 N.Y. 443, 452 (1897) (contract was valuable asset of partnership and winding up partner equired to account for all dealings under that contract or in substitution therefor); Castle v. Marks, 50 App. Div. 320, 322 (1st Dep’t 1900)(after dissolution “partners continue to be bound by, and must fulfill, all prior contracts remaining unflfilled”). A partner’s fiduciary duty to account to the dissolved firm for unfinished business without compensation is codified in the Partnership Law, see §§ 40(6) and 43(1). DSI, 480 B.R. at 155. As discussed in Point II, infra, the No Compensation Rule has been applied by New York courts to partnerships of all types, including law firms, without exception. F. A Dissolution And Liquidation Is Distinct From A Continuation Because under Partnership Law § 60 a dissolution is caused by any partner ceasing to be a partner, a partnership can technically dissolve every time a partner withdraws or dies, unless the partners have agreed otherwise.11 When a partner 11 Coudert’s Agreement expressly provides that a dissolution is not caused by the departures of partners either voluntarily (i.e. withdrawal) or involuntarily (i.e. death, disability or termination). See Arts. 2.d, 3.i, 9.a, 11, 12. RA. A18, A24, A43-44, A45-48 . 21 withdraws or dies, the remaining partners may elect to ontinue the business (rather than liquidate) if the withdrawing partner (o his estate) consents. When the business is continued, winding-up occurs “only i the technical sense of paying off the outgoing partner.” Bromberg On Partnership, § 7.01(b) at 7:14. As explained more fully in Section VI.B, infra, when a firm technically dissolves but a successor continues its business under certain conditions, Partnership Law § 73 (UPA § 42) addresses the rights of the withdrawing partner as against the partnership continuing the business. Under Partnership Law § 73, the withdrawing partner is in essence “bought out” and is entitled to receive as a creditor the value of her interest at the date of dissolution and either profits or interest, at her election. Partnership Law § 73 applies only where the continuing partnership satisfies certain conditions, including the assumption of the dissolved firms’ liabilities under Partnership Law § 72. In those situations, the methodology that has been employed to ascertain the partner’s interest as of the dissolution date is not comparable to an accounting under the No Compensation Rule. See Point VI.B, infra. As explained more fully below in Section VI.B, infra, the accounting methodology employed in continuation cases differs rom an accounting in a dissolution and liquidation case (like Coudert). Compensation is not permitted in a dissolution and liquidation. Bromberg on Partnership, § 7.13(f), at 7:214. The 22 partner who completes the winding up of partnership property of a partnership in dissolution and liquidation (which has not been caused by death) must account for the profits on such matters to the dissolved law firm, after deducting reasonable overhead expenses, without extra compensation. See Point VI.B, infra. POINT II THE CLIENT MATTERS ARE PARTNERSHIP PROPERTY OF COUDERT Under the provisions of the Partnership Law and the long history of case law in this state (and in other UPA jurisdictions, seePoint III, infra), an unfinished legal representation, however it is billed, is an asset of a dissolved law firm. The Fiduciary Duties require an accounting by the winding up partner to the dissolved partnership for the disposition of that business. There is no exception to these rules for lawyers or matters billed on an hourly basis. A. This Court’s Ruling in Stem v. Warren Confirms that the Unfinished Business of a Dissolved Firm Remains An Asset of the Firm In Stem, this Court made clear that the business of a partnership that is unfinished on the date of dissolution is an asset of the partnership and must be concluded for the benefit of the dissolved partnership. Stem, 227 N.Y. at 547. In that case, two architectural firms, Reed & Stem (“R&S”) and Warren & Wetmore (“W&W”), entered into a partnership agreement (the “Association”), which then entered into a contract (the “Employment Agreement”) with its client, the New 23 York Central Railroad (the “Railroad”). Pursuant to the Employment Agreement, the Association agreed to provide architectural servic s to the Railroad in connection with the building of Grand Central Station. In the Employment Agreement, the Railroad reserved th right to terminate the Association’s employment for any reason: The [Railroad] reserves, and the [Association] … agree[s] that the [Railroad] shall at all times have, the right to terminate the employment of the [Association] … by giving notice in writing to the [Association] … of intention so to do, and the employment of the [Association] under the provision hereof shall be terminated and ended accordingly ... See Stem v. Warren, 185 A.D. 823, 829 (1st Dep’t 1919) (Railroad had the absolute right to cancel the contract without “rhyme or reason”). In 1911, Mr. Reed died, and the Association was disolved. After Mr. Reed’s death, the Railroad, at the behest of W&W, terminated the Employment Agreement and separately engaged W&W. Id. at 545. The Association had been paid for all of its pre-dissolution services. Id. at 545. W&W subsequently completed the project and was paid for its services by the Railroad. Stem, as the surviving partner of R&S, sought an accounting from W&W for all post-dissolution profits related to the project. This Court determined that the Association dissolved by the death of Reed (Question 1), that the Employment Contract was not terminated and remained the property of the Association 24 following dissolution (Question 2) for which W&W was required to account (Question 3): The most valuable asset of such partnership was the Employment Agreement] between it and the [Railroad]. By the terms of such contract and the agreement between the [Association] the intention of the parties is manifest that the [Employment Agreemnt] was to be performed notwithstanding the death of Mr. Reed if such event should occur. Upon the death of Mr. Reed it was the duty of the survivors of the firms to take possession of the firm's assets, p rform the contract, extinguish the firm's liabilities, and close its business for the interest of all parties concerned, and the representatives of Reed were entitled to share in the profits of all unfinished business though subsequently completed. Id. at 546-47 (emphasis added). Stem thus stands for the following propositions: (i) an unperformed contract between a client and a professional service partnership that is terminable at will is not terminated by dissolution of the partnership; (i ) that unfinished contract remains a firm asset (even if there is nothing owed to the partnership for pre- dissolution services) that the winding up partners have a fiduciary duty to complete; (iii) if the client terminates the contract post-dissolution and separately enters into a new contract with one of the former partners, that former partner is obligated, consistent with his fiduciary duties, to account to the dissolved firm and turn over any profit realized on completion of the services that the dissolved partnership had originally contracted to perform. Id. at 546-47. 25 That obligation is consistent with the decisions in Ki g and Castle, among others, and as noted above, is codified in Partnership Law §§ 40(6) and 43(1)). B. Stem Remains The Governing Law Of New York Although Stem has been characterized as “hoary” (Geron 476 B.R. at 741), it remains good law. The Fiduciary Duties recognized n Stem have been applied to numerous other professional service partnerships. In Rhein v. Peeso, 194 A.D. at 274, the Appellate Division applied the No Compensation Rule in the dissolution of a dental prctice and held that the partner performing the winding-up (Peeso) was subject to the No Compensation Rule for completing the “unfinished business” of the partnership. Id. at 277.12 In Sriaman v. Patel, 761 F. Supp. 2d 7 (E.D.N.Y. 2011), the court applied the No Compensation Rule in the dissolution of a medical services company. The court found that a contract to provide medical servic s constituted partnership property because “the services provided under this contract were directly related to the purpose of the partnership.” Id. at 15-16. In Geist, 19 N.Y.S.2d at 76, these principles were applied to a dissolved law partnership: 12 The Law Firms mischaracterize Rhein by suggesting that the firm’s agreement with its client remained an asset because it stated that it would survive dissolution. LFB at 32. This is incorrect. The full quote: “work was done by the defendant apparently with the consent of the plaintiff. The defendant wrote certain letters which apparently recognized an obligation on his part to the plaintiff.” Id. at 276. The quote indicates that Peeso recognized that he had a duty to account notwithstanding the consent of his partner to complete the work. 26 [o]ne of the main questions in the case is as to whether the plaintiff Geist and the defendant Burnstine are each entitled o be paid for the work that each did after the dissolution which resulted in fees. Id. (emphasis added). The court held that because ther was no surviving partner, the No Compensation Rule applied: At common law it was the general rule that no partner i the absence of a special agreement was entitled to compensation for his services in winding up the affairs of a partnership. The Partnership Law has made only one change in the common law rule in this connection and that is in providing for reasonable compensation for the services of a surviving partner in winding up the firm's affairs…. Neither plaintiff nor defendant is a surviving partner and hence neither is entitled to compensation for services in wi ding up the affairs of the partnership. Of course, each partner is entitled to credit for whatever is fair for expenses incurred and reason ble overhead in connection with his services in carrying out the winding up of the partnership business. Id. (emphasis added). Geist made no distinction between hourly or contingency cases. Thus, Geist confirms the proposition that pending cases (whether they are billed by the hour or on a contingency) are assets, and partners have to account for profits received on thse cases. Similarly, in Dwyer v. Nicholson, 89 A.D.2d 597 (2d Dep’t 1982), the Second Department applied the No Compensation Rule to a law partnership. The court held that the “decedent is entitled to share in the profits of all business pending on the date of the decedent's death .... [including] the work performed and the fees collected on cases completed or pending as of the date of the decedent’s 27 death.” The court did not limit the definition of business pending” to the “value of the dissolved firm’s pre-dissolution services.” Law Firms’ Brief (“LFB”) at 37. These cases confirm that the rule in Stem is still the law of New York and applies to law firms. C. The New York Contingency Cases Confirm That The Client Matters Are Partnership Property The New York Appellate Division and Second Circuit uniformly hold that “absent an agreement to the contrary, pending contingent fee cases of dissolved partnership are assets subject to distribution.” Santalucia, 232 F.3d at 297; Kirsch v. Leventhal, 181 A.D.2d 222 (3rd Dep’t 1992); Shandell v. Katz, 217 A.D.2d 472 (1st Dep’t 1995); Murov v. Ades, 12 A.D.3d 654 (2d Dep’t 2004); Grant v. Heit, 263 A.D.2d 388 (1st Dep’t 1999); Dwyer v Nicholson, 193 A.D.2d 70 (2d Dep’t 1993); McDonald v. Fenzel, 233 A.D.2d 219 (1st Dep't 1996); Liddle, Robinson & Shoemaker v. Shoemaker, 309 A.D.2d 688, 692 (1st Dep’t 2003); DelCasino v. Koeppel, 207 A.D.2d 374 (2d Dep’t 1994)(the “Contingency Cases”). In Kirsch, a withdrawing partner sought an accounting from the dissolved firm. The court ruled that “in the absence of a dissolution agreement providing otherwise, the case would have constituted unfinished business of the firm to be evaluated as of the date of dissolution in determining the value of plaintiff's partnership interest….” Kirsch, 181 A.D.2d at 226. While the underlying case was a contingency matter, Kirsch stated that the fiduciary duties of the partner in 28 possession of the partnership business after dissolution include the obligation to “complete performance of any partnership service contracts for the benefit of all partners.” Id. at 225-226 (emphasis added). 1. A Dissolved Firm’s Interest in Client Matters Is Not Limited to the Value Of Pre-Dissolution Services The central premise of the Law Firms’ appeal is that a dissolved law partnership has a property interest only in being paid for work it has actually performed on its client matters before dissolution ( .e., a quantum meruit recovery), but not in the client matters themselves or in post-di solution fees or profits generated on those matters. (LFB at 18-22; Jones Day Brief (“JDB”) at 16-17). That contention has been emphatically rejected by every court in New York to consider it, except one – Aurnou v. Greenspan, 16 A.D.2d 438 (1st Dep’t 1990), which was later repudiated by the same court that decided it. See Shandell, 217 A.D.2d at 472 (“[w]e decline to apply the Aurnou rule”); Kirsch, 181 A.D. 2d.at 224-226 (Aurnou is “inconsistent with the fiduciary duty of the partner in possession of the partnership business after dissolution to wind up the partnership’s affairs and complete performance of any partnership ervice contracts for the benefit of all partners”); see also Santalucia 232 F.3d at 294, 297 (reversing district court’s ruling that the dissolved firm was limited to a quantum meruit recovery of the value of the time its lawyers spent working on the matter prior to 29 dissolution); DelCasino, 207 A.D.2d at 374 (same); Grant, 263 A.D.2d at 388 (same); Dwyer, 193 A.D.2d at 70 (same).13 While the Law Firms state that the Contingency Cases do not treat cases as assets of the dissolved firm (LFB at 19), that is in fact exactly what the New York courts have done. See, e.g. Santalucia, 232 F.3d at 300-301 (“absent an agreement to the contrary, pending contingent fee cases of dissolved partnership are assets subject to distribution”)(emphasis added); see also Shandell, 217 A.D.2d at 473 (same).14 While these courts often require a valuation as of the date of dissolution and a determination as to whether there is a credit for post-dissolution skills, efforts and diligence (discussed in Point VI.B, infra), this credit goes to the measure of recovery, not to the threshold determinatio of whether the case is an asset of the partnership. This is entirely consistent with this Court’s findig in Stem where W&W was required to account for post-dissolution profits from the uncompleted contract, 13 As Judge McMahon noted, “the quantum meruit rationale has almost universally been rejected in other UPA jurisdictions.” DSI, 480 B.R. at 157-58 (citations omitted). 14 The decision in Sexter v. Kimmelman, 19 A.D. 3d 298 (1st Dep’t 2005) relied on by the Law Firms confirms that the cases themselves are firm assets, but, contrary to the Law Firms’ suggestion, did not limit the dissolved firm to thevalue of its pre-dissolution services. In fact, as to the hourly estate matters at issue in that case, the court ordered that all of these fees belonged to the dissolved law firm either because: (i) the percentage was fixed by statute and, as a result the fee was earned at the time of the engagement or (ii) the failure to produce time records reflects that no portion of the fees were attributale to post-dissolution efforts. Id.; see also Sexter v. Kimmelman, 43 A.D. 3d 790 (1st Dep’t 2007). These facts confirm that the Sexter court was applying the rule recognized in Santalucia and Kirsch and not the now-rejected holding in Aurnou that a law firm is limited to the value of its pre-dissolution services. 30 despite the fact that the Association had been fully compensated for its pre- dissolution efforts. Stem, at 545. The Law Firms also assert that the Contingency Cases stand for the proposition that partners do not have a fiduciary to account for post-dissolution profits. (LFB at 21. The decisions themselves again prove exactly the opposite. In those decisions, the courts held that the source of the duty of a lawyer to account to his former partners lies in the fiduciary duties that lawyers share with one another. See Santalucia, 232 F.3d at 300 (under New York law, “[t]he source of the duty [of a lawyer to account to his former partne s] is the fiduciary relationship of trust and confidence that lawyers have from time memorial shared with one another”); Kirsch, 181 A.D.at 225-226 (fiduciary duty to wind-up partnership service contracts for the benefit of all partners). The Law Firms also assert that the rulings in some f the Contingency Cases where a winding up partner is entitled to a credit for “post-dissolution efforts, skills and diligence” mean that the dissolved firm is, despit the actual language employed by the courts, entitled to no portion of pst-dissolution fees on Client Matters. (LFB at 19; JDB at 17. That contention is directly contrary to the Contingency Cases themselves, which make clear that the winding up partners must account for post-dissolution fees received subject to the allowance of any credits. See, e.g. Kirsch, at 225-226. In addition, that contention was also 31 considered and rejected by Judge McMahon and Judge Drain, both of whom concluded that if the courts in the Contingency Cases meant to say that the credit resulted in the dissolved firm receiving no portion of the post-dissolution fees, they would have said so. DSI, 480 B.R. at 177-78; Bankruptcy Court Decision, Appdx. A57-60.15 The Law Firms further contend that the Contingency Cases essentially follow the rule set forth in Cohen v. Grainger, Tesoriero & Bell, 81 N.Y.2d 655 (1993). LFB at 20. Under that rule, a lawyer terminated without cause by a client can either assert a claim against the successor lawyer for a claim for quantum meruit, or wait until the matter is concluded and claim a percentage of the fee. That rule, however, has nothing to do with the division of post-dissolution profits after a firm’s dissolution, and has not been applied in the dissolution context. See Santalucia, 232 F.3d at 298 fn 2. Indeed, as noted above, the Law Firms’ argument that a dissolved firm is entitled to no portion of post-dissolution fees on Client Matters has been repeatedly rejected by the New York courts. See, e.g., Santalucia, 232 F.3d at 298. Thus, in the context of a dissolved law firm, the amount to be recovered in an accounting is completely different from the amount recoverable by a discharged lawyer under the Cohen Rule. Limiting the dissolved firm to the value of the work performed prior to dissolution would be contrary to 15 If the dissolved firm’s recovery is zero as a result of the credit, there would be no point in having to determine the amount of the credit. 32 this Court’s rulings in King and Stem. As set forth in Section VI.B, infra, the Partnership Law does not permit such a limitation in dissolutions. In short, the principal arguments advanced by the Law Firms about the nature of a dissolved firm’s interest in unfinished partnership business is based on a fundamental misreading of applicable precedent and the nature of a partnership, and should be rejected (as it has been by virtually every other court to consider it). 2. The Rationale For The Application Of The Partnership Law To Contingency Cases Applies Equally to Hourly Cases The rationale employed by the New York courts in applying the provisions of the Partnership Law to contingency cases, based on partners’ fiduciary duties to account to the dissolved firm, applies with equal force to hourly fee matters. If the Fiduciary Duties were premised on ensuring that dissolved firms are compensated only for their services, these cases might be viewed differently.16 But the Partnership Law is not predicated on that principle, and because the statute’s obligations arise from a partner’s fiduciary duty, there is no principled basis to limit their application based on how a matter is billed. Nothing in the Contingency Cases suggests that a different fiduciary obligation might apply depending on the type of case. Excluding hourly cases from the Duty To Account would contravene the requirement that a partner must 16 DSI ,480 B.R. at 166(“The unfinished business doctrine does not exist to assure that a law firm is paid for the value of work it has performed prior t dissolution. It exists to settle accounts among partners upon dissolution of their business.” ) 33 account for profits derived from “any transaction connected with the ... liquidation of the partnership or from any use … of its property.” Partnership Law § 43(1)(emphasis added). Indeed, if this Court granted an exception to the Duty To Account for hourly matters, only lawyers who work on contingency matters would continue to have a duty to account for post-dissolution profits on those matters. Consequently, partners from the same firms might have different fiduciary duties depending upon the makeup of their case load. That would make littl sense under the Partnership Law, as Judge McMahon concluded: The nature of the underlying contractual relationship between the dissolved partnership and its client does not alter th legal status of a dissolved partnership nor does it change the fiduciary duties each partner must honor towards another. They remain the same regardless of how an attorney agrees to be compensated by his clients. DSI, 480 B.R. at 165. See also Rothman v. Dolin, 20 Cal.App.4th 755, 759 (Cal. App. 1993). The Law Firms submit no cogent response to that conclusion. D. The Law Firms’ Remaining Arguments On Partnership Property Are Without Basis The Law Firms contend that Client Matters cannot constitute partnership property after dissolution because: (i) clients canterminate those agreements at any time, (ii) retainer agreements cannot survive dissolution, and (iii) there is no requirement that the retainer agreements be completed af er dissolution. (LFB at 34 28, 32). Those arguments are all foreclosed by Stemand the numerous cases decided since then. 1. Dissolution Does Not Terminate Engagements The Law Firms’ contention (LFB at 28, 32), and Judge Pauley’s conclusion that “hourly fee matters cannot have contemplated post-dissolution survival without infringing a client's right to terminate anttorney at will” (Geron, 476 B.R at 741), is contrary to this Court’s decision in Stem. In Stem, the contract with the Railroad was terminable at will (like law firm client retainer agreements), but this Court found that he Employment Contract remained property of the Association after dissoluti n even though the Railroad terminated the Employment Agreement and entered into a new agreement with W&W . Stem, 277 N.Y. at 545.17 Stem did not limit its holding to situations where the uncompleted agreement expressed an intention that it would survive dissolution; indeed, none of the numerous unfinished business cases cited above are based on such a finding or subject to such a limitation, nor does the Partnership Law express such a limitation. 17 A similar argument was rejected by the Second Circuit. Santalucia, 232 F.3d at 297-98 (“The terms of [client’s] retainer agreement with the Firm do not, in any way, alter the scope or duration of the fiduciary duty [the partner] owes to the Firm. Thus, the original retainer agreement between Santalucia and the Firm simply is not relevant to this inquiry. To resolve this dispute, we look to New York law regarding the fiduciary duty owed by lawyers to their former firms.”). 35 Similarly, this Court made clear in Stem that dissolution does not terminate those agreements. The specific question decided by this Court (Question 2) was whether the obligations of the Association to the Railroad were cancelled as a result of dissolution. Stem, 227 N.Y. at 546. This Court answered that question in the negative. Id. at 546-547. That principle has not been changed by the Partnership Law. These principles apply directly to law firms. The dissolution of a law firm does not terminate its engagements with its clients. RLS Associates, LLC v. United Bank of Kuwait PLC, 417 F.Supp.2d 417, 420 (S.D.N.Y. 2006)(“a retainer agreement remains in effect notwithstanding the dissolution of the [law firm], and the former partners of the firm are obligated to continue protecting [the client’s] legal interests in accordance with its terms.”); NYC Eth. Op. 1988-4, 1988 WL 490014 at *2 (June 3, 1988)(“[l]awyers, therefore, have an ethical obligation to perform professional services they contract to provide until their completion, absent good cause for withdrawal. Even in the event of dissolution, every member of a law firm retained by a client is obligated to fulfill the retainer agreement.”); see also Robinson, 11 F.Supp. 2d at 6.18 18 Thus, the Law Firms’ arguments that retainer agreements cannot be deemed “executory” contracts because they cannot survive dissolution is erroneous. See Point II.D.I infra. Stem and its progeny make clear that such unfinished contracts remain assets of the dissolved partnership after dissolution. 36 Accordingly, because the Client Matters were not terminated as a result of dissolution, Coudert had an “obligation to perform with the concomitant right to [their] benefits.” Scholastic, Inc. v. Harris, 259 F.3d 73, 89 (2d Cir. 2001); Kirsch, 181 A.D. 2d at 225-226. As such, the Client Matters were unfinished business, and the Coudert Partners who performed under such contracts did so as fiduciaries and must account for their use of its partnership propety. King, 100 N. Y. at 393; Stem, 227 N.Y. at 546-47; Geist, 19 N.Y.S.2d at 77. 2. The Law Firms Confuse The Nature Of Partnership Property The Law Firms argue that if unfinished business were “p operty” of an insolvent firm, “it would presumably be recoverable in bankruptcy.” LFB at 21. The Law Firms conflate the concepts of property and partnership property. Identifying a contract of the partnership as partnership property establishes the rights and obligations between partners inter se, not between the dissolved firm and third parties. In Stem, this Court held that the Employment Agreement wasan asset of the Association. This determination could not compel the Railroad to continue to employ the Association, but it did require W&W to account for the unfinished work Id. at 547. 3. The Application Of Stem Is Not Limited To Cases Involving Bad Faith Additionally, contrary to Jones Day’s suggestion (JDB at 13), the decisions of the numerous cases in New York, including Stem, treating unfinished client 37 matters as partnership assets were not limited to cases involving a finding of bad faith by a partner or a partner’s usurpation of a corporate opportunity which the dissolved law firm could have performed. Rather, as explained above, these decisions are based on the Fiduciary Duties and the standards that this Court has established for the conduct of such fiduciaries.19 See Meinhard, 249 N.Y. at 464. 4. Wind Up Is Not Complete When The Partner Joins A New Law Firm Jones Day further argues that unfinished matters wee considered “wound up” once Coudert’s clients entered into a new engagement with Jones Day, and that after that point those matters are no longer Coudert’s “business.” JDB at 3. That contention finds no support in any New York decision. The clients in Stem and the Contingency Cases entered into new engagements after dissolution, but the courts nonetheless required the winding-up partners to account for those matters. Indeed, Stemand its progeny make clear that matters are not wound up until they are complete. Stem, 277 N.Y. at 546-547. If Jones Day’s argument were correct, a winding-up partner could terminate his fiduciary duties to the dissolved firm simply b joining forces with a third party and then having the client enter into an engagement with the new entity. That is contrary to New York law, see Castle v. Marks, 50 App. Div. at 323-24 (the law will not sanction transactions where one member of a firm surrenders valuable 19 Jones Day’s contention that Coudert was unable to complete these engagements is irrelevant and, in any event, does not release the Coudert Partner f om his or her fiduciary duties. 38 contracts and procures contracts in which he alone has a personal interest), and has been rejected by courts in other UPA jurisdictions. See Frates v. Nichols, 167 So.2d 77, 80 (Fla. Dist. Ct. 1964)(a client who opts to continue the representation through a member of the dissolved firm merely “manifest[s] [his or her] intention of retaining [the former member] to fulfill the conti uing obligation of the firm”). Accepting Jones Day’s arguments which would relieve a fiduciary of his obligation appears to be approaching the “disintegrating erosion” point described by Chief Judge Cardozo. Meinhard, 249 N.Y. at 464. E. Law Firms Can Agree on the Allocation of Post-Dissolution Fees As this Court has made clear, law partnerships are free to enter agreements concerning the division of post-dissolution fees. See Nishman v. DeMarco, 62 N.Y.2d 926, 929-930 (1984). In Nishman, this Court upheld the trial court’s determination that there was an enforceable agreement to divide post-dissolution fees received on account of unfinished client matters as of dissolution. This Court further confirmed that such an agreement does not violate New York’s RPCs, including the rules on fee-splitting. Id. (“[T]here is no merit to the assertion that provisions of the Code of Responsibility preclude giving effect to ... the agreement of the parties with respect to the division of fees r ceived on matters pending at the time of dissolution of the partnership. (Code of Professional Responsibility, DR 2- 107[B]”). 39 Similarly, in Talley v. Lamb, 100 N.Y.S.2d 112 (Sup. Ct. 1940), the court enforced a dissolution agreement among partners to share equally all post- dissolution fees from matters in which the dissolved firm had been retained prior to dissolution. Id. at 114-15. The court noted that while after dissoluti n each “former partner was free to … accept retainers from persons who had been clients of the firm,” that right was subject to the obligation to account for the matters that existed as of the dissolution date. Id. at 118; see also Mooney v. Shaw, 4 N.Y.S.2d 563 (Sup. Ct. 1938)(enforcing an agreement to allocte post dissolution fees for unfinished matters that existed at the date of the decedent’s death). These cases confirm that even if Client Matters are not presumptively partnership property, partners can nonetheless agree in their partnership agreement (or otherwise) that such matters be treated as partnership property. See Partnership Law § 12(1). Coudert did treat its Client Matters as partnership property, as Judge McMahon determined. DSI, 480 B.R. at 173. Therefore, whatever the decision of this Court is on Question 1, the Court should recognize the ability of a law firm to treat its client matters as partnership property, as Coudert did. 40 POINT III DECISIONS FROM OTHER UPA JURISDICTIONS CONSISTENTLY REACH THE SAME RESULT ON THE ISSUE BEFORE THE COURT A. Partnership Law § 4(4) Requires That New York Courts Interpret Its Provisions In A Uniform Manner As noted above, the Partnership Law is based on a uniform statute enacted by the New York Legislature with the proviso that the law be interpreted uniformly with the other states which have adopted the UPA: This chapter [including sections 40 and 43] shall be so interpreted and construed as to effect it general purpose to make uniform the law of those states which enact it. Partnership Law § 4(4) (emphasis added). As Judge McMahon correctly observed, “[e]very court in a UPA jurisdiction that has considered the precise question posed here has concluded that billable hours matters are partnership assets in the absence of any expressed intention that they should be treated otherwise.” DSI at 480 B.R. at 164. See Robinson v. Nussbaum, 11 F. Supp. 2d 1, 6 (D.D.C. 1997); Young v. Delaney, 647 A.2d 784, 792 (D.C.Ct. App. 1994); Official Committee of Unsecured Creditors v. Ashdale, (In re Labrum & Doak), 227 B.R. 391, 408-409 (Bankr. E.D. Pa. 1998); Rothman, 41 20 Cal. App. 4th at 758-759; Beckman v. Farmer, 579 A.2d 618, 639 (D.C. 1990)20; In re Mondale & Johnson, 150 Mont. 534 (1968); Platt v. Henderson, 361 P.2d 73, 76-77 (Or. 1961); Hammes v. Frank, 579 N.E.2d 1348, 1356-1357 (Ind. Ct. App. 1991); Bankruptcy Court Decision Appdx. A50; see also In re Coudert Brothers Adversary Proceedings, 447 B.R. at 713 (“authorities in other jurisdictions uniformly hold that the unfinished business doctrine applies to hourly fee matters as well as contingency fee matters.”). Likewise, courts in RUPA jurisdictions have applied the duty to account to hourly matters. See Greenspan v. Orrick Herrington & Sutcliffe, LLP (In re Brobeck, Phleger & Harrison LLP), 408 B.R. 318, 333-35 (Bankr. N.D.Cal. 2009). In Robinson, the District Court for the District of Columbia discussed the rationale for this conclusion: First, dissolution of a law partnership does not terminate existing contracts with its clients. And second, former partners who honor these existing contracts do so as fiduciaries for the benefit of the former partnership…. The nature of the underlying contractual relationship between the dissolved partnership and its client does not alter the legal status of a dissolved partnership nor does it change the fiduciary duties each partner must honor towards another. They remain the same regardless of how an attorney agrees to be compensated by his clients. As a result, all matters pending at a dissolved law partnership at the time of dissolution are “uncompleted transactions” under the Partnership Act and are subject to winding up and distribution according to the former partner’s respective interests. 20 Contrary to the Law Firms’ suggestion, the matters addressed in Beckman included hourly matters and were not limited to contingency cases. Beckman, 579 A.2d at 633, 636-638. 42 Robinson, 11 F. Supp.2d at 6 (emphasis added). See also Beckman, 579 A.2d at 636 (same rationale); In re Labrum & Doak, 227 B.R. at 411 (same). As the foregoing analysis makes clear, the rationale used by these courts in interpreting the identical sections of the UPA is the same analysis employed by New York courts, including this Court in King and Stem, in determining that unfinished client matters are partnership property. Courts in other jurisdictions that have adopted the UPA have also concluded that unfinished contingency matters are assets of a dissolved law firm, requiring the partner who completes such matter to account to the dissolved firm. See Huber v. Etkin, 58 A.3d 772 (Pa. Super. 2012); Hurwitz v. Padden, 581 N.W.2d 359, 362 (Minn. Ct. App. 1998); Gull v. Van Epps, 517 N.W.2d 531, 536 (Wis. Ct. App. 1994); Schrempp & Salerno v. Gross, 529 N.W.2d 764, 771 (Neb. 1995); Sufrin v. Hosier, 896 F.Supp. 766, 770 (N.D. Ill. 1995); Sullivan v. Bodney, 820 P.2d 1248, 1251 (Kan. Ct. App. 1991); Marr v. Langhoff, 322 Md. 657, 668-69 (Md. 1991); Ellerby v. Spiezer, 485 N.E.2d 413, 415-417 (App. Ct. Ill. 1985); Bader v. Cox, 701 S.W. 2d 677, 681-82 (Tex App. 1985); Jewel v. Boxer, 156 Cal.App.3d 171 (Cal. App. 1984); Resnick v. Kaplan, 434 A.2d 582 (Md. 1981); Frates, 167 So.2d at 80. Those rulings are also consistent with the numerous decisions in New York finding that matters handled on a contingency basis re partnership assets under the Partnership Law. See Point III, supra. 43 Thus, the Law Firms’ contention that there is no consensus view on the application of the unfinished business doctrine to client matters of law firms (LFB at 36) is directly contrary to the overwhelming body of case-law nationwide interpreting these same provisions of the UPA in the same manner. The scholars agree. D. Richmond, Migratory Law Partners And The Glue Of Unfinished Business, 39 N. Ky. L. Rev 359, 386 (2012) (noting that there is little basis on which to distinguish hourly and contingency cases).21 Because these cases uniformly interpret these UPA provisions to require a duty to account for post-dissolution profits on hourly matters, Partnership Law § 4(4) requires that New York courts interpret the Partnership Law in a similar manner to effectuate the statute’s requirement, as Judge McMahon did. DSI, 480 B.R. at 164. See also Kirsch, 181 A.D. 2d at 225 (stating that cases from other UPA jurisdictions are entitled to significant precedential weight and rejecting Aurnou because it conflicted with settled law under the UPA and had been rejected in other states); Dwyer, 193 A.D.2d at 73 (same). If New York courts follow the decisions from other jurisdictions on Contingency Cases pursuant to Partnership Law § 4(4), there is no reason not to follow such decisions concerning hourly matters as well. 21 Thus, the decisions applying the UPA’s provisions are hardly limited to “some intermediate appellate courts and the District of Columbia, interpr ted by a single Bankruptcy Judge” (LFB at 36) or California courts (JDB at 17). 44 Despite the express direction in section 4(4) to inerpret the Partnership Law uniformly, Judge Pauley refused to provide any preced ntial weight to these decisions based on his belief that New York courts define partnership property differently. Geron, 476 B.R. at 742. That is incorrect. Both New York courts and out-of-state courts interpret the same provisions of the UPA to provide that unfinished client matters are assets of the dissolved partnership for which winding up partners must account. By failing to accord any weight to the out of state cases as required by Partnership Law § 4(4), Judge Pauley err d. B. The Law Firms Fail to Cite Any Contrary Out-of State Authority While both the Law Firms (and Judge Pauley) believe that the numerous out-of state decisions do not represent a “consensus view,” the Law Firms do not cite a single case from any other UPA jurisdiction h lding that hourly cases are not assets of the dissolved firm. Instead, the Law Firms submit an incomplete and inaccurate survey of decisions of other UPA jurisdictions, which fails to reference the vast majority of the decisions cited above which have applied these same UPA provisions to hourly matters. The Law Firms’ statement that none of the highest courts from other jurisdictions have applied the No Compensation Rule to law firms (LFB at 33) is obviously incorrect. See Platt, 361 P.2d at 73 (Supreme Court of Oregon); In re 45 Mondale & Johnson, 150 Mont. at 534 (Supreme Court of Montana); Beckman, 579 A.2d at 633, 636-639 (Court of Appeals of the District of Columbia). Additionally, the Law Firms’ suggestion that the dcision in Jewel v. Boxer created a new rule which then went viral due to a single bankruptcy judge in California is utterly facetious. LFB at 35. The United States Supreme Court applied the unfinished business doctrine to a law prtner over a century before Jewel was decided, citing to New York law and did not allow the winding up partner any additional compensation. See Denver, 99 U.S. at 358 (1878). The New York Supreme Court likewise applied the no compensation rule to a law firm nearly 75 years ago. See Geist, 19 N.Y.S. 2d at 76. The UPA’s duty to account was also applied to law firms in other states decads before Jewel. See Platt, 361 P.2d at 73 (Or. 1961); Frates, 167 So.2d at 80 (Fla. Dist. Ct. 1964). Thus, the No Compensation Rule has been applied to law partnerships for well over a century, and was codified in New York when the Partnership Law was enacted. Moreover, the Law Firms’ statement that several high courts have required a division of fees between predecessor and successor firms in proportion to their efforts is misleading. LFB at 33. In Kelly v. Smith, 611 N.E. 2d 118 (Ind. 1993), the Indiana Supreme Court concluded, after recognizing the unfinished business doctrine, that there was an agreement to the contrary: “[i]n the present case, the partners addressed the issue of a partner's withdrawal in their partnership 46 agreement.” Id. at 121. In re Mondale & Johnson involved a dissolution by death case where compensation is expressly permitted. 150 Mont. at 536 (“[t]his dispute was between two professional men, who were the surviving partners of ... a well- known law partnership in central Montana”). Finally, in Vowell & Meelheim P.C. v. Beddow , Erben & Bowen, P.A., 679 So.2d 637 (Ala. 1996), the court affirmed a trial court decision that required the partner to remit the fees from a contingency case to his former law practice, a professional association, but allowed the winding up partner compensation. While that might appear at first blush to be inconsistent with the No Compensation Rule, a close examination of the dispute suggests otherwis . First, the entity to which Vowell was required to remit the funds was a professional association, not a partnership. Second, in his brief to the court, Vowell stated that: The inherent unfairness of the “no compensation” rule cannot be cured by an award to the attorneys completing the engagement of overhead expenses (which some courts permit and some d not) or the award of $125 per hour in lieu of overhead, as the trial court purported to do in this case. (C. 265). See Brief of Appellants Vowell & Meelheim, P.C. and J, Scott Vowell, 1995 WL 17974300 at *15-16 (March 28, 1995) (emphasis supplied). Since reimbursement of expenses is permitted under the No Compensation Rule, the award to Vowell (in lieu of overhead) does not appear to be inconsistent. Finally, in his appellant brief, Vowell concluded: 47 [b]ecause it unreasonably and unnecessarily restricts a lient's choice of counsel, the “no compensation” rule of Jewel should not be applied to law partnerships ... the judgment of the trial court is due to be reversed and remanded for determination of the appropriate division of fees according to quantum meruit principles. Id. at 34 (emphasis added). In affirming the trial court’s decision, the court did not accept the arguments concerning client choice and quantum meruit. Further, the Law Firms cite to cases from the high courts of Wyoming, Oregon and Nebraska for the proposition that courts have fashioned rulings similar to Kirsch. See Weisbrod v. Ely, 767 P.2d 171 (Wyo. 1989), Timmerman v. Timmerman, 272 Or. 613 (1975), and Essay v. Essay, 123 N.W.2d 648 (Neb. 1963). As discussed in Section VI.B, infra, each of those cases involved a continuation of business UPA § 42 (Partnership Law § 73) in which the rights of the withdrawing partner are distinct from those in a dissolution and liquidation accounting. More importantly, the high courts in each of those states have in fact applied the No Compensation Rule to professional service firms in a dissolution and liquidation. See Platt, 361 P.2d at 73 (Oregon); Smith Keller & Assoc. v. Dorr & Assoc., 875 P.2d 1258, 1267-68 (Wyo. 1994); Schrempp, 529 N.W.2d at 771. Lastly, while the Law Firms and Judge Pauley all cite to the Missouri decision in Welman v. Parker, 328 S.W.3d 451 (Mo. Ct. App. 2010), that decision has no application here. First, Welman did not address hourly matters. Id. at 455. Second, that decision makes clear that Missouri follows the quantum meruit 48 approach enunciated in Aurnou of limiting the old firm to the value of its pre- dissolution services which, as noted above, is not the law in New York or any other UPA jurisdiction. See also Huber, 58 A.3d at 781 (criticizing analysis in Welman). As such, Welman provides no guidance for this Court. Thus, the Law Firms’ contentions concerning the decisions from UPA jurisdictions are entirely without merit. POINT IV THE TRIAL COURT DECISIONS IN SHERESKY AND BURKE ARE MISPLACED In response to the overwhelming weight of authority, the Law Firms cite two New York trial court decisions (one of them unpublished) for the propositions that a dissolved law firm is limited to compensation for its own-pre-dissolution services, and that New York law does not permit the application of the Partnership Law to hourly fee cases. Burke v. Clifton, Budd & DeMaria, Index No. 1454-91- 002 (Sup. Ct. N.Y. County 1991) and Sheresky v. Sheresky Aronson Mayefsky & Sloan LLP, 35 Misc. 3d 1201A (Sup. Ct. 2011). Both decision are deeply flawed, and are contrary to New York law. Burke, a case that addressed contingency fees (not hourly) and was decided before Kirsch and Shandell, is inapplicable here. In Burke, the court held that the dissolved law firm had only a claim for compensation f r pre-dissolution services it actually performed on the matters, i.e., a quantum meruit recovery. As noted 49 above, that type of quantum meruit analysis was later definitively rejected by numerous New York courts. Additionally, the Burke court failed to address this Court’s decision in Stem, and totally ignored the requirements of Partnership Law §§ 40(6) and 43(1). As such, Burke was decided on an improper basis. Sheresky is also of no precedential value. Like Burke, the Sheresky court failed to even consider, much less analyze, the Fiduciary Duties. Additionally, the court ignored this Court’s decision in Stem and its progeny holding that partners must account for all profits from unfinished partneship business. See Point II, supra. Sheresky also found that a requirement that a partner must account for post- dissolution fees would violate RPC 1.5(g), which is contrary to this Court’s decision in Nishman, 62 N.Y.2d at 930. Further, the court did not consider or assign any precedential weight to the decisions from other UPA jurisdictions as required by Partnership Law § 4(4). Sheresky also incorrectly surmised that the unfinished busine s rule would apply only if the partnership agreement specifically so stated (when in fact, under the Partnership Law, Kirsch and Santalucia, the exact opposite is the case). In short, Sheresky rests on a deeply flawed analysis that should not be followed. Lastly, the decisions in Burke and Sheresky ignore the decision in Geist, which confirms the proposition that pending cases (whether they are billed by the hour or on a contingency) are assets for which there is a duty to account. Geist, 19 50 N.Y.S.2d at 76. In sum, neither Burke nor Sheresky provides a viable basis on which this Court could rest a decision. POINT V APPLICATION OF THE PARTNERSHIP LAW TO THE CLIENT MATTERS IS CONSISTENT WITH NEW YORK LAW AND POLICY CONCERNING THE ATTORNEY CLIENT RELATIONSHIP The Law Firms contend that applying the Partnership Law’s provisions to require an accounting for the Client Matters is contrary to New York policy and professional rules governing the lawyer-client relationship. As explained below, the Law Firms’ contention is contrary to New York law, including the decisions of this Court and numerous other courts. In any case, that contention is ultimately not dispositive here because the RPC cannot, either dirctly or through incorporation in a court rule, amend or limit a statute adopted by the Legislature. Matter of Greene, 54 N.Y.2d 118, 124-25 (1981). A. The New York Rules of Professional Conduct Do Not Prohibit the Application of the Partnership Law to Hourly Matters 1. Application of the Partnership Law Does Not Restrict Competition The Law Firms assert that the application of the Partnership Law to hourly matters would violate New York’s policy against rest ictions on the practice of law, as set forth RPC 5.6. JDB at 25; LFB at 26-28. The Law Firms rely primarily on the decisions of this Court in Cohen v. Lord, Day & Lord, 75 N.Y.2d 95 (1989) and Denburg v. Parker, Chapin, Flattau & Klimpl, 82 N.Y.2d 375 (1993). As 51 Judge McMahon found after a lengthy analysis of these decisions, the Court’s holdings in those cases are inapplicable here for amultitude of reasons. DSI, 480 B.R. at 169-173. First, on its face, RPC 5.6 is inapplicable here and has no bearing on the application of the Partnership Law’s provisions to the Client Matters. RPC 5.6 prohibits agreements restricting a lawyer’s right to practice.22 DSI is not seeking to enforce any agreement against the Law Firms that restricts competition, but rather to apply a statute, the Partnership Law, which applies to every profession, including law firms. See Partnership Law § 2. Second, neither Cohen nor Denburg suggests that a statute like the Partnership Law could be violative of Rule 5.6 or public policy. Rather, those cases addressed, and repeatedly referenced, provisions or clauses in a partnership agreement hat restricts competition. Cohen, 75 N.Y.2d at 96; Denburg, 82 N.Y.2d at 380-381. Third, neither Cohen nor Denburg involved the unfinished business rule. Rather, those cases involved partner withdrawals, not a dissolution and winding up of a law firm’s affairs. Unlike the issue before the Court now, the issues addressed in Cohen and Denburg were not governed by a comprehensive statutory scheme 22 RPC 5.6 provides in pertinent part “(a) A lawyer shall not participate in offering or making: (1) a partnership, shareholder, operating, employment, or other similar type of agreement that restricts the right of a lawyer to practice after termination of the relationship, except an agreement concerning benefits upon retirement .…” RPC 5.6 (emphasis added). 52 governing dissolutions of partnerships. Thus, this Court was not called upon in those cases to interpret the dissolution provisions of the Partnership Law. In any case, the Law Firms can hardly argue that application of the Partnership Law violates public policy. As this Court has stated, “the public policy of this state, when the legislature acts, is what te legislature says it shall be.” Messersmith v. American Fidelity Co., 232 N.Y. 161, 163 (1921)(Cardozo, J.). The New York Legislature has already contemplated, an expressly provided for, the dissolution and liquidation of a partnership. As Judge McMahon noted: It would be difficult indeed to conclude that the Partnership Law provisions that impose and measure the duty of partners to wind up existing firm business for the benefit of the dissolved firm, adopted as they were by the Legislature, violate public policy. DSI, 480 B.R. at 171. Fourth, even if there was an agreement restricting competition (and the Law Firms have not so contended), an agreement providing for the return of post- dissolution profits to the dissolved firm is enforceable. As noted above, this Court and other courts have found that an agreement between law partners on the division of post-dissolution fees from unfinished client matters is not barred by New York’s ethics rules. Nishman, 62 N.Y.2d at 929-930.23 If an agreement allocating post-dissolution fees is enforceable and does not violate New York’s 23 Thus, Jones Day’s argument (JDB at 25) that “contract provisions that allow attorneys to be paid for services they did not provide ... are void” is not only inapplicable but wrong, inasmuch as agreements allocating post-dissolution fees are enforceable irrespective of who does the work. 53 ethics rules, it necessarily follows that a statute which does so cannot run afoul of those rules. Fifth, Rule 5.6 has been used to strike down provisi ns in partnership agreements that restrict ompetition with the former firm by a former partner. In Cohen, this Court addressed efforts by an on-going law firm to restrict competition by its former partners. Cohen, 75 N.Y.2d at 98. That is not a concern here. Coudert is in liquidation. There can be no serious argument that it seeks to compete with its partners or restrain competition with them. Sixth, the provisions of the Partnership Agreement tha were found to run afoul of Rule 5.6 in the Parker Chapin partnership agreement applied to all Parker Chapin clients, and were not limited to those matters that existed as of the dissolution date. Denburg, 82 N.Y.2d at 378-382. That is a significant restriction wholly unlike anything at issue here. Seventh, the purported disincentives identified by the Law Firms in having to account to Coudert cannot preclude application of the Partnership Law to the Client Matters. As Judge McMahon observed, the financial disincentives are the same, whether the client matter is billed by the hour or on contingency, because profits earned on client matters must be shared with the partners of the dissolved firm. DSI, 480 B.R. at 172. None of the many New York law decisions holding that contingency cases are assets of the dissolved firm and that some portion of 54 post-dissolution fees must be shared with the dissolved firm has ever held that the financial-disincentive rationale of Cohen and Denburg are grounds not to apply the Fiduciary Duties to contingency cases. The fact that New York courts have already applied the doctrine to contingency fee cases strongly suggests that theoretical restrictions on competition are not a valid concern. The Law Firms cite no evid nce or other decision that the Contingency Cases have restricted competition or the hiring of lawyers from dissolved firms. There is likewise no basis in the record to conclude that applying the doctrine to hourly cases would have a different sult.24 Indeed, in hourly matters, partners have an interest in completing unfinished matters, even if profits must be remitted to the dissolved firm, in order to obtain new matters from those clients, which would not be subject to the Fiduciaries Duties. There is also no evidence suggesting that application of the Partnership Law to the Client Matters would discourage or create a disincentive to either the partner or the new law firm. Nor is there evidence that any of the clients that retained the Law Firms might not have done so had they been aware th t the Law Firm might have to someday account to Coudert. 24 There is also no basis on which to find that application of the Partnership Law to hourly matters would destabilize law firms by encouraging partners to leave before dissolution, as Jones Day suggests. JDB at 27. To the extent that this issue even exists, it is because partnership agreements have typically addressed partner withdrawals but have failed to address the duties and obligations of partners at dissolution. The solution lies within the control of law firms to amend their partnership agreements to align these issues. 55 This is not the first time that law firms have sought an exemption from the application of a statute based on ethical rules and client choice. In 1998, the bankruptcy court overseeing the liquidation of Labrum & Doak determined that hourly matters being handled by Labrum constituted nfinished business for which the partners would be required to account. I re Labrum, 227 B.R. 391. In so ruling, the bankruptcy judge observed: Although the [partners] bluster about the allegedly disastrous public policy of such principles .... The cases cited … only support the not inconsistent principle that clients can choose their lawyers. In response to the argument that, upon adoption of these principles, the “sky will be falling,” we note that the [partners] are unable to point to any disasters which have developed in any of the many jurisdictions from which the [hourly matters] cited above emanate. Id. at 409. Sixteen years later the Law Firms still cannot point to any disasters that have resulted from the application of the Fiduciary Duties in other jurisdictions. Finally, a client’s right to choose its counsel is not an unlimited basis upon which to exempt lawyers from the Fiduciary Duties. There are many reasons why clients cannot always have their counsel of choice. Conflicts of interest or a client’s inability to pay the fees may preclude a client from retaining her preferred counsel. Thus, the arguments related to client choice and competition provide no grounds for creating an exception to the Partnership Law. 56 2. A Partnership Accounting Is Not Impermissible Fee Splitting The Law Firms’ argument that providing an accounting o Coudert for post- dissolution profits would violate RPC 1.5(g), is contrary to established New York law, including the decision of this Court, and numerous other decisions that have addressed the issue. RPC 1.5(g) governs agreements between lawyers to share fees, not the allocation of post-dissolution fees between partners of the same firm in the wind- up of the partnership. Labrum, 227 B.R. at 413; see also Benjamin v. Koeppel, 85 N.Y.2d 49 (1995)(enforcing fee sharing agreement betwe n lawyers). RPC 1.5(g) provides that: “A lawyer shall not divide a fee forlegal services with another lawyer who is not associated in the same law firm….” RPC 1.5(g) (emphasis supplied). Comment 8 to RPC 1.5(g) states that “[p]aragraph (g) does not prohibit or regulate division of fees to be received in the future for work done when lawyers were previously associated in a law firm.” Id. (emphasis added).25 The Coudert Partners continue to be partners of Coudert, and thus continue to be associated with the Firm during the winding up process. RA. A5. Scholastic, 259 F.3d at 85; see also In re Labrum & Doak, 227 B.R. at 414 (lawyers remain in the same firm until wind up is complete). 25 Contrary to the Law Firms’ suggestion (LFB at 41), section 1.5(h) does not modify or limit the breadth of comment 8. 57 Additionally, inasmuch as an agreement between law p rtners on the division of post-dissolution fees is not barred by the rules on fee splitting, a statute providing for the allocation of such fees surely cannot be. None of the New York cases that have required departing partners of a dissolved firm to account for cases they took with them, contingency or otherwise, have found that this duty would amount to fee splitting. If the duty to account does not involve fee splitting for Contingency Cases, it cannot be fee splitting in hourly cases. Indeed, the fee splitting issue was never raised in Kirsch, Shandell, or Santalucia. Moreover, virtually every jurisdiction that has considered the fee splitting argument issue advanced here by the Law Firms has rejected it. See Richmond, Migratory Law Partners, 39 N. Ky. L. Rev at 395 (“[i]t should therefore come as no surprise that courts have almost unanimously reject d fee-splitting claims in the unfinished business doctrine context.”); In re Labrum & Doak, 227 B.R. at 414; Sufrin, 896 F.Supp. at 769; Ellerby, 485 N.E.2d at 416; Heller Ehrmann LLP v. Arnold & Porter (In re Heller Ehrmann), 2011 WL 1539796 (Bankr. N.D.Cal. 2011); Gull, 517 N.W.2d at 532-533. Accordingly, the Law Firms’ contentions, and Judge Pauley’s finding in Geron, concerning fee splitting are without merit. 58 B. The RPC Cannot Create an Exception to the Partnership Law As the foregoing makes clear, the application of pr visions of the Partnership Law to the Client Matters does not violate the RPC. In any case, the RPC cannot provide a basis for creating an exception to the provisions of the Partnership Law for the Law Firms. As this Court has made clear: The Code of Professional Responsibility is, however, an enactment of the New York State Bar Association rather than the Legislature or any court. Its provisions have been incorporated by reference in the rule defining professional misconduct ... adopted by each of the Appellate Divisions pursuant to statute…. But the code cannot, either directly or through incorporation in a court rule, amend or limit a statute adopted by the Legislature…. Matter of Greene, 54 N.Y.2d at 124-25 (emphasis supplied). Because the Fiduciary Duties will continue to apply to contingency cases, the Law Firms are asking this Court to create an exception solely for hourly matters, which, in effect, would rewrite the statute to permit compensation for post-dissolution services which the Legislature did not provide.26 If the Court were to accept the Law Firms’ invitation to exempt them from the statute, one group of lawyers (those handling contingency cases) would have a fiduciary duty to account to their dissolved firm, while the other group handling hourly cases would not. In Santalucia, the Second Circuit declined to create an exception to the unfinished business rule for professional corporations because it 26 Because Partnership Law § 40(6) only provides compensation in the limited circumstance of a dissolution by death, the Law Firms essentially request that this Court strike the word “surviving” from that statute for hourly matters. 59 would create a “special category of lawyers … who would not owe fiduciary duties to their firms.” Santalucia, 232 F.3d at 299. As Matter of Greene makes clear, re-writing the Partnership Law to create an exception for hourly matters is impermissible. C. New York Public Policy Requires Application of the Partnership Law to the Client Matters As explained above, the application of the Partnership Law according to its terms is, by definition, the implementation of the public policy of this State as expressed by the Legislature. See Messersmith, 232 N.Y. at 163. Because the Legislature expressly included lawyers within the definition of partnerships subject to the Partnership Law, law partnerships must be treated the same as other partnerships, and a ruling exempting lawyers, or one class of lawyers, from the statute’s provisions would contravene the clear intention of the Legislature. The potential policy concerns raised by the Law Firms, whatever their merit, simply do not outweigh the policy and intentions as expressed by the Legislature in the Partnership Law. The question of whether to create an exception to the provisions of the Partnership Law and provide compensation for winding up of partnership business like the Client Matters is a question for the Legislature to address. The Supreme Court of Wisconsin, one of the thirteen remaining UPA jurisdictions, recently 60 affirmed the application of the No Compensation Rule, and in so doing rejected a request to contravene legislative intent: [UPA] reflects the legislature’s public policy choices about the rights and obligations of partners in the absence of agreements to the contrary. As discussed above, [RUPA] would ameliorate the harsh result reached in this case. Nevertheless, the Wisconsin legislature has not adopted these revisions. As the court of appeals concluded in Gull, “if the rule against extra compensation is to be modified, we believe the legislature must revise § 178.15(6), Stats.” In the absence of an agreement modifying the provisions of the UPA, a court should decline from fashioning an after-the-fact remedy in pursuit of an equitable result when that remedy contravenes the public policy choices established by the legislature. Bushard v. Reisman, 800 N.W.2d 373, 384 (Wis. 2011). Similarly, this Court recently observed that: [T]his court does not revise statutes, in an effort t eliminate seeming injustices, or to bring the law into accord with modern fact…. Whatever reasons be pressed on us for such changes, the power to change is not ours. It is for the Legislature to deci whether or not to overhaul these settled rules, after hearing both sides, and after considering the interests of the general public as well as those of the innumerable members of these associations. Palladino v. CNY Centro, Inc., 2014 WL 1356239 (N.Y. April 8, 2014)(quoting Martin v. Curran, 303 N.Y. 276, 282 (1951)).27 27 In declining to grant an exception to the statute at issue in Palladino, this Court noted that New York State had declined to amend that statute to address the situation at issue there, as many other states have apparently done. Id. at 11-12. As with the statute at issue in Palladino, the New York legislature has not enacted RUPA, as mny other states have done, or amended the pertinent sections of the Partnership Law to address what the Law Firms characterize as an unfair result, despite amending other provisions of the Partnership Law, such as section 26. See 61 If the Law Firms believe that the statute is unfair, there are avenues available to them. As noted above, RUPA, which has been enacted in 37 states but not New York, permits a winding-up partner to receive reasonable compensation in completing unfinished matters. The Law Firms are eminently capable of advocating for the enactment of RUPA or seeking an amendment to the Partnership Law.28 Additionally, because the Partnership Law provides only default rules, law partnerships can opt out of the application of the provisions at issue by amending their agreements to provide that their partners are not subject to the Fiduciary Duties post-dissolution. This Court has encouraged partners to address such matters in written agreements. See Ederer, 9 N.Y.3d at 526.29 Crafting such a provision cannot present a significant challenge for the Law Firms.30 Ederer, 9 N.Y. 3rd at 521. As such, this Court should decline to grant an exception to the Partnership Law for the same reasons the Court declined to do so in Palladino. 28 See P. Rogers, Who Gets The Jewels When A Law Firm Dissolves? The Unfinished Business Doctrine And Hourly Matters, 108 Nw. U. L. Rev. 311, 339-40 (2014) (“[r]ather than revamp the entire body of New York partnership law ... the legislature could simply strike out [the word surviving] in the statute, thereby allowing partners to earn reasonable compensation for completing unfinished business”). 29 “Partners can and should anticipate [the no-compensation rule] in their agreement. The partners should be careful to define the situations in which the work-in-process provision applies. Bromberg on Partnership, §7.08(e)(3) at 7:140-7:140.2 (footnotes omitted). 30 An amendment to a partnership agreement could be as simple as: “in the event of a dissolution, Partnership Law §§ 40(6) and 43(1) shall not apply and no partner shall be required to account for any fees or profits received in connection with the winding up of any cases or matters pending as of dissolution.” If the amendment is done when the partnership is experiencing financial difficulties, it may be challenged as a fraudulent transfer as in In re Thelen. 62 Coudert’s Agreement confirmed that its client matters were firm assets and otherwise silent on the allocation of post-dissoluti n fees. DSI, 480 B.R. at 173- 74. As a result, Judge McMahon applied the default provisions of the statute: [P]artners are free to vary these rules by partnership agreement…. [T]the law’s assumptions about the nature of a partnership, as codified in the statute and reflected in numerous decisions interpreting it, should not be set aside in the absence of an explicit agreement among partners that they wish to operate under different ules. If law firms like Coudert need an alternative set of assumptions survive in a new marketplace, they are free to provide for one in their partnership agreements. Given their resources and sophistication, it is far more equitable to ask them to draft any special rules thy want to follow than it is to add a gloss to the statute…. DSI, 485 B.R. at 159 (emphasis added). In this case, the Law Firms made informed choices in hiring the Coudert Partners. The large, sophisticated firms were certainly aware of the requirements of the Partnership Law, including the duties of partne s in a dissolved partnership and the responsibility of the partnership for wrongful acts or omissions (such as the failure to account for partnership business) of partners who subsequently joined these firms. The Law Firms were also no doubt aware of: (i) this Court’s recognition in cases like Stem that fiduciary duties survive dissolution and continue through the winding up of the dissolved partnership and include unfinished business; (ii) the New York case law requiring partne s to account to the dissolved entity in contingency matters, (iii) the numerous reported decisions in other UPA jurisdictions applying the unfinished business rule to hourly matters, decisions that 63 pre-date Coudert’s dissolution; and (iv) that partners in a law partnership can waive the obligations as to unfinished business. Despite that knowledge, the Law Firms nevertheless extended offers to the Coudert Partners. The Law Firms therefore presumably concluded that the Coudert Partners’ reputation and client relationships would lead to new business that would generate profits more than sufficient to offset anypotential claim for unfinished business. Having made that determination, the Law Firms can hardly claim that the result is inequitable. Rather, the greater inequity would be to grant the mega- firms an exception for hourly matters while requiring smaller firms (handling matters on a contingent basis) to remain obligated under the Partnership Law. Prior to the dissolution of a partnership, all of its partners reap the benefits of a business by sharing in the profits of the firm. In this case, the Client Matters were developed using the resources of Coudert and over a century of good will. If the Coudert Partners are not required to account for the Client Matters, only the partners completing those matters, and the Law Firms, will receive the benefits from those matters. Given that creditors of Coudert are owed well over $30 million, this outcome is inequitable. Finally, it is clear that those who choose to operate in the partnership form have agreed to common ownership, benefits and obligations, which continue to operate beyond dissolution. Unless the partners agree to limit those obligations, 64 they are defined by the Partnership Law and the fiduciary duties famously defined by this Court in, among other cases, Meinhard v Salmon, 249 N.Y. at 458. As this Court stated in Meinhard: Many forms of conduct permissible in a workaday world for those acting at arm's length, are forbidden to those bound by fiduciary ties. A trustee is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of an ho or the most sensitive, is then the standard of behavior. As to this there has developed a tradition that is unbending and inveterate. Uncompromising rigidity has been the attitude of courts of equity when petitioned to undermine the rule of undivided loyalty by the “disintegrating erosion” of particular exceptions (Wendt v. Fischer, 243 N. Y. 439, 444). Only thus has the level of conduct for fiduciaries been kept at a level higher than that trodden by the crowd. It will not consciously be lowered by any judgment of this court. Meinhard, 249 N.Y. at 464 (emphasis added). The Court should not depart from these principles by making an exception to those duties, as codified in the Partnership Law, for the Law Firms. POINT VI IN A DISSOLUTION AND LIQUIDATION, THE NO COMPENSATION RULE APPLIES A. What is a Client Matter? Upon dissolution, it is the “duty of the partners to take possession of the firm assets and perform its contracts, extinguish its liabilities, and close up its business in the manner most advantageous to the interests of all the parties concerned.” Stem, 277 N.Y. at 546-547; see also King, 100 N.Y. at 393-394. As a result, a 65 client matter is any business pending covered by a retainer agreement that is pending but not completed as of the dissolution date regardless of the manner in which the law firm was to be paid. See Stem, 277 N.Y. at 546-547; DSI, 480 B.R. at 161; Rosenfeld, Meyer & Susman v. Cohen, 146 Cal.App.3d 200, 217, 194 Cal.Rptr. 180 (1983); Rothman v. Dolin, 20 Cal.App.4th 755, 759, 24 Cal.Rptr.2d at 571, 573 (1993). B. The No Compensation Rule Applies In A Dissolution And Liquidation As explained in Point I.F supra, in a dissolution and liquidation, the only exception to Partnership Law § 40(6) is for a surviving partner. In the Contingency Cases, the courts appear to require accountings using the valuation methodology set forth in Partnership Law § 73, and permit the winding up partner to assert a claim for post-dissolution “efforts, skill and diligence” against the f e received. See Kirsch, Shandell. In DSI and the Cert. Decision, Judge McMahon expressed “serious doubts” as to the permissibility of these credits but felt bound to apply the Kirsch rule: I expressed serious doubt as to whether this so-called Kirsch rule … was consistent with Partnership Law § 40(6)(New York’s version of the old common law “no compensation” rule), which flatly bars a partner who winds up affairs of a dissolved partnership from receiving any compensation …. Appdx. A134. Thus, while I doubt whether the New York Court of Appeals would apply Kirsch in either context, I feel constrained to apply Santalucia 66 to billable cases as well. The situation needs sorting out, but that is ultimately a job for the New York Court of Appeals. DSI, 480 B.R. at 177. Partnership Law § 73 applies in the limited circumstances when the partnership business of the dissolved firm is continued and the successor entity assumes the dissolved firm’s liabilities. See Partnership Law §§ 72, 73. It does not apply here. No entity has assumed the liabilities of Coudert and the business of the Coudert is being wound up. As such, in any accounting ordered, the No Compensation Rule will apply: [In a continuation case], [s]ome courts have approved compensation for the post-dissolution services of the continuing partners. This arguably follows from the rationale underlying the §42 election that it is intended to compensate only for use of the outgoing partner’s capital.... Note, by comparison, that no compensation is allowed when the partnership is wound up after dissolution (other than after a partner’s death), even if the winding-up partners perform substantial extra services, as by completing work on pending litigation. Bromberg on Partnership, §7.13(f), at 7:214 (emphasis supplied); Gull, 517 N.W.2d 531 (“[d]ifferent rules apply depending on whether a partnership is winding up its affairs or the business is continued.... [UPA §42] does not apply when the partnership is continued only for the purpose of winding up its affairs.”); Beckman, 579 A.2d at 634-636 (“[a]pplication of [UPA § 42] is properly limited to situations where the outgoing partner elects not to exercise his right to force a liquidation, but instead permits continuation of the business by the other 67 partner(s)…. ”); Bushard, 800 N.W.2d at 384-85 (“When there is a continuation, the departing partner's interest in the partnership i valued on the date of dissolution. When there is a wind-up, by contrast, the value of the partnership on the date of dissolution is less significant. The important date is the date of termination, when the winding up of the partnership's affairs has been completed.”). These decisions, which interpret the same provisions of the UPA, are consistent with the Partnership Law. They confirm that in a dissolution where the firm liquidates, Partnership Law §§ 40(6) and 43(1) apply, and the winding up partner must remit the post-dissolution profits from the client matters to the dissolved firm.31 See Partnership Law § 40(6). C. The Authorities Relied On By The Law Firms Are Consistent With The Application Of The No Compensation Rule The Law Firms rely on the decisions in Weisbrod, 767 P.2d at 171, Timmerman, 272 Or. at 613, Essay, 123 N.W.2d at 648, and Hughes v. Aycock, 598 S.W.2d 370 (Tex. Civ. App. Houston 14th Dist. 1980), for the proposition that profits earned after dissolution that are attributale to the personal skill or services of a partner are a factor to be considered in apportioning the shares. LFB at 34. 31 The winding up partner is generally permitted to deduct his reasonable overhead expenses before remitting the profit, see Ellerby, 485 N.E.2d at 417, Jewel, 156 Cal. App. 3d at 180, and Hammes, 579 N.E.2d at 353, but may not receive any compensation by way of profit. 68 Each one of these cases specifically found that the business was continued following dissolution and the application of UPA § 42 was appropriate. See Weisbrod, 767 P.2d at 174; Timmerman, 272 Or. at 627; Essay, 123 N.W.2d at 27 as modified 123 N.W.2d 648 (1963); Hughes, 598 S.W.2d at 377. In sum, the cases cited by the Law Firms confirm that UPA § 42 applies only when the business is continued, not liquidated. As such, Partnership Law § 73 is not applicable in this case. As a dissolution and liquidation, Coudert’s accounting is governed by the No Compensation Rule. See Bushard, 800 N.W.2d at 373 (in a dissolution and liquidation, “the applicable statute provides that in the absence of an agreement to the contrary, ‘[n]o partner is entitled to remuneration for acting in the partnership business.’”) D. The District Court Ordered The Coudert Partners To Provide An Accounting And Found That The Law Firms Were Jointly Liable Under The Partnership Law In this case, the following facts were undisputed: (i) following the Dissolution Date, the Former Partner joined the [Law Firm] as a partner; (ii) at the time that the Former Partners became a partner [at the Law Firm], Coudert clients retained the Law Firms to represent them and perform legal services on the Client Matters; and (iii) the Law Firm billed and collected legal fees on account of the Client Matters. RA. A309-405. 69 The District Court determined based on these undisputed facts that the Coudert Partners had a duty to account to Coudert for the profits on Client Matters that they completed and earned fees thereon. The District Court further determined that because the Coudert Partners’ actions were within the scope of the business of the Law Firms that they joined, the Law Firms are jointly liable for an accounting under Partnership Law § 24. DSI, 480 B.R. at 178; see also Cert. Decision. Appdx. A140. Thus, in this case, the Law Firms can retain no portion of the profits on the Client Matters. 70 CONCLUSION For the foregoing reasons, the Court should answer the first certified question in the affirmative, unless the partners have agreed otherwise. As to the second certified question, the Court should define a client matter as all pending but unfinished engagements to perform legal services on the dissolution date, and hold that a partner of the dissolved partnership (and in this case, the partner's new law firm) must account for all profits on such unfinished hourly matters. Date Completed: April 21, 2014 David J. A er Joseph R. Scholz Eduardo Glas McCARTER & ENGLISH LLP 245 Park A venue New York, New York 10167 (212) 609-6847 Counsel for Respondent-Appellant Development Specialists, Inc.