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: SHAY DVORETZKY (Time Requested: 15 Minutes) CTQ-2013-00010 Court of Appeals of the State of New York IN THE MATTER OF: COUDERT BROTHERS LLP, Debtor. –––––––––––––––––––––––––––––– DEVELOPMENT SPECIALISTS, INC., Plaintiff-Respondent-Appellant. –––––––––––––––––––––––––––––– GEOFFROY DE FOESTRAETS, JINGZHOU TAO, Defendants. – and – K&L GATES LLP, MORRISON & FOERSTER LLP, Defendants-Appellants-Respondents. –––––––––––––––––––––––––––––– (For Continuation of Caption See Inside Cover) –––––––––––––––––––––––––––––– ON APPEAL FROM THE QUESTION CERTIFIED BY THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT IN DOCKET NO. 12-4916-BK (L) BRIEF FOR DEFENDANT-APPELLANT-RESPONDENT JONES DAY SHAY DVORETZKY JONES DAY 51 Louisiana Avenue, NW Washington, DC 20001 Tel.: (202) 879-3939 Fax: (202) 626-1700 GEOFFREY S. STEWART JONES DAY 222 East 41st Street New York, New York 10017 Tel.: (212) 326-3939 Fax: (212) 755-7306 JEFFREY B. ELLMAN JONES DAY 1420 Peachtree Street, NE Atlanta, Georgia 30309 Tel.: (404) 521-3939 Fax: (404) 581-8330 Attorneys for Defendant-Appellant-Respondent Jones Day Date Completed: March 7, 2014 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, Defendants-Appellants-Respondents. i DISCLOSURE STATEMENT Jones Day is a general partnership organized under the laws of the State of Ohio. Jones Day has no corporate parent. Jones Day has affiliated entities and subsidiaries pertaining to the practice of law in various locations around the world, all of which are closely held. RELATED LITIGATION This case presents the same certified questions as In re Thelen LLP, 736 F.3d 213 (2d Cir. 2013). A9.1 This Court accepted certification of In re Thelen LLP on December 12, 2013. See In re: Thelen LLP, 2013 N.Y. Slip Op. 93845; A11. 1 Citations beginning with “A” refer to the Appendix submitted jointly by Appellants-Respondents Akin Gump Strauss Hauer & Feld, LLP, Arent Fox, LLP, Dechert LLP, DLA Piper (US) LLP, Dorsey & Whitney LLP, Duane Morris LLP, K&L Gates LLP, Morrison & Foerster LLP, and Sheppard Mullin Richter & Hampton, LLP. TABLE OF CONTENTS Page(s) ii DISCLOSURE STATEMENT .................................................................................. i RELATED LITIGATION ......................................................................................... i TABLE OF AUTHORITIES .................................................................................. iii JURISDICTIONAL STATEMENT ......................................................................... 1 QUESTIONS PRESENTED ..................................................................................... 1 PRELIMINARY STATEMENT .............................................................................. 2 ARGUMENT ............................................................................................................ 4 I. COUDERT’S RETAINER AGREEMENTS DID NOT GIVE IT ANY RIGHT TO THE MATTERS AT ISSUE OR TO THE PROFITS FROM THOSE MATTERS .......................................................... 5 II. THE DUTY AMONG COUDERT PARTNERS TO ACCOUNT FOR PROFITS EARNED FROM COUDERT’S PARTNERSHIP BUSINESS DID NOT GIVE COUDERT ANY RIGHT TO PROFITS EARNED FROM JONES DAY’S PARTNERSHIP BUSINESS ................. 8 A. Under The UPA, Partners Have A Fiduciary Duty To Account Only For Profits From Partnership Business ....................................... 9 1. Common Law ........................................................................... 10 2. The UPA .................................................................................. 12 B. The Profits At Issue Are Not Profits From Coudert’s Partnership Business .......................................................................... 19 III. DSI’S APPROACH WOULD PRODUCE INEQUITABLE RESULTS, CONFLICT WITH THE PUBLIC POLICY FAVORING CLIENT CHOICE, AND DESTABILIZE LAW FIRMS............................ 24 CONCLUSION ....................................................................................................... 27 TABLE OF AUTHORITIES (continued) Page(s) iii CASES Campagnola v. Mulholland, Minion & Roe, 76 N.Y.2d 38 (1990) ....................................................................................... 6, 25 Cohen v. Lord, Day & Lord, 75 N.Y.2d 95 (1989) ............................................................................................. 7 Consaul v. Cummings, 222 U.S. 262 (1911) ...................................................................................... 11, 12 Demov, Morris, Levin & Shein v. Glazer, 53 N.Y.2d 553 (1981) ........................................................................................... 6 Denburg v. Parker Chapin, 82 N.Y.2d 375 (1993) ........................................................................... 6, 7, 25, 27 Denver v. Roane, 99 U.S. 355 (1879) ........................................................................................ 10, 11 Ederer v. Gursky, 9 N.Y.3d 514 (2007) ............................................................................................. 9 Geron v. Robinson & Cole LLP 476 B.R. 732 (S.D.N.Y. 2012) ........................................................... 2, 22, 24, 27 In re Cooperman, 83 N.Y.2d 465 (1994) ..................................................................................... 6, 24 Jewel v. Boxer, 156 Cal. App. 3d 171 (1984) ........................................................................ 17, 18 King v. Leighton, 100 N.Y. 386 (1885) ............................................................................... 11, 15, 20 Kirsch v. Leventhal, 586 N.Y.S.2d 330 (3d Dep’t 1992) ..................................................................... 17 TABLE OF AUTHORITIES (continued) Page(s) iv Meinhard v. Salmon, 249 N.Y. 458 (1928) ........................................................................................... 15 Morris v. Crawford, 757 N.Y.S.2d 383 (3d Dep’t 2003) ..................................................................... 19 Rosenfeld, Meyer & Susman v. Cohen, 146 Cal. App. 3d 200 (1983) ........................................................................ 18, 21 Samantha Enters., Inc. v. Elizabeth St., Inc., 774 N.Y.S.2d 681 (1st Dep’t 2004) .............................................................. 15, 21 Santalucia v. Sebright Transp., Inc., 232 F.3d 293 (2d Cir. 2000) .................................................................... 17,22, 23 Shandell v. Katz, 629 N.Y.S.2d 437 (1st Dep’t 1995) .............................................................. 17, 22 Sheresky v. Sheresky Aronson Mayefsky & Sloan, LLP, 35 Misc. 3d 1201 (A), 2011 WL 7574999 (N.Y. Sup. Ct. Sept. 13, 2011) ........ 22 Simonds v. Simonds, 45 N.Y.2d 233 (1978) ......................................................................................... 16 Stem v. Warren, 227 N.Y. 538 (1920) ......................................................................... 14, 15, 19, 20 Weinrauch v. Epstein, 258 N.Y.S.2d 572 (1st Dep’t 1965) (per curiam) ............................................... 16 Wynne v. Gruber, 654 N.Y.S.2d 788 (2d Dep’t 1997) ..................................................................... 19 CONSTITUTIONAL AND STATUTORY AUTHORITIES 11 U.S.C. § 542 (2011) .............................................................................................. 8 New York State Constitution Article 6, § 3(b)(9) ..................................................... 1 New York Partnership Law § 40(6) (McKinneys 2013) ................................... 12, 13 TABLE OF AUTHORITIES (continued) Page(s) v New York Partnership Law § 43(1) (McKinney 2013) ........................................... 10 New York Partnership Law § 60 (McKinney 2013) ............................................... 10 OTHER AUTHORITIES Local Rule 27.2 .......................................................................................................... 1 22 N.Y.C.R.R.§ 500.27 .............................................................................................. 1 22 N.Y.C.R.R. § 1210.1 ........................................................................................... 25 N.Y.R.P.C. 5.6 ......................................................................................................... 25 2 Pomeroy, Equity Jurisprudence § 364 (5th ed.).................................................... 16 JURISDICTIONAL STATEMENT This Court has jurisdiction over the certified questions relating to the parties’ appeal and cross-appeal pursuant to New York State Constitution Article 6, §3(b)(9), which permits the New York Court of Appeals to accept questions of law certified by “a court of appeals of the United States.” By order dated December 2, 2013, the United States Court of Appeals for the Second Circuit certified to this Court the questions stated below pursuant to that Court’s Local Rule 27.2. By order dated January 14, 2014, this Court accepted the certified questions pursuant to 22 N.Y.C.R.R. § 500.27. QUESTIONS PRESENTED The Second Circuit certified the following questions to this Court: I. 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? II. 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? A160. 2 PRELIMINARY STATEMENT Coudert Brothers LLP was a law partnership organized under New York law. Facing rising debts and falling revenue, the Coudert partners voted to dissolve and wind down the partnership on August 16, 2005. A83 When Coudert dissolved, its former clients chose to retain new, third-party firms to work on matters that Coudert could no longer handle. A84. Some of these third-party firms, including Jones Day, also took on former partners of Coudert. Id. The third-party firms handled the matters using entirely their own resources, including staff and capital; Coudert contributed nothing to the representation of its former clients following its dissolution. Id. The essential question in this case is whether the bankruptcy Plan Administrator for Coudert, Development Specialists, Inc. (“DSI”), can assert a claim on behalf of Coudert to the profits earned by the third-party firms that represented their clients in the matters at issue after Coudert dissolved. The district court in this case disagreed on that question with the district court in another law firm bankruptcy, Geron v. Robinson & Cole LLP, 476 B.R. 732, 740 (S.D.N.Y. 2012) (“In re Thelen”), and the Second Circuit certified the state-law questions presented above. The joint brief by the defendants in this case takes those questions as framed and correctly answers that Coudert has no right to recover the defendants’ profits 3 from hourly-rate matters that Coudert could no longer handle. Jones Day agrees with and relies on the joint brief’s arguments regarding the two questions certified by the Second Circuit. However, Jones Day files this separate brief to suggest that any uncertainty in this area of the law should be resolved by reframing the question presented as follows: New York’s version of the Uniform Partnership Act provides that partners of a dissolving firm have a duty to account for profits that result from “partnership business,” including profits from “winding up” “partnership business” during dissolution. Where a law partnership dissolves, and its clients hire another law firm, must the profits earned by the new firm on a matter that the dissolved firm could no longer handle be treated as profits from the dissolved firm’s “partnership business” and turned over to the dissolved firm? The answer to that question is no. Coudert’s contracts with its clients gave it a right to handle matters and to earn fees only to the extent that clients allowed Coudert to continue doing so. When Coudert dissolved and its clients retained new counsel, Coudert’s business was immediately “wound up.” At that time, Coudert had no “unfinished business” because the matters at issue became the business of the new firms that clients hired to represent them. Nor should the new retainer agreements between the clients and their new firms be recharacterized, as a matter of equity, as being contracts between the clients and Coudert. Jones Day had no fiduciary duty to Coudert that prevented it from taking on matters for clients that Coudert could no longer serve. 4 In addition to being legally unsupported, DSI’s claims would produce inequitable results, undermine the interests of clients, and destabilize law firms. DSI’s position would bar a client from compensating a new firm to take on a matter that a dissolved firm could no longer handle. Such a disincentive to taking on matters would impede the rights of clients to the counsel of their choice. And if new firms did take on such matters, DSI’s approach would give an unfair windfall to a dissolved firm that had no role in earning the fees at issue. Finally, DSI’s rule would destabilize law firms by encouraging partners to leave a troubled firm at the earliest opportunity to maximize their own mobility in case of dissolution, and their ability to help the clients that they serve find new firms to represent them. ARGUMENT Jones Day earned the fees at issue after clients discharged Coudert, which was no longer able to serve them, and retained Jones Day. The matters at issue are the business of the Jones Day partnership, which Jones Day handled using entirely its own attorneys, staff, and resources. Coudert, by contrast, contributed no resources toward earning the fees for these matters. Coudert therefore has no property interest in the profits earned by Jones Day. DSI has at times suggested that Coudert owned its pending matters as a result of its retention agreements with clients, so that clients had no right to discharge Coudert and retain Jones Day. As demonstrated in Part I, however, that 5 argument contravenes both law and public policy. Thus, in the alternative, DSI relies on the so-called unfinished business doctrine, which imposes a duty on partners to account to their partnership for profits earned from the business of the partnership. As explained in Part II, however, that duty cannot support DSI’s claims, because the profits at issue were not derived from Coudert’s partnership business; rather, Jones Day earned the profits in question from Jones Day’s partnership business. DSI’s contrary argument cannot be squared with the plain text and common-law origins of New York partnership law. Finally, as explained in Part III, DSI’s approach would also produce inequitable results, conflict with New York’s public policy favoring the right of a client to the counsel of its choice, and destabilize law firms. I. COUDERT’S RETAINER AGREEMENTS DID NOT GIVE IT ANY RIGHT TO THE MATTERS AT ISSUE OR TO THE PROFITS FROM THOSE MATTERS. DSI has argued that the client matters that produced the profits at issue were Coudert’s “assets.” But Coudert’s contracts with clients did not give Coudert an absolute right to handle the matters or to collect the fees for those matters once clients terminated Coudert and retained new counsel. In fact, DSI has not disputed that its retention agreements could be terminated at will by its clients. As a matter of law and public policy, any agreement to the contrary would have been void. “[I]t is well established that 6 notwithstanding the terms of the agreement between them, a client has an absolute right, at any time, with or without cause, to terminate the attorney-client relationship by discharging the attorney.” Campagnola v. Mulholland, Minion & Roe, 76 N.Y.2d 38, 43 (1990). Because “the client has the absolute right . . . to terminate the attorney-client relationship at any time without cause, it follows as a corollary that the client cannot be compelled to pay damages for exercising a right which is an implied condition of the contract.” Demov, Morris, Levin & Shein v. Glazer, 53 N.Y.2d 553, 556-57 (1981). Nor can a client promise to pay a lawyer for work that the lawyer has not done. See In re Cooperman, 83 N.Y.2d 465, 471- 73 (1994) (invalidating retainer agreement that allowed an attorney to keep non- refundable fees without performing work). By the same token, if a partner departs a law firm and competes with his former firm, that firm cannot recover damages from the partner for lost profits from work that the firm itself did not perform. As this Court has explained, “restrictions on the practice of law, which include ‘financial disincentives’ against competition as well as outright prohibitions, are objectionable primarily because they interfere with the client’s choice of counsel.” Denburg v. Parker Chapin, 82 N.Y.2d 375, 380 (1993). This Court has therefore invalidated agreements “that penalize[] a competing attorney by requiring forfeiture of income,” which “could functionally and realistically discourage a withdrawing partner from serving clients 7 who might wish to be represented by that lawyer.” Id. These principles reflect the fundamental premise that: “Clients are not merchandise. Lawyers are not tradesmen. They have nothing to sell but personal service. An attempt, therefore, to barter in clients, would appear to be inconsistent with the best concepts of our professional status.” Cohen v. Lord, Day & Lord, 75 N.Y.2d 95, 98 (1989) (internal quotation marks omitted). Accordingly, Coudert’s retainer agreements gave it a property interest in the stream of legal fees from its clients only to the extent that clients allowed Coudert to continue handling matters and to earn those fees. When Coudert dissolved, and its lawyers, staff, and assets all dispersed, Coudert could no longer perform its obligations under its contracts with its clients. Its clients took their work elsewhere, and Coudert’s expectation of receiving fees for future work ended. As a result, Coudert’s asserted property right in any so-called “unfinished business” cannot be based on Coudert’s contracts with its clients. Those contracts, and Coudert’s conditional right to fees under those contracts, were terminated when Coudert dissolved and the clients engaged new firms. To illustrate this point, imagine that, after Coudert dissolved, its former clients replaced Coudert with a firm, “Smith & Smith,” that never took on any former Coudert partners. DSI could not argue that Smith & Smith improperly appropriated Coudert’s clients or matters. Nor could DSI claim that the profits 8 earned by Smith & Smith were somehow profits from Coudert’s business. And DSI surely could not argue that the payments made by Coudert’s former clients to Smith & Smith were actually the property of Coudert, which should have been held in trust for the bankrupt Coudert and turned over to it. See 11 U.S.C. § 542 (2011). Coudert’s retainer agreements do not give it a claim for services that it did not render, and that were instead provided by a third-party firm under a different contract. Thus, notwithstanding DSI’s references to client matters as Coudert’s “assets,” DSI’s real theory has been that Coudert’s claims arise from a partner’s fiduciary duty to account to a dissolved firm. However, as shown below, the fiduciary duties among Coudert’s partners to account for Coudert’s property do not give Coudert any property that it did not otherwise have as a matter of contract. Thus, those fiduciary duties do not obligate Jones Day to account to Coudert for profits from Jones Day’s partnership business.. II. THE DUTY AMONG COUDERT PARTNERS TO ACCOUNT FOR PROFITS EARNED FROM COUDERT’S PARTNERSHIP BUSINESS DID NOT GIVE COUDERT ANY RIGHT TO PROFITS EARNED FROM JONES DAY’S PARTNERSHIP BUSINESS. DSI has based its claim on the unfinished business rule, which DSI says imposes on partners of dissolving firms a fiduciary duty to account to the dissolved firm. But throughout this case, DSI has failed to engage with the fundamental question: “account for what?” The answer to that question requires an analysis of 9 the accounting duties that apply among members of a partnership under New York’s Uniform Partnership Act (the “UPA”), and the common-law origins of those duties. As described below, under the UPA, partners have a fiduciary duty to account to a dissolved firm only for partnership property, including profits from “partnership business.” Accordingly, at most, the unfinished business rule requires a departing partner to account to a dissolving partnership in two circumstances: (1) where the partner earns profits on a matter that is expressly continued on behalf of the dissolving partnership; or (2) if the partner earns profits that, while ostensibly performed under a new retainer agreement, are deemed in equity to have been performed on behalf of the dissolved partnership. As explained further below, because the profits at issue in this case were not profits from Coudert’s “partnership business” (or any other form of Coudert’s partnership property), the duty of Coudert’s partners to account for Coudert’s property does not give DSI any claim against Jones Day for profits from Jones Day’s partnership business. A. Under The UPA, Partners Have A Fiduciary Duty To Account Only For Profits From Partnership Business. The fiduciary duties of partners set forth in New York’s partnership law are, absent a contrary agreement, read into the terms of any partnership agreement as default terms. See Ederer v. Gursky, 9 N.Y.3d 514, 526 (2007) (describing the UPA as a set of default rules for partnership agreements, which will apply “in the 10 absence of an agreement to the contrary”). As relevant here, they require that each partner account to the partnership for partnership property, including the profits from partnership business. New York Partnership Law § 43(1) (McKinney 2013) (“Every partner must account to the partnership for any benefit, and hold as trustee for it any profits derived by him without the consent of the other partners from any transaction connected with the formation, conduct, or liquidation of the partnership or from any use by him of its property.”). The so-called unfinished business rule is simply a specific application of these general partnership principles. Because a partnership is deemed to continue during dissolution, the default rules governing partnership property apply; i.e., a partner must turn over all profits from partnership business to the partnership. New York Partnership Law § 60 (McKinney 2013). As explained further below, however, the common-law origins of the rule, the statutory text of New York partnership law, and relevant case law all make clear that the duty to account applies only to profits that can be deemed the result of “partnership business.” 1. Common law The unfinished business rule originated at common law in cases in which one partner died, and the surviving partner completed the partnership’s work under the original retainer agreement with the partnership. In Denver v. Roane, 99 U.S. 355 (1879), for example, the partners agreed upon dissolution “that the business of 11 the firm theretofore received and then in hand should be closed up as rapidly as possible by the members of the firm ‘as partners, under their original terms of association and in the firm name.’” Id. at 356 (emphasis added). See also Consaul v. Cummings, 222 U.S. 262, 269 (1911) (“Each partner is bound to devote himself to the firm’s business, and there is no implied obligation that for performing this duty he should be paid more than his proportionate share of the gains.”) (emphasis added); King v. Leighton, 100 N.Y. 386, 394 (1885) (“By the terms of the original partnership agreement the defendant was to give his personal attention and services to the conduct of the business . . . and he did no more than this, after the [dissolution].”) (emphasis added). Many courts found this result to be inequitable where one partner performed a disproportionate share of post-dissolution work. Courts therefore recognized multiple exceptions in which a partner could be entitled to retain some portion of post-dissolution firm profits. For example, the Supreme Court explained that, if a “surviv[ing partner] continues the business” of the former partnership “and makes a profit, the estate is bound to allow reasonable compensation if it elects to share in the gains thus made.” Consaul, 222 U.S. at 270. Likewise, in case of a voluntary dissolution, “the partner who continued the business was allowed compensation for performing services in which he had the right to have expected the continued assistance of the other.” Id. And “[e]xtra compensation has also been allowed in a 12 few cases where, in order to realize on the assets, it was absolutely necessary for the survivor to continue the business beyond the reasonable time allowed for winding up its affairs.” Id. In each such situation, the resulting profits were profits of the partnership because the matters had remained with the original partnership even after dissolution. 2. The UPA Against this common-law backdrop, the Uniform Partnership Act provides that “[n]o partner is entitled to remuneration for acting in the partnership business, except that a surviving partner is entitled to reasonable compensation for his services in winding up the partnership affairs.” New York Partnership Law § 40(6) (McKinneys 2013). Thus, consistent with one of the judicially created exceptions to the unfinished business rule, the UPA provides that a surviving partner is entitled to reasonable compensation. More fundamentally, the UPA, like the common law, imposes a duty on partners to account only for profits from “partnership business” of the dissolved partnership, i.e., profits earned by a partner in “partnership affairs.” Id. As evident from the text of the UPA, the fiduciary duties among partners do not create a new form of property. That is, they do not give a dissolving partnership a right to the profits of a separate partnership, or require that partners account for profits from such business. Thus, in the Smith & Smith hypothetical, 13 Coudert’s partnership agreement plainly could not give Coudert a right to the profits earned on matters that clients retained Smith & Smith to handle, and that Smith & Smith handled without taking on any partners from Coudert. Smith & Smith would have no fiduciary duty to Coudert, and the profits at issue would not be profits from Coudert’s business. Moreover, even if a Coudert partner were to join Smith & Smith after Smith & Smith had completed its work on the matters in question, that partner would not have a duty, upon arriving at his new firm, to account for Smith & Smith’s profits. Such profits would not be a result of “acting in the partnership business” or of “winding up the partnership affairs” of the dissolving firm. New York Partnership Law § 40(6) (McKinneys 2013). To be sure, in limited circumstances, some courts have disregarded the form of a new retainer agreement and treated the work under that contract as if it were performed under the original retainer agreement with a dissolving firm. However, unlike here, these cases all involved individual partners from a dissolving firm who, in violation of their fiduciary duties, signed agreements to perform work themselves that could and should have been performed on behalf of the dissolving partnership. The courts therefore chose, in a suit among partners, to recharacterize a new contract as the “partnership business” of the dissolving firm. For example, in Stem v. Warren, 227 N.Y. 538 (1920), the separate architectural firms of Reed & Stem and Warren & Wetmore formed a special joint 14 partnership that was retained to design parts of New York’s Grand Central Station. After Reed died, the dissolving joint partnership (i.e., the surviving partner of Reed & Stem and the ongoing firm of Warren & Wetmore) could have continued and completed the engagement. Indeed, “[b]y the terms of [the original] contract” between the partnership and its client “and the [partnership] agreement between the associated architects[,] the intention of the parties [wa]s manifest that the [original] contract was to be performed notwithstanding the death of Mr. Reed.” Id. at 547. Instead, Wetmore tried to cut Reed’s estate (and Stem) out of the profits. “[W]ithout any suggestion on the part of the railroad company and without the knowledge or consent of [Stem],” Wetmore contacted the client railroad with “a proposed contract in substance the same as the [previous contract] except that Warren & Wetmore were named as architects thereunder.” Id. at 545. This Court concluded that, notwithstanding this gambit, Warren & Wetmore was liable to Stem for the profits from completing the Grand Central project. The Court explained that, “[u]pon the death of Mr. Reed it was the duty of the survivors of the firms to take possession of the firm’s assets, perform the contract, extinguish the firm’s liabilities, and close its business for the interest of all parties concerned.” Id. at 547. Accordingly, the Court concluded that the new retainer agreement “was a breach of the trust incident to the partnership relation between the parties,” and therefore refused to give it effect. Id. at 545, 547. And because the work was 15 deemed to be completed by the joint partnership, “the representatives of Reed were entitled to share in the profits of all unfinished business though subsequently completed.” Id. at 547. Relatedly, in both Stem and King, 100 N.Y. 386, the new retainer agreements did not alter meaningfully which professionals performed the work, and there was no suggestion that the dissolving firm was unable to satisfy its duty of competence to its clients. In King, for example, “[t]he firm occupied the same premises, and used the same power, tools and machinery after as before the [dissolution], and not a circumstance appears in the case upon which any equity can be based calling for an allowance to the defendant.” 100 N.Y. at 394. See also Stem, 227 N.Y. at 545. These decisions are thus closely related to cases imposing a constructive trust on profits earned by a fiduciary who usurps a partnership opportunity. See Meinhard v. Salmon, 249 N.Y. 458, 468 (1928) (imposing a constructive trust where one partner appropriated a lease opportunity that should have been reserved for the partnership because “[a] managing coadventurer appropriating the benefit of such a lease without warning to his partner might fairly expect to be reproached”); Samantha Enters., Inc. v. Elizabeth St., Inc., 774 N.Y.S.2d 681, 681 (1st Dep’t 2004). Indeed, courts have properly equated these two doctrines. See, e.g., Weinrauch v. Epstein, 258 N.Y.S.2d 572, 572 (1st Dep’t 1965) (per curiam) 16 (explaining that “a diversion of [stock options] by [one partner] to himself would be contrary to [his] fiduciary dut[ies]” if the options “were intended to be a part of the compensation to be paid the partnership for services rendered”). More broadly, both the unfinished business rule and the imposition of a constructive trust for usurpation of a partnership opportunity are consistent with “the general rule that equity regards as done that which should have been done.” Simonds v. Simonds, 45 N.Y.2d 233, 240 (1978) (quoting 2 Pomeroy, Equity Jurisprudence § 364 (5th ed.). Thus, where a husband agreed upon divorcing his first wife to maintain her as the partial beneficiary in his life insurance policy, but then named his second wife as the beneficiary in violation of that prior duty, the first wife could bring a claim for equitable conversion against the second wife. Id. at 239. Moreover, “th[e] mere substitution of policies, or even substitution of insurance companies, does not defeat the equitable interest of one who has given sufficient consideration for a promise to be maintained as beneficiary under an insurance policy.” Id. Finally, the weight of authority from lower New York courts and out-of- state courts is consistent with the framework described above. Most decisions by lower New York courts allow a dissolving firm to recover only the portion of a contingent fee that is attributable to the work that it has actually performed. See, e.g, Shandell v. Katz, 629 N.Y.S.2d 437, 439 (1st Dep’t 1995); Kirsch v. Leventhal, 17 586 N.Y.S.2d 330, 332 (3d Dep’t 1992); see also Santalucia v. Sebright Transp., Inc., 232 F.3d 293, 298 (2d Cir. 2000). That is, the firm is allowed to recover only the profits that were earned pre-dissolution, while a matter remained the “partnership business” of the firm. Likewise, decisions cited by DSI from intermediate California appellate courts actually reinforce that the UPA’s duty to account among partners applies only if a matter handled post-dissolution can be deemed to be the partnership business of the dissolved firm. (These decisions, in any event, do not even bind the California Supreme Court, let alone this Court.) In Jewel v. Boxer, 156 Cal. App. 3d 171 (1984), a four-person partnership split into separate two-partner firms. Id. at 175. “[E]ach former partner sent a letter to each client whose case he had handled for the old firm, announcing the dissolution [and enclosing] a substitution of attorney form.” Id. The substitution of counsel did not appear to alter which lawyer performed the work or the resources used to perform it. On these facts, the court reasoned that the partners had a duty to account to one another for profits from the dissolved firm’s business, and could not “cut off the rights of the other partners in the dissolved partnership by the tactic of entering into a ‘new’ contract to complete such business.” Id. at 178 (quoting Rosenfeld, Meyer & Susman v. Cohen, 146 Cal. App. 3d 200, 219 (1983)). 18 Similarly, in Rosenfeld, the court refused to give effect to a new retention agreement because “one [withdrawing] partner[] attempted [to] exploit[] … a partnership opportunity for his own personal benefit and to the resulting detriment of his copartners.” 146 Cal. App. 3d at 213. Moreover, the remaining partners of the dissolving firm had “assured [the client] that [they] would do whatever was necessary to pursue the case, such as assigning other partners to work on the case and/or retaining, at [plaintiffs’] expense, skilled antitrust attorneys as counsel.” Id. at 210. Unlike when a firm liquidates, the dissolving firm in Rosenfeld stood ready to serve its clients. Only in that context did the court determine that a departing partner had a duty to account to his former firm for profits that were earned from the dissolving firm’s “partnership business.” B. The Profits At Issue Are Not Profits From Coudert’s Partnership Business. In light of these principles, DSI has no right to profits earned by Jones Day on the matters that Jones Day handled after Coudert dissolved. Any such profits were earned by Jones Day in the course of handling Jones Day’s partnership business, not Coudert’s. For all of the matters at issue, clients retained Jones Day after Coudert dissolved and liquidated. As soon as the clients exercised their absolute right to hire new counsel, the matters at issue ceased to be Coudert’s partnership business. 19 And neither the Coudert partners nor Jones Day had any duty to account to Coudert for profits that did not arise from Coudert’s business. Nor is there any basis to disregard the new retainer agreements between Jones Day and its clients, such that the matters at issue could be deemed Coudert’s partnership business. First, in agreeing to represent its clients, Jones Day did not violate any fiduciary duty to Coudert. See, e.g., Stem, 227 N.Y. at 547 (concluding that a new retainer agreement “was a breach of the trust incident to the partnership relation between the parties”). Indeed, Jones Day had no duties to Coudert. Nor, for that matter, did the Coudert partners violate any fiduciary duties to the extent they facilitated Jones Day’s retention following Coudert’s dissolution. Rather, “it is . . . clear that the fiduciary relationship between partners [that prevents solicitation of partnership clients] terminates upon notice of dissolution.” Morris v. Crawford, 757 N.Y.S.2d 383, 386 (3d Dep’t 2003); see also Wynne v. Gruber, 654 N.Y.S.2d 788, 789 (2d Dep’t 1997) ( “[S]ince the fiduciary relationship between the former partners ended when [the departing partners] dissolv[ed] Ridge Associates, the plaintiff’s claim that his former partners solicited Ridge Associates’ patients during the winding up process is insufficient to establish a cause of action for the imposition of a constructive trust upon the assets of Gruber Associates.”). The conduct of Jones Day and the former Coudert partners was particularly beyond reproach given that Coudert was in liquidation and was incapable of 20 competently continuing to handle client matters. Upon Coudert’s liquidation, the Coudert partners were not presented with a choice between continuing to handle client matters at Coudert and appropriating for themselves an opportunity belonging to Coudert. Rather, once Coudert entered liquidation and dispersed its lawyers, staff, business equipment, and other resources, it was incapable of handling client matters; the only question was whether clients in need of representation would retain a third-party firm that had taken on Coudert partners, or some other third-party firm that had not. Unlike in Stem and similar cases, there was no ongoing successor to Coudert that could have performed the contract. Indeed, the ethical duties of the former Coudert partners to their clients required that they help clients find a new firm to represent them in the matters at issue when Coudert dissolved. See Vollgraff v. Block, 117 Misc. 2d 489, 493 (Sup. Ct. 1982) (holding that partners violated their duty to a client by failing to competently represent him during the dissolution of their law partnership). Second, Jones Day’s retention agreements reflected substantively new representations. See, e.g., King, 100 N.Y. at 394 (noting that “[t]he firm occupied the same premises, and used the same power, tools and machinery after as before the [dissolution]”). Whether or not a client’s decision to retain Jones Day turned in part on the continuity of representation provided by a former Coudert partner, clients retained Jones Day to represent them—not the former Coudert partner 21 directly. Jones Day provided access to its partners, associates, and support staff; it provided a network of offices and expertise across a range of subject areas; and it used its capital assets (offices, computers, expense accounts, reputation, etc.) to enable its personnel to handle the matters effectively. In short, Jones Day, in both form and substance, is distinct from Coudert, and there is no basis to disregard the form of Jones Day’s retention agreements with its clients. Relatedly, DSI does not dispute that Coudert was unable, with or without the help of its departing partners, to continue representing clients. Just as there can be no appropriation of a partnership opportunity where the partnership is not in a position to take advantage of the business in question, Samantha Enters., 774 N.Y.S.2d at 681, Jones Day’s agreement to handle the matters at issue did not deprive Coudert of any opportunity that it otherwise would have had. There is no basis to argue that Jones Day should have refused to handle the matters at issue so that Coudert, in the midst of liquidation and bankruptcy, could have attempted to handle the matters. Finally, although California cases in the Jewel line deemed it equitable to disregard new retainer agreements “[g]iven the facts of th[e] case,” Rosenfeld, 146 Cal. App. 3d at 219, the equitable considerations here tilt decisively the other way. Due to its own liquidation, Coudert became unable to represent clients. It provided no resources that were used in generating the profits that DSI seeks. Nor did 22 Coudert take on any of the risks attendant to handling client matters, such as the risk of failed collections or malpractice liability. By contrast, Jones Day, using its own resources and at its own risk, responded to the needs of the clients that Coudert could not serve. Jones Day is thus in a markedly different position than the defendants in cases cited by DSI, who had effectively appropriated partnership business at the expense of their former partners. On the facts here, adopting a fiction that treats the work of Jones Day as the work of Coudert would be plainly inequitable. See also In re Thelen, 476 B.R. at 740 (“[A]pplying the unfinished business doctrine to pending hourly fee matters would result in an unjust windfall for the Thelen estate, as ‘compensating a former partner out of that fee would reduce the compensation of the attorneys performing the work.’” (quoting Sheresky v. Sheresky Aronson Mayefsky & Sloan, LLP, 35 Misc. 3d 1201(A), 2011 WL 7574999, at *5 (N.Y. Sup. Ct. Sept. 13, 2011)). DSI has previously attempted to avoid the flaws in its accounting claim by relying on stray passages from lower court decisions stating that “pending contingent fee cases of a dissolved partnership [at the time of dissolution] are assets subject to distribution.” Santalucia, 232 F.3d at 297-98 (quoting Shandell, 629 N.Y.S.2d at 439). As described in Part I, however, these cases do not hold that a dissolving firm has a property interest in the actual matters pending at the time of its dissolution. 23 Rather, DSI’s quotations describe “cases of a dissolved partnership” as “assets” only in a limited sense. As just explained, each of the cited cases involved a claim against the members of a dissolving partnership for profits earned under either (a) a client’s retainer agreement with the dissolving partnership or (b) an agreement with a former member of the dissolved partnership that was deemed to have been on behalf of the dissolved partnership. Accordingly, where New York courts have suggested that pending matters are “assets” of the partnership, they have simply been referring to the established principle that a partnership (whether dissolving or not) may hold its partners to account for profits earned from partnership business. Indeed, the use of the term “assets” was particularly understandable given that the contingent fee cases on which DSI relies involved an accounting for completed work on pending cases under retainer agreements that were in force at the time the work was done. Thus “[a] close reading” of the case law makes clear that these cases are based on “the duty of a lawyer to account to his former partners [which arises from] the fiduciary relationship of trust and confidence that partners have from time immemorial shared with one another.” Santalucia, 232 F.3d at 300. No such duty is implicated here because the profits that DSI seeks were not earned on account of Coudert’s partnership business. 24 III. DSI’S APPROACH WOULD PRODUCE INEQUITABLE RESULTS, CONFLICT WITH THE PUBLIC POLICY OF CLIENT CHOICE, AND DESTABILIZE LAW FIRMS. The result urged by DSI would be fundamentally inequitable, would conflict with New York’s public policy favoring client choice, and would destabilize law firms. First, as described above, DSI’s approach would unfairly penalize firms that assist clients left in the lurch by dissolving firms, and it would provide a windfall to dissolving firms that failed to competently manage their affairs. Coudert contributed no labor, capital, or any other resources to help Jones Day represent its clients. Thus, had Coudert not dissolved, Coudert would have had no claim to the fees earned by Jones Day. There is no reason for Coudert to be in a better position because it entered liquidation and abandoned its clients. See In re Thelen, 476 B.R. at 740. Second, DSI’s approach would also conflict with New York’s deeply ingrained public policy of protecting a client’s right to the counsel of its choice. This policy is reflected in numerous sources. As described above, New York law precludes the enforcement of any agreement that gives an attorney a right to continue a representation or pays an attorney for work that he or she has not done. In re Cooperman, 83 N.Y.2d at 471-73. Rather, “it is well established that notwithstanding the terms of the agreement between them, a client has an absolute right, at any time, with or without cause, to terminate the attorney-client 25 relationship by discharging the attorney.” Campagnola, 76 N.Y.2d at 43. Similarly, New York’s ethics rules require every attorney to inform clients of their right to terminate the “attorney-client relationship at any time,” and that in the event of termination, the attorney may have a claim for “the value of services rendered . . . up to the point of discharge.” 22 N.Y.C.R.R. § 1210.1 (emphasis added)). Likewise, any attempt by a law firm to impose “restrictions on the practice of law, which include ‘financial disincentives’ against competition as well as outright prohibitions,” is void because “penaliz[ing] a competing attorney by requiring forfeiture of income could ‘functionally and realistically discourage’ a withdrawing partner from serving clients.” Denburg, 82 N.Y.2d at 380. And New York’s ethics rules provide that “[a] lawyer shall not participate in offering or making . . . 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.” N.Y.R.P.C. 5.6 (emphasis added)). In short, contract provisions that allow attorneys to be paid for services they did not provide or that restrict competition are void because they inhibit free client choice. Yet, under DSI’s reading, the UPA would impose comparable burdens on client choice as a default rule of partnership agreements. Under DSI’s approach, 26 where a client discharges a dissolving law firm, a new law firm may be compensated only if it refuses to take on any former partners from the dissolving firm. By contrast, if the new firm takes on a former partner of the dissolved firm, it would be required to work for free, and the dissolving firm would instead receive payment for work that it never performed. To be sure, some firms may, as a matter of professional principle, take on such unpaid matters and provide the same level of service on them as they do on paid representations. Indeed, Jones Day has drawn no such distinctions among client matters. In this situation, DSI’s position would simply be inequitable; the new firm providing the services would go uncompensated while the dissolving firm (and its creditors) would receive windfall profits for unperformed work. However, it is likely that not all firms would respond in this way. Rather, DSI’s position would create a strong incentive for some firms to refuse to take on matters that were previously handled by a dissolving firm; to refuse to take on the partners from the dissolving firm in order to avoid the duty to account; or to agree to handle these matters, while devoting fewer resources to them because they are unpaid. Such a rule would harm clients’ interests. It would also make it more difficult for attorneys at a dissolving firm to find a new law firm, because any firm that took them on could become obligated to perform significant amounts of unpaid work. Thus, as Judge Pauley properly concluded in In re Thelen, DSI’s 27 approach “is inconsistent with a client’s right to choose attorneys.” 476 B.R. at 741. Third, DSI’s approach would destabilize law firms. DSI has never argued that a partner who departs a law firm outside of the dissolution context is required to account to his or her prior firm for any profits from matters that clients bring to the new firm. And for good reason: an agreement that attempted to impose such a restriction on client choice and lawyer mobility would violate New York public policy. See, e.g., Denburg, 82 N.Y.2d at 380. DSI’s approach would therefore create the perverse result that a partner who departs a firm before dissolution would have no duty to account, but a partner who stays until dissolution would have this burden. Consequently, partners would have a strong incentive to depart their firms at the first sign of financial trouble, potentially leading to additional law firm failures. That instability would disserve law firms, individual attorneys, and clients alike. CONCLUSION For the foregoing reasons, the Court should hold that, where a law partnership dissolves and its clients hire another law firm that has taken on former partners of the dissolved firm, the new firm has no duty to account for profits it has earned on matters that former clients of the dissolved firm retained it to handle.