In re: Thelen LLP.BriefN.Y.June 4, 2014To be Argued by: THOMAS L. FEHER (Time Requested: 30 Minutes) CTQ-2013-00009 Court of Appeals of the State of New York YANN GERON, as Chapter 7 Trustee of the Estate of Thelen LLP, Plaintiff-Appellant, – v. – SEYFARTH SHAW LLP, Defendant-Respondent. –––––––––––––––––––––––––– ON APPEAL FROM THE QUESTIONS CERTIFIED BY THE U.S. COURT OF APPEALS FOR THE SECOND CIRCUIT IN DOCKET NO. 12-4138-BK BRIEF FOR DEFENDANT-RESPONDENT LORI L. ROESER M. RYAN PINKSTON SEYFARTH SHAW LLP 131 South Dearborn Street, Suite 2400 Chicago, Illinois 60603 Tel.: (312) 460-5000 Fax: (312) 460-7000 THOMAS L. FEHER THOMPSON HINE LLP 3900 Key Center 127 Public Square Cleveland, Ohio 44114 Tel.: (216) 566-5532 Fax: (216) 566-5800 Attorneys for Defendant-Respondent Date Completed: April 18, 2014 Disclosure Statement Pursuant to 22 NYCRR 500.1(f), Defendant-Respondent Seyfarth Shaw LLP (“Seyfarth”) states that the following entities are affiliates of Seyfarth: Seyfarth Shaw (UK) LLP Seyfarth Shaw Australia (GP) Pty, Ltd. Seyfarth Shaw Australia Limited Partnership WorkRight Training LLC WorkSharp Technologies, Inc. Seyfarth Holdings LLC Investor Closing Services LLC SeyfarthLean Consulting LLC National Group Services Corp. i Table of Contents Questions Presented ........................................................................................ 1 Statement of Facts ........................................................................................... 3 Summary of Argument ................................................................................... 4 Argument ........................................................................................................ 7 I. Law Firms Do Not Own Client Matters, Regardless Of How Such Matters Are Billed. ...................................................................... 7 A. The Mere Possibility Of Earning Fees In The Future Is Not A Property Interest. ............................................................. 7 B. The Partnership Law Is Irrelevant Because It Does Not Create A Property Interest In Client Matters. ............................ 9 C. Because The Partnership Law Does Not Apply, The Court Need Not Look To Other UPA Jurisdictions For Guidance. .................................................................................. 12 D. New York Law Does Not Recognize A Property Interest In Client Matters. ..................................................................... 15 1. New York trial courts have rejected the notion that law firms own client matters that are billed by the hour. ............................................................................... 15 2. New York state court decisions regarding contingency fee matters are entirely consistent with Seyfarth’s position regarding hourly fee matters. ......... 17 3. Stem v. Warren is not on point and does not support the Trustee’s position. .................................................... 21 4. New York law regarding the attorney-client relationship necessarily precludes law firms from owning client matters. .................................................... 25 i. “Clients are not merchandise.” ............................ 27 ii ii. The Trustee identifies no basis to distinguish between dissolutions and departures. .................. 30 iii. The Trustee’s position would result in impermissible fee splitting. ................................. 31 E. The Trustee’s Reliance On DSI Is Misplaced. ......................... 34 II. The Court Need Not Answer The Second Certified Question, But To The Extent It Chooses To Do So, The Court Should Define “Client Matter” Narrowly And Conclude That The Law Firm Actually Providing Services Is Entitled To Retain All Fees Generated By Such Services. ............................................................. 36 Conclusion ................................................................................................... 39 iii TABLE OF AUTHORITIES Page(s) CASES Braschi v. Stahl Assocs. Co., 74 N.Y.2d 201 (1989) ........................................................................ 11, 12 Burke v. Clifton, Budd & DeMaria, Index No. 1454/91-001 (N.Y. Sup. Ct. Dec. 9, 1991) ............................. 16 Burke v. Clifton, Budd & DeMaria, Index. No. 1454/91-003 (N.Y. Sup. Ct. July 27, 1992) .......................... 16 Cohen v. Lord, Day & Lord, 75 N.Y.2d 95 (1989) ......................................................................... passim DelCasino v. Koeppel, 207 A.D.2d 374 (2d Dept. 1994) ............................................................. 17 Demov, Morris, Levin & Shein v Glantz, 53 N.Y.2d 553 (1981) .......................................................... 5, 9, 23, 29, 37 Denburg v. Parker Chapin Flattau & Kimpl, 82 N.Y.2d 375 (1993) ...................................................... 28, 29, 30, 31, 35 Development Specialists, Inc. v. Akin Gump Strauss Hauer & Feld LLP (In re Coudert Bros. LLP), 480 B.R. 145 (S.D.N.Y. 2012) .......................................................... 34, 35 Dwyer v. Nicholson, 193 A.D.2d 70 (2d Dept. 1993) ............................................................... 17 Ford v. Albany Medical Ctr., 283 A.D.2d 843 (3d Dept. 2001) ............................................................. 32 Geron v. Robinson & Cole LLP, 476 B.R. 732 (S.D.N.Y. 2012) ...................................................... 3, 12, 13 Geron v. Seyfarth Shaw LLP (In re Thelen LLP), 736 F.3d 213 (2d Cir. 2013) .......................................................................4 iv Grant v. Heit, 263 A.D.2d 388 (1st Dept. 1999) ............................................................ 17 Greenspan v. Orrick, Herrington & Sutcliffe LLP (In re Brobeck, Phleger & Harrison LLP), 408 B.R. 318 (Bankr. N.D. Cal. 2009) .............................................. 13, 14 Heller Ehrman LLP v. Arnold & Porter LLP (In re Heller Ehrman LLP), No. 10-3203DM, 2011 Bankr. LEXIS 1497 (Bankr. N.D. Cal. Apr. 22, 2011) ............................................................ 14 In re Cooperman, 83 N.Y.2d 465 (1994) ....................................................................... passim International News Service v. Associated Press, 248 U.S. 215 (1918)....................................................................................7 Jewel v. Boxer, 156 Cal. App. 3d 171 (1st Dist. 1984) ............................................... 13, 14 Kirsch v. Leventhal, 181 A.D.2d 222 (3d Dept. 1992) ...................................................... passim Matter of Lester (Berman), 61 A.D.2d 935 (1st Dept. 1978) .............................................................. 35 McDonald v. Fenzel, 233 A.D.2d 219 (1st Dept. 1996) ...................................................... 16, 18 Nixon Peabody LLP v. de Senilhes, 20 Misc. 3d 1145(A), 2008 N.Y. Slip Op. 51885(U), 2008 N.Y. Misc. LEXIS 5770 (Sup. Ct., Monroe County 2008) ............................................................. 29 People v. Ryan, 274 N.Y. 149 (1937) ................................................................................ 11 Santalucia v. Sebright Transportation, Inc., 232 F.3d 293 (2d Cir. 2000) .................................................. 18, 19, 20, 31 Shandell v. Katz, 217 A.D.2d 472 (1st Dept. 1995) .................................... 16, 17, 18, 19, 20 v Sheresky v. Sheresky Aronson Mayefsky & Sloan, LLP, 35 Misc. 3d 1201(A), 2011 N.Y. Slip Op. 52504(U), 2011 N.Y. Misc. LEXIS 6588 (Sup. Ct., N.Y. County 2011) ................................................ 12, 13, 16, 32 Stem v. Warren, 227 N.Y. 538 (1920) ......................................................................... passim Verizon New England, Inc.,v Transcom Enhanced Services, Inc., 21 N.Y.3d 66 (2013) ........................................................................ 1, 8, 26 Wagner & Wagner, LLP v. Atkinson, Haskins, Nellis, Brittingham, Gladd, & Carwile, P.C., 596 F.3d 84 (2d Cir. 2010) ...................................................................... 32 Welman v. Parker, 328 S.W.3d 451 (Mo. Ct. App. 2010) ..................................................... 13 STATUTES New York Partnership Law § 4(4) ................................................................ 12 New York Partnership Law § 12 .................................................................. 10 New York Partnership Law § 40(6) ........................................................ 10, 11 New York Partnership Law § 43(1) .................................................................2 OTHER AUTHORITIES New York Rule of Professional Conduct 1.5(a) ........................................... 33 New York Rule of Professional Conduct 1.5(g) ..................................... 31, 32 Questions Presented 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: No. Law firms do not own client matters and have no enforceable expectation in future fees generated by the services of another firm. They do not have the right to continued representation and fees, the exclusive right to the possession or use of client matters, the right to buy or sell client matters, or any similar rights with respect to client matters necessarily attendant to property ownership. See Verizon New England, Inc.,v Transcom Enhanced Services, Inc., 21 N.Y.3d 66, 72 (2013) (“[T]he expectation of any continued or future business is too contingent in nature and speculative to create a present or future property interest.”). Under well-established New York law, every client has the absolute right to terminate its counsel. That right is inconsistent and irreconcilable with the notion that a law firm owns its clients’ matters. Moreover, because dissolution does not increase or decrease a partnership’s property holdings, no law firm gains, via dissolution, a greater right to fees earned by a successor firm than it had prior to dissolution. 2 Importantly, answering the question presented does not require analysis of, or creation of any exception for, law partnerships under the New York Partnership Law (the “Partnership Law”). The Partnership Law does not define “property” or otherwise dictate what is or is not property of a partnership. Rather, the Partnership Law only addresses how property (and profits from the use of such property) is to be divided among the partnership and its partners. See, e.g., Partnership Law § 43(1). Further, the Partnership Law creates no obligations as to any third parties to the partnership, such as the defendant in this matter. 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: Because the first certified question must be answered in the negative, this second certified question is moot and need not be answered by the Court. Should the Court answer the first certified question in the affirmative or otherwise decide to address the second certified question, the Court should define a “client matter” for purposes of the unfinished business doctrine to include only those matters for which a firm has been retained and has not yet been terminated. In New York, it is a fundamental principle of law that the 3 client’s decision to terminate representation is inviolate. Defining “client matter” to encompass any services rendered or fees generated post-termination conflicts with the client’s right to choose counsel. The measure of any interest in a client matter for any firm must be limited to the reasonable value of services actually rendered by that firm. Statement of Facts Without agreeing to the relevance thereof, Seyfarth agrees with the majority of the factual and procedural history recited by Yann Geron, trustee for the bankruptcy estate of Thelen LLP (the “Trustee”), in his opening brief (the “Trustee’s Brief”). Two statements, however, are inaccurate and warrant mention. First, the Trustee contends that Judge Pauley of the United States District Court “concluded” that: “Assuming that pending hourly fee matters are assets, Thelen fraudulently transferred those assets when its partners adopted the Unfinished Business Waiver on the eve of dissolution without consideration.” (Trustee’s Brief, at 9 (citing Geron v. Robinson & Cole LLP, 476 B.R. 732, 743 (S.D.N.Y. 2012)).) The quoted language did not refer to the Trustee’s claims against Seyfarth. Rather, it was part of an analysis of the Trustee’s claims against another law firm (Robinson and Cole LLP) under California law. 4 Second, the Trustee also states that: “Following Thelen’s dissolution, eleven Thelen partners joined Seyfarth Shaw LLP (“Seyfarth”), ten in its New York office and one in California. The former partners transferred to Seyfarth unfinished matters from Thelen, and Seyfarth billed clients for their services.” (Trustee’s Brief, at 8 (citing Geron v. Seyfarth Shaw LLP (In re Thelen LLP), 736 F.3d 213, 217 (2d Cir. 2013)).) This recitation of facts comes from the Second Circuit’s opinion, which simply reiterates the allegations of the Trustee’s Complaint. The former Thelen partners that joined Seyfarth did not, because they could not, “transfer” any client matter to Seyfarth. To the contrary, as discussed in detail below, in New York, clients (not lawyers) own their legal matters. Only clients—not lawyers or law firms—have the authority to move the clients’ matters to a new law firm. That is precisely what occurred here when Thelen failed and its clients were forced to find new counsel. Summary of Argument Law firms do not own the client matters upon which they work, no matter how the law firms bill the clients for the services it renders. As this Court previously held, “[c]lients are not merchandise. Lawyers are not tradesmen. . . . An attempt, therefore, to barter in clients would appear to be inconsistent with the best concepts of our professional status.” Cohen v. Lord, 5 Day & Lord, 75 N.Y.2d 95, 98 (1989). Additionally, lawyers are not entitled to be compensated for legal services they did not provide. See Demov, Morris, Levin & Shein v Glantz, 53 N.Y.2d 553, 558 (1981). Nothing—not the Partnership Law, not Thelen’s partnership agreement, not opinions applying the “unfinished business” doctrine to contingency cases—supports departing from this existing law. Indeed, the Trustee’s cited authorities (inapplicable as they may be) are all consistent with the necessary conclusion that law firms do not own client matters under New York law. The Trustee relies almost exclusively on the Partnership Law. The Trustee’s reliance, however, is misplaced, because the Partnership Law does not create or define property interests. Rather, the Partnership Law provides default rules for how a partnership is to divide its property upon dissolution, and accordingly, does not inform whether something is property of the partnership in the first instance. Moreover, the Partnership Law has no application to non-partners like Seyfarth. For the same reasons, the Trustee’s reliance on the Partnership Law’s “no compensation” rule and opinions from courts in other Uniform Partnership Act (“UPA”) jurisdictions is erroneous. The “no compensation” rule and the Partnership Law’s requirement that its provisions be harmonized with other UPA jurisdictions only apply after an item of partnership property 6 has been identified. Likewise, the Trustee’s passing references to Thelen’s partnership agreement are even less persuasive, because Seyfarth was not a party to the agreement. More importantly, Thelen’s partners did not have the right to simply “agree” amongst themselves that Thelen owned something that is inherently un-ownable, such as the legal matters owned by its clients or fees earned by another firm. Rather than meaningfully address the threshold property question, the Trustee announces that the Partnership Law applies (it does not) and then mischaracterizes Seyfarth’s position as seeking a “law firm” exception to the Partnership Law. However, Seyfarth is not asking this Court for an exception to the Partnership Law. No exception or extraordinary judicial act is necessary to answer the first certified question in the negative, because the Partnership Law does not define property. For that same reason, the Court should reject the Trustee’s arguments that New York’s strong support of a client’s right to choose its counsel is inconsistent with the Partnership Law. Additionally, because the Court’s conclusion will have a significant impact on lawyer mobility and clients’ ability to hire the lawyers of their choosing, the Court should examine New York courts’ long history striking down restrictions on the practice of law and upholding clients’ absolute right to choose counsel and conclude that client matters are not law firm property. 7 Argument I. Law Firms Do Not Own Client Matters, Regardless Of How Such Matters Are Billed. New York law has consistently recognized that lawyers do not own clients and that no law firm has an interest in future work performed by subsequent counsel, no matter how such work was billed. See Part I.D., infra. Where a law firm’s ownership of hourly fee matters has been asserted, it has been expressly rejected. Id. No legitimate reason exists to expand a law firm’s property interest from the clear right to be compensated for services that its lawyers performed (i.e., the firm’s accounts receivable) to a property interest in client matters themselves or a right to be compensated for services that other firms and other lawyers provide. A. The Mere Possibility Of Earning Fees In The Future Is Not A Property Interest. In order to answer the certified question of whether future fees earned on former matters are the property of a law firm, such that, upon dissolution, the law firm is entitled to the profit earned on such matters, this Court first must answer whether future fees can be “property” at all. As Justice Brandeis noted long ago, “an essential element of individual property is the legal right to exclude others from enjoying it.” International News Service v. Associated Press, 248 U.S. 215, 250 (1918) (Brandeis, J., dissenting). Thelen, like any law firm, had no right to exclude anyone from representing a particular client. 8 Nor did Thelen’s dissolution create such a right. As such, Thelen could not have a property interest in the fees earned by another firm simply because Thelen had once represented the same client in the same matter. This Court has addressed the question of what is (or is not) property in other contexts. Most recently, the Court considered this issue in Verizon New England, Inc.,v Transcom Enhanced Services, Inc., 21 N.Y.3d 66 (2013). There, in discussing what constitutes “property” subject to garnishment, this Court stated that: the expectation of any continued or future business is too contingent in nature and speculative to create a present or future property interest. Although property is often described as a “bundle of rights,” or “sticks,” with relational aspects . . . the ability to terminate the relationship at any time without penalty, cannot support a finding that a transferrable property right existed. Id. at 72 (citation omitted, emphasis added). In New York, the client always maintains “the ability to terminate the relationship without penalty.” In re Cooperman, 83 N.Y.2d 465, 473 (1994) (“[N]otwithstanding the fact that the employment of an attorney by a client is governed by the contract which the parties make[,] the client with or without cause may terminate the contract at any time.”). Thus, no law firm has a property interest in future fees because, by definition, the expectation of such fees is “contingent” and “speculative.” To suggest otherwise is to suggest, 9 contrary to the clear precedent of this Court, that a law firm could force a client to continue using its services. See, e.g., Demov, 53 N.Y.2d at 558. In asserting that a property interest does exist, the Trustee ignores these fundamental concepts. He asserts two alternative bases for finding the existence of a property interest: (1) the Partnership Law and decisions from other jurisdictions; and (2) this Court’s 1920 decision in Stem v. Warren, a dispute between architects in a dissolved joint venture. Neither of the Trustee’s bases overcomes the basic tenets of New York law on property. Moreover, this Court’s clear decisions regarding a client’s absolute right to choose counsel bars the Trustee’s position. B. The Partnership Law Is Irrelevant Because It Does Not Create A Property Interest In Client Matters. The Trustee begins his argument by correctly asserting that “‘[t]he Partnership Law applies to every trade, occupation or profession’ . . . and sets ‘default requirements that come into play in the absence of an agreement.’” (Trustee Brief, at 14.) The Trustee then incorrectly argues that Seyfarth seeks a “law firm” exception to the Partnership Law. Seyfarth seeks no such thing. No exception is required, because no provision of the Partnership Law answers the primary, narrow question certified to this Court: whether client matters are property of a law firm. 10 The Partnership Law does not define “property.” Nowhere in its default provisions does the Partnership Law delineate what partnerships do and do not own. Instead, the Partnership Law states that whatever a partnership already owns at the time of its inception or is purchased with partnership funds becomes “partnership property” subject to distribution among the partners. See Partnership Law § 12. The Trustee cites to § 12 of the Partnership Law and informs the Court that “[t]hese default rules [the Partnership Law] define partnership property,” (Trustee’s Brief, at 14). The Trustee’s focus on the Partnership Law plainly puts the cart before the horse, because he fails to explain how § 12 grants law firms an ownership interest in client matters. Section 12 provides that “partnership property” is comprised of property that the partnership acquires, either because it is brought into the partnership stock or because it is acquired with partnership funds. The Trustee never explains (because he cannot) how it is that any client matter first becomes a piece of law firm property - the precise question before this Court. Moreover, the Trustee cites no other provision of the Partnership Law that even arguably answers the certified question. He instead directs the Court to another irrelevant provision, the so-called “no compensation” rule set forth in § 40(6) of the Partnership Law. That section provides that “[n]o 11 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.” Partnership Law, § 40(6). The Trustee errs in relying on this section, because his circular argument presupposes that client matters are property of the partnership. The Trustee asserts that partners are not entitled to compensation for winding up client matters, but that argument fails to address whether client matters are property of a law firm in the first place. The Trustee asserts that this Court cannot “overrule” clear legislative intent. (Trustee’s Brief, at 15-16). 1 But he offers no basis upon which this Court could conclude that the Partnership Law can or should be interpreted to define “property,” much less the more specific question of whether law firms own client matters. The Partnership Law has no bearing on the question before this Court, so the intent of the legislature is not at issue. In any event, this Court should reject the Trustee’s interpretation of the Partnership Law because it runs afoul of clients’ right to counsel of their choice and law firms’ 1 This general statement is beyond peradventure, see People v. Ryan, 274 N.Y. 149, 152 (1937), but the Trustee overstates the import of the axiom in this matter. “Statutes are ordinarily interpreted so as to avoid objectionable consequences and to prevent hardship or injustice.” Braschi v. Stahl Assocs. Co., 74 N.Y.2d 201, 208 (1989). Thus, if “doubt exists as to the meaning of a term, and a choice between two constructions is afforded, the consequences that may result from the different interpretations should be considered.” Id. 12 right to keep the fruits of their labor. 2 The Trustee’s interpretation would lead directly to the kinds of “objectionable consequences,” “hardship,” and “injustice” to be avoided when interpreting any statute. See Braschi, 74 N.Y.2d at 208. Rejecting the Trustee’s position is especially correct where, as here, he seeks the creation of rights against third parties like Seyfarth, who were not partners in Thelen and whose rights the legislature did not bring within the Partnership Law. For all the foregoing reasons, the Partnership Law has no bearing on this Court’s analysis. C. Because The Partnership Law Does Not Apply, The Court Need Not Look To Other UPA Jurisdictions For Guidance. The Trustee argues that this Court is bound by decisions from other UPA jurisdictions when determining whether law firms own client matters under New York law. He bases his argument on § 4(4) of the Partnership Law, which provides that the Partnership Law should be interpreted and construed so as to be uniform with other states that have enacted the UPA. However, once again, the Trustee’s argument presupposes that the 2 See Geron, 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 N.Y. Slip Op. 52504(U), 2011 N.Y. Misc. LEXIS 6588, at *14 (Sup. Ct., N.Y. County 2011)). 13 Partnership Law applies in the first instance. As correctly noted by the District Court below: The purpose of UPA is to harmonize partners’ duties regarding partnership property, not to delineate the scope of such property. See Welman v. Parker, 328 S.W.3d 451, 458 (Mo. Ct. App. 2010) (explaining that state common law, and not the Uniform Partnership Law, determines “which party is entitled to the contingent fee”). . . . Accordingly, the Trustee’s contention that the court in Sheresky, 2011 WL 7574999, at *6, failed to engage in the requisite analysis of out-of-state case law is without merit. (Hr’ g Tr. at 28.) To the extent that the out-of-state cases suggest a result that is irreconcilable with New York policy, they are not reliable indicators of New York law. Geron, 476 B.R. at 742-43 (emphasis added). It is worthwhile noting the dubious origins of the string of decisions that the Trustee argues this Court should follow in recognizing a “property interest.” A California bankruptcy judge’s decision in Greenspan v. Orrick, Herrington & Sutcliffe LLP (In re Brobeck, Phleger & Harrison LLP), 408 B.R. 318 (Bankr. N.D. Cal. 2009), appears to mark the genesis of the notion that law firms have a property interest in ongoing client matters and may recover profits from third parties. In reaching its conclusion, the court in Brobeck relied upon a California lower appellate court decision, Jewel v. Boxer, 156 Cal. App. 3d 171 (1st Dist. 1984), which involved former partners asserting fiduciary duty claims against one another over revenue generated by contingency fee cases. Brobeck, 408 B.R. at 333-34. Brobeck did not analyze 14 whether Jewel and its progeny apply in disputes between failed and other law firms. Brobeck failed to analyze meaningfully other substantive and ethical issues as well, particularly the impact on clients’ right to choose counsel and the unethical splitting of fees. It did not address the important distinctions to be made regarding which firm’s lawyers performed the work that generated the profits and whether a right to profits for work already performed is synonymous with a property interest in the client matters themselves or profits earned at some undetermined point in the future. Brobeck’s conclusory pronouncements regarding the law firm’s purported property interest does not provide a foundation for a similar conclusion in New York. 3 The “property” concept reappeared in Heller Ehrman LLP v. Arnold & Porter LLP (In re Heller Ehrman LLP), No. 10-3203DM, 2011 Bankr. LEXIS 1497, at *15 (Bankr. N.D. Cal. Apr. 22, 2011), where the same bankruptcy court cited to its own conclusory statement in Brobeck as support for a finding that unfinished business is property of a defunct law firm’s bankruptcy estate. From there, the theory of the “unfinished business” doctrine snowballed. These decisions and others following them serve as the fundamental basis for 3 It appears that the court did not address the property question before this Court, because, for reasons unknown, the parties did not raise it. See Brobeck, 408 B.R. at 337 (stating defendant partners and law firms “do not deny that profits from a firm’s work in progress are a property right of the partnership”). 15 the Trustee’s arguments here, yet they have never been reviewed on appeal and they ignore bedrock issues of client choice, ethical restrictions on the practice of law, and what can constitute “property.” The decisions do not consider many important principles of New York law regarding the attorney-client relationship and, as a result, have no application here. Simply put, the Partnership Law does not define “property” and thus has no application to the question certified to this Court. As such, the Court need not, and should not, look to decisions from other jurisdictions when determining whether law firms own client matters under New York law. D. New York Law Does Not Recognize A Property Interest In Client Matters. Answering the first certified question in the negative is entirely consistent with existing New York jurisprudence regarding both hourly and contingency fee matters. Neither this Court nor any other New York state court has ever suggested that a law firm owns anything other than yet-unpaid compensation for the legal services that it actually provided. 1. New York trial courts have rejected the notion that law firms own client matters that are billed by the hour. The Trustee asserts a position on New York law that is inconsistent with several long-standing appellate level decisions (which he argues should be overturned) and that has been expressly rejected in multiple trial court 16 decisions. Though these decisions do not bind this Court, they are noteworthy for their sound reasoning and consistency with all other aspects of New York law. In Sheresky v. Sheresky Aronson Mayefsky & Sloan, LLP, 35 Misc. 3d 1201(A), 2011 N.Y. Slip Op. 52504(U), 2011 N.Y. Misc. LEXIS 6588 (Sup. Ct., N.Y. County 2011) (A-72), the New York Supreme Court noted that “New York court decisions dealing with a cause of action for unfinished business have uniformly involved contingency fee cases.” Id. at *13-14 (citing McDonald v. Fenzel, 233 A.D.2d 219 (1st Dept. 1996); Shandell v. Katz, 217 A.D.2d 472 (1st Dept. 1995); Kirsch v. Leventhal, 181 A.D.2d 222 (3d Dept. 1992)). The Sheresky court then concluded that it is “logical to distinguish between contingency fee arrangements and cases which are billed on the basis of hourly work.” Id. at *14. In so concluding, the Sheresky court dismissed claims for post-dissolution profits on hourly rate matters formerly handled by the dissolved partnership. Id. at *15; 4 see also Burke v. Clifton, Budd & DeMaria, Index No. 1454/91-001 (N.Y. Sup. Ct. Dec. 9, 1991) (“Burke I”) (A-86); Index. No. 1454/91-003 (N.Y. Sup. Ct. July 27, 1992) 4 The Trustee asserts that Sheresky “contains no analysis of New York’s partnership laws, the fiduciary duties of partners to account to the dissolved firm, or whether the rationale adopted by New York courts in determining that unfinished contingency cases are assets of a dissolved firm applies with equal force to hourly cases.” (Trustee’s Brief, at 26.) The Trustee’s criticisms are inapposite because the Partnership Law’s provisions are irrelevant to the question presented and the Partnership Law’s imposition of fiduciary duties to account for profits gained using partnership property does not create the “property.” 17 (“Burke II”) (A-90) (dismissing claims for “unfinished business” and noting partnership only has cognizable claim if it “has rendered services for which [it] was not compensated”). 5 The New York Supreme Court’s existing decisions reflect the current, and what should be the continuing, state of the law in New York: law firms do not own clients’ hourly fee matters. The Trustee offers no persuasive reason why this Court should not reaffirm that conclusion here. 2. New York state court decisions regarding contingency fee matters are entirely consistent with Seyfarth’s position regarding hourly fee matters. The many New York Appellate Division decisions dealing with “unfinished business” claims uniformly conclude that the dissolved partnership is entitled only to the “value” of the contingency fee matter as of the date of dissolution (i.e., the value of the services the dissolved partnership provided). See, e.g., Grant v. Heit, 263 A.D.2d 388, 389 (1st Dept. 1999); Shandell,217 A.D.2d at 473; DelCasino v. Koeppel, 207 A.D.2d 374, 374 (2d Dept. 1994); Dwyer v. Nicholson, 193 A.D.2d 70, 73 (2d Dept. 1993) (per curiam); Kirsch, 181 A.D.2d at 225. Again, although not binding upon this 5 The Trustee’s attempts to distinguish Burke, (see Trustee’s Brief, at 32), are likewise unavailing. Whether the partnership in Burke I had dissolved at the time is immaterial to the question of what property it owned. It is self-evident that a partnership cannot increase its property interests by the unilateral act of dissolution. 18 Court, these decisions are of note because they are well-reasoned and consistent with many principles annunciated by this Court over the years. These appellate courts’ decisions have created some confusion by sometimes imprecisely referring to the contingency fee cases as an “asset” subject to distribution. See, e.g., Shandell, 217 A.D.2d at 473; Kirsch, 181 A.D.2d at 225. But in every instance, the partnership was only entitled to the value of such case at the date of dissolution, never the actual case itself. As noted by Justice Levine in Kirsch, even a former partner “is only entitled to the value of his interest at the date of dissolution[.]” 181 A.D.2d at 225; see also Santalucia v. Sebright Transportation, Inc., 232 F.3d 293, 298 (2d Cir. 2000) (“[T]he dissolved firm is entitled only to the value of the case at the date of dissolution, with interest.”) (citing Kirsch, 181 A.D.2d at 225). The Trustee has not cited, and cannot cite, a single decision from a New York court in which the law firm was awarded the client matter itself or any fee not earned by that firm’s own work. Moreover, cases addressing law firms’ interest in contingency fee matters have resolved disputes between a partnership and a departing partner, not between the partnership and outside third parties. See, e.g., Shandell, 217 A.D.2d at 473; Kirsch, 181 A.D.2d at 225; McDonald, 233 A.D.2d at 219. In context, those courts’ statements that contingency fee cases are assets of the 19 partnership subject to distribution simply mean that, as between the departing partner and the partnership, the partnership is entitled to an accounting for the value of such cases as of the date of dissolution. See Santalucia, 232 F.3d at 298 (“[T]he dissolved firm is entitled only to the value of the case at the date of dissolution, with interest.”) (citing Kirsch, 181 A.D.2d at 225) (emphasis added). Those decisions are based on the partners’ duties to one another, (see Kirsch, 181 A.D.2d at 225), not—as the Trustee implies—on law firms’ ownership of the actual contingency fee cases. 6 In fact, if the Court accepts the Trustee’s theory that law firms own client matters, a number of absurd results will follow. A law firm could override a client’s instruction to transition a client matter to a new firm. Only the very first firm that a client hires for a particular matter would be entitled to profit from the matter, regardless how many times the client terminates its counsel and hires new counsel. The Trustee could sue any law firm hired by a former client of Thelen, even if the new firm did not hire a former Thelen 6 This necessary distinction also makes sense of the statement that “absent an agreement to the contrary, pending contingent fee cases of a dissolved partnership are assets subject to distribution.” Shandell, 217 A.D.2d at 473. Read literally, this statement might suggest that partners, when entering into a partnership agreement, can dictate whether the partnership owns a particular piece of property vis-à-vis unrelated third parties. For obvious reasons, this literal interpretation is flawed because partnerships cannot simply announce that they own certain things to the exclusion of others. Rather, this statement simply recognizes that partners may agree among themselves how something that is already property of the partnership, such as funds owed to the partnership for services already rendered to its clients, is to be divided. 20 partner. Indeed, if the Trustee were right that such future fees were “property” of the dissolved debtor law firm, the Trustee could seek to recover those fees directly from the clients themselves. These predictable (if not inevitable) consequences of the Trustee’s position are simply untenable under existing New York law. Kirsch, Shandell, Santalucia, and other cases addressing contingency fee matters do not support a finding that law firms own the legal matters themselves or have a cognizable property interest in work performed by other unrelated lawyers or law firms. Those cases simply ensure that the lawyers who contributed their resources and sweat equity to representing a client are compensated. 7 Remarkably, the Trustee’s position forecloses a similarly prudent result in this case. He ultimately asserts that Thelen, having borne no risk and contributed no time, resources, or effort to providing legal services to former clients, is entitled to reap all the rewards flowing from the hard work of Seyfarth’s lawyers on behalf of such clients. The common-sense result in contingency fee cases is not surprising. Law partnerships, after providing legal services, have a property interest in 7 New York law has consistently recognized that no lawyer or law firm has an interest in future work performed by subsequent counsel, regardless of whether work was or is to be completed on an hourly or contingency basis. This Court previously held that attorney compensation must be limited to the fair and reasonable value of completed services. See Cooperman, 83 N.Y.2d at 473. 21 their “accounts receivable”—the amounts due and owing for their legal services—whether billed hourly or on a contingent basis. 8 3. Stem v. Warren is not on point and does not support the Trustee’s position. This Court’s decision in Stem v. Warren, 227 N.Y. 538 (1920), does not stand for the proposition that law firms have a property interest in client matters. Stem involved breach of fiduciary duty claims between former joint venturers; it did not define unfinished engagements as partnership property. The Trustee relies heavily on Stem and asserts that the decision is “directly on point” with respect to his claims against Seyfarth, but the Trustee is incorrect for a number of reasons. In Stem, one architectural partnership (Reed & Stem) entered into a joint venture agreement with another architectural partnership (Warren & Wetmore) for the purpose of “secur[ing] a contract for architectural services in the construction of the Grand Central Station and buildings in connection therewith[.]” Id. at 542. The joint venture, in turn, entered into a separate contract with the railroad company agreeing, among other things, to jointly act as architects for the railroad company. Id. at 543. It was the manifest intent of the parties (including the railroad company client) that the contract 8 No need exists to distinguish between “accounts receivable” of hourly fee and contingency fee matters. In each, the partnership’s property interest is in the value of services provided. 22 was to be performed notwithstanding the death of Mr. Reed if such event should occur. Id. at 547. In other words, the agreement between the architects specified that their joint venture would survive either partnership’s dissolution and that the contract with the railroad company would be performed by the survivors. The joint venture worked on the railroad company’s project until the death of Mr. Reed. See id. at 544-45. The trial court found that, immediately after Mr. Reed’s death and without his surviving partner’s knowledge or consent, Mr. Wetmore sent to the railroad company a proposed new contract that was in substance the same as the joint venture’s existing contract, except that Warren & Wetmore were named as the sole architects. Id. at 545. The railroad company immediately terminated its contract with the joint venture and entered into the new, identical contract exclusively with Warren & Wetmore. See id. Stem filed suit to recover one half of the profits on two separate projects of the joint venture: (1) the work performed pursuant to the joint venture agreement and the contract with the railroad regarding Grand Central Station; and (2) the work performed on what became the Biltmore Hotel, for which the joint venture had prepared preliminary plans prior to Reed’s death. 23 This Court concluded that “the firm of Warren & Wetmore are to be held accountable to the plaintiff” for the profits made from work on Grand Central Station, but denied Stem compensation from the Biltmore project for anything other than the value of the actual work performed (the preliminary plans) by the joint venture before its dissolution. Id. at 547. From these facts, the Trustee asserts that “[a]s far back as Stem v. Warren, . . . ‘the general rule is that the business of a partnership that is unfinished on the date the partnership dissolves is an asset of the partnership and must be concluded for the benefit of the dissolved partnership.’” (Trustee’s Brief, at 19 (purportedly quoting Stem, 227 N.Y. at 541).) This quote, which does not appear in this Court’s opinion in Stem, both misstates and overstates Stem. Stem is not a case defining “property.” It is a breach of fiduciary duty case involving one joint venturer’s attempt to duplicitously cut a surviving joint venturer out of a contract expressly intended (by all, including the client) to survive dissolution. 9 This Court specifically held that as a result of Wetmore’s “breach of duty,” Warren & Wetmore was liable to account to the joint venture for the usurped opportunity. Stem recites the fact that the 9 Contracts between a law firm and a client cannot contemplate survival post-dissolution of the law firm without impermissibly infringing the client’s right to terminate an attorney at will. See Demov, 53 N.Y.2d at 556. 24 railroad contract was intended to survive Reed’s death and, from that, concludes that the surviving members of the joint venture had a duty to complete the contract for the benefit of the joint venture. The decision turned on duty, not on property. 10 This Court did not hold that the joint venture “owned” the railroad contract to the exclusion of others, but rather held only that Stem’s former joint venturers (Warren & Wetmore) did not have the right to exclude him from the contract. Indeed, when Stem has been considered in the context of a law firm dissolution, it has been noted that it is a decision about “duty,” not property. See, e.g., Kirsch, 181 A.D.2d at 225-226. Certainly, if the railroad had terminated its contract with the joint venture and hired a new, unrelated firm, nothing in Stem comes close to suggesting that Stem could have pursued that new firm to recover a percentage of the joint venture’s profits. Stem’s right to recovery emanated from the duties among joint venturers and Wetmore’s breach, not from a property interest. Here, unlike Stem, the Trustee is not pursuing breach of contract or breach of fiduciary duty claims against Seyfarth. Seyfarth was never a partner in Thelen and, therefore, owes no duty. 10 Stem never concluded that the joint venture’s projects for the railroad company were assets from which third parties could be excluded or claims could be pursued against third parties. To the contrary, when the Court examined Reed’s claim related to the Biltmore project, the Court expressly rejected that notion. 227 N.Y. at 547-51. 25 These many distinctions make plain that the Trustee is wrong to suggest that Stem has broad application to the questions certified to this Court. 4. New York law regarding the attorney-client relationship necessarily precludes law firms from owning client matters. The question before the Court is whether law firms own client matters that are billed by the hour. The Trustee offers no persuasive reason why his purported “general rule” that unfinished contracts belong to a partnership ought to be rotely applied to the “peculiar and distinctive” relationship between a lawyer and client. Cooperman, 83 N.Y.2d at 472-73. Additionally, the Trustee asks this Court to ignore its venerable jurisprudence on the subject and once again mischaracterizes Seyfarth’s arguments as seeking to overturn the Partnership Law, this time in favor of the Rules of Professional Conduct. (See Trustee’s Brief, at 35-37.) Seyfarth does not seek an exception to the Partnership Law, which, as explained, does not apply to the question at hand. Rather, Seyfarth submits that this Court may appropriately consider the Rules of Professional Conduct, as well as public policies regarding the attorney-client relationship in New York, when determining the contours of a law firm’s property interests, especially any purported interest in client matters. 26 The Trustee’s argument that this Court cannot create “exceptions” to the Partnership Law mischaracterizes Seyfarth’s position. As explained above, the Partnership Law does not answer the question presently before this Court. Moreover, a determination of what constitutes “property” of a law firm necessarily involves analysis of the law firm’s rights. See Verizon New England, 21 N.Y.3d at 72. Therefore, express limitations imposed upon those rights by this Court’s decisions and the Rules of Professional Conduct are a necessary part of the analysis. As described below, those Rules and decisions make clear that law firms, including Thelen, have no property right in client matters or future fees, when clients have terminated the attorney-client relationship. New York courts, including this Court, have repeatedly struck down restrictions on attorney mobility and on clients’ absolute right to choose counsel. The Trustee’s two principal retorts—that (1) the ethical rules and public policies do not override the Partnership Law, and (2) requiring law firms to forfeit the fees earned by their own lawyers’ efforts has no impact on attorneys or clients—miss the mark. (See Trustee’s Brief, at 28-35.) First, as noted, New York jurisprudence, the Rules of Professional Conduct, and public policy should inform this Court’s determination of the “property” question and do not conflict with the Partnership Law at all, because the 27 Partnership Law does not define property. Second, the notion that new law firms will hire departing partners or accept client engagements without any hope of compensation ignores both precedent and common-sense marketplace realities. i. “Clients are not merchandise.” In Cohen v. Lord, Day & Lord, 75 N.Y.2d 95, 96 (1989), this Court struck down a provision in a partnership agreement that provided that a departing partner forfeited his right to departure compensation if he practiced law in competition with his former firm. 75 N.Y.2d at 97. The lower court had concluded that the provision “was valid as an [sic] ‘financial disincentive’ to competition and did not ‘prevent plaintiff from practicing law in New York or in any other jurisdiction.’” Id. This Court reversed, holding that financial penalties based on continuing to serve clients impermissibly interferes with clients’ choice of counsel: We hold that while the provision in question does not expressly or completely prohibit a withdrawing partner from engaging in the practice of law, the significant monetary penalty it exacts . . . constitutes an impermissible restriction on the practice of law. The forfeiture-for-competition provision would functionally and realistically discourage and foreclose a withdrawing partner from serving clients who might wish to continue to be represented by the withdrawing lawyer and would thus interfere with the client’s choice of counsel. 28 Id. at 98 (emphasis added). This Court went on to explain that “[c]lients are not merchandise. Lawyers are not tradesmen. . . . An attempt, therefore, to barter in clients would appear to be inconsistent with the best concepts of our professional status.” Id. at 98. This conclusion is dispositive of the question at hand. This Court once again upheld clients’ absolute right to choose their counsel in Denburg v. Parker Chapin Flattau & Kimpl, 82 N.Y.2d 375 (1993). There, the law firm of Parker Chapin Flattau & Kimpl (“Parker Chapin”) and a former partner disputed the enforceability of a provision in their partnership agreement that required the partner to make certain payments to Parker Chapin upon his withdrawal. Id. at 377. The agreement contained an exception to the required payments if the partner’s new firm did no work for Parker Chapin clients for two years following withdrawal. Id. at 378. The partner joined a new firm and continued serving some of the same clients. Id. In considering the partnership agreement, this Court concluded “that its effect is to improperly deter competition and thus impinge upon clients’ choice of counsel.” Id. at 381. This Court found unacceptable that, if the provision is enforced, a “junior partner changing firms might well insist that a Parker Chapin client not come along.” Id. Here, the prospect that fees earned solely through the work of lawyers at a new firm may have to be 29 shared with a former firm creates the exact same disincentive this Court struck down in Denburg. This Court, in Cohen, also noted that the partners’ agreement to impose such a financial penalty violated the New York Rules of Professional Conduct and its absolute prohibition on restricting a lawyer’s right to practice law. Id. at 98-99; see also Nixon Peabody LLP v. de Senilhes, 20 Misc. 3d 1145(A), 2008 N.Y. Slip Op. 51885(U), 2008 N.Y. Misc. LEXIS 5770, at *7 (Sup. Ct., Monroe County 2008) (“An important aspect of attorney autonomy is the promotion of attorney mobility [which] is the unstated ‒ but real ‒ purpose of the rule.” (quotation omitted)). Restricting attorney movement and compensation necessarily impinges on clients’ unfettered right to choose their counsel. Once the transitioning partners are stripped of the right to be fairly compensated for their sweat equity, the client will be stripped of the right to counsel of its choosing. See id. (prohibiting provision that would “functionally and realistically discourage and foreclose a withdrawing partner from serving clients who might wish to continue to be represented by the withdrawing lawyer”); see also Cooperman, 83 N.Y.2d at 473 ; Demov, 53 N.Y.2d at 556 (It is “well rooted in our jurisprudence, that a client may at any time, with or without cause, discharge an attorney[.]”) 30 ii. The Trustee identifies no basis to distinguish between dissolutions and departures. The Trustee argues that this Court’s decisions in Cohen and Denburg should be ignored for four reasons. (See Trustee’s Brief, at 30-31.) None of the Trustee’s reasons are persuasive. First, the fact that Cohen and Denburg involved partner withdrawals rather than dissolution does not change the character of the partnership’s property interest. The Trustee offers no persuasive support for limiting Cohen and Denburg as suggested; financial disincentives are just as applicable in either situation. Where, as here, a successor law firm faces the prospect of working without profit if it agrees to represent a client, the law firm faces a disincentive. And for every firm that determines not to accept an engagement on that basis, the client has been robbed of choice. Second, whether the unfinished business doctrine does or does not apply similarly in dissolutions or departures has no bearing on the primary question whether a law firm owns its client matters. The unfinished business doctrine, much like the application of the Partnership Law, is only triggered once a property interest is identified. It does not, itself, give rise to a property interest. Third, the Trustee is wrong in suggesting that New York courts have permitted financial disincentives that flow from application of the unfinished 31 business doctrine to contingency matters. In the case of contingent matters, the fees are to be split based upon the value of each firm’s actual services. See, e.g., Kirsch, 181 A.D.2d at 226; Santalucia, 232 F.3d at 301. The former firm’s ability to collect part of the contingency fee is based upon the fact that it rendered services for which it had not yet been paid. The possibility of paying part of a contingency fee is no disincentive to a new firm because the former firm may collect no more than the value it contributed. Id. Of course, applying this same principle to hourly matters, where the former firm has already been compensated for the services it performed, creates no disincentive for new law firms to accept matters from clients wishing to hire them. Fourth, the Trustee’s argument that Cohen and Denburg involved issues not governed by a comprehensive statutory scheme does not distinguish those cases. It makes them exactly like this case, because whether law firms own client matters is not governed by the Partnership Law or any other statutory scheme. iii. The Trustee’s position would result in impermissible fee splitting. The Trustee’s position also runs afoul of New York’s Rules of Professional Conduct, namely Rule 1.5(g), which provides as follows: 32 A lawyer shall not divide a fee for legal services with another lawyer who is not associated in the same law firm unless: (1) the division is in proportion to the services performed by each lawyer or, by a writing given to the client, each lawyer assumes joint responsibility for the representation; (2) the client agrees to employment of the other lawyer after a full disclosure that a division of fees will be made, including the share each lawyer will receive, and the client’s agreement is confirmed in writing; and (3) the total fee is not excessive. The Trustee nonetheless asserts that law firms own client matters, such that future fees earned on such matters must be remitted back to the former firm. First, as recognized in Sheresky, where no assumption of joint responsibility occurs (which could not happen with a dissolved firm), the division of fees must be in proportion to the services performed by each lawyer. Ford v. Albany Medical Ctr., 238 A.D.2d 843, 846 (3d Dept. 2001) (finding fee splitting violated former Rule 2-107). Second, the Trustee’s definition of property cannot satisfy Rule 1.5(g)(2), because a law firm’s property interest is not subject to written, informed consent to fee sharing. See Wagner & Wagner, LLP v. Atkinson, Haskins, Nellis, Brittingham, Gladd, & Carwile, P.C., 596 F.3d 84, 91 (2d Cir. 2010). It is unworkable for a law firm’s ownership interests to be conditioned upon client consent in some instances, but not in others. Third, any recovery by the dissolved firm from its property interest in a client matter would be inconsistent with New York Rule of 33 Professional Conduct 1.5(a), which precludes a lawyer from charging or collecting an illegal or excessive fee. The Trustee does not debate that recognizing a property interest in client matters will result in impermissible fee splitting. Instead, he takes the unfounded position that clients do not care how their attorneys are compensated. (See Trustee’s Brief, at 32-35.) The Trustee’s argument contravenes common sense, as well as this Court’s precedent. See, e.g., Cooperman, 83 N.Y.2d at 471-75 (client’s “technical” right to choice of counsel not sufficiently protected in face of “reality of the economic coercion” when former attorney compensated “no matter what legal services, if any, were rendered”). The Trustee’s position is, at best, speculative and ignores the legitimate concerns undergirding the applicable Rules of Professional Conduct and decisions of this Court. Simply put, no basis exists for asserting that a client does not care if its choices for replacement counsel are limited. Many clients will care that some law firms are unwilling to work for free, and many will care if their new firm knows that it will not profit on a particular client matter (and perhaps devote less energy than it would to matters where the firm will make a profit). In summary, this Court can and should harmonize New York law’s strong support of a client’s right to choose its counsel with its conclusion 34 regarding the proper scope of law firms’ property interests by concluding that law firms do not own client matters. E. The Trustee’s Reliance On DSI Is Misplaced. Throughout his brief, the Trustee relies heavily on Development Specialists, Inc. v. Akin Gump Strauss Hauer & Feld LLP (In re Coudert Bros. LLP), 480 B.R. 145 (S.D.N.Y. 2012) (“DSI”), but a careful review of that decision and the reasoning it applies exposes its fundamental flaws. First, instead of considering several New York decisions, the DSI court relied upon opinions from other UPA jurisdictions on the ground that “New York courts must harmonize their rulings with those of other UPA jurisdictions by statute.” Id. at 164. As explained above, however, the Partnership Law and its harmonization requirement do not apply to the question of whether something is property of a partnership. As such, DSI’s approach is incorrect. Indeed, instead of addressing New York’s substantial jurisprudence on client choice, attorney mobility and the ethical restraints on lawyers’ ability to be compensated for work performed by others, the DSI court assumes without analysis that a property interest exists in ongoing hourly matters and then proceeds to explain how it should be treated. Id. at 159-60. Second, DSI elects to treat clients as ordinary articles of commerce, a result expressly rejected by this Court in Cohen. See 75 N.Y.2d at 98 35 (“Clients are not merchandise.”). Ignoring this fundamental principle of New York law, DSI mistakenly concludes that the movement of clients from a defunct law firm to a functioning law firm is akin to a departing attorney “walk[ing] out of his firm’s office carrying a Jackson Pollack [sic] painting he ripped off the wall of the reception area[.]” DSI, 480 B.R. at 157. 6 DSI also determines that it need not follow this Court’s decision in Cohen, because Cohen was not a dissolution case. Id. at 171. But DSI never explains how or why a partnership’s dissolution would transform a law firm’s property interest. DSI’s apparent conclusion that a law firm’s unilateral act of dissolving increases its property rights vis-à-vis third parties is illogical and defies the very notion of property. Third, DSI ignores the unique nature of the attorney-client relationship supported by New York law. The court makes the incorrect conclusion that no basis exists upon which to treat lawyers differently than other professionals. However, such reasoning blatantly ignores what this Court has recognized time and again—in Cohen, Denburg, and Cooperman—that the attorney-client relationship is unique and subject to particular rules and 6 DSI also cites Matter of Lester (Berman), 61 A.D.2d 935 (1st Dept. 1978), for the proposition that “[a] law partnership . . . possesses assets in the form of cases and legal matters.” DSI, 480 B.R. at 160 (emphasis in original). But DSI ends its quotation too soon, because Lester explains that “[u]pon the dissolution these assets necessarily include the partnership’s uncollected fees and the moneys advanced for clients’ accounts with respect to services completed prior to the date of dissolution, whether billed or billable.” 61 A.D.2d at 935 (emphasis added). 36 policies that do not apply to other sorts of relationships. Myriad reasons, set forth above and unrebutted by the Trustee, justify a finding that attorneys do not own client matters, even if they own the paintings on their walls. Law firms do not own client matters, whether billed by the hour or on a contingency fee basis. All a law firm owns in this respect is the right to be compensated for the legal services that its lawyers actually provide. Accordingly, this Court should answer the first question certified in the negative. II. The Court Need Not Answer The Second Certified Question, But To The Extent It Chooses To Do So, The Court Should Define “Client Matter” Narrowly And Conclude That The Law Firm Actually Providing Services Is Entitled To Retain All Fees Generated By Such Services. If this Court agrees with Seyfarth that law firms do not own client matters, then it need not address the second certified question. If this Court nonetheless decides to answer the second certified question, the Court should define “client matter” to include only those matters and those tasks for which a firm has been retained and not yet terminated. The attorney-client relationship only lasts as long as the client, at its own prerogative, permits the relationship to last. In New York, it is well settled that a client has an unfettered right to discharge counsel for any reason, or even no reason at all. See Cooperman, 83 N.Y.2d at 473 (“[N]otwithstanding 37 the fact that the employment of an attorney by a client is governed by the contract which the parties make[,] the client with or without cause may terminate the contract at any time.”); Demov, 53 N.Y.2d at 556 (It is “well rooted in our jurisprudence, that a client may at any time, with or without cause, discharge an attorney[.]”) When a client terminates one firm and selects another, the “client matter” has necessarily ended from the perspective of the terminated firm. As discussed above, any other result improperly restricts the client’s right to choose counsel. In the parlance of the unfinished business doctrine, any pending “client matter” becomes “finished business” as to the former firm once the client terminates the relationship. As for what proportion of profit the new law firm should be entitled to retain, several New York Appellate Division decisions have already reached the appropriate result: both the former firm and the new firm are entitled to retain the fees and profits attributable to each firm’s respective “efforts, skill and diligence.” Kirsch, 181 A.D.2d at 226. This Court should adopt that conclusion as its own. As outlined above, New York jurisprudence recognizes that no law firm is entitled to be paid for work it does not actually perform. Dissolved law firms are not entitled to profits earned as a result of another firm’s 38 “post-dissolution efforts, skill and diligence.” That a successor firm would be paid for all of its own work does not run afoul of the Partnership Law’s “no compensation” rule, which only applies to partners of the dissolved firm (i.e., not strangers to the partnership, like Seyfarth). Furthermore, even if a law firm could have a property interest in client matters, that interest is necessarily limited by the successor firm’s clear right to be paid for all of its services rendered. The asset that law partnerships do own, their accounts receivable, simply does not include profits earned as a result of the “post-dissolution efforts, skill and diligence” of a different firm. New York courts have consistently upheld this common-sense result, (see Part I.D.2., supra); not in contravention of the “no compensation” rule, but in observance of the basic tenet that one is not entitled to be paid for work completed by another (absent agreement to the contrary). In the attorney-client context, compelling the law firm who rendered services to hand over a portion of the profit earned violates this Court’s decision in Cohen, because it creates a financial disincentive and impinges the client’s right to choose counsel. Conclusion The Court should answer the first cert ified question in the negative and, accordingly, need not answer the second certified question. 39 THOMPSON H1NE LLP By: Thomas L. Feher 3900 Key Center 127 Public Square Cleveland, Ohio 44 J J 4 Tel.: (216) 566-5532 Fax: (216) 566-5800 SEYFARTH SHA W LLP Lori L. Roeser M. Ryan Pinkston J 3 J South Dearborn Street Suite 2400 Chicago,lIIinois 60603 Tel.: (312) 460-5000 Fax: (312) 460-7000 A /lam eys for Defendant-Respondent Seyfarth Shaw LLP