HELLER EHRMAN LLP v. DAVIS WRIGHT TREMAINE LLPUnited States Court of Appeals for the Ninth Circuit’s Request to Answer Question of State LawCal.July 28, 2016S236208 FOR PUBLICATION UNITED STATES COURTOF APPEALS FOR THE NINTH CIRCUIT IN THE MATTEROF HELLER No. 14-16314 EHRMAN LLP, Debtor, ~ D.C. No. 3:14-cv-01236-CRB HELLEREHRMAN LLP, Liquidating Debtor, ae ST Plaintiff-Appellant, SUPREME5. Vv. DAVIS WRIGHT TREMAINE JUL 2 8 2016 LLP, on . ettget Defendant-Appellee. Frank A. McGuie (ert a Deputy Defendant-Appellee. 2 IN THE MATTER OF HELLER EHRMAN LLP IN THE MATTER OF HELLER No. 14-16315 EHRMANLLP, Debtor, D.C. No. 3:14-cv-01237-CRB HELLER EHRMAN LLP, Liquidating Debtor, Plaintiff-Appellant, Vv. JONES Day, Defendant-Appellee. IN THE MATTER OF HELLER No. 14-16317 EHRMANLLP, Debtor, D.C. No. 3:14-cv-01238-CRB HELLER EHRMAN LLP, Liquidating Debtor, Plaintiff-Appellant, Vv. FOLEY & LARDNER LLP, w h y IN THE MATTER OF HELLER EHRMAN LLP 3 IN THE MATTER OF HELLER No. 14-16318 EHRMAN LLP, Debtor, D.C. No. 3:14-cv-01239-CRB HELLER EHRMANLLP, Liquidating Debtor, ORDER CERTIFYING Plaintiff-Appellant, QUESTION TO THE CALIFORNIA Vv. SUPREME COURT ORRICK HERRINGTON & SUTCLIFFE LLP, Defendant-Appellee. Appeal from the United States District Court for the Northern District of California Charles R. Breyer, Senior District Judge, Presiding Argued and Submitted June 13, 2016 San Francisco, California Filed July 27, 2016 Before: Richard R. Clifton, and Sandra S. Ikuta, Circuit Judges, and Royce C. Lamberth,” District Judge. Order "The Honorable Royce C. Lamberth, United States District Judge for the District of Columbia,sitting by designation. o a t 4 IN THE MATTER OF HELLER EHRMAN LLP SUMMARY” Bankruptcy The panel certified the following question to the California Supreme Court: Under California law, does a dissolved law firm have a property interest in legal matters that are in progress but not completed at the time the law firm is dissolved, when the dissolved law firm had been retained to handle the matters on an hourly basis? | ORDER We ask the California Supreme Court to resolve a question of state law: whether a dissolved law firm has a property interest in legal matters that are in progress but not completed at the time the law firm is dissolved, where the dissolved law firm had beenretained to handle the matters on an hourly basis. This question resolvesthe bankruptcy appeal before us because if a dissolved law firm does not have a property interest in such matters, the transfer ofthose matters to a new law firm does not constitute a fraudulent transfer under the Bankruptcy Code. Although California courts of appeal have applied pre-1996 partnership law to addressthis issue, we have found no published California state court opinion addressing it after the California legislature revised ” This summary constitutes no part of the opinion ofthe court. It has been prepared bycourt staff for the convenience ofthe reader. r a y IN THE MATTER OF HELLER EHRMANLLP 5 the applicable state partnership law in 1996. Accordingly, pursuantto Rule 8.548 of the California Rules of Court, we certify the following question to the California Supreme Court: Under California law, does a dissolved law firm have a property interest in legal matters that are in progress but not completed at the time the law firm is dissolved, when the dissolved law firm had been retained to handle the matters on an hourly basis? Our phrasing of this question should not restrict the Court’s consideration ofthe issues involved. The Court mayrephrase the question asit sees fit in order to address the contentions of the parties. If the Court agrees to decide this question, we agree to accept its decision. We recognizethat the Court has a substantial caseload, and we submit this question only because ofits significance to the bankruptcy administration of dissolved law firms in the state ofCalifornia. I Westart by providing a brief history of the development of the California doctrine of dissolved law firms’ rights to pending legal matters, and then provide the facts of the particular appeal before us. A While it has long been established that partners have fiduciary duties towards each other, see Gorman v. Russell, 14 Cal. 531, 539 (1860), the California Supreme Court has addressed the fiduciary duties of former partners of a ot he 6 IN THE MATTER OF HELLER EHRMAN LLP dissolved law firm with respect to the unfinished business pending at the time of dissolution in only two cases, both from the 1800s. The first case involved an agreement between former partners to share contingency fees and the second involved a surviving partner. In Osment v. McElrath, ' 68 Cal. 466 (1886), a two-partner law firm dissolved with several cases pending. The formerpartners agreed to share any contingency fees from the pending matters, but the lawyer who completed the legal work on the matters later refused to do so. Jd. at 467,470. The California Supreme Court affirmed the trial court’s apportionment of the fees between the partners. Jd. at 472. Rejecting the argumentthat the working lawyer wasentitled to a greater share ofthe fees, ~ the Court pointed to the commonlaw rule that partners are not entitled to compensation for services rendered to the partnership, even after dissolution. Jd. at471. However,the Court left open the question whether a different rule might apply to winding up partnerships between lawyers “wherethe profits of the firm are the result solely of professionalskill and labor.” Jd. Eight years later, the California Supreme Court held in Little v. Caldwell, 101 Cal. 553 (1894), that ' after one law firm partner dies leaving a contingency fee contract notfully performed, the surviving partner has a duty to “complete the unfinished contract for the benefit of the partnership,” and the contract“isstill to be viewed by a court of equity as an asset of the partnership.” Jd. at 560-61. The commonlaw partnership rules enunciated in Osment and Little were superseded in 1929, when the California ' legislature adopted the Uniform Partnership Act (UPA), see Jacobson v. Wikholm, 29 Cal. 2d 24, 27-28 (1946), whichit later codified as part of the state’s Corporations Code, see ra th IN THE MATTER OF HELLER EHRMAN LLP 7 Cal. Corp. Code § 15001 et. seq. (1998).' Under UPA, partners had a fiduciary duty to each other to “accountto the partnership for any benefit, and hold as trustee for it any profits derived by him without the consent of the other partners... .” Cal. Corp. Code § 15021(1) (1998). Partners retainedthis duty evenafterthe dissolution ofthe partnership, with only one exception: UPA providedthat “[n]o partner is entitled to remunerationforacting in the partnership business, except that a surviving partner is entitled to reasonable compensation for his or her services in winding up the partnership affairs.” Jd. § 15018(f). The California Supreme Court interpreted this language to mean that, after the death of a partner, the surviving partner wasentitled to reasonable compensation “based upon the time, labor, and skill expended”in winding up pending matters. Jacobson, 29 Cal. 2d at 32. The California Court of Appeal relied on § 15018(f) in holding that each former partner had a duty to therestoftheir formerpartners to share in attorneys’ fees from a dissolved law firm’s unfinished business. In Jewel v. Boxer, a four- partner law firm dissolved, and the former partners 1 The National Conference of Commissioners on Uniform State Laws (the Uniform Law Commission, or ULC) publishes model codes, such as UPA, whichare frequently adopted bystate legislatures. The California legislature adopted the majority of UPA in 1929, effective August 14, 1929: The ULC subsequently published a revision to UPA, the Uniform Partnership Act of 1994 (termed the Revised Uniform Partnership Act, or RUPA), whichthe California legislature also adopted in 1996, and which governedall partnerships as of January 1, 1999. See Cal. Corp. Code § 16111. The ULC’sofficial commentsto the model codesare considered by California courts for guidance. See, e.g., Rappaport v. Gelfand, 197 Cal. App. 4th 1213, 1227 (2011); Rosenfeld, Meyer & Susmanv. Cohen, 191 Cal. App. 3d 1035, 1059 (1987). 8 IN THE MATTER OF HELLEREHRMAN LLP subsequently formed two new firms. 156 Cal. App. 3d 171, ~ 175 (1984). Jewel reasonedthat under § 15018(f), the former partners were not surviving partners, and therefore were not entitled “to extra compensation for services rendered in completing unfinished business.” Jd. at 176. As result, any attorneys’ fees generated from matters that had been pending whenthe law firm dissolved were“to be shared by the former partners according to their right to fees in the former partnership, regardless ofwhich formerpartnerprovides legal ’ services in the case after the dissolution.” Jd. at 174. The former partners would be entitled only “to reimbursementfor reasonable overhead expenses,” and not for their work on a quantum meruit basis. Jd. at 180. The court rejected the argumentthat such a conclusion is contrary to the rule that “clients have an absolute rightto the attorneyoftheir choice,” becausethe client’s rightis “irrelevantto the rights and duties between the former partners with regard to income from ' unfinished partnership business.” Jd. at 177-78. Subsequent court ofappeal decisionsconsistently applied Jewel’s interpretation of § 15018(f) to contingency fee matter cases. See, e.g., Fox v. Abrams, 163 Cal. App. 3d 610, 612-13 (1985) (applying rule that former partners had a right to share in attorneys’ fees from a dissolved law firm’s unfinished contingency feecases); Rosenfeld, 191 Cal. App. ~ 3d at 1063 (same). In 1993, a California court for the first time expressly applied Jewel’s interpretation of § 15018(f) to matters that the dissolved law firm had been handling on an hourly basis. See Rothman v. Dolin, 20 Cal. App. 4th 755, 757-59 (1993). Rothman reasonedthat “the policy reasons for the rule announcedin Jewel, that is, that fees received in connection with the unfinished business of a partnership are to be allocated according to the former partners’ respective " interests in the partnership rather than on a quantum meruit ea th y IN THE MATTER OF HELLER EHRMANLLP 9 basis, apply with equal force to both contingency and hourly rate cases.” Id. at 758. No other publishedcase in California has expressly addressedthis issue. Although the California Supreme Court has notdirectly addressed the question of dissolved law firms’ interest in legal matters pending at the time of dissolution, the Court acknowledged Jewel’s interpretation of § 15018(f) in one case, Howard v. Babcock,6 Cal. 4th 409, 424 n.8 (1993). In Howard, the Court held that an “an agreement among law partners imposing a reasonabletoll on departing partners who compete with the firm” was enforceable. Jd. at 412. The defendants arguedthat such an agreement wouldviolate rule 1-500 of the Rules of Professional Conduct because it discouraged withdrawing partners from continuing to represent clients who wished to employ them. In rejecting this contention, Howardnotedthat“in somerespects, the ‘no- compensation rule’ of partnership law, whereby departing partners are compensated for winding up the unfinished business of the partnership according to their partnership interest, may be just as-much-a disincentive on the withdrawing partner to continue to representclients of the firm as an anticompetitive penalty, and yet this is not considered to be a violation of rule 1-500.” Jd. at 424 n.8 (citing Jewel, 156 Cal. App. 3d 171, among other cases). Howarddid not otherwise address the Jewelissue. In 1996, the California legislature revised its partnership law by replacing UPA with RUPA. See Cal. Corp. Code § 16100 et. seq.; see also 9 Witkin, Summary Partnership § 15, 590 (10th ed. 2005). Amongits other modifications, RUPAclarified the fiduciary duties of partners after the dissolution of the partnership. It replaced former section § 15021(1), which had provided that partners had a fiduciary 10 IN THE MATTEROF HELLER EHRMAN LLP duty to account for benefits and profits to the other partne rs, with § 16404(b)(1), whichsets forth a partner’s fiduciary duty “[t]o accountto the partnership and holdastrustee for it any property, profit, or benefit derived by the partner in the conduct and winding up of the partnership business or derived from a use bythe partner of partnership property or information, including the appropriation of a partnership opportunity.” Cal. Corp. Code § 16404(b)(1). But at the same time, RUPA changedthe rule regarding partners’ pos t- dissolution rights to reasonable compensation; it replaced § 15018(f), which had providedthat only a “surviving partn er is entitled to reasonable compensationforhis or her servic es in winding up the partnership affairs,” with § 16401(h ), which provides that all partners are entitled to “reasonab le compensation for services rendered in winding up t he _ business of the partnership.” Cal. Corp. Code § 16401(h). Accordingto the official commentto RUPA§ 401(h) (whi ch is identical to § 16401(h) of the California Corporatio ns Code),this revision wasintendedto provide that “any partn er winding up the businessis entitled to compensation, not just a surviving partner winding up after the death of anoth er partner.” RUPA § 401 cmt.9. California’s adoption ofRUPAis materialto the questio n raised in this case. Jewel had primarily based its conclus ion that lawyers had to account to their former partners for all income generated from a dissolved law firm’s unfinis hed ~ business on the languagein § 15018(f) that precluded fo rmer partners from earning extra compensation for winding up 2 Section 16401(h) provides in full: “A partner is not entitled to remuneration for services performed for the partner ship, except for reasonable compensationfor services rendered in windi ng up the business of the partnership.” IN THE MATTER OF HELLEREHRMAN LLP 11 partnership business. Jewel, 156 Cal. App. 3d at 176. But under RUPA, partners are entitled to “reasonable compensation” for such work. Cal. Corp. Code § 16401 (h). Because “reasonable compensation” meansfees “attributable to the services and skill” of the partner performing the work, Jacobson, 29 Cal. 2d at 30, the language in § 16401(h) suggests that former partners now have a claim to someorall of their hourly rate for working on unfinished business. Despite the significance of this legislative change, no California court has considered (in a-published opinion*) whether there remainsa basis for holding that a partnership hasa property interest in legal matters pendingat the time the firm is dissolved, when the firm was retained on an hourly basis, now that the California legislature has repealed § 15108(f) and replaced it with § 16401(h). B Wenow explain Jewel’s continuing impact on bankruptcy law. In 2009, a bankruptcy court determined that the rule enunciated in Jewel, that former partners of a dissolved law firm had a rightto share in attorneys’ fees received on cases that had been pending when the law firm dissolved, had significance in a bankruptcy context. See In re Brobeck, Phleger & Harrison LLP, 408 B.R. 318 (N.D. Cal. 2009). > Appellant points out that two unpublished California opinions have applied Jewelafter the enactment ofRUPA. See Marquart v. Smith, 2014 WL 1990286 (Cal. Ct. App. May 16, 2014); Kuist v. Hodge, 2008 WL 510075 (Cal. Ct. App. Feb. 27, 2008). Under the Supreme Court’s rules, these unpublished cases maynotbecitedorrelied on by a court ora party. See California Rules of Court 8.1115. 12 IN THE MATTER OF HELLER EHRMAN LLP The reasoning in Brobeckrelies on underlyingprinciples of bankruptcy law. Under 11 U.S.C. § 548, a bankruptcy trustee has the powerto set aside the debtor’s transfer of “an _ interest of the debtor in property”to a third party when the transfer was madewithin a specified period before the date of filing a petition in bankruptcy, and the transfer was made either with intent to “hinder, delay or defraud” creditors,id. § 548(a)(1)(A), or was constructively fraudulent becauseit met certain criteria, id. § 548(a)(1)(B). For purposes of § 548, the debtor has aninterest in any property “that would have beenpart ofthe estate had it not been transferred before _ the commencement of bankruptcy proceedings.” Begierv. IRS; 496 U.S. 53, 58 (1990); see also 11 U.S.C. § 541(a)(1) (defining the debtor’s property interests as including “all legal or equitable interests of the debtor in property as of the commencementofthe case”). Since “[p]roperty interests are created and defined by state law,” Butner v. United States, 440 USS. 48, 55 (1979), we “look to state law to determine property interests” of the debtor, In re Perl, 811 F.3d 1120, 1127 (9th Cir. 2016). Brobeck involved a national law firm partnership that experienced serious financial difficulties. 408 B.R. at 326. Thepartners enteredinto a dissolution agreementstating that neitherthe partners northe partnership wouldhaveany claim to legal matters that were ongoing at the time of the dissolution of the partnership. Jd. at 327. Specifically, the _ provision stated it was “intended to expressly waive, opt out of andbe in lieu of any right any Partner or the Partnership may haveto ‘unfinished business’ of the Partnership,as that term is defined in Jewel v. Boxer, or as otherwise might be provided in the absence of this provision through interpretation or application of the California Revised Uniform Partnership Act.” Jd. After the law firm’s IN THE MATTER OF HELLER EHRMANLLP 13 dissolution,its partners movedto otherfirms, taking pending legal matters along with them. Jd. at 328. The law firm was subsequently put into involuntary bankruptcy, and thetrustee in bankruptcy commenced two adversaryproceedingsseeking a declaration thatthe profits from the legal matters that were pending when the law firm dissolved were property of the dissolved law firm. Jd. at 330. The bankruptcy court agreed. It first held that under Jewel, the dissolved law firm had a property interest in the profits from the legal matters that were pending at the time of the dissolution, whetherthose cases were billed on an hourly or contingent fee basis. /d. at 338-39. It did not address the question whether RUPAaffected the applicability ofJewel to such profits. Jd. at 337-38. It then held that the law firm waivedits interests in these profits whenits partners entered into the dissolution agreement. Jd. at 338. This waiver “gave whatwasotherwise property of[the law firm] to the [former law firm] partners.” Jd. The bankruptcy court then concluded that the trustee had established that the law firm hadtransferred theprofitsin the pending legal matters to the former partners, and this transfer could be challenged as a fraudulenttransfer under § 548(a). Id. at 339-40. AfterBrobeck was decided, the SecondCircuit addressed a similar issue arising under New York law. See In re Thelen LLP, 736 F.3d 213 (2d Cir. 2013). Thelen considered “whether, for purposes of administering the firm’s related bankruptcy, New York law treats a dissolved law firm’s pending hourly fee matters as its property.” Id. at 216. The court certified the question to the New York Court of Appeals. Jd. at 225. a y 14 IN THE MATTER OF HELLER EHRMAN LLP The New York Court ofAppeals held that a dissolved law firm does not have a property interest in income generated ’ from unfinished hourly legal matters. In re Thelen LLP, 24N.Y.3d 16, 28 (2014). The court rejected the concept that a law firm has a property right in unfinished law firm business. Jd. Although acknowledging that courts in other jurisdictions had interpreted UPA (which wasalso the basis for New York’s Partnership Law) to the contrary, Thelen stated that the Partnership Law “does not define property; rather, it supplies default rules for how a partnership upon ‘ dissolution divides property as elsewhere defined in state law.” Id. Accordingly, the law “has nothing to say about whether a law firm’s ‘client matters’ are partnership property.” Jd. Further, because “clients have always enjoyed the ‘unqualified right to terminate the attorney-client relationship at any time’ without any obligation other than to compensate the attorneyfor ‘the fair and reasonable value of the completed services,”id. (citing Matter of Cooperman, 83 N.Y.2d 465, 473 (1994)), the “expectation of any continued or future business is too contingent in nature and speculative to create a-present or future property interest,”id. (quoting Verizon New England Inc. v. Transcom Enhanced Servs., Inc., 21 N.Y.3d 66, 72 (2013)). Accordingly, Thelen heldthat “‘no law firm has a property interest in future hourly legal fees because they are ‘too contingent in nature and speculative to create a present or future property interest.’” - Id. (quoting Verizon New EnglandInc., 21 N.Y.3d at 72). I This is an appropriate case in whichto seek the California Supreme Court’s guidance because, as in Brobeck and Thelen, it raises the question whether hourly fee matters pendingat the time of the law firm’s dissolution are property on y IN THE MATTER OF HELLER EHRMAN LLP 15 ofthe dissolved law firm in the context ofan adversary action in bankruptcy. Heller was a global law firm with more than 700 attorneys. The partnership was comprised of professional corporations, each of which employed attorneys as shareholders. The shareholders controlled Heller through shareholder votes and management committees. By August 31, 2008, Heller experienced financial distress. Its balance sheet reflected around $5 million in cash and nearly $55 million in bank debt. On September 19, 2008, Bank of America, acting as an agentfor itself and Citibank, declared Heller in default. Soon after, Heller’s shareholders voted to . approvea dissolution plan. The dissolution plan included a waiver bythe law firm of any rights and claims “under the doctrine ofJewel v. Boxer, 156 Cal. App. 3d 171 (1984) to seek paymentof legal fees generated after the departure date of any lawyer or group of lawyers with respect to non-contingency/non-success fee matters only.” The waiver provision stated that it was “an inducement to encourage Shareholders to move their clients to other law firms and to move Associates and Staff with them, the effect of which will be to reduce expenses to the Firm-in-Dissolution.” In the following months, Heller’s former shareholders joinedat least sixteen other law firms, and many of Heller’s former clients signed new fee agreements with those law firms to continue to receive representation. In December 2008, Heller filed a petition under Chapter 11 of the Bankruptcy Code. In August 2010, Heller’s joint plan of liquidation was approved, and the plan became 16 — IN THE MATTER OF HELLE R EHRMAN LLP effective in September 2010. A plan administrator was appointed and became responsible for p ursuing claims to recoverassets for the benefit of Heller’s creditors. In December 2010, the plan administrator filed adversary proceedings in bankruptcy court on behalf of Heller against the sixteen law firms, secking to avoi d the dissolution agreement’s waiver ofHeller’s rights to p ost-dissolution legal fees as a fraudulent transfer under11 U.S .C. § 548(a)(1)(B) or under California Civil Code § 343 9.05 (which has essentially the same elements as § 548(a) (1)(B)). Basing its action on Brobeck (which had been deci ded by the same bankruptcy judge hearing Heller’s case), Heller alleged that it had a property right in legal fees gene rated by work on hourly matters after its dissolution, that the waiver of this ~ right in the dissolution agreement cons tituted a transfer of Heller’s interest in property (presumably to the shareholders), andthat the new law firms were the sub sequenttransferees of such transfers. Heller further alleged that such transfers met the additional statutory criteria in § 548(a)(1)(B) to be avoidable as fraudulenttransfers. After the bankruptcy court denied the n ew law firms’ ~ motions to dismiss, all but four of the sixteen firms settled with Heller. In June 2012, Heller and t he four non-settling law firms (Davis Wright Tremaine LLP; J ones Day; Orrick, Herrington & Sutcliffe LLP; and Foley & Lardner LLP)filed cross motions for summary judgment on w hether the waiver in the dissolution agreement constituted a transfer ofHeller’s property to the defendants and whether any such transfer was a fraudulent transfer under11 U.S.C. § 54 8. Relying onits ~ earlier decision in Brobeck, the bankr uptcy court granted Heller’s motion. a a R ET B N E T ra hy IN THE MATTER OF HELLER EHRMAN LLP 17 After further proceedings in bankruptcy court, the bankruptcy court certified to the district court that the case could proceed to bench and jury trials for factual determination of the amount of damages in the four cases. Thedistrict court entered an order withdrawing the reference from the bankruptcy court, but instead ofproceeding to trial, the court asked for briefingon the waiver issue. Reviewing the bankruptcy court’s rulings de novo, the district court granted summary judgmentin favor of the four defendants. Amongotherthings, the district court reasoned that RUPA undermined the legal foundation on which Jewel rests because RUPAcontains no provision giving dissolved law firms the right to demand an accounting for profits earned by its former partners under a newretainer agreement, but allows partners to obtain “reasonable compensation” for helping to winduppartnership businesses. Because Jewel did not apply, the court held that Heller did not have a property interest in its pending hourly matters at dissolution. Therefore, it did not reach the issue whether the Jewel waiver constituted a fraudulenttransfer. On appeal, Heller argues that RUPA did notabrogate the rule in Jewel, and under California law, a dissolved law firm has a property interest in the profits from the firm’s unfinished business. Heller notes that two unpublished California cases‘ and two legal commentaries* have reached 4 See supra note 3. 5 The legal commentaries cited by Heller indicate that RUPA did not alter the fiduciary duties ofpartners. See 9 Witkin, Summary Partnership § 30, 604 (1 0th ed. 2005) (“Although [RUPA]treats the topic of fiduciary duties extensively, the Partnerships Committee of the State Bar, in reviewing California cases dealing with the fiduciary duties of partners, concluded that none would have been decided differently under vo vt y ae 18 IN THE MATTER OF HELLEREHRMAN LLP the same conclusion. According to Heller, § 16401(h) does not undermineJewelbecauseitmerely allows formerpartners to receive some compensation for completing the dissolved law firm’s unfinished business. To the extent that completion of the work generated profits beyond such “reasonable compensation,” the former partners would continue to have a fiduciary duty to account for such profits to the former partnership. Accordingly, Heller argues, the formerpartners continue to have a fiduciary duty to accountfor the legal fees generated from the hourly matters that were pending when Heller dissolved, and Heller continues to have a property interest in such fees. In response, the four defendantlaw firms argue, among other things, that partners completing the firm’s unfinished hourly fee matters are entitled under § 16401(h) to their hourly rate for such work, so Heller has no ongoing property interest in the matters that have been transferred to other firms. As a policy matter,they argue that giving dissolved law firms a property interest in hourly fee matters that have been transferred to third party law firms would discourage such firms from representing clients of a dissolved firm because they would have no ability to profit from that representation. I Weare boundbydecisionsofthe state’s highest court in analyzing questionsofthat state’s law, GlendaleAssocs., Ltd. [RUPA].”); see also Donald J. Weidner, Cadwalader, RUPA and Fiduciary Duty, 54 Wash. & Lee L. Rev. 877, 913 (1997) (discussing fiduciary duties under RUPAand noting that no change in current law was intended). h y ae IN THE MATTER OF HELLER EHRMAN LLP 19 v. N.L.R.B., 347 F.3d 1145, 1154 (9th Cir. 2003), but the California Supreme Court has not addressed the question (either before or after RUPA was enacted) whether a dissolved law firm has a property interest in unfinished business wherethe law firm had beenretained on an hourly basis. Indeed, the Court expressly held this issue open some 130 years ago, and hasnotrevisited it since. See Osment, 68 Cal. at 470. “When the state’s highest court has not squarely addressed an issue,” we predict “how the highest state court would decide the issue using intermediate appellate court decisions, decisions from otherjurisdictions, statutes, treaties and restatements for guidance.” Glendale Assocs., 347 F.3d at 1154 (quoting N.L.R.B. v. Calkins, 187 F.3d 1080, 1089 (9th Cir. 1999)). But the California Legislature’s replacement of § 15018(f) with 16401(h) has substantially affected the basis for the court’s conclusion in Jewel, and none of the California Courts of Appeal have applied Jewelin a published opinion after the enactment of RUPA. For the reasonsstated above, we need guidance from the California Supreme Court to determine whetherHeller has a property interest in its unfinished hourly fee matters upon dissolution. The Court’s decision determines the outcome of this appeal. If Heller has no such property interest then Heller cannot claim thatthe dissolution agreement constituted a transfer of the property interest. If Heller did have a property interest in its unfinished hourly fee matters, then we will remand to the district court to determine the remaining issues, namely whether the transfer met the criteria in § 548(a)(1) to constitute a fraudulenttransfer that is avoidable by the plan administrator. , es th y ao d 20 IN THE MATTER OF HELLER EHRMAN LLP This issue is significant for California lawyers and law firms, as well as for their clients. Partners in California law firms needclarity regarding their obligations after a law firm dissolves. Absent guidance from the California Supreme - Court, law firms will have difficulty predicting their entitlement to revenue from completing the unfinished business of dissolving law firms. Clients may also be disadvantaged by this ambiguity, as it may be unclear how their matters will be handled at a new law firm, if the hourly fees from their matters must be shared with a dissolved law firm. Moreover, lawyers in dissolving law firms may have difficulty providing accurate guidanceto clients regarding the - effect of a law firm dissolution on their matters. This may make compliance with Rule 3-700(A)(2) of the California Rules of Professional Conduct more difficult. See Cal. R. Prof. Conduct 3-700(A)(2) (requiring a withdrawingattorney, including an attorney withdrawing as a result of the dissolution of the attorney’s law firm, to take “‘reasonable steps to avoid reasonably foreseeable prejudice to the rights of the client, including giving due notice to the client, - allowing time for employment of other counsel, complying with rule 3-700(D) [by returning the client’s papers and property], and complying with applicable laws andrules.”). The importanceofthis issue is underscored by the numerous amicusbriefs this court received from bar associations and law firms in California. Wetherefore respectfully ask that the California Supreme - Court decide the certified question. IV The Clerk of Court is hereby directed to transmit forthwith to the California SupremeCourt,underofficial seal IN THE MATTER OF HELLER EHRMAN LLP 21 of the Ninth Circuit, a copy of this order and request for certification and all relevant briefs and excerpts of record pursuant to California Rule of Court 8.548. Submission of this case is withdrawn, and the case will be resubmitted following receipt of the California Supreme Court’s opinion on the certified question or notification that it declines to answer the certified question. The panel shall retain Jurisdiction over further proceedings in this court. The parties shall notify the Clerk of this court within one week after the California Supreme Court accepts or rejects certification. In the event the California Supreme Court grants certification, the parties shall notify the Clerk within one weekafter the court rendersits opinion. The captions of these casesare: 14-16314 IN THE MATTER OF HELLER EHRMAN LLP, Debtor HELLER EHRMANLEIP,Liquidating Debtor, Plaintiff-Appellant Vv. DAVIS WRIGHT TREMAINE LLP Defendant-Appellee and 14-16315 22 IN THE MATTER OF HELLER EHRMAN LLP IN THE MATTER OF HELLER EHRMAN LLP, Debtor HELLER EHRMANLLP, Liquidating Debtor, Plaintiff-Appellant V. JONES DAY, Defendant-Appellee and 14-16317 IN THE MATTER OF HELLER EHRMANLLP, Debtor HELLER EHRMANLLP,Liquidating Debtor Plaintiff-Appellant Vv. FOLEY & LARDNERLLP, Defendant-Appellee and 14-16318 IN THE MATTER OF HELLER EHRMAN LLP 23 IN THE MATTER OF HELLER EHRMANLLP, Debtor HELLER EHRMANLLP, Liquidating Debtor Plaintiff-Appellant Vv. ORRICK HERRINGTON & SUTCLIFFE LLP, Defendant-Appellee Counsel for the parties are as follows: For Plaintiff-Appellant Heller Erhman LLP: Christopher D. Sullivan Diamond McCarthy LLP 150 California Street, Suite 2200 San Francisco, California 94111 Telephone (415) 692-5200 Jeffrey T. Makoff Valle MakoffLLP Two Embarcadero Center, Suite 2370 San Francisco, California 94111 Telephone (415) 986-8001 Kevin W. Coleman ; Schnader Harrison Segal & Lewis LLP 650 California Street, 19th Floor San Francisco, California 94108 Telephone (415) 364-6700 24 IN THE MATTER OF HELLER EHRMAN LLP For Defendant-Appellee Davis Wright Tremaine LLP: Steven A. Hirsch Keker & Van Nest LLP 633 Battery Street San Francisco, California 94111-1809 Telephone (415) 391-5400 For Defendants-Appellees Davis Wright Tremaine LLP and _ Foley & Lardner LLP: Peter P. Meringolo Luther Orton PMRK Law, LLP One SansomeStreet, Suite 3500 San Francisco, California 94104 Telephone (415) 964-4445 ’ For Defendant-Appellee Jones Day: Shay Dvoretzky Jones Day 51 Louisiana Ave., N.W. Washington, D.C. 20001 Telephone (202) 879-3939 For Defendant-Appellee Orrick, Herrington & Sutcliffe LLP: Eric A. Shumsky Orrick, Herrington & Sutcliffe LLP Columbia Center 1152 15th Street, N.W. Washington, D.C. 20005 Telephone (202) 339-8400 vt y IN THE MATTER OF HELLER EHRMAN LLP 25 Rachel Wainer Apter ChristopherJ. Cariello Orrick, Herrington & Sutcliffe LLP 51 West 52ndStreet New York, New York 10019 Telephone (212) 506-5000 Pamela Phillips Jonathan W. Hughes Amold & Porter LLP Three Embarcadero Center, 10th Floor San Francisco, California 94111 Telephone (415) 471-3100 CERTIFICATION REQUESTED; SUBMISSION VACATED.
