Are Hourly Rate Matters 'Unfinished Business' Following Law Firm Dissolution?

Abstract

When law firms are falling into financial straits, lawyers associated with the law firms look elsewhere for their future. Following dissolution, all of the lawyers are gone except for the few left with the legal requirements for winding up and shutting down the business. Many firms have filed bankruptcy to deal with their liabilities which are frequently greater than their assets. Bankruptcy trustees for many of these law firms have successfully recovered settlements and judgments from successor law firms where the lawyers have taken the unfinished business of the now-bankrupt law firm. There are many ethical requirements that have to be addressed as a result of law firm bankruptcies and dissolutions – generally designed to protect clients' interests. Other duties include the employee's duty of loyalty to an employer. Where the departing lawyer is a member of the law firm management or board of directors, there are additional statutory and fiduciary duties that may be owed. Where the law firm has agreements (such as buy-sell agreements, operating agreements, or other agreements) with its lawyers, there may be duties under those agreements. These and other issues that should be considered and are discussed in more detail in Issues in Partner Migration and Law Firm Dissolution. Without a Jewel waiver in operative agreements, contingent fee cases have been found to be unfinished business which needs to be shared by the lawyers with the former (usually now-dissolved) firm based on a line of cases beginning with Jewel v. Boxer (Cal. App. 1984). Hourly rate cases have also been treated by some courts as unfinished business and many firms have paid large amount to bankruptcy trustees or receivers on that basis. Newer and better-reasoned cases, beginning with In re Thelen (NY 2014) have concluded that hourly fee cases belong to the client and the former firm's only rights are to be paid for work performed before the case left the firm.