Heller Ehrman LLP v. Davis Wright Tremaine LLP

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
IN THE MATTER OF HELLER No. 14-16314
EHRMAN LLP,
Debtor, D.C. No.
3:14-cv-01236-CRB
HELLER EHRMAN LLP,
Liquidating Debtor,
Plaintiff-Appellant,
v.
DAVIS WRIGHT TREMAINE
LLP,
Defendant-Appellee.
2 IN THE MATTER OF HELLER EHRMAN LLP
IN THE MATTER OF HELLER No. 14-16315
EHRMAN LLP,
Debtor, D.C. No.
3:14-cv-01237-CRB
HELLER EHRMAN LLP,
Liquidating Debtor,
Plaintiff-Appellant,
v.
JONES DAY,
Defendant-Appellee.
IN THE MATTER OF HELLER No. 14-16317
EHRMAN LLP,
Debtor, D.C. No.
3:14-cv-01238-CRB
HELLER EHRMAN LLP,
Liquidating Debtor,
Plaintiff-Appellant,
v.
FOLEY & LARDNER LLP,
Defendant-Appellee.
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 EHRMAN LLP,
Liquidating Debtor, ORDER CERTIFYING
Plaintiff-Appellant, QUESTION TO THE
CALIFORNIA
v. 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.
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 been retained to handle the matters on
an hourly basis. This question resolves the bankruptcy appeal
before us because if a dissolved law firm does not have a
property interest in such matters, the transfer of those 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 address this
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 of the court. It has
been prepared by court staff for the convenience of the reader.
IN THE MATTER OF HELLER EHRMAN LLP 5
the applicable state partnership law in 1996. Accordingly,
pursuant to 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 of the issues involved. The Court may rephrase
the question as it 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 recognize that the Court has
a substantial caseload, and we submit this question only
because of its significance to the bankruptcy administration
of dissolved law firms in the state of California.
I
We start 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
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 former partners 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. Id. at 467, 470. The California Supreme
Court affirmed the trial court’s apportionment of the fees
between the partners. Id. at 472. Rejecting the argument that
the working lawyer was entitled to a greater share of the fees,
the Court pointed to the common law rule that partners are
not entitled to compensation for services rendered to the
partnership, even after dissolution. Id. at 471. However, the
Court left open the question whether a different rule might
apply to winding up partnerships between lawyers “where the
profits of the firm are the result solely of professional skill
and labor.” Id. 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 not fully performed, the surviving partner has a duty
to “complete the unfinished contract for the benefit of the
partnership,” and the contract “is still to be viewed by a court
of equity as an asset of the partnership.” Id. at 560–61.
The common law 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), which it
later codified as part of the state’s Corporations Code, see
IN THE MATTER OF HELLER EHRMAN LLP 7
Cal. Corp. Code § 15001 et. seq. (1998).1 Under UPA,
partners had a fiduciary duty to each other to “account to the
partnership for any benefit, and hold as trustee for it any
profits derived by him without the consent of the other
partners . . . .” Cal. Corp. Code § 15021(1) (1998). Partners
retained this duty even after the dissolution of the partnership,
with only one exception: UPA provided that “[n]o partner is
entitled to remuneration for acting in the partnership business,
except that a surviving partner is entitled to reasonable
compensation for his or her services in winding up the
partnership affairs.” Id. § 15018(f). The California Supreme
Court interpreted this language to mean that, after the death
of a partner, the surviving partner was entitled 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 the rest of their
former partners 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, which are frequently adopted by state 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), which the California legislature also adopted in 1996, and which
governed all partnerships as of January 1, 1999. See Cal. Corp. Code
§ 16111. The ULC’s official comments to the model codes are considered
by California courts for guidance. See, e.g., Rappaport v. Gelfand,
197 Cal. App. 4th 1213, 1227 (2011); Rosenfeld, Meyer & Susman v.
Cohen, 191 Cal. App. 3d 1035, 1059 (1987).
8 IN THE MATTER OF HELLER EHRMAN LLP
subsequently formed two new firms. 156 Cal. App. 3d 171,
175 (1984). Jewel reasoned that 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.” Id. at 176. As a result, any
attorneys’ fees generated from matters that had been pending
when the law firm dissolved were “to be shared by the former
partners according to their right to fees in the former
partnership, regardless of which former partner provides legal
services in the case after the dissolution.” Id. at 174. The
former partners would be entitled only “to reimbursement for
reasonable overhead expenses,” and not for their work on a
quantum meruit basis. Id. at 180. The court rejected the
argument that such a conclusion is contrary to the rule that
“clients have an absolute right to the attorney of their choice,”
because the client’s right is “irrelevant to the rights and duties
between the former partners with regard to income from
unfinished partnership business.” Id. at 177–78.
Subsequent court of appeal decisions consistently 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 fee cases); 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 reasoned that “the policy reasons
for the rule announced in 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
IN THE MATTER OF HELLER EHRMAN LLP 9
basis, apply with equal force to both contingency and hourly
rate cases.” Id. at 758. No other published case in California
has expressly addressed this issue.
Although the California Supreme Court has not directly
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 reasonable toll on departing partners who
compete with the firm” was enforceable. Id. at 412. The
defendants argued that such an agreement would violate 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, Howard noted that “in some respects, 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 represent clients of the
firm as an anticompetitive penalty, and yet this is not
considered to be a violation of rule 1-500.” Id. at 424 n.8
(citing Jewel, 156 Cal. App. 3d 171, among other cases).
Howard did not otherwise address the Jewel issue.
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). Among its other modifications,
RUPA clarified 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 MATTER OF HELLER EHRMAN LLP
duty to account for benefits and profits to the other partners,
with § 16404(b)(1), which sets forth a partner’s fiduciary duty
“[t]o account to the partnership and hold as trustee 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 by the 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 changed the rule regarding partners’ post-
dissolution rights to reasonable compensation; it replaced
§ 15018(f), which had provided that only a “surviving partner
is entitled to reasonable compensation for his or her services
in winding up the partnership affairs,” with § 16401(h),
which provides that all partners are entitled to “reasonable
compensation for services rendered in winding up the
business of the partnership.” Cal. Corp. Code § 16401(h).2
According to the official comment to RUPA § 401(h) (which
is identical to § 16401(h) of the California Corporations
Code), this revision was intended to provide that “any partner
winding up the business is entitled to compensation, not just
a surviving partner winding up after the death of another
partner.” RUPA § 401 cmt. 9.
California’s adoption of RUPA is material to the question
raised in this case. Jewel had primarily based its conclusion
that lawyers had to account to their former partners for all
income generated from a dissolved law firm’s unfinished
business on the language in § 15018(f) that precluded former
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 partnership, except for
reasonable compensation for services rendered in winding up the business
of the partnership.”
IN THE MATTER OF HELLER EHRMAN 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” means fees “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 some or all
of their hourly rate for working on unfinished business.
Despite the significance of this legislative change, no
California court has considered (in a published opinion3)
whether there remains a basis for holding that a partnership
has a property interest in legal matters pending at 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
We now 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 right to 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).
3
Appellant points out that two unpublished California opinions have
applied Jewel after the enactment of RUPA. 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 may not be cited or relied on by a court or a party.
See California Rules of Court 8.1115.
12 IN THE MATTER OF HELLER EHRMAN LLP
The reasoning in Brobeck relies on underlying principles
of bankruptcy law. Under 11 U.S.C. § 548, a bankruptcy
trustee has the power to set aside the debtor’s transfer of “an
interest of the debtor in property” to a third party when the
transfer was made within 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 because it
met certain criteria, id. § 548(a)(1)(B). For purposes of
§ 548, the debtor has an interest in any property “that would
have been part of the estate had it not been transferred before
the commencement of bankruptcy proceedings.” Begier v.
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
commencement of the case”). Since “[p]roperty interests are
created and defined by state law,” Butner v. United States,
440 U.S. 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.
The partners entered into a dissolution agreement stating that
neither the partners nor the partnership would have any claim
to legal matters that were ongoing at the time of the
dissolution of the partnership. Id. at 327. Specifically, the
provision stated it was “intended to expressly waive, opt out
of and be in lieu of any right any Partner or the Partnership
may have to ‘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.” Id. After the law firm’s
IN THE MATTER OF HELLER EHRMAN LLP 13
dissolution, its partners moved to other firms, taking pending
legal matters along with them. Id. at 328. The law firm was
subsequently put into involuntary bankruptcy, and the trustee
in bankruptcy commenced two adversary proceedings seeking
a declaration that the profits from the legal matters that were
pending when the law firm dissolved were property of the
dissolved law firm. Id. 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, whether those cases were billed on an hourly
or contingent fee basis. Id. at 338–39. It did not address the
question whether RUPA affected the applicability of Jewel to
such profits. Id. at 337–38. It then held that the law firm
waived its interests in these profits when its partners entered
into the dissolution agreement. Id. at 338. This waiver “gave
what was otherwise property of [the law firm] to the [former
law firm] partners.” Id. The bankruptcy court then
concluded that the trustee had established that the law firm
had transferred the profits in the pending legal matters to the
former partners, and this transfer could be challenged as a
fraudulent transfer under § 548(a). Id. at 339–40.
After Brobeck was decided, the Second Circuit 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. Id. at 225.
14 IN THE MATTER OF HELLER EHRMAN LLP
The New York Court of Appeals held that a dissolved law
firm does not have a property interest in income generated
from unfinished hourly legal matters. In re Thelen LLP,
24 N.Y.3d 16, 28 (2014). The court rejected the concept that
a law firm has a property right in unfinished law firm
business. Id. Although acknowledging that courts in other
jurisdictions had interpreted UPA (which was also 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.” Id. 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 attorney for ‘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
held that “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 England Inc., 21 N.Y.3d at 72).
II
This is an appropriate case in which to seek the California
Supreme Court’s guidance because, as in Brobeck and
Thelen, it raises the question whether hourly fee matters
pending at the time of the law firm’s dissolution are property
IN THE MATTER OF HELLER EHRMAN LLP 15
of the dissolved law firm in the context of an 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 agent for itself and Citibank, declared
Heller in default. Soon after, Heller’s shareholders voted to
approve a dissolution plan.
The dissolution plan included a waiver by the law firm of
any rights and claims “under the doctrine of Jewel v. Boxer,
156 Cal. App. 3d 171 (1984) to seek payment of 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
joined at 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 HELLER EHRMAN LLP
effective in September 2010. A plan administrator was
appointed and became responsible for pursuing claims to
recover assets 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, seeking to avoid the dissolution
agreement’s waiver of Heller’s rights to post-dissolution legal
fees as a fraudulent transfer under 11 U.S.C. § 548(a)(1)(B)
or under California Civil Code § 3439.05 (which has
essentially the same elements as § 548(a)(1)(B)). Basing its
action on Brobeck (which had been decided by the same
bankruptcy judge hearing Heller’s case), Heller alleged that
it had a property right in legal fees generated by work on
hourly matters after its dissolution, that the waiver of this
right in the dissolution agreement constituted a transfer of
Heller’s interest in property (presumably to the shareholders),
and that the new law firms were the subsequent transferees of
such transfers. Heller further alleged that such transfers met
the additional statutory criteria in § 548(a)(1)(B) to be
avoidable as fraudulent transfers.
After the bankruptcy court denied the new law firms’
motions to dismiss, all but four of the sixteen firms settled
with Heller. In June 2012, Heller and the four non-settling
law firms (Davis Wright Tremaine LLP; Jones Day; Orrick,
Herrington & Sutcliffe LLP; and Foley & Lardner LLP) filed
cross motions for summary judgment on whether the waiver
in the dissolution agreement constituted a transfer of Heller’s
property to the defendants and whether any such transfer was
a fraudulent transfer under 11 U.S.C. § 548. Relying on its
earlier decision in Brobeck, the bankruptcy court granted
Heller’s motion.
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.
The district court entered an order withdrawing the reference
from the bankruptcy court, but instead of proceeding to trial,
the court asked for briefing on the waiver issue. Reviewing
the bankruptcy court’s rulings de novo, the district court
granted summary judgment in favor of the four defendants.
Among other things, the district court reasoned that RUPA
undermined the legal foundation on which Jewel rests
because RUPA contains no provision giving dissolved law
firms the right to demand an accounting for profits earned by
its former partners under a new retainer agreement, but allows
partners to obtain “reasonable compensation” for helping to
wind up partnership 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
fraudulent transfer.
On appeal, Heller argues that RUPA did not abrogate 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 cases4 and two legal commentaries5 have reached
4
See supra note 3.
5
The legal commentaries cited by Heller indicate that RUPA did not
alter the fiduciary duties of partners. See 9 Witkin, Summary Partnership
§ 30, 604 (10th 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
18 IN THE MATTER OF HELLER EHRMAN LLP
the same conclusion. According to Heller, § 16401(h) does
not undermine Jewel because it merely allows former partners
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 former partners
continue to have a fiduciary duty to account for 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 defendant law 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.
III
We are bound by decisions of the state’s highest court in
analyzing questions of that state’s law, Glendale Assocs., Ltd.
[RUPA].”); see also Donald J. Weidner, Cadwalader, RUPA and
Fiduciary Duty, 54 Wash. & Lee L. Rev. 877, 913 (1997) (discussing
fiduciary duties under RUPA and noting that no change in current law was
intended).
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 where the law firm had been retained on an hourly
basis. Indeed, the Court expressly held this issue open some
130 years ago, and has not revisited 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 other jurisdictions,
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 Jewel in a published opinion after the enactment of
RUPA.
For the reasons stated above, we need guidance from the
California Supreme Court to determine whether Heller 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 that the 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 fraudulent transfer that is avoidable
by the plan administrator.
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 need clarity 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 guidance to 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 withdrawing attorney,
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 and rules.”).
The importance of this issue is underscored by the numerous
amicus briefs this court received from bar associations and
law firms in California.
We therefore 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 Supreme Court, under official 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 week after the court renders its opinion.
The captions of these cases are:
14-16314
IN THE MATTER OF HELLER EHRMAN LLP,
Debtor
-------------------------------------------------------
HELLER EHRMAN LLP, Liquidating Debtor,
Plaintiff-Appellant
v.
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 EHRMAN LLP, Liquidating Debtor,
Plaintiff-Appellant
v.
JONES DAY,
Defendant-Appellee
and
14-16317
IN THE MATTER OF HELLER EHRMAN LLP,
Debtor
-------------------------------------------------------
HELLER EHRMAN LLP, Liquidating Debtor
Plaintiff-Appellant
v.
FOLEY & LARDNER LLP,
Defendant-Appellee
and
14-16318
IN THE MATTER OF HELLER EHRMAN LLP 23
IN THE MATTER OF HELLER EHRMAN LLP,
Debtor
-------------------------------------------------------
HELLER EHRMAN LLP, Liquidating Debtor
Plaintiff-Appellant
v.
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 Makoff LLP
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 Sansome Street, 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
IN THE MATTER OF HELLER EHRMAN LLP 25
Rachel Wainer Apter
Christopher J. Cariello
Orrick, Herrington & Sutcliffe LLP
51 West 52nd Street
New York, New York 10019
Telephone (212) 506-5000
Pamela Phillips
Jonathan W. Hughes
Arnold & Porter LLP
Three Embarcadero Center, 10th Floor
San Francisco, California 94111
Telephone (415) 471-3100
CERTIFICATION REQUESTED; SUBMISSION
VACATED.