"Unfinished Business"
Law firms win removal of ‘unfinished business’ claims from bankruptcy court
11/28/2011 COMMENTS (0)
November 28 (Westlaw Journals) - The plan administrator for the once-storied, now-defunct Coudert Brothers law firm cannot receive final adjudication in bankruptcy court for its state-law “unfinished business” claims against ten law firms that took over representation of Coudert’s clients, a federal judge has ruled.
Development Specialists Inc. v. Akin Gump Strauss Hauer & Feld LLP et al., Nos. 11-5968, 11-5969, 11-5970, 11-5971, 11-5972, 11-5973, 11-5974, 11-5983, 11-5984, 11-5985, 11-5993, 11-5994, 11-5995, 2011 WL 5244463 (S.D.N.Y. Nov. 2, 2011).
U.S. District Judge Colleen McMahon of the Southern District of New York agreed with the defendant firms that the claims should be withdrawn from Coudert’s bankruptcy proceeding in light of the U.S. Supreme Court’s recent decision in Stern v. Marshall, 131 S. Ct. 2594 (June 23, 2011).
Stern holds that while bankruptcy courts have jurisdiction over all “core proceedings,” they lack the constitutional authority to enter a final adjudication of core claims involving private rights that are not necessarily determined in ruling on a creditor’s proof-of-claim against the debtor’s estate, unless all the parties consent, Judge McMahon explained in a written opinion.
Under such circumstances, the bankruptcy court may only make a recommendation to the district court, which then enters a final decision.
Coudert, founded in 1853, filed a Chapter 11 petition in September 2006, and disbanded that same year. It was the first American law firm to open offices in London, Singapore and Moscow, according to an Aug. 30, 2005 report in the New York Times.
Development Specialists Inc., the firm’s bankruptcy plan administrator, brought adversary lawsuits against 10 law firms, including Akin Gump Strauss Hauer & Feld, Duane Morris LLP, Jones Day and Dechert LLP, under the state-law theory of “unfinished business.”
The suits seek to hold the firms liable for any fees earned on matters Coudert’s former partners brought with them, the opinion said.
The firms initially tried to have the suits dismissed under the theory that the “unfinished business doctrine” only applies to contingency fee cases, and not to cases where the client agrees to pay for services on an hourly basis.
The U.S. Bankruptcy Court for the Southern District of New York disagreed in an August 2009 ruling. While noting that no New York court had yet to rule on the issue, it predicted that the state’s highest court would allow such a claim to proceed even in non-contingency cases.
With the adversary cases still pending, the Supreme Court issued its Stern decision.
The defendants responded by asking the District Court to withdraw the claims from Bankruptcy Court.
The plan administrator countered that the request is untimely because the bankruptcy case has been pending for several years, and the firms have consented to being in Bankruptcy Court.
Judge McMahon agreed with the firms that their request is timely because Stern changed the legal landscape.
“Stern provided the firms with a legal basis to contest the Bankruptcy Court’s adjudicative power that they did not have before last summer,” she wrote.
Judge McMahon then concluded that the claims should proceed in District Court because the firms have not expressly consented to being in Bankruptcy Court and, under Stern, the Bankruptcy Court lacks the constitutional authority to finally adjudicate the private, unfinished business claims.
She noted that the claims do not involve a public right under a federal statute or scheme, nor is their adjudication necessarily dependent upon the resolution of any proofs-of-claim filed against the bankruptcy estate.
(Reporting by Chip Giambrone, Westlaw Journal Bankruptcy)
