Jewel v. Boxer Found To Be Inapt, With Reasoning Indicating It May No Longer Be Viable California Law.
On February 22, 2014, we reported on a bankruptcy court decision where Heller Ehrman’s Chapter 11 trustee had obtained a successful “clawback” of hourly fee matter proceeds going to third-party firms which took over Heller cases when it could no longer do the work because of its bankruptcy and dissolution.
We can now provide an update: U.S. District Judge Charles R. Breyer effectively reversed this prior decision in Heller Ehrman LLP v. Davis, Wright, Tremaine, LLP, et al., Case Nos. C 14-01236 et al. CRB (Order re Summary Judgment June 11, 2014).
In doing so, District Judge Breyer found Jewel v. Boxer, 156 Cal.App.3d 171, 178-179 (1984)—which held that former partners in a law firm must “account” to firm for unfinished partnership business taken to two new firms made up of the same former partners--was different for five key reasons: (1) Heller’s dissolution was forced by a creditor unlike the voluntary dissolution in Jewel, with the former Heller partners forced to seek new employment and service cases so clients were not harmed; (2) the departing partners in Heller serviced clients through new retainer agreements, while the former partners in Jewel kept providing services under the former firm’s retainers; (3) Heller partners joined new third-party firms versus the former partners in Jewel which simply formed two new firms with the same constituency; (4) Jewel dealt with hourly and contingency matters, although the Heller situation only involved hourly work; and (5) Jewel was decided under partnership law which has since been superseded and undermined by new partnership law provisions.
The equities factored heavily in District Judge Breyer’s decision that the third-party law firms could keep collections on the unfinished Heller hourly work. The third-party firms did the work to the benefit of the client, such that they should retain the fees given that Heller could not service the clients anymore. He also found that the unfinished cases were not partnership property given that a law firm never owns it client matters: it is the client who can decide where they go. Finally, the contrary result would discourage third-party firms from hiring former partners of dissolved firms and discourage third-party firms from accepting new clients formerly represented by dissolved firms, something not in the public interest—augmented by the admission that Heller had no ability to do continuing legal work for the clients.
BLOG UNDERVIEW—Co-contributor Mike did litigate a case with Jewel issues and can point out that an unpublished California appellate decision also distinguished it as well as determining that it was somewhat undermined by the change in partnership law. District Judge Breyer’s decision likely lays the seeds for abrogation of Jewel at some stage by California state courts.
HISTORICAL FOOTNOTE: The McAuliffe of Heller, Ehrman, White & McAuliffe, was Florence McAuliffe, California State Bar No. 4273. Florence McAuliffe became a partner of the firm in 1921. The McAuliffe Honor Society of the University of San Francisco is named after McAuliffe, who graduated from USF in 1905. In 1929, she negotiated the financing for the construction of the San Francisco – Oakland Bay Bridge.
Palmdale Fault: City Suffers Fee/Costs Hit In Voting Rights Act Violation Matter.
Recently, the City of Palmdale was ordered to pay plaintiffs $3,563,259 in fees and costs related to a California Voting Rights Act lawsuit following City’s loss of an appeal, given that the Voting Rights Act has a pro-plaintiff fee shifting provision. This order may put some impetus on the Santa Clarita Community College District to informally resolve a similar Voting Rights Act case brought by the same plaintiffs. In a June 6, 2014 on-line post by Perry Smith, he makes an interesting observation: “No California Voting Right Act lawsuit has been successfully defended in California,” with this law focusing on the disenfranchising of minorities by certain district’s at-large elections due to the existence of alleged racially polarized voting.