United States Court of Appeals FOR THE NINTH CIRCUIT

No. 14-16314 IN THE United States Court of Appeals FOR THE NINTH CIRCUIT HELLER EHRMAN, LLP, -v.- Plaintiff-Appellant, DAVIS WRIGHT TREMAINE LLP, Defendant-Appellee. ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA BRIEF FOR THE AMERICAN BAR ASSOCIATION AS AMICUS CURIAE IN SUPPORT OF APPELLEE AND AFFIRMANCE OF COUNSEL: DAVID G. KEYKO KEVIN M. FONG JAY D. DEALY WILLIAM C. HUBBARD Counsel of Record PRESIDENT AMERICAN BAR ASSOCIATION 321 North Clark Street Chicago, Illinois 60654 (312) 988-5000 Attorneys for Amicus Curiae American Bar Association

DISCLOSURE STATEMENT Pursuant to Federal Rule of Appellate Procedure 26.1, amicus curiae American Bar Association ( ABA ) discloses that it is an Illinois nonprofit corporation, has no parent corporation, and does not issue shares of stock. ABA is a national voluntary organization whose members include attorneys, law students, and related professionals. i

STATEMENT OF QUESTION PRESENTED FOR REVIEW Whether the decision of the District Court, which is consistent with and supported by the principles governing the ethical obligations of lawyers, should be affirmed. ii

TABLE OF CONTENTS Page STATEMENT OF QUESTION PRESENTED FOR REVIEW... ii SUMMARY OF ARGUMENT... 5 ARGUMENT... 8 I. APPLICATION OF THE UNFINISHED BUSINESS RULE TO A CLIENT S HOURLY RATE MATTERS IS INCONSISTENT WITH THE RULES OF PROFESSIONAL CONDUCT.... 8 A. Application Of The Unfinished Business Rule To A Client s Hourly Rate Matters Would Conflict With The Financial and Ethical Rules Regulating The Legal Fees That The Client Can Be Charged.... 10 B. Application Of The Unfinished Business Rule To A Client s Hourly Rate Matters Conflicts With The Ethical Rules Regulating The Division Of Legal Fees.... 13 II. APPLICATION OF THE UNFINISHED BUSINESS RULE TO A CLIENT S HOURLY RATE MATTERS WOULD ENCOURAGE ATTORNEYS TO LEAVE THEIR FIRMS AT THE FIRST SIGNS OF FINANCIAL TROUBLE AND TO COUNSEL THEIR CLIENTS TO DO THE SAME.... 19 CONCLUSION... 24 CERTIFICATE OF COMPLIANCE... 25 CERTIFICATE OF SERVICE... 26 iii

Table of Authorities Cases Anderson, McPharlin & Connors v. Yee 135 Cal. App. 4th 129 (2005)... 14 Champion v. Superior Court of San Francisco 201 Cal. App. 3d 777 (1988)... 10, 11, 19 City & County of San Francisco v. Cobra Solutions, Inc. 38 Cal. 4th 839 (2006)... 9 Fed. Sav. & Loan Ins. Corp. v. Angell, Holmes & Lea 838 F.2d 395 (9th Cir.1988)... 10 Fracasse v. Brent 6 Cal. 3d 784 (1972)... 10 Frye v. Tenderloin Hous. Clinic, Inc. 38 Cal. 4th 23 (2006)... 9 Heller Ehrman LLP v. Davis, Wright, Tremaine, LLP, Nos. C 14-01236 CRB, C 14-01237 CRB, C 14-01238 CRB, C 14-01239 CRB, 2014 WL 2609743 (N.D. Cal. Jun. 11, 2014)... 14, 20 In re Thelen LLP 24 N.Y.3d 16 (2014)... 20 Jalali v. Root 109 Cal. App. 4th 1768 (2003)... 12 Jewel v. Boxer 156 Cal. App. 3d 171 (1984)... 13 Oliver v. Campbell 43 Cal. 2d 298 (1954)... 12 Thelen LLP v. Seyfarth Shaw LLP 736 F.3d 213 (2d Cir. 2013)... 5 iv

Statutes and Codes California Code of Civil Procedure Section 284... 10 Rules and Regulations ABA Model Rules, Rule 1.1... 16 Rule 1.16(a)(3)... 10 Rule 1.16(d)... 12, 23 Rule 1.5... 15, 17 Rule 1.5(a)... 12 Rule 1.5(c)... 12 Rule 1.5(e)... 15 Rule 5.4... 16 California Rules of Professional Conduct Rule 1-100(A)... 9 Rule 1-320... 16 Rule 1-320(A)(2)... 17 Rule 2-200... 14 Rule 2-200(A)... 15 Rule 3-310(B)(3)... 16 Rule 3-700... 22 Rule 3-700(A)(2)... 2, 7, 22 Rule 3-700(D)... 22 Rule 3-700(D)(2)... 11 Rule 4-200... 11, 15 Other Authorities ABA Formal Opinion 464 (2013)... 16 ABA Formal Opinion, 414 (1999)... 23 ABA General Information... 4 ABA Mission and Association Goals... 3 v

ABA Model Rules... 4 Cal. Formal Op. No. 1985-86... 22 Cal. Formal Op. No. 1994-135... 10 Cal. Formal Op. No. 1994-38... 14 Cal. Formal Op. No. 2013-188... 9 Cal. Formal Op. No. 2014-190... 22 Robert W. Hillman, Hillman on Lawyer Mobility: The Law and Ethics of Partner Withdrawals and Law Firm Breakups Section 4.11.4 at 4:156... 13 vi

INTERESTS OF AMICUS CURIAE 1 The American Bar Association ( ABA ), as amicus curiae, respectfully submits this brief in support of Appellee, requests that the Court consider the important ethical implications that would be raised by an application of the unfinished business rule to client hourly rate matters, and urges that the judgment of the District Court be affirmed. As set forth in this brief, the ABA asserts that, when a client moves its hourly rate matters to a lawyer s new firm following dissolution of the lawyer s prior firm, the unfinished business rule should not be applied to those matters. Applying the unfinished business rule in this context would be inconsistent with the rules of professional conduct adopted in every jurisdiction (generally, and unless otherwise specified, Rules of Professional Conduct or Rules ), including the California Rules of Professional Conduct 1 No party s counsel authored this brief in whole or in part; no party or party s counsel contributed money that was intended to fund preparing or submitting this brief; and no person, other than ABA and its members, contributed money that was intended to fund preparing or submitting this brief. All parties have consented to the filing of this brief. 602528134v1

( California Rules ) and the ABA Model Rules of Professional Conduct (which are not binding except in the manner adopted by a jurisdiction) ( ABA Model Rules ). This is because the unfinished business rule entitles a dissolved firm, which cannot perform legal services, to all the profits from the fees earned by another law firm after the client has moved its matters to the other firm. Under the ethical rules, on the other hand, any division of fees between firms must be with client written consent and, if the fees are paid to a firm that did not earn them, the payment would be unconscionable. Furthermore, it has been conceded that the unfinished business rule does not apply if a former partner leaves prior to dissolution. If the unfinished business rule were applicable upon dissolution of a law firm which remains contested at this time then it is possible that lawyers might well feel impelled by the ethical rules to leave troubled firms to avoid, as stated in California Rule 3-700(A)(2), reasonably foreseeable prejudice to the rights of the[ir] client[s]. They may also need to consider whether to counsel their clients to do likewise. The unfinished business rule rests on the proposition that a dissolved firm has a property interest in a client s hourly rate matters; however, neither law, nor equity, nor policy supports such a conclusion. 2

The ABA is the leading organization of legal professionals and one of the largest voluntary professional membership organizations in the United States. Its nearly 400,000 members come from all fifty U.S. states and other jurisdictions, and include lawyers in private law firms, corporations, non-profit organizations, government agencies, and prosecutors and public defenders offices. They also include judges, legislators, law professors, law students, and non-lawyer associates in related fields. 2 In California alone, as of August 31, 2014, the ABA s membership included 35,406 lawyer members, 5,468 law student members, and 1,527 associates. Since its founding in 1878, the ABA has worked to promote the competence, ethical conduct and professionalism of lawyers as they balance their responsibilities to their clients, to the legal system, and to their own interests in making a living. 3 This work has included a continuing, intensive discourse and analysis of the standards and 2 Neither this brief nor the decision to file it should be interpreted to reflect the view of any judicial member of the ABA. No member of the Judicial Division Council participated in the adoption or endorsement of the positions in this brief, nor was it circulated to any member of the Judicial Division Council before filing. 3 See, e.g., ABA Mission and Association Goals, available at http://www.americanbar.org/about_the_aba/aba-mission-goals.html (last visited February 3, 2015). 3

policies that should govern attorneys in their endeavors. In 1908, this work resulted in the ABA s adoption of the first Canons of Professional Ethics, which are now the ABA Model Rules. 4 Protection of clients unfettered right to choose their counsel and to terminate that relationship at any time remains a foundation of the ABA Model Rules. The ABA respectfully submits that the Rules of Professional Conduct, including the California Rules and the case law and ethics opinions construing them, and the ABA Model Rules are particularly important to the resolution of the issues before this Court. 5 Each of 4 The ABA Model Rules are available at http://www.americanbar.org/groups/professional_responsibility/public ations/model_rules_of_professional_ conduct.html. They have been continuously amended and updated through the efforts of ABA members, national, state and local bar organizations, academics, practicing lawyers, and the judiciary. Each Model Rule becomes ABA policy only after it is approved by the ABA House of Delegates, which is composed of 560 delegates representing, among others, states and territories, state and local bar associations, affiliated organizations, ABA sections and divisions, ABA members, and the Attorney General of the United States. See ABA General Information, available at http://www.americanbar.org/groups/ leadership/delegates.html (last visited February 3, 2015). 5 The District Court applied California state partnership law and looked to the California Rules. In this brief, the ABA therefore discusses these as well, but notes that Heller was a national law firm and many of its former partners and their new law firms may be 4

them supports the District Court s conclusion that the unfinished business rule cannot be applied to a dissolved firm, its former lawyers, and their new firms, because neither law, nor equity, nor policy recognizes a law firm s property interest in a former client s hourly rate matters or a right to the fees from those matters earned by another law firm. SUMMARY OF ARGUMENT Clients are not commodities, and neither law firms nor lawyers own their clients or their clients matters. The California Rules and the Rules of Professional Conduct adopted in every jurisdiction, as well as the ABA Model Rules, are based in part on a client s fundamental and unfettered right to select, retain, and change counsel at any time. Those Rules are not affected by a law firm s dissolution, even when a client s hourly rate matter is thereafter handled at a new firm by a former partner of the dissolved firm. The entitlement of a dissolved firm, under the unfinished business rule, to all the profits on subject to the laws and rules of other jurisdictions. See Thelen LLP v. Seyfarth Shaw LLP, 736 F.3d 213, 220 (2d Cir. 2013) (applying New York law to a limited liability partnership governed by California law). 5

such matters, however, is inconsistent with the ethical obligations that the new firm and former partner of the dissolved firm have to the client, as set out in the Rules adopted by the applicable jurisdiction. First, the Rules of Professional Conduct, in protecting the rights of a client, govern the legal fees a lawyer and firm can charge and collect from the client, and how they can divide those fees with another lawyer or firm. These rules cannot be squared with the unfinished business rule s requirement that profits on hourly rate matters be paid to a dissolved firm after the client has moved its matter and thus has discharged the dissolved firm to a former partner s new firm. Contrary to the Rules requiring that a lawyer and firm can only retain legal fees based on legal work performed, the unfinished business rule obligates the new firm nevertheless to pay over legal fees to the dissolved firm, which no longer represents the client and is no longer in business. Further, contrary to the Rules governing the division of legal fees between two firms, the unfinished business rule requires that the new firm divide legal fees with the dissolved firm without client written consent and in a manner that has no relationship to the services provided. The ABA asserts that these 6

two provisions alone are sufficient to establish that the unfinished business rule cannot be applied to a client s hourly rate matters. Second, because it is conceded that the unfinished business rule does not apply if a lawyer leaves a firm prior to its dissolution, a lawyer may feel impelled under the Rules of Professional Conduct to leave a firm at the first signs of financial trouble, to ensure that the lawyer or the new firm will not be required to divide fees with a dissolved firm that performed no legal services. Further, because those rules require lawyers, when leaving, to avoid reasonably foreseeable prejudice to the rights of the[ir] client[s], California Rule 3-700(A)(2), lawyers may also be impelled to counsel a client to move its hourly rate matters before the firm dissolves. The ABA asserts that none of these actions should be necessary under law, equity or policy because, as the District Court concluded, a dissolved firm has no property interest in a client s hourly rate matters on which an application of the unfinished business rule might be based. 7

ARGUMENT I. APPLICATION OF THE UNFINISHED BUSINESS RULE TO A CLIENT S HOURLY RATE MATTERS IS INCONSISTENT WITH THE RULES OF PROFESSIONAL CONDUCT. Clients, and not lawyers or law firms, own their matters. A client s ownership of its hourly rate matters is not altered when the lawyer handling those matters leaves a firm, even when the lawyer must leave because the firm has dissolved and can no longer provide legal services to the client. Under the unfinished business rule, though, a dissolved law firm would have a property interest in a client s hourly rate matters that the firm was handling at the time of dissolution, and would thus be entitled to the profits earned on those matters by new firms that the dissolved firm s partners join. The California Rules and the Rules of Professional Conduct, like the ABA Model Rules, however, impose obligations and restrictions on lawyers and law firms that protect clients fundamental and unfettered right to select, retain, and change counsel at any time, 8

and regulate how lawyers and firms may be paid for legal services. 6 These Rules are inconsistent with the unfinished business rule. This brief discusses the conflict between the unfinished business rule and the ethical responsibilities that govern the legal fees that lawyers and firms can charge a client and how lawyers and firms may divide those fees. Because of the integral role that legal fees play in the attorney-client relationship, the ABA asserts this discussion is sufficient to establish that, consistent with the Rules, the unfinished business rule cannot be applied to a dissolved firm s former hourly rate matters that are handled by a former partner and new firm. 6 While California has not adopted the ABA Model Rules, they may be helpful and persuasive in situations where the coverage of our Rules is unclear or inadequate. Frye v. Tenderloin Hous. Clinic, Inc., 38 Cal. 4th 23, 52 (2006); accord City & County of San Francisco v. Cobra Solutions, Inc., 38 Cal. 4th 839, 852 (2006); California Rule 1-100(A) ( Although not binding, opinions of ethics committees in California should be consulted by members for guidance on proper professional conduct. Ethics opinions and rules and standards promulgated by other jurisdictions and bar associations may also be considered. ); Cal. Formal Op. No. 2013-188 ( [I]n the absence of related California authority, we may look to the Model Rules, and the ABA Formal Opinions interpreting them, as well as the ethics opinions of other jurisdictions or bar associations for guidance. ). 9

A. Application Of The Unfinished Business Rule To A Client s Hourly Rate Matters Would Conflict With The Financial and Ethical Rules Regulating The Legal Fees That The Client Can Be Charged. As the California Supreme Court stated in Fracasse v. Brent, 6 Cal. 3d 784, 791 (1972), [I]t is a basic term of the [attorney-client] contract, implied by law that the client may terminate that contract at will. See also Champion v. Superior Court of San Francisco, 201 Cal. App. 3d 777, 783 (1988) (noting the close relation between the client s right to retain counsel of choice and the client s right to discharge counsel). As the State Bar of California stated, [L]awyers serve at the pleasure of their clients; a client always maintains the right to terminate the services of a lawyer at any time. Cal. Formal Op. No. 1994-135. See Cal. Civ. Proc. Code 284. Indeed, this Court has held that [a] client s power to discharge an attorney, with or without cause, is absolute. Fed. Sav. & Loan Ins. Corp. v. Angell, Holmes & Lea, 838 F.2d 395, 395 (9th Cir.1988) (internal quotation marks omitted). Similarly, ABA Model Rule 1.16(a)(3) requires that a lawyer withdraw from representing a client if discharged by the client. The client s absolute right to terminate a lawyer, however, cannot be squared with the unfinished business rule. If the unfinished 10

business rule were applied, it would give a dissolved law firm the right after the client has moved the matter and thus has discharged the dissolved firm to be paid all of the profits on a client s hourly rate matter that are earned by a former partner s new law firm, even though the dissolved firm did not and could not perform any legal services for which those profits were earned. In addition to ignoring the client s absolute right to discharge a firm, the requirement that all profits be paid to the dissolved firm would conflict with the Rules of Professional Conduct, including the California Rules and ABA Model Rules, under which a firm cannot charge fees for legal services that it did not perform. Further, California Rule 4-200 prohibits a lawyer from charging or collecting an illegal or unconscionable fee, and California courts have held that fees [that] have no relationship whatsoever to the amount of service provided or to be provided by the partnership to the client are unconscionable. Champion v. Superior Court of San Francisco, 201 Cal. App. 3d 777, 783 (1988). California Rule 3-700(D)(2) requires that a discharged attorney [p]romptly refund any part of a fee paid in advance that has not been earned (excluding a true retainer paid solely to ensure a lawyer s availability). The 11

unfinished business rule, therefore, would permit a dissolved firm to charge, collect and retain an unconscionable free, and require the former partner and new firm to acquiesce in its doing so. California courts also have held that when a client discharges a lawyer, the lawyer is only entitled to compensation for the value of work performed. E.g., Jalali v. Root, 109 Cal. App. 4th 1768, 1777 (2003) (when a client exercises the unilateral right to discharge his or her attorney with or without cause at any time even on the courthouse steps, the attorney only has a right to quantum meruit recovery representing the value of past work); Oliver v. Campbell, 43 Cal. 2d 298, 304 (1954) (discharged attorney entitled only to the reasonable value of services recoverable by the employee for his past performance ). Likewise, under the ABA Model Rules, legal fees must be earned: ABA Model Rule 1.5(a) prohibits a lawyer from charging or collecting an unreasonable fee, while Model Rule 1.5(c) provides that a lawyer shall deposit into a client trust account legal fees and expenses that have been paid in advance, to be withdrawn by the lawyer only as fees are earned or expenses incurred. In addition, ABA Model Rule 1.16(d) provides that any advance payment of fee 12

or expense that has not been earned or incurred must be refunded upon termination of the representation. The unfinished business rule concerns profits earned by a new firm after a client had no choice but to move its matter to a new firm; the rule does not concern fees that a firm might have earned prior to its dissolution. A requirement that a former partner and the new law firm must pay such profits to the dissolved firm would conflict with the ethics principles under which lawyers and their firms may be paid only for the work they perform. B. Application Of The Unfinished Business Rule To A Client s Hourly Rate Matters Conflicts With The Ethical Rules Regulating The Division Of Legal Fees. It is axiomatic that a law firm that hires a former partner of a dissolved firm cannot be the same firm as the dissolved firm. Thus, the ethics rules on the division of legal fees must apply in the unfinished business context. See Robert W. Hillman, Hillman on Lawyer Mobility: The Law and Ethics of Partner Withdrawals and Law Firm Breakups 4.11.4 at 4:156 n.40 ( By concluding that the partnership continues during the winding-up phase, these opinions are able to elude ethics restrictions on fee splitting when lawyers are not members of the same firm. ) (citing, inter alia, Jewel v. Boxer, 156 13

Cal. App. 3d 171 (1984). See Heller Ehrman LLP v. Davis, Wright, Tremaine, LLP, Nos. C 14-01236 CRB, C 14-01237 CRB, C 14-01238 CRB, C 14-01239 CRB, 2014 WL 2609743, at *4-5 (N.D. Cal. Jun. 11, 2014) (in which the court below concluded that Jewel is outmoded and inapplicable to the facts presented in this case). 7 The Rules of Professional Conduct governing the division of legal fees require that the client must consent to and understand the basis for any division of fees between firms, and that the total fee 7 Compare Anderson, McPharlin & Connors v. Yee, 135 Cal. App. 4 th 129 (2005), in which the court found that California Rule 2-200 did not apply to a partnership agreement that contained a liquidated damages provision under which a former partner was required to turn over 25% of the fees he earned for a 24-month period on matters begun at his former firm. Thus, Rule 2-200 did not apply because the construction of a partnership agreement did not involve two firms. See also Cal. Formal Op. No. 1994-38 (no division of fees, and Rule 2-200 did not apply, where a lawyer billed a firm in which he was not a partner or employee for his regular hourly rate, and the firm then re-billed that amount to the client and paid it over to the lawyer when paid by the client; the law firm did not retain any portion of the fee and acted merely as a collection agent). The unfinished business rule, however, is based on the ownership of matters and the Appellant seeks to impose obligations on other law firms, and not former Heller Ehrman LLP ( Heller ) partners, to disgorge all profits for an unlimited period of time earned on matters after the clients had moved their matters to another firm. Here, California Rule 2-200 does apply because Heller and the firms the Heller trustee has sued were never partners in the same law firm. 14

charged must not be increased solely because of the division and cannot be unconscionable. For example, California Rule 2-200(A) provides: A member shall not divide a fee for legal services with a lawyer who is not a partner of, associate of, or shareholder with the member unless: (1) The client has consented in writing thereto after a full disclosure has been made in writing that the division will be made and the terms of such division; and (2) The total fee charged by all lawyers is not increased solely by reason of the provision for division of fees and is not unconscionable as that term is defined in rule 4-200. ABA Model Rule 1.5(e), which also requires client consent, provides additional requirements: the division of fees may be made only if the division [of fees] is in proportion to the services performed by each lawyer or each lawyer assumes joint responsibility for the representation[.] Comment [7] to ABA Model Rule 1.5 explains: Joint responsibility for the representation entails financial and ethical responsibility for the representation as if the lawyers were associated in a partnership. Application of the unfinished business rule, however, would require the new law firm of a former partner of a dissolved firm to (1) pay over profits that are not in proportion to any services performed, (2) make those payments to a firm that, because it 15

is dissolved, cannot assume ethical responsibility for the representation, and (3) make these arrangements without client consent. See also ABA Formal Opinion 464 (2013) (lawyer entering into an arrangement for division of fees must reasonably believe that the other lawyers services will contribute to the competent and ethical representation of the client. ) (citing Comment [6] to ABA Model Rule 1.1.) 8 California Rule 3-310(B)(3) also prohibits a lawyer from accepting or continuing a representation without written disclosure to the client where [t]he member has or had a legal, business, financial, professional, or personal relationship with another person or entity the member knows or reasonably should know would be affected substantially by resolution of the matter. Contrary to the intention of this Rule, a disclosure that a former partner s new law firm would be required by the unfinished business rule to pay over profits on a client s hourly rate matters to the dissolved firm may affect the trust 8 In fact, because a dissolved firm no longer has any ability to perform legal services, California Rule 1-320 is relevant. That Rule prohibits a lawyer from directly or indirectly sharing legal fees with a person who is not a lawyer (except in certain circumstances), even with the client s consent. ABA Model Rule 5.4 similarly prohibits sharing legal fees with nonlawyers except in limited circumstances not applicable here. 16

necessary to the attorney-client relationship. A client may question the interests of its lawyer after it is informed that the coffers of the lawyer s former law firm, now in dissolution but not the coffers of the lawyer s new firm will be increased by payment of the new firm s profits to the dissolved firm. The client also might question whether the lawyer is conducting the representation in a manner that will result in payment of as little as possible to the dissolved firm. See Comment [5] to ABA Model Rule 1.5 ( An agreement may not be made whose terms might induce the lawyer improperly to curtail services for the client or perform them in a way contrary to the client s interest. ). 9 Even a comparison between the unfinished business rule and the requirements for division of fees with the estate of a deceased partner does not support payment of profits to a dissolved firm. California Rule 1-320(A)(2) provides that a member or law firm 9 Comment [8] to ABA Model Rule 1.5, however, clearly applies only to payment of fees to a former firm for work done before a lawyer leaves a firm. It states: Paragraph (e) [of ABA Model Rule 1.5] does not prohibit or regulate division of fees to be received in the future for work done when lawyers were previously associated in a law firm. Comment [8], thus, does not apply to the division of fees earned on work performed on a client s hourly rate matter after a firm s dissolution. 17

undertaking to complete unfinished legal business of a deceased member may pay to the estate of the deceased member or other person legally entitled thereto that proportion of the total compensation which fairly represents the services rendered by the deceased member. Thus, a partner s estate does not receive payments for work done after the partner s death. On the other hand, the unfinished business rule requires that a dissolve firm receive the profits on work done by another firm after the dissolved firm, in effect, has died. Finally, under the unfinished business rule, a dissolved firm could seek profits without consideration of the relative amount of work it performed before being discharged and the amount of work performed by the client s new law firm. Thus, even if the client s new firm might spend years defending a lawsuit for example, a major antitrust matter and even if the dissolved firm had only just begun representation when it dissolved and had already collected all its fees for the work it undertook, application of the unfinished business doctrine would permit the dissolved law firm to claim years of profits from the client s new firm. Any payment of profits earned by the new firm to the dissolved firm consequently would have no relationship 18

whatsoever to the amount of service provided or to be provided by the partnership to the client. Champion, 201 Cal. App. 3d at 783. By requiring a lawyer to pay profits to a dissolved firm, the unfinished business rule would be, in these and other ways, inconsistent with the ethical rules governing the division of fees adopted in California and across the country. II. APPLICATION OF THE UNFINISHED BUSINESS RULE TO A CLIENT S HOURLY RATE MATTERS WOULD ENCOURAGE ATTORNEYS TO LEAVE THEIR FIRMS AT THE FIRST SIGNS OF FINANCIAL TROUBLE AND TO COUNSEL THEIR CLIENTS TO DO THE SAME. As discussed above, the California Rules and the Rules of Professional Conduct as adopted across the nation, as well as the ABA Model Rules, circumscribe a lawyer s ability to charge, collect and divide fees. As also discussed above, application of the unfinished business rule to hourly rate matters that a client has moved to the new firm of a former partner would require payment of the new firm s profits to the dissolved firm. This result would be inconsistent with the ethical responsibilities of the former partner and the new firm. On the other hand, as Heller s trustee conceded below, the unfinished business rule does not apply to matters that a former partner took to a new firm if the former partner left before dissolution. 19

See Heller Ehrman LLP v. Davis, Wright, Tremaine, LLP, Nos. C 14-01236 CRB, C 14-01237 CRB, C 14-01238 CRB, C 14-01239 CRB, 2014 WL 2609743, at *2-3, *6 (N.D. Cal. Jun. 11, 2014). As the New York Court of Appeals stated, [A]ttorneys who wait too long are placed in a very difficult position. They might advise their clients that they can no longer afford to represent them, a major inconvenience for the clients and a practical restriction on a client s right to choose counsel. In re Thelen LLP, 24 N.Y.3d 16, 32 (2014). Were the client s chosen lawyer no longer able to continue to represent the client, being required to change lawyers may also impose significant costs on the client. Application of the unfinished business rule may thus encourage partners to leave their firms at the first sign of financial trouble. Although leaving a troubled firm would certainly further destabilize the firm, especially if enough partners likewise left, doing so would protect clients from the fee division issues that would arise if the unfinished business rule were to apply. Further, the partners might well reason that if they wait until their firm dissolves before joining a new firm, they might not be able to find a new firm that is willing, or that can financially afford, to finish the matters on which 20

they are working, especially if a matter would require a significant investment of the new firm s resources, including work by other partners on the matter, or if it would require the new firm to forego other engagements due to conflicts. In fact, the larger the matter, the more difficult it likely would be for a former partner to find a new firm that would take on the client s matter for no profit, and the more costly and potentially detrimental to the client it would be to start over at a firm that includes no former partners of the dissolved firm. Of course, any time a client loses its chosen counsel, the economic reality of the application of the unfinished business rule is that the client endures the cost of bringing new counsel up to speed. Indeed, if the unfinished business rule must be applied to a client s hourly rate matters on dissolution of a law firm which remains highly disputed at this time then it would appear that a lawyer should also counsel the client on the ramifications of a dissolution on any hourly rate matters that remain with a firm when it dissolves. In fact, under the ethical rules that apply when a lawyer leaves a law firm, including when a lawyer must leave because of a firm s dissolution, it would appear that the lawyer should counsel a 21

client that, because of the unfinished business rule, the client should also leave the troubled firm prior to its dissolution. For example, California Rule 3-700(A)(2) provides that a member shall not withdraw from employment until the member has taken 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), and complying with applicable laws and rules. 10 As explained in State Bar of California Formal Op. No. 2014-190, The requirements of rule 3-700(A)(2) apply when an attorney s withdrawal is prompted by the dissolution of the attorney s law firm. And, as elucidated in State Bar of California Formal Opinion No. 1985-86, which discussed the predecessor to California Rule 3-700, [T]he rules in these circumstances act as a regulatory framework, and their provisions dictate that the interests of the clients must prevail over all competing considerations if the practitioner s withdrawal from the firm or the firm s dissolution is to be accomplished in a manner consistent with professional responsibility. See also ABA 10 California Rule 3-700(D) similarly requires that a lawyer promptly release to the client, at the request of the client, all the client papers and property. 22

Model Rule 1.16(d) ( Upon termination of representation, a lawyer shall take steps to the extent reasonably practicable to protect a client s interests.... ); ABA Formal Opinion 414 (1999) at 5 (departing lawyer and responsible members of the firm must notify the client of the client s alternatives and must make clear that the client has the ultimate right to decide who will complete or continue the matters. ). The ABA respectfully asserts that lawyers should not feel obligated to leave troubled law firms before dissolution to avoid application of the unfinished business rule to their clients hourly rate matters. Further, lawyers should not need to protect their clients by counseling them that they should also leave. The ABA urges that, because a dissolved law firm which can perform no legal services has no property interest in a client s hourly rate matters, neither law, nor equity, nor policy should require these actions. 23

CONCLUSION For the reasons set out above, amicus curiae the American Bar Association respectfully requests that the judgment of the District Court be affirmed. Dated: February 24, 2015 Respectfully submitted, s/ William C. Hubbard OF COUNSEL: DAVID G. KEYKO KEVIN M. FONG JAY D. DEALY WILLIAM C. HUBBARD Counsel of Record PRESIDENT AMERICAN BAR ASSOCIATION 321 North Clark Street Chicago, Illinois 60654 (312) 988-5000 Attorneys for Amicus Curiae American Bar Association 24

CERTIFICATE OF COMPLIANCE 1. This brief complies with the type-volume limitation of Fed. R. App. P. 32(a)(7)(B) because: it contains 5068 words according to the word count of the word processing system used to prepare the brief, excluding the parts of the brief exempted by Fed. R. App. P. 32(a)(7)(B)(iii). 2. This brief complies with the typeface requirements of Fed. R. App. P. 32(a)(5) and the type style requirements of Fed. R. App. P. 32(a)(6) because: it has been prepared in a proportionally spaced typeface using Microsoft Word 2010 in 14 point Times New Roman font. Dated: February 24, 2015 s/ William C. Hubbard OF COUNSEL: DAVID G. KEYKO KEVIN M. FONG JAY D. DEALY WILLIAM C. HUBBARD Counsel of Record PRESIDENT AMERICAN BAR ASSOCIATION 321 North Clark Street Chicago, Illinois 60654 (312) 988-5000 Attorneys for Amicus Curiae American Bar Association 25

CERTIFICATE OF SERVICE I hereby certify that I electronically filed the foregoing brief with the Clerk of the Court for the United States Court of Appeals for the Ninth Circuit by using the appellate CM/ECF system on February 24, 2015, which will automatically serve all parties. Dated: February 24, 2015 OF COUNSEL: David G. Keyko Kevin M. Fong Jay D. Dealy s/ William C. Hubbard William C. Hubbard Counsel of Record President American Bar Association 321 North Clark Street Chicago, Illinois 60654 (312) 988-5000 26