Here’s a real shocker for you: When a partner leaves a healthy law firm, he and his or her new firm can be required to return to his or her old law firm the profits made the cases he or she brings along. These obligations do not spring up only in the case of law firm implosions like so many mushrooms sprouting in a bog. The fact is that it century old hornbook law that profits from business taken from a partnership to a new law firm belong to the old law firm and are recoverable.
For some odd reason, many lawyers think that the Jewel v Boxer line of cases, often referred to as the “unfinished business doctrine” is an aberration of California’s unique culture and permissiveness. When the spate of a dozen or more Coudert Jewl v Boxer claims arrived on the scene about a year ago, many scoffed and gave these cases short shrift. The United States District Court for the Sothern District of New York has now carefully instructed the profession that these Jewel v Boxer claims are serious stuff indeed and law firms hiring partners from firms that have imploded should get their checkbooks out. Heads are still spinning and the issue has now raised a great deal of serious debate.
But what’s good for the goose is good for the gander. The simple fact is that unfinished business profits are the property of healthy as well as sick law firms. Again, the law on this subject is a century or more old and rock solid.
The day is coming very soon when law firm lenders and landlords will be requiring law firms to have tightly written partnership agreements in which the firm will be assured of recovering profits from unfinished business from departed partners and their new law firms. Lenders will likely require perfected security interest in these assets. Law firm leaders will be proposing appropriate amendments to their partnership agreements. Law firms will be writing checks and collecting remittances for these unfinished business claims.
What is your bargaining position going to be?
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