Dissolved Firm Howrey Lacks Interest in Former Partners’ Cases

The client business of the defunct law firm Howrey LLP belongs to the former partners who took those clients with them to new firms, and not to Howrey’s bankruptcy estate, the Ninth Circuit said.

The unsigned order issued Thursday by the U.S. Court of Appeals for the Ninth Circuit puts to rest an appeal by the trustee winding up Howrey’s assets in its 2011 bankruptcy. It follows guidance from the District of Columbia Court of Appeals, which ruled Feb. 13 that clients are free to choose their own counsel, and that to allow the former firm to share in profits would reduce the clients’ freedom of choice.

The trustee sued a number of law firms—including Hogan Lovells US LLP, Pillsbury Winthrop Shaw Pittman LLP, Jones Day, and Perkins Coie LLP—to recover profits earned from client matters started at Howrey, but which came over when former Howrey partners joined the new firms. The trustee said the Howrey bankruptcy estate had an ownership interest in the unfinished business.

The district court reversed the bankruptcy court and held that the clients could enter a new retainer agreement with a different firm, and the new firms weren’t obligated to account for profits to the Howrey trustee. The trustee appealed.

Because Howrey was organized under District of Columbia law, the Ninth Circuit certified to the D.C. Court of Appeals the legal question of whether a dissociated partner owes a duty to the former law firm to account for profits earned post-departure.

The case is Diamond v. Hogan Lovells US LLP, 9th Cir., No. 15-16326, 2/27/20.