Bankruptcy

Entry level position for bankruptcy attorney

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An email from my friend Barbara Sanchez at Neighborhood Legal Services.

Good afternoon, All,

I hope you and your loved ones are happy, safe, and well.

We are looking to hire a new Consumer/Bankruptcy attorney to oversee our Consumer Debt clinic and our Bankruptcy Self-Help Desk. This position will allow NLSLA to help Self-Represented Litigants with debt and bankruptcy issues, and pursue advocacy litigation.

Please, if you know of any potential candidates, encourage them to apply as soon as possible. My apologies for the late notice, but I was just given a copy of the attached posting. I welcome any questions from you or the candidates.

I appreciate everything you do to help us help low-income debtors, and look forward to working with you again. Best wishes for a wonderful holiday season.

In gratitude,

Barbara E. Sanchez

Paralegal (she/her/hers)

San Fernando Valley Bankruptcy Self-Help Desk

barbarasanchez@nlsla.org

Nice discussion of what does a law partnership “own”?

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Diamond v. Hogan Lovells US LLP (In re Howrey), 950 F.3d 1200 (9th Cir. Feb 2020)  

Issue:   Does a “dissolved [law]firm have a property interest in the profits earned from ongoing client matters billed on an hourly basis,” under District of Columbia law? 

Holding:   No. 

Appeal from the district court. 

Gould, Murguia, Freudenthal

The law firm Howrey LLP, organized under District of Columbia law, decided to dissolve in 2011.  The partners then amended the partnership agreement “to include a ‘Jewell waiver’ which would free any departing partner from any obligation to account for profits related to the winding up of unfinished business.”  This meant that partners that left the firm could take their existing cases and not have to account for the profits of those cases to the partnership.  A month later, creditors filed an involuntary petition.  The trustee sued several firms for “work done on client matters that had been started at Howrey, attempting to recover portions of payments made by former Howrey clients for work done on those ongoing matters.”

“[T]he Trustee argues that partners who dissociated pre-dissolution had a duty to account for profits earned on ongoing client matters, and that Howrey can recover those profits from the defendant firms under an unjust enrichment theory.  The Trustee argues that partners who left after the March 15, 2011 dissolution had a duty to account to Howrey for any profits earned on ongoing client matters, that the Jewel waiver constituted a fraudulent transfer of that interest from Howrey to the partners under 11 U.S.C. § 548, and that the Trustee can recover from the defendant firms as subsequent transferees under 11 U.S.C. § 550.”    

The bankruptcy court ruled for the trustee.  The district court reversed. 

The 9th Circuit asked the District of Columbia advise it on the issue.  That court issued its ruling on February 13, 2020.  As to contingency fee matters, if a firm is half way through a contingency fee matter and the partner leaves and takes the case with him, does the firm he left have a right to some of the ultimate profit?  Yes.  Although the Jewell waiver says that the partners can agree when dissolving, that the old firm has no further interest in matters each takes with him.

But these are hourly cases.  The billing done before leaving is property of the firm that he left.  Does the firm he left own a property interest in the case he took with him?  That, at least here, depends on District of Columbia law.  It is an important issue because, “On the one hand, if a firm goes into bankruptcy all of its suppliers become creditors and will be impacted by the scope of a partner’s duty to account for profits.”  On the other hand, “If, when a firm is failing, a lawyer cannot complete any pending client work for the benefit of his or her new firm, that will make it harder for lawyers to find a new home if their firm fails.”

The District of Columbia court ruled succinctly (all ruling are according to DC law):

We answer the above questions as follows:

(1) We hold that hourly-billed client matters are not “property” of the law firm.  A client has an almost “unfettered right” to choose or to discharge counsel. … Therefore, a law firm has no more than a “unilateral expectation,” rather than a “legitimate claim or entitlement,” to future fees earned from continued work on hourly-billed client matters. Bd. of Regents of State Colleges v. Roth, 408 U.S. 564, 577 (1972).

(2) After a partner leaves the law firm (disassociates), the partner owes no continued duty to the former law firm to account for new profits earned on hourly-billed client matters that started at the former firm.  A dissociated partner has a limited duty of loyalty to the former firm only “with regard to matters arising and events occurring before the partner’s dissociation.” …. This limited duty requires a dissociated partner to remit profits earned on work performed prior to the partner’s dissociation, but does not include profits earned from work performed subsequent to the partner’s dissociation.

(3) Since a dissociated partner has no duty to account for profits earned after the partner leaves the firm, we need not address this question.

(4) A dissolved law firm has no interest in profits earned on hourly-billed client matters following dissolution.  A dissolved law firm is only entitled to proceeds earned as part of the firm’s “winding up” process, which include acts that preserve partnership rights and property, prosecute and defend actions, settle or transfer partnership business, or distribute assets. “Winding up” does not encompass new business or work done on former client matters after dissolution by former partners. The dissolved partnership can no longer undertake work on these matters after dissolution. …

Case to read for tomorrow

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City of Chicago, Illinois v. Fulton,  926 F.3d 916  (7th Cir 2019)

Issue:   Does the City of Chicago violate the automatic stay when it continues to “hold” a debtor’s vehicle after the filing of a chapter 13 petition?

Holding:   Yes.

According to the 7th Circuit, “In this consolidated appeal of four Chapter 13 bankruptcies, we consider whether the City of Chicago may ignore the Bankruptcy Code’s automatic stay and continue to hold a debtor’s vehicle until the debtor pays her outstanding parking tickets.”  A previous 7th Circuit case called Thompson required turnover on these same basic facts and the 7th Circuit refused to overturn it.  The Thompson case ruled that holding onto an asset is exercising control which is an “act” which violates the stay.  It held that turnover is compulsory “under a plain reading of §§ 363(e) and 542(a) and the Supreme Court’s decision in Whiting Pools.”  363(e) requires the court to “prohibit or condition such use . . . [of property of the estate] as is necessary to provide adequate protection of such interest” (meaning turnover is required?).    542(a) says “a creditor in possession of property of the estate ‘shall deliver [it] to the trustee.'”

The City argued that it needed to retain possession “to prevent the loss or destruction of the vehicles” but it apparently offered no evidence that giving the vehicle back would result in loss or destruction.  Further it could and should “seek protection on an expedited basis” under 363(e).  The City argued that it had a lien perfected by possession and that § 362(b)(3) excepted it from compliance, i.e., the stay does not apply to acts “to continue the perfection of” its lien.  The court responded that there are other ways to perfect liens and in any event, “the City’s possessory lien is not destroyed by its involuntary loss of possession due to forced compliance with the Bankruptcy Code’s automatic stay.”  The City also argued that this is an act to enforce its “police or regulatory power.”  The court chided the City saying this is “an exercise of “revenue collection” rather than police power.

The court concluded, “the City needs to satisfy the debts owed to it through the bankruptcy process, as do all other creditors.”

Note:  The court says that this ruling is in line with the 9th Circuit in California Employment Development Department v. Taxel 98 F.3d 1147 (9th Cir. 1996).

The City argued to the Supreme Court that this ruling ignores its ruling in Citizens Bank of Maryland v. Strumpf, 516 U.S. 16 (1995)(bank may put a “temporary” administrative freeze on the debtor’s bank account upon learning of the bankruptcy filing without violating the automatic stay under Section 362(a)).  But this case is not discussed anywhere in the 7th Circuit opinion.

Need a volunteer to defend a bankruptcy debtor in a non-dischargeability action

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I have agreed to represent a debtor – pro bono – who has been sued to have the debt declared non-dischargeable.  The guy was in an altercation and was arrested.  The “victim’s” finger was broken.  My guy has his side of the story.  The “victim” has demanded $5 million.

Anyway I took the case as part of the UWLA Bankruptcy Litigation Clinic.  This is a great case for a student or new atty to get involved in.  You will work side by side with me.  You will be “second chair” at trial.  The legal issues are not complex but it will likely go to trial downtown – several months from now.  In the meantime there will be discovery, depositions etc.  If you have taken a bankruptcy course, but are not yet an attorney, you can be certified by the bankruptcy court and actually argue some portion of the case.

If you are interested send me an email at jhayes@rhmfirm.com.

You must be prepared to spend a few hours a week on the case for the next several months.  There will likely be weeks of no work.  This will go to trial.    Let me know.

Bankruptcy Class this Friday – March 15

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This coming Friday is Class 10.  We will discuss preferences and fraudulent conveyances.  The cases are pretty short.

Class 10 – March 15, 2019

Preferences 281

Cunningham v. Brown         281

Fraudulent Conveyances 286

BFP v. Resolution Trust Corporation        287

Dean v. Davis, Jr.     292

In re Beverly 294

Shapiro v. Wilgus     304

Bailey v. Glover       306