12‐4138
In Re: Thelen LLP
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
August Term, 2013
(Argued: October 7, 2013 Decided: August 6, 2014)
Docket No. 12‐4138‐bk
IN RE: THELEN LLP
________________
YANN GERON, as Chapter 7 Trustee of the Estate of Thelen LLP,
Plaintiff‐Appellant,
— v. —
SEYFARTH SHAW LLP,
Defendant‐Appellee.
B e f o r e:
LYNCH, CHIN, and CARNEY, Circuit Judges.
__________________
Plaintiff‐Appellant Yann Geron, as Chapter 7 Trustee of Thelen LLP,
appeals from a decision of the United States District Court for the Southern
District of New York (William H. Pauley III, Judge) granting Defendant‐Appellee
Seyfarth Shaw LLP’s motion for judgment on the pleadings, pursuant to Federal
Rule of Civil Procedure 12(c). The district court concluded that under New York
law, the “unfinished business doctrine” does not apply to a dissolving law firm’s
pending hourly fee matters, and that a partnership does not retain any property
interest in outstanding hourly fee matters upon the firm’s dissolution. On
November 15, 2013, this Court certified two questions to the New York Court of
Appeals pursuant to Second Circuit Local Rule 27.2 and 22 N.Y.C.C.R.R.
§ 500.27(a), seeking clarification on the application of the “unfinished business
doctrine” in such circumstances. See In re Thelen LLP, 736 F.3d 213 (2d Cir.
2013). Having received that Court’s response, see In re Thelen LLP, 2014 WL
2931526 (N.Y. July 1, 2014), we affirm the judgment of the district court.
AFFIRMED.
HOWARD P. MAGALIFF, Rich Michaelson Magaliff Moser, LLP, New
York, New York, for Plaintiff‐Appellant.
THOMAS FEHER, Thompson Hine LLP, Cleveland, Ohio (M. Ryan
Pinkston, Chicago, Illinois, and Robert W. Dremluk, Seyfarth
Shaw LLP, New York, New York, on the brief), for Defendant‐
Appellee.
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DAMIAN SCHAIBLE (David A. Lewis, on the brief), The Association of the
Bar of the City of New York, New York, New York, for Amicus
Curiae in support of Defendant‐Appellee.
PER CURIAM:
On October 28, 2008, the partners of the law firm Thelen LLP (“Thelen”)
voted to dissolve the firm, which was insolvent. In effectuating the dissolution,
Thelen’s partners adopted the Fourth Amended and Restated Limited Liability
Partnership Agreement (“Fourth Partnership Agreement”) and a written Plan of
Dissolution. The Fourth Partnership Agreement provided that it was governed
by California law, and unlike its predecessor agreements, included an
“Unfinished Business Waiver.” See In re Thelen LLP, 736 F.3d 213, 216‐17 (2d
Cir. 2013).
Following Thelen’s dissolution, 11 Thelen partners joined Seyfarth Shaw
LLP (“Seyfarth”)—10 in its New York office and one in California. The former
Thelen partners transferred unfinished matters to Seyfarth, which billed clients
for their services. On September 18, 2009, Thelen filed a voluntary petition for
relief under Chapter 7 of the Bankruptcy Code in the United States Bankruptcy
Court for the Southern District of New York.
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Yann Geron, as the Chapter 7 Trustee of Thelen’s bankruptcy estate (“the
Trustee”), commenced an adversary proceeding against Seyfarth in the United
States District Court for the Southern District of New York. The Trustee sought
to avoid the “Unfinished Business Waiver” as a constructive fraudulent transfer
under 11 U.S.C. §§ 544 and 548(a)(1)(B) and California state law, and to recover
the value of Thelen’s unfinished business for the benefit of the estate’s creditors.
On the assumption that pending hourly matters were among a law firm’s assets,
the Trustee argued that Thelen’s partners fraudulently transferred those assets to
individual partners without consideration when they adopted the “Unfinished
Business Waiver” on the eve of dissolution.
Seyfarth moved for judgment on the pleadings pursuant to Federal Rule of
Civil Procedure 12(c), arguing that New York law rather than California law
defined whether it had received any property interest of Thelen, and that under
New York law it had not. The United States District Court for the Southern
District of New York (William H. Pauley III, Judge) agreed that New York law
governed and then concluded that under New York law, the “unfinished
business doctrine” does not apply to a dissolving law firm’s pending hourly
matters, and that a partnership does not retain any property interest in such
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matters upon the firm’s dissolution. The district court, therefore, granted
Seyfarth’s motion for judgment on the pleadings, and then sua sponte certified its
order for interlocutory appeal.
On appeal, we agreed that New York law governed the parties’ dispute,
and certified two unresolved questions of New York law regarding the
applicability and scope of the “unfinished business doctrine” to the New York
Court of Appeals. Specifically, we asked:
Under New York law, is a client matter that is billed on
an hourly basis the property of a law firm, such that,
upon dissolution and in related bankruptcy
proceedings, the law firm is entitled to the profit earned
on such matters as the “unfinished business” of the
firm?
If so, how does New York law define a “client matter”
for purposes of the unfinished business doctrine and
what proportion of the profit derived from an ongoing
hourly matter may the new law firm retain?
In re Thelen LLP, 736 F.3d at 225. We noted that the state‐law questions were
“dispositive of the case before us,” because if the Trustee was correct that the
partners had transferred a property interest of Thelen, “the Trustee’s case goes
forward,” but that if he was not, “the case is over and the Trustee’s claims must
be dismissed.” Id.
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On July 1, 2014, the New York Court of Appeals issued an opinion
concluding that the first certified question should be answered in the negative. It
held that “no law firm has a property interest in future hourly legal fees because
they are too contingent in nature and speculative to create a present or future
property interest.” In re Thelen LLP, 2014 WL 2931526, at *5 (internal quotation
marks omitted). The Court declined to answer the second certified question
because, in light of its first holding, it was unnecessary to do so.
The opinion of the New York Court of Appeals thus demonstrates that the
district court correctly granted Seyfarth Shaw’s motion for judgment on the
pleadings. We therefore affirm the judgment of the district court.
CONCLUSION
For the foregoing reasons the judgment of the district court is AFFIRMED.
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