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California Supreme Court Decides that Dissolved Law Firms are Not Entitled to Partners’ Future Earnings

Press Release

Representing Davis Wright Tremaine LLP, Keker Van Nest & Peters secured a win before the California Supreme Court in a case that tested the reach of law firm dissolution agreements. The court held that a dissolved law firm has no property interest in the profits generated by its former shareholders’ work on hourly fee matters pending at the time of the firm’s dissolution. “A mere possibility of unearned, prospective fees cannot constitute a property interest,” the Court wrote.

“Today’s ruling is a huge win for clients and for the legal profession,” Steve Hirsch, Keker, Van Nest & Peters of counsel that represented Davis Wright Tremaine, said. “It deals a death blow to claims by bankruptcy trustees that dissolved law firms are entitled to feed indefinitely off of the hourly earnings of the law firms that their former clients chose to complete their cases.”

In October 2018, 700-attorney law firm Heller Ehrman notified its clients that it would no longer provide legal services. In the months that followed, former Heller shareholders joined 49 different law firms, and their clients signed new retainer agreements. In December 2010, Heller’s bankruptcy administrator filed suit to claw back earnings from its former shareholders at their new firms. The administrator sought to set aside a Jewel waiver, which was part of Heller’s dissolution plan and encouraged its shareholders to move to new firms and reduce its expenses. The provision waived Heller’s claims to hourly fees generated after the departure date of its former lawyers.   

The case is Heller Ehrman v. Davis Wright Tremaine, S236208, California Supreme Court, opinion 3/5/18. The Keker team includes Steve Hirsch and Steven P. Ragland

Co-counsel in the case include Shay Dvoretzky from Jones Day, Eric Shumsky from Orrick, Herrington & Sutcliffe, and Luther Orton from Gilbert LLP.