Law Firms Lose Ruling in Fight Over Coudert Brothers Bankruptcy

Akin Gump Strauss Hauer & Feld LLP, Jones Day and Dechert LLP are among 10 law firms that must account for profits they made from Coudert Brothers LLP’s unfinished business, a judge ruled.

Coudert filed for Chapter 11 bankruptcy in September 2006. The plan administrator sued the firms in 2008 in bankruptcy court claiming they were liable for any profits derived from completing client matters that former Coudert partners brought to their new homes. The firms argued that the doctrine didn’t apply as the matters were billed hourly and not taken on contingency. U.S. District Judge Colleen McMahon disagreed and denied the firms’ motion to dismiss.

“Although the New York Court of Appeals has not addressed this precise issue, I believe that it would conclude that the method by which the client matters were billed does not alter the nature of Coudert’s property interest in them,” McMahon said in a 54-page ruling today.

Coudert, founded in 1853, had more than 600 lawyers in 15 countries when it filed for bankruptcy to avoid posting bonds related to two legal malpractice suits it lost. The law firm began winding down in 2005. Today’s ruling could affect similar claims in the case of Dewey & LeBoeuf LLP, which has retained a restructuring company to lead its wind-down efforts. Dewey’s equity partners, a group that numbered about 190, could be subject to such claims, lawyers said.

McMahon ruled that former Coudert partners are obligated to account for any profits they earned while winding down the client matters at the firms.

“The rights and duties of the parties will be finally settled in an accounting -- the traditional remedy for resolving monetary disputes among former partners,” McMahon said.

Beth Huffman, a spokeswoman for Dechert, declined to comment on the ruling. Dave Petrou, a spokesman for Jones Day, didn’t immediately return a phone call seeking comment. Ben Harris, a spokesman for Akin Gump, had no immediate comment.

The case is In Re Coudert Brothers LLP 11-cv-05994, U.S. District Court, Southern District of New York (Manhattan).