Who's entitled to fees after law firm failure?

June 6, 2014 The question of who is entitled to the profits from lawyer fees after the collapse of a law firm is a hotly contested one, and the issue is currently playing out in the New York Supreme Court.

Also at issue is whether law firms that recruit lawyers from failing law firms are undergoing some financial risk, because of the claims that bankrupt firms may have to assignments that partners take with them to their new firms.

For their part, Bankruptcy administrators claim that profits should flow back to creditors, but partners say that clients have the freedom to choose or change their counsel, and that that lawyers and their new law firms shouldn’t be punished for taking a matter through to completion after the collapse of a firm.

Lawyers representing Seyfarth Shaw, which faces unfinished-business litigation in a case brought by administrators after the collapse of Thelen in 2008, point to the implications of the coming ruling: “Because the court’s conclusion will have a significant impact on lawyer mobility and clients’ ability to hire the lawyers of their choosing, the court should examine New York courts’ long history striking down restrictions on the practice of law and upholding clients’ absolute right to choose counsel and conclude that client matters are not law firm property,” they wrote.

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