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Diamond v. Jones Day LLP (In re Howrey LLP)

United States Bankruptcy Court for the Northern District of California

September 9, 2014, Decided; September 9, 2014, Filed, Entered on Docket

Bankruptcy Case No. 11-31376DM, Chapter 11, Adversary Proceeding No. 13-3093 DM




Plaintiff Allan B. Diamond, chapter 11 Trustee ("Trustee") for debtor Howrey LLP ("Howrey" or "Debtor"), filed multiple nearly identical complaints for avoidance and recovery of actual and constructive fraudulent transfers and for an accounting and turnover and other relief, seeking to recover from several law firm defendants the value of profits received by them with respect to unfinished business that previously had been handled by Debtor. Relying on District of Columbia law which in turn relies on Jewel v. Boxer, 156 Cal. App. 3d 171, 203 Cal. Rptr. 13 (1984), Trustee seeks to recover profits realized or to be realized by the defendant law firms from Debtor's unfinished business ("Howrey Unfinished Business"). Trustee alleges that pre-petition waivers executed by Howrey partners relieving them of their duty to account for profits made on the Howrey Unfinished Business (the "Jewel Waiver") constituted [**14]  fraudulent transfers, and that the defendant law firms are liable as subsequent transferees. Several defendants moved for dismissal of the complaints, and on February 7, 2014, this court issued a memorandum decision ("First MTD Decision") explaining why it was denying the motions in part and granting them in part, with leave to amend.1 See Diamond v. Pillsbury Winthrop Shaw Pittman, LLP, 2014 Bankr. LEXIS 527, 2014 WL 507511 (Bankr. N.D. Cal. Feb. 7, 2014).

In the First MTD Decision, the court relied in part on its prior decisions in Greenspan v. Orrick, Herrington & Sutcliffe LLP (In re Brobeck, Phleger & Harrison LLP, 408 B.R. 318 (Bankr. N.D. Cal. 2009) ("Brobeck"); Heller Ehrman LLP v. Arnold & Porter LLP (In re Heller Ehrman LLP), 2011 Bankr. LEXIS 1497, 2011 WL 1539796 (Bankr. N.D. Cal. Apr. 22, 2011) ("Heller I"); Heller Ehrman LLP v. Jones Day (In re Heller Ehrman LLP), 2013 Bankr. LEXIS 889, 2013 WL 951706 (Bankr. N.D. Cal. Mar. 11, 2013) ("Heller II"); and Heller Ehrman LLP v. Day (In re Heller Ehrman LLP), 2014 Bankr. LEXIS 382, 2014 WL 323068 (Bankr. N.D. Cal. Jan. 28, 2014). The Brobeck and Heller actions pertained to unfinished business that was acquired by defendant law firms after the dates of dissolution of the debtor law firms. In the Howrey case, however, Trustee is also seeking recovery of profits made by several defendant law firms on Howrey Unfinished  [*627]  Business brought to them by partners who departed before dissolution. [**15] 

After the First MTD Decision, Trustee amended his complaints in his actions against various law firms, including seven of the eight defendant law firms that have filed the underlying motions to dismiss: Neal, Gerber & Eisenberg LLP (A.P. No. 13-3057) ("Neal"); Kasowitz Benson Torres & Friedman LLP (A.P. No. 13-3060) ("Kasowitz"); Sheppard Mullin Richter & Hampton LLP (A.P. No. 13-3062) ("Sheppard"); Jones Day LLP (A.P. No. 13-3093) ("Jones Day"); Hogan Lovells US (A.P. No. 13-3094) ("Hogan"); Pillsbury Winthrop Shaw Pittman LLP (A.P. No. 13-3095) ("Pillsbury"); and Seyfarth Shaw LLP (A.P. No. 13-3254)("Seyfarth"). He filed a new action against Perkins Coie LLP (A.P. No. 14-3032) ("Perkins"). Five of these eight firms (Neal, Kasowitz, Sheppard, Hogan, and Seyfarth) solely acquired Howrey partners prior to dissolution; the other three (Jones Day, Pillsbury, and Perkins) acquired Howrey partners both pre- and post-dissolution.

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515 B.R. 624 *; 2014 Bankr. LEXIS 3842 **; 60 Bankr. Ct. Dec. 20

In re Bankruptcy Case HOWREY LLP, Debtor. ALLAN B. DIAMOND, Chapter 11 Trustee for Howrey LLP, Plaintiff, v. JONES DAY LLP, Defendant.

Subsequent History: Adversary proceeding at, Certificate of appealability granted Diamond v. Jones Day LLP (In re Howrey LLP), 2014 Bankr. LEXIS 4744 (Bankr. N.D. Cal., Nov. 14, 2014)

Appeal granted by Hogan Lovells US LLP v. Howrey LLP, 2014 U.S. Dist. LEXIS 163628 (N.D. Cal., Nov. 20, 2014)


unfinished business, profits, law firm, pre-dissolution, accounting, unjust enrichment, motion to dismiss, matters, fraudulent transfer, dissolution, partnership, fiduciary, cases, post-dissolution, Cognizable, complaints, equitable, departed, firms

Business & Corporate Law, Dissolution & Winding Up, Dissolution, General Overview, Withdrawal of Partners, Civil Procedure, Remedies, Equitable Accountings, Contracts Law, Equitable Relief, Quantum Meruit