January 08, 2018
Jewel Doctrine Will be Revisited by California Supreme Court
The California Supreme Court is expected shortly to issue a decision in its review of Jewel v. Boxer, the long-standing and besieged case that stands for the proposition that a dissolved law firm has a right to recover profits for matters that departed partners take from the failed firm, absent an agreement otherwise. The Court heard oral argument in December in the case, which reached the Court as a certified question from the 9th Circuit in the bankruptcy case of Heller Ehrman LLP: “Under California law, what interest, if any, does a dissolved law firm have in legal matters that are in progress but not completed at the time the law firm is dissolved, when the dissolved law firm had been retained to handle the matters on an hourly basis?”
Jewel‘s so-called Unfinished Business rule, under which a law firm has a right to recover profits from matters at a dissolved law firm that transfer to new firms, has been attacked and upheld, embraced and distinguished, almost in equal measure, since it was issued. Its application to hourly rate work has never been confirmed. Some significant things have changed since Jewel was decided by the Court of Appeal in 1984. California has since adopted the Revised Uniform Partnership Act; Jewel‘s reasoning is based in part on provisions of the then-applicable Uniform Partnership Act. The Jewel partners did not have a written partnership agreement. Today, many law firm partnership agreements contract around the Jewel question of who gets paid for unfinished business (remarkably, of course, many law firms still operate without a written partnership agreement).
If the Court reaffirms the Jewel doctrine, it may reinforce the concept of a law firm’s property right in the profits from a legal matter, even though clients have the absolute right to choose counsel. This could have a chilling effect on lawyer mobility, by reinforcing authority for the proposition that profit from hourly matters taken from a dissolved law firm, or potentially from any law firm, arguably could be clawed back by that firm, even if the work is completed elsewhere. If the Court rejects or revises the Jewel doctrine, it could accelerate lawyer mobility by extinguishing the argument that a law firm can disgorge profits from matters taken to a new firm. It may also incentivize partners to leave firms at the first sign of trouble, lest they be obligated to share future fees with a dissolved firm. The answer from the California Supreme Court may resolve a long-standing disputed issue for partners who leave law firms, including failing or failed law firms, and may have broader implications.