GERARD E. LYNCH, Circuit Judge:
This case requires us to decide whether, for purposes of administering the firm's related bankruptcy, New York law treats a dissolved law firm's pending hourly fee matters as its property. Because we conclude that we cannot definitively answer that question without the guidance of the New York Court of Appeals, we certify controlling questions of law to that court.
On October 28, 2008, the partners of the law firm Thelen LLP ("Thelen"), a registered limited liability partnership governed by California law, voted to dissolve the firm, which was insolvent. In effectuating the dissolution, Thelen's partners adopted the Fourth Amended and Restated Limited Liability Partnership Agreement (the "Fourth Partnership Agreement") and a written Plan of Dissolution. The Fourth Partnership Agreement provided that it was governed by California law.
Unlike Thelen's previous partnership agreements, the Fourth Partnership Agreement contained an "Unfinished Business Waiver,"
Compl. ¶ 34.
The Partnership adopted the waiver with the hope that [it would] serve as an inducement to encourage Partners to move their clients to other law firms and to move Associates and Staff with them, the effect of which will be to reduce expenses to the Partnership, and to assure that client matters are attended to in the most efficient and effective manner possible, and to help ensure collection of existing accounts receivable and unbilled time with respect to such clients.
Compl. ¶ 35.
Following Thelen's dissolution, eleven Thelen partners joined Seyfarth Shaw LLP ("Seyfarth"), ten in its New York office and one in California. The former partners transferred to Seyfarth unfinished matters from Thelen, and Seyfarth billed clients for their services.
Thelen filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York (Allan L. Gropper, Judge). At that time, Thelen stated in its petition that it "has been domiciled or has had a residence, principal place of business, or principal assets" in the Southern District of New York. Following his appointment as the Chapter 7 trustee of Thelen's bankruptcy estate, Yann Geron (the "Trustee") commenced an adversary proceeding against Seyfarth.
In reaching this conclusion, the district court expressly disagreed with the decision of another court in the same district in Development Specialists, Inc. v. Akin Gump Strauss Hauer & Feld LLP ("Coudert Brothers"), which had held that pending hourly matters were law firm assets, in part, because "the method by which the Client Matters were billed does not alter the nature of [a law firm's] property interest in them." 480 B.R. 145, 154 (S.D.N.Y. 2012).
"We review de novo a district court's decision to grant a motion for judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c)." Hayden v. Paterson, 594 F.3d 150, 160 (2d Cir.2010). In deciding a Rule 12(c) motion, we "employ[] the same standard applicable to dismissals pursuant to Fed.R.Civ.P. 12(b)(6)." Johnson v. Rowley, 569 F.3d 40, 43 (2d Cir.2009) (internal quotation marks and alteration omitted). Thus, we accept all factual allegations in the complaint as true and draw all reasonable inferences in plaintiff's favor. Hayden, 594 F.3d at 160. "To survive a Rule 12(c) motion ... [a] `complaint must contain sufficient
"We review the district court's interpretation and application of state law de novo." Santalucia, 232 F.3d at 297. To conduct our inquiry, "we of course look to the state's decisional law, as well as to its constitution and statutes." Id. Where state law is unsettled, we are obligated to "carefully ... predict how the state's highest court would resolve the uncertainty or ambiguity." Maska U.S., Inc. v. Kansa Gen. Ins. Co., 198 F.3d 74, 78 (2d Cir.1999) (internal quotation marks omitted). Where, as here, a state's highest court has not spoken on an issue, we give "proper regard" to the relevant rulings of a state's lower courts. Travelers Ins. Co. v. 633 Third Assocs., 14 F.3d 114, 119 (2d Cir. 1994) (internal quotation marks omitted). "We may also consider decisions in other jurisdictions on the same or analogous issues." Maska U.S., 198 F.3d at 78 (internal quotation marks omitted).
As a threshold matter, we must determine whether New York or California law governs this dispute. "[W]here no significant federal policy, calling for the imposition of a federal conflicts rule, exists," Bianco v. Erkins (In re Gaston & Snow), 243 F.3d 599, 607 (2d Cir.2001), a bankruptcy court must apply the choice of law rules of the forum state, Statek Corp. v. Dev. Specialists, Inc. (In re Coudert Bros. LLP), 673 F.3d 180, 186 (2d Cir. 2012). Under New York law, "the first step in any case presenting a potential choice of law issue is to determine whether there is an actual conflict between the laws of the jurisdictions involved." GlobalNet Financial.com, Inc v. Frank Crystal & Co., 449 F.3d 377, 382 (2d Cir.2006) (internal quotation marks omitted). Of course, we cannot determine at this juncture whether there is an actual conflict, because New York law is unresolved on the relevant question. For purposes of our choice of law analysis, then, we assume there to be a conflict, and we look simply to New York's applicable choice of law principles to determine which state's law governs. The parties do not dispute that a fraudulent conveyance is a tort, see Cruden v. Bank of New York, 957 F.2d 961, 974 (2d Cir.1992), and therefore agree that we should apply New York's interest-analysis test. See GlobalNet, 449 F.3d at 384 ("The relevant analytical approach to choice of law in tort actions in New York is the interest analysis.") (internal quotation marks and alteration omitted).
New York's interest analysis requires that "the law of the jurisdiction having the greatest interest in the litigation will be applied and ... the [only] facts or contacts which obtain significance in defining State interests are those which relate to the purpose of the particular law in conflict." Id., quoting Schultz v. Boy Scouts of Am., Inc., 65 N.Y.2d 189, 197, 491 N.Y.S.2d 90, 480 N.E.2d 679 (1985) (alterations in Schultz). "Under this formulation, the significant contacts are, almost
Under the interest-analysis test, torts are divided into two types, conduct-regulating rules, such as "rules of the road," and loss-allocation rules, "such as those limiting damages in wrongful death actions, vicarious liability rules, or immunities from suit." GlobalNet, 449 F.3d at 384 (internal quotation marks omitted). "If conflicting conduct-regulating laws are at issue, the law of the jurisdiction where the tort occurred will generally apply because that jurisdiction has the greatest interest in regulating behavior within its borders." Cooney v. Osgood Mach., Inc., 81 N.Y.2d 66, 72, 595 N.Y.S.2d 919, 612 N.E.2d 277 (1993). If the conflict involves loss-allocation rules, "the site of the tort is less important, and the parties' domiciles are more important." GlobalNet, 449 F.3d at 384-8'. Here, the parties do not dispute that a fraudulent conveyance statute is conduct-regulating rather than loss-allocating.
We conclude that New York has a greater interest in regulating this conduct than California, because the most significant contacts in this case are with New York. First, the majority of the former Thelen partners who moved to Seyfarth are licensed to practice in New York, and joined Seyfarth's New York office.
New York's law of partnerships is codified in the New York Partnership Law, itself a codification of the Uniform Partnership Act, see N.Y. P'ship Law § 1 (McKinney 1919). The Partnership Law, which applies to every trade, occupation or profession, id. § 2, sets "default requirements that come into play in the absence of an agreement," Ederer v. Gursky, 9 N.Y.3d 514, 526, 851 N.Y.S.2d 108, 881 N.E.2d 204 (2007). These default
We explored this rule, generally known as the unfinished business doctrine, in Santalucia v. Sebright Transportation Inc., 232 F.3d 293 (2d Cir.2000). There, following the settlement of a wrongful death action, the plaintiff sought an order apportioning the contingent fee award between himself and his former law firm. Id. at 294. Prior to its dissolution, the firm had been retained as counsel in the action. We surveyed the New York cases and determined it "beyond cavil ... that a member of a law firm owes a fiduciary duty to other members of the firm." Id. at 297; see also Graubard Mollen Dannett & Horowitz v. Moskovitz, 86 N.Y.2d 112, 118 (1995) ("[L]aw partners, no less than any other business or professional partners, are bound by a fiduciary duty requiring the punctilio of an honor the most sensitive.") (internal quotation marks omitted). We concluded, therefore, that "where a lawyer departs from a dissolved partnership and takes with him a contingent fee case which he then litigates to settlement, the dissolved firm is entitled only to the value of the case at the date of dissolution, with interest." Id. at 298.
We acknowledged, however, that the New York Court of Appeals had not addressed the application of the unfinished business doctrine to a law firm's contingent fee matters. Id. at 297. While the unanimous view of New York's intermediate appellate courts that the unfinished business rule applies to such matters enabled us confidently to predict that the Court of Appeals would take a similar view, the absence of binding authority from that court counsels caution in determining whether the rationale of those decisions extends to hourly fee matters.
In sharp contrast to the uniform view of New York's appellate courts that the unfinished business doctrine applies to contingent fee matters, there is scant New York authority with respect to whether the rule also applies to hourly fee matters. No New York appellate court appears to have addressed the issue, and the one New York trial court to address whether the doctrine applies to a firm's pending hourly fee matters concluded that it does not. See Sheresky, 2011 WL 7574999, at *4 ("It is logical to distinguish between contingency fee arrangements and cases which are billed on the basis of hourly work."). In light of this doctrinal uncertainty, it is unsurprising that courts in the Southern District of New York have split on whether the unfinished business doctrine applies to a law firm's pending hourly fee matters.
Second, the Partnership Law instructs New York courts to adopt interpretations of its provisions that conform to those of other Uniform Partnership Act states. N.Y. P'ship Law § 4(4). A substantial majority of cases from such jurisdictions have applied the unfinished business doctrine to hourly rate cases.
Third, it can be argued that sound policy reasons counsel against such an exception. To the extent that the unfinished business doctrine applies in contingent fee matters, creating a different rule for hourly fee matters might mean that a law partner's fiduciary obligations to his firm would vary based on the manner in which clients are billed. Such a rule would undoubtedly encourage the view, now prevailing among many, that an individual partner's book of business is not an asset of the firm, but instead a piece of personal property to be guarded with a Cerberus-like ferociousness.
But substantial arguments may be made for the opposite view. First, the New York Court of Appeals has suggested that the attorney-client relationship is different from those tying customers to other business partnerships. See Demov, Morris, Levin & Shein v. Glantz, 53 N.Y.2d 553, 556, 444 N.Y.S.2d 55, 428 N.E.2d 387 (1981) (recognizing "unique relationship" between attorney and client as "one of the most sensitive and confidential relationships in our society"). Because the client has an unassailable right to discharge an attorney at any time, with or without cause, it is clear that "clients are not merchandise." Cohen v. Lord, Day & Lord, 75 N.Y.2d 95, 98, 551 N.Y.S.2d 157, 550 N.E.2d 410 (1989) (internal quotation
Second, unyielding application of the unfinished business doctrine might have unintended consequences. For example, the doctrine may discourage other law firms from accepting lawyers and client engagements from a dissolved law firm for fear that a substantial portion of the resulting profits may be turned over to the dissolved law firm or its creditors. An untoward disruption in client services might result.
Third, the New York Rules of Professional Conduct could be interpreted to forbid the unfinished business doctrine altogether. See N.Y. Rules of Prof'l Conduct R. 1.5(g) (prohibiting fee splitting); id. R. 5.6(a) (forbidding agreements restricting lawyer mobility). Although the Rules of Professional Conduct lack the force of law, see Niesig v. Team I, 76 N.Y.2d 363, 369, 559 N.Y.S.2d 493, 558 N.E.2d 1030 (1990), New York courts interpret other laws to harmonize with these rules to the extent practicable, id. at 370, 559 N.Y.S.2d 493, 558 N.E.2d 1030. As noted above, while New York's intermediate appellate courts have not accepted these arguments, in the absence of a definitive ruling from the Court of Appeals, we cannot rule out the possibility that, confronted with a novel application of the rule, that court might conclude that the unfinished business rule should not apply to any of a law firm's cases.
Fourth, even if the rule is properly held to apply to contingent fee cases, hourly fee matters are arguably different. In a contingent fee case, the fee that is ultimately earned may be heavily dependent on work done by the dissolved partnership, which has been paid nothing for the work that it contributed to the outcome. In an hourly fee matter, by contrast, the former firm has been fully compensated for the work it has already done, and future work can be directed by the client to a new lawyer or firm that will be paid only for future work. In effect, the hourly work still to be performed, whether or not on an unfinished matter, can be construed as new, rather than unfinished, business.
We recognize the strength of all of these arguments, and of the many others raised by the parties, amici, and other litigants.
Under Second Circuit Local Rule 27.2, we may certify questions of New York law to the New York Court of Appeals. Certified questions must be "determinative questions" that are "involved in a case pending before [us] for which no controlling precedent of the Court of Appeals exists." N.Y. Comp.Codes R. & Regs. tit. 22, § 500.27(a); see also N.Y. Const. Art. 6, § 3(b)(9). Before certifying such a question, we must answer three others: "(1) whether the New York Court of Appeals has addressed the issue and, if not, whether the decisions of other New York courts permit us to predict how the Court of Appeals would resolve it; (2) whether the question is of importance to the state and may require value judgments and public policy choices; and (3) whether the certified question is determinative of a claim before us." Barenboim v. Starbucks Corp., 698 F.3d 104, 109 (2d Cir.2012). In this case, we answer each question in favor of certification.
First, the New York Court of Appeals has not decided the question before us. Neither party identifies a decision of that court applying the unfinished business doctrine to law firms in either the contingency-fee context or in the context of hourly-fee matters,
Second, the question certainly "is of importance to the state" and is the type of question that "may require value judgments and public policy choices." Barenboim, 698 F.3d at 109. The practical importance of the question cannot be doubted: the bankruptcy of major law firms is, sadly, a phenomenon that has occurred with distressing frequency in recent years. At least two such bankruptcies are now pending in the Southern District of New York, and there will almost certainly be more.
Finally, the state-law question is dispositive of the case before us. The Trustee seeks to reclaim certain profits earned by Seyfarth. Specifically, the Trustee contends that hourly matters transferred to that firm by former Thelen partners constitute unfinished business that, prior to the adoption of the Unfinished Business Waiver in the Fourth Partnership Agreement, were assets of the partnership, fraudulently conveyed by that Agreement to the individual partners when the firm was already insolvent. If that theory is correct, the Trustee's case goes forward and Seyfarth will have to account for such profits, at least some of which will likely be recovered. If it is not, the case is over and the Trustee's claims must be dismissed.
In short, certification is appropriate, because it is "our preference that states determine the meaning of their own laws in the first instance." Joseph v. Athanasopoulos, 648 F.3d 58, 68 (2d Cir.2011).
For the foregoing reasons, we conclude that certification is appropriate, and therefore certify the following questions to the New York Court of Appeals:
The New York Court of Appeals may, of course, expand, alter, or reformulate those questions as it deems appropriate. See Kirschner v. KPMG LLP, 590 F.3d 186, 195 (2d Cir.2009).
It is hereby ORDERED that the Clerk of the Court transmit to the Clerk of the New York Court of Appeals a certificate in the form attached, together with a copy of this opinion and a complete set of the briefs, appendices, and record filed by the parties in this Court. This panel will retain jurisdiction to decide the case once we have had the benefit of the views of the New York Court of Appeals or once that court declines to accept certification. It is further ORDERED that the parties bear equally any fees and costs that may be imposed by the New York Court of Appeals.
The following questions are hereby certified to the New York Court of Appeals pursuant to Second Circuit Local Rule 27.2 and New York Compilation of Codes, Rules, and Regulations, title 22, section 500.27(a), as ordered by the United States Court of Appeals for the Second Circuit:
