On Monday, ten former partners of firm Brobeck, Phleger & Harrison argued that it was within their rights to continue to work with their clients. The trustee of the bankrupt firm Brobeck claims the former partners stole business.
The ten former partners claim that their last partnership agreement with the firm—one that was enacted as the firm collapsed in 2003—allowed partners to retain clients and work with them in new firms. The main debate on Monday boiled down to whether an agreement can waive the rights of partners to sue for profits under the Revised Uniform Partnership Act and the case precedent set by Jewel v. Boxer in 1984. Jewel claims are generally used to obtain settlements rather than litigation.
Last Friday, a tentative ruling was issued by Judge Dennis Montali of the Northern District of California Bankruptcy Court. The ruling would grant the defendants summary judgment on five of the suit’s nine counts, but the final four counts–those dealing with fraudulent conveyance—were left undecided. A victory on behalf of the defendants would have far-reaching implications on hiring practices of partners from defunct firms all over the country.
Montali is no stranger to cases involving bankruptcy of large firm. He has presided for six years over Brobeck’s case and handled Heller’s bankruptcy when that firm filed in December. He heard three hours of arguments Monday. On Friday, he tentatively ruled that the final partnership agreement invalidates arguments that the former Brobeck partners took “unfinished business” with them when the firm collapsed. After that point, the business would be classified as new business. The question that remains is whether the partners could have fraudulently taken assets from the collapsing firm, thereby contributing to its demise. He stated that the waiver in the final partnership agreement was valid; however, the trustee would not accept that Monday.