Wednesday, March 18, 2015

More Conflicting Opinions on the Billable Hour – "Unkillable Business Poison"?

Several stories this week on economic matters touching risk issues. Following the article on business intake, client selection and revenue, yesterday we posted on "bombs waiting in our files," and today we continue the trend of pointing out provocative industry commentary, with a story in the Canadian Post: "The unkillable billable hour: How Canadian corporations are clinging to legal business ‘poison'" --

As detailed in the above article: "the Ontario Court of Appeal issued a ruling that questioned the traditional practice of hourly billing."
  • "'There is something inherently troubling about a billing system that pits a lawyer’s financial interest against that of its client and that has built-in incentives for inefficiency,' wrote Madam Justice Sarah Pepall in a decision that reviewed the size of a legal bill in the receivership of a London, Ontario-area cattle farm. The appellate decision confirmed a lower court ruling that had cut to $157,500 from $328,000 a bill that law firm Borden Ladner Gervais LLP had sent to PricewaterhouseCoopers for work done on a relatively simple matter that took two months to complete."
  • "Billable hours are 'poison' to the legal business because they’re an incentive for inefficiency, Mr. Carayiannis [head of Conduit Law PC, a firm specialising in AFAs] says. It makes more rational economic sense to connect the price of legal services with the value they bring to a client’s business... There is an inherent conflict of interest,” says Mr. Carayiannis of Conduit Law. 'It pits our clients’ interest in getting a fair value at a fair price for our services directly in conflict with the lawyer’s interest in maximizing his financial gain.'"
  • "Clients generally aren’t fussed about hourly rates if they’re content with the dollar amount at the bottom of the bill, Mr. Milstone [Cognition LLP] says. That might look okay on the surface, but it masks a problem. A firm’s hourly rates are typically based a firm’s need to cover overhead plus the profit expectations of the firm’s partners. Missing from the equation is the value the work is supposed to bring to the client. Mr. Milstone says an hourly rate might be a tool that helps begin a discussion on what a legal service should cost, but it shouldn’t be the only thing that goes into the mix."
  • "Amar Sarwal, vice president and chief legal strategist with the Association of Corporate Counsel, a Washington-based group that represents in-house lawyers at corporations around the world, believes Canadian in-house lawyers are in a unique position. With a small number of top-flight Bay Street firms serving Canada’s relatively short list of blue-chip financial institutions and corporations, the country’s in-house lawyers should have the marketing clout to bring rapid change to the legal industry. “Canada has a more concentrated legal market, and because of that, it has an opportunity to change faster than perhaps the U.S. market,” Mr. Sarwal believes."

Tuesday, March 17, 2015

"Bombs Waiting in Our Files" – A Former Law Firm GC on Client Outside Counsel Guidelines

At the recent Risk Roundtable in San Francisco, I had an interesting discussion with two senior risk professionals about client restrictions on "positional conflicts," and their firms' response strategies when facing OCGs with such carve outs.

Now from BNA comes a timely, no-minced-words, no-holds-barred analysis on the state of Outside Counsel Guidelines: "Some Corporate Clients Are Going Too Far With ‘Guidelines' for Counsel" highlights a talk given by Simon Chester at the recent Hinshaw LMRM event. The full article is worth a read. Here are some highlights of the highlights --
  • "Law firms must explain, negotiate, argue, push back and ultimately be prepared to walk away from business dangled by corporate clients that insist on unreasonable “guidelines” for outside counsel, panelist Simon Chester said Feb. 26 during a program on outside counsel guidelines at the 14th Annual Legal Malpractice & Risk Management Conference"
  • "A show of hands from the audience in response to Chester's questions supported his thesis that corporate clients are increasingly presenting guidelines for representation to their outside counsel, that those guidelines are getting tougher and that few law firm members feel confident they are aware of guidelines to which their partners have agreed."
  • "Chester said that while general counsel at his former firm, he assigned his summer associates to search the firm's document management system for outside counsel guideline packages. 'There were hundreds of them,' he stated. He said he and the firm's management team 'had no idea' of the extent to which his partners had agreed to those 'bombs waiting in our files' that 'were setting the terms and conditions for our interactions with our clients.'"
  • "Chester said at his former firm 'we would tell associates not to use the term ‘research' on their billing records. Instead, they were instructed to substitute terms such as 'reviewing options' or 'conducting analysis.'"
  • "Clients increasingly require law firms to sign off on agreements to subject themselves to the same privacy laws that govern the clients, which may include HIPAA, financial privacy laws... Additionally, he remarked, clients frequently insert provisions that all of their data must be encrypted and none may be stored on any portable electronic device. 'How confident are you that [your] lawyers do that?' he asked."
  • "More often than not, Chester said, outside counsel guidelines stipulate that the firm owes a duty of loyalty not only to the client but to 'the entire conglomerate' and prohibit any legal services, even tax work, for competitors."
  • "Chester said guidelines are including provisions that they trump any other agreements with the firm, including engagement letters, and may state flat out that the client 'will not adhere to any guidelines or standard terms imposed by outside counsel.'"
  • "He said it's not unusual for firm lawyers working with the clients not even to read the guidelines. 'They're prepared to sign off on anything that's going to keep the gravy coming,' he stated."
  • "Chester warned the audience that individual partners — 'particularly partners looking for origination credits' — cannot be relied upon to protect the firm's interests when clients present them with unreasonable outside counsel guidelines."

Monday, March 16, 2015

Is the Billable Hour a Conflict of Interest?

From the interesting-arguments-in-ethics department comes this provocative opinion piece by Ralph Baxter, who concluded a 23-year tenure as Chairman and CEO of Orrick a few years ago, and was named one of the "Top 50 Big Law Innovators of the Last 50 Years" by The American Lawyer: "The inherent client conflict of interest caused by hours-based billing" --
  • "For some time I have been troubled by the potential conflict of interest that hours-based billing causes between the lawyer and the client. The more I focus on it, the more profound the problem appears."
  • "Let me start by saying that I have deep confidence in the dedication to ethical conduct of the members of our profession. My concern here is not with their fundamental professionalism. Instead, it is a concern that, notwithstanding that professionalism, the hours-based billing model can put them at odds with their clients in ways they do not intend, and in ways they may not recognize. It is a structural issue, not a moral issue."
  • "It is not just that what is bad for the client is good for the lawyer. The model incentivizes the lawyer to make it worse for the client."
  • "And law firms need to take responsibility for what they are permitting to occur. A material gap has developed between the costs incurred and fees charged and what those costs and fees could be. At some point the fundamental fidelity firms owe their clients and their ethical responsibility not to charge an unreasonable fee require them to revamp their business and service models."

Thursday, March 12, 2015

More on Clients, Fees & Conflicts

In yesterday's interview, Anthony Davis talked about the impact of "less than optimally managed" client selection on firm financial performance:
  • "First of all, the pressure to collect has led a number of firms to go further than they traditionally did, or safely should, go in suing clients for fees. Today, they [law firm general counsel] are beginning to say to management: “We're seeing the tail end of the problem when it comes to needing to withdraw when clients don’t pay or suing for fees. You can fix this by designating someone responsible for the client suitability question during intake. When we seek to withdraw in the middle of an engagement and especially when we sue for fees, we face increased claims. Our insurers can see that we're not looking at the whole picture at intake and increase premiums. Let’s address these issues up front. Give us or someone else in leadership the authority to address this issues before new clients are accepted.”
A reader sent word of an update from BNA on this very topic: "The Ethics and Financial Impact of Dropping a Client for Nonpayment of Legal Fees," which provides a very detailed overview, packed with citations and notes, of the who, what, when, where and why on the matter.

The story starts simply enough: "'Filing suit 'against a current client to collect a fee creates an untenable conflict under [Rule of Professional Conduct] 1.7 between the lawyer's duty to that client and the lawyer's 'personal interest' in collecting his or her fee.' In re Simon, 20 A.3d 421, 27 Law. Man. Prof. Conduct 409 (N.J. 2011)."

But then gets complicated quickly, as the article digs into topics including:
  • Grounds for suing clients for non-payment of fees
  • Intersection of fee non-payment and grounds for withdrawal (or not)
  • Treatment of fee agreements (and fees due) when withdrawals are successful, prior to the conclusion of fixed-fee and contingent matters
  • Lawyer ability to pursue fees when discharged by the client
  • Standards and approaches for determining "reasonable" fees in these complex scenarios

Wednesday, March 11, 2015

In Conversation: Legal Leaders on Risk, Revenue, Business Intake and More

Here's a fascinating and informative exchange between two experts in the field: "Intapp In Conversation – Focus on: The Business of Risk" --

Anthony Davis, partner at Hinshaw & Culbertson (known as the lawyers' lawyers) sits down with Pat Archbold, head of Intapp's risk practice group to discuss market trends.

Anthony shares several observations (coupled with practical advice and steps firms can take to improve business intake, reduce risk, and improve firm financial performance).

Topics include:
  • The changing legal business climate
  • Improving client evaluation and engagement to boost firm financial performance
  • Navigating growth tied to laterals and mergers
  • Changing internal perceptions of the role of risk management
  • Shifting priorities and staffing models
  • The role of engagement letters and fee agreements
  • Malpractice trends and insights
  • Pat: To what extent are law firm general counsel considering broader factors than just ethical risk, including accounts receivable, when overseeing new client intake?
  • Anthony: General counsel have traditionally not been responsible for evaluating the whole issue of financial suitability. They've left it to the billing department to decide what billing standards to set, and traditionally general counsel did not see it as their role to look at the prospective client’s ability to pay as part of their role in managing intake.
  • Although this is new to them, they are starting to realize that these are issues – risks – that have to be addressed. And the question then is: Is it their domain? Is it their constituency? Or is it somebody else in the firm who should be making those determinations?
  • Because certainly general counsel are seeing the problem at the other end. Until recently, they often failed to see the connection between intake and fee suits until too late. When confronted with collection problems, they certainly say, "Why on earth did we take this client on?" but they didn't traditionally impose standards at the front end, because if they tried to, they were likely told by the business people and management: "Stay out of that, that's our problem." Except that it does become their problem at the end.
The complete article is definitely worth a read.

And those firms looking for more advice (and potentially assistance) from Anthony and his colleagues are encouraged to reach out directly.

Tuesday, March 10, 2015

Upcoming Webinar: New Business Intake & Conflicts (Making the Business Case to Invest)

Intapp is hosting a webinar featuring three law firm case studies: New Business Intake & Conflicts (Making the Business Case to Invest).
  • Date: Thursday, March 19th
  • Time: 9 am PST / 12 pm EST
  • Registration: Limited to select firms and partners. Please email Lea Schweitzer for more information.

Session Details

Improving business acceptance can deliver significant value to law firms – including better financial performance, improved client service, reduced risk, and increased lawyer satisfaction.
But, while the benefits are substantial, getting key stakeholders to agree to investing in change is not always easy. In this session, speakers from three Intapp Open clients will discuss how they successfully made the case within their firms, covering topics including:
  • Why their firms decided to make the investment in enhancing New Business Acceptance
  • Why treating intake and conflicts in an integrated manner made sense for them
  • Strategies and approaches they took to make the business case internally and secure buy-in
  • The impact on lawyer efficiency and return on their investment in Intapp Open
This session features from Procopio, Lewis Roca Rothgerber and Miles and Stockbridge, who will discuss the various business drivers, roadblocks and eventual paths to success they navigated at their firms:

Pat Archbold, head of Intapp’s risk practice group, will moderate the session, which will focus on these case studies and include time for audience Q&A. He also will provide a brief overview of Intapp Open and discuss how firms are using the software to achieve their strategic  goals including:
  • Evaluating new business in terms of profitability
  • Managing both financial and professional risk
  • Enhancing engagement letter management
  • Streamlining intake & conflicts for faster matter opening

Attendance is limited to select firms and partners. Please email Lea Schweitzer for more information.

Monday, March 9, 2015

More on Lawyers Leaving (Laterally or Otherwise) & Confidentiality

Following last weeks stories on lateral hiring and confidentiality issues, a reader sent notes to two related stories on the Lawyer Ethics Alert Blog. First: "Indiana Supreme Court imposes public reprimand on lawyer who required non-compete provision in associate’s employment agreement" --
  • "...the recent Indiana Supreme Court opinion which imposed a public reprimand on lawyer who required an associate to agree to a non-compete provision in an employment agreement and sent letters to the associate’s clients stating that he would be taking over the representation; however, he did not attempt to enforce the provision."
  • "According to the opinion, the lawyer’s law practice was primarily in social security disability law. He hired an associate in 2006 to work in his law office pursuant to an employment agreement which included a non-compete provision prohibiting the associate from practicing Social Security disability law for two years if his employment was terminated."
Next: "New York ethics opinion states that lawyers cannot reveal client confidences solely to respond to a former client’s criticism on a lawyer-rating website" --
  • "The opinion is: New York State Bar Association Committee on Professional Ethics Opinion 1032 (10/30/2014)."
  • "The opinion found that the above exception does not apply and that '(a) lawyer may not disclose client confidential information solely to respond to a former client’s criticism of the lawyer posted on a website that includes client reviews of lawyers.'"
  • "Bottom line: Lawyers be aware: according to this opinion, a lawyer may not include confidential information in responding to a negative posting by an ex-client (or current client for that matter) on a lawyer-rating website (or other third party website)."

Saturday, March 7, 2015

Breaking Bad Disqualification News

We first covered this story last September, involving efforts to disqualify a law firm working on behalf of the City of Chicago. It appears that coming out of the December denial of the attempt to disqualify the firm, the defendant drug companies have tried a different tack: "Judge won’t disqualify private lawyers representing Chicago in opioid lawsuit" --
  • "A federal judge on Monday denied a request for relief from a group of pharmaceutical companies being sued by the City of Chicago over the marketing of opioid painkillers."
  • "In the lawsuit that was later removed from state court to Chicago’s federal court, the City accused the companies of overstating the benefits of their drugs in a way that increased addiction and the city’s prescription and healthcare-related costs."
  • "The companies in September filed a joint motion, asking a judge to invalidate the contract between the City and Cohen Milstein Sellers & Toll – the law firm the City hired in 2013 to investigate and litigate the opioid matter – and issue an injunction barring the City from using the firm in this or any similar suit."
  • "They claimed they were entitled to this relief because the City improperly delegated governmental police power to a financially interested private party, with the police power being investigative subpoena power and the private party being Cohen Milstein."
  • "Further, the drug companies argued, the firm’s involvement violates city ethics rules and its financial interest in the outcome of the case creates a conflict of interest that violates their due process rights."
  • "In denying the motion, U.S. District Judge Jorge L. Alonso rejected those arguments and their latest attempt to get Cohen Milstein – a firm with 80 attorneys and offices in Washington, D.C., New York, Chicago, Philadelphia, Denver and Florida that is representing two California counties in similar litigation– booted from the case."

Friday, March 6, 2015

Confidentiality Compromised? (On Lawyer Whistleblowing and More...)

In "Financial Awards for Whistleblowing Lawyers" -- Kathleen Clark (Professor of Law, Washington University in St. Louis) and Nancy Moore (Professor of Law, Boston University Schoolf of Law) delve into some interesting questions:
  • "The federal government relies increasingly on whistleblowers to ferret out fraud, and has awarded whistleblowers over $4 billion under the False Claims Act and the Dodd-Frank Wall Street reform and Consumer Protection Act. May lawyers ethically seek whistleblower rewards under these federal statutes?"
  • This article is the first to conduct an in-depth analysis of several questions that are key to determining whether a lawyer may receive whistleblowing award under a federal program without violating state ethics law:
    • 1. When may a lawyer disclose a client’s confidential information to others?
    • 2. When does a lawyer’s obligation of loyalty preclude acting adversely to a client, including seeking personal benefit when engaging in conduct that is permissible for other purposes, such as to prevent or rectify harm to another?
    • 3. Are any of a lawyer’s obligations under state law preempted by the federal law that provides for financial incentives for whistleblowers?
    • 4. Which state’s law applies to lawyers who move from state to state as they work for national and international companies?
On unrelated confidentiality matters, California just issued an ethics opinion: "California Bar issues opinion on whether attorney can refuse to disclose confidential information in support of motion to withdraw from representation" --
  • "The California bar's ethics committee recently issued an opinion (Formal Op. 2015-192) attempting to clarify whether an attorney seeking to withdraw from a litigation for ethical reasons might have grounds for resisting a court order that would require the lawyer to disclose client confidences to a judge who wants more information before ruling on the motion.  Although it admits there is no on-point guidance in California, the committee urged lawyers not to reveal confidential information to support their withdrawal motion. If the judge insists, the committee said, there is no clear legal or ethical authority in California that either permits or forbids an attorney to comply with the court's directive."

Thursday, March 5, 2015

Laterals Leaving, Laptops and Leftovers

A reader sent word of a fascinating story of (alleged) intrigue tied to lateral lawyer movement and information governance: "Law firms clash over laptops taken by departing lawyers" --
  • "The suit by Pennsylvania insurance boutique Nelson Brown Hamilton & Krekstein initially sought the return of laptops taken by 14 departing lawyers to Lewis, Brisbois, Bisgaard & Smith, the National Law Journal (sub. req.) reports. The suit seeks damages under the Computer Fraud and Abuse Act."
  • "After the suit was filed last May, Lewis Brisbois returned the laptops, but erased and preserved the information they held, the story says. Now both law firms have hired computer experts to determine what information was on the devices."
  • "Jana Lubert, general counsel at Lewis Brisbois, told the National Law Journal that the laptops weren’t stolen. “It is important to note that at no time before or after the lawyers left Nelson Levine, which occurred over a year ago, was the data itself ever viewed by anyone who was not privileged and authorized to see it,” Lubert said."
Looking at the general information governance issue tied to lateral movement, and putting the merits of this particular case aside, now is a good time to note that no firm wants to find itself in the position of lawyers removing client information in an unmanaged fashion.

Some organizations are using technology tools to monitor abnormal lawyer document activity and providing early warnings by watching for unusual activity. This approach can give management early visibility so they can investigate and address any concerns before they become serious crises. (Interested readers can learn more about Intapp Activity Tracker and read a few testimonials from firms making use of the technology as a risk mitigation strategy.)

Disqualification News (and New Risks)

"DQ Risk: Representing Lawyers and Receiving Confidential Information About Their Clients" --
  • "The law firm at issue, AlvaradoSmith, decided to represent another law firm, Floyd & Buss, in a lawyer-client fee dispute against the Floyd firm’s former client, Shared Memory Graphics.  In the course of that dispute, the Floyd firm legitimately shared with AlvaradoSmith, and AlvaradoSmith legitimately received, Shared Memory Graphics’ confidential and privileged information (because this information was at issue in the fee dispute and the disclosure fell within exceptions to confidentiality and privilege)."
  • "When AlvaradoSmith later began representing an expert witness against Shared Memory Graphics in a fee dispute arising from the same underlying litigation, Shared Memory Graphics moved to disqualify AlvaradoSmith."
  • "Thus, Shared Memory Graphics was attempting to disqualify AlvaradoSmith even though the firm had properly received the confidential information and even though the firm was aligned against Shared Memory Graphics in both disputes.  Shared Memory Graphics was nevertheless successful in having AlvaradoSmith disqualified."
  • "With respect to fee disputes in particular, the court noted that the information from the former representation will not invariably be substantially related to the present matter."
  • "Some authority and logic suggest that, should the firm screen the lawyers who receive the nonclient’s confidential information, the firm might later avoid disqualification."
"Panel Reverses Law Firm's Disqualification" --
  • "A disqualification ruling in a Commercial Division case has been overruled by the Appellate Division, First Department. In Becker v. Perla, 651575/13, the unanimous panel Thursday upset Justice Shirley Kornreich's disqualification of Saul Feder and his firm, Regosin, Edwards, Stone & Feder, who was counsel to lead plaintiff, Ronny Becker."
  • "It was uncontested that Feder had represented defendant Daniel Perla in a prior matter, and that Becker was adverse to Perla in the current case."
  • "But the panel said that 'the present and prior matters are not substantially related, and [Feder] did not obtain confidential information from the defendants during the prior matter.'"

Wednesday, March 4, 2015

Ethics & People (Lawyers Lateraling, Staff Entitled)

A few interesting updates addressing the people side of the equation. First, we've had great fun messing with Texas and its ethics opinion that non-lawyer staff cannot have the word "officer" in their title. (As of yet, we have seen no CIO, CMO or COO take us up on any of our creative suggestions... The latest of which is replacing the word "officer" with "sheriff." And, to be fair, word is that Texas is reviewing this opinion. Or planning to.) Now comes the Philadelphia bar with an opinion that's a bit more on the loving side: "Ethics Panel Says Senior Nonlawyer Staffers May Be Designated as ‘Directors' or ‘Officers'" [opinion] --
  • "The committee expressed its disagreement with a controversial Texas ethics advisory that disapproved firms' use of such titles for nonlawyer employees."
  • "Echoing critics who convinced the Texas committee to reconsider its May 2014 opinion, the Philadelphia panel rejected the notion that state variants of ABA Model Rule 5.4—which disallows most forms of multidisciplinary partnerships between attorneys and other professionals—prohibit law firms from bestowing nonlawyers with titles such as Chief Information Officer, Chief Marketing Officer, Chief Financial Officer, Chief Operations Officer, Director of Human Resources, Director of Facilities or Executive Director."
  • "'It is clear that a lawyer's independent professional judgment must not be compromised by allowing non-lawyers to be partners in, principals of or have ownership interests in law firms,' the opinion states. 'The Guidance Committee does not believe, however, that any use of the word ‘officer' or ‘director' in the title of a non-lawyer employee of a law firm is improper.'"
Next, the District of Columbia offers clarity for those on the hunt for pastures (of the greener variety, either literally or metaphorically): "DC Bar to Lawyers: It’s OK to Change Firms: Business of Law" --
  • "Non-competes are generally regarded as acceptable for most professionals -- except lawyers. Now an ethics opinion from the D.C. Bar, which oversees professional responsibility for lawyers practicing in the nation’s capital, has clarified that a law firm can’t try to limit a departing lawyer’s new practice."
  • "Ethics Opinion 368, published earlier this month, found that a 'law firm may not provide for or impose liquidated damages,' set before a departure is announced, on a lawyer who later competes with the firm. The decision also suggests that the former firm may not try to collect fees for work done after the lawyer leaves, even if the matter originated with the firm."
  • "A firm also cannot restrict a lawyer’s “subsequent professional association,” the D.C. Bar said, but a departing lawyer doesn’t 'have an unlimited right to solicit firm partners or employees' before departure."

Event Reminder: San Francisco Risk Roundtable

We're seeing great response to our upcoming Risk Roundtable set for San Francisco next week (Wednesday, March 11th at the office of Orrick, Herrington & Sutcliffe LLP).
Measure Twice, Cut Once: Improving the ROI in your COI (conflicts of interest) / business acceptance process
Evaluating new business becomes more and more challenging as firms grow. Client demands are changing and regulatory pressures continue to increase. Effective acceptance processes that deliver quick results and improve management visibility and control is critical to firm operations (and financial performance).
This session will discuss how firms are impacted by and responding to these new changes – and how they’re leveraging people, process and technology to deliver new value to their lawyers and clients. 
  • Mike Williams, Information Services Manager at Robins Kaplan LLP, will discuss his firm’s initiative to enhance its new business acceptance process.
  • Industry expert, Meg Block, will provide an overview of trends and considerations facing firms looking to modernize their own practices, and share examples of different approaches organizations can take to execute these projects.
We’ll also have a short demonstration of Intapp Open (including some important new features).
And, as always, we’ll have plenty of time for open discussion, peer exchange and networking.

Attendance is by invitation only and is limited to qualified law firms and personnel. Please contact for more details.

Tuesday, March 3, 2015

Law Firm Conflicts – When the Subject (Patently) Matters

Interesting update (and commentary) from the IPethics and INsights blog on subject matter conflicts (a topic we've seen a fair share of stories on recently): "Mass. Sup. Ct. Schedules Oral Argument on Subject Matter Conflicts in Patent Prosecution" --
  • "How close is too close?  That is a question that has perplexed patent attorneys who prepare and prosecute patent applications for multiple clients in the same, or similar, fields of technology.  At least one state appeals court has decided to take this question head on."
  • "The case is presently set for oral argument on either April 6, 7, or 8, 2015.  Amicus briefs are due within two weeks of the oral hearing... According to the court’s public docket, to date no amicus briefs have been filed in this case."
  • "...this action arises from a lawsuit for malpractice filed against IP firm Finnegan Henderson by a former client and solo inventor, Christopher Maling. The complaint alleged that two different offices of the Finnegan law firm were simultaneously prosecuting patent applications on allegedly 'similar' eyeglass inventions for two different clients – Maling and a Japanese entity. Although both clients were awarded patents, Maling sued Finnegan on the basis of an alleged conflict of interest. According to Maling, he was allegedly unable to market a commercial version of his patented invention due to 'similarities' between Maling’s patent and the other client’s patent."
  • "Whether two inventions handled simultaneously by the same law firm are 'similar' enough to raise an ethical conflict of interest, or give rise to potential malpractice liability, are issues of considerable importance to the intellectual property bar."

Friday, February 20, 2015

A Corny Conflicts Title, A Not-So-Sweet Disqualification

We covered the preliminary ruling late last year, which now has been updated: "Law firm Squire Patton Boggs removed from corn syrup lawsuit after merger" --
  • "A U.S. judge has disqualified newly-merged law firm Squire Patton Boggs from representing a group of U.S. sugar companies suing corn syrup producers for false advertising, saying it had a conflict because of work done by one of the legacy firms for two of the defendants in the case."
  • "U.S. District Judge Consuelo Marshall in Los Angeles in an order Friday wrote that "no alternative short of disqualification will suffice" over Patton Boggs' work for clients Tate & Lyle and Ingredion Inc before its 2014 merger with Squire Sanders."
  • "The judge noted the hardships the disqualification would cause for the sugar companies and their trade groups, including Sugar Association Inc, American Sugar Refining Inc, Western Sugar Cooperative and C&H Sugar Co."
  • "The ruling gives a glimpse into the types of conflicts created by law firm mergers and by lawyers moving from firm to firm and the complications that can arise."
  • "The conflict was only identified after the deal closed when Tate & Lyle brought the lawsuit and Patton Boggs' previous work for it to the merged firm's attention, according to the ruling. The ruling means the sugar companies will be without lawyers who had already put in 20,000 hours on the case and racked up $12 million in legal fees."
Update: See also detail and commentary about the use (and invalidation) of an advanced wavier in this case, via the Legal Ethics Forum: "One of the two clients had a broad conflict waiver in its retainer agreement with Patton but the court refused to enforce it. This has happened before. Comments to Rule 1.7 and the Restatement recognize broad prospective waivers by sophisticated clients. But judges - not so much. This one was too broad for the judge."

Thursday, February 19, 2015

Event: San Francisco Risk Roundtable

We're pleased to announce our upcoming Risk Roundtable set for San Francisco on Wednesday, March 11th at the office of Orrick, Herrington & Sutcliffe LLP.
Measure Twice, Cut Once: Improving the ROI in your COI (conflicts of interest) / business acceptance process
Evaluating new business becomes more and more challenging as firms grow. Client demands are changing and regulatory pressures continue to increase. Effective acceptance processes that deliver quick results and improve management visibility and control is critical to firm operations (and financial performance).
This session will discuss how firms are impacted by and responding to these new changes – and how they’re leveraging people, process and technology to deliver new value to their lawyers and clients. 
  • Mike Williams, Information Services Manager at Robins Kaplan LLP, will discuss his firm’s initiative to enhance its new business acceptance process.
  • Industry expert, Meg Block, SVP Risk Management Consulting at Intapp, will provide an overview of trends and considerations facing firms looking to modernize their own practices, and share examples of different approaches organizations can take to execute these projects.
We’ll also have a short demonstration of Intapp Open (including some important new features).
And, as always, we’ll have plenty of time for open discussion, peer exchange and networking.

Attendance is by invitation only and is limited to qualified law firms and personnel. Please contact for more details.

Wednesday, February 18, 2015

Event: Legal Malpractice and Risk Management Conference (LMRM)

The 14th Annual Legal Malpractice & Risk Management Conference which will be held February 25–27, 2015 in Chicago. The LMRM Conference will again offer interactive panels led by leaders in their fields, who are professional liability practitioners, law firm general counsel and insurance professionals. Each panel will provide a comprehensive examination of current developments with an emphasis on recent legal decisions.

Intapp's Pat Archbold will be presenting a breakfast briefing: "Impacting the Bottom Line with an Improved Business Inception Process"
  • Is your firm taking on clients and matters that are bad for the bottom line? In today’s fast paced environment, where lawyers are eager to start work even before conflicts checks complete, the prospect of adding additional checks to the business inception process may sound quixotic.
  • But today the ability for firms to leverage new technology and automatically integrate richer, real-time business data into the process offers new promise – faster response times for lawyers, shorter conflicts reports, and greater opportunity for management to make strategic decisions before it’s too late.
  • Hinshaw and Intapp have partnered to deliver tools that help firms not only manage ethical and regulatory risk but financial risk as well. Hear how Hinshaw and various other firms are leveraging these tools to improve the bottom line.

Tuesday, February 17, 2015

Clients Eye Security "Weak Link" – Their Law Firms

The Recorder takes another look at growing client concern over law firm information security and confidentiality management: "Clients Eye Law Firms as Security Weak Link" --
  • "Law firm leaders should be bracing for some tough conversations about data security. Alarmed by a series of stunning corporate breaches, companies are getting serious about shoring up their security—and are starting to focus on the outside legal advisers privy to some of their most sensitive corporate secrets. 'I tell anyone who will listen, 'As soon as I finish talking, run—don't walk—and call your IT director and make sure that your law firms have top of the line cybersecurity,' said FireEye Inc. general counsel Alexa King."
  • "Law firms are seen as the proverbial weak link, lacking the IT infrastructure of, say, major banks and retailers yet often holding their confidential financial data along with sensitive personnel or medical records. Some of that data is sent over unsecured networks and to personal devices."
  • "Adobe Systems Inc. associate general counsel Lisa Konie said companies are slowly waking up to that risk. 'It's going to take somebody getting burned, and then everybody is going to try to get in on it.'  [S]he and her team are trying to include data protection standards within its guidelines for working with firms."
  • "Kevin Clem, managing director of the law practice consulting group at HBR Consulting LLC said he's hearing from clients concerned about outside-counsel vulnerability, and said some clients are pressing for security assurances when they seek bids for legal work."
  • "Morgan Lewis partner W. Reece Hirsch said his practice has dealt with demands for data protection for more than a year now, but that is also because he represents clients in the health care industry. As of September 2013, all business associates to HIPAA-regulated industries became subject to HIPAA regulations themselves. Part of that includes a standard data security rule about how the data is stored and kept private. 'Law firms, frankly, haven't had their feet held up to the fire,' Hirsch said. 'In most cases their clients have confidence that the law firm is handling data security appropriately.'"
  • Firms may be starting to listen, said Patrick Archbold, vice president of risk management at legal software company Intapp Inc., if only because they don't want to lose business. 'Lawyers hate change, and they think they can lawyer their way out of anything,' he said. 'The only thing that really motivates them is clients, and that's finally happening.'"

Wednesday, February 11, 2015

Risk Grab Bag (Clients, Conflicts, Currency and the Cloud in Canada Cancelled?)

Several interesting updates to share. First, on the economic risk front: "Managing the Risks of Investing in Clients" --
  • "Clients are looking for ways to pay attorneys with something other than cash. Attorneys are looking to move away from the standard billable hour toward fee arrangements that allow them to participate in the success of projects they help make happen."
  • "The most significant limitation for attorneys investing in clients is whether the transaction is fair and reasonable—from the perspective of the client. Bar associations and courts are especially sensitive to whether an attorney is unfairly trading off of the attorney's knowledge of client confidences or secrets, or otherwise leveraging the relationship to gain an unfair advantage."
  • "One failsafe protecting clients from unreasonable terms is the opportunity to consult with independent counsel. Independent counsel operating with no interest in the transaction allows the client to benefit from professional judgment free from conflict."
  • "Some investments can change the nature of the relationship of the attorney and the client to law practice. Depending on the investment, attorneys may become a client of the firm, in addition to their other role with the practice. Such changes implicate a myriad of issues including the evaluation of potential conflicts of interest for both existing and prospective clients. As a result, in order to detect and resolve these potential issues, it is important to change the law practice's client intake procedures to include any information now relevant because of the transaction."
Next, on how close a relationship must be to trigger conflicts: "Louisiana Supreme Court concludes that 'of counsel' lawyers are associated with that law firm for conflicts of interest analysis" --
  • "...the recent Louisiana Supreme Court which concluded that “of counsel” lawyers are associated with that law firm for purposes of potential conflicts of interest analysis. The case is In re Randy J. Fuerst, No. 2014-B-0647 (La. SC 12/9/14). The Court’s opinion is here:"
  • "Bottom line: According to this Louisiana disciplinary opinion, a lawyer who is “of counsel” to a law firm is considered to be a member of that law firm for purposes of conflict of interest analysis; therefore, a lawyer who has a conflict of interest and must withdraw from representing a client cannot refer that client to a law firm in which he has an “of counsel” relationship since this conflict is imputed to the law firm and all of its lawyers."
Finally, turning to the Great White North: "Did the LSBC Just Kill Cloud Computing for Lawyers in BC?" --
  • "...the Law Society of British Columbia (LSBC) President, Jan Lindsay, boldly pronounced that, in no uncertain terms, BC lawyers are prohibited from using US-based cloud computing providers."
  • "...from the back of the room, an attendee stood up and stated (roughly, to paraphrase): 'I am Jan Lindsay, President of the Law Society of BC. This is black and white: BC lawyers are prohibited from using non-BC-based cloud computing providers, including Google and Dropbox... It is a new ruling as of October 31st."
However, take heart, if you parse the spirited comments in that discussion, and proceed to track down the LSBC president's blog, you'll find the retraction: " I don’t believe I said that non-BC cloud computing services were not permitted, but if I did I was wrong."

Tuesday, February 10, 2015

Conflicts Round Up

Let's start with something about a law firm merger making a bit of news these days: "East meets West: Dentons-Dacheng merger raises host of questions" --
  • "The creation of the world’s largest law firm stands to smooth the path for new Chinese investments into Canadian finance and agriculture, even as it raises questions about how well China’s legal establishment can mesh with western practices."
  • "For all the potential benefits of combining forces with Chinese lawyers, western law firms have been hesitant out of fears that doing so could expose them to Foreign Corrupt Practices Act violations, potential troubles with cyber-security or vexing cultural questions. Among them can be a laxer attitude toward conflict of interest at Chinese law firms and different compensation practices. Many Chinese lawyers are paid a fixed percentage of their individual gross billings and maintain their own secretaries and support staff. 'It’s what we would call a hotel for lawyers,'"
And then move to a complex analysis of potential conflicts and a "web of relationships," getting some public attention: "Casino sitting ripe with potential conflicts" --
  • "When a Chicago law firm ended its 11/2-year relationship with a partner in the Lago Resort & Casino project last March, it had another big client waiting in the wings... Taft, Stettinius & Hollister LLP, which merged with law firm Shefsky & Froelich last year, became the state board's lead gambling consultant under a one-year, $4.9 million contract."
  • "In December, the board recommended Lago's site, in Tyre, Seneca County, for a commercial casino license. Montreign Resort Casino and Rivers Casino & Resort at Mohawk Harbor also got recommendations. Key officials involved in all three projects had previously used the Taft firm in their businesses."
  • "These potential conflicts of interest were disclosed to the Gaming Facility Location Board in applications submitted last summer, yet the board continued to use the firm as its gambling-services consultant. The board contends that the past associations between the selected bidders and Taft had no bearing on its recommendations."
  • "Of the 16 casino bids evaluated, five, including the three winning bidders, identified dealings with the Taft firm as a potential conflict of interest in their applications. Two of those five bidders — Hudson Valley Casino & Resort in Newburgh, Orange County, and Live! Hotel & Casino New York in South Blooming Grove, Orange County — were not recommended for a license. The board decided not to recommend an Orange County bidder."
Finally, see: "Even in the Ninth Circuit, courts should not intervene mid-arbitration" --
  • "In Sussex v. U.S. Dist. Ct. for D. Nevada, __ F.3d __, 2015 WL 327558 (9th Cir. Jan. 27, 2015), the underlying issue was whether the arbitrator had a disqualifying conflict of interest.  A single arbitrator was hearing three similar actions by condominium owners against the developer.  During the course of his service, the arbitrator founded a company to invest in 'high-value, high-probability legal claims.' The arbitrator did not disclose that investment activity, but the developer discovered it and moved the AAA to disqualify the arbitrator.  The AAA denied the developer’s request after the arbitrator said his investment company was 'dormant.'"
  • "On appeal, the Ninth Circuit issued a writ of mandamus, instructing the district court to vacate its disqualification of the arbitrator.  It noted that no court after Aerojet had approved of a mid-arbitration intervention and that a majority of circuit courts 'expressly preclude' such intervention."

Monday, February 9, 2015

>Seriously< Swift and Speedy Screening Seems Suitable

From the excellent Lawyer Disqualification Blog comes: "A Timely Reminder of the Importance of Timely Screening" [Signature MD, Inc. v. MDVIP, Inc. (C.D. Cal. Jan. 20, 2015).] --
  • "Duane Morris was recently reminded of the importance of erecting screens in a timely fashion.  From 2008 to 2012, Lawyers in Duane Morris’s Philadelphia office represented MDVIP, reportedly the largest medical concierge membership program."
  • "Then last year, Duane Morris, on behalf of another medical concierge service, brought suit against 'MDVIP for antitrust violations contending MDVIP has abused its dominance in the relevant markets by utilizing anti-competitive tactics and entering into anti-competitive agreements intended to unlawfully maintain and expand MDVIP’s monopolies and to preclude . . . others from competing against it.'  The court found that these two matters were 'substantially related'"
  • "Having recognized the former client conflict, the court then examined “whether the implementation of an ethical screen would be sufficient... The court was able to duck the ultimate question (namely, whether to bless the practice of screening as sufficient to avoid disqualification) because the firm had failed the “timeliness element in implementing an ethical screen..."
  • "The court concluded that the firm had instead implemented the screen 'two days after the [Duane] Morris firm was retained by' its current client.  Although the court acknowledged that a two-day lapse was 'very short,' the court nevertheless disqualified the firm."
Two days. Is your firm ready and able to meet that standard? (Some can...)

Thursday, February 5, 2015

Disqualifications Decided and Deconstructed

Two interesting stories to share. First: "Mayer Brown Tested (and Ultimately Failed) the Limits of Implied Waiver" [Decision] --
  • "Mayer Brown was disqualified from representing Defendant HSBC Finance Corporation in the District of Minnesota.  Mayer Brown had previously represented the Plaintiff Residential Funding Company (RFC), and the district court was quick to find a former client conflict:
  • "'RFC presented extensive evidence that the matters on which Mayer Brown previously represented RFC were substantially related to the instant litigation and, as a result, Mayer Brown was precluded from representing HSBC against RFC, absent its consent or waiver of its right to seek disqualification... the only basis for Mayer Brown’s opposition to the motion to disqualify is that by waiting six months to bring this motion, RFC waived its right seek disqualification.'"
  • "Here, Mayer Brown argued that RFC knew about the conflicted representation for six months before RFC moved to disqualify the firm (and to Mayer Brown’s credit, several courts have concluded that a delay of six months, or even less, forfeits the disqualification remedy).  The problem, though, is that the district court disagreed with Mayer Brown that RFC had known about the conflicted representation for six months. Mayer Brown premised the knowledge argument on a casual voicemail that its lead partner had left for RFC’s counsel."
  • 'RFC’s counsel, however, was later able to retrieve the actual voicemail for the court, and the court found the voicemail much more 'ambiguous' than the affidavit had indicated."
"Appellate Panel Rules Against Attorney Disqualification Twice" --
  • "In a case last month, a unanimous panel upheld a ruling that Kilpatrick Townsend & Stockton should not be disqualified from representing a nominal defendant in, Stilwell Value Partners v. Cavanaugh, 6530112011."
  • "And last week, another unanimous panel, interpreting what defines "substantial harm" to a prospective client when determining if an attorney should be removed, reversed a Commercial Division ruling that disqualified an attorney based on Rule 1.18, which was added to the Rules of Professional Conduct (22 NYCRR 1200.0) in 2009. That case is Mayers v. Stone Castle Partners, 650410/2013."
    "In an unsigned opinion Dec. 30, the appellate court said that a minority shareholder failed to show a conflict of interest existed in Kilpatrick representing directors who sit on the boards of a mutual holding company and the publicly traded company that owns a bank and in which the mutual holding company is the majority shareholder."
  • "Stilwell asserted that there was an inherent conflict of interest in Kilpatrick representing the defendant directors, majority shareholder MHC and NECB, a nominal defendant on behalf of which the shareholder derivative action was brought. However, Jonathan E. Polonsky, a partner at Kilpatrick, at the hearing said the motion to disqualify was a defense tactic to require two firms to staff the case and increase the pressure on the defendants to settle the shareholder derivative lawsuit because of deepening costs."
  • "At the hearing, Ramos agreed the motion was a tactical move when he learned that Neupert had engaged in settlement discussions with the supposedly conflicted Kilpatrick. 'If you’re going to take the position that the conflict crystalized when I denied the motion to dismiss, at that point, I would have a great deal of respect for a motion made to disqualify counsel,' Ramos said at the hearing last year. 'If you’re going to be consistent, you wouldn’t speak to them because they would be conflicted. You wouldn’t talk settlement. The only thing you would do is demand they obtain separate counsel.'"
  • "Ultimately, Ramos found that Stilwell waived the conflict."

Wednesday, February 4, 2015

It's the Engagement Letter (Something)!

Gracing the pages of the esteemed "The Lawyer" magazine, Eddie Reich, US General Counsel at Dentons shines the lime light on an important issue: "Engagement letters: so simple even a child could understand" --
  • "I appreciate that some of the issues discussed in these Risk Tips can be rather complicated. Take engagement letters, for example. Advice like ‘send an engagement letter’ can be difficult to comprehend. And admonitions to ‘carefully review outside counsel terms’ can really tax the brain. After all, not everyone immerses themselves in intensive study of professional responsibility esoterica."
  • "So I’ve enlisted a couple of old friends to help communicate best practice with regard to engagement letters in a simple way. Please study these carefully..."
Linked in the update is a PDF featuring two colorful cartoon buddies named Goofus and Gallant. One of whom "swipes an apple from his client's conference room; it's the only thing of value he can get from his client since it refuses to pay its bills, claiming that it never requested the legal services provided."

This brings to mind another recent update from another gentleman who has worn the law firm general counsel hat and now colorfully blogs under the banner Lawyering for Lawyers, Steve Crislip at Jackson Kelly: "Sometimes Clients Will Just Not Pay You" --
  • "Any engagement letter should address in writing the right to withdraw if not paid and the requirement for the client to make timely payments of bills.  You are urged to discuss any withdrawal procedures with them and to give proper notice, under applicable rules, before withdrawing.  Lawyers should not be reluctant to withdraw when not paid either.  It is important to do that well before any critical deadlines and to advise the client upon withdrawal of all such deadlines in writing.  Otherwise, courts may not let you out because it would amount to abandonment, or the client will claim they did not know of the deadlines.  The point is that lawyers need to be better business managers of their work done."
  • "In an extreme example, recently the firm of Morgan Lewis & Beckins was finally allowed to withdraw 30 years after it was fired by the client. The Third Circuit would not grant the motion to withdraw until the client could retain substitute counsel, which did not happen.  Finally, a three-judge panel upheld the Eastern District of Pennsylvania’s decision to let them out as counsel. It makes the point that there are some clients you do not deserve to represent."
(If only there were some new class of business acceptance software that could help automate and streamline the process of creating engagement letters and tracking internal compliance... Now that would be something...)

Tuesday, February 3, 2015

Economic Harm – An Emerging Class of Conflict?

Coming off our recent note about subject matter and other types of conflicts making news, the Legal Ethics Forum calls out a fascinating decision: "Economic Harm as Direct Adversity Under 1.7(a)" [Celgard, LLC v. LG Chem, Ltd., Case Nos. 14-1675, -1733, -1806 (Fed. Cir., Dec. 10, 2014) (Dyk, J.).] --
  • "Jones Day represented the plaintiff in a matter where success would be economically harmful to non-client Apple, which was a customer of defendant. Apple was a Jones Day client on unrelated matters. It intervened to disqualify Jones Day on the ground that the representation was directly adverse to Apple because success against defendant would cause Apple to lose defendant as its lithium battery supplier."
  • "The court disqualified. Jones Day argued that it would not be possible for a law firm to anticipate the economic consequences to a non-party client who happened to be in an opponent's supply chain. But the court held that here the retainer agreement with plaintiff expressly said that the firm would not be adverse to Apple, so Jones Day did in fact recognize Apple's interest."
  • "However, the implications can be disturbing if read even a bit broadly. Many litigations can have economic consequences for a non-party client, even foreseeable ones and here Apple was a client on unrelated matters. The case holds that as a client even on unrelated matters Apple had a right not to see Jones Day appear for another client in a matter in which Apple was not a party because of foreseeable economic harm to Apple."
See some interesting commentary in the comments, as well as additional detail via the National Law Review: "Intellectual Property: Firm Disqualified Because Preliminary Injunction Is “Directly Adverse” to Another Client" --
  • "In determining whether the representation of Celgard amounted to a conflict of interest requiring disqualification, the Federal Circuit applied the professional conduct rules of the forum state. These rules prohibit any representation which is 'directly adverse to another client.'  The Federal Circuit found that the representation of Celgard was 'directly adverse' to the interests of Apple, and [was] not merely adverse in an ‘economic sense.'"
  • "Specifically, the Federal Circuit focused on the effect that Celgard’s preliminary injunction would have on Apple. It noted that the injunction would not only force Apple to find a new battery supplier, but also expose Apple to 'additional targeting by Celgard in an attempt to use the injunction issue as leverage in negotiating a business relationship.'"
  • "Even though Apple was not a named defendant in the litigation, the Federal Circuit found that a conflict existed based on the 'total context' of the case. Furthermore, the Federal Circuit rejected Celgard’s argument that finding a conflict in this case would give lawyers and clients 'no reliable way of determining whether conflicts of interest exist in deciding whether to commence engagements.' Instead, the Federal Circuit held that 'the duty of loyalty protect[ed] Apple from further representation of Celgard.'"

Friday, January 23, 2015

Conflicts Waivers – "Still Waiving After All These Years"

The New York Law Journal Reports: "Judge Rejects Disqualification of Law Firm in Joint Defense" --
  • "A Commercial Division judge has rejected a motion to disqualify a law firm from representing parties in a joint defense because 'virtually all conflict waivers would be unenforceable' if the court did so."
  • "The Ridgeline parties argued that Eilender and his firm should be disqualified, even though a waiver of conflict was signed. Eilender represented Ridgeline and other parties who were once codefendants in a lawsuit challenging the sale of a company that owns a biodiesel refinery in Carthage, Mo. But now they on the opposite sides in litigation."
  • "Justice Shirley Werner Kornreich  rejected that request for disqualification in an opinion earlier this month in Gem Holdco v. Changing World Technologies, 650841/2013: 'If disqualification was warranted in this case, it would follow that virtually all conflict waivers would be unenforceable, a result which is at odds with this state's legal policy,' Kornreich said. 'Such a result would significantly impair the ability of co-defendants to mount a joint defense, leading to significant litigation inefficiencies and increased legal costs for litigants, who would unnecessarily have to hire more lawyers to perform duplicative and expensive work.'"
  • "Eilender said in an interview that the motion to disqualify his law firm was 'completely a litigation strategy' undertaken by a 'sophisticated consumer of legal services.'"
  • "While there is a school of thought that rejects advance waivers of conflicts of interest, Eilender said his firm's engagement letter was meant to deal with the uncertainty of the future and plan ahead for conflicts arising between the jointly represented parties. If his firm's letter had been rejected by the judge, there was no way the firm could ever represent multiple clients without being conflicted out, Eilender said. 'The contract actually meant what it was supposed to mean and the court backed it up,' Eilender said."