Sunday, August 21, 2016

Clients Canceled or Curtailed (Closing Can Cause Consternation)

Two partners from Dentons weigh in on the theme of closing matters and disengaging from client relationships with: "Don't Wait for the New Year to Close Old Files" --
  • "The formal termination of an attorney-client relationship through a file closing can be an important aspect of risk management for many reasons. For one thing, it has significant positive implications for the ethical, legal, and professional obligations of an attorney and the law practice. Once the attorney-client relationship ends, clients move from being existing clients of the attorney and the firm to being former clients. This is a significant distinction for conflict of interest purposes, as the ethics rules governing existing clients are different from those governing former clients."
  • "Generally, if a new matter involves an existing client, the conflict of interest rules may require the attorney to obtain informed written consent of each client before accepting representation of more than one client in a matter in which the interests of the clients potentially or actually conflict. If the client interests actually conflict, the attorney may have to decline the representation to avoid violating the duty of loyalty."
  • "On the other hand, the conflict rules for former clients are less onerous. The critical test for a new representation involving a former client—as opposed to an existing client—is whether the new matter is substantially related to the representation of the former client. If not, nothing further usually needs to be done."
  • "Generally, effective file closings involve three parts: a file closing letter; an accounting of all funds received; and an administrative closing of the matter. The combination of all three parts provides the most protection, although each firm can review to identify the best course for its practice."
  • "Regardless of the reason, when the representation ends, the attorney or law firm should consider sending a file closing letter confirming the end of the attorney-client relationship and, as a result, any ongoing duty to the client for that particular matter. This is true even for clients for whom the attorney or law practice does other work; a closing letter for a particular closed matter even if other matters are ongoing is important for risk management purposes. Indeed, effective audits of law firms randomly check closed files to see if file closing letters are in the files."
And an update highlighting the important of clear communication: "Locke Lord Atty's Cold Shoulder To Client An Ethics Breach" --
  • "A Locke Lord LLP partner likely broke ethics rules when he chose not to tell a longtime client why he was severing the relationship, experts said Monday, even though a federal judge found that a conflict revealed late in a trademark case didn't justify Locke's disqualification."
  • "While there is scant ethical guidance on specific obligations to explain to a client why a representation must end, lawyers' overarching duty to give clients all information relevant to their case calls for a complete explanation when an adversity is spotted and precipitates the breakup."
  • "In a harsh critique of Locke Lord litigator Roy Hardin and the firm’s “gross negligence” in premerger conflict checks, U.S. District Judge Jed Rakoff nevertheless concluded in a Friday order that previous ethical mishaps didn't mean Victorinox AG should lose their chosen counsel."
  • "But legal conflicts expert William Freivogel said that decision was likely based on a desire to spare the Swiss Army knife maker the disqualification rather than the firm’s handling of the conflict itself."
  • "That termination letter was “misleading on its face” because Hardin acknowledged in later testimony that the conflict was the real trigger for his December breakup with B&F, Judge Rakoff said. “The letter, however, contains nothing that would alert B&F to any conflict,” the opinion said."
  • "Legal ethics expert Geri Krauss of Krauss PLLC said that despite the seriousness of the conflict issue, the court’s decision to deny the disqualification was unsurprising at such a late stage of the litigation... A lawyer also has a duty to keep clients informed on any issue that might affect them, including a decision to cease representation due to a conflict or a mistake in the lawyer’s work, she said."

Thursday, August 18, 2016

Conflicts Complexities (or "Unknown Unknowns, Knowable Unknowns, Etc...")

From "The Bencher" magazine comes: "Court Disqualifies Firm Based on Representation of Affiliated Subsidiary" --
  • "...a recent decision by a federal district court in which a law firm was disqualified based on its representation of two adverse subsidiaries of a parent company. The court’s useful application of Rule 1.7 and Rule 1.9 should be of interest to those engaged in corporate and commercial litigation for subsidiaries of large companies, whether in Delaware or elsewhere."
  • "In the case styled Atlantic Specialty Insurance Company v. Premera Blue Cross, 2016 WL 1615430 (W.D. Wash. April 22, 2016), the court was presented with a motion to disqualify the law firm representing Premera (“Law Firm”) based on the concurrent representation by the Law Firm of an affiliate of the plaintiff, Atlantic, in a separate and unrelated matter."
  • "Atlantic’s corporate structure is key to understanding the court’s decision. Atlantic is a wholly-owned subsidiary of OneBeacon Insurance Group (“Parent”). Homeland Insurance Company of New York (“Homeland”) is also a wholly-owned subsidiary of Parent. Both Atlantic and Homeland share the same mailing address and principle place of business as Parent. Both subsidiaries also share claims-handling services that are managed by the same claims unit personnel."
  • "In-house counsel for Atlantic notified Law Firm that there was a conflict of interest because Law Firm represented Atlantic’s sister subsidiary, Homeland, in the AAM matter. Thus, Atlantic took the position that there was a conflict of interest because Atlantic and Homeland, as subsidiaries of Parent, consider themselves one client. They did not consent to the Law Firm being adverse to them in the instant case. The Law Firm refused to withdraw and a motion to disqualify was filed. Law Firm’s position was that Atlantic and Homeland are two distinct corporations and should not be considered one client for purposes of an analysis of conflicts of interest. The court disagreed with that position."
  • "The court was not persuaded by the Law Firm’s argument that it was not aware of the relationship between Atlantic and Homeland, and was previously adverse to Atlantic. The court explained that attorneys are responsible for knowing the relationship between or among related corporate clients, and the duty is imposed on the attorney—not the client—to be familiar with the affiliates and related companies of a client. Even though the Law Firm did not consider itself as having an attorney-client relationship with the other subsidiary, the court instructed that the existence of an attorney-client relationship is determined based on the reasonable understanding of the client, not the view of the attorney. Even though the Law Firm did not know that Atlantic and Homeland were both subsidiaries of the Parent, the court found that they should have known."
On matters of risk, the Hinshaw newsletter consistently delivers some of my favorite late night reading. Their most recent update touches several important topics, including: "Conflicts-Checking Systems — What Constitutes a Sufficient Conflicts Check?"
  • "New York State Bar Association Committee on Professional Ethics Opinion 1085 (2/16/2016). Risk Management Issues: What are law firms' obligations in operating conflicts checking systems? What must firms do in order to determine whether their lawyers previously represented an adverse party? What are law firms' continuing obligations to perform new conflict checks if or when new information relating to conflicts becomes available?
  • First, a law firm is required to make 'a written record of its engagements, at or near the time of each engagement.'"
  • "Second, a law firm is required to 'implement and maintain a system by which proposed engagements are checked against current and previous engagements' when any of four triggering events occurs: '(1) the firm agrees to represent a new client; (2) the firm agrees to represent an existing client in a new matter; (3) the firm hires or associates with another lawyer; or (4) an additional party is named or appears in a pending matter.' The Committee further noted that the purpose of such a system is to 'render effective assistance to lawyers in the firm in avoiding conflicts of interest,' and, thus, the conflict system 'must be adequate to detect conflicts that will or reasonably may arise.' NYRPC 1.10, Cmt. [9]."
  • "Moreover, once a firm accepts a new matter, it has a continuing conflicts-checking obligation if any of the above-mentioned four triggering events occurs. Even without a triggering event, the Committee recommends running a new conflict check when a firm acquires new information, stating that such practices help lawyers comply with their ethical duty to avoid conflicts."
Their update also covers:
  • Disqualification — Substantially Related Matters — Waiver of Conflict by Lack of Diligence in Seeking Disqualification
  • Right to Withdraw — Nonpayment of Fees
  •  In-Firm Attorney-Client Privilege Revisited Under Federal (Ninth Circuit) Law

Wednesday, August 17, 2016

Waivers Wavering?

A few stories worth reviewing in greater detail, before waving goodbye today. First: "Waivers Found Useless in Sprawling Medical Fraud Case" --
  • "A law firm had a disqualifying conflict of interest in representing both the plaintiff in civil racketeering litigation and a criminal defendant who pleaded guilty in the scheme, the U.S. District Court for the Central District of California said June 24 (State Comp. Ins. Fund v. Drobot, 2016 BL 205454, C.D. Cal., No. SACV 13-0956 AG (JCGx), 6/24/16 )."
  • "Judge Andrew J. Guilford stuck by his decision earlier this year to disqualify Hueston Hennigan LLP as counsel for State Compensation Insurance Fund (SCIF) in the sprawling civil litigation. The civil and criminal cases are one and the same for conflicts purposes, and the clients' dueling interests would mangle the firm's loyalties too severely for informed consent to fix the conflict, Guilford found."
  • "The decision casts doubt on whether lawyers can rely on waivers to legitimize concurrent representation of clients with adverse interests in overlapping criminal and civil proceedings. The court's restrictive stance on the question of waivability will be especially alarming to large firms that see conflict waivers as a key risk management tool."
  • "Guilford found it unnecessary to decide here whether a firm's representation of adversaries must be in the same ‘lawsuit,’ the same ‘litigation’ or the same ‘matter’ in order for the conflict to be deemed unwaivable."
  • "The firm pointed out that SCIF had executed four separate conflict waivers specific to the firm's concurrent representation of Randall in the criminal matter... Guilford combed through Randall's three waivers and SCIF's four waivers, and found them ineffective. The waivers at times incorrectly described the criminal and civil proceedings as ‘unrelated,’ and large portions of the waivers amounted to boilerplate without much substantive meat, Guilford said. The waivers also contradicted one another and contained questionable terms, he said."
  • "Guilford contrasted these waivers with a conflict waiver that he found sufficient in another case. See United States v. DeCinces, No. SACR 12-0269-AB, Dkt. 441 (C.D. Cal. July 21, 2015). That waiver was the “gold standard” for effective informed consent, he said."
  • "As more attorneys run conflicts before opening a new matter and take advantage of available technology, attorneys and law firms are getting better at identifying potential conflicts of interest that could impact a matter. But identifying that there could be a conflict is only the first step. Many attorneys ask themselves, 'What next?'"
  • "Likewise, it usually is not sufficient just to ask for a client's waiver of the conflict or consent to the representation. An effective disclosure typically requires more. In the context of conflicts of interest, Rule 3-310 of the California Rules of Professional Conduct defines disclosure as 'informing the client or former client of the relevant circumstances and of the actual and reasonably foreseeable adverse consequences to the client or former client.'"
  • "In general terms, the professional rules call for an attorney to disclose whatever information a reasonable person would expect and need to consider before waiving an important right, and then to confirm that consent in writing. That written consent is often referred to as a "waiver." In specific terms, there are topics that some attorneys typically include when seeking a client's consent or waiver."
  • "First, in reviewing conflicts, many attorneys identify the proposed representation and what consent is sought from the client. "General" waivers typically call for a different kind of disclosure than a "limited" waiver for a specific representation. Therefore, tailoring the requisite full disclosure often involves making clear exactly which kind of waiver the attorney seeks."
  • "In the multiple representation context, this often means advising the client that the attorney is requesting permission to jointly represent the client along with others. In the successive representations context, this generally means advising a former client that the attorney is requesting permission to represent a new client in a matter involving the former client."

Tuesday, August 16, 2016

Laterals, Conflicts, Small Screens & Disqualification

Several stories and updates to start the week off:

"Time for a Change? Lessons for Avoiding Lateral Mistakes" --
  • "As the number of moves continues to climb–reaching a post-financial crisis high of nearly 2,900 moves last year—the regrets seem to be piling up faster too. Recruiters and consultants say lawyers change their minds in about 1 in 20 lateral moves. That doesn’t include partners who arrive at a new firm only to second-guess their decision, and either suffer the consequences or plan yet another move."
  • "In most cases, such cases stem from either emotional unpreparedness, failures of due diligence, or both, according to consultants, recruiters and attorneys.  Sometimes a client conflict went undetected. Sometimes the original firm comes back with a persuasive counteroffer."
  • "A 2014 survey by Major Lindsey showed that surprisingly few lateral partner candidates look closely before they leap to another firm: Only 36.6 percent of lateral partner candidates reviewed their new firm’s financial statements, and just 40 percent met with the new firm’s chief financial officer. Financial due diligence 'remains shockingly inadequate,' the report concluded, making it more likely that potential conflicts go undiscovered until too late."

"Former Reed Smith Partner's Hire DQs New Firm From IP Suit" --
  • "In a decision highlighting a risk of lateral hiring, a federal judge has disqualified an entire law firm in copyright litigation after finding an ethical wall separating a former Reed Smith partner from the rest of his new firm was not sufficient to guard against confidence sharing. Southern District Judge Naomi Reice Buchwald in mid-July disqualified 13-attorney intellectual property boutique Powley & Gibson, just months after Keith Sharkin joined the firm from Reed Smith."
  • "In May 2016, Cowen moved to disqualify Powley & Gibson as plaintiffs counsel on the ground that Powley partner Sharkin had previously represented Cowen on a substantially related matter while at a different firm."
  • "In concluding that Powley's ethical wall was insufficient, Buchwald said Powley is a 'very small firm consisting of four partners and about 10 other attorneys in a single office, which by its nature imperils an ethical screen.'"
  • "The judge further found the ethical wall was inadequate because Sharkin did not inform Cowen before he joined Powley that he was doing so, despite the fact that he and Powley knew of both representations. Powley waited three weeks after Sharkin joined to inform Cowen."

Monday, August 15, 2016

ERROR. (Clever title repository = [blank])

"Lawyer must reveal co-counsel’s error to client if it could raise malpractice claim" --
  • "What should you do when you are co-counsel on a case or in a deal, and you become aware that the other lawyer has made an error?  A new ethics opinion from the New York State Bar Association says that if you reasonably believe that your co-counsel has committed a significant error or omission that may give rise to a malpractice claim, you must disclose the information to the client."
  • "The lawyer had been brought into a case as co-counsel on the eve of trial, and found that the other lawyer had done virtually no discovery, and had not made any document requests — despite the fact that communications and e-mails between the parties would be critical to the case."
  • "The lawyer believed that the lack of discovery was a significant error, and that it could constitute malpractice.  The outcome of the case was still pending.  The lawyer was concerned that disclosing the information to the client could undermine the lawyer’s relationship with co-counsel, but was nonetheless convinced that it was in the client’s best interest to reveal the facts as soon as possible."
  • "Respect for client autonomy and decision-making means that the lawyer must provide information about all significant developments affecting the representation.  That 'applies equally to a significant error or omission by co-counsel that may give rise to a malpractice claim,' said the Committee."
"When The Cover-Up Outweighs The Crime: Professional Discipline For Hiding Attorney Errors" --
  • "Lawyers owe an ethical and fiduciary duty to their clients to report their own “mistakes” in the course of representation.  The source of the duty can be found, for example, in ABA Model Rule 1.4 (USPTO Rule 37 CFR Section 11.104), which in relevant part requires an attorney to 'promptly inform the client of any decision or circumstance” adversely affecting the representation, as well as to “keep the client reasonably informed about the status of the matter.'"
  • "Courts have found in the IP malpractice context that a lawyer may “have an obligation to advise his client about a possible malpractice claim” against the lawyer.  See Encyclopedia Britannica, Inc. v. Dickstein Shapiro LLP, No. 10-0454 (D.D.C. Feb. 2, 2012).  Such decisions are consistent with the lawyer’s ethical duty to “explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.”  ABA Model Rule 1.4(b); 37 CFR Section 11.104(b)."
  • "Professional liability insurer CNA recently explained that “the attorney’s management of the mistake is often more important than the mistake itself.  Moreover, failure to appropriately address an error can exacerbate the simple malpractice situation and give rise to disciplinary grievances or other claims and increased damages.  See 'To Err is Human: A Guide for Attorneys on How to Manage Errors'"

In Virginia: "Bar proposes duty to address impaired lawyers" –
  • "A Virginia State Bar committee is seeking comment on the duty of law firm leaders to take action when another firm lawyer shows signs of impairment. The VSB Standing Committee on Legal Ethics is proposing a legal ethics opinion calling for law firms to have enforceable policies requiring intervention for impaired lawyers."
  • "The proposed opinion specifically focuses on the obligations of partners and supervisory lawyers to take precautionary measures before a lawyer’s impairment has resulted in serious misconduct or a material risk to clients or the public."
  • See also: ABA Formal Ethics Opinion 03-429

Sunday, August 14, 2016

Surprise Sunday Shark Bite : One More on OCGs...

Toby Brown, Chief Practice Management Officer at Perkins Coie, touches on one of the most fascinating issues tied to OCGs in my mind – the question of client/firm relationship and trust.

(It's an angle to this issue that recently came up in as part of a stimulating conversation on OCGs I recently had with an old friend and expert. More detail on that dialogue soon...)

In the meantime, read Toby’s thoughts in: "Outside Counsel Guidelines: Navigating the Changing Landscape of Client Demands" --
  • "First, an observation: From reading many of these documents, the overall evolution of OCGs seems to reflect a growing chasm between clients and law firms. The documents go to great lengths to describe and list restrictions on what clients will not pay for, how rate increases will be handled, and even describing acceptable language for time entries. This reflects a presumed relationship of mistrust. Having to go to such lengths demonstrates that clients, on some level, feel that law firms are not being fair with them. So, in order to bring back a perception of fairness, in-house departments are creating these rules in an attempt to level this playing field again."
  • "The growing complexity of OCGs demonstrates a need for firms to better monitor the terms of each OCG. This evolution has made OCGs effectively contracts, requiring law firms to manage them that way. Firms will need defined processes and new technologies to stay on top of this need."
  • "Overall we can expect the flood of OCGs to continue. Law firms should be committing resources to capturing the content of these documents and making it accessible and actionable so that firms stay on top of their client demands. Hopefully in the long run, clients and law firms will find a more productive way to rebuild any broken trust. But in the meantime, OCGs present a growing challenge for both firms and the clients who write them."

Thursday, August 11, 2016

OCG "Shark" Week: The Final Bite (For Now...)

Mid-swim this week, a reader wrote in suggesting we retread some older waters and make sure to highlight some of the historical stories, articles and resources on OCGs we've covered over the years.

OCG Panel Webinar Recording: "Responding to Outside Counsel Guidelines" --
  • "In the past five years, outside counsel guidelines ("OCGs") have become more commonplace and more stringent. The legal services world has shifted, as corporations (and their law departments) are being held to stricter budget accountability and risk management standards. Law departments have, in turn, held their external counsel to these same higher standards. In many ways, clients have become the true regulators."
  • "In this session, panelists will explore the evolving OCG landscape and discuss how firms can negotiate and respond to outside counsel guidelines."
  • "Speakers: Gilda Russell - [now former] Ethics and Conflicts Counsel, Holland & Knight LLP, Mike Guernon - Director of New Business and Conflicts, Orrick, Herrington & Sutcliffe LLP, Paul Hurdle - Senior Counsel, McKenna Long & Aldridge LLP [now Dentons]"

Past Articles & Updates:
  • "Dealing with Client Outside Counsel Guidelines and Other Non-Standard Client Engagement Terms" -- Gilda Russell:
    • "Consequently, firms should develop effective processes for dealing with OCG and client terms. These processes should focus on monitoring the avenues by which OCG and client terms come into firms as well as requiring review and approval of OCG and client terms by designated persons well versed in the subject matter of the provisions and related compliance issues."
  • "Hidden Compliance Threats to Outside Counsel Guidelines" -- Nancy Beauchemin:
    • "The first step a law firm needs to take to comply with outside counsel guidelines is to become aware that they exist. All too often, the attorney primarily responsible for the relationship with the corporate legal department will agree to the guidelines without first vetting the language with those individuals and departments within the firm that need to establish procedures and technology to comply with them."
  • "Some Corporate Clients Are Going Too Far With ‘Guidelines' for Counsel" -- Simon Chester:
    • "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.'"
See you next week... (I've heard rumor of a plane carrying snakes...)

Wednesday, August 10, 2016

OCG "Shark" Week: "Double Indemnity"

"We're going to need a bigger blog!" (Too much? Well, you hopefully knew what you were signing up for when you signed up for these updates...)

Regardless, we continue our journey this week with: "Indemnity Provisions in Outside Counsel Guidelines: A Tale of Unintended Consequences" published by the ABA (full text to members), written by Anthony E. Davis and Noah D. Fiedler, partners in the Lawyers for the Profession group at Hinshaw & Culbertson LLP.
  • "The article discuses how client outside counsel guidelines ("OCGs") are taking on increasing significance as more corporate and financial institution clients develop broad forms of OCGs and adopt policies requiring them for all outside counsel engagements. In the article, Mr. Davis and Mr. Fiedler provide an overview of the factors underlying the increase OCGs generally and then discuss how OCGs, and particularly the provisions commonly included in OCGs that require law firms to indemnify clients, actually threaten the professional independence of lawyers and the legal profession as a whole."

Another interesting front on the OCG "discussion" touches on matters related to recent news about internal privilege, see: "N.Y. Court Endorses ‘Intrafirm' Attorney-Client Privilege" --
  • "Many firms that staked out that position did so despite the fact that some of their top clients—large businesses and the in-house lawyers who manage corporate legal budgets—have adamantly opposed efforts to establish the intrafirm privilege."
  • "That new tack, Sarwal said, may involve using “outside counsel guidelines” to require firms to give up the right to shield internal communications that would be privileged under this New York ruling and a string of recent cases from courts in other states."
  • "That suggestion didn't sit well with some lawyers who are designated as their firms' general counsel or have acted in that capacity on an informal basis."
  • "'If that's really what they plan to do that will be very disappointing,' said Brian S. Faughnan, a partner in the Memphis office of Lewis Thomason. 'It's a bit wrong-headed to insist that firms, if they're going to get your business, would have to waive the privilege,' Faughnan told Bloomberg BNA."

Tuesday, August 9, 2016

OCG "Shark" Week: "Single Indemnity"

Next up from BNA: "Lessons for Law Firms on Client Intake (Perspective)" --
  • "The increasingly competitive nature of the legal services market has shifted the balance of power between lawyers and clients. A potentially damaging result of this power shift is the now-common client indemnification clause included in many outside counsel guidelines (OCG), requests for proposal (RFP), or client-drafted engagement letters."
  • "These clauses create risk for both lawyer and client. Depending upon the scope of the indemnity and size of the engagement, a law firm’s financial stability can be threatened. Because the indemnification provisions could also compromise insurance coverage, the client risks losing the financial protection presumed to be provided by its law firm’s malpractice insurance."
  • "Despite the obvious drawbacks, it appears that client indemnification clauses are here to stay, so the real question is how to deal with them. In some instances, clients will negotiate the requirement, or change the language. In order to address the concern, though, lawyers must first be aware of the client’s request for indemnification, which brings up perhaps the most troubling issue of all."
  • "Because of the significant risks posed by agreeing to indemnify a client, there are a variety of steps firms should take to identify, screen for, and collect client indemnification provisions as part of the new client intake process and ongoing practice management."
    • "To begin, it’s important that the firm take inventory of what it’s already agreed to. This effort entails a thorough review of existing RFPs, OCGs, and client-drafted engagement documents."
    • "The firm should also ensure that all new engagements receive a thorough review. Partners must be educated on the importance of identifying indemnification requirements, as should staff who work in the client intake system."
    • "Even after files are opened, and the work has commenced, your risk management work is not done. Clients will slip indemnification provisions into outside counsel guidelines or file management procedures that are delivered only after the engagement agreement is signed. If work continues on the file after receipt of the guidelines, the firm could be held to the terms contained in those documents. Accordingly, firms should require ongoing review of all client guidelines or procedures received after the file is opened."
  • "The firm can’t manage a client indemnification request unless the firm knows the request exists. The first step is to institute screening mechanisms to identify the requests, whenever they occur. Only then can the firm work with the client to obtain an outcome that benefits both."
Too much suspense and drama today... Now if there was a mechanism and resource that could help manage the intake risk and ongoing terms of business compliance...

Monday, August 8, 2016

Announcing Risk Blog "Shark Week" (aka OCGs & Terms of Business)

A long time reader sent in a link to a well-aged article, sparking the idea of a thematic focus for the week... I've observed that the annual "Shark Week" on cable, serving up spill, chills (and a bit of aquatic education) always earns high ratings. (I've never watched it. I'm more partial to the Twilight Zone Thanksgiving Day marathons of my youth... "That was a good thing you did. A real good thing." But I digress...)

The Sharks this week are OCGs. And we're starting with a look at that article, which was published nearly a decade ago by lawyer Rees W. Morrison, consultant to corporate general counsel: "Dueling Documents: Law-firm retention letters versus law department outside-counsel guidelines" --
  • "Dueling may be outlawed, but at the start of an engagement law departments and their law firms sometimes walk back 10 paces, turn and fire. In this country, law departments blast away with their outside- counsel guidelines; law firms return fire with their retention letters. Neither document will disappear, but the two sides can take a shot at improving the exchange."
  • "Law departments recognized that they need to set some of their own rules and expectations, so they began to create guide- lines for outside counsel. These guidelines covered all matters sent to external counsel, unlike law-firm retention letters which govern a single matter. Occasionally a law department has a set of guidelines specifically for litigated matters. In general, guidelines swing to the opposite side from law-firm retention letters: The buyer asserts its dominance."
  • "No metrics have come to my attention about the frequency with which law firms send engagement letters; my estimate, having consulted to law departments for 20 years, is that more than three-quarters of all U.S. law departments with more than 10 attorneys have by now promulgated some form of outside-counsel guidelines."
  • "The two documents clash in almost every important respect because they seek opposite ends. The partner wants freedom of action, financial protection, and little accountability. The general counsel wants control, cost consciousness, and disciplined representation."
  • "The efficacy of guidelines in terms of controlling outside counsel costs, however, has yet to be measured, let alone proven. Guidelines serve the purpose of putting law firms on notice that costs and performance matter, but in the end I am dubious that all the time and energy expended on them have made much difference. The problems of warring documents, confusing variations everywhere, and dissimilar enforcement could be ameliorated."
  • "What we need as an industry is something akin to the common application for college. We need a set of baseline guidelines for outside counsel that law departments can start from uniformly and incorporate by reference... The benefit for law firms from a common set of terms is that they too could spend less time on this aspect of representation, accept industry standards, and only discuss the few provisions that seem inappropriate."

Thursday, August 4, 2016

On Practically Protecting Privilege In-House

Following yesterday's update comes analysis and advice via partners from Dentons: "Exercising Attorney-Client Privilege Over In-House Counsel Communications" –
  • While the Stock decision reflects a growing trend among state courts in rejecting the fiduciary exception to the attorney-client privilege and upholding the privilege for communications between firm attorneys and in-house counsel under certain circumstances, many jurisdictions have yet to jump on the bandwagon. In those jurisdictions, attorneys must tread carefully or risk losing all benefits of the attorney-client relationship. Moreover, even in the jurisdictions where the privilege exists, the cases suggest that certain steps should be taken to protect the privilege. Thus, law firms and their attorneys may wish to consider the following recommendations."
  • "Appoint In-House Counsel. Regardless of the size of the law firm or type of practice, formally designating an attorney (or team of attorneys) to serve as in-house counsel benefits the firm and its clients. Maintaining confidentiality and avoiding conflicts of interest with clients are chief among the reasons for appointing in-house counsel."
  • "Treat In-House Counsel as Counsel to the Firm in Form and Substance. Ensuring the legitimacy and effectiveness of in-house counsel requires more than just the provision of a title. Instead, the position should be assigned responsibilities, including, but not limited to, the investigation and analysis of matters that might involve attorney exposure... Additionally, when discussing claims or rendering advice on specific matters involving firm clients, those clients should not be billed for any time devoted to consulting on such matters."
  • "Segregate Client Files and In-House Counsel Files. Because the purpose of the communication is to seek legal advice on behalf of the firm, files maintained by in-house counsel should be segregated from those maintained by attorneys during the normal course of client representations. Too often, internal communications discussing ethics inquiries or potential conflicts are maintained with other documents and materials for the case under which the issue arose."
  • "When that occurs, disclosure of those communications may be contested. The former client may insist that those documents corroborate claims of ethical violations or other attorney misconduct. Keeping communications with in-house counsel separate helps prevent their disclosure, even in jurisdictions where the client “owns” the client file. To protect communications, in-house counsel should store emails and memoranda of conversations in files created for the purpose of advising the attorney or firm, while the attorney should keep them out of client files."

Wednesday, August 3, 2016

On In-House Attorney-Client Privilege

Karen Rubin at Thomson Hine writes: "Firm counsel privilege prevails; New York joins favorable trend in recognizing doctrine" --
  • The attorney-client privilege covers ethics advice that lawyers get from their law firm’s general counsel, and the communications do not need to be disclosed to the client, said a unanimous five-judge panel of the New York Appellate Division last week, in a closely-watched case. In Stock v. Schnader Harrison Segal & Lewis LLP, the court ruled that the law firm was the “real client” in getting the advice from the GC, and held that the fiduciary exception didn’t apply.
  • In an arbitration before the Financial Industry Regulatory Authority (FINRA), the employer said that it was going to subpoena the lawyers who handled the separation agreement negotiation, and indicated that it was seeking to point the finger at the law firm as being partly responsible for any loss to the client.
  • The court put particular emphasis on two facts:  first, that the Schnader firm’s general counsel had never participated in the client’s representation; and second, that the firm did not bill the client for the lawyers’ ethics consult with the GC.  That solidified the court’s view that the firm and its lawyers were the clients, and entitled to the privilege protection available to other clients.
  • In reaching its conclusion, the Stock court cited similar recent holdings from state high courts in Georgia and Massachusetts.  The ABA has also taken the position that the fiduciary exception does not apply to confidential communications between law firm personnel and the firm’s in-house or outside counsel, even regarding the firm’s duties or potential liability to a current client.  That favorable trend continues, with the opinion of this influential court.
For more detail on this specific decision, see also: "In-House Privilege In The First Department."

Tuesday, August 2, 2016

Conflicts: Malpractice Insurance Claims Trends

From Ames and Gough comes: "Uptick in Lawyers’ Liability Claims; Business Transactions Top Claim: Study"--
  • "Law firms have seen an increase in the frequency of malpractice claims, which are becoming more costly to defend and could cause lasting reputational damage, according to a new study by insurance broker Ames & Gough. The study found that most legal malpractice insurers saw an increase in the frequency of new claims in 2015, including larger claims with costs in excess of $50 million."
  • "In its sixth annual survey of lawyers’ professional liability claims, Ames & Gough examined the trend by polling nine lawyers’ professional liability insurance companies that on a combined basis provide insurance to more than 60 percent of the AM Law 100 firms."
  • "Conflicts remain top cause of claims, the survey revealed. In each of the six years the survey has been conducted, insurers cited conflict of interest as the most common alleged legal malpractice error. This year, five of the nine insurers surveyed ranked conflicts the single biggest leading cause of legal malpractice claims; one other insurer considered it the second leading cause. Further, among the nine insurers surveyed, five reported an increase in claims resulting from lateral hires or firm mergers."
  • "'Conflicts typically come into play as law firms seek to grow either through mergers or by bringing in lateral hires,' [partner and senior vice president Eileen] Garczynski noted. 'Besides having these hires provide a complete list of their current and past clients, firms should conduct comprehensive cross-checks and validation sessions to enhance their chances of catching conflicts before there’s a claim. Too often, law firms don’t act quickly enough to address potential conflicts.'"

Monday, August 1, 2016

AML — Anti-Money Laundering (or Ask Me Later)?

Earlier this year, many were abuzz about "that 60 Minutes segment" on AML. Now from the Wall Street Journal: "Law Firms a 'Weak Spot' in Money Laundering Detection" --
  • "What’s a lawyer to do if he or she suspects that a client is using them to help shuffle illicit funds? That’s the question posed this week by the series of civil complaints filed by the Justice Department seeking the seizure of a staggering $1 billion in assets tied to Malaysian economic development fund 1Malaysia Development Bhd., or 1MDB. The court filings offer painstaking detail on how money that was allegedly siphoned from the fund was passed through a trust account at the law firm Shearman & Sterling LLP on its way toward buying luxury real estate, private jets and casino nights."
  • "To be clear, Shearman isn’t accused of any wrongdoing. But the filings call into question how law firm trust accounts are used and what steps law firms can take to avoid getting in a tricky situation."
  • "Speaking generally and not about Shearman, legal ethics expert Stephen Gillers explains that ‘Lawyers can unwittingly provide a smoke screen for people who want to launder money.’ U.S. lawyers aren’t ethically obligated to trace the source of money being used by clients to fund deals and other projects. But legal ethics experts say attorneys should know generally where client funds come from and look out for red flags to avoid serving as an intermediary for dirty money."
  • "Richard Painter, a professor at the University of Minnesota Law School and a former chief White House ethics counsel under George W. Bush, said he and others have long thought that 'law firms have been a weak spot in the regulatory regime; in regard to money laundering."
Bloomberg notes that this activity “renews questions about whether a lack of regulations on lawyers encourages money laundering by their clients,” in: "Malaysian Fund Pilfering Claim Shines Light on Law Firm’s Role" --
  • "Still, the case exposed what lawmakers say is a soft underbelly in U.S. efforts to combat money laundering. While bankers are required by law to ask questions about their customers, inquire about the source of their money and report suspicious activity, lawyers are exempt from such regulations, shielded by attorney-client privilege. Voluntary guidelines adopted by the American Bar Association encourage lawyers to follow its 'good practices guidelines’' on combating money laundering and terrorist financing."
  • "That guidance, adopted in 2010, counsels lawyers to conduct due diligence on each client, understanding their circumstances and the source of their money. Lawyers are encouraged to be satisfied that they’re not abetting fraudulent or criminal conduct. The ABA says that the oversight of the 50 state supreme courts, and the threat of prosecution, is enough. Some lawyers are dubious."

Thursday, June 30, 2016

WEBINAR: Managing External Vendor Risk (Drivers, Trends & Approaches)

Here's an upcoming webinar, on a timely topic, which may be of interest: Vendor Procurement, Risk and Relationship Management.

Jointly produced by Intapp and HBR Consulting, this event will explore the various factors causing firms to pay even closer attention to the way they select, evaluate and manager their external vendors. (Client information security mandates are just one of several drivers.)

Scott Springer and Mark Denner from HBR will review industry trends and how innovative approaches, supported by new technology, enable firms to streamline procurement, evaluate vendors and address increasingly stringent client and industry requirements.

They will also review the vendor lifecycle and demonstration of HBR Consulting's procurement management solutions, built leveraging Intapp Flow to manage the entire vendor lifecycle, including:
  •     Evaluation & on-boarding
  •     Information security review
  •     Performance monitoring
  •     Audit & compliance
  •     Off-boarding
(They've nicknamed it "NVI." V for vendor, in the same way firms have an "NBI" approach for business.)

Attendance is limited. For more detail and to request an invitation, please visit the webinar registration page.

Wednesday, June 29, 2016

UPDATE: 2016 Risk Survey Reports Published

An exciting update to share (inasmuch as risk news actually excites – though, since I'm talking to "my people" in this corner of the internet, I feel safe using the adjective): "2016 Law Firm Risk Roundtable Survey Highlights Evolving Risk Landscape Across the US, UK, Canada and Australia."

Participants should be receiving the promised copies of their report in the days ahead, so watch your inboxes. (Thank you again to everyone who took the time to contribute their insights – particularly those offering extensive color commentary, the quotes are always my personal favorite element of these.) And, if you did not participate, there's always next time...

Produced by the Law Firm Risk Roundtable initiative and sponsored by Intapp, the Law Firm Risk Roundtable Survey provides statistical information and commentary about the top priorities and concerns for law firm risk, IT and management stakeholders.

Key themes in this year's survey include information security, conflicts management and client-related risks. Some of the trends identified in the 2016 Law Firm Risk Roundtable Survey include:
  • Information security was ranked as the No. 1 risk management priority by over half of firms in the UK and Canada, and by more than one-third of respondents in the US and Australia. Data breaches, data loss and exposure of confidential client information – resulting from cyberattacks and/or internal leaks or failures – were frequently cited as key concerns. Many firms reported that information security questionnaires and audits from clients were becoming more frequent and more onerous.
  • Concern about managing conflicts of interest is growing in many countries, including the US, where 37% of respondents ranked it as their topmost risk management concern in 2016 – up from 22% in 2014. Respondents cited a range of factors that contribute to missed conflicts and inadvertent conflicts, including the volume and complexity of conflicts checks in large growing firms, particularly internationally; lack of awareness of "who is the client" (including subsidiaries and affiliates); and business and commercial conflicts.
  • A growing number of larger clients are imposing outside counsel guidelines, often introducing complex terms that many firms find challenging to track, manage and comply with. The 2016 Law Firm Risk Roundtable Survey provides an interesting overview of how firms are responding to outside counsel guidelines, and how they are viewed by lawyers and staff.
  • Survey respondents were asked to comment specifically on their risk stance toward cloud-based services and storage for the first time. Firms are generally divided on the issue. Even in the US, where 47% of firms reported that they were already using cloud services, respondents generally reported a cautious approach to the cloud, requiring service providers to meet rigorous standards. While some firms reported that they did not allow client information to be stored in the cloud, others reported that in some instances, it was the clients themselves who were requiring them to use cloud services.
Also worth noting: While these surveys were conducted well in advance of the UK referendum on EU membership, it’s interesting to note that Geopolitical risks (including terrorism and business continuity in “unsafe jurisdictions,” as well as the possibility of Brexit) did emerge as one of the top 10 risk management concerns among law firms in the UK report.

Tuesday, June 28, 2016

Brexit, Stage Risk

Brexit is making big news and big waves. Here are some of the latest stories on this significant development:

"Law Firms Face Uncertain Future As Brexit Result Hits Markets" --
  • "Clifford Chance senior partner Malcolm Sweeting said the so-called Brexit will have 'serious implications,' while K&L Gates’ European managing partner Martin Lane said it will 'create shockwaves across the globe.'"
    "Law firms are braced for a period of intense activity, with lawyers already receiving floods of inquiries from clients trying to figure out what the result means for their businesses... The longer-term impact of the unprecedented move is unknown, however."
"Brexit A Bonanza For London Law Firms ... For Now" --
  • "The U.K.’s seismic decision to be the only country to leave the 28-nation bloc will keep law firms busy helping clients cope as the U.K. unwinds four decades of legal and regulatory integration with the EU and negotiates its new relationship. The complex and potentially rancorous divorce process is likely to run for years and will provide ample opportunity for firms to rack up billable hours."
  • "The downside for London legal powerhouse firms is that, in the long term, London could lose its status as the European entry port for global legal services if the country is denied future access to the EU’s single market for financial and legal services."
"Seven ways Brexit will impact international law firms" --

  • "Most major firms are running 24-hour hotlines to deal with the massive levels of client demand. Once this initial frenzy subsides, lawyers will then play a crucial role in helping clients navigate one of the largest programmes of regulatory and legislative reform ever seen. The event has once again shown the degree to which the legal sector is insulated against wider economic and market malaise."
  • "While trade, regulatory and financial services lawyers can ‘look forward' to 80-hour weeks for the foreseeable future, transactional lawyers may be left checking to see if their phones are still working."
  • "Transactional practices are key drivers of law firm revenue generation. That engine is now likely to splutter. The sort of advisory work that firms did in the run-up to Brexit can be profitable and is a great way of strengthening relationships with clients. But it doesn't bolster the bottom line in the same way as big-ticket transactions, which can keep entire floors of lawyers across multiple practice areas busy for months."
  • "One London-based partner joked that the UK, traditionally home to some of the world's most expensive lawyers, may now become a 'low cost jurisdiction.'"
  • "One of the more esoteric effects of a Brexit is that lawyers risk losing their rights to European Union (EU) professional legal privilege. This is of particular concern to UK competition lawyers, who may also no longer have the right to plead before the European Court of Justice in Luxembourg."

"Comment: Brexit and the Legal IT sector impact" --
  • "The consensus appears to be that law firms will experience an upturn in inquiries regarding the impact of Brexit, translating into short term advisory opportunities, but that in the medium term transactional work will inevitably be adversely affected, mitigated only slightly by work undertaken as clients reposition themselves and the future shape of the UK’s trade relationships begins to be known. And then finally we will settle into a new, and as yet unknown, normal."
  • "The longer term outlook will be quite interesting and will I think be a bellwether that could inform us as to exactly how much law firm leadership has really changed in the last 10 years. Or not, as the case may be."
  • "Moving forward to the last few years however we have seen investment and innovation apparently being embraced by law firms as they seek to cope with the challenging circumstances brought about by globalisation, the 2008 ‘crisis’ fallout, Jackson reforms, sustainable cost reduction, ABAs and the new IT landscape of AI, SSaS and ‘the cloud’… plus others. In many ways Legal IT has been an enabler in this, and there have been undoubted opportunities for the sector as law firms have realised that not changing in a changing world is really not an option."

Tuesday, June 7, 2016

Outside Counsel Guidelines (Threats & Risks) are Just in the Air...

The Risk Zeitgeist of the day continues to focus on OCGs and terms of business. Nancy Beauchemin from InOutsource recently published her own analysis and insight on these issues in Corporate Counsel magazine: "Hidden Compliance Threats to Outside Counsel Guidelines" --
  • "To protect businesses and ensure compliance with internal budgets, data privacy, security requirements and other legal statutes, corporate legal departments often require outside law firms to agree to stringent outside counsel guidelines. These were originally established to control legal costs and are one of the ways in-house counsel maintain control of outside firms. However, how can corporate counsel be sure that these guidelines are adhered to within a law firm environment? This article will address some of the inherent challenges."
  • "The first step a law firm needs to take to comply with outside counsel guidelines is to become aware that they exist. All too often, the attorney primarily responsible for the relationship with the corporate legal department will agree to the guidelines without first vetting the language with those individuals and departments within the firm that need to establish procedures and technology to comply with them."
  • "Establishing a policy to ensure that all outside counsel guidelines are reviewed prior to being executed will go a long way to ensuring attorneys are not putting their law firm at risk. This review should be completed by someone who understands the implications of the terms, such as the law firm’s general counsel. The responsible attorney or practice group leader who has a vested interest in either accepting a new engagement or continuing work for an existing client cannot be given the authority to review or accept outside counsel guidelines on behalf of the firm."
  • "Much of what is required involves restricting access to client information. Law firms often implement technology to confine access to matter information only to those individuals working on the matter. Often these programs are intended to work with enterprise document management systems, which are designed to provide a single, organized collaborative repository to manage client matter content. The problem is that, by default, most document management systems are open to anyone within the firm."
  • "Outside counsel guidelines often have some aspect of loyalty to the client. But a key issue is understanding who the client is. The guidelines may stipulate that the duty of loyalty extends to all subsidiaries and affiliates of the client organization. Yet, an all-encompassing view of the client could limit a law firm’s ability to accept future business."

Monday, June 6, 2016

IP Matters, IP Conflicts, IP Insights

Michael E. McCabe, Jr. does some excellent reporting and analysis on IP matters. Here's some of his latest work worth noting:

"Mass. Court Nixes Conflict Claim Against Gillette Former In-House IP Attorney Who Provided Competitor With Infringement Opinions Regarding Ex-Client’s Patents" --
  • “On May 5, 2016, a Massachusetts state court dismissed Gillette’s claims for breach of fiduciary duty against its former in-house IP counsel who left Gillette and went to work for a competitor, where he used allegedly privileged information gained during his prior employment and helped his new employer analyze and avoid infringement of Gillette’s patents—including patents over which he oversaw prosecution.”
  • “The court held that Gillette’s amended complaint failed to state claims for breach of fiduciary duty as a matter of law.  Consequently, the court dismissed with prejudice Gillette’s claims against its former in-house attorney.   See The Gillette Co. v. Provost, No. 1584CV00149-BLS2 (Mass. Super. Ct. May 5, 2016) (order granting motion to dismiss).”
  • “The court noted at the outset that Mr. Cekala’s fiduciary duty as former counsel to Gillette is “narrower” than the broad and undivided duty of loyalty that Mr. Cekala owed to Gillette when he represented the company as its in-house patent counsel. Since Gillette was Mr. Cekala’s former client, his ethical duties were limited by Massachusetts law, in particular Mass. R. Prof. Conduct 1.9, to preserve his former client’s confidential information and secrets.”
  • “Second, the fact that Mr. Cekala “developed expertise” regarding the scope of some of Gillette’s patents while he worked for Gillette are “beside the point” since issued patents are public documents.  The court explained that, “nothing in Rule 1.9 bars a lawyer from using publicly available information” or expertise acquired while representing a former client to help a new client compete against the former client.”
"IP Conflicts of Interest, Hot Potatoes, and “The Game of [Litigation] Life”"--
  • “Plaintiffs, alleged owners of the IP rights to the “The Game of Life”, want to end up on Millionaire Estates.  Defendants, including the toy company that has been making and selling “The Game” for decades, are trying to keep themselves out of the Poor Farm.  All of them are lawyered up and “spinning the wheel” of federal district court IP litigation.  See Markham Concepts, Inc. v. Hasbro, Inc., Case No. 1:15-cv-419-S-PAS (D.R.I. Oct. 2, 2015).”
  • “Just like real life (and frankly The Game of Life itself), the litigation, which has been pending for seven months, recently spawned an unexpected turn.  No, it was not the birth of twins or an income tax bill, as might occur in the Game.  Instead, defendants have moved to disqualify plaintiff’s IP counsel, the law firm of Greenberg Traurig, for an alleged concurrent client conflict of interest.”
  • “At issue in this case is whether a law firm which knows that it is about to become adverse to a current client, and which requested and was denied a waiver of the conflict from its client, can then withdraw from representing the client and promptly represent a party adverse to its “former” client.  In ethics parlance, a “withdrawal” under these circumstances is sometimes referred to as a “hot potato drop.”  Also at issue is whether a purported advanced waiver of conflicts, which states that a client will not “unreasonably” withhold its consent to a future conflict, is enforceable, and even if it is enforceable, whether the law firm under the facts of this matter “unreasonably” withheld its consent to the waiver.”

Sunday, June 5, 2016

Panama Lessons ("On business intake" or "Be careful with those clients, Eugene...")

"Law Firms Look for Lessons—and Clients—in Panama Papers Leak" --
  • "While many firms are getting updates and looking for opportunities in the wake of the leak, at least one, Sheppard, Mullin, Richter & Hampton, has formally set up a multipractice group devoted to Panama Papers-related developments."
  • "At least 30 Am Law 100 firms, including some that no longer exist, and dozens of other law firms around the world appeared in the searchable database that was published Monday by the ICIJ. The firms and other entities listed came from the Panama Papers leak and a separate ICIJ investigation from 2013."
  • "Regardless of whether they appear in the database, law firms should view the Panama Papers as a wake-up call, said Hinshaw & Culbertson professional liability partner Janis Meyer. 'Firms would be well served to take this opportunity to review their client intake procedures,' Meyer said. While large firms typically do have systems in place to alert them if a potential client has been flagged by a law enforcement agency, every jurisdiction has its own rules regarding what kind of due diligence is mandatory."
  • "In the U.K., for example, 'there are procedures to ensure that you know your client,' said Meyer, who was general counsel at Dewey & LeBoeuf before the firm went bankrupt in 2012. 'We don’t have any mandatory procedures for that here [in the U.S.], but good lawyers do it.'"
"Panama Papers spotlight danger of failing to screen for problem clients" --
  • “But the Panama Papers also shine a light on some failures of Mossack Fonesca to screen out problematic clients — failures of due diligence that the firm itself recognized.”
  • “One case in point is Petropars Ltd., which the ICIJ described as an Iranian-government- controlled intermediary between foreign companies and Iran’s oil ministry.  Through its offices in Dubai and London, Petropars was also a player in the development of Iran’s multibillion-dollar South Pars natural gas field.”
  • “Mossack raised the alarm in an internal e-mail addressed to the firm’s “Compliance Department,” among others.  He wrote “This is dangerous! … Everybody knows that there are United Nations sanctions against Iran and we certainly want no business with regimes and individuals from such places.”
  • “He called into question how Petropars had been vetted as a firm client to begin with, and blasted the firm’s United Kingdom office:  ‘It would appear Mossfon UK are not doing their Due Diligence [sic] thoroughly (or maybe none at all), and maybe from now on we ourselves will have to do the DD on all clients that Mossfon UK have with us, present and future!’
  • “Mossack wrote that ‘Anybody having had to do anything with this company [sic], … should have realized immediately that the names associated with it were Iranian names.  A red flag should have been raised immediately.’ The firm resigned as Petropars’ registered agent in October 2010.”

Thursday, June 2, 2016

Cyberpunks, Cybermen, Cyber Risk ("Cyber" is scary...)

Plenty has been written about the unfolding Panama Papers event, and the ripples hitting risk, information security and more.

"Panama Papers Data Dump Includes BigLaw Intermediaries" --
  • “A group of international journalists that released the so-called Panama Papers, which exposed the use of shell companies by wealthy individuals to hide their money from tax authorities, released data on Monday [May 9] related to more than 200,000 such companies, including information about BigLaw firms named in a prior data leak.”
  • “The data, which can be found here, co-mingles information uncovered in both the Panama Papers, which were released in April, and a report from 2013 known as the Offshore Leaks investigation, which focused on actions by U.K. citizens and residents to set up anonymous shell companies in foreign jurisdictions.”
  • “The released papers do not necessarily reveal illegal activity or other wrongdoing by the law firms or their clients, but altogether do shine a light on the secretive and complex use of offshore shell companies to conduct business — some of which is controversial or linked to questionable persons and activities.”
  • “Edelson PC's recent putative privacy class action alleging a Chicago-based regional law firm failed to take measures to effectively safeguard sensitive client data highlights the need for firms to obtain expansive cyber liability coverage. There is a misconception among firms that adding a "network endorsement" to their lawyers' professional liability policy will cover most cyber risks, but that isn't the case, according to Eileen Garczynski, senior vice president of specialty insurance brokerage Ames & Gough... As a result, purchasing a standalone cyber policy has become a must for law firms, Garczynski said.”
  • “And because many cyber policies only cover claims resulting from the theft or inadvertent disclosure of personally identifiable information such as birth dates and Social Security numbers, it is crucial for a law firm to obtain a cyber policy with a definition of ‘confidential information’ that encompasses all materials that fall under the attorney-client privilege. ‘A law firm will have some [personally identifiable information], but perhaps the bigger concern is that someone will steal the firm's strategy, a client's intellectual property or confidential emails,’ Garczynski said.”
  • “Like other businesses, many law firms have started to store more data in the cloud rather than on computer servers located onsite. As a result, firms that use third-party cloud storage vendors to store sensitive data should make sure that a policy's definition of ‘computer network’ encompasses those cloud providers, experts say. Otherwise, any claims that ensue if confidential information is stolen from a cloud provider may not be covered.”

Wednesday, June 1, 2016

Effectively Coming to Terms with Client Terms (OCGs, Engagement Letters and Client Expectations)

"Intapp Transforms Terms of Business Management for Law Firms with Intapp Open" --
In April, Intapp announced the release of the Intapp Open terms of business management system. The terms management system helps law firms reduce risk by centralizing outside counsel guidelines, engagement letters and other client requirement documents, and making it easier for firms to access, view, analyze and take action on their most critical client commitments.

Orrick, Herrington & Sutcliffe LLP, a prominent global law firm with more than 1,100 lawyers across 25 offices, is implementing the complete Intapp Open business acceptance suite, including Intapp Open for terms management.
Said Mike Guernon, Director of New Business and Conflicts at Orrick:
  • “Law firms today are grappling with how to keep up with the growing volume and complexity of outside counsel guidelines we receive from clients. A seemingly simple question such as ‘Have we agreed to similar terms with other clients?’ could easily translate to hours of painstaking review,”
  •  “By moving to the Intapp Open terms management system, we’ve been able to centralize OCGs and provide deeper visibility into terms documents, making the review process more straightforward and efficient. The ability to send notifications to client teams and other key stakeholders and display relevant terms has tremendous potential to save time, reduce risk, and help the firm focus on closer collaboration with our clients.”
The Intapp Open terms management system brings structure and visibility to previously disorganized and siloed terms management processes. With a few keystrokes, a conflicts lawyer or staff member can find details about any specific term in place with a client, or retrieve information about a specific category of commitments across the firms’ clients. What used to take hours to research can now be done in minutes through the Intapp terms management system’s powerful search and filtering capabilities.

The terms management system provides a structured terms database to identify, capture and categorize terms information from multiple sources. Intapp also provides 65 terms templates – vetted by numerous law firms – to help firms quickly and consistently categorize clauses, while prioritizing the terms most important to the firm and to individual client teams. The system also enables users to flag exceptions to standard firm policies. Notifications can be sent to key stakeholders when terms have been updated or changed, with links to relevant sections of client documents to display terms in context.

Integration with other law firm systems helps to weave client requirements and compliance into key workflows. For example, a lawyer submitting a new matter intake request can be automatically shown relevant terms of business previously agreed with the client. When running a conflicts search, competitors identified in clients’ outside counsel guidelines can be automatically flagged as black book entries. When lawyers submit their time entries, the time recording system can enforce compliance with client billing guidelines.

Product Information

Tuesday, May 31, 2016

Inside Outside Counsel Guidelines (or “On Outside Counsel Guideline Guidelines”)

The founder of the legal consultancy Procertas, formerly in-house with Kia Motors, Casey Flaherty work with both law departments and law firms on process and technology projects that improve collaboration and service. He writes plainly and compellingly: “Outside Counsel Guidelines and Collective Conversations
  • “I hate outside counsel guidelines. Hate. It's visceral. I have never encountered a set of guidelines I liked. My antipathy includes guidelines I had a hand in writing...As an associate I worked for a client whose guidelines forbade time entries that suggested any form of communication between lawyers--meetings, conversations, conferences, correspondence. So, too, any form of research and many other essential elements of producing work that were impossible to avoid within the delivery framework within which we were operating.”
  • “While guidelines saved the client no money, they did waste considerable time. Because the client had an extensive external review process, the firm had an intensive internal review process to make sure the billing language satisfied the client's guidelines. Internally, entries were constantly being sent back for rewrite but not writedown.”
  • “For all the effort that both put sides into satisfying and enforcing the guidelines, they would have been much better served to engage in a structured dialogue about continuously improving project management (communication) and knowledge management (research), as well as other aspects of service delivery such as templates, automation, analytics, and staffing. With respect to staffing, the client should have been interested in maintaining a stable team that was familiar with their work. Which, of course, means that I just suggested a new guideline as part of a screed against guidelines. I'm a bit of a hypocrite.”
  • “And, yet, there's a problem: we don't really have a forum to debate particular policies and prohibitions. Outside counsel guidelines are presented as a fait accompli. Pushing back on them in the context of the relationship is hard. Simon Chester, the former GC of the former Heinan Blake [now at Gowling WLG], has detailed many of the problems in billing guidelines and believes that firms "have to be prepared to walk away" from the engagement. But how many firms can afford to walk away in a world of flattening demand, lateral hypermobility, and inherently fragile firm structures?”
  • Compounding the problem is that firms often provide, and clients frequently sign, engagement letters that contradict the guidelines. These, too, often go unread. In not being read, guidelines and engagement letters are like 99.9% of the executed contracts in existence. As litigators know well, most people only read the contract when something goes wrong, which, frankly, is not too often in percentage terms but is common enough in raw numbers to keep us employed.”
  • “Ironically, the law department/firm relationship is among the worst papered commercial relationships a corporation will enter into because their lawyers are otherwise so vigilant when it comes to the business units' commitments and obligations. Most of the time it's fine. Except when it isn't. And then it is bad. I didn't realize how bad until I had a recent chat with someone who audits legal bills for a living. We're talking five to seven figures and immense stress on relationships. He explained to me that violations of the billing guidelines were, by far, the lowest hanging fruit. Both law departments and law firms have a contract management problem.”
Casey goes on to admit not having a solution, but does outline a proposed path to one. The entire article is worth a read. (And perhaps a sigh, or cry.)

(And any guess what tomorrow’s post will be about?)

Monday, May 30, 2016

Conflicts Concerns Continued (or: Damned if You Do, Don’t, or Do Both?)

Here’s a development from last month that’s still worth highlighting: "Dentons DQ Order Vacated, but Verein Conflicts Issues Remain" --
  • “An order disqualifying Dentons US LLP as counsel for an Ohio corporation prosecuting patent infringement claims is no longer on the books—but the firm is now facing a malpractice suit from the company over the firm's alleged conflict of interest.”
  • “The U.S. International Trade Commission April 12 vacated as moot an administrative law judge's disqualification order after the parties settled and the commission terminated its investigation into whether retailers were violating the company's patents by importing laser-abraded jeans (In re Certain Laser Abraded Denim Garments, USITC, Inv. No. 337-TA-930, notice issued 4/12/16).”
  • “Observers had hoped the ITC's decision would clarify whether law firms operating under a “Swiss verein” affiliation model will be treated as a single firm for conflict of interest purposes. Matthew J. O'Hara, a partner in Hinshaw & Culbertson LLP's Chicago office, told Bloomberg BNA the issue of whether vereins must apply U.S. conflicts rules across their entire structure remains unresolved now that the ITC withdrew the ALJ's opinion disqualifying Dentons US.”
  • Nevertheless, Dentons US still has to deal with a malpractice suit filed by the client it stopped representing after the ALJ's decision.
  • “Dentons US got booted from representing RevoLaze in May 2015 when Chief Administrative Law Judge Charles E. Bullock found that the firm had a disqualifying conflict of interest because Dentons Canada LLP was concurrently representing one of the respondents—The Gap Inc.—in unrelated matters.”
  • “Bullock rejected the firm's argument that Dentons US and Dentons Canada are separate firms that aren't tainted by each other's conflicts of interest. As a Swiss verein, Dentons is a “firm” or “law firm” as those terms are used in ABA Model Rule of Professional Conduct 1.0(c), he ruled. Bullock said “Dentons holds itself out to the public as a single law firm, but says that it is divided into ‘Legal Practices.'”
The ABA opinion on referral fees we noted previous was issued after this news. But the question of which side of the Schrödinger's Cat vereins may turn out to be, combined with a potential argument regarding firms (or legal practices) referring clients to “itself” or its “brand twin” raises interesting questions I’ll leave to sharper legal minds to ponder...

Thursday, May 26, 2016

Conflicts, Referred

  • “A lawyer who expects to receive a fee for referring a client must confirm that the referred matter doesn't present a conflict of interest and must get the client's written consent to the fee division at the outset, the ABA's ethics committee advised April 21.”
  • “Rules on conflicts among clients apply because the referring lawyer in a fee-splitting arrangement ‘represents’ the referred client even if the lawyer doesn't provide the legal services, according to the opinion.”
  • “Accordingly, the committee said, the referring lawyer in a fee-sharing arrangement represents the referred client for purposes of the ethics rules even if the other attorney performs all legal services in the matter.”
  • “Model Rule 1.7(a) forbids concurrent representation of clients who will be directly adverse to each other. It also prohibits lawyers from representing a client when there's a significant risk that the lawyer's responsibilities to another client will materially limit the representation, or that the lawyer's duties to a former client or a third person or the lawyer's own personal interests will hamper the representation.”
See also additional analysis and commentary by former conflicts and ethics counsel at Holland & Knight, and current Preferred Service Provider for Paragon, Gilda T. Russell: “ABA Formal Opinion 474 (2016) – Referral Fees
  • “Hence, under the ABA Model Rule, a referral fee to a lawyer in a different firm is not allowed unless the division of the fee between the lawyer and the outside lawyer is proportional to the services performed by each lawyer or each lawyer assumes joint responsibility for the matter.2”
  • “2: While such is the approach of ABA Model Rule 1.5(e), there is a wide variation in jurisdictional approaches to referral fees. A number of states follow the requirements of proportionality or joint responsibility. See e.g., District of Columbia Rule Prof. Cond. 1.5(e); Florida Rule Prof. Cond. 4-­‐1.5(g); Illinois Rule Prof. Cond. 1.5(e); New York (New York Rule Prof. Cond. 1.5(g); and Texas Disc. Rule Prof. Cond. 1.04(f). Other states do not have any such proportional division or joint responsibility provisions for referral fees, but, rather, require only client consent and that the total fee is reasonable. See e.g., California Rule Prof. Cond. 2-­‐200(A);”