Tuesday, November 30, 2010

One Way Around Red Flag Rule for Law Firms -- Cut Down the Pole

While the ABA and FTC fight over Red Flag rules in court, those potentially affected by its provisions have opened a new plan of attack. As Hogan Lovells reports, H.R. 6420, the “Red Flag Program Clarification Act of 2010," was just introduced in Congress:
  • "H.R. 6420 seeks to narrow the scope of the Rule by exempting from the definition of 'creditor' a creditor that 'advances funds on behalf of a person for expenses incidental to a service provided by the creditor to that person.'"
Taking a lesson from those that don't like to lose, it appears that some of the organizations subject to these rules are attempting to change the conditions of the test.

Tuesday, November 23, 2010

Law Firm Ethical Wall -- Proper Screening Prevents Imputation / Disqualification

[h/t to Bill Freivogel]. An interesting decision from the US District Court of Utah, Central Division, regarding a disqualification motion. In this case, lawyers representing the plaintiff in a patent suit discovered that a former associate, who had spent 500 hours reviewing documents in support of the original patent application, was now in the employ of the law firm representing the current defendant (Quinn Emanuel).

The complete decision is detailed in: Lutron Electronics Co., Inc. v. Crestron Electronics, Inc., 2010 U.S. Dist. LEXIS 120864 (D. Utah Nov. 12, 2010). Here, the plaintiff's firm notified Quinn Emanuel about the conflict and demanded the firm withdraw from the matter. The firm, protested, arguing that it erected an ethical wall as soon as it became aware of the conflict and provided proper notification regarding its screening measures. Unsatisfied, the plaintiff moved for disqualification.

In this case, the court denied the motion, noting that Utah Rules of Professional Conduct and relevant case law did not mandate disqualification. In this instance, they explicitly supported the sufficiency of an ethical wall, even when a lawyer previously represented an adverse party and did not obtain client consent:
  • Local rules supports unilateral screening -- "The Utah rule differs from the ABA Model Rule by explicitly permitting the use of ethical screens for lawyers moving between private firms who would otherwise be disqualified under Rule 1.9...so long as the conditions of paragraph (c) are met, the imputed disqualification is removed, and consent to the new representation is not required."
  • Imputation should be applied cautiously -- "If the concept of imputation were applied with unqualified rigor, the result would be radical curtailment of the opportunity of lawyers to move from one practice setting to another and of the opportunity of clients to change counsel." [Comment to Rule 1.9 of Utah RPC]
  • Rules and case law call for a "functional analysis" of specific situational details, rather than automatically granting blanket imputation -- Both the Utah Rules of Professional Conduct and this court's precedent reflect the trend among numerous jurisdictions that have adopted a "functional analysis" to decide issues of imputed conflicts....In adopting this approach, the court has expressly stated that 'the fact that the conduct in question has been found to constitute a violation of the Code of Professional Responsibility  [*15] does not require disqualification of counsel as a matter of course.'"
  • Screening and notification measures were sufficient -- "...they immediately established an effective ethical screen in full compliance with the rules... it did thereafter notify Lutron of the measures it had taken to screen Mr. Reisberg and to ensure that Lutron's confidential information would be protected."

Monday, November 22, 2010

Law Firm Insider Trading -- Another (Alleged) Lawyer Violation

The Globe and Mail breaks news regarding another instance of lawyer insider trading: "Ensuring secrets stay that way." Noting that while: "[m]ost big Bay Street law firms have some sort of 'information containment' provisions in place... partners usually have broad access to a range of files." And it appears that one partner at Davies Ward Phillips & Vineberg was involved in an insider trading conspiracy involving three other individuals, according to the Ontario Securities Commission. (The partner is no longer affiliated with the firm, as of a week ago.)

This is not the first insider trading scandal to hit a prominent Canadian law firm. And while some may argue that lawyer insider trading is rare (see commentary by Dewey & LeBoeuf partner via WSJ), the legal community outside of Canada is far from immune to inappropriate access and use of price-sensitive information by lawyers and staff.

This latest incident, certainly stirred up some harsh criticism for the industry. And it's not the first. In a 2003 report, market regulators "singled out...the problem of lawyers leaking the details of deals they are working on..." The report was roundly criticized by the legal community, which argued self-regulation and existing rules and standards were sufficient and effective.

But this latest incident and attention highlights the shared risk all law firms face when their peers fail to live up to their obligations. Violations, transgressions and accidents strengthen the voices of those who call for external regulation. The article brings this into sharp relief:
  • "The allegations... have also thrown open questions about whether law firms and the legal profession are doing enough to stop people tempted to use or leak confidential knowledge about upcoming corporate deals."
  • "Canada’s poor reputation for failing to bust illegal insider trading is well known, said Ilana Singer, a lawyer and the deputy director of the Toronto-based Foundation for the Advancement of Investor Rights, which advocates for reforms to improve the integrity and fairness of Canada’s capital markets. But she does see some hopeful signs."

Friday, November 19, 2010

Friday Risk Round Up...

Several risk links and updates:
  • Considering Conflicts -- An interesting story concerning the how judgment comes into play in evaluating conflicts. In the case of a lateral associate joining a new firm, a conflicts check: "identified the potential conflict, but concluded that the associate’s prior work was not the same or substantially related to the specific patents and issues involved in the Sunbeam litigation." Unfortunately, in the case of the Magic Bullet® patent infringement litigation, a judge disagreement.
  • ABA Looking at Implications of New Technology -- [via PinHawk Technology Newsletter] -- "The American Bar Association is soliciting comments from the public on the impact of technology on the practice of law. Specifically, they are investigating the ethical risks of email, cloud computing and social media. State bar associations are likely to follow the ABA's lead on these issues, so the impact will last for years." More detail at Law Technology News, and, of course, our summaries of October testimony before the committee [part 1, part 2].
  • Canadian Conflicts Concerns -- [via Legal Ethics Forum] -- A summary of "a lively well fought and provocative debate about the hottest current issue in professional ethics in Canada, the issue of Conflicts of Interest." Interesting discussion about recent history and evolving opinions on an important issue.
  • Weil Gotshal Denies Claim of Conflict Representing Blockbuster -- "Lyme Regis Partners LLC, an investor in Blockbuster’s 9 percent senior notes, objected to Blockbuster’s hiring the law firm, saying its relationships with movie studios mean it isn’t “disinterested” as the law requires. That claim is unfounded, the law firm said yesterday in a filing in U.S. Bankruptcy Court in New York." 43EV8Q5Q4KHT

Wednesday, November 17, 2010

Wisconsin Bar: Ethics Opinion on Referral Fees

At the October ABA Ethics 20/20 hearing, several speakers shared opinions lawyer advertising and emerging online referral (and "Yelp-like" networks). The evolution of these new systems creates new opportunities and potential ethical challenges or confusion for the legal industry.

Now comes a revised ethics opinion from the Wisconsin Bar on the issue of referral fees: Wisconsin Formal Ethics Opinion EF-10-02.The update clarifies a past opinion on the same matter, and is well summarized on the State Bar Web Site:
  •  "For instance, the opinion discusses a referring lawyer’s responsibility if concerns arise with respect to the receiving lawyer’s conduct. Lawyers now have more guidance with respect to their ongoing duty as a referring lawyer. But, according to Watson, lawyers should pay more attention to that duty."
  • “Caution is required when seeking a referral fee, because by accepting a fee for the referral, you have accepted joint responsibility for the outcome of the case.”

  • "Because the referral fee is justified by the underlying lawyer-client relationship, lawyers may not accept referral fees if the lawyer-client relationship cannot be established."
  • "EF-10-02 reaffirms that lawyers must inform the client that the referring lawyer maintains a lawyer-client relationship with the client, remains ethically and financially responsible, and will be available to the client. But what does that mean? Ethically, the referring lawyer must keep tabs on the status of the matter."

Tuesday, November 16, 2010

Red Flags Fluttering Again for Law Firms? Debate continues...

When last heard from this summer, the FTC Red Flag Rules were on hold. In late 2009, a court ruled they did not apply to law firms. But the FTC continued the fight and appealed the decision in 2010. This week, they squared off against the ABA before a DC federal appeals court.

The Blog of the Legal Times provides an update of the debate and discussion. In summary, issues argued include the extent to which Congress has the ability to regulate lawyers and the extent to which the Red Flag Rule language can be interpreted to extend to lawyers as "credit" providing organizations. Based on the judges questioning (see linked article), it's like that the resolution of this issue is far from concluded...

Wednesday, November 10, 2010

New Ethical Screening Decision: Size of Firm Not Important, Only Effectiveness of Screen

Bill Frievogel points out a new and interesting ethical screening decision from the US District Court in New York: SEC v. Ryan, 2010 U.S. Dist. LEXIS 112217 (N.D.N.Y. Oct. 20, 2010) / 2010 WL 4235396 (N.D.N.Y.). In this opinion, the judge responded to an accusation of a "glaring" conflict, stemming from one firm's employment of a paralegal who had previously worked for a firm representing an adverse party:
  • "...Levine's law firm now employs as a paralegal a former employee of its firm. Bosman claims that this paralegal, when employed by it, was privy to Ryan's and Prime Rate's confidences and secrets and there would be 'nothing restraining [the] paralegal ... from sharing this information with her [current] employer, therefore jeopardizing the defendants' attorney-client privilege, client confidences and secrets as well as the 5th amendment rights of the Defendants.'"
However, the judge determined the concern to be baseless, noting effective screening procedures:
  • "Levine's law firm has formed a screening procedure, commonly known as a legal wall, to prevent such a disclosure as Bosman & Associates fears. Such procedures are prudent under these circumstances and should remain in effect."
Importantly, and of interest to those tracking evolving ethical screening standards, the decision notes that even though the firm is small, an ethical wall can still be effective:
  • "There should be no alarm that such a legal wall surrounding this paralegal would be impotent because of the size of the Levine law firm. Even a small law firm can erect appropriate and adequate isolation to protect the sharing of confidential information, as long as the firm exercises special care and vigilance. See Essex Equity Holding USA, LLC, 29 Misc.3d 371, 2010 WL 2331407, at *9-10."

Tuesday, November 9, 2010

Law Firm Insider Trading: Update on Canadian Firm Investigation

Here's an update on one of several law firm insider trading stories which broke in 2010. Recall that earlier this year an information technology leader at a prominent Canadian firm was caught accessing price-sensitive client information stored by the firm electronically:
  • He "conducted transactions in the shares of 17 companies between April 2006 and November 2009 while in possession of privileged information that allowed him to obtain a profit of more than $520,000."
Now news comes that market regulators have agreed to settle charges in exchange for a  $1.3mm fine -- approximately twice the amount of his ill-gotten gains.

The regulator was quick to note that: “Ogilvy Renault collaborated completely with the investigation and the proceedings against  Dominic Côte do not involve the law firm in any way.” (Still, no organization wants to find itself having to cooperate with such an investigation in the first place.)

Monday, November 8, 2010

Law Firm Ethical Walls and Risk Management Software Product Adoption Survey

The International Legal Technology Association (ILTA) just published its annual technology survey. The report provides some interesting data about the trends and decisions law firms are making when adopting software relating to risk. The complete report, containing detailed breakouts across several categories, is available via ILTA.

Here is a slice of that, summarizing large law firm (700 or more lawyers) use of commercially-available software that supports risk management functions:

Electronic Records Management
  • Autonomy / iManage -- 64%
  • DM / DOCS (Open Text) -- 15%
  • LegalKEY (Open Text) -- 15%
  • CA Records -- 7%
  • Prolaw -- 0%
  • Worldox -- 0%

Ethical Screens / Confidentiality Management
  • Wall Builder (IntApp) -- 74%
  • iMPrivate (DocAuto) -- 17%
  • SecurityGuard (Olson Consulting) -- 9%
  • WincWall (Wertheim Global Solutions) -- 0%
  • MasterEthics (RBRO Solutions) -- 0%
  • The Wall (Younts Consulting) -- 0%
  • CompliGuard Protect (The Frayman Group) -- 0%
  • CompuLaw -- 32%
  • CPI -- 23%
  • ProLaw -- 11%
  • PATTSY -- 9%
  • Microsoft Outlook -- 9%
  • MA3000 -- 6%
  • Aderant -- 6%
  • CouAlert -- 3%

Conflicts Management
  • LegalKEY (Open Text) -- 44%
  • Elite (Thomson) -- 26%
  • Aderant -- 26%
  • CA/MDY Conflicts -- 0%
  • Prolaw -- 0%

Wednesday, November 3, 2010

December Risk Roundtable Meeting (London)

The Risk Roundtable Initiative will host a panel discussion on Friday, December 3rd in London on the topic: "Aligning Risk and IT to Address Information Risk Management Challenges." The panel comprises several risk and technology experts:
  • Heather McCallum, Head of Risk and Compliance, Allen & Overy LLP
  • Janet Day, IT Director, Berwin Leighton Paisner LLP
  • Pat Archbold, Head of Risk Practice Group, IntApp
  • Neil Araujo, CEO, Autonomy iManage
These speakers will explore topics including:
  • Communicating the implications and potential exposure tied to the expanding information risk landscape
  • Explaining the value and importance of the risk organization, its efforts across the firm and the importance of close collaboration with IT
  • Reviewing recommended areas and well-aligned projects for collaboration between risk and IT
  • Understanding the value of and making the case for several types of "investments" – including management mindshare, budget, staff resources and technology tools
This session is co-sponsored by the International Legal Technology Association (ILTA). For more information, see the Risk Roundtable web site or email info@riskroundtable.com.

Monday, November 1, 2010

ILTA Seminar: Addressing Law Firm Confidentiality and Data Privacy Requirements

The International Legal Technology Association (ILTA) is sponsoring a seminar on: Addressing Law Firm Confidentiality and Data Privacy Requirements. The session is scheduled for November 11 and will be hosted by Phelps Dunbar in its New Orleans office. Brian Lynch from IntApp and the Risk Roundtable Compliance Consortium, who recently testified before the ABA on law firm confidentiality issues, will present and moderate group discussion. Session details:

Several developments have raised the profile of confidentiality management and data privacy at law firms. These include American Bar Association rule changes supporting broader ethical screening, increasing client interest, and expanding regulatory pressures. Additionally, as firm composition changes through attorney mobility, restructuring or use of contract lawyers, organizations are paying greater attention to access controls. In this session, we will explore how organizations can reduce risk exposure, increase the profile of risk management, and better protect themselves. Additionally, you will:
  • Receive tools to educate your organization regarding current risks tied to common firm information and data life cycle management practices
  • Learn to develop and implement policies, procedures and tools to improve risk assessment, confidentiality management and compliance
  • Apply lessons from more strictly-regulated environments (United Kingdom and Canada) to your firms
  • Leverage firm risk response for competitive advantage in business development and cost negotiations with insurance providers
For more information, and to register to attend this session, see the ILTA event web page.

Several Law Firm Risk Management Articles and White Papers

Via the CNA Pro email newsletter comes pointers to a new archive containing several industry articles and white papers on risk issues affecting law firms. All are available on the CNA Resource Page. Highlights include: