Thursday, July 29, 2010

California Bar Accepting Advance Waiver Rule Changes

[Hat tip to the Legal Ethics Forum.] Just received word that the California Bar approved a number of ethics rules changes recently, including modifications that allow firms to employ advance waivers. Details are unfolding. Information about proposed CA Bar rule changes and debate is online on their web site. With information about July rule change discussions here.

Tuesday, July 27, 2010

SRA Relaxes Conflicts Rules for Firms Using Information Barriers / Ethical Walls

The Solicitors Regulation Authority, the regulatory body of the Law Society in England and Wales, has been working to modify conflicts rules for some time (see updates in 2009 and 2010). While earlier this year the SRA announced that, based on client concerns, it would not relax conflicts rules to allow firms to act for adverse clients who were deemed "sophisticated" enough to content, it's recently changed directions.

The SRA just posted news regarding changes to rule 4 of the Solicitors' Code of Conduct 2007 which, along with guidance, have been approved by the Legal Services Board. Prior to the change, firms could only continue working in circumstances where such conflicts arose or were discovered after work had already commenced for a new client.

The modified rules are now in effect and allow firms to represent adverse parties so long as they have an effective information barrier (ethical screen / ethical wall) in place. The highlighted changes to the rule are now posted on the SRA web site. Importantly, firms can now act "...where the party to whom the duty of confidentiality is owed refuses consent or cannot be asked (4.05)" so long as effective information barriers are in place.

Monday, July 26, 2010

Monday Risk Roundup -- Red Flags, Ethical Walls and Data Privacy

  • Red Flag Rule Still Waving? -- The FTC is still fighting to apply Red Flag Rules to law firms. Arguments hinge on the definition of "creditor" and the original intent of Congress when drafting the law.
  • Ethical Screens in the mainstream news -- A colleague forwarded a recent article in New York Times on "Chinese Walls" and their effectiveness in practice: "Chinese walls, say experts, can work as long as they’re carefully designed, vigilantly enforced and embraced by upper management."
  • Another Data Privacy Bill has been introduced in Congress. “Building Effective Strategies to Promote Responsibility Accountability Choice Transparency Innovation Consumer Expectations and Safeguards" Act (a.k.a. “BEST PRACTICES Act” or “Act”). [Complete Text]. The data privacy trend continues. Interestingly, the Information Law Group notes: "Unlike some bills that limit jurisdiction to only those entities regulated by the FTC (e.g. the DATA Act), the scope of entities regulated by the Act is broad and goes to the limits of Federal jurisdiction."

Thursday, July 22, 2010

Law Firm Conflicts in the News

Several law firm conflicts making news this month:
  • Baker Botts faces malpractice suit due to alleged conflict -- In this case, a client is suing for malpractice because the firm represented a business competitor. At one point, the plaintiff alleges, the companies were pursuing similar patents using the same law firm. (The firm defends itself, noting that different lawyers were working for each client.)
  • Lawyers disqualified from representing plaintiffs in suit against Target -- the firm's past contact with a Target executive and relating concerns about communication of confidential information created a clear need for a clean slate according to the judge: “In the instant case, the circumstances warrant disqualification because conduct has occurred that taints these proceedings and, if left unremedied, potentially undermines public confidence in the legal profession...There is a strong likelihood that the Halunen firm’s repeated contacts with Doe intruded upon Target’s right to confidentiality and privilege.”
  • Special master removed due to conflicts allegations -- Interestingly, in this case the special master stepped aside before a disqualification motion was filed. While those bringing the allegations argued the conflicts were legitimate, the special master removed herself before a judge could rule on the matter. She denied any conflicts, but did not want to serve in a context where one side expresses a complete lack of confidence in her ability to act appropriately.
  • Firm disqualified over "appearance" of conflict -- A six person law firm was removed because one member of the firm was a member of a school board subject to a discrimination suit brought by a client they represented. Given the small size of the firm and nature of confidential information possessed by the lawyer, the judge ruled that there was a "non-waivable conflict of interest that was imputed" to the entire firm and disqualified it.
  • Conflicts scuttle Kilpatrick-Townsend merger -- [via Legal Ethics Blog] -- “Townsend veteran partner Paul Vapnek heard late last week from another partner that the talks were off, he said, because of irreconcilable conflicts with a major Kilpatrick client. 'We had just a bunch of conflicts with that client and the client wasn't willing to waive them,' Vapnek said. 'That kind of put the kibosh on it.'”

Wednesday, July 14, 2010

Apple's law firm in iPhone ITC complaint disqualified due to insufficient ethical wall

Readers are no doubt familiar with Apple's iPhone. Apple has engaged in a patent dispute with HTC, maker of competing phones that run the Android operating system software produced by Google. In March, at the behest of Apple, the International Trade Commission voted to institute an investigation of alleged patent infringement. The ITC has the power to bar the import of HTC phones based on its findings.

During this process, Nokia (which was not named in this specific matter but was involved in a parallel and related matter), brought a motion to disqualify Apple's law firm, Adduci, Mastriani & Schaumberg, based on exposure to confidential information obtained in that action.

Key findings of the disqualification ruling, which was issued in June under seal and just publicly released:
  • "... the investigations are substantially related. He also held that AMS did not address the “critical issue” that AMS acquired Nokia’s confidential proprietary business information during the Qualcomm investigation. According to the Order, AMS’s failure to rebut Nokia’s assertions proved fatal to AMS’s arguments."
  • "the ethical wall was not sufficient to satisfy ABA Model Rule 1.9(a) which states that “[a] lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or a substantially related matter in which that person’s interests are materially adverse to the interests of the former client unless the former client gives formal consent, confirmed in writing."
Another example highlighting the importance of demonstrably effective law firm ethical screening and confidentiality management controls.

Friday, July 9, 2010

Lawyer and Law Firm Insider Trading News

Recall several law firm insider trading scandals mentioned previously. In the case of Ropes & Gray, the associate that: "...accessed the firm's computer network and viewed confidential deal documents on 3Com Corp. and other clients and passed the information on..." just reached an agreement with the SEC.

As part of the plea agreement, the lawyer will return illicit profits, pay a significant penalty, and agree to a ban on future appearance as a lawyer before the SEC. The lawyer in question is also cooperating with investigators in the criminal charges brought against other involved lawyers.

This example highlights the importance of strong confidentiality protections and screens within law firms. While no system can prevent coordinated malfeasance, these measures may have saved at least one firm unwanted public attention...

Tuesday, July 6, 2010

Cross-Jurisdictional Legal Practice Rules (Updates)

A few interesting articles point out continuing discussion and consideration of cross-jurisdictional practice issues. See the following posts as background here and here. These issues are important as they shape where lawyers are authorized to practice law (regardless of where they are physically located):
  •  Texas -- The Texas State Bar Professional Ethics Committee issued an opinion (597) confirming that Texas law firms can include out-of-state lawyers based in other offices, and that those remote lawyers may work in the firm's Texas office, so long as that work is limited and intermittent: "[A] contrary interpretation would require the obviously erroneous conclusion that Texas attorneys are barred from practicing in any law firm having a partner or member who is licensed in another state but who is not licensed in Texas."
  • Arizona -- [via Hinshaw] -- Arizona Enforces Hurdles for Multi-jurisdictional Practice -- “A non-Arizona lawyer who resides in Arizona cannot practice the law of the jurisdiction in which he or she is admitted. Also, a non-Arizona lawyer who is temporarily admitted to practice with a legal services organization in Arizona must remain active in at least one jurisdiction in which the lawyer is admitted." 

Thursday, July 1, 2010

Report from London Law Firm Risk Management Conference

Managing Partner Magazine hosted a law firm risk management event a few weeks ago in London. A good deal of discussion focused on the new outcome-focused approach the Solicitors Regulation Authority is now taking.

As part of this change, the SRA is replacing an exhaustive list of rules with a short guide that includes 10 high-level principles. Under this regime, the onus will fall on firms to conduct self-audits and self-reporting. The principles include:
  1. Uphold the rule of law and proper administration of Justice
  2. Act with Integrity
  3. Do not allow your independence to be compromised
  4. Act in best interest of each client
  5. Provide a proper standard of service to clients
  6. Behave in a way that maintains the trust the public places in you and in the provision of legal services
  7. Comply with your legal and regulatory obligations and deal with your regulators in an open, timely and co-operative manner
  8. Run your business and carry out your business effectively and in accordance with proper governance and sound financial and risk management principles
  9. Promote diversity and equality in your business and do not discriminate
  10. Protect client money and assets
This approach will provide firms with greater freedom to self-regulate. But, it’s likely the SRA will take a harder stance on organisations with compliance problems. As several conference attendees commented, this translates into greater requirements for firm responsibility and requires enhanced risk management practices.

Other topics of note included a panel discussion focusing on the value of compliance standards. One presentation reviewed the ISO 27001 and other information security and confidentiality management standards. An increasing number of firms are moving to obtain some level of certification for several reasons. Top of the list is client expectations -- clients are increasingly undertaking rigorous procurement processes and focusing on specific firm standards and practices.