Friday, April 29, 2011

Conflicts & Disqualification Motions -- When Does "Delay" Equal Implied Consent?

This year several situations have challenged the extent to which a delay between when a law firm discovers (or should have reasonably known about) an alleged conflict and when it files a motion to disqualify should influence the disposition of such a motion.

Generally, there is some consensus that delay can be used to argue an implicit waiver, but where that line is drawn, and under what circumstances, remains up for debate. (See one recent example where delay was not enough to establish consent, and proposed changes in one jurisdiction to clarify matters.)

Now comes a decision, recently affirmed on appeal, that, at least in California, on a complex insurance litigation matter, two years is too long to wait:
  • "In denying the motion, the judge said the insurer 'provides no explanation for why it waited for two years, after the conclusion of a lengthy trial in this case on liability, to move to disqualify plaintiff’s counsel, a counsel that has represented plaintiff from the inception of this case.'"
  • "Flier, writing for the Court of Appeal, noted that California, like most—but not all—jurisdictions, permits a finding of implied waiver of attorney conflict based on lack of timely objection. California does, however, require that the delay 'be extreme or unreasonable before it operates as a waiver.'"
  • "...the justice went on to say, the court must look not only at the length of time, but also at the stage of litigation and the complexity of the case."
See the complete decision in: LIBERTY NATIONAL ENTERPRISES, L.P. v. CHICAGO TITLE INSURANCE COMPANY

Wednesday, April 27, 2011

Risk Roundup: Conflicts, Professional Rules + Other News

Several interesting links, stories and updates to share:
  • Risk Roundtable Webinar Report: Many thanks to panelists at last week’s risk webinar. We welcomed 100 attendees who signed on to hear speakers from Kirkland & Ellis (Ann Ostrander), Reed Smith (Ed Witt) and Katten Muchin (Patty Fitzpatrick) talk about their firms’ risk response strategies. The session was produced and moderated by Brian Lynch at IntApp. (Those who registered but were not able to attend should expect to receive a link to a video recording shortly. Email: info@riskroundtable.com for more details.)
  • The Call for “Special” Conflicts, Mobility and Liability Rules for Larger Law Firms: A group of 23 large law firms is lobbying the ABA for a separate set of professional rules applicable to large, sophisticated clients. Such clients would be identified by factors such as:
    • “…whether a firm is publicly traded, the size of its balance sheet, the number of jurisdictions in which it operates, and how much it uses legal services.”
    • “The primary causes of concern among large law firms and their clients, said Davis and Jones, are the lack of uniform professional conduct rules in the United States, where lawyers are regulated on a state-by-state basis, restrictions on lawyer mobility imposed by a number of states, and the basic purpose of lawyer regulation in the United States.”
    • For its part, the ABA 20/20 Commission expressed some skepticism at the practicality of the idea and offered other possible approaches.
  • NFL Takes a “Pass” on Granting Conflict Waiver:  “The NFL has rejected a law firm's request for a conflict-of-interest waiver to represent a group of players seeking to join the antitrust fight against the league.”
  • Lawyer Insider Trading Updates : News from alleged lawyer insider trading scandals unfolding in Canada and more interesting background coming to light on the Kluger situation in the US.

Monday, April 25, 2011

Report from Last Week's Risk Roundtable Meetings

Last week, Risk Roundtable sessions were held in Washington, DC and New York. Many thanks to
McKenna Long & Aldridge and Dewey & LeBoeuf for hosting. Brian Lynch, chair of the Risk Roundtable Compliance Consortium, delivered a presentation updating attendees on current risk issues and trends, and moderated group discussion. He kindly sent an update summarizing some of the group discussions at each event:
  • Dan -- I'm pleased to report back to the Law Firm Risk Management blog that we recently held two educational and animated Risk Roundtable sessions in Washington, D.C., and New York. Our sessions included attendees included a diverse group comprising General Counsel, CIOs, Conflicts Directors and other risk staff. Information risk management issues seems to be top-of-mind as firms sort through fallout from recent insider trading stories and client concerns about WikiLeaks.
  • In Washington, DC, we discussed risk trends with a special focus on Outside Counsel Guidelines, a phenomenon that is consistently adding substantial negotiation time and effort to the intake of new clients. We also spent a good portion of our time talking about the special privacy requirements of DoD contractors (as clients) and the challenges that ITAR presents. "You don't want to learn about ITAR penalties through first-hand experience," warned one of our attendees. Another attendee explained the economics of cybercrime: "Currently the cybercrime industry's 'income' far outpaces the money spent on fighting cybercrime." Symantec estimates cybercrime to be an $8 billion industry. We spoke a bit about law firms being attractive targets and investment and response strategies available to firms.
  • In New York, concerns focused more on insider trading, especially with the recent high-profile cases affecting NY firms, i.e. Arista v. Lime and Matthew Kluger's alleged insider trading odyssey. As one participant asked, "can someone just provide us a best practice for protecting our firms against insider trading?" The delicate balance continues between securing information effectively and providing easy access for working lawyers. Outside Counsel Guidelines ("OCGs") also commands substantial mindshare, along with the hypothesis that consultants are driving this trend. Aggressive confidentiality management requirements have migrated from RFPs to OCGs to consultant-led OCG negotiations. One attendee theorized that this was a cycle and that "the pendulum is swinging in one direction but will eventually swing back to reasonableness." With the proliferation of confidentiality requirements, it's no wonder that we're all feeling a bit like we're chasing a moving target.
Upcoming Risk Roundtable sessions are currently scheduled for Houston and Toronto. For more information, please visit: http://www.riskroundtable.com/ or email info@riskroundtable.

Monday, April 18, 2011

Upcoming Risk Roundtable Webinar (Complimentary CLE Ethics Credit Available)

Date: Tuesday, April 26
Time: 9 am Pacific / 12 pm Eastern

Description: Today, law firms face unprecedented risk and compliance challenges. Whether dealing with increasing client concerns about potential data leakage (tied to WikiLeaks and recent law firm insider trading scandals), stricter regulatory requirements that now extend explicitly to law firms, or responding to a variety of rules affecting firms practicing across jurisdictions and international borders -- the job of a risk leader is not getting any easier. And the stakes are getting higher.

In response, firms continue to invest in enhancing their internal risk resources and capabilities. This webinar will explore approaches and strategies several have taken. Panelists will explore topics including:
  • Approaches for organize risk and compliance teams
  • The role lawyers can play in evaluating firm risk policies and practices
  • New and emerging challenges facing the industry
  • Using technology to mitigate risk
  • Educating firm management and enhancing the profile of risk management
At this session, IntApp's Brian Lynch will moderate a panel comprising members of the Risk Roundtable Compliance Consortium, a working group focused on developing risk response guidelines:


CLE Credit: Certificates will be provided to attendees upon request. (Attendees outside of California are responsible for confirming CLE reciprocity in their particular jurisdiction.)

Attendance: Attendance is by invitation only. Risk Roundtable members and qualified parties are invited to request more information by emailing: info@riskroundtable.com.

Wednesday, April 13, 2011

Canadian Screening : Non-Consensual Ethical Walls Upheld

[h/t to Bill Frievogel] who notes a recent Canadian decision affirming ethical screens for addressing conflicts tied to lateral hires:
  • "The Law Society of Upper Canada has a non-consensual screening rule for lawyers changing firms. In this opinion the court denied a motion to disqualify, holding that the receiving firm had complied with the rule."
The actual decision [Dwyer v. Mann et al, 2011 ONSC 2163 (CanLII)] addresses a "side switching" lawyer, who joins opposing counsel on a matter and is promptly and effectively screened:
  • "Well in advance of Mr. Bittle’s change of employment, and having recognized the potential conflict of interest, Lancaster, Brooks took steps to ensure that no information would be passed concerning this case by Mr. Bittle to anyone in the Lancaster, Brooks firm."
All information related to the matter was segregated, and all associated with the matter signed an affirmative pledge not to discuss the matter or share any information with the screened lawyer. Opposing counsel consistently objected to the screen and eventually moved to disqualify. The court denied, noting that current rules permit non-consensual screening so long as it is demonstrably effective:

  • "Regarding the matter of timing and adequacy, as discussed more fully below, the Lancaster, Brooks firm acted in a timely manner to put in place effective safeguards... It is difficult to imagine what more could be done to protect the confidentiality of the plaintiff’s information."

Monday, April 11, 2011

Report from Last Week's Risk Roundtable Meetings

Last week, Risk Roundtable sessions were held in Los Angeles and San Francisco. Many thanks to Sheppard Mullin and Morrison & Foerster for hosting. Brian Lynch, chair of the Risk Roundtable Compliance Consortium, delivered a presentation updating attendees on current risk issues and trends, and moderated group discussion. He kindly sent an update summarizing some of the group discussions at each event:
  • We recently held two educational and animated Risk Roundtable sessions in Los Angeles and San Francisco. It's always a worthwhile experience to have a meeting with like-minded risk managers. Attendees included general counsel, CIOs, conflicts directors - all influential players who have a significant stake in getting confidentiality management right. This healthy combination of perspectives led to constructive discussions, where we all walked away a little bit smarter.
  • In Los Angeles, we discussed risk trends with a special focus on WikiLeaks. We also spent a good portion of our time talking about the special privacy requirements of DoD contractors (as clients) and the challenges that ITAR presents. Of course, managing the privacy of sensitive information for famous clients is also an ongoing concern.
  • In San Francisco, concerns focused more on Outside Counsel Guidelines, their increasing frequency, their uncanny ability to avoid a proper risk review, and the arduous requirements they sometimes impose. As one participant said, "we've never lost new work because we pushed back on requirements. The trick is knowing what your partner agreed to. If you know, you can negotiate terms that make sense for both sides." News broke earlier that day of the Wilson Sonsini associate who allegedly was involved in an insider trading scheme that netted $32 million, so we spent some discussing the importance of activity tracking, predictive risk models, and the principle of least privilege. To borrow a phrase from one of the insightful LA attendees, "we should manage, not shackle."
Upcoming Risk Roundtable sessions are currently scheduled for New York, Washington DC and Houston. For more information, please visit: http://www.riskroundtable.com/ or email info@riskroundtable.

Thursday, April 7, 2011

Confidentiality Breaches -- More Client Data Leaks (Insider Trading + External Penetration)

It's been an active week for law firm confidentiality news. A reader pointed out two significant stories came to light yesterday that once again highlight the importance of protecting client confidential information:

Insider Trading -- In yet another case of a high-profile law firm falling victim to (alleged) internal malfeasance, the government just brought insider trading charges against an associate formerly with Wilson, Sonsini, Goodrich & Rosati.

Working with at least one external accomplice, and while employed by several firms, he passed on information over several years (starting as a summer associate) that resulted in a profit of $32 million dollars. With available access to the firm's internal document management software, he searched for sensitive client details on price-sensitive matters:
  • "Mr. Kluger, of Oakton, Va., allegedly stole information regarding 11 deals while at Wilson, Sonsini, which he left last month. Mr. Kluger circumvented Wilson Sonsini's computerized document-management system by looking at the titles of documents related to deals he wasn't working on but not opening the documents, prosecutors said."
External Penetration -- From Canada comes a report that four major law firms have been successfully hacked by what appears to individuals operating out of China. (We've previously noted that law firms are prime targets for external information attacks, given the volume and concentration of sensitive client information they house.)

These recent attacks highlight the risks facing law firms and the need to take strong precautions:
  • These were "...highly sophisticated cyber attacks designed to destroy data or to steal sensitive documents relating to impending mergers and acquisitions."
  • "Mr. Tobok said some in the legal world have been slow to realize just how serious the hacking threat is, although he said IT departments are doing the best they can. 'Sometimes they have a false sense of security,' he said of companies in general. 'After they get attacked, they understand that they have to invest a little more.'"

Wednesday, April 6, 2011

Conflicts Curtailing Counsel Career Changes?

From the Chicago Tribune comes an update: "Conflict of interest stops many Howrey partners from joining Winston & Strawn." Evidently, Winston could only bring on 15 of the 140 partners it hoped to. The article goes into specific detail, noting that both ethical conflicts (lawyers representing adverse parties in ongoing lawsuits) and business conflicts (lawyers representing marketplace competitors) threw several wrenches into their plans. In some instances, those conflicts only came to light after offers were made.

On a similar note, The Record opines: "Wilson's Departing Patent Litigators Chafing Over Conflicts?"
  • "James Otteson litigated patent cases at Wilson Sonsini Goodrich & Rosati for 20 years before he got so fed up with conflict problems he left to start his own IP boutique. 'It became a huge problem for us,' said Otteson, who launched Agility IP Law last year. 'Conservatively in the last three or four years I was at Wilson, we lost about $30 million in business.'"
  • “And that loss of potential revenue, and potential compensation, explains in large part why so many Wilson patent litigators are leaving the firm, including six recently, former partners say."
Recall, it was this inability to take on lucrative clients that many point to as the genesis of partner defections from Howrey that accelerated the dissolution of the firm...

Tuesday, April 5, 2011

Alternative Business Structures for US Law Firms? More News and Views...

With several countries allowing (or moving to allow) private investment in and ownership of law firms, many in the US are paying close attention. A few weeks ago, one US state senator introduced legislation to follow suit.

Now the ABA Commission on Ethics 20/20 has released an issue paper providing a very detailed summary of the alternative business structure landscape, including a review and comparison of approaches taken in a variety of international jurisdictions.

Writing on this same topic, a law school professor explores the implications of: "The Goldman Model for Big Law?" (See also community discussion in the response comments.)

Sunday, April 3, 2011

Firms May Need to Double Risk Investment in Response to SRA Outcomes-Focused Regulations

The Solicitors Regulation Authority (SRA), which regulates more than 120,000 solicitors in England and Wales, continues to make process to issuing updated professional rules which will go into effect later this year. Its current approach is "outcomes-focused." It's set to publish an updated handbook on April 6.

This new regime brings several changes and uncertainty still abounds. Legal Week recently reported results of a study that show: "One in two partners lack understanding of workings of SRA's new regulatory regime." (Subscription required to access the complete article.)

With the new rules in place, firms will have to:

  • Demonstrate compliance efforts through use of tools such as a written compliance plan, and "risk register" inventory and ranking of identified risks and response efforts.
  • Appoint multiple compliance offices
  • Keep a record of identified rule breaches
  • Proactively report to the SRA "material" failures to comply
Regarding these changes Legal Risk LLP, advisers on professional responsibility and regulatory issues, note:
  • "We believe that for many firms this will involve a doubling of investment in compliance, whether through time, money or both."