Wednesday, July 27, 2011

Opinions & Decisions: Lawyers on Groupon? Third Party Lawsuit Funding? When Does Client Engagement End?

 
  • Attorney Representation Concludes When Client No Longer Has Reasonable Expectation of Representation -- "The Washington Court of Appeals held that an attorney’s representation of a client regarding a specific matter concludes, for purposes of the statute of limitations, when the client has no reasonable expectation of representation or further legal services for the matter...a lawyer who is alleged to have unilaterally abandoned representation without the client’s knowledge may still be 'representing' the client during that time. Representation on a matter only will conclude when a client 'actually has or reasonably should have no expectation that the attorney will provide further legal services.'" Hipple v. McFadden, et al., ___ P.3d ___, 2011 WL 1653194 (Wash. App. April 28, 2011)
  • The City Bar of New York has opined: "It is not unethical per se for a lawyer to represent a client who enters into a non-recourse litigation financing arrangement with a third party lender."
    • "Non-recourse litigation financing is repaid to third party lenders by a litigant only in the event he or she settles the case or is awarded a judgment upon its completion. The reimbursement is drawn from the proceeds of the lawsuit. As the Opinion notes, 'from the legal ethics perspective, perhaps the greatest concern stems from a financing company’s involvement in the details of a claimant’s case.'"
    • As the Wall Street Journal notes: "Banks, hedge funds, and other firms are investing millions into others’ suits in the hopes of getting a sizable return if the borrowers score a favorable settlement or verdict."
    • See additional background, interview and commentary via: New York Law Journal.
  • South Carolina Bar Says "Groupon" Okay for Lawyers -- "Lawyer would like to use 'daily deal' websites that offer products and services at discounted rates to market her legal services...While the use of 'daily deal' websites may not be prohibited by Rule 5.4(a), the Committee is concerned with the effect the use of such websites may have on the reputation of the legal profession if the attorney does not ensure compliance with the Rules of Professional Conduct concerning advertisements. For this reason, the lawyer is cautioned that the use of 'daily deal' websites must be in compliance with Rules 7.1 and 7.2."

Thursday, July 21, 2011

Conflicts Allegations and Disqualification Attempts

Law firm conflicts allegations in the news:
  • "Chevron Ecuador: Patton Boggs Law Firm Works For, Then Against, Chevron" -- "Patton Boggs, the Washington DC law firm that Chevron Ecuador plaintiff lawyer Steven Donziger brought in to take some heat and spotlight off of him as allegations of fraud and general Ecuadorian dirty-dealing surfaced, also lobbied for Chevron. That's right. In the summer of 2010, and before it got involved on the Ecuador side of the Chevron Ecuador case, Patton Boggs purchased another law practice called Breaux Lott Leadership Group. Well, Breaux Lott Leadership Group has represented Chevron. It's not only clear that Patton Boggs knew this, but is now in court trying (unsuccessfully, thus far) to argue that it's not a conflict of interest." See also assitional news on this case via the Blog of the Legal Times: "Judge To Patton Boggs: 'Day Late And A Dollar Short.'"
  • "Law Firm Not Disqualified Where Partners Represented Plaintiff and Defendant in Matters Not Substantially Related" -- A partner at the firm representing the plaintiff had previously represented the defendant. The defendant alleged that the representation was in the same matter, but the court ruled otherwise:
    • “The court determined that the partner was not currently representing the defendant, and that Rule 1.9(a) and not Rule 1.7 of the Rules of Professional Conduct applied. The Partner had represented the defendant in the zoning approval process, and the plaintiff’s attorney is representing the plaintiff in a breach of contract claim. The Court determined that the matters were not substantially related since zoning approval is not relevant to the current breach of contract claim, nor would any confidential material the partner had be helpful to the plaintiff’s attorney.”
    • Written decision: Sullivan Const. Co., LLC v. Seven Bridges Found., Inc., FSTCV106005404S, 2011 WL 1032250 (Conn. Super. Ct. 2/22/2011).

Wednesday, July 20, 2011

Risk News: High Profile Edition (Apple & Murdoch)

Several updates tied to prominent major media stories:
  • Conflicts Questions Raised About Law Firm that Found No Widespread Hacking at News of the World – “According to ABC, Harbottle & Lewis represented Prince William and Prince Harry in the royal phone-tapping case that led to the arrest of a reporter for News of the World and a private investigator. The same year, 2007, News of the World hired the law firm to conduct an internal investigation into the extent of the phone hacking.”
  • Quinn Emanuel Takes Aim at Apple's Lawyers in Samsung Smartphone Patent Fight --
    • "The disqualification motion claims that at least five lawyers from the firm, including one who made an appearance in the Apple suit, previously represented Samsung in "substantially related" patent litigation with Ericsson, Spansion, and Dicam while working at Kirkland & Ellis. In fact, Samsung asserts, the then-Kirkland lawyers asserted one of the same patents in the litigation with Ericsson that Samsung asserted in its counterclaims against Apple."
    • "The company asked federal district court judge Lucy Koh to order Apple's other law firms in the case, Morrison & Foerster and Wilmer, Cutler Pickering, Hale and Dorr, to submit affidavits 'unequivocally stating that they have not received any confidential technical, financial, or other litigation strategy information from Bridges & Mavrakakis.' If Judge Koh refuses and the firms won't provide the affidavits voluntarily, Samsung promised to seek disqualification of MoFo and Wilmer Hale as well."

Tuesday, July 19, 2011

Event Report: Canada Risk Roundtable Meeting

Last week, a Risk Roundtable session was held in Toronto, Ontario. Many thanks to Goodmans for hosting. Brian Lynch delivered a presentation updating attendees on current risk issues and trends, and moderated group discussion. He sent his customary summary of the wide ranging group discussion:
  • Dan – I'm pleased to report back on our July Risk Roundtable sessions in Toronto. We had great turnout across a variety of roles including: general counsels, CIOs, national directors, and KM directors. There were lots of familiar faces and a few new folks, as well. Attendees pointed to a number of changes on the short-term horizon.
  • First, conflicts reform still remains on the radar, and Simon Chester at Heenan Blaikie spoke about his work with the Law Society to make it real. The CBA Task Force on Conflicts of Interest delivered their final report and recommendations August 2008 and is looking forward to bringing it into practice.
  • Simon also recommended that we keep an eye on the Wallace Action that’s making its way through the Saskatchewan courts. It has the potential to be the fourth major conflicts case in the Supreme Court of Canada.
  • Third, the Law Society of British Columbia is considering "sophisticated client" exceptions to current conflict rules. This would allow more flexibility when dealing with large savvy clients.
  • Next, with several knowledge management directors in the room, we had a good dialogue about the challenges of balancing collaboration and confidentiality. Several suggested that overly-restricting access to internal materials can unnecessarily impede the value having smart people working together. Compliant collaboration seems to be the target, the sweet spot that allows the firm to be smarter than the sum of its lawyers while remaining within the appropriate security boundaries.
  • We learned that there are more disqualification motions in Canada (per lawyer capita) than in the US. The disqualification motion has become a standard tactic, and firms have to find a way to respond defensibly without re-defining the process with every new motion.
  • The risk of insider trading continued to cause heartburn. Insider trading is a crime, but the open question remains: “How much did we do to prevent the crime? What is a "reasonable effort" since it is nearly impossible to stop all rogue lawyers or staff members? “ This is the real test of collaboration vs. confidentiality and where to draw the professional responsibility line.
  • Finally, there was a good deal of discussion about growing challenges tied to outside counsel guidelines: communicating their existence internally, understanding the requirements, and negotiating terms with potential clients. OCGs have become more demanding everywhere, but one attendee pointed out that the federal government has the most exhaustive (and, as they see them, unreasonable) terms for future representations.
  • Client-requested information barriers and walls for sensitive matters are on the rise, and are requiring audits with greater frequency. Corporations - especially financial institutions - are insisting upon much more aggressive information access controls - a trend that we are seeing in the States as well.
This session concludes the 2011 Spring/Summer Risk Roundtable series. We hosted events in 7 cities internationally, with participation from over 60 firms. Plans are underway for future events in the Fall/Winter time frame. Watch this space for more details. (And if you'd like to host a Risk Roundtable in your neck of the woods, email us: info@riskroundtable.com.)

Thursday, July 14, 2011

Ethical Screens & Paralegals: More (and More Detailed) Guidelines from Texas Supreme Court

We first wrote about In re Guaranty Insurance Services, Inc., last June. Recall, in this case a firm was disqualified after the discovery that it employed a paralegal who had worked on the opposite side of the matter at his previous job. The Texas Court of Appeals held that a blanket policy that individuals should avoid working on matters they have worked in at previous employers, was insufficient as an ethical screen.

Now comes an update from the Supreme Court of Texas overturning that decision. It notes:
  • "Our conflict-of-interest jurisprudence recognizes distinctions between lawyers and nonlawyers, their duties, and their likelihood of contact with confidential information… But the rule is different for nonlawyers…"
  • "The presumption of shared confidences is rebuttable if the nonlawyer has actually performed work on the matter at a lawyer's directive and the lawyer reasonably should not know about the conflict of interest. Put differently, if the nonlawyer has actually worked on the matter, the presumption of shared confidences is not rebuttable unless the assigning lawyer should not have known of the conflict."
After presenting its (quite) extensive analysis, the court directed the trial court to vacate its disqualification ruling.

Tuesday, July 12, 2011

Risk News: Disqualifications and Lateral Hires

  • Law firm, Dickstein Shapiro, disqualified despite arguments regarding advanced waiver language -- In this case, the law firm entered into an agreement not to participate in a matter, but argued previous agreements that waived future conflicts superseded that agreement. The judge disagreed. John Steele at the Legal Ethics Forum offers additional commentary: “In general, I'd really like to see federal judges move toward not just enforcing agreements between sophisticated, institutional clients and law firms, but insisting that those clients and firms enter into contracts governing obvious conflicts issues.”
  • News of increasing lateral hiring and conflicts implications: “More Law Firms Raid Competitors to Poach Rainmakers.” The article examines the implications of one firm’s significant work on Madoff recovery matters, where lawyers in other practice groups express some discontent: “Another concern is a conflict-of-interest issue: Baker Hostetler would not represent many large banks and wealthy families because they were defendants in Madoff lawsuits. This would also make it a challenge for the Madoff team to join another large national firm with clients, or prospective clients, that have been sued by the trustee.”

Monday, July 11, 2011

What a Piece of Work is Risk? (Law Firm Representing Both Sides in Same Lawsuit)

An interesting tale of a law firm trying to retain counsel which is simultaneously representing the opposing party in an ongoing lawsuit. This story reads like Shakespearean drama (with several ins and outs).

Act I -- J-M Manufacturing dismisses its law firm for alleged e-discovery malpractice. That firm is accused of disclosing thousands of privileged documents and other confidential information to opposing counsel. J-M filed suit against it in June.

Act II -- J-M hires Sheppard Mullin to represent it in the original matter at hand. Alas, Sheppard, it’s discovered, also represents the South Tahoe Public Utility District the advserse part in the matter:
  • “For its part, Sheppard asserts that the South Tahoe signed a waiver of conflict of interest in a prior representation of the entity involving employment matters.” [South Tahoe had signed an engagement letter in 2006 on an unrelated matter.]
  • J-M argues that it’s already made a significant investment in time and money with Sheppard, upwards of $4.5m, and that replacing that “institutional knowledge” would be prohibitive.
  • In South Tahoe’s motion to disqualify its own law firm it argues that: “Rather than simply contacting its existing client to discuss the nature of this case and seek its client’s informed consent, Sheppard apparently concluded that it could not risk hearing the response to that request. Instead, Sheppard ignored its professional responsibilities and embarked on a lucrative representation of an adverse client [J-M Manufacturing] without the informed written consent of its existing client."
Act III – In a tentative ruling, the judge allows J-M to keep Sheppard as counsel. But hearing observers noted that most of its arguments “did not have much weight" with the judge.

Epilogue – The final die is yet cast -- the judge indicated that bifurcation may be the fated end:
  • "The court 'rejected' Sheppard Mullin’s arguments that South Tahoe was not its present client, or that it gave informed consent and waived conflict of interest, or that it had purposefully delayed raising the conflict issue. The court concluded, somewhat indecisively, that with certain conditions it was 'somewhat inclined… but not necessarily committed' to appointing a 'conflict counsel' to represent J-M on South Tahoe's claims. It agreed to certify the issue for "interlocutory appeal” to the Ninth Circuit Court of Appeals in California. The judge said South Tahoe's claims against J-M would be tried separately from those of the other 150 plaintiffs in the case."

Thursday, July 7, 2011

Law Firm Insurer Survey: Rising Malpractice Claims; Top Rated Cause -- Conflicts of Interest

Law firm insurance broker Ames & Gough just published the results of its 2011 survey on professional liability claims trends. Participants were: AXIS, Beazley, Berkley Select, CNA, Lexington, and Hartford.

The short summary -- "Law Firms Face Rising Number of Malpractice Claims," with more claims and higher payouts for successful claims:
  • “As law firm clients see their financial circumstances worsen, they’re more likely to seek redress from their advisers. If lawyers representing a client are not careful during the initial representation, they may well become targets for a malpractice claim when the client’s financials spiral downward,” noted Ames & Gough vice president, Eileen Garczynski. 
Five of the six participants ranked conflicts as a top cause of malpractice claims. The report notes:
  • "By virtue of this affirmative duty, failure to properly advise clients in connection with conflicts of interest may result in subsequent claims of legal malpractice. Conflict of interest cases can also be the most serious type of legal malpractice claim. That’s not only as a result of the profound violation of the duties owed to clients, which are often present in the cases, but also because of the negative impact that the claims generally have on the image of the legal profession."
Ames & Gough is making complimentary copies of the report available. To request a copy, email: info@amesgough.com with the subject line: "LPL Claims Survey."

Wednesday, July 6, 2011

Law Firm Inside Traders Get Jail Time

In two prominent law firm-related insider trading cases, judges have opted for shackles instead of wrist slaps, handing out jail terms:
  • The Richards, Layton & Finger IT manager charged with using his access to electronic firm documents to support almost two dozen trades was sentenced to a year and a day in federal prison, to be followed by two years of supervised release. (This follows a previous $82,000 fine.)
  • The Ropes & Gray lawyer who plead guilty to going on internal "fishing expeditions" to find information supporting extensive insider trading, was sentenced to two and a half years in prison. He has also been disbarred and fined $378,000. The sentencing judge called out the lawyer's actions as harmful to the reputation of the legal profession.
 See additional background and commentary on the US Attorney's Office focus on white collar crime.

Tuesday, July 5, 2011

Risky Clients? Approaches to Evaluating "Controversial" New Firm Business

King & Spalding made news in April when it took on the defense of the "Defense of Marriage" act on behalf of the US House of Representatives. The move caused significant public controversy and the firm quickly extracted itself from the matter, saying that the matter was not properly vetted through its normal intake process (detailed here).

The American Lawyer just published an interesting article which sets out one potential framework for considering such matters: "Too Hot To Handle? How to evaluate a partner's wish to represent a controversial client--before taking on the case." The authors set the stage, noting the need to balance several factors:
  • "So many controversial cases raise divisive political, policy, and moral issues, and, increasingly, firms may be forced to say where they stand on the political spectrum in choosing clients... The question here is a related but different institutional one: When should a firm override the decisions of individual partners to take a case?"
  • "We believe that there are three broad and related considerations: deference to the pluralist views of partners; "principles" screening by firm management based on firm values; and "reputational" screening by firm management based on business considerations."
In addition to the preferences and principles of individual partners, the authors note that firms must weigh the impact of clients on their reputation and future business prospects. This includes consideration of "soft conflicts" -- representations which are not ethically prohibited but may upset the sensibilities of existing clients (such as business competitors).

For more specific detail on how several firms evaluate controversial clients, see also: "Vetting Controversial Clients: How Am Law 200 Firms Do It," which reviews practices of: McDermott, Will & Emery, Gibson Dunn & Crutcher, Quinn Emanuel Urquhart & Sullivan, and Hogan Lovells.