Monday, December 22, 2014

Article: How well does your conflicts system work?

Conflicts management ranked as a key investment priority in our 2014 law firm risk surveys. Intellectual Asset Management (IAM) features an interesting article by Frank Maher is a partner in Legal Risk LLP. "How well does your conflicts system work?" --
  • "In the course of acting as a solicitor for law firms for over 30 years – both defending professional indemnity claims and advising on professional regulation – the author has encountered many issues arising from conflicts of interest; much pain has been endured by those who fell foul of the rules. When conflicts issues go wrong, they can be among the most damaging to a firm’s reputation – and reputation is the only thing we have to sell. Problems in practice fall into several categories, including:
    • the conflict checking system failing to pick up the existence of a conflict, or significant risk of one, at all;
    • acting for two or more clients, such as joint venture partners or husband and wife, and failing to spot either that their interests conflict at the outset or that they may do so further down the line;
    • failing to spot when a conflict does arise in the future, as may happen when acting for lender and borrower, in some cases because the problem has unfolded gradually;
    • taking on a small matter which precludes the firm from acting on something more substantial later;
    • allowing a large client to impose its terms of business (or ‘outside counsel guidelines’) which impose more extensive duties than would apply at law and under the conduct rules;
    • establishing systems which check for client conflicts, but fail to check at all for own interest conflicts, such as personal appointments as trustee or director;
    • failing to spot that the solicitor’s own interests may conflict – perhaps the volume of work from one client, such as an insurer, and the desire not to offend it or appear uncommercial blinds the solicitor to the risk of conflict with the insured; and
    • relying on information barriers when they are either not appropriate at all (because at most they may protect confidential information, but will not cure a conflict), or inadequate for the purpose they seek to achieve.
See the complete article for additional detail and analysis.

Thursday, December 18, 2014

Close Encounters of the Ethical and Conflicts Kind


Several stories showcasing the atypical. First up: "Leave to appeal granted in novel conflict of interest case" --
  • "A Toronto law firm has obtained leave to appeal an order of a judge who removed it from a case on the basis of conflict of interest even if the traditional test for a conflict wasn’t met. On Nov. 27, Divisional Court Justice Barbara Conway found 'there is good reason to doubt the correctness of the motion judge’s order' to remove the firm despite the fact the party affected by the conflict wasn’t a former client or 'a near client' of the firm."
  • "Superior Court Justice David Brown had removed Teplitsky Colson LLP as counsel of record for the plaintiff in a matter to do with alleged mismanagement of a hedge fund after finding it had obtained confidential information about the defendant company from an employee who was a former client of the firm."
Next, only part of the story has come to light here, so judgment reserved: "Tennessee Ethics Board Sued" --
  • "A bombshell of a lawsuit goes in front of a Nashville  judge Thursday as a pair of Nashville lawyers are suing their own ethics board for what they call ethical violations and a cover-up. That means they are suing the very people who punish lawyers for bad ethics."
  • "It all started when one lawyer saw an email about his upcoming case sent to a judge without his knowledge... It was a secret email he knew nothing about."
  • "'We discovered that the Board of Professional Responsibility was systematically engaging in unethical conduct. They, on a regular basis, were having secret conversations with judges, and now they are trying to cover it up,' Roberts said."
And showing that those of us in California should not cast stones across state lines (but please send water): "Viewpoint: State Bar Intrigue Shows Little Concern for Transparency" --
  • "It's been a pretty wild ride the last few months over at the State Bar of California. First, the state Supreme Court pulled the plug on the rules commission that had worked for over a decade on a wholesale revision of the Rules of Professional Conduct. Not a single rule of the 67 submitted by the commission to the bar board in 2010 has been approved by the Court."
  • "Then the Bar's board of trustees terminated Joe Dunn, its now-former executive director. Within a day of that news becoming public, Dunn—represented by high-profile, self-described 'criminal defense lawyer' Mark Geragos—filed a lawsuit against the Bar claiming he was a whistleblower."
  • "There's much to speculate about, but a few things seem clear... whatever happens with l'affaire Dunn, the State Bar has to learn to be more responsive to lawyers who inquire about straightforward information and, especially, the public and the public's right to know. Lack of transparency may be convenient to Bar execs and board members, but opacity serves neither the interests of the legal system or the public."

Wednesday, December 17, 2014

Risk Updates: Conflicts Edition

 
 
First up, two partners at McKenna Long & Aldridge highlight a trend we've certainly witnessed here on the risk blog: "Motions to Disqualify: Four Things to Know" --
  • "Few things are worse for an attorney than getting a new big matter, starting work, and then facing a motion to disqualify. In recent months, high-profile disqualification motions have appeared more frequently in various legal news publications and Internet news sites."
  • "Many disqualification motions are well founded. Other times, disqualification motions are used as nothing more than a litigation tactic, forcing attorneys to scramble to protect valued client relationships."
  • "More significantly, increasingly mobile lateral attorneys (with attorneys rarely spending their entire legal careers at a single law practice or firm) have triggered a host of issues that can be the basis of a motion to disqualify."
  • "The best way to deal with motions to disqualify is to prevent them. Two important pre-motion strategies are effective. First, identify and resolve potential conflicts of interests including both multiple and successive representations prior to undertaking a representation or hiring a lateral. Where a conflict exists, an effective consent is the best defense to a motion to disqualify."
  • "Second, take effective steps to mitigate, if not eliminate, risks that a former client's confidences and secrets might be accessible by attorneys working on a matter involving the former client. Increasingly, courts have recognized and accepted timely, effective ethics screens as a tool for addressing the risks inherent becoming adverse to a former client."
  • "The 2014 Guidelines, published on 28 November, do not mark a substantial departure from the Original Guidelines, and instead make refined changes to reflect and inform current debates on issues in modern arbitral practice, and 'the increased complexity in the analysis of disclosure and conflict of interest issues.' In clarifying the standards expected of arbitrators and parties, it is the aim of the 2014 Guidelines 'that arbitration proceedings are not hindered by ill-founded challenges against arbitrators' or that 'the legitimacy of the process [is] not affected by uncertainty and lack of uniformity.'"
  • "Paula Hodges QC, Global Head of Herbert Smith Freehills’ International Arbitration Practice, says of the 2014 Guidelines that: 'we hope that these new Guidelines will prove useful in providing more clarity and a level playing field to parties and arbitrators, striking the right balance between impartiality and due process on the one hand and unmeritorious challenges on the other.'"
Revisions include:
  1. Third Party Funders must disclose their identity, and share the “identity” of the party they are funding
  2. Arbitrators who are members of law firms, must also “bear the identity” of his or her law firm – this does not extend to barristers and their chambers
  3. "Advance waivers" by Arbitrators do not discharge an ongoing duty of disclosure
  4.  2014 Guidelines apply to non-lawyers sitting as arbitrators
  5. Disclosure of identity of parties’ counsel, including if the counsel is member of the same chambers as the arbitrator
  6. Duty of impartiality and independence extends to Tribunal Secretaries
  7. Arbitrator to consider making disclosure in situations falling outside of the time limits used in the Orange List
  8. Arbitrator and another arbitrator or counsel currently act or have acted together as co-counsel within the last three years
  

Tuesday, December 16, 2014

Today's Hottest Risk Update: "Swiss Cheese," The Duke, Vereins & More


Today's post has everything. It's another example of general media coverage of risk issues we frequent. (And, perhaps, a suitable subject for SNL's Stefon, were he to summarize legal battles, as this one has everything... Dukes, Vereins, Fee Splitting, Ethics Allegations, Cheese and a Platypus...) As Newsweek writes in: "Legal Swiss Cheese" --
  • "Trademark lawsuits can be a little dry, but a California case in the fall has drawn attention not only because it involved John Wayne and a whiskey named 'Duke,' but also because it highlights a growing tussle over legal ethics."
  • "In the Duke case, lawyers for John Wayne Enterprises argued in court documents last August that Norton Rose Fulbright, the verein law firm in which legacy firm Fulbright & Jaworski represented Duke University, was playing both sides of the fence—an ethical no-no."
  • "Specifically, the Wayne lawyers asserted, Norton Rose, which formed the verein with Fulbright in mid-2013, had previously represented the distillery producing the Duke-branded bourbon in unrelated matters. Fulbright lawyers denied any conflict of interest, saying in court papers that verein 'member firms do not share privileged information with other member firms unless they are retained by and working together for a client on the same matter.' The judge did not address either side’s assertion."
  • "The inner workings of vereins 'are going to be tested in courts, because someone’s going to be very unhappy,' says Edwin Reeser, a former managing partner at prominent law firm Sonnenschein Nath & Rosenthal LLP, who is now in private practice."
  • "Still, the relative financial and operational opacity of vereins is the subject of increasing debate in legal circles. Peter Kalis, the chairman and global managing partner of non-verein K&L Gates, a major law firm, tells Newsweek, 'The business model for vereins is not yet proven.' Kalis has variously compared the mega-firms to a platypus (i.e. a freak of nature), a kaleidoscope, a “grand illusion” and a Potemkin village."
  • "Law firms rushed into these network combinations because they sounded like a wonderful panacea” to the problem of expanding amid the post-2008 recession, Reeser says. 'But the U.S. law firms are going to be the losers in these structures because of conflicts of interests and ethics rules on fee splitting.'"

Wednesday, December 10, 2014

NY Law Journal on Law Firm Information Security

With a hook invoking the late, great Rod Serling, the chances of a legal article _not_ touching risk issues making it to the blog are already high. Combine both, and, submitted for your approval: "Cybersecurity: Business Imperative for Law Firms" --
  • "It is not difficult, then, as the late Rod Serling, host of the long-running television show "The Twilight Zone" asked viewers at the beginning of each episode, to 'imagine, if you will' the following scene:
  • "A law firm's managing partner answers her phone on the first ring. It is 3 p.m. on the Wednesday before Thanksgiving and her husband wants to know when she'll be home... She clicks on the first email. It's from the chief technical officer of the bank that is the firm's biggest client. He is writing to advise that, due to increased cybersecurity scrutiny from New York State's Department of Finance and the Securities and Exchange Commission (SEC), he will be auditing the information security protocols of all of the bank's law firms."
  • "He needs access to the firm's network and copies of all information security policies and procedures, along with materials used to train the attorneys and staff—current, of course—by the following Monday morning."
  • "The managing partner swallows hard: There are policies, but they haven't been updated since BlackBerrys were the only smartphone allowed for firm business, five years ago."
  • "She clicks on the second email. This one is from the chief information officer of a 100-hospital system that short-listed the firm for its national litigation counsel. His email says that the board has decided to review the information management policies of all the finalists. He apologizes but, he writes, after a recent incident in which another hospital system law firm inadvertently disclosed the information of 400 patients to Google, the board has decided not to award an engagement to any firm unless it can show that patient information will be adequately protected."
  • "The managing partner picks up the phone, tells her husband she'll be working through the night and will also be leaving for the office right after the Thanksgiving meal, and offers that maybe one of the kids could help him cook."
The article proceeds to serve up a healthy helping of analysis, covering current trends, new standards and growing scrutiny placed on law firm compliance:
  • "With developments such as the requirements upon lawyers in the HIPAA omnibus rule and Superintendent Lawsky's letter requiring financial institutions to provide information about their law firms' information safeguards, the legal, ethical and business obligations come together. The question for law firms is not whether to become cybersecurity literate, but how quickly they can do so, in-house or with the assistance of outside experts and counsel, to the satisfaction of their clients and the clients' regulators."

Tuesday, December 9, 2014

Recent Conflicts & Screening Decisions


Another post cribbing from the eagle-eyed Bill Freivogel, who notes a few interesting cases:

LADT, LLC v. Greenberg Traurig, LLP, 2014 WL 6686776 (Cal. App. Nov. 25, 2014)
  • "Law Firm represented several parties in a transaction. At some point Law Firm wrote a letter to its clients mentioning possible conflicts of interest and eliciting a waiver from the clients. The letter also contained an agreement that any dispute regarding an alleged conflict of interest be subject to binding arbitration."
  • "Later the clients sued Law Firm for malpractice (this case). The complaint made no mention of a conflict of interest. However, during discovery the clients answered 'yes' to a question whether Law Firm had had a conflict of interest. Upon receiving that response, Law Firm moved to compel arbitration."
  • "The trial court denied the motion. In this opinion the appellate court affirmed holding that because the clients chose not to sue for a conflict of interest, the arbitration agreement did not apply to this case."
 Am. Tax Funding, LLC v. City of Schenectady, 2014 WL 6804297 (N.D.N.Y. Dec. 2, 2014)
  • "Lawyer served as law clerk in this court. While a clerk, Lawyer attended a settlement conference in this case in the presence of the magistrate judge who wrote this opinion. Lawyer left the court and joined Law Firm. After that, one of the parties, because its lawyer retired, hired Law Firm to handle this case. Because of the presence of Lawyer at Law Firm, the other party moved to disqualify Law Firm."
  • "In this opinion the magistrate judge denied the motion. The court found that Law Firm erected a timely and effective screen pursuant to New York Rule 1.12. Of particular interest was the court’s discussion of New York cases considering whether smaller firms should be held to a different standard when evaluating the efficacy of screens. Here, the court held that Law Firm, which had twenty lawyers, did pass muster."

Monday, December 8, 2014

Commentary: Law Firm Cyber Risk Insurance -- Rumor vs. Reality


The folks at Paragon Brokers have submitted an interesting white paper : "Is Reputation Damage Insurable in Cyber Insurance for Law Firms?"

Evidently, there was a slide in a presentation at the ILTA conference this Summer that suggested that reputation isn't insurable under a cyber policy, and they wanted to set the record straight. (I guess that just delivered the spoiler to the question at hand... but the full paper is worth a review nevertheless.)
  • "A data breach, network security or cyber event  could render client or proprietary records unreadable, leave networks unavailable, expose sensitive data or transmit malware to others. In addition to exposing a law firm to increased costs of  doing  business,  potential  liabilities  and  regulatory  scrutiny,  a  data  breach,  network  security  or  cyber  event  could have an adverse impact on a law firm’s process,  service, reputation, results of operations and financial condition."
  • "Possibly  one  of  the  biggest  'cyber' exposures  a  law  firm  faces  is  to  its  reputation  and  there  is  a  common misunderstanding that reputational damage cannot be insured in a cyber policy. This is not entirely correct, reputation loss can be insured when framed within  the prerequisites of insurability, i.e., that loss is  a) fortuitous, b) calculable & c) definite.
Read more for Paragon's commentary on the following questions:
  • How do insurers establish an insurable value to reputation?
  • How do insurers establish reputation loss is “definite” i.e. that  takes place at a known time, in a known place, and from a known cause?
  • How is reputation loss of income adjusted?
  • How can Cyber Insurance for Law Firms help?

Friday, December 5, 2014

Concerning Conflicts that Can Cost (Continued)


"Million-dollar Lawsuit Rips Winstead Advice in NCPA Sex Scandal" --
  • "In recent months, the National Center for Policy Analysis has worked hard to put a sex scandal involving its founder behind it... Now, however, the Dallas-based NCPA has filed a lawsuit against a prominent law firm and the firm’s chairman emeritus that revisits the sex scandal in detail. Among other things, the suit asserts that l’affaire Goodman caused the nonprofit organization to lose at least $2 million in fundraising—and nearly put it out of business."
  • "In late November 2012, the suit alleges, when Winstead finally recognized that it had a conflict of interest in representing both Goodman and the NCPA, its general counsel, Don Campbell, decided that the firm could not represent both of them. His decision was conveyed to Goodman, the suit says, and Baggett then referred a proposed employment agreement and Goodman’s personal “release” document to a former Winstead partner to 'close the deal.'"
  • "Flash-forward, then, to this past February, when Collins again complained that Goodman had sexually harassed her, the suit says, and Goodman again contacted Baggett to secure legal representation. Baggett agreed, telling Walker again in a voicemail message that Winstead could represent both Goodman and the NCPA without a conflict, and that it wasn’t necessary to inform the board about it, the suit says. Over the next two months, it continues, Winstead charged the NCPA nearly $31,000 for working on Collins’ 2014 sexual harassment claim."
And an interesting story from down under: "Global law firms favoured by head office but often fall short " -- [try via google if the direct link doesn't work] --
  • "General counsel at large multinational companies in Australia are under pressure from their foreign head offices to send their legal work to 'big name' global law firms instead of to leading Australian firms, a report by legal search firm Mahlab finds."
  • "However, some global law firms that have opened their doors in Australia are falling short by failing to familiarise themselves with key multinational clients or to communicate with their cross-border colleagues."
  • "Conflicts also emerged as a key difficulty for the major international law firms. Some general counsel said when they had tried to offer work to global firms in Australia, it was refused on the basis of a conflict — with partners unaware their company was an important international client. In some instances, the report says, global firms even acted against their multinational client."

Thursday, December 4, 2014

Risk News: Law Firm Insider Trading Redux


Much has been written about insider trading touching Wilson Sonsini (with headlines in 2011 for a lawyer, and more recently this year, for an IT staff member). Now comes an update on this latest chapter: "Wilson Sonsini employee pleads guilty to insider trading in N.Y." --
  • "An information technology engineer at Wilson Sonsini Goodrich & Rosati pleaded guilty on Thursday to insider trading based on information he learned while working at the prominent Silicon Valley law firm."
  • "Dimitry Braverman, 41, pleaded guilty in New York federal court to one count of securities fraud, two years after another Wilson Sonsini employee, attorney Matthew Kluger, received the longest insider trading prison sentence in history in a separate case in New Jersey."
  • "Following Kluger's arrest, Wilson Sonsini's general counsel emailed employees to remind them of the firm's policies on insider trading, according to court documents."
  • "Braverman had access to information about pending transactions through his job working on software for the firm's finance operations, prosecutors said."
As reported previously, Braverman "had computer and database systems access to confidential information about, among other things, the law firm’s clients in potential merger and acquisition activity, as well as information about the identities of the other parties to the potential deal."

No firm wants to see its name associated with these sorts of allegations, which is why an investment in policies, processes and tools that help prevent and identify inappropriate access to client confidential information are a prudent risk investment.

Wednesday, December 3, 2014

Conflicts Continued: When Conflicts (Alleged or Tentative) Carry Costs


"Vikings Co-owners Seek Reversal of $103M Judgment" --
  • "In New Jersey state court litigation that’s spanned three decades, the Wilf family, co-owners of pro football’s Minnesota Vikings, is making its case to upend a $103 million judgment against it last year for allegedly cutting off its business partners from the proceeds of a real estate deal."
  • "In August 2013, after the lengthy trial, Morris County Superior Court Judge Deanne Wilson found that the Wilfs committed fraud, breach of contract and breach of fiduciary duty, and violated New Jersey’s anti-racketeering law, by shutting Reichmann out of the partnership, and also took more than $16 million out of the venture without disclosing the withdrawals to Reichmann and Halpern."
  • "The Wilfs argue in their brief that Wilson wrongly allowed new claims into the case, failed to recuse despite a conflict and made numerous other errors, while the plaintiffs have cross-appealed Wilson’s reduction of the punitive damages and attorney fees, and her limitation of the scope of the racketeering claims."
  • "The Wilfs further allege that Wilson should never have heard the case in the first place because of an unwaivable conflict of interest: During trial, Wilson’s husband, attorney Laurence Orloff, was involved in an unrelated matter as counsel for Lowenstein Sandler, the firm representing Jarwick and Reichmann."
  • "'Judge Wilson’s disclosure to the parties of this obvious conflict of interest does not cure it,” they said in their brief. 'A financial connection between the trial judge and a party or law firm appearing before that judge is an unwaivable conflict.'"
And more on the Squire Patton Boggs matter: "Judge: Patton Boggs Rep'd Opponent in 'Substantially Related' Matter"--
  • "A federal judge overseeing a battle between the sugar and high-fructose corn syrup industries has issued tentative findings on whether to disqualify Squire Patton Boggs due to conflicts that arose from its merger this year."
  • "At a Tuesday hearing, U.S. District Judge Consuelo Marshall of the Central District of California found that Patton Boggs, which merged with Squire Sanders on June 1, had represented an opponent in the case in matters 'substantially related to the current lawsuit.'"
  • "She also found that Patton Boggs had not obtained the consent of one of its clients, another opponent in the case, to waive potential conflicts arising from its June 1 merger with Squire Sanders."
  • "The tentative decisions bode poorly for Squire Patton Boggs, which has made $12 million in fees so far from the case. Marshall said she would issue a final decision in a written ruling."

Tuesday, December 2, 2014

Conflicts & Disqualifications (When Patent Counsel Goes In-house + More)

The IPethics and INsights blog provides a very interesting update and extensive analysis: "Sony Alleges Conflict Of Interest, Wants Acacia In-House And Outside Patent Litigation Counsel DQ’d" --
  • "Motions to disqualify opposing counsel are not uncommon, especially in patent litigation... A recent disqualification motion filed in a patent infringement case pending in the Central District of California seeks to stretch the limits of the imputed disqualification rule beyond the usual contours. See Nexus Display Technologies LLC v. Sony Electronics Inc., No. 2:14-cv-05693 (C.D. Cal. July 17, 2014)."
  • "On July 17, 2014, Nexus Display Technologies LLC (“NDT”) filed suit for patent infringement against Sony Electronics Inc. (“SEI”). NDT alleged that Sony infringed three patents. The complaint accused multiple Sony products, including Sony’s 'SXRD' projectors, of infringing NDT’s patents. The complaint was filed by Aliska Lipski of the law firm of Ahmad, Zavitsanos, Anaipakos, Alavi & Mensing P.C. (AZA). Ms. Lipski and AZA are the only counsel to have entered an appearance on behalf of NDT."
  • "At least two threshold questions exist as to the applicability of Rule 3-310(E) to Mr. Siegel. First, the term 'member' means member of the California State Bar. See Cal. Rule Prof. Cond. 1-100. Mr. Siegel is not a “member” of the California bar.  Interestingly, Mr. Siegel is a registered patent practitioner and thus is subject to the disciplinary jurisdiction of the USPTO."
  • "The motion seeks to impute Mr. Siegel’s alleged conflict to NDT’s outside litigation counsel at AZA. The motion states that, 'Without such vicarious disqualification, Sony would unfairly be left to wonder what Mr. Siegel (or others at Acacia with whom he has discussed [NDT’s] case against SEL) may have disclosed to AZA concerning Mr. Siegel’s extensive experience defending SEL in patent cases and working with many of the same people who are potential witnesses and/or decision makers in the present suit."
  • "Second, the motion fails to state or suggest that Mr. Siegel 'accept[ed] employment adverse to [his] former client' Sony, at least in the ordinary sense of those words. Yes, Mr. Siegel 'accepted employment' by Acacia.  He did so, however, well before either NDT was formed or NDT filed its lawsuit against Sony.  Rule 3-310(E) thus begs the question – what is meant by the term 'accept employment adverse to the former client?' The words appear literally to focus on the state of affairs at the time the 'member’s' 'employment' was 'accepted.' The motion to disqualify does not state Mr. Siegel’s “employment” was accepted at the time of, or with knowledge of, any adverse action against Sony."
And for those who recall an earlier conflicts allegation ("Ballard Spahr denies conflict of interest in Pat Turner's Westport case") -- the judge essentially took a pass on the question: "Bankruptcy dismissed in Westport development suit" --
  • "A federal bankruptcy court judge dismissed a Chapter 11 case related to developer Patrick Turner's ambitious waterfront development in South Baltimore, clearing the way for a foreclosure on the property."
  • "Attorneys for Inner Harbor West had argued that Ballard Spahr's involvement represented a conflict of interest, since the law firm worked on $160 million bond deal approved by the City Council and then-Mayor Sheila Dixon to pay for utility work, including roads, sewer and water lines, at the site."
  • "Gordon said bankruptcy court was not the proper venue to resolve those claims, although he said, "I have to wonder why Ballard Spahr would not simply decline representation. … There was certainly enough on the surface to make a plausible allegation.'"
  • "But Gordon said the dispute had no bearing on the bankruptcy. 'After mulling this over, I can't let the potential tail wag the dog — 'dog' a very appropriate word … for this Chapter 11 case — especially since there is no significant allegation made that the alleged conflict has any real impact at all on the debtor's ability to reorganize,' Gordon said."