Friday, January 23, 2015

Conflicts Waivers – "Still Waiving After All These Years"

The New York Law Journal Reports: "Judge Rejects Disqualification of Law Firm in Joint Defense" --
  • "A Commercial Division judge has rejected a motion to disqualify a law firm from representing parties in a joint defense because 'virtually all conflict waivers would be unenforceable' if the court did so."
  • "The Ridgeline parties argued that Eilender and his firm should be disqualified, even though a waiver of conflict was signed. Eilender represented Ridgeline and other parties who were once codefendants in a lawsuit challenging the sale of a company that owns a biodiesel refinery in Carthage, Mo. But now they on the opposite sides in litigation."
  • "Justice Shirley Werner Kornreich  rejected that request for disqualification in an opinion earlier this month in Gem Holdco v. Changing World Technologies, 650841/2013: 'If disqualification was warranted in this case, it would follow that virtually all conflict waivers would be unenforceable, a result which is at odds with this state's legal policy,' Kornreich said. 'Such a result would significantly impair the ability of co-defendants to mount a joint defense, leading to significant litigation inefficiencies and increased legal costs for litigants, who would unnecessarily have to hire more lawyers to perform duplicative and expensive work.'"
  • "Eilender said in an interview that the motion to disqualify his law firm was 'completely a litigation strategy' undertaken by a 'sophisticated consumer of legal services.'"
  • "While there is a school of thought that rejects advance waivers of conflicts of interest, Eilender said his firm's engagement letter was meant to deal with the uncertainty of the future and plan ahead for conflicts arising between the jointly represented parties. If his firm's letter had been rejected by the judge, there was no way the firm could ever represent multiple clients without being conflicted out, Eilender said. 'The contract actually meant what it was supposed to mean and the court backed it up,' Eilender said."

Thursday, January 22, 2015

On Subject Matter Conflicts

The IPethics and INsights blog provides another update worth noting: "Massachusetts Supreme Court To Tackle Thorny Issue Of Subject Matter Conflicts In Patent Prosecution" --
  • "This action arose from a civil malpractice lawsuit filed in April 2012 in federal court by a sole inventor and his assignee against an IP law firm and several of its attorneys. The complaint alleged that the inventor hired the IP firm to file and prosecute a patent application on an allegedly new eyeglass hinge invention. The complaint further alleged that during the same time it was representing the inventor, the law firm also was representing another client in a similar invention, albeit using different attorneys working from a different office."
  • "The complaint alleged that the invention disclosed in the other client’s patent was 'similar in many important respects' to plaintiff’s  invention.  The complaint further alleged that the law firm had a conflict of interest which 'should have been disclosed before and during” the representation and that, due to the purported conflict, the law firm was unable to “fully and without restraint represent' the inventor and his assignee. The complaint still further alleged that plaintiff was unable to market his product as a result of the 'similarities' between the other client’s invention and plaintiff’s invention."
  • "Whether two inventions handled simultaneously by the same law firm are 'similar' enough to raise an ethical conflict of interest is an issue of considerable importance to the intellectual property bar and clients of IP services. To be sure, Baker Botts recently found itself facing a malpractice award of $41 million due to a patent subject matter conflict of interest (the firm escaped liability after the court determined the claim was barred by limitations)."
For more information about subject matter conflicts and how technology can be used to identify and mitigate risks as the conflicts landscape evolves. See Intapp's risk bulletin: "Beyond Adversity — On Business, Positional and Subject Matter Conflicts" --
  • "Managing conflicts is integral to the new business intake and lateral onboarding processes at every law firm. Over the years, firms have honed procedures and adopted software to search and identify potential adversity to avoid malpractice risks by resolving conflicts or turning down matters or lateral hires. Increasingly, however, clearing conflicts requires much more than simply identifying legal conflicts."
  • "To manage these business, positional, subject matter and playbook conflicts successfully requires firms to keep abreast of industry trends, update procedures, collect and manage new information and leverage new technology to streamline compliance."

Thursday, January 8, 2015

Will Big Breaches Create More Trickle Down Impact for Law Firms?

A reader sent in world of today's report in the Wall Street Journal: "Puzzle Forms in Morgan Stanley Data Breach." (With additional detail here.) The articles dig into the details of an internal breach (and associated allegations of what did or did not happen next):
  • "... [A] financial adviser named Galen Marsh started to sift through the account records of some 350,000 of the firm’s clients. Virtually none of them were his own. In what some security experts are saying is likely the biggest data theft at a wealth-management firm..."
  • "By December, some of that account information appeared on a text-sharing website, with the offer to trade it for an obscure virtual currency." ["Speedcoin" for the cyptocurrency geeks out there.]
  • "Twelve days later, a different item provided a sample of the information that was available, giving details from 1,200 accounts that Morgan Stanley said were tied to 900 clients."
  • "Already, the episode is having ramifications within Morgan Stanley: On Tuesday, people familiar with the matter said the firm has tightened access to its client database so that individual advisers no longer have access to such wide swaths of account data."
  • "It isn’t uncommon in the wealth-management industry for advisers to squirrel away information about clients before leaving for another firm, since a stable of wealthy clients is the lifeblood of any successful advisory practice."
Two potential thoughts flow from this situation. Firstly, when Bank of America feared it was about to see internal information shared via Wikileaks in 2011, it (and others) went on an OCG and law firm audit push that sent ripples across the legal industry. (Background and refresher on our coverage of that here and here.)

Will we see even greater focus on the firms that hold and manage this sensitive data? Morgan Stanley has already hired: "an outside consulting firm to increase its capacity to take calls from clients concerned about the breach and provide credit and identity-theft protective services." Will it feel the need to similarly demonstrate its commitment to security by announcing additional 'belt tightening' that will trickle down to its outside counsel and other vendors?

Secondly, this highlights the very real impact of unfettered internal access to sensitive information.

There has been a growing legal industry shift towards adopting "members only" internal security models, where only individuals that are members of a particular matter team can access sensitive client data, or "hybrid" models where matters in specific practice groups or geographies default to closed access, while others remain open.

According to the just-published ILTA technology survey, the number of firms moving to a "pessimistic" security model grew by 50% in the past year. (Though, for context, we note that the survey reports that 6% of firms have embraced the closed or hybrid confidentiality model.)

(For more information about how technology can be used to implement closed or hybrid models, to read a white paper on OCG trends, or to access a recorded webinar on this topic, see Intapp's resources on client confidential matters.)

Wednesday, January 7, 2015

On Intra-firm Privilege

Several recent updates on questions regarding intra-firm privilege:

"Novel Privilege Issue Raised in Suit Against Law Firm" --
  • "A malpractice case against Schnader Harrison Segal & Lewis in Manhattan's Commercial Division has raised a broader issue for large firms: whether communications between a firm's general counsel and its attorneys are privileged from clients."
  • "On Dec. 5, Acting Supreme Court Justice Melvin Schweitzer in Stock v. Schnader Harrison Segal & Lewis, 651250/13, ordered Schnader to hand over to a former client internal firm communications between its general counsel and its attorneys. Schnader is appealing that decision, saying the issue of "in-house law firm attorney-client privilege" is a matter of first impression in New York state courts and deserves a second look."
  • "Howard Elman, a managing member at Matalon Shweky Elman who frequently defends law firms and who is not involved in this case, said this is a sensitive concern for firms. 'Law firms, I'm sure, will be paying attention to this case because the law is not clear in New York,' he said. 'Conflict of interest cases are coming up more and more in litigation, and I think conflict scenarios are the classic type of things that lawyers will go to their general counsel about. The notion that a general counsel's communications with an attorney can be open for discovery is not good one' for law firms, he added.
On the West Coast: "California Case Embraces Intrafirm Privilege for Consultation With Firm’s Inside Counsel" -
  • "The attorney-client privilege shields a lawyer's confidential communications with her law firm's in-house attorney about a dispute with a current client provided that a genuine attorney-client relationship exists between them, the California Court of Appeal, Second District, decided Nov. 25 (Edwards Wildman Palmer v. Superior Court (Mireskandari), 2014 BL 331662, Cal. Ct. App. 2d Dist., No. B255182, 11/25/14)."
  • "The ruling is the first published California appellate decision directly recognizing the attorney-client privilege for legal discussions within law firms about problems with a current client's representation."
And the ever watchful Bill Freivogel notes another recent decision on the topic:
  • "Moore v. Grau, 2014 N.H. Super. LEXIS 20 (N.H. Super. Ct. Dec. 15, 2014). Following recent high court rulings in Massachusetts, Georgia, and Oregon, the judge ruled that a law firm could assert privilege for internal communications during a representation. The opinion has a particularly good discussion of how smaller firms might structure things to keep the privilege."

Tuesday, January 6, 2015

2015 – New Year, Old Risks? (Conflicts + Insider Trading)

(Hope everyone had a risk-mitigated New Year's celebration. We took a few weeks off. Now, back to work.) First up: "Proskauer Cases Reflect Efforts to Put Firms on Defensive" --
  • "In recent motions, plaintiffs have either alleged malpractice or that the firm’s attorneys had conflicts of interest and should be disqualified. In a statement, a firm spokeswoman said 'these four matters are completely unrelated and, in some cases, relate to events that occurred nearly a decade ago. They either are transparently tactical maneuvers by adversaries or efforts to seek a windfall by plaintiffs who are unhappy with the consequences of their own business decisions.'"
  • "Proskauer is not the only law firm defending its practice. In recent weeks, there have been motions in professional liability cases involving Schnader Harrison Segal & Lewis, Sidley Austin and Wachtell, Lipton, Rosen & Katz."
  • "Howard Elman, a managing member at Matalon Shweky Elman said, 'big law firms are getting hit left and right these days.' He attributes a rise in claims against large firms to factors such an increase in conflict issues, clients not having the same allegiance to firms as in the past and an active malpractice plaintiffs bar."

See the full article for more detail on the specific cases. Next up, a look at how new rules may create new temptations and new risks. The author has no qualms taking a proactive position: "How to Make a Killing Trading on Insider Information - Legally" --
  • "I suspect most investors believe the use of insider information is illegal. If so, they are only partially correct. A recent decision by the U.S. Court of Appeals for the Second Circuit (United States of America v. Todd Newman, Anthony Chiasson et. al) will make it exceedingly difficult to prosecute a broad range of insider trading cases, even when insider information is used and huge profits are generated."
  • "Assuming that this opinion is not overturned by the Supreme Court and remains the governing precedent, maybe you can profit from it. If you have the good fortune to overhear a conversation at a posh restaurant between a CEO and an investment banker concerning the imminent takeover of a public company, you can trade on that information with impunity. Why? Because even if you know the information was coming from the CEO, the CEO did not disclose it in exchange for a 'personal benefit.'"
  • "Similarly, if you have a friend who is an attorney at a major law firm and he discloses confidential information about a publicly traded company that is a client of his firm, you can trade on that information as well. The lawyer presumably did not tell you where he got the information and he did not benefit from disclosing it to you. Of course, the lawyer violated both his legal obligation to his firm and his fiduciary obligation to his client."