Thursday, July 30, 2015

Risk News: Client Success, Conflicts & Insurance



A potpourri of posts to present:

First, today, firms increasingly understand and feel the market pull to focus specifically on client success -- not just delivering the services they've been engaged to perform, but delivering outcomes (and ensuring clients feel understood, advised and well served). This interesting update highlights the intersection of risk into this business equation: "Legal Advice Must Allude to Client's Business Risks" --
  • "Lawyers aren’t business consultants, but they are subject to malpractice liability if they fail to give a client sufficient legal advice about business-related risks to allow the client to make informed business decisions, the U.S. Court of Appeals for the Seventh Circuit held July 7."
  • "The district court did not 'identify any principle of Illinois law that sharply distinguishes between business advice and legal advice,” Easterbrook wrote. “It is hard to see how any such bright line could exist,' he added, 'since one function of a transactions lawyer is to counsel the client how different legal structures carry different levels of risk, and then to draft and negotiate contracts that protect the client's interests.'"
In conflicts news: "CMS hit with "ground breaking" court application to be removed as KPMG lawyers" --
  • "An application has been made to the High Court to have CMS Cameron McKenna removed as the lawyers for two KPMG administrators over allegations that the firm’s role represents a conflict of interest."
  • "The application, made by Hausfeld client property developer Julie Davey, has been stayed by Mr Justice Henderson pending the outcome of Davey’s legal battle with the KPMG administrators, scheduled to be heard in October."
  • "The applicant claims CMS is conflicted in its role as lawyers to the liquidators as the firm is also closely aligned with Lloyds, and that without information barriers in place, information produced by KPMG administrators could be provided to the bank. She alleges this would prejudice any potential conflict with the bank."
Adding some interesting color and commentary on insurance trends: "Law Firms See Insurance as Bulwark Against Data Breach" --
  • "In May, the New York Times obtained and published an article about an internal report at Citigroup that suggested law firms are likely vulnerable targets for hackers, but that it was difficult to tell if data breaches are on the rise or not because there is no regulatory reporting requirement for the legal industry."
  • "'“Our law firm clients report being extorted or threatened with denial of service and being held hostage,' said Mark Greenwood, managing director with Aon Risk Solutions, which sells cyberinsurance to several dozen law firms."
  • "Greenwood declined to disclose which firms had reported a breach, but said the minimum cost of hiring a consultant to identify the hole in a cybersecurity system and to then fix it is $500,000. He further estimated that the largest law firms are paying for $5 million to $40 million in coverage, mid-size firms are purchasing up to $10 million in coverage, and smaller firms are buying  up to $5 million in coverage. The insurance provides firms with a “coach” who can take the lead if a breach occurs, crisis communication and PR specialists, as well as online training and support from IT professionals, according to Greenwood. In the last year alone, his group has signed up 30 new law firms for cyber insurance, he said."

Wednesday, July 29, 2015

Law Firm Insider Trading: New Allegations and News (and Now Jail Time)



Ex-Wilson Sonsini Staffer Seeks To Avoid Jail Over Trades --
  • "A former Wilson Sonsini Goodrich & Rosati PC information technology employee told a New York federal judge Wednesday he should not be sentenced to jail for trading on inside information about client deals and apologized for any damage to the firm’s reputation."
  • "According to the government, Braverman earned more than $300,000 by trading the stocks of several technology and pharmaceutical companies, as well as children’s clothing retailer Gymboree Corp. He was arrested in September 2014."
  • "He said he got the idea to trade on inside information while driving home from work one day, when he heard on the radio about a merger involving a Wilson Sonsini client."
  • [As previously noted]: "Braverman used computerized records at the law firm to identify companies involved in possible acquisitions, including Gymboree Corp., Drugstore.com Inc., Epicor Software Corp. and Seagate Technology Plc, according to charges made public today in Manhattan federal court."
Ex-Fox Rothschild Partner Pleads Not Guilty to Insider Trading --
  • "A former Fox Rothschild lawyer who was with the firm during its handling of the 2012 Harleysville-Nationwide insurance merger pleaded not guilty in federal court to insider-trading charges."
  • "The indictment alleged that a day after Sudfeld learned the merger was going forward, he contacted his stockbroker and purchased 1,000 shares of Harleysville stock under his wife's account on the morning of Sept. 28, 2011. That afternoon, Sudfeld bought 2,000 shares of Harleysville stock from his own account. Sudfeld did not tell his broker that he was trading on inside information, the indictment said."
  • "Sudfeld did not tell his former firm about the stock purchases, the indictment alleged, and knew he was violating the firm's confidentiality rules by trading based on private information."
Update: This evening, the Wall Street Journal reports that a jail sentence has been handed down in the Wilson Sonsini matter: "A former employee at the law firm Wilson, Sonsini Goodrich & Rosati PC was sentenced to two years in prison Wednesday for insider trading, eight months after admitting to making illegal trades using data gleaned from the firm’s computer system."

Friday, July 24, 2015

Vereins: Very Interesting Conflicts Considerations (and News)


Bloomberg BNA has a fascinating update and analysis: "Dentons’ Disqualification and Legal Advertising: Stir But Don’t Shake" --
  • "The Swiss verein enables member firms operating under the Dentons brand to maintain their own finances while tapping into the global brand’s robust sales and marketing machine and technology. The structure also facilitates the firm’s rapid entry into new markets, helping it to circumnavigate potential regulatory roadblocks without seemingly breaking stride."
  • "But there are also downsides to the Swiss verein — not just for Dentons but also for the other half-dozen behemoth firms that share the structure. For example, profits cannot be shared between constituent partnerships, a constraint that removes incentives for lawyers in member firms to share clients and work with attorneys in other member participants operating under the global brand."
  • "Dentons stumbled recently when it was disqualified from representing an Ohio company in a patent suit against Gap, Inc., a current as well as long-time client. Conflicts are a serious challenge for all law firms; they are the most common basis for legal malpractice claims. The larger and more geographically dispersed a firm becomes, the more serious the potential for conflicts and the more pressing the need for uniformly applied prophylactic measures to avoid them. So what makes the Dentons disqualification so noteworthy that it could have a chilling impact upon the Swiss verein structure for law firms?"
  • "Judge Bullock ruled that Dentons should be disqualified. In so doing, he not only considered the procedural history above, but also rejected the Dentons contention that as a Swiss verein, its representation of Revolaze against Gap by its US member firm immunized it from conflict and access to Gap’s proprietary data resulting from the Dentons Canada representation of Gap."
  • "Translation: If you represent yourself to the public as Dentons, then you will be held accountable as Dentons whether you have a Swiss verein structure or not."
  • "The bottom line is there are inherent risks of conflicts and proprietary data disclosures endemic to the verein structure — risks which Judge Bullock’s decision makes clear cannot be avoided by asserting the legal separateness of member firms. This does not mean that the verein structure is necessarily doomed or inimical for law firm adaptation. It does, however, underscore the far more onerous burden on Swiss verein firms to ensure that conflicts are avoided and that maintenance and protection of proprietary client data is not subject to compromise even between and among the individual member firms within the global brand."

Thursday, July 23, 2015

Risk News: Disqualifications Denied



Several interesting updates to share on the disqualification front. First up, more on the Skadden front: "Judge Declines to Boot Skadden, Despite Alleged Conflicts" --
  • "A federal judge in Santa Ana ruled on Tuesday that Skadden Arps should not be disqualified from defending a former medical device company executive on criminal insider trading charges, despite suggesting a lawyer in the case committed 'perjury.'"
  • "In an 11-page ruling, U.S. District Judge Andrew Guilford stopped short of naming who was responsible for perjury, and concluded that regardless of the complex facts at issue, Skadden could remain in the case."
  • "'This Court has long been concerned about false statements under oath,' Guilford wrote, dropping a footnote to a law review article he authored on the subject, 'but here the right of a criminal defendant to pick his attorney requires denying the request to disqualify counsel... Despite the presence of complex conflicts issues that might serve as the basis to disqualify Skadden, none overcomes the strong right of a criminal defendant to pick his counsel.'"

Next: "Sidley Beats Patricia Cornwell's DQ Bid In Accountant Suit" --
  • "A Massachusetts federal judge on Thursday rejected best-selling author Patricia Cornwell’s argument that Sidley Austin LLP can’t represent an accounting firm she accuses of financial mismanagement because Sidley employs a former federal prosecutor who she says investigated her, and Cornwell announced she would seek immediate appeal."
  • "Cornwell had moved to disqualify Sidley from representing accounting firm Anchin Block & Anchin in a new trial ordered after U.S. District Judge George A. O’Toole Jr. last year set aside a verdict of nearly $51 million a jury had awarded the author and her wife, Staci Gruber."
  • "Cornwell argued that Sidley partner and former Deputy Attorney General James Cole had represented Anchin Block while he was a partner at Bryan Cave LLP, and that he 'continued to press Anchin’s agenda against Cornwell' at the U.S. Department of Justice while his nomination was pending. On Thursday, however, Judge O’Toole disagreed and denied the motion, according to both Cornwell and Sidley."
And from the always quotable Bill Frievogel comes:
  • "Malibu Media, LLC v. Tashiro, 2015 WL 4203328 (S.D. Ind. July 10, 2015). Plaintiff sued two defendants for copyright infringement. Lawyer appeared for both defendants. The issue in this opinion is whether Lawyer should be sanctioned because he had a conflict of interest, thus causing delay and expenses for Plaintiff. The court held that, although it was possible that the defendants could have blamed one another for the infringement, there was no conflict here because the defendants took the consistent position that there was no infringement."

Tuesday, July 14, 2015

On Containing Contractor Conflicts & Other Risks



Two good updates from the Daily Report on the topic of contractor lawyer risk management. First:
  • "For law firms that hire a contract attorney as an employee who works exclusively for the firm and its clients, conflict issues are relatively straightforward. The imputation rules apply equally to all attorneys in the law firm. The issue is more complicated for contract attorneys hired as independent contractors. One way to address this issue is to establish an ‘exclusive’ independent contractor relationship with a contract attorney so that the conflict analysis only involves one set of clients."
  • "Under this arrangement, the law firm and the contract attorney agree that the contract attorney will do work only for the one law firm. Not surprisingly, contract attorneys may expect some commitment from the law firm, whether in the form of compensation or a workload commitment. It is more complicated for firms that prefer to use contract attorneys on a purely ‘as needed’ or nonexclusive basis."
  • "To ensure that a contract attorney's conflicts are not imputed to the firm, it is important that the firm take steps to delineate the contract attorney's limited role. This typically means physical separation, such as working away from the office space or within a segregated area at the firm's office. Any access to firm databases or records should be limited to the specific project within the project attorney's assignment."
  • "Per D.C. Bar Ethics Opinion 352, if a contract attorney ‘is located in a firm's office space, works simultaneously on multiple projects for the firm, is listed on the firm's website or other directories, and has access to the firm's email systems and electronic documents,’ the attorney would likely be so associated with the firm that the attorney's conflicts are the firm's conflicts."
  • "Make no mistake: there is nothing inherently wrong, unethical or unprofessional about using contract attorneys. But the risks involved are unique and merit a different kind of attention. Here are more suggestions for addressing them."
  • Insurance Coverage: "For these reasons, it is especially important to precisely define the nature of the relationship between the law firm and the contract attorney, and confirm during the application process that the legal malpractice insurer will provide coverage should a claim arise."
  • 'Independent' Contractors: "Typically, negligence committed by contract attorneys in the furtherance of their employment is likely attributable to the law firm. Even in an "independent contractor" scenario, there is a risk of a claim for negligent supervision or hiring of an independent contractor. As a result, it is critical that attorneys from the hiring firm supervise and train contract attorneys."
  • Documentation: "One thing is certain if a legal malpractice claim arises out of work performed by a contract attorney: everyone will focus on the nature of the relationship between the contract attorney and the law firm. In the absence of documentation, such determination will be left to the general recollections of the parties involved, as well as what reasonable third parties might have believed. This creates risk."

Monday, July 13, 2015

Conflicts News: Skadden Partner Skedaddles, Some Seeing Serious Signs



We covered the underlying matter back in 2012 (see: More (Alleged) Insider Trading (Potentially) Linked to a Law Firm) and now note a substantive update: "Skadden Partner Retires Amid Questions about Conflicts" --
  • "In late May, Eric Waxman retired as a partner with Skadden, Arps, Slate, Meagher & Flom in Los Angeles — shortly after making what he described as 'deeply' regrettable corrections to earlier statements he had made in an insider trading case."
  • "Now, prosecutors are alleging Waxman made 'serial' misstatements in order to collect millions of dollars in legal fees and conceal evidence: For years, Waxman refused to give prosecutors potential evidence related to an interview he claimed was conducted at Mazzo’s behest and therefore protected by the work product rule. But earlier this year, Waxman reversed himself, and admitted the interview was also conducted at the behest of his other client AMO and not protected."
  • "Prosecutors say Skadden should be disqualified from representing Mazzo — who is awaiting criminal trial — as a result of what they describe as conflicts arising from Waxman’s dual representation and misconduct. While Waxman’s former partners insist that his mistakes were unintentional, they’re also distancing themselves from him and his conduct as they dispute prosecutors’ arguments. The imbroglio illustrates one problem that can arise when a law firm represents a corporation and an executive in the same matter."
The complete article is worth reviewing for more detail and background. Above the Law also offers its unique brand of commentary: "The Biglaw behemoth may have stepped into an ethical morass when a veteran partner withheld evidence from prosecutors for years, erroneously claiming it constituted work product... Oops. And the crux of Skadden’s defense is that they just kind of forgot who requested these interviews and if they were ever shared with AMO. And, hey, maybe that’s true. This is a complicated case. Lot of ins, lot of outs, lot of strands to keep in the ole Duder’s head. Unfortunately for Skadden, innocence doesn’t cut it for a top-tier firm."

Thursday, July 9, 2015

Canadian Conflicts Cause Cash Crunch ($45m in Damages)



Lawyer and legal expert Simon Chester sent in word of breaking news: "Judge dismisses class action by GM Canada dealers, upholds claim against law firm" --
  • "A class-action lawsuit by former General Motors of Canada Ltd. dealers against the company has been dismissed but their claim against a Toronto law firm has been upheld. The dealers, who were terminated as the auto maker successfully staved off bankruptcy protection under the Companies’ Creditors Arrangement Act in 2009, have been awarded $45-million in damages against Cassels Brock & Blackwell LLP."
  • "The retailers sued GM Canada and the law firm after their dealerships were wound up in 2009. They argued in part that the six days the company gave them to assess wind-down agreements they signed in return for compensation was insufficient and that the law firm was in conflict of interest because it represented both dealers and the federal government, which was being asked to help bail out the company."
  • Ontario Superior Court Judge McEwen wrote: "'Cassels acted irresponsibly and unprofessionally by failing to have an effective conflicts checking system in place – that is one which actually leads to lawyers discussing and resolving potential conflicts,' he wrote. 'Cassels is liable for its failure to heed the alarm bells that were audible, despite the deficiencies of its conflicts checking system.' While GM Canada stayed out of bankruptcy protection, Canadian and Ontario taxpayers contributed $10.8-billion to the bailout of its parent, which used some of that money to reduce a massive pension deficit in plans set up for salaried and hourly employees."
We covered this story when it took shape, starting in 2012. And again in 2014. See the complete text of the judgment here.

Wednesday, July 8, 2015

Ethics Updates: Threats & Trading (Insider, Outsider or In-between)

 

First, via the legal ethics forum: "Ethics Opinion: Can You Threaten Another Lawyer With Disciplinary Charges?" --
  • "A new opinion issued by the Professional Ethics Committee of the New York City Bar Association discusses whether -- and under what circumstances -- an attorney may threaten another lawyer with disciplinary charges.  From the digest:
  • "An attorney who intends to threaten disciplinary charges against another lawyer should carefully consider whether doing so violates the New York Rules of Professional Conduct (the “New York Rules” or “Rules”). Although disciplinary threats do not violate Rule 3.4(e), which applies only to threats of criminal charges, they may violate other Rules. For example, an attorney who is required by Rule 8.3(a) to report another lawyer’s misconduct may not, instead, threaten a disciplinary complaint to gain some advantage or concession from the lawyer. In addition, an attorney must not threaten disciplinary charges unless she has a good faith belief that the other lawyer is engaged in conduct that has violated or will violate an ethical rule. An attorney must not issue a threat of disciplinary charges that has no substantial purpose other than to embarrass or harm another person or that violates other substantive laws, such as criminal statutes that prohibit extortion."
(Cue vision of lawyer in mirror rehearsing: "Are you intimating that you're going to file a disciplinary charge _solely_ for tactical advantage in this matter? Because I don't see anyone else here..." Doesn't quite carry the same level of drama...)

Speaking of ethical accusations: "OSC seeking $1.5-million fine in Finkelstein insider trading case" --
  • "Ontario Securities Commission lawyers are seeking fines and other payments totalling almost $6.8-million from former Bay Street lawyer Mitchell Finkelstein and four others involved in a high-profile tipping and insider trading case."
  • "Mr. Finkelstein’s lawyer, Gordon Capern, said his client has already faced terrible consequences by losing his job as a senior partner at law firm Davies Ward Phillips & Vineberg LLP, and said an additional $1.5-million fine 'goes well beyond the line of punitive.'"
  • "Mr. Capern said Mr. Finkelstein made no profit from his tipping, and has suffered reputational harm from the publicity the case generated. He said the bans requested by OSC staff are unnecessary to protect the capital markets from further wrongdoing because Mr. Finkelstein will never 'do anything or be exposed to anything' in the future that would give him access to similar insider information."
Also in the news, on the topic of public law firms: "Slater & Gordon trading under scrutiny" --
  • "Several of Australia’s most influential fund managers have begun privately pointing fingers over the possible market ­manipulation of Slater & Gordon shares, with at least one lodging a formal complaint with the corporate regulator."
  • "Slater & Gordon has seen more than $1 billion wiped from its market capitalisation since reports emerged in The Australian Financial Review last week that ASIC was considering a probe of its relationship with audit firm Pitcher Partners."
  • "But hours later VGI partner Douglas Tynan told the Financial Review there was “more than one cockroach in the kitchen” at Slater & Gordon and called into question the entirety of the law firm’s work in progress accounting. VGI also admitted to shorting Slater & Gordon shares."
  • "'The Financial Review may have some sensational market reporters or it could be the hedge fund guys pointing it out, I know what my money’s on. Tens of millions of dollars made by the shorters, and it’s the ordinary investors that have lost out, it’s clearly market manipulation and insider trading.'"

Tuesday, July 7, 2015

Risky Business: Laterals (Legal and Otherwise), Client Files, Jiggery-pokery and Argle-bargle

 

With apologies to those reaching for a dictionary, come several updates (hopefully choate) on and related to the topic of laterals. First, from Bloomberg comes a bit of news about the business side: "Stepping Up Lateral Partner Recruiting and Analytics" --
  • "Recent surveys indicate that while lateral partner hiring remains as robust as ever, a large number of managing partners question the overall efficacy of such efforts. In particular, this year’s Citi-Hildebrandt Client Advisory reports that managing partners when asked responded that only 54 percent of laterals reach a break-even point five years after their hire. And that percentage has steadily declined over the past three years."
  • "A variety of reasons are given for such uneven results, including failure by firms to do proper due diligence with regard to lateral candidates, failure of “promised” portable business to transfer to the new firm, and inadequate lateral integration programs."
  • "This contrasts with the very sophisticated analytics other professional services’ firms use in their hiring, strategic growth and retention programs. Indeed, a recent report by Deloitte Consulting indicates that 'companies that build capabilities in people analytics outperform their peers in quality of hire, retention, and leadership capabilities, and are generally higher ranked in their employment brand.'"
When clients do move, following laterals or otherwise, the subject of files can sometimes get heated, which brings us to an opinion (not a ukase) from the ABA: "Who Gets the Notes? The ABA Sides With Firms" --
  • "Clients may come and clients may go, but until now it hasn’t been entirely clear who gets the documents, as well as the notes and drafts, when a client decides to change attorneys. To resolve the ownership question, the American Bar Association has issued an opinion clarifying that when a client severs relations with an attorney or firm, the client is entitled to completed legal documents and correspondence, along with some other materials."
  • "In Formal Opinion 471, the ABA’s Standing Committee on Ethics and Professional Responsibility said that some jurisdictions follow a so-called “entire file” approach. Under that view, a lawyer must turn over any property or papers related to representation unless specifically exempted."
And on a related note, see: "New Ethics Rule Governing Lawyer Mobility Adopted in Virginia: Virginia Joins Florida as the Second State to Adopt Departing Partner Ethics Rule Regarding Client Notification" --
  • "Virginia's recent adoption of a new ethics rule will provide guidance on a common issue to lawyers and law firms managing lawyer departures. For years, lawyers and law firms have handled difficult and sometimes contentious departures guided only by a patchwork of ethics opinions and commentator advice. However, the recent codification of Virginia's new Rule 5.8, which goes into effect on May 1, 2015, sets forth specific procedures for client notification prior to a lawyer's departure."
  • "The new rule may also signal a trend toward state bar regulators' increased attention to the rules governing lateral mobility and the need for clear guidance on how to effectively comply with the bedrock duty of client communication in the midst of a lateral transition. By passing Rule 5.8, Virginia joins Florida, which was previously the only other state that had passed such a rule."
  • "Virginia's new Rule 5.8 provides clear direction on two important issues related to lateral mobility. First, the rule states – as a matter of ethics – that neither a departing lawyer nor the law firm shall contact a client prior to engaging in a joint effort to affect notification under the rule... Where a client fails to respond to a notice given by a departing lawyer, the client remains a client of the law firm until the engagement is terminated by either the client or the law firm. In the case where the law firm is dissolving and the client fails to respond to the notification, the client is deemed to be a client of the lawyer primarily responsible for the client's legal services."
Finally, from the world outside of legal, comes a fascinating news story that initially evoked some lateral-like analogies (though any attempt to match fact patterns to the legal industry would be clearly judged as somersaulting logic best deemed pure applesauce). Still, it makes for interesting reading (particularly if you happen to have family alumni from each institution...): "UCSD sues USC, noted Alzheimer's researcher" --
  • "UC San Diego on Thursday sued the University of Southern California and a nationally recognized Alzheimer's disease researcher, saying they illegally conspired to take over a major Alzheimer's study it is running."
  • "The lawsuit, filed in San Diego Superior Court through the UC Regents, also names as defendants eight colleagues of the scientist, Dr. Paul Aisen. He left UC San Diego to head a new Alzheimer's institute founded by USC in San Diego, bringing the eight with him."
  • "While universities commonly recruit or poach faculty from each other, lawsuits arising from the recruitment are much rarer. This lawsuit says USC and the other defendants went beyond recruitment to commit a variety of illegal acts, including interference with contract, breach of duty of loyalty by employee, commission of computer crimes and civil conspiracy."
  • "In 2013, the NIA announced a 5-year grant of up to $55 million for ADCS; its total funding from government and private sources is $100 million, the lawsuit stated."
  • "Aisen and the other individual defendants also took unauthorized control of the ADCS data, the university said in the lawsuit. They placed the data on an Amazon account not under the control of UC San Diego. The defendants have not responded to the university's request to hand over all data, passwords and access credentials, the lawsuit said. A request to USC for assistance didn't produce results, according to the suit."
  • "USC has also raised eyebrows with high-octane faculty recruitment coups in Los Angeles and aggressive national fund-raising. In April, USC President C. L. Max Nikias traveled to Texas for a three-day fundraising trip, part of a "corporate-like" approach to fundraising a Los Angeles Times article said some found offputting."
For those interested, here's a PDF of the lawsuit.