Wednesday, November 18, 2015

In Conversation: On Changing Client-Law Firm Dynamics

Dan Bressler, head of Intapp marketing and the Risk Roundtable initiative, discusses the changing dynamics of client-law firm relationships with Casey Flaherty. Flaherty, who made headlines as in-house counsel at Kia motors with his provocative assertions about law firm and lawyer efficiency, shares his perspective on how clients and firms can work better together to achieve greater mutual success.

(Note: We're actively looking for interesting stories and perspectives to share. If you or your firm would like to participate in this series, please get it touch.)

Direct Download Link: In Conversation: Changing Client-Law Firm Dynamics


An important part of this dynamic is the fundamental question about trust — on both sides. Do clients trust their law firms? And do firms trust their clients? It’s such a critical element of these organizational relationships.

Absolutely. Do you trust your outside lawyers? Yes. What do you trust them on? Again, it comes back to their expertise, their industry knowledge. You also trust them on that. You do trust that they have your best interest at heart. But do you trust them as project managers? Do you trust them as technologists? Do you trust the staff they are delegating work to? That’s where the trust starts to fray.

Legal work has become much more labor intensive — and  there’s the labor that can be done by human beings or machines — and the more emphasis there is on the labor side of the equation, the less trust you have. I do think that there has been a fraying of the trust between client and counsel.

Again, it has nothing to do with them being bad lawyers, or not being smart, hardworking, or honest. It’s almost too much to expect a lawyer to be a great lawyer, and a great project manager, and a great technologist, and a great everything. That’s where clients need to be more proactive in their monitoring. And I think it’s an area where clients could be doing a much better job.

Tuesday, November 17, 2015

Risk Roundtable Reports: Australian Edition

Positive reports to share from the recent Risk Roundtable events held in Sydney and Melbourne last week. Thanks again to our colleagues at K&L Gates and Norton Rose Fulbright for hosting sessions.

These sessions were focused on the theme: "How Much Risk Management is Enough and How Do You Staff the Team?"
And we're delighted to receive extensive event reports from Dion Cusack and Nell McKay from K&L Gates. Their comments are so extensive and thorough (and fascinating) that we've opted to deliver them in the form of a PDF, rather than run off the edges of your screens.

So read the Australian Risk Roundtable Report to hear more about discussions covering topics including:
  • GRC at law firms
  • Billing practices and risk pressures
  • Client engagement terms and trends
  • Information security
  • Raising the profile of risk within the firm

Wednesday, November 11, 2015

Risk Potpourri (Conflicts, Laterals, Screening & More)

Conflicts (in perspective):
An interesting and accessible summary from Mark Herrmann, Chief Compliance Officer at AON on law firm conflicts: "The Unspoken Differences Between Biglaw And Small" --
  • "Things don’t work quite that way at large firms. When Michael gets the call from his client who wants to be adverse to BigCo, Michael says, 'Thanks for calling me about this. I’d be delighted to represent you, but I can’t commit to handling the case until I check conflicts. Please don’t tell me anything more about the case. I’ll run a conflict check and get back to you as soon as possible.'"
  • "Michael then asks a conflict-checker to do the necessary search of the conflicts database. The computer searches for “BigCo” and “Big” and “Co”; and all corporate entities that have those words (or fragments) in their names; and parents, subsidiaries, and affiliates of all those corporate entities. Two hours later, Michael receives a 53-page spreadsheet with the names of all current clients, former clients, and potential future clients whose names the computer generated. The list is broken down not just by client name, but also by individual matter, and many matters were handled by different 'responsible partners' at various of the firm’s 30 offices around the globe."
  • "Michael dutifully sends out emails to the partners responsible for every matter that might create a conflict. A couple of those partners are in trial, and a few are on vacation, and one no longer works for the firm (but no one ever bothered to tell Michael). The guy in the Taipei office (who Michael has never met) naturally refuses to answer emails, despite many nudges."
  • "Three weeks later, Michael can at last return the call to his client, happily reporting that he can take the case. To which the client responds: 'Thanks very much. We got a TRO on the afternoon that I called you, and the preliminary injunction hearing is set for this coming Monday. As you might imagine, this implies that we retained other counsel. But we’ll be sure to think of you the next time something comes up.'"

Laterals (of the departing variety):
We previously noted Virginia’s rule about how departing lawyers and firms can and cannot communicate with clients during the metaphorical divorce process. One California firm takes issue with the possibility of such rules proliferating: "Are Recent Ethical Rules that Establish Attorney Notification Protocols For Departing Attorneys Really in the Best Interest of the Clients?"
  • "However, will this new Virginia rule, and similar notification rules that may be contemplated by other states, significantly change how law firm departures are handled? More importantly, will these rules promote a policy that is in the best interest of clients?"
  • "This well-intentioned attempt to force lawyers and law firms to cooperate surrounding an impending attorney departure seems to ignore the practical reality that most partnership or shareholder agreements, especially within larger firms, already have contractual provisions that govern what departing attorneys can or cannot do with respect to communicating with clients regarding their departure. These agreements, which many consider some form of adhesion contracts, are not subject to negotiation by the incoming partners or shareholders, and often become take-it-or-leave-it propositions."
  • "In California, as in most states, attorneys have fiduciary and ethical duties to keep their clients “reasonably informed about significant developments relating to the employment or representation.” (Cal. Rules of Professional Conduct, Rule 3-500.) This rule has been interpreted as imposing an obligation on the partner to inform clients (those firm clients with whom the attorney has significant contact) of his/her departure from a firm as soon as practical to allow clients to make a choice in counsel and provide for a smooth transition in order to avoid prejudice to clients."
  • "To codify the joint notice requirement, but to leave open the possibility that partnership or shareholder agreements can simply contract around it, renders it mostly meaningless. It increases the likelihood that law firms will seek to notify clients of a withdrawing partner’s departure first, not jointly. It also creates a heightened tension for departing attorneys who are trying to comply with applicable ethical guidelines during this process, but have various, and sometimes competing, provisions in their partnership agreements to balance."

Screening (shields up)

"D.C. Adopts Screening To Avoid Imputed Disqualification" --
  • "Major news from the Nation's Capital. The District of Columbia Court of Appeals has amended its Rules of Professional Conduct to permit screening to avoid imputed disqualification under Rule 1.10."

Security (another firm touting certification)

"Goodwin Procter Achieves Prestigious ISO 27001 Certification for Information Security Management System" --
  • "'At Goodwin, protecting the security and confidentiality of client and personal information is a top priority,' said David Fleming, the firm’s Chief Information Officer. 'We are pleased to be recognized among the small group of law firms that are certified against the stringent ISO 27001 standards.'"

Tuesday, November 10, 2015

Legal Conflicts, Legal Risks, LegalKEY

Conflicts continue to cause considerable concerns. Yesterday, we noted a story of one firm embroiled in a bit of controversy, with conflicts checking software playing a role.

A year ago, we noted another public story of a firm disqualified from representing a client worth over $12m in billings. At the time, that firm said it: "... made mistakes in the conflict check process for the merger, during which they used computers to run checks on more than 15,000 clients to screen for conflicts."

Conflicts complexities and surprises can affect any firm. So metaphorical stone throwing can be a risky proposition. However, there is a common thread in both instances: LegalKEY. (That these two firms use LegalKEY software is also public information, easily surfaced with the help of a search engine.)

LegalKEY Looks Locked
For nearly two decades, LegalKEY software has helped firms manage conflicts. But today, years after the last enhancements have been made to this product, and with future development concluded, the product is starting to show its age... and creating new potential risks.

For example, the pending end-of-life of Windows Server 2003 and 2008 will create significant  maintenance and support issues for firms. What’s more, growing evidence suggests that in common use data quality issues often surface in the product. In this environment, firms are increasingly and urgently pursuing new paths for conflicts management.

Third Party Perspective
The experts at InOutsource, who’ve worked with firms for over a decade on business intake, conflicts management, and other risk initiatives, have weighed in with their perspective on the technology risks. See Eric Mosca, CRM's piece: "Is LegalKEY Putting Your Firm at Risk" --
  • "LegalKEY has not kept pace with evolving industry standards and best practices. Firms using LegalKEY often cite their frustration with its reporting capabilities, noting the lack of tools to analyze hits, and filters that do not work as expected. Because conflicts reports are paper or PDF-based, they are difficult to review in sufficient detail, with no mechanism to centrally compile feedback from multiple stakeholders."
  • "Another challenge firms often cite is the “black box” nature of LegalKEY’s native data integrations."
  • "Similarly, integrations with external databases such as Dun & Bradstreet or OFAC are typically a bit of a mystery, leaving firms unclear as to what information is updated and with what frequency. This lack of visibility makes it difficult to know whether firms are using the most accurate, up-to-date data for their conflicts searches."
  • "As external factors affecting maintenance and support come to a head, and intrinsic software issues continue to present operational challenges, firms would be well advised to begin looking at other options now."
Note: InOutsource offers an assessment program for firms looking to understand their current risk exposure with LegalKEY.

Monday, November 9, 2015

Client Conflicts, Complex Conflicts Checks, Clashes Commence

The Recorder has posted several detailed stories on an unfolding matter involving a complex fact pattern, worth reading in complete detail (and documented nicely on their web site, with an interactive timeline). First: "Clash of Former Clients Puts Orrick in Hot Spot" --
  • "In March, Orrick, Herrington & Sutcliffe's chief legal officer typed out a few terse paragraphs cutting off the firm's three-year relationship with a Bay Area tech startup. The situation was clearly delicate. 'Because we are now aware that our clients are in litigation with each other, we believe it is appropriate to terminate' the representation, wrote Larry Low of Orrick in an email. 'This will confirm our withdrawal from our representation of Loop AI.' The email was the easy part. Extricating the firm from the ongoing litigation between its former clients has been trickier."
  • "John Bautista, a Valley Orrick partner, has represented Loop AI since its launch in early 2012 and drafted its employment contract with Gatti. A separate Orrick partner in New York helped Almawave hire Gatti as its CEO in 2014 under circumstances that are now at the core of the companies' dispute. The firm's conflict check system failed to flag any problem. All of which has left Orrick in the awkward position of fending off subpoenas and allegations of double-dealing as its two former clients bash each other in court."
  • "The dispute illustrates shortcomings in the ability of conflict check systems at large law firms to detect risky representations, particularly those outside the litigation sphere. And since the Orrick partner representing Almawave has taken that relationship to a new firm, the case also tests how far obligations of client loyalty reach in the age of frequent partner moves."
  • "Orrick's tangled role in the dispute is detailed in a motion to disqualify, not Orrick, but Almawave's litigation counsel at Venable, where the partner who represented Almawave now practices. The motion is set to be argued Thursday before U.S. District Judge Haywood Gilliam Jr. in San Francisco."
See also: "Venable Fights DQ in CEO-Sharing Conflict Brawl," which highlights several conflicts complexities, including arguments about non-litigation conflicts, evolving parameters and relationships, and allegations about what detail and flags software should have surfaced (or should be able to) --
  • "In a complicated sequence of events, Orrick, Herrington & Sutcliffe handled both companies' employment contracts with Gatti, without identifying any conflict. Earlier this year Almawave's lawyer lateraled from Orrick to Venable."
  • "Loop AI's counsel, Healy LLC's Valeria Healy, told Gilliam that Orrick's conflict system should have flagged Sternberg's representation of Almawave as a conflict, particularly because the company's U.S. subsidiary was incorporated at Gatti's home address in San Francisco."
  • "'To me, there is nothing more adverse than that,' Healy said. 'The focus is whether a conflict arose that should have been picked up that wasn't' and whether agreements were drafted by the firm that were 'prejudicial to an existing client.'"
  • "Gilliam responded that Healy's argument would put an untenable "obligation on the law firm to deduce that this second contract will somehow result in the breach of the first contract.' The example presented in the case, the judge said, is "quite far away from the paradigmatic transactional adversity" where a firm represents parties on the opposite sides of a deal."

Monday, November 2, 2015

Risk Ghosts, Ghouls and Ghastlies

Kudos to the risk experts at Hinshaw for taking a risk in their October newsletter and embracing the Halloween spirit with gusto. Such efforts at creative engagement should be rewarded, so we're dedicating this update to their legal leviathans (be they paranormal, paralegal or partner) and their fine fearsome work.

(For future harrowing Hinshaw updates, subscribe directly to their newsletter.)

Waiver of Conflict of Interest — Attorney Disqualification
Grovick Props., LLC v. 83-10 Astoria Boulevard, LLC , 2014 NY Slip Op 05627 (App. Div., 2d Dep't. Aug. 6, 2014) Risk Management Issue: What amount of detail must be included in a waiver of a future conflict of interest for it to be binding on the client and enforceable by the attorney?
  • "Because the conflict of interest waiver at issue in this case was clear and concise and it identified for Astoria, with specificity, the possible future conflict of interest, it was ultimately upheld. When drafting such waivers, it is imperative to thought fully articulate the language in the waiver and  identify in as much detail as possible any possible future conflicts of interest that will be waived."
Withdrawal of Attorneys — Engagement Letters
Robbins v. Legacy Health Sys., Inc., 177 Wash. App. 299 (2d Div. 2013)
Risk Management Issue: May a lawyer withdraw from a matter when the client is unwilling to pay the costs associated with the engagement?
  • "Robbins reaffirms an attorney's right to withdraw from a matter when the client fails to reimburse him or her for costs, if that withdrawal will not prejudice the client's case, based upon substantial hardship of the lawyer if forced to continue representation, as provided in most states' versions of the Model Rules of Professional Conduct 1.16. This case also underscores the need for clearly worded engagement letters that delineate the roles and
    responsibilities of both the attorney and the client..."
Conflict of Interest — Disqualification — The Importance of Timely Ethical Screening Before Undertaking the Representation
Signature MD, Inc. v. MDVIP, Inc., Case No. CV 14-5453 (C.D. Cal. Jan. 20, 2015)Risk Management Issue: A new matter comes in requiring immediate attention, but a conflict check reveals a prior representation of the adverse party. To the extent that screening may avoid or reduce the risk of disqualification, how quickly must a law firm implement the ethical screen?
  • "This ruling emphasizes the importance of implementing an ethical screen before undertaking the potentially problematic representation. In this case, the court required strict compliance with the rule even though the current and prior matter seemed only loosely related and the potentially tainted attorneys worked out of a different office."
See their complete write up for complete details. And may you face such risks, nevermore.