Tuesday, May 31, 2016

Inside Outside Counsel Guidelines (or “On Outside Counsel Guideline Guidelines”)

The founder of the legal consultancy Procertas, formerly in-house with Kia Motors, Casey Flaherty work with both law departments and law firms on process and technology projects that improve collaboration and service. He writes plainly and compellingly: “Outside Counsel Guidelines and Collective Conversations
  • “I hate outside counsel guidelines. Hate. It's visceral. I have never encountered a set of guidelines I liked. My antipathy includes guidelines I had a hand in writing...As an associate I worked for a client whose guidelines forbade time entries that suggested any form of communication between lawyers--meetings, conversations, conferences, correspondence. So, too, any form of research and many other essential elements of producing work that were impossible to avoid within the delivery framework within which we were operating.”
  • “While guidelines saved the client no money, they did waste considerable time. Because the client had an extensive external review process, the firm had an intensive internal review process to make sure the billing language satisfied the client's guidelines. Internally, entries were constantly being sent back for rewrite but not writedown.”
  • “For all the effort that both put sides into satisfying and enforcing the guidelines, they would have been much better served to engage in a structured dialogue about continuously improving project management (communication) and knowledge management (research), as well as other aspects of service delivery such as templates, automation, analytics, and staffing. With respect to staffing, the client should have been interested in maintaining a stable team that was familiar with their work. Which, of course, means that I just suggested a new guideline as part of a screed against guidelines. I'm a bit of a hypocrite.”
  • “And, yet, there's a problem: we don't really have a forum to debate particular policies and prohibitions. Outside counsel guidelines are presented as a fait accompli. Pushing back on them in the context of the relationship is hard. Simon Chester, the former GC of the former Heinan Blake [now at Gowling WLG], has detailed many of the problems in billing guidelines and believes that firms "have to be prepared to walk away" from the engagement. But how many firms can afford to walk away in a world of flattening demand, lateral hypermobility, and inherently fragile firm structures?”
  • Compounding the problem is that firms often provide, and clients frequently sign, engagement letters that contradict the guidelines. These, too, often go unread. In not being read, guidelines and engagement letters are like 99.9% of the executed contracts in existence. As litigators know well, most people only read the contract when something goes wrong, which, frankly, is not too often in percentage terms but is common enough in raw numbers to keep us employed.”
  • “Ironically, the law department/firm relationship is among the worst papered commercial relationships a corporation will enter into because their lawyers are otherwise so vigilant when it comes to the business units' commitments and obligations. Most of the time it's fine. Except when it isn't. And then it is bad. I didn't realize how bad until I had a recent chat with someone who audits legal bills for a living. We're talking five to seven figures and immense stress on relationships. He explained to me that violations of the billing guidelines were, by far, the lowest hanging fruit. Both law departments and law firms have a contract management problem.”
Casey goes on to admit not having a solution, but does outline a proposed path to one. The entire article is worth a read. (And perhaps a sigh, or cry.)

(And any guess what tomorrow’s post will be about?)

Monday, May 30, 2016

Conflicts Concerns Continued (or: Damned if You Do, Don’t, or Do Both?)

Here’s a development from last month that’s still worth highlighting: "Dentons DQ Order Vacated, but Verein Conflicts Issues Remain" --
  • “An order disqualifying Dentons US LLP as counsel for an Ohio corporation prosecuting patent infringement claims is no longer on the books—but the firm is now facing a malpractice suit from the company over the firm's alleged conflict of interest.”
  • “The U.S. International Trade Commission April 12 vacated as moot an administrative law judge's disqualification order after the parties settled and the commission terminated its investigation into whether retailers were violating the company's patents by importing laser-abraded jeans (In re Certain Laser Abraded Denim Garments, USITC, Inv. No. 337-TA-930, notice issued 4/12/16).”
  • “Observers had hoped the ITC's decision would clarify whether law firms operating under a “Swiss verein” affiliation model will be treated as a single firm for conflict of interest purposes. Matthew J. O'Hara, a partner in Hinshaw & Culbertson LLP's Chicago office, told Bloomberg BNA the issue of whether vereins must apply U.S. conflicts rules across their entire structure remains unresolved now that the ITC withdrew the ALJ's opinion disqualifying Dentons US.”
  • Nevertheless, Dentons US still has to deal with a malpractice suit filed by the client it stopped representing after the ALJ's decision.
  • “Dentons US got booted from representing RevoLaze in May 2015 when Chief Administrative Law Judge Charles E. Bullock found that the firm had a disqualifying conflict of interest because Dentons Canada LLP was concurrently representing one of the respondents—The Gap Inc.—in unrelated matters.”
  • “Bullock rejected the firm's argument that Dentons US and Dentons Canada are separate firms that aren't tainted by each other's conflicts of interest. As a Swiss verein, Dentons is a “firm” or “law firm” as those terms are used in ABA Model Rule of Professional Conduct 1.0(c), he ruled. Bullock said “Dentons holds itself out to the public as a single law firm, but says that it is divided into ‘Legal Practices.'”
The ABA opinion on referral fees we noted previous was issued after this news. But the question of which side of the Schrödinger's Cat vereins may turn out to be, combined with a potential argument regarding firms (or legal practices) referring clients to “itself” or its “brand twin” raises interesting questions I’ll leave to sharper legal minds to ponder...

Thursday, May 26, 2016

Conflicts, Referred

  • “A lawyer who expects to receive a fee for referring a client must confirm that the referred matter doesn't present a conflict of interest and must get the client's written consent to the fee division at the outset, the ABA's ethics committee advised April 21.”
  • “Rules on conflicts among clients apply because the referring lawyer in a fee-splitting arrangement ‘represents’ the referred client even if the lawyer doesn't provide the legal services, according to the opinion.”
  • “Accordingly, the committee said, the referring lawyer in a fee-sharing arrangement represents the referred client for purposes of the ethics rules even if the other attorney performs all legal services in the matter.”
  • “Model Rule 1.7(a) forbids concurrent representation of clients who will be directly adverse to each other. It also prohibits lawyers from representing a client when there's a significant risk that the lawyer's responsibilities to another client will materially limit the representation, or that the lawyer's duties to a former client or a third person or the lawyer's own personal interests will hamper the representation.”
See also additional analysis and commentary by former conflicts and ethics counsel at Holland & Knight, and current Preferred Service Provider for Paragon, Gilda T. Russell: “ABA Formal Opinion 474 (2016) – Referral Fees
  • “Hence, under the ABA Model Rule, a referral fee to a lawyer in a different firm is not allowed unless the division of the fee between the lawyer and the outside lawyer is proportional to the services performed by each lawyer or each lawyer assumes joint responsibility for the matter.2”
  • “2: While such is the approach of ABA Model Rule 1.5(e), there is a wide variation in jurisdictional approaches to referral fees. A number of states follow the requirements of proportionality or joint responsibility. See e.g., District of Columbia Rule Prof. Cond. 1.5(e); Florida Rule Prof. Cond. 4-­‐1.5(g); Illinois Rule Prof. Cond. 1.5(e); New York (New York Rule Prof. Cond. 1.5(g); and Texas Disc. Rule Prof. Cond. 1.04(f). Other states do not have any such proportional division or joint responsibility provisions for referral fees, but, rather, require only client consent and that the total fee is reasonable. See e.g., California Rule Prof. Cond. 2-­‐200(A);”

Wednesday, May 25, 2016

Risk News (the Less Risky Way)

This updated is basically a giant arrow to the May issue of the excellent Lawyer’s Lawyer Newsletter via Hinshaw, available in full here.

This one is definitely full of the red meat issues we typically sniff all over the web for, neatly consolidated and analyzed, including:
  • "Conflicts of Interest — Subject Matter Conflicts Can IP Attorneys Simultaneously Represent Two Clients That Are Prosecuting Patents for Similar Inventions? Risk Management Issue: What constitutes an adequate conflicts check where two clients may be pursuing intellectual property in similar inventions (sometimes referred to as a "subject matter conflict")? Maling v. Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, 473 Mass. 336, 42 N.E.3d 199 (2015)"
  • "Disqualification — Overly Broad Scope of Engagement Creates Concurrent Representation Conflicts. Risk Management Issue: What can counsel for a closely held corporation do to avoid disqualification in the event of shareholder disputes? M'Guinness v. Johnson et al., 243 Cal. App. 4th 602 (2015)"
  • "Existence of Attorney-Client Relationship — Negotiations Affecting Client and Indemnifying Party. Risk Management Issue: What must law firms do to avoid establishing attorney-client relationships when communicating during the course of an engagement with persons or entities that may be allied in interest to their actual clients? George Makhoul, etc. v. Watt, Tieder, Hoffar & Fitzgerald, LLP, et al., 11-CV-5108 (PKC) (E.D.N.Y. 2015)"
  • "Disqualification — Obtaining Privileged Materials Outside of Discovery — Consultation With Former Employee of Opposing Party. Risk Management Issue: What can law firms do to manage the risk of disqualification when they seek to consult with or engage a former employee of an opposing party? In re RSR Corp., No. 13-0499, 2015 WL 7792871, at *3 (Tex. Dec. 4, 2015)"

Tuesday, May 24, 2016

Insight, Intelligence, Inspiration – Inception (and Beyond)

With apologies for a bit of a blogging absence, and with great gratitude and thanks to the many risk professionals who joined us last month in San Francisco at Inception 2016, (and to the many readers who popped up and proffered the secret risk blog handshake, along kind words of encouragement), we now resume your regular, semi-regular updates – rejuvenated, renewed and risk-adverse as ever...

...But not without also apologizing to an unknown reader in Philadelphia, who made a point to corner a colleague of mine recently and ask when I’d get back on the horse over here. (Every reader matters, and those cards and letters do get read. So, your nudge has been received.)

...And also not without thanking the many industry risk experts who participated in formal panels and informal discussions and networking as part of the Tuesday Risk Roundtable track – an experience no fewer than two participants called “intimate” and “fabulous.”

Several developments and stories of note, so let’s get back into the swing of things. Giddy up.

"Caesars Bondholders Ready Lawsuit, Citing Examiner’s Report: Proposed legal claims could be worth more than $12 billion, court papers say" --
  • “Paul, Weiss, Rifkind, Wharton & Garrison represented CEOC in the asset transfers, when it also represented the Caesars parents or affiliates and counted Apollo as a client. The court-appointed investigator said although the law firm “should have recognized” the conflict of interest in representing two companies on opposite sides of a deal, no evidence indicates that its lawyers intentionally sought to hurt CEOC or its creditors.”
  • “The bondholders, however, say Paul Weiss should return the “tens of millions of dollars” in fees it received in light of the “profound” nature of its conflict of interest. They also are seeking the return of more than $1 million in fees collected by another CEOC law firm, Friedman Kaplan Seiler & Adelman, for the “obvious conflict” in its work representing both Caesars and CEOC in a lawsuit in which CEOC asked a court to declare that Caesars wasn’t liable for the asset transfers.”
"Chinese firm sues Becker & Poliakoff for malpractice after Fashion Mall bankruptcy auction" --
  • “While redevelopment plans for the Plantation Fashion Mall are moving forward under Art Falcone, a legal battle has emerged between the property’s previous owner and a law firm that claims it had nothing to do with the project.”
  • “The suit was filed by Tangshan Ganglu Steel & Iron Co., a Chinese conglomerate that hoped to redevelop the Plantation mall, but lost the property during a bankruptcy auction in March 2015.”
  • “At the center of the suit is an alleged conflict of interest from Becker & Poliakoff, according to the Daily Business Review. Tangshan said in the suit that the law firm represented both it and minority partner Weng Chen, who managed the mall’s three controlling controlling entities. Tangshan owned a 99 percent interest in the entities.”
  • “After a falling out between Du and Chen, the suit alleges Becker & Poliakoff filed a document with a forged signature from Du that gave Chen control of the project. A Broward bankruptcy judge later ruled the signature was indeed a forgery, according to the Daily Business Review.”
"Software service provider claims law firm left it high and dry amid costly patent litigation" --
  • “In court documents, Steve Proctor, CEO of Nashville, Tenn.-based Edgenet, called Foley & Lardner LLP’s motion to withdraw from the litigation, filed against EdgeAQ LLC in the U.S. District Court for the Western District of Wisconsin, and a bill for presumably hundreds of thousands of dollars in fees a ‘complete surprise.’ EdgeAQ bought Edgenet in 2014... ‘After months of representing us, our current counsel informed us on Dec. 15, 2015 that they intended to file a motion to withdraw on Dec. 18, 2015,’ Proctor wrote in a Dec. 28, 2015 filing with the federal court.”
  • “According to Proctor’s December letter to the judge, Foley & Lardner stated there was a conflict of interest between the firm and EdgeAQ. Foley & Lardner allegedly told EdgeAQ that the firm felt the company was “second-guessing” its strategy.”
  • “To compound the complexity of the matter, when our current counsel filed the motion to withdraw, they requested an expedited consideration of the motion knowing that the date of the filing left EdgeAQ three business days to find replacement counsel before the Christmas holiday.”
  • “Proctor said in his letter the company was ‘even more surprised’ when Foley & Lardner informed it -- for the first time -- on Dec. 21, 2015 that it also had a conflict due to the firm’s representation of Nate Herbst, the current CEO WTS Paradigm LLC, which is the plaintiff in the case against EdgeAQ.”
  • “Jeffrey A. Simmons, a partner in the Business Litigation and Dispute Resolution, Distribution and Franchise, and Intellectual Property Litigation practices at Foley & Lardner, and who helped represent EdgeAQ, could not be reached for comment on the firm’s decision to drop EdgeAQ or its current policy on conflicts of interest.”