Sunday, August 28, 2016

ILTACON 16: Risk Highlights




Several risk related updates for those readers attending the annual ILTA conference in DC this week. Yours truly will also be on site, so please feel free to stop by booth #905 and proffer the secret risk blog reader handshake -- which I may have to actually invent one of these days...

It’s also a good way to score an invite to the Wednesday wine tasting event, which is always a conference highlight.

(A far from small contingent of Intapp staff will also be on hand to connect with you on matters including business intake, conflicts, information security, client terms/OCG management and much more.)
  • Monday (4:00 - 5:00 pm): Security and Information Governance: Together in Perfect Harmony. Information governance and security shouldn't be conflicting goals. You can satisfy the goals of your clients, general counsel, knowledge managers and technologists by aligning your information governance and security policies so they complement one another and advance your firm's strategic goals. Security policies can reinforce information governance imperatives, and good information governance should be part of your security assessments. Join us as we examine the benefits of harmonizing these two disciplines, best practices and how to identify opportunities within your organization.
  • Tuesday (3:30 - 4:30 pm): Reduce Risks with Effective Client Intake. An effective intake process can get clients and new matters in "the system" quicker, and it can streamline many processes and procedures and ultimately reduce risks associated with new matters. How can you reduce risks with effective client intake? Gain insight into best practices, new technologies and lessons learned from folks who have been through this complex technology and process dance.
  • Wednesday (11:00 - 12:30 pm): Risk Management Unboxed. Following up on last year's lauded "Risk Management in a Box" session, we will provide expanded information about tools for proactively managing risk at your firm while still keeping the lights on.
  • Thursday (11:00 - 12:00 pm): Respond Effectively to Your First Client Security Audit. Client audits can be stressful, time-consuming and disruptive. We'll be providing clear and relevant advice for those just starting to receive audits and who, like many firms, do not have dedicated information security staff. Learn techniques to reduce the time, effort and stress involved in security audits while simultaneously improving the relationship between your firm and your clients.

Sunday, August 21, 2016

Clients Canceled or Curtailed (Closing Can Cause Consternation)



Two partners from Dentons weigh in on the theme of closing matters and disengaging from client relationships with: "Don't Wait for the New Year to Close Old Files" --
  • "The formal termination of an attorney-client relationship through a file closing can be an important aspect of risk management for many reasons. For one thing, it has significant positive implications for the ethical, legal, and professional obligations of an attorney and the law practice. Once the attorney-client relationship ends, clients move from being existing clients of the attorney and the firm to being former clients. This is a significant distinction for conflict of interest purposes, as the ethics rules governing existing clients are different from those governing former clients."
  • "Generally, if a new matter involves an existing client, the conflict of interest rules may require the attorney to obtain informed written consent of each client before accepting representation of more than one client in a matter in which the interests of the clients potentially or actually conflict. If the client interests actually conflict, the attorney may have to decline the representation to avoid violating the duty of loyalty."
  • "On the other hand, the conflict rules for former clients are less onerous. The critical test for a new representation involving a former client—as opposed to an existing client—is whether the new matter is substantially related to the representation of the former client. If not, nothing further usually needs to be done."
  • "Generally, effective file closings involve three parts: a file closing letter; an accounting of all funds received; and an administrative closing of the matter. The combination of all three parts provides the most protection, although each firm can review to identify the best course for its practice."
  • "Regardless of the reason, when the representation ends, the attorney or law firm should consider sending a file closing letter confirming the end of the attorney-client relationship and, as a result, any ongoing duty to the client for that particular matter. This is true even for clients for whom the attorney or law practice does other work; a closing letter for a particular closed matter even if other matters are ongoing is important for risk management purposes. Indeed, effective audits of law firms randomly check closed files to see if file closing letters are in the files."
And an update highlighting the important of clear communication: "Locke Lord Atty's Cold Shoulder To Client An Ethics Breach" --
  • "A Locke Lord LLP partner likely broke ethics rules when he chose not to tell a longtime client why he was severing the relationship, experts said Monday, even though a federal judge found that a conflict revealed late in a trademark case didn't justify Locke's disqualification."
  • "While there is scant ethical guidance on specific obligations to explain to a client why a representation must end, lawyers' overarching duty to give clients all information relevant to their case calls for a complete explanation when an adversity is spotted and precipitates the breakup."
  • "In a harsh critique of Locke Lord litigator Roy Hardin and the firm’s “gross negligence” in premerger conflict checks, U.S. District Judge Jed Rakoff nevertheless concluded in a Friday order that previous ethical mishaps didn't mean Victorinox AG should lose their chosen counsel."
  • "But legal conflicts expert William Freivogel said that decision was likely based on a desire to spare the Swiss Army knife maker the disqualification rather than the firm’s handling of the conflict itself."
  • "That termination letter was “misleading on its face” because Hardin acknowledged in later testimony that the conflict was the real trigger for his December breakup with B&F, Judge Rakoff said. “The letter, however, contains nothing that would alert B&F to any conflict,” the opinion said."
  • "Legal ethics expert Geri Krauss of Krauss PLLC said that despite the seriousness of the conflict issue, the court’s decision to deny the disqualification was unsurprising at such a late stage of the litigation... A lawyer also has a duty to keep clients informed on any issue that might affect them, including a decision to cease representation due to a conflict or a mistake in the lawyer’s work, she said."

Thursday, August 18, 2016

Conflicts Complexities (or "Unknown Unknowns, Knowable Unknowns, Etc...")



From "The Bencher" magazine comes: "Court Disqualifies Firm Based on Representation of Affiliated Subsidiary" --
  • "...a recent decision by a federal district court in which a law firm was disqualified based on its representation of two adverse subsidiaries of a parent company. The court’s useful application of Rule 1.7 and Rule 1.9 should be of interest to those engaged in corporate and commercial litigation for subsidiaries of large companies, whether in Delaware or elsewhere."
  • "In the case styled Atlantic Specialty Insurance Company v. Premera Blue Cross, 2016 WL 1615430 (W.D. Wash. April 22, 2016), the court was presented with a motion to disqualify the law firm representing Premera (“Law Firm”) based on the concurrent representation by the Law Firm of an affiliate of the plaintiff, Atlantic, in a separate and unrelated matter."
  • "Atlantic’s corporate structure is key to understanding the court’s decision. Atlantic is a wholly-owned subsidiary of OneBeacon Insurance Group (“Parent”). Homeland Insurance Company of New York (“Homeland”) is also a wholly-owned subsidiary of Parent. Both Atlantic and Homeland share the same mailing address and principle place of business as Parent. Both subsidiaries also share claims-handling services that are managed by the same claims unit personnel."
  • "In-house counsel for Atlantic notified Law Firm that there was a conflict of interest because Law Firm represented Atlantic’s sister subsidiary, Homeland, in the AAM matter. Thus, Atlantic took the position that there was a conflict of interest because Atlantic and Homeland, as subsidiaries of Parent, consider themselves one client. They did not consent to the Law Firm being adverse to them in the instant case. The Law Firm refused to withdraw and a motion to disqualify was filed. Law Firm’s position was that Atlantic and Homeland are two distinct corporations and should not be considered one client for purposes of an analysis of conflicts of interest. The court disagreed with that position."
  • "The court was not persuaded by the Law Firm’s argument that it was not aware of the relationship between Atlantic and Homeland, and was previously adverse to Atlantic. The court explained that attorneys are responsible for knowing the relationship between or among related corporate clients, and the duty is imposed on the attorney—not the client—to be familiar with the affiliates and related companies of a client. Even though the Law Firm did not consider itself as having an attorney-client relationship with the other subsidiary, the court instructed that the existence of an attorney-client relationship is determined based on the reasonable understanding of the client, not the view of the attorney. Even though the Law Firm did not know that Atlantic and Homeland were both subsidiaries of the Parent, the court found that they should have known."
On matters of risk, the Hinshaw newsletter consistently delivers some of my favorite late night reading. Their most recent update touches several important topics, including: "Conflicts-Checking Systems — What Constitutes a Sufficient Conflicts Check?"
  • "New York State Bar Association Committee on Professional Ethics Opinion 1085 (2/16/2016). Risk Management Issues: What are law firms' obligations in operating conflicts checking systems? What must firms do in order to determine whether their lawyers previously represented an adverse party? What are law firms' continuing obligations to perform new conflict checks if or when new information relating to conflicts becomes available?
  • First, a law firm is required to make 'a written record of its engagements, at or near the time of each engagement.'"
  • "Second, a law firm is required to 'implement and maintain a system by which proposed engagements are checked against current and previous engagements' when any of four triggering events occurs: '(1) the firm agrees to represent a new client; (2) the firm agrees to represent an existing client in a new matter; (3) the firm hires or associates with another lawyer; or (4) an additional party is named or appears in a pending matter.' The Committee further noted that the purpose of such a system is to 'render effective assistance to lawyers in the firm in avoiding conflicts of interest,' and, thus, the conflict system 'must be adequate to detect conflicts that will or reasonably may arise.' NYRPC 1.10, Cmt. [9]."
  • "Moreover, once a firm accepts a new matter, it has a continuing conflicts-checking obligation if any of the above-mentioned four triggering events occurs. Even without a triggering event, the Committee recommends running a new conflict check when a firm acquires new information, stating that such practices help lawyers comply with their ethical duty to avoid conflicts."
Their update also covers:
  • Disqualification — Substantially Related Matters — Waiver of Conflict by Lack of Diligence in Seeking Disqualification
  • Right to Withdraw — Nonpayment of Fees
  •  In-Firm Attorney-Client Privilege Revisited Under Federal (Ninth Circuit) Law

Wednesday, August 17, 2016

Waivers Wavering?



A few stories worth reviewing in greater detail, before waving goodbye today. First: "Waivers Found Useless in Sprawling Medical Fraud Case" --
  • "A law firm had a disqualifying conflict of interest in representing both the plaintiff in civil racketeering litigation and a criminal defendant who pleaded guilty in the scheme, the U.S. District Court for the Central District of California said June 24 (State Comp. Ins. Fund v. Drobot, 2016 BL 205454, C.D. Cal., No. SACV 13-0956 AG (JCGx), 6/24/16 )."
  • "Judge Andrew J. Guilford stuck by his decision earlier this year to disqualify Hueston Hennigan LLP as counsel for State Compensation Insurance Fund (SCIF) in the sprawling civil litigation. The civil and criminal cases are one and the same for conflicts purposes, and the clients' dueling interests would mangle the firm's loyalties too severely for informed consent to fix the conflict, Guilford found."
  • "The decision casts doubt on whether lawyers can rely on waivers to legitimize concurrent representation of clients with adverse interests in overlapping criminal and civil proceedings. The court's restrictive stance on the question of waivability will be especially alarming to large firms that see conflict waivers as a key risk management tool."
  • "Guilford found it unnecessary to decide here whether a firm's representation of adversaries must be in the same ‘lawsuit,’ the same ‘litigation’ or the same ‘matter’ in order for the conflict to be deemed unwaivable."
  • "The firm pointed out that SCIF had executed four separate conflict waivers specific to the firm's concurrent representation of Randall in the criminal matter... Guilford combed through Randall's three waivers and SCIF's four waivers, and found them ineffective. The waivers at times incorrectly described the criminal and civil proceedings as ‘unrelated,’ and large portions of the waivers amounted to boilerplate without much substantive meat, Guilford said. The waivers also contradicted one another and contained questionable terms, he said."
  • "Guilford contrasted these waivers with a conflict waiver that he found sufficient in another case. See United States v. DeCinces, No. SACR 12-0269-AB, Dkt. 441 (C.D. Cal. July 21, 2015). That waiver was the “gold standard” for effective informed consent, he said."
  • "As more attorneys run conflicts before opening a new matter and take advantage of available technology, attorneys and law firms are getting better at identifying potential conflicts of interest that could impact a matter. But identifying that there could be a conflict is only the first step. Many attorneys ask themselves, 'What next?'"
  • "Likewise, it usually is not sufficient just to ask for a client's waiver of the conflict or consent to the representation. An effective disclosure typically requires more. In the context of conflicts of interest, Rule 3-310 of the California Rules of Professional Conduct defines disclosure as 'informing the client or former client of the relevant circumstances and of the actual and reasonably foreseeable adverse consequences to the client or former client.'"
  • "In general terms, the professional rules call for an attorney to disclose whatever information a reasonable person would expect and need to consider before waiving an important right, and then to confirm that consent in writing. That written consent is often referred to as a "waiver." In specific terms, there are topics that some attorneys typically include when seeking a client's consent or waiver."
  • "First, in reviewing conflicts, many attorneys identify the proposed representation and what consent is sought from the client. "General" waivers typically call for a different kind of disclosure than a "limited" waiver for a specific representation. Therefore, tailoring the requisite full disclosure often involves making clear exactly which kind of waiver the attorney seeks."
  • "In the multiple representation context, this often means advising the client that the attorney is requesting permission to jointly represent the client along with others. In the successive representations context, this generally means advising a former client that the attorney is requesting permission to represent a new client in a matter involving the former client."

Tuesday, August 16, 2016

Laterals, Conflicts, Small Screens & Disqualification



Several stories and updates to start the week off:

"Time for a Change? Lessons for Avoiding Lateral Mistakes" --
  • "As the number of moves continues to climb–reaching a post-financial crisis high of nearly 2,900 moves last year—the regrets seem to be piling up faster too. Recruiters and consultants say lawyers change their minds in about 1 in 20 lateral moves. That doesn’t include partners who arrive at a new firm only to second-guess their decision, and either suffer the consequences or plan yet another move."
  • "In most cases, such cases stem from either emotional unpreparedness, failures of due diligence, or both, according to consultants, recruiters and attorneys.  Sometimes a client conflict went undetected. Sometimes the original firm comes back with a persuasive counteroffer."
  • "A 2014 survey by Major Lindsey showed that surprisingly few lateral partner candidates look closely before they leap to another firm: Only 36.6 percent of lateral partner candidates reviewed their new firm’s financial statements, and just 40 percent met with the new firm’s chief financial officer. Financial due diligence 'remains shockingly inadequate,' the report concluded, making it more likely that potential conflicts go undiscovered until too late."

"Former Reed Smith Partner's Hire DQs New Firm From IP Suit" --
  • "In a decision highlighting a risk of lateral hiring, a federal judge has disqualified an entire law firm in copyright litigation after finding an ethical wall separating a former Reed Smith partner from the rest of his new firm was not sufficient to guard against confidence sharing. Southern District Judge Naomi Reice Buchwald in mid-July disqualified 13-attorney intellectual property boutique Powley & Gibson, just months after Keith Sharkin joined the firm from Reed Smith."
  • "In May 2016, Cowen moved to disqualify Powley & Gibson as plaintiffs counsel on the ground that Powley partner Sharkin had previously represented Cowen on a substantially related matter while at a different firm."
  • "In concluding that Powley's ethical wall was insufficient, Buchwald said Powley is a 'very small firm consisting of four partners and about 10 other attorneys in a single office, which by its nature imperils an ethical screen.'"
  • "The judge further found the ethical wall was inadequate because Sharkin did not inform Cowen before he joined Powley that he was doing so, despite the fact that he and Powley knew of both representations. Powley waited three weeks after Sharkin joined to inform Cowen."

Monday, August 15, 2016

ERROR. (Clever title repository = [blank])



"Lawyer must reveal co-counsel’s error to client if it could raise malpractice claim" --
  • "What should you do when you are co-counsel on a case or in a deal, and you become aware that the other lawyer has made an error?  A new ethics opinion from the New York State Bar Association says that if you reasonably believe that your co-counsel has committed a significant error or omission that may give rise to a malpractice claim, you must disclose the information to the client."
  • "The lawyer had been brought into a case as co-counsel on the eve of trial, and found that the other lawyer had done virtually no discovery, and had not made any document requests — despite the fact that communications and e-mails between the parties would be critical to the case."
  • "The lawyer believed that the lack of discovery was a significant error, and that it could constitute malpractice.  The outcome of the case was still pending.  The lawyer was concerned that disclosing the information to the client could undermine the lawyer’s relationship with co-counsel, but was nonetheless convinced that it was in the client’s best interest to reveal the facts as soon as possible."
  • "Respect for client autonomy and decision-making means that the lawyer must provide information about all significant developments affecting the representation.  That 'applies equally to a significant error or omission by co-counsel that may give rise to a malpractice claim,' said the Committee."
"When The Cover-Up Outweighs The Crime: Professional Discipline For Hiding Attorney Errors" --
  • "Lawyers owe an ethical and fiduciary duty to their clients to report their own “mistakes” in the course of representation.  The source of the duty can be found, for example, in ABA Model Rule 1.4 (USPTO Rule 37 CFR Section 11.104), which in relevant part requires an attorney to 'promptly inform the client of any decision or circumstance” adversely affecting the representation, as well as to “keep the client reasonably informed about the status of the matter.'"
  • "Courts have found in the IP malpractice context that a lawyer may “have an obligation to advise his client about a possible malpractice claim” against the lawyer.  See Encyclopedia Britannica, Inc. v. Dickstein Shapiro LLP, No. 10-0454 (D.D.C. Feb. 2, 2012).  Such decisions are consistent with the lawyer’s ethical duty to “explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.”  ABA Model Rule 1.4(b); 37 CFR Section 11.104(b)."
  • "Professional liability insurer CNA recently explained that “the attorney’s management of the mistake is often more important than the mistake itself.  Moreover, failure to appropriately address an error can exacerbate the simple malpractice situation and give rise to disciplinary grievances or other claims and increased damages.  See 'To Err is Human: A Guide for Attorneys on How to Manage Errors'"

In Virginia: "Bar proposes duty to address impaired lawyers" –
  • "A Virginia State Bar committee is seeking comment on the duty of law firm leaders to take action when another firm lawyer shows signs of impairment. The VSB Standing Committee on Legal Ethics is proposing a legal ethics opinion calling for law firms to have enforceable policies requiring intervention for impaired lawyers."
  • "The proposed opinion specifically focuses on the obligations of partners and supervisory lawyers to take precautionary measures before a lawyer’s impairment has resulted in serious misconduct or a material risk to clients or the public."
  • See also: ABA Formal Ethics Opinion 03-429

Sunday, August 14, 2016

Surprise Sunday Shark Bite : One More on OCGs...




Toby Brown, Chief Practice Management Officer at Perkins Coie, touches on one of the most fascinating issues tied to OCGs in my mind – the question of client/firm relationship and trust.

(It's an angle to this issue that recently came up in as part of a stimulating conversation on OCGs I recently had with an old friend and expert. More detail on that dialogue soon...)

In the meantime, read Toby’s thoughts in: "Outside Counsel Guidelines: Navigating the Changing Landscape of Client Demands" --
  • "First, an observation: From reading many of these documents, the overall evolution of OCGs seems to reflect a growing chasm between clients and law firms. The documents go to great lengths to describe and list restrictions on what clients will not pay for, how rate increases will be handled, and even describing acceptable language for time entries. This reflects a presumed relationship of mistrust. Having to go to such lengths demonstrates that clients, on some level, feel that law firms are not being fair with them. So, in order to bring back a perception of fairness, in-house departments are creating these rules in an attempt to level this playing field again."
  • "The growing complexity of OCGs demonstrates a need for firms to better monitor the terms of each OCG. This evolution has made OCGs effectively contracts, requiring law firms to manage them that way. Firms will need defined processes and new technologies to stay on top of this need."
  • "Overall we can expect the flood of OCGs to continue. Law firms should be committing resources to capturing the content of these documents and making it accessible and actionable so that firms stay on top of their client demands. Hopefully in the long run, clients and law firms will find a more productive way to rebuild any broken trust. But in the meantime, OCGs present a growing challenge for both firms and the clients who write them."

Thursday, August 11, 2016

OCG "Shark" Week: The Final Bite (For Now...)



Mid-swim this week, a reader wrote in suggesting we retread some older waters and make sure to highlight some of the historical stories, articles and resources on OCGs we've covered over the years.

OCG Panel Webinar Recording: "Responding to Outside Counsel Guidelines" --
  • "In the past five years, outside counsel guidelines ("OCGs") have become more commonplace and more stringent. The legal services world has shifted, as corporations (and their law departments) are being held to stricter budget accountability and risk management standards. Law departments have, in turn, held their external counsel to these same higher standards. In many ways, clients have become the true regulators."
  • "In this session, panelists will explore the evolving OCG landscape and discuss how firms can negotiate and respond to outside counsel guidelines."
  • "Speakers: Gilda Russell - [now former] Ethics and Conflicts Counsel, Holland & Knight LLP, Mike Guernon - Director of New Business and Conflicts, Orrick, Herrington & Sutcliffe LLP, Paul Hurdle - Senior Counsel, McKenna Long & Aldridge LLP [now Dentons]"

Past Articles & Updates:
  • "Dealing with Client Outside Counsel Guidelines and Other Non-Standard Client Engagement Terms" -- Gilda Russell:
    • "Consequently, firms should develop effective processes for dealing with OCG and client terms. These processes should focus on monitoring the avenues by which OCG and client terms come into firms as well as requiring review and approval of OCG and client terms by designated persons well versed in the subject matter of the provisions and related compliance issues."
  • "Hidden Compliance Threats to Outside Counsel Guidelines" -- Nancy Beauchemin:
    • "The first step a law firm needs to take to comply with outside counsel guidelines is to become aware that they exist. All too often, the attorney primarily responsible for the relationship with the corporate legal department will agree to the guidelines without first vetting the language with those individuals and departments within the firm that need to establish procedures and technology to comply with them."
  • "Some Corporate Clients Are Going Too Far With ‘Guidelines' for Counsel" -- Simon Chester:
    • "Chester said that while general counsel at his former firm, he assigned his summer associates to search the firm's document management system for outside counsel guideline packages. 'There were hundreds of them,' he stated. He said he and the firm's management team 'had no idea' of the extent to which his partners had agreed to those 'bombs waiting in our files' that 'were setting the terms and conditions for our interactions with our clients.'"
See you next week... (I've heard rumor of a plane carrying snakes...)

Wednesday, August 10, 2016

OCG "Shark" Week: "Double Indemnity"



"We're going to need a bigger blog!" (Too much? Well, you hopefully knew what you were signing up for when you signed up for these updates...)

Regardless, we continue our journey this week with: "Indemnity Provisions in Outside Counsel Guidelines: A Tale of Unintended Consequences" published by the ABA (full text to members), written by Anthony E. Davis and Noah D. Fiedler, partners in the Lawyers for the Profession group at Hinshaw & Culbertson LLP.
  • "The article discuses how client outside counsel guidelines ("OCGs") are taking on increasing significance as more corporate and financial institution clients develop broad forms of OCGs and adopt policies requiring them for all outside counsel engagements. In the article, Mr. Davis and Mr. Fiedler provide an overview of the factors underlying the increase OCGs generally and then discuss how OCGs, and particularly the provisions commonly included in OCGs that require law firms to indemnify clients, actually threaten the professional independence of lawyers and the legal profession as a whole."

Another interesting front on the OCG "discussion" touches on matters related to recent news about internal privilege, see: "N.Y. Court Endorses ‘Intrafirm' Attorney-Client Privilege" --
  • "Many firms that staked out that position did so despite the fact that some of their top clients—large businesses and the in-house lawyers who manage corporate legal budgets—have adamantly opposed efforts to establish the intrafirm privilege."
  • "That new tack, Sarwal said, may involve using “outside counsel guidelines” to require firms to give up the right to shield internal communications that would be privileged under this New York ruling and a string of recent cases from courts in other states."
  • "That suggestion didn't sit well with some lawyers who are designated as their firms' general counsel or have acted in that capacity on an informal basis."
  • "'If that's really what they plan to do that will be very disappointing,' said Brian S. Faughnan, a partner in the Memphis office of Lewis Thomason. 'It's a bit wrong-headed to insist that firms, if they're going to get your business, would have to waive the privilege,' Faughnan told Bloomberg BNA."

Tuesday, August 9, 2016

OCG "Shark" Week: "Single Indemnity"




Next up from BNA: "Lessons for Law Firms on Client Intake (Perspective)" --
  • "The increasingly competitive nature of the legal services market has shifted the balance of power between lawyers and clients. A potentially damaging result of this power shift is the now-common client indemnification clause included in many outside counsel guidelines (OCG), requests for proposal (RFP), or client-drafted engagement letters."
  • "These clauses create risk for both lawyer and client. Depending upon the scope of the indemnity and size of the engagement, a law firm’s financial stability can be threatened. Because the indemnification provisions could also compromise insurance coverage, the client risks losing the financial protection presumed to be provided by its law firm’s malpractice insurance."
  • "Despite the obvious drawbacks, it appears that client indemnification clauses are here to stay, so the real question is how to deal with them. In some instances, clients will negotiate the requirement, or change the language. In order to address the concern, though, lawyers must first be aware of the client’s request for indemnification, which brings up perhaps the most troubling issue of all."
  • "Because of the significant risks posed by agreeing to indemnify a client, there are a variety of steps firms should take to identify, screen for, and collect client indemnification provisions as part of the new client intake process and ongoing practice management."
    • "To begin, it’s important that the firm take inventory of what it’s already agreed to. This effort entails a thorough review of existing RFPs, OCGs, and client-drafted engagement documents."
    • "The firm should also ensure that all new engagements receive a thorough review. Partners must be educated on the importance of identifying indemnification requirements, as should staff who work in the client intake system."
    • "Even after files are opened, and the work has commenced, your risk management work is not done. Clients will slip indemnification provisions into outside counsel guidelines or file management procedures that are delivered only after the engagement agreement is signed. If work continues on the file after receipt of the guidelines, the firm could be held to the terms contained in those documents. Accordingly, firms should require ongoing review of all client guidelines or procedures received after the file is opened."
  • "The firm can’t manage a client indemnification request unless the firm knows the request exists. The first step is to institute screening mechanisms to identify the requests, whenever they occur. Only then can the firm work with the client to obtain an outcome that benefits both."
Too much suspense and drama today... Now if there was a mechanism and resource that could help manage the intake risk and ongoing terms of business compliance...



Monday, August 8, 2016

Announcing Risk Blog "Shark Week" (aka OCGs & Terms of Business)




A long time reader sent in a link to a well-aged article, sparking the idea of a thematic focus for the week... I've observed that the annual "Shark Week" on cable, serving up spill, chills (and a bit of aquatic education) always earns high ratings. (I've never watched it. I'm more partial to the Twilight Zone Thanksgiving Day marathons of my youth... "That was a good thing you did. A real good thing." But I digress...)

The Sharks this week are OCGs. And we're starting with a look at that article, which was published nearly a decade ago by lawyer Rees W. Morrison, consultant to corporate general counsel: "Dueling Documents: Law-firm retention letters versus law department outside-counsel guidelines" --
  • "Dueling may be outlawed, but at the start of an engagement law departments and their law firms sometimes walk back 10 paces, turn and fire. In this country, law departments blast away with their outside- counsel guidelines; law firms return fire with their retention letters. Neither document will disappear, but the two sides can take a shot at improving the exchange."
  • "Law departments recognized that they need to set some of their own rules and expectations, so they began to create guide- lines for outside counsel. These guidelines covered all matters sent to external counsel, unlike law-firm retention letters which govern a single matter. Occasionally a law department has a set of guidelines specifically for litigated matters. In general, guidelines swing to the opposite side from law-firm retention letters: The buyer asserts its dominance."
  • "No metrics have come to my attention about the frequency with which law firms send engagement letters; my estimate, having consulted to law departments for 20 years, is that more than three-quarters of all U.S. law departments with more than 10 attorneys have by now promulgated some form of outside-counsel guidelines."
  • "The two documents clash in almost every important respect because they seek opposite ends. The partner wants freedom of action, financial protection, and little accountability. The general counsel wants control, cost consciousness, and disciplined representation."
  • "The efficacy of guidelines in terms of controlling outside counsel costs, however, has yet to be measured, let alone proven. Guidelines serve the purpose of putting law firms on notice that costs and performance matter, but in the end I am dubious that all the time and energy expended on them have made much difference. The problems of warring documents, confusing variations everywhere, and dissimilar enforcement could be ameliorated."
  • "What we need as an industry is something akin to the common application for college. We need a set of baseline guidelines for outside counsel that law departments can start from uniformly and incorporate by reference... The benefit for law firms from a common set of terms is that they too could spend less time on this aspect of representation, accept industry standards, and only discuss the few provisions that seem inappropriate."

Thursday, August 4, 2016

On Practically Protecting Privilege In-House




Following yesterday's update comes analysis and advice via partners from Dentons: "Exercising Attorney-Client Privilege Over In-House Counsel Communications" –
  • While the Stock decision reflects a growing trend among state courts in rejecting the fiduciary exception to the attorney-client privilege and upholding the privilege for communications between firm attorneys and in-house counsel under certain circumstances, many jurisdictions have yet to jump on the bandwagon. In those jurisdictions, attorneys must tread carefully or risk losing all benefits of the attorney-client relationship. Moreover, even in the jurisdictions where the privilege exists, the cases suggest that certain steps should be taken to protect the privilege. Thus, law firms and their attorneys may wish to consider the following recommendations."
  • "Appoint In-House Counsel. Regardless of the size of the law firm or type of practice, formally designating an attorney (or team of attorneys) to serve as in-house counsel benefits the firm and its clients. Maintaining confidentiality and avoiding conflicts of interest with clients are chief among the reasons for appointing in-house counsel."
  • "Treat In-House Counsel as Counsel to the Firm in Form and Substance. Ensuring the legitimacy and effectiveness of in-house counsel requires more than just the provision of a title. Instead, the position should be assigned responsibilities, including, but not limited to, the investigation and analysis of matters that might involve attorney exposure... Additionally, when discussing claims or rendering advice on specific matters involving firm clients, those clients should not be billed for any time devoted to consulting on such matters."
  • "Segregate Client Files and In-House Counsel Files. Because the purpose of the communication is to seek legal advice on behalf of the firm, files maintained by in-house counsel should be segregated from those maintained by attorneys during the normal course of client representations. Too often, internal communications discussing ethics inquiries or potential conflicts are maintained with other documents and materials for the case under which the issue arose."
  • "When that occurs, disclosure of those communications may be contested. The former client may insist that those documents corroborate claims of ethical violations or other attorney misconduct. Keeping communications with in-house counsel separate helps prevent their disclosure, even in jurisdictions where the client “owns” the client file. To protect communications, in-house counsel should store emails and memoranda of conversations in files created for the purpose of advising the attorney or firm, while the attorney should keep them out of client files."

Wednesday, August 3, 2016

On In-House Attorney-Client Privilege



Karen Rubin at Thomson Hine writes: "Firm counsel privilege prevails; New York joins favorable trend in recognizing doctrine" --
  • The attorney-client privilege covers ethics advice that lawyers get from their law firm’s general counsel, and the communications do not need to be disclosed to the client, said a unanimous five-judge panel of the New York Appellate Division last week, in a closely-watched case. In Stock v. Schnader Harrison Segal & Lewis LLP, the court ruled that the law firm was the “real client” in getting the advice from the GC, and held that the fiduciary exception didn’t apply.
  • In an arbitration before the Financial Industry Regulatory Authority (FINRA), the employer said that it was going to subpoena the lawyers who handled the separation agreement negotiation, and indicated that it was seeking to point the finger at the law firm as being partly responsible for any loss to the client.
  • The court put particular emphasis on two facts:  first, that the Schnader firm’s general counsel had never participated in the client’s representation; and second, that the firm did not bill the client for the lawyers’ ethics consult with the GC.  That solidified the court’s view that the firm and its lawyers were the clients, and entitled to the privilege protection available to other clients.
  • In reaching its conclusion, the Stock court cited similar recent holdings from state high courts in Georgia and Massachusetts.  The ABA has also taken the position that the fiduciary exception does not apply to confidential communications between law firm personnel and the firm’s in-house or outside counsel, even regarding the firm’s duties or potential liability to a current client.  That favorable trend continues, with the opinion of this influential court.
For more detail on this specific decision, see also: "In-House Privilege In The First Department."

Tuesday, August 2, 2016

Conflicts: Malpractice Insurance Claims Trends




From Ames and Gough comes: "Uptick in Lawyers’ Liability Claims; Business Transactions Top Claim: Study"--
  • "Law firms have seen an increase in the frequency of malpractice claims, which are becoming more costly to defend and could cause lasting reputational damage, according to a new study by insurance broker Ames & Gough. The study found that most legal malpractice insurers saw an increase in the frequency of new claims in 2015, including larger claims with costs in excess of $50 million."
  • "In its sixth annual survey of lawyers’ professional liability claims, Ames & Gough examined the trend by polling nine lawyers’ professional liability insurance companies that on a combined basis provide insurance to more than 60 percent of the AM Law 100 firms."
  • "Conflicts remain top cause of claims, the survey revealed. In each of the six years the survey has been conducted, insurers cited conflict of interest as the most common alleged legal malpractice error. This year, five of the nine insurers surveyed ranked conflicts the single biggest leading cause of legal malpractice claims; one other insurer considered it the second leading cause. Further, among the nine insurers surveyed, five reported an increase in claims resulting from lateral hires or firm mergers."
  • "'Conflicts typically come into play as law firms seek to grow either through mergers or by bringing in lateral hires,' [partner and senior vice president Eileen] Garczynski noted. 'Besides having these hires provide a complete list of their current and past clients, firms should conduct comprehensive cross-checks and validation sessions to enhance their chances of catching conflicts before there’s a claim. Too often, law firms don’t act quickly enough to address potential conflicts.'"

Monday, August 1, 2016

AML — Anti-Money Laundering (or Ask Me Later)?



Earlier this year, many were abuzz about "that 60 Minutes segment" on AML. Now from the Wall Street Journal: "Law Firms a 'Weak Spot' in Money Laundering Detection" --
  • "What’s a lawyer to do if he or she suspects that a client is using them to help shuffle illicit funds? That’s the question posed this week by the series of civil complaints filed by the Justice Department seeking the seizure of a staggering $1 billion in assets tied to Malaysian economic development fund 1Malaysia Development Bhd., or 1MDB. The court filings offer painstaking detail on how money that was allegedly siphoned from the fund was passed through a trust account at the law firm Shearman & Sterling LLP on its way toward buying luxury real estate, private jets and casino nights."
  • "To be clear, Shearman isn’t accused of any wrongdoing. But the filings call into question how law firm trust accounts are used and what steps law firms can take to avoid getting in a tricky situation."
  • "Speaking generally and not about Shearman, legal ethics expert Stephen Gillers explains that ‘Lawyers can unwittingly provide a smoke screen for people who want to launder money.’ U.S. lawyers aren’t ethically obligated to trace the source of money being used by clients to fund deals and other projects. But legal ethics experts say attorneys should know generally where client funds come from and look out for red flags to avoid serving as an intermediary for dirty money."
  • "Richard Painter, a professor at the University of Minnesota Law School and a former chief White House ethics counsel under George W. Bush, said he and others have long thought that 'law firms have been a weak spot in the regulatory regime; in regard to money laundering."
Bloomberg notes that this activity “renews questions about whether a lack of regulations on lawyers encourages money laundering by their clients,” in: "Malaysian Fund Pilfering Claim Shines Light on Law Firm’s Role" --
  • "Still, the case exposed what lawmakers say is a soft underbelly in U.S. efforts to combat money laundering. While bankers are required by law to ask questions about their customers, inquire about the source of their money and report suspicious activity, lawyers are exempt from such regulations, shielded by attorney-client privilege. Voluntary guidelines adopted by the American Bar Association encourage lawyers to follow its 'good practices guidelines’' on combating money laundering and terrorist financing."
  • "That guidance, adopted in 2010, counsels lawyers to conduct due diligence on each client, understanding their circumstances and the source of their money. Lawyers are encouraged to be satisfied that they’re not abetting fraudulent or criminal conduct. The ABA says that the oversight of the 50 state supreme courts, and the threat of prosecution, is enough. Some lawyers are dubious."