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

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