Wednesday, October 26, 2016

Bzzzzt: Disqualification (Discussions, Determinations, Decisions)

Several stories to share on the theme of disqualifications. First up:"Latham Dodges DQ Bid In Zurich Lead Coverage Suit" --
  • "A Missouri federal judge on Tuesday denied Zurich American Insurance’s attempt to disqualify Latham & Watkins LLP from representing Fluor Corp. in a coverage dispute arising from lead smelting operations, saying there is no evidence the firm violated a protective order in a related state case."
  • "'The court suggests, in the future, counsel for the parties focus on the substantive issues in this case,' the order reads. 'The court has, for some time, formed an impression the acrimony among counsel is costing their clients unnecessary expense and clearly delaying disposition of this case.'"
  • "Zurich’s attorneys at Brown & James PC and Hunt Ortmann Palffy Nieves Darling & Mah filed a motion for disqualification in August, alleging that Fluor lifted protected discovery materials from its related state case against policyholder Doe Run Resources in order to fuel a counterclaim in the federal case between Zurich and Fluor."
Bill Freivogel notes: Konjevic v. Uber Techs. Inc., 2016 ONSC 5832 (CanLII) (Super. Ct. Ont. Sept. 30, 2016).
  • "Toronto sued Uber in 2015 for an injunction (“Other Case”). Represented by Firm 1, Uber won the Other Case. Lawyer was at Firm 1 and had a tangential role in the Other Case. This case is a class action by cab drivers against Uber. Firm 2 is class counsel. Lawyer has joined Firm 2."
  • "Lawyer was told on day one that he would have no role in the Uber case. Thirty days after Lawyer joined Firm 2, Uber claimed Firm 2 had a conflict. Upon receiving that objection, Firm 2 erected a formal screen. Uber moved to disqualify Firm 2."
  • "In this opinion the court denied the motion. All issues involved fact-intensive analyses. First, the court held that Lawyer’s role for Uber at Firm 1 was too insignificant to be concerning. Second, the court held that during the thirty days after being hired Lawyer was alone in Firm 2’s new Toronto office, and his only role in this case was commissioning two affidavits. Thus, on balance, the court held that no harm to Uber occurred, or was likely to occur, with Lawyer’s being at Firm 2."
Finally: "Locke Lord Wants to Weigh In On Swiss Knife DQ Appeal" --
  • "Locke Lord LLP on Monday asked the Second Circuit to allow it to intervene in a Texas knife maker's appeal of a trademark lawsuit brought by Victorinox AG after a New York federal judge decided not to disqualify the firm from representing the Switzerland-based company, despite a possible breach of ethics rules."
  • "Locke Lord said it will be better able to address the alleged conflicts cited by knife maker The B&F System Inc. stemming from the firm's merger with Edwards Wildman Palmer LLP if it acts separately from Victorinox, the Swiss Army knife maker that sued B&F over the use of its famous red handle design."
  • "B&F appealed to the Second Circuit and in February asked that the court disqualify Locke Lord. B&F said that Locke Lord violated its ethical obligations by briefly representing both Victorinox and B&F after Locke Lord merged with Edwards Wildman Palmer LLP in January 2015."

Tuesday, October 25, 2016

Conflicts From Russia, with...

Here's an update on a matter we noted earlier this year: "Law Firm Booted Off $230M Russian Mob Case" --
  • "Baker Hostetler cannot now represent the accused perpetrator of a $230 million fraud linked to the Russian mob since the white-shoe law firm already represented one of the scheme's victims, the Second Circuit ruled, calling the circumstances of the case 'extraordinary.'"
  • "One victim of the Russian treasury fraud, according to Monday's ruling, is Hermitage Capital Management. In 2007, the U.S. hedge fund's Moscow office was raided by members of the Russian mob. It is undisputed that the perpetrators stole corporate identities of Hermitage's portfolio funds to fraudulently claim tax refunds from Russia. Reuters reported that a Hermitage entity eventually retained Baker Hostetler to investigate the crime, trace the proceeds, and report their findings to U.S. prosecutors between 2008 and 2009. Once the U.S. government filed its action, however, Prevezon hired Baker Hostetler for its defense. Though the move prompted a motion to disqualify by Hermitage, accusing the firm of having "switched sides," Baker Hostetler insisted that no conflict existed because both Prevezon and Hermitage were innocent."
  • "Earlier this year, U.S. District Judge Thomas Griesa found no conflict-of-interest in what appeared to be Baker Hostetler's game of legal musical chairs. 'This case is not about Hermitage, nor is this case centrally focused on the Russian fraud,' Griesa wrote on Jan. 8. 'Even if it were, to the court's knowledge, Hermitage was never the target of a U.S. investigation for the Russian fraud, let alone an actual lawsuit. In this way, Moscow did not 'switch sides,' nor is he now accusing a former client of the 'same crime' that he was 'retained to defend against.''
  • "The Second Circuit unanimously disagreed in a scathing, 37-page opinion on Monday. 'If crime victims fear that the attorneys they hire may turn against them, they may be less likely to assist government in its investigations,' U.S. Circuit Judge Rosemary Pooler wrote for a three-judge panel. Pooler said the 'extraordinary circumstances' of this case require the rarely granted writ of mandamus. 'It is rare that a nonparty, nonwitness will face the risk of prosecution by a foreign government based on the potential disclosure of confidential information obtained during a prior representation,' the 37-page opinion states. 'That real risk, however, coupled with the misapplication of the law by the district court, outweighs the delay and inconvenience to Prevezon of obtaining new counsel.'"

Monday, October 24, 2016

Interview with a Conflicts Guru

Bill Frievogel was recently interviewed by Bloomberg BNA. An important voice in the risk community shares his latest thinking in: "Conflicts Guru Gives Lowdown on Firms' Top Frustration" --
  • "No other ethics issue has as wide an effect on the day-to-day business of law as do conflicts of interest. A conflict can mean turning away a great client or lateral hire, exposing you and your firm to malpractice liability, and even—in thankfully rare cases—criminal liability. It's no wonder that law firm general counsel cited conflicts as their top risk management concern in a recent study."
  • "Q.What are the most common types of conflicts for large firms? A.While I have not done a statistical analysis, I would guess former-client situations under Model Rule 1.9(a) and the application of the “substantial relationship” test—for law firms of all sizes. Related to that, in particular for larger firms, are lateral movements among law firms where the firms are opposing each other, and the lateral may be infected with having participated in the matter or has information about it. This implicates imputation under Model Rule 1.10 and the issue of whether a screen will cure the problem."
  • "Q.Can firms use screening mechanisms to avoid or deal with conflicts? A. About half the states specifically recognize non-consensual screens as a way to deal with lateral lawyers. Almost all states recognize screens in the case of lateral government lawyers and judicial personnel. Screens established with the consent of all involved should always work. Getting the consent is another issue."
  • "Q.What's the idea of “conflicts counsel”? A.In litigation where a law firm finds that a current or former client will be an adverse witness, and hostile cross-examination is probable, a few courts have allowed the law firm to stay in the case if another firm is brought in to conduct the cross-examination. Other courts disagree. In a Chapter 11 bankruptcy, a law firm may be able to represent the debtor or the unsecured creditors' committee if the firm will designate “conflicts counsel” who will be on call to handle a matter that might otherwise disqualify the law firm. Such was the case in Exco Resources, Inc. v. Milbank, Tweed, Hadley & McCloy LLP (In re Enron Corp.)"
  • "Q. When is a conflict of interest likely to engender a malpractice claim? A. The situations are many and varied. There are two prominent categories in my mind. First, where a law firm loses a litigation costing a client a lot of money. Then the client learns that the law firm had other representations or relationships possibly causing the law firm to “throw” the case, or not do the best job. The other category is a business failure where the failed client learns the law firm had other relationships, which caused the law firm to structure the business or transaction in a way to favor someone else, to the detriment of the client."
  • "Q.You're in Chicago. Are the Cubs going all the way? A. Argh! You would ask that. I am a lukewarm Cubs fan, because I grew up in Southern Illinois with Harry Caray and the Cardinals. The Major League playoffs can break your heart, but it would be a great party here."

Sunday, October 23, 2016

EVENTS: Risk Roundtables (New Chicago Session + DC Report)

We were pleased to announce the next Risk Roundtable. Our first session of the season took place in New York, and we recently hosted a Washington DC event that was quite successful. Here's a snapshot:

This series focuses on outside counsel guideline  and terms of business management.

Our next event in this series is set for November 9th in Chicago. As with the NY and DC events, we'll be featuring presentations and discussion lead by Anthony Davis from Hinshaw & Culbertson and Eric Nerland.

Attendance is by invitation only and is limited to qualified law firms and personnel. Please contact for more details.

Thursday, October 20, 2016

InfoScary (Part 4b) : Medical Issues, Personal Details (Compromised)

While no law firm is mentioned, this update certainly brings the risks of PHI and HIPAA compliance into view: "Another Way to Violate Privacy: PHI in Court Documents" --
  • "A recent court ruling illustrates yet another way patient privacy can be compromised. A federal court slapped WakeMed Health and Hospitals, a North Carolina healthcare system, with financial penalties for exposing patient information in filings it made for cases."
  • "The court also ordered WakeMed to send breach notification letters and offer one year of free credit monitoring to potentially thousands of adults and minors whose Social Security numbers or full dates of birth were included in court documents the healthcare organization filed between December 2007 and December 2015."
  • "Those documents, which were publicly available online via a subscription-based court records system, were filed in WakeMed's attempt to seek payment for debts allegedly owed by patients who had filed for bankruptcy protection."
  • "'There is a real tension between some 'public records' laws related to court filings and other kinds of laws,' says privacy attorney Kirk Nahra of the law firm Wiley Rein. 'Major advice is to always be incredibly careful whenever you are disclosing any kind of patient information in any kind of public setting - it is possible that you need to do it, but usually there is a better way.'"
  • "'The HIPAA training did not cover bankruptcy claims filing,' the court ruling states. 'Ms. Soles also had no supervision with respect to filing claims, and testified that no one else in her department knew how to file bankruptcy claims. There was no audit system in place, and Ms. Soles had no direct contact with the legal department of WakeMed.'"

Wednesday, October 19, 2016

InfoScary (Part 4a) : Medical Issues, Personal Details

Today, let's revisit the scary world of government regulation and personal health information. This September article in the Indiana Lawyer sums things up quite nicely:"Business associate classification and HIPAA liability for lawyers" --
  • "When business associates such as law firms come in contact with PHI from covered entities, they have to comply with regulations that include using the information only for the purposes for which they were engaged, safeguarding the information and helping the covered entity comply with its obligation under the privacy rule."
  • "PHI is interpreted broadly and includes any information about health status, provision of health care or payment for health care that can be linked to a specific individual. It includes any part of a patient’s medical record or payment history. Business associate agreements (BAA) are contracts between HIPAA-covered entities and business associates. BAAs are used to protect PHI in accordance with HIPAA guidelines."
  • "What is the impact of the business associate classification on lawyers and law firms?  The lawyer qualifies if he or she provides legal services to such covered entity other than as a member of the workforce of the entity... The commentary in the final rule provides insight into what qualifies an entity as a business associate by stating, 'a person becomes a business associate by definition, not by the act of contracting with a covered entity or otherwise.'"
  • "Therefore, liability for impermissible uses and disclosures attaches immediately when a person creates, receives, maintains, or transmits protected health information on behalf of a covered entity or business associate and otherwise meets the definition of a business associate.” If the answer is yes, then lawyers and law firms must ensure compliance with the HIPAA regulatory scheme."
  • "As for the security rule, it mandates that business associates address the following areas about their required security risk management program: administrative safeguards; physical safeguards; and technical safeguards. Business associates must implement security measures to reduce risks and vulnerabilities. For example, one measure provided by the security rule is the identification of a security official who is responsible for the development and implementation of the policies and procedures required for the covered business associate. This individual designated by a law firm manages the implementation of security rule requirements and safeguards. Under HITECH, the government is required to conduct random audits of business associates to determine if they are complying with the privacy, security and breach notification rules of HIPAA. In the event this occurs, the security official will be the person the government initially speaks with."
  • "As a business associate, a law firm must notify a covered entity if unsecured protected health information is breached, used, accessed, acquired, or disclosed in violation of the privacy or security rules. Lawyers and law firms that represent covered entities as clients must comply with all relevant HIPAA regulations. As business associates, law firms must adhere with the requirements established by HIPAA including the required security risk management program consisting of administrative safeguards; physical safeguards; and technical safeguards."
  • "First, administrative safeguards include implementing policies and procedures regarding security and confidentiality of PHI, training new and existing employees on security and protecting PHI, and adopting measures to identify and resolve security violations where individuals improperly access and/or disclose PHI. Second, physical safeguards such as facility access controls, secured floors, networks, offices and computers, security for work stations, and device and media controls should be implemented. Lastly, technical safeguards include computer access control, audit controls, data transmission security, secure password and encryption, network security, set up systems to automatically log off work stations, and assign unique user identifier to identify and track user activity."
  • "In light of this enforcement action and with Phase 2 HIPAA audits underway, law firms that qualify as business associates need to ensure compliance with HIPAA’s business associate provisions by reviewing current business associate relationships and executing written agreements (if not already in place) and by reviewing current policies and procedures related to business associates to ensure there are individuals who are monitoring, negotiating and documenting business associate relationships."

Tuesday, October 18, 2016

InfoScary (Part 3) : Insider (Trading) Threat, Tricks (No Treats)

Adding to our Halloween theme comes the coda to one story about insider threats, delivering a bit of punishment to address the crime: "Law firm employee sentenced in $5.6M insider trading scheme" --
  • "A former employee of a Manhattan law firm that deals in mergers and acquisitions was sentenced to nearly four years in prison Wednesday, after admitting he provided information used in an insider trading scheme to net $5.6 million in profits, U.S. Attorney Paul Fishman announced Wednesday."
  • "The employee, Steven Metro, 42, of Katonah, N.Y., who managed the firm's law clerks, was indicted in January 2015 and later pleaded guilty to two counts charging him with securities fraud and conspiracy to commit fraud. He was sentenced Wednesday to 46 months in federal prison by Judge Michael A. Shipp in U.S. District Court in Trenton, Fishman said."
  • "Like something out of an Oliver Stone film, prosecutors say that from 2009 to 2013, Metro searched the computer system of the firm, Simpson Thacher & Bartlett LLP, using key words like 'merger agreement,' 'bid letter,' and 'due diligence,' to find information on impending transactions involving companies represented or advised by Simpson Thacher."
We covered this episode when it first came to light, along with several other examples of the years about how unfortunate actors, taking advantage of internal access in pursuit nefarious ends.

These stories are not just about lawyers, several include staff: both support staff and even IT staff with administrator access to document repositories (raising even more complex questions about who watches the watchers).

Monday, October 17, 2016

InfoScary (Part 2) : Confidentiality Protection Matters

Information security is not just about preventing external breaches. It’s also about controlling and tracking internal access to and use of sensitive information (both client and firm data). Take protective orders.

Often coming into play during litigation, protective orders limit how sensitive information may be accessed with a firm or disclosed to external parties. In these instances, lawyers, internal staff and external expert witnesses may be required to read and sign the order and follow its guidelines. Such guidelines usually stipulate that only parties actively working on the matter may have access to designated materials in both physical and electronic form. Pleadings filed with the court referring to protected materials may need to be filed under seal. Firms must also control access to such work product during the creation process. This means restricting access to relevant work product stored in generally accessible information repositories such as document management libraries.
Here are a few recent related stories in the news

"Robins Kaplan Sued For $1M Over Disclosing Discovery Docs" --
  • "Robins Kaplan LLP was hit with a $1 million trade secrets suit in California federal court Thursday by two garment manufacturers that allege the firm publicly disclosed confidential discovery information the plaintiffs had filed in underlying copyright infringement suits."
  • "Garment manufacturers and distributors Ms. Bubbles Inc. and R&S Worldwide Inc. are accusing discount clothing retailer Rue 21 and its attorney, David Martinez — the co-chair of Robins Kaplan's retail industry practice groups — of publicly revealing the confidential company information in court filings, violating state and federal trade secrets laws, and causing them at least $1 million in damages."
  • "'Plaintiffs never would have produced the aforementioned information to Rue 21 or its counsel, even under an 'attorney's eyes only' designation, had they known that this information would be disseminated to the public at large through court filings,' the manufacturers contend."
  • "As part of those suits, both manufacturers provided Rue 21 with detailed information about their costs of goods, revenues and profits in response to interrogatories filed by Rue 21, with the expectation that the information would be kept for 'attorneys eyes only.'"
  • "The manufacturers also allege Rue 21 and Robins Kaplan are liable for breach of contract because they violated protective orders that were entered in both of the copyright suits specifically to keep the discovery responses at issue confidential."
  • "The U.S. International Trade Commission on Wednesday publicly reprimanded Quinn Emanuel Urquhart & Sullivan for 'pervasive problems at the firm' in safeguarding confidential business information from Apple Computers that it obtained while representing Samsung in patent litigation against the computer company. No monetary sanctions attached to the reprimand, which stemmed from the fact that the firm breached an administrative protective order issued by the ITC."
  • "The ITC summarized its reprimand: The Commission determined that the law firm of Quinn Emanuel Urquhart & Sullivan breached the Administrative Protective Order by failing to adequately control access to confidential business information ('CBI') in the investigation and litigation in [San Jose federal court]. As a result, Quinn Emanuel attorneys and [Samsung] employees … improperly disclosed CBI to more than 140 unauthorized persons over a 14-month period. Quinn Emanuel is being publicly reprimanded for pervasive problems at the firm in safeguarding CBI."
  • "The ITC also provided a more detailed version of events that related how a junior associate at Quinn Emanuel failed to redact confidential information in one document, which was then repeatedly shared with Samsung employees and at one point was disseminated in an Italian Court."
  • "Firm chair John Quinn issued the following statement: As stated in the ITC order, we had an associate who did not fully redact a small amount of information that had been designated as confidential from an expert report before sending it to our client. Although, as the Commission found, this was inadvertent, it was a serious matter.  Unfortunately, we missed opportunities to discover and remedy the problem, which was compounded when the report was later forwarded to many other lawyers and consultants working on related matters and some of the information was unknowingly included in other documents which were similarly distributed."

Sunday, October 16, 2016

InfoScary (Part 1) : A Pessimistic View on Information Security

With the success of "Shark Week" this past summer, our focus on Outside Counsel Guidelines and Terms of Business Management, and a brimming list of new updates to share on an old theme, we're kicking off the Halloween fright season with "InfoScary," and focusing on information security and confidentiality management.

First up, comes a fascinating story from the Legal Technology Insider (known also as "The Orange Rag," because of it's roots -- It was originally paper based... distributed on orange media to prevent photocopying). They note: "Dentons trials NetDocuments & pessimistic security model" --
  • "Dentons is set to launch a proof of concept of NetDocuments’ cloud-based document management system, as the 7,300-lawyer firm also moves closer to locking down its files to all but those immediately involved in its matters. Dentons is a long term iManage client but, as part of a five-year plan put in place by global chief information officer Marcel Henri, will review its DMS and knowledge management arrangements in two years’ time."
  • "The trial comes as Dentons also moves closer to a pessimistic security model, under which documents are only accessible by staff who are granted access by the firm. Fears over security, particularly sophisticated phishing attacks, where a hacker tricks staff into handing over confidential login details and assumes their privileges, have led a number of firms to discuss increasing their internal security measures. However, for reasons of convenience, cost, and resources, the vast majority of law firms still operate an optimistic security model, whereby documents are often restricted but the default position is that they are accessible across the firm."
  • "Henri told Legal IT Insider: 'There is a push within the firm for a completely pessimistic security model; it’s what clients expect. The business gets it but of course some parts of the business are resisting it because it limits your ability to share knowledge and content. Firms have invested heavily in search but what is a search if everything is locked down?'"
  • Dentons is currently trialing a pessimistic security model in Germany and Henri added: 'Whatever solution we go with, whether it be iManage or NetDocuments, it will most likely be under a pessimistic security model... ne scenario we have discussed is to draw a line in the sand and say that, from a given date, we will apply a pessimistic security model and lock things down. In order to be able to share best practice and model documents, you are going to have to put more effort in the qualification of those documents and you are going to have to clean them and profile them, which is an extra workload.'"
  • "he decision follows recent high profile security breaches and leaks such as the Panama Papers. Henri said: 'In light of the many recent security breaches that have made the headlines, I simply don’t think firms will have a choice.'"
We've covered these issues before, but it's fascinating (and quite informative) to see such a prominent firm so publicly discuss its plans in motion. We previously noted:
  • "There has been a growing legal industry shift towards adopting 'members only' internal security models, where only individuals that are members of a particular matter team can access sensitive client data, or 'hybrid' models where matters in specific practice groups or geographies default to closed access, while others remain open."
  • "According to the just-published ILTA technology survey, the number of firms moving to a "pessimistic" security model grew by 50% in the past year. (Though, for context, we note that the survey reports that 6% of firms have embraced the closed or hybrid confidentiality model.)"
I'd be remiss if I also didn't note that given the complexities associated with managing complex and often overlapping information access and security policies, firms look to commercial solutions. And the ILTA technology survey highlights the growing adoption of these solutions (and the market leader):
  • 81% of firms now report using software to manage ethical walls and internal confidentiality controls – a 16-point jump from last year.
  • Intapp continues to lead in this category, serving 79% of firms with 150+ lawyers using commercial information security software.
For more information about enhancing information security and confidentiality management, there's no better voice than webinars and case studies of peer firms: Intapp Walls Webinar Library.

Thursday, October 13, 2016

Insurance Matters (Mysteries Explored)

Hat tip to the Legal Ethics Forum for noting: "The Mystery of Mutual Insurers in Lawyers Professional Liability Insurance" --
  • "Large law firms in the U.S. rely heavily on lawyers-only mutual insurers to manage their malpractice risks. Yet, under classic economic theory, mutual insurers should not be able to compete with stock insurers, at least absent a market failure. Mutuals have less access to capital and thus less ability to spread risk. Also, mutuals demand much more law firm partner time."
  • "Our research into the lawyers’ professional liability (LPL) insurance market makes three contributions. First, while we find evidence consistent with the traditional explanations for mutual insurance — market failures related to moral hazard and adverse selection and a problem with long-term contracting, we also provide a new autonomy explanation. Many lawyers, and presumably other professionals, perceive that mutual insurance promotes professional independence in the face of the social control imposed by liability and insurance.
  • "Second, we crack open the windows on a secretive aspect of law firm risk management, revealing the variable, hybrid nature of LPL mutual insurance arrangements."
  • "Third, we reframe the scholarly understanding of the relationship between organizational forms. The corporate law and insurance literature typically views mutual and stock insurers solely as competitors. We show that they also play complementary roles, as all of these mutual insurers engage extensively with commercial insurers through reinsurance or excess insurance."
  • "At least in this context, mutual insurance is not an alternative to stock insurance, but rather a way to manage access to the powerful risk distributing potential of stock insurance. Indeed, the availability of mutual insurance may favorably affect the behavior of stock insurance companies even outside of their relationships with the mutual insurers. Accordingly, our research suggests that lawyers’ participation in their mutual insurers provides benefits not only to their firms, but also to the legal profession."

Wednesday, October 12, 2016

Recent Ethics Opinions: More Naming From Texas + Not-So-Well-Known Knowns

Several ethics updates to share. First, recalling a bit of fun poked back in 2014 when the state took aim and title inflation (aka "The Too Many Chiefs in Texas" saga), comes a new update from a state famous for not being messed with and doing things big: "Ethics Opinion Questions Use of Swiss Verein Firm Names in Texas" --
  • "Texas lawyers practicing at firms organized as a Swiss verein may change how they identify themselves because of a recent opinion issued by the State Bar of Texas Professional Ethics Committee. Opinion 663, issued in September, concludes that under the Texas Rules of Professional Conduct, Texas lawyers in an organization such as a Swiss verein may not use the name of the organization as their law firm name on pleadings or other public communication unless all names in the verein are current or former lawyers in the firm or a predecessor as permitted by Rule 7.01(a)."
  • "The opinion, issued at the request of a Texas attorney practicing at one of the vereins, would presumably affect Texas lawyers in a number of firms, including five firms on the Am Law 100 ranking of the nation's highest grossing firms. Firms identified as Swiss vereins on that list include DLA Piper, Baker & McKenzie, Hogan Lovells, Norton Rose Fulbright and Squire Patton Boggs."
  • "A Swiss verein is a corporate holding structure wherein the firms share activities such as strategy and branding but maintain financial independence."
  • "Mark Osborn, a partner in Kemp Smith in El Paso who chairs the committee, said Texas ethics opinions are considered advisory and not binding on the Texas Supreme Court. 'Literally nothing is going to happen unless someone else does something,' Osborn said. For instance, he said, a Texas lawyer could face disciplinary action if someone files a grievance against the lawyer for using a Swiss verein name in the wake of the opinion. That would be a 'rare' occurrence, Osborn said. More likely, firms will read the opinion and decide if they need to make changes because of it, he said."
That last quote about "doing something" almost begs for a joke about "drawing," or Jack Palance in Shane..

Next, speaking of names, North Carolina notes that: "Equity Stake Isn’t a Prerequisite for ‘Partner’ Label" --
  • "The North Carolina State Bar Association issued Formal Ethics Opinion 9 advising that professional corporations are allowed to designate lawyers in their firm as 'partner,' 'income partner,' and 'non-equity partner,' even if those lawyers do not own any interest in the firm and have no authority to vote on corporate governance matters."
  • "However, a lawyer who is designated as a partner must have been promoted based on legitimate criteria. Additionally, the Ethics Committee noted that any firm lawyer who has been promoted to “partner” will be held to all professional responsibilities that accompany that role, such as the supervisory responsibilities required by Rule of Professional Conduct 5.1."
Here in California, we sometimes like things complicated and nuanced, which brings us a reconfirmation of what might be called the "Not-So-Well-Known Knowns" principle: "California opinion reaffirms traditional view on the extent of the duty of confidentiality" --
  • "On that point, California's interim ethics opinion reaffirmed the old principle concluding that '[a] lawyer may not disclose his client’s secrets, which include not only confidential information communicated by the client to the lawyer, but also publicly available information that the lawyer obtained during or related to the professional relationship which the client has requested to be kept secret or the disclosure of which might be embarrassing or detrimental to the client.' More than a year later, the interim opinion has been officially published as Formal Opinion 2016-195 and it is available here."
Finally, from Iowa, comes a bit of truth or dare: "Lies to Counsel Violate Rule on Truthful Statements" --
  • "The ethics rule against making false factual statements to third persons covers lies to opposing counsel, the Iowa Supreme Court held Sept. 16 ( Iowa Supreme Court Attorney Disciplinary Bd. v. Barnhill , 2016 BL 305056, Iowa, No. 16-0731, 9/16/16 )."
  • "Rule 32:4.1(a) of the Iowa Rules of Professional Conduct forbids false statements to third persons about material facts when representing a client. Opposing counsel is a third person within the meaning of that rule, even though there’s a separate professional conduct rule on fairness to opposing counsel, Justice Daryl L. Hecht said."
  • "The opinion highlights the broad duty of honesty lawyers have towards anyone they deal with on behalf of on a client. Opposing counsel isn’t excluded from the universe of third persons to whom lawyers owe the obligation of truthfulness, according to the court."

Tuesday, October 11, 2016

Conflicts: Playbooks, Clerks, Screens & Clients (Current and Former)

Several conflicts updates to share, starting with two recent decisions noted by Bill Freivogel.

  • 473440 Alberta Ltd. v. Lenaco Homes Masterbuilder Inc., 2016 ABQB 435 (CanLII)(Ct. Q.B. Alberta Aug. 31, 2016).
  • This is a food fight among companies and individuals in the building business. Lawyer represents Defendants. Lawyer had previously done work for Plaintiffs on two other matters. Plaintiffs moved to disqualify Lawyer in this case. In this opinion the court disqualified Lawyer.
  • The evidence was conflicting, but, on balance, the court believed that Lawyer would have learned things about Plaintiffs in the earlier matter that would have been relevant to the tasks in this matter. In our view, this was essentially an application of the 'playbook' rule, as it is known in the U.S.
Screening an active client conflict:
  • Fabick, Inc. v. FABCO Equip., Inc., 2016 WL 5718252 (W.D. Wis. Sept. 30, 2016).
  • Lawyer at Law Firm had done some trademark work for Plaintiff. Lawyer remains “attorney of record” for the trademarks he had obtained. Lawyer also retained responsibility for maintaining the trademarks. In this trademark infringement case, Law Firm appeared for Defendant. Plaintiff moved to disqualify Law Firm.
  • Among other things, the court found that Lawyer’s continuing duty to maintain the trademarks makes Plaintiff a current client subject to Rule 1.7. Although screens are specifically provided for in former client situations only, the court allowed Law Firm to continue in this case provided it erect a screen between Lawyer and the lawyers working on this case.
And Karen Rubin at Thomson Hine notes: "Hiring student law clerks and avoiding disqualification — two states weigh in" --
  • "When a law clerk or a law school graduate you hire has clerked for a firm representing a party adverse to your client, what happens?  Is the student or newly-minted lawyer disqualified from working on your matter? Is your whole firm disqualified?  Can you screen the clerk/former clerk and solve the problem?  Two recent ethics opinions out of Texas and Ohio clarify the rules."
  • "The new Texas ethics opinion applied the new comment and ruled that when a firm hires a new associate who worked as a clerk for the firm representing the opposing party, the former clerk is disqualified from working on the case at the new firm, but that the new firm can screen the clerk and avoid imputation of the clerk’s conflict.  That sensible approach is good news for Texas firms and law clerks, and the comment is broadly aimed at other incoming non-lawyer employees, such as secretaries, too...Ohio’s Board of Professional Conduct issued similar advice earlier this summer."

Monday, October 10, 2016

Top Law Firm Risk Issues of 2016 (and Beyond)

Thanks to Chuck Lundberg for getting in touch following the OCG/Terms of Business interview we published last week. It's always nice to make new connections out there.

A legal ethics and malpractice expert, Chuck served for twelve years on the Minnesota Lawyers Board, including six years as board chair. He retired last year after 35 years of practice with Bassford Remele, and now advises attorneys and law firms through Lundberg Legal Ethics.

He has writes regularly for the Minnesota Lawyer, most recently publishing a timely update: "Quandaries and Quagmires: The hottest law firm exposure issues" --
  • "This, then, is a snapshot — as of September 2016 — of the hottest legal ethics and risk issues right now, gleaned from very recent and reputable sources. This list was compiled from a review of topics addressed (and to be addressed) at a number of recent (and future) national conferences on legal ethics and malpractice (where firm counsel from across the country gather to learn about the newest law firm exposure areas); from recent postings on national ethics list servs and blogs; and from the advance sheets of specialized reporters and press that track current developments in the law of lawyering."
  • "#1 Cyberliability / data breach: The received wisdom is crystal clear: All law firms should now be thinking in terms of when they will have to deal with a data breach emergency, not if they will. The April 2016 Panama Papers disaster is a great horror story to keep firm management up at night — 2.6 terabytes of extremely confidential law firm client information, all posted on the internet."
  • "#2 Client-imposed retainer provisions: This one is primarily a big-firm problem, at least for now. It comes up like this: Large corporate client, with a lot of excellent billable work, wants to retain you, but there’s a catch: The client wants your retainer agreement to incorporate some special new provisions, such as sweeping definitions of client identity to include numerous corporate affiliates uninvolved in the matter; redefining conflicts of interest more broadly than the ethics rules, including positional conflicts of interest; and provisions claiming client ownership and copyright protection for the firm’s work product, indemnification provisions, authority to conduct internal audits, and security requirements. Most recently, some clients have even sought to require advance waivers of any law firm privilege."
Other quandaries he flagged include risks tied to: Lawyer mobility, In-firm ethics training, Joint representation conflicts, #social media ethics and In-firm privilege issues.

Sunday, October 9, 2016

CONFLICTS: No Clearance, No Cash?

From the California Lawyer, Kate G. Kimberlin and Jessica R. MacGregor, two lawyers at Long & Levit focused defending lawyers published an excellent overview for anyone who believes that getting paid is much better than the alternative: "Fee Disgorgement (Special Credit): Attorneys who fail to disclose conflicts to clients may lose their right to collect fees—and may have repay fees already collected." --
  • "In the Sheppard Mullin case [Sheppard, Mullin, Richter & Hampton, LLP v. J-M Manufacturing (2016) 244 Cal.App.4th 590], the appellate court found that a law firm’s failure to adequately disclose a conflict of interest between two existing clients was sufficient to deny the firm $3.8 million in fees billed for more than a year of work in a litigation matter."
  • "Attorneys in California risk disgorgement or forfeiture of their fees where they have engaged in violations of the Rules of Professional Conduct. However, California has no bright-line rule for determining whether a particular rule violation will result in disgorgement or forfeiture.  Rather, it is a question which must be addressed on a case-by-case basis.  It is therefore important to understand the cases on this subject and avoid the types of misconduct which the courts have highlighted as a basis for denial of fees."
  • "The last time the California Supreme Court offered its views on the subject of fee forfeiture was in Huskinson & Brown v. Wolf (2004) 32 Cal.4th 453. There, the Court observed that an attorney may be denied fees as a result of a violation of the Rules of Professional Conduct, but recognized that disgorgement is reserved for those cases in which the attorney violated 'a rule that proscribed the very conduct for which compensation was sought, i.e., the rule prohibiting attorneys from engaging in conflicting representation or accepting professional employment adverse to the interests of a client or former client without the written consent of both parties.' Huskinson & Brown, 32 Cal.4th at 463 (citing Jeffry v. Pounds (1977) 67 Cal.App.3d 6 and Goldstein v. Lees (1975) 46 Cal.App3d 614)."
  • "Three years after Huskinson & Brown, the Court of Appeals sought to further clarify matters in Mardirossian & Assoc., Inc. v. Ersoff (2007) 153 Cal.App.4th 257. There, an attorney agreed to represent two clients in litigation. Prior to taking the representation, the attorney identified various potential conflicts of interest which might arise.  Both clients signed separate, comprehensive documents consenting to the attorney’s joint representation despite the identified potential conflicts. When the attorney sought his fees from one of the clients, however, the client argued that the attorney should be prohibited from recovering fees because there had been an actual (rather than just potential) conflict of interest at the inception of representation in violation of Rule 3-310(C). The trial court ruled against the client, finding that, at most there had been a potential conflict of interest."
  • "Four years after Mardirossian, the court of appeal issued its decision in Fair v. Bakhtiari (2011) 195 Cal.App.4th 1135... In Fair, the attorney and clients entered into multiple real estate business arrangements over a ten-year period.  When the attorney sought to collect fees owed to him, the client alleged that the attorney had violated RPC 3-300, which prohibits attorneys from entering into business transactions with their clients without first obtaining the client’s informed, written consent. The trial court found that the attorney failed to comply with rule 3-300 because he had never disclosed his potential conflict of interest or obtained his clients’ written consent to the actual conflicts that arose in the course of their business dealings.  Id. at 1135.  As a result of the attorney’s rule violation, the trial court denied the attorney the ability to recover his outstanding fees on a quantum meruit theory."
  • Though not referenced in the Supreme Court’s 2004 Huskinson & Brown opinion, the courts of appeal often cite to Cal Pak Delivery, Inc. v. UPS, Inc. (1997) 52 Cal.App.4th 1, to answer the question of whether an attorney must forfeit all, or only a portion, of the fees earned as a result of a conflict of interest.  In Cal Pak, class counsel "admitted he had offered to sell out his client and the class which the client was seeking to represent for a payment to himself personally of approximately $8 to $10 million dollars." Despite the admittedly egregious conflict between the attorney and his clients, the court of appeal acknowledged that the attorney may have a 'right to recover fees for services rendered before his breach of duties to his client.'"
  • "Regardless of the eventual Supreme Court ruling in Sheppard Mullin, attorneys practicing in California would do well to examine their fee agreements, as well as their active litigation and transactional matters, to ensure there are no underlying potential or actual conflicts which have not been properly disclosed or documented with the clients’ written consent.  Precedent teaches a powerful lesson:  Failure to diligently follow the rules for disclosing such conflicts can be costly."

Wednesday, October 5, 2016

Risk Roundtables (New DC Event + NY Report)

We were pleased to host the first of several upcoming Risk Roundtables focusing on outside counsel guideline / terms of business management. Our first session took place a few weeks ago in New York.

Eric Nerland, Intapp Risk Practice Director, presented at the event and send these notes:
  • "About 30 legal professionals, mostly from the GC’s office, gathered to hear best practices on OCG’s, RFP’s and other client commitment documents.  The discussion largely centered on awareness of what firms have agreed to and how to ensure firm compliance."
  • "Most of the attendees agreed, that the bulk of the issue is making sure the firms is staying in-line with their “clients rules of the road” is a content challenge.  Informing various roles and group throughout the firm of the guidelines, and most recent updates, is an absolute must.  Moreover, making sure that attention is paid to more then just the billing terms is also needed – which historically has been hard to achieve in firms."
Our next event in this series is set for October 19th in Washington DC. As with the NY event, we'll be featuring presentations and discussion lead by Anthony Davis from Hinshaw & Culbertson and Eric Nerland.

Attendance is by invitation only and is limited to qualified law firms and personnel. Please contact for more details.

Tuesday, October 4, 2016

A New Conversation: On OCGs and Terms of Business

I was pleased to spend some time recently with Anthony Davis, partner at Hinshaw & Culbertson. We captured our discussion, which focuses on the growing prevalence of client-imposed outside counsel guidelines, and strategies for managing compliance with these increasingly stringent terms of business: "In Conversation: Focus on Outside Counsel Guidelines."


Anthony: Outside Counsel Guidelines (“OCGs”) are a serious and growing problem, and are causing havoc and distress in multiple areas of law firm operation. To use the words that the English regulators have used to assess this phenomenon, what’s going on really threatens the independence — in some instances, even potentially, the viability — of law firms that seek to represent large or increasingly, even mid-size corporations. It’s a significant problem, with a number of different dimensions.

In general terms, OCGs are a problem because clients are making demands that are, or may be:
  • impossible to agree to without putting the firms at risk
  • impossible to agree to without severely limiting the firms’ ability to practice for multiple clients
  • dangerous because of the controls and limits placed on the ways in which law firms actually provide services to their clients
  • increasingly burdensome administratively because of requirements such as the obligation to keep track and comply with the “guidelines” that firms do agree to accept.
You don’t speak with a firm of any size anywhere in the U.S. or the UK without hearing that it’s a problem. And a growing problem that is causing huge heartaches for law firms.