Wednesday, September 20, 2017

Risk Updates: Waivers, Client Guidelines & More

"Conflict Waiver Fails After ‘Mission Creep’ in Lobbying Work" --
  • "Holland & Knight must stop representing a bank in a civil fraud case against a company the firm concurrently represented in other matters during the run-up to the suit, the U.S. District Court for the Southern District of New York held April 28 ( First NBC Bank v. Murex, LLC , 2017 BL 141143, S.D.N.Y., No. 16 Civ. 7703 (PAE), 4/28/17 )."
  • "The court concluded that a broad advance conflict waiver in the company’s engagement agreement didn’t cure the problem. H&K’s services expanded beyond the nonlegal services contemplated in the agreement, and the waiver provision didn’t mention the specific adverse matter, Judge Paul A. Engelmayer said."
  • "Advance conflict waivers have become a regular feature of engagement agreements for big law firms and their corporate clients. But as this case makes clear, a future conflict waiver isn’t a bulletproof shield, especially if the firm’s adverse role comes across as stabbing the client in the back."
  • "A nonlawyer senior policy analyst in H&K’s Washington office arranged the engagement, which called for “regulatory consulting services.” The engagement agreement stated that the conflicts of interest rules applicable to lawyers wouldn’t apply, and the agreement permitted H&K to represent clients adverse to Murex in unrelated matters."
  • "H&K argued that Murex was solely a lobbying client, but the court found that H&K formed an attorney-client relationship with the company. The firm’s representation of Murex broadened beyond lobbying work to include helping Murex defend itself against a threatened EPA enforcement action and briefly counseling Murex on a pending lawsuit in which Murex was represented by a different law firm, the court said."
  • "Those activities outside the scope of the engagement agreement clearly amounted to legal services, and it was reasonable for Murex to believe it had an attorney-client relationship with H&K, it found."
"Lawyers Should Negotiate Outside Counsel Guidelines" --
  • "The idea of lawyers negotiating the terms of a contract shouldn’t sound controversial, but when it comes to the terms of their own contracts, lawyers engage in behavior they would never recommend to a client. Other than big-ticket contracts, such as property leases and firm-wide outsourcing contracts, lawyers often agree to terms—such as those in agreements with e-discovery or contract attorney vendors—without any review whatsoever. The same has been true for OCGs, to which attorneys historically have paid little attention, partially, according to James R. Clark, general counsel and partner at Foley & Lardner LLP, 'in the interest of not disrupting client relations.'"
  • "Let’s look at three of the most problematic types of provisions found in OCGs, and ways to negotiate amendments to satisfy a firm’s business needs and risk management concerns."
  • "Expanded Duties of Loyalty. Every U.S. state has developed its own rules governing what constitutes a conflict of interest, most of which track closely the ABA Model Rules of Professional Conduct... Corporate clients have developed other ideas. Instead of relying on established rules and laws, corporate clients are defining conflicts for themselves and dictating the relationships law firms may have with other clients. A natural outcome of the basic conflict rules is that every matter a lawyer or law firm takes on necessarily restricts future business opportunities. Today’s corporate OCGs are, however, expanding the set of clients and matters foreclosed to law firms beyond the operation of the conflicts rules. And advance waivers are out of the question."
  • "Uninsured Liability. Beyond the acceptability of terms for conflicts/future business, another type of common OCG provision more directly targets the firm’s liability to the client. Corporations often include indemnification requirements of varying scope in their OCGs. I’m not aware of a claim against a firm involving the firm’s indemnification obligations. Yet, the consequences of certain types of indemnification provisions could prove disastrous."
  • "Promises of Data Security Not Enough. A notable development in OCGs is driven by concerns regarding the security of data. While clients in certain industries—finance, healthcare, and retail, for example—long have required assurances from their outside lawyers regarding adherence to principles of data security, clients no longer accept mere promises. In many OCGs, corporations are laying out specific measures and policies that they expect law firms to have in place or adopt in order to retain the client’s business. In addition, clients are following up on OCG terms with extensive written assessments and on-site, multi-office audits."
  • "At least as important as what the firm negotiates is who does the negotiation. Mr. Clark notes that one of the most effective ways to negotiate OCG terms—and avoid rocking the boat—is to entrust the task to firm personnel (in-house firm attorneys, if the firm has them, certain partners if it does not) other than client relationship partners. These individuals can ensure consistency in the application of the firm’s positions and, if necessary, play the bad cop role in the negotiation. OCGs are not non-negotiable. In fact, they represent an opportunity to open a discussion with the client and to build productive relationships."

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