Risk Update

“Good & Troubling” Developments — Prospective Client Conflicts Rules, Screening, Duties of Loyalty & Client Files

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The always insightful Anthony Davis recently published: “The Good and the Troubling—Recent Developments in Professional Responsibility” —

  • “Opinion 492 gives important and useful guidance in understanding the application and operation of New York Rule 1.18… New York Rule 1.18 (a) defines a prospective client as ‘a person who consults with a lawyer about the possibility of forming a client-lawyer relationship with respect to a matter…’ New York Rule 1.8 (b) prohibits lawyers who learn information from prospective clients from using or revealing that information except as Rule 1.9 would permit with respect to information from a former client.”
  • “New York Rule 1.8 (c), to which opinion 492 is particularly addressed, prohibits lawyers who have received information as defined in (b), and their law firms, from representing ‘a client with interests materially adverse to those of a prospective client in the same or a substantially related matter if the lawyer received information from the prospective client that could be significantly harmful to that person in the matter, except as provided in paragraph (d).'”
  • “The importance of the opinion is that it gives guidance on the meaning of the phrase ‘information that could be significantly harmful.’ The opinion notes that the potential harm must relate to the new matter, and whether or not the information is “significantly harmful” will depend on such issues as the duration of the communication, the topics discussed, whether the lawyer reviewed documents, whether the information is known by others and the relationship between the information in the new matter.”
  • “In the absence of consent, the law firm may nevertheless represent another party in the same matter if the lawyer who received information from the prospective client has taken ‘reasonable measures to avoid exposure to more disqualifying information than was reasonably necessary to determine whether to represent the prospective client;’ and the law firm gives notice to all parties including the prospective client; implements effective screening procedures to prevent the disqualified lawyer from participating in the representation of the current client; the disqualified lawyer receives no part of the fee for that matter; and a reasonable lawyer would conclude that the law firm will be able to provide competent and diligent representation.”

He goes on to explore another Opinion (1195) in detail, with this element catching my eye in particular:

  • “Opinion 1195 is also troubling in another respect. The opinion refers to a dispute between the lawyer and his former firm with respect to the files of the clients whom the lawyer no longer wished to represent. The departing lawyer had formed his own firm, and apparently the former law firm forwarded those clients’ files to the lawyer at the new firm as a means of establishing that the firm no longer represented the clients and the lawyer was obligated to do so at the new firm. This ignores the fact that the former firm is also counsel to the client and has an ongoing responsibility to ensure that the client is not harmed. This is completely contrary to the well-established case law in New York that files belong to the client and can only be transferred upon the direction of the client.”
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Risk Update

Confidentiality, Information Security, Attorney-Client Privilege & Lawyer Security Education

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Third Party Disclosure Waives Privilege” —

  • “The Delaware Court of Chancery has held that a party waived its attorney-client privilege by submitting the documents at issue to the Federal Communication Commission.”
  • “The Plaintiffs seek thirty-one (31) documents previously produced by Defendant IDT Corporation (“IDT”) to the Federal Communications Commission (“FCC”) in 2016 in connection with an investigation pertinent to this Action.”
  • “But here, I find, IDT did not have an analogous expectation of privacy because the documents were not produced to the FCC under a confidentiality agreement. Instead, IDT merely requested that the documents remain confidential. IDT had no non-disclosure agreements with the FCC, and the Requests cited by IDT are insufficient to show that IDT reasonably believed that the documents would not be revealed to other adversaries.”
  • “In other words, IDT found it advantageous to disclose the privileged documents to a third party, the FCC, despite knowing that they could be disseminated. IDT did not have a commitment, let alone an enforceable agreement, with the FCC to keep the documents confidential. In that situation, IDT manifested its intent to waive any privilege by disclosing the documents to a third party.”

Cybersecurity Education for Lawyers” —

  • “One of the most pressing issues facing our legal profession, whether you are a solo practitioner or from a large firm, is the need for cybersecurity protection of confidential and proprietary client and law firm electronic information. “
  • “Thus, on June 13, 2020, the House of Delegates of the New York State Bar Association (NYSBA) overwhelming approved the Report of the Committee on Technology and the Legal Profession, presciently proposed prior to the pandemic, to recommend to the New York State Continuing Legal Education Board that the biennial CLE requirement be modified to require one credit of cybersecurity for each of the next two-year CLE cycles.”
  • “Social engineering is the psychological manipulation of people in order to convince them to divulge confidential information. Educating lawyers on how to avoid social engineering attacks is imperative because studies have shown that upwards of 97% of malware attacks targeted users through social engineering hacking attempts, and only 3% targeted the technical infrastructure of a company.”
  • “Through social engineering, appearing to be associated in one form or another with a lawyer, the law firm, a vendor or friend, a bad actor may seek to convince a lawyer or her staff to provide to him access to confidential information, secured information or a password.”
  • “The New York Law Journal (NYLJ) reported in an October 2019 article, entitled “Eight NY Law Firms Reported Data Breaches as Problems Multiply Nationwide,” that the number of law firm data breaches in New York State doubled in 2018…”
  • “The article reported that some cybersecurity lawyers and consultants said the numbers ‘likely represent a tiny fraction of the breaches affecting the legal industry. Law firms, like other privately held businesses, don’t often publicize when their data is breached, and many may not report it to state officials, depending on the law.'”
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Risk Update

Conflicts — Business Conflicts vs. Ethical Conflicts (And a Questioned Opinion…)

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Fascinating catch and analysis by professional liability lawyer Brian Faughnan: “Ethics opinion about a business conflict goes wrong” —

  • “It comes out of Ohio and it addresses a conflict issue, but is noteworthy for at least two reasons: (1) it addresses a conflict of interest issue involving representation of a government entity and (2) it sort of addresses something that is more a business conflict issue rather than a true ethical conflict.”
  • “Ohio Board of Professional Conduct Adv. Op. 2020-04 weighs in on whether a firm has a problem representing a group of landowners who are opposing a zoning variance sought by an agency seeking to establish a shelter for domestic violence victims. The agency is not a client of the firm in other matters, but the firm does represent a community mental health board that contracts with the agency. The firm has a one-year contract to perform legal services on an “as needed” basis to the board but has not been asked to do any work related to the zoning variance matter. The firm does know though that the board supports the agency’s effort to obtain the variance and wants the agency to succeed.”
  • “Now, most lawyers would hear that scenario and see a likely “business” conflict but no ethical conflict. By business conflict, I simply mean that the firm might not have wanted to take on the landowners because it might displease the institutional client – which might be a better source of ongoing and continued business to the firm.”
  • “The Ohio opinion, however, finds a way to treat the situation as an ethical conflict but, at its heart, it does so only by turning the business conflict into a material limitation conflict using the idea of ‘personal interest’ of the lawyer as something that could be expanded to be the firm’s “personal” financial interests.”
  • “Specifically, the opinion points to the firm’s ‘inherent financial interest in maintaining its standing client-lawyer relationship with the board’ as one of the factors leading to a conclusion that there is a material limitation conflict requiring waivers from both the landowners and the board in order for the firm to continue both representations.”
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Risk Update

(Virtual) Risk Round Table — Session Focusing on Risk Staffing, Hiring & Training

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In May, I attended a virtual risk round table presented by my friends at InOutsource. While remote, the attendee discussion and exchange was quite real, revealing, collaborative and constructive.

With a second session scheduled, I’ve registered to be in the room where it happens: “VIRTUAL ROUND TABLE: Navigating Today’s Pressing Risk Challenges” —

  • “Building on the great turnout and feedback after our last event, we’re pleased to host our second virtual risk round table on Thursday, July 23rd at 1pm EDT. In this session, we’ll focus on hiring and training risk staff — two challenges we learned many firms are currently facing.”
  • “We’ll look for participant discussion and exchange with respect to firm strategies, challenges and best practices. We also hope to hear how you think pre-Covid thinking compares with today’s shifting landscape.”
  • “This session will be moderated by:
    • Rabiya Hirji – Director of Risk Consulting
    • Max Welsh – Senior Risk Management Consultant
    • Matt Ruggieri – Development and Technology Manager”
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Risk Update

Webinar (Confidentiality & Compliance) — Data Loss Prevention: ILTA Survey Results and Peer Discussion

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Likely on the technical side, but definitely relevant for those looking at the intersection of software, human factors and risk, comes webinar overview from ILTA: “Data Loss Prevention: Survey Results and Peer Discussion” —

  • TIME: JULY 16, 2020, 11:00 AM ET, 8:00 AM PT
  • DETAILS: “Please join us for a roundtable discussion around the DLP survey as a result of COVID-19 and the new working from home conditions. With the COVID-19 crisis, increased cyber threats to firm systems and data have been reported. This roundtable will hopefully provide additional tools, procedures, or other controls to decrease this emerging risk.”
  • “Over 70 firms participated in the DLP survey. Some of the roundtable topics for discussion based on survey results:
    • What technical solutions firms are using to decrease the risk of Data Loss/Leak prevention(DLP).
    • Does your organization use a tool for data discovery?
    • Where is a data loss prevention tool deployed?
    • Does your application and website URL filtering apply outside of your network?
    • Is printing from home allowed?
    • What policies or procedures can be put in place or updated as part of information governance?

SPEAKERS

  • Marcos Marcal – Information Security & Risk Manager at Nutter McClennen & Fish LLP
  • Abraham D. Miller-Barbarow – Information Governance Risk Manager at Ropes & Gray LLP

 

 

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Risk Update

AML Rules — ABA Leader Notes Anti-Money Laundering “Absolutely Not a Dead Issue,” Lawyer Expert Notes Appearances, Debate Continues

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ABA Debate On Money Laundering Rule Lives On After Alert” —

  • “Despite concerns among anti-money laundering advocates, the American Bar Association’s recent warning on “willful blindness” to clients’ financial malfeasance didn’t end the group’s long-standing internal debate over a black-letter ethics rule cementing the profession’s duty to help deter money laundering, according to a bar committee member.”
  • “Lynda Shely, who sits on the ABA’s Standing Committee on Ethics and Professional Responsibility, said a money laundering rule proposal is ‘absolutely not a dead issue,’ and will remain on the table after she takes over as chair later this year. ‘The committee will continue to look at this because people do keep bringing it up,’ Shely said. ‘There are concerns that an opinion is not enough, even if the committee believes it provides very useful guidance.'”
  • “The ABA Model Rules ‘are designed to address broad concerns of professional responsibility, not specific situations, and that’s where we’ve been struggling to craft something that works,’ said Shely, who emphasized that she doesn’t speak for the bar or the committee as a whole. She is set to become the standing committee chair in August.”
  • “Despite the ABA’s policy position, many in the anti-corruption community said they’ve maintained at least modest optimism that the bar’s influential ethics committee, which is wholly distinct from the group’s D.C.-based lobbying arm, would still propose a rule amendment that would explicitly require lawyers to try to determine if clients are engaged in money laundering or terror financing and provide guidance on next steps.”
  • “But that optimism was shaken in April when the committee released an advisory telling lawyers to “inquire further” when faced with circumstances showing a ‘high probability’ that a client wants to use their services for criminal or fraudulent activities.”
  • “The ABA’s position on beneficial ownership and in the rule debate ‘makes it look like an industry out to protect itself as opposed to doing what’s in the best interests of the public and the general welfare,’ he said [Bruce Zagaris, an international enforcement expert at Berliner Corcoran & Rowe LLP and member of the ABA’s gatekeeper task force]. ‘Increasingly, it is finding itself more and more isolated on this issue.'”
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Risk Update

Lawyer Extortion Case with Conflicts Twist — Monsanto/Bayer RoundUp Gambit Goes Awry

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Charlottesville, Glen Allen attorneys plead guilty to extortion scheme targeting multinational chemicals company” —

  • “‘This is a case where two attorneys blew well past the line of aggressive advocacy and crossed deep into the territory of illegal extortion, in a brazen attempt to enrich themselves by extracting millions of dollars from a multinational company,’ said Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division. ‘Today’s pleas underscore that when crimes are committed, members of the bar, like all members of the public, will be held accountable for their actions.'”
  • “As part of their guilty pleas, Litzenburg and Kincheloe admitted that in approximately October 2019, Litzenburg approached a company (Company 1) and threatened to make public statements alleging that Company 1 had significant civil liability for manufacturing a purportedly harmful chemical used in a common household product used to kill weeds.”
  • “Litzenburg and Kincheloe also admitted that after describing the possibility of damaging lawsuits against Company 1, Litzenburg proposed, in sum and substance, that he and Kincheloe enter into a ‘consulting arrangement’ with Company 1 that would create a purported conflict-of-interest that would effectively stop them from representing their clients as plaintiffs in litigation against Company 1.”
  • “Thereafter, Litzenburg and Kincheloe admitted that Litzenburg, with Kincheloe’s knowledge and agreement, demanded that Company 1 pay Litzenburg, Kincheloe, and others, a total of $200 million in purported ‘consulting fees.'”
  • “Litzenburg also admitted that, during other communications with Company 1, he told Company 1 that if he received the $200 million in ‘consulting fees’ he would not discuss Company 1 or its parent company with his current clients, and that he was willing to ‘take a dive’ during a deposition of a toxicology expert to deter potential future claims related to litigation against Company 1.”

More: “Anti-Monsanto Lawyer And USRTK, Carey Gillam Collaborator Possibly Headed To Prison For Extortion

  • “Unbelievably, they also admitted that they weren’t going to give any of this money to their clients — you know, the cancer patients they claim to be helping. Instead, they intended to keep all the money for themselves and their associates.”

And more generally on the broader topic: “Bayer settles lawsuits from cancer patients over Roundup weed killer in $10 billion agreement” —

  • “The settlement of Roundup cases in the US ‘will bring closure to approximately 75% of the current Roundup litigation involving approximately 125,000 filed and unfiled claims overall,’ Bayer said in a news release.”
    “Potential future cases will be governed by a class agreement that’s subject to court approval, the company said. Bayer said the settlement agreements ‘contain no admission of liability or wrongdoing.'”
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Risk Update

Covid-19 + Remote Work = Several Law Firms Pushing to Prevent Paper Risks

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A Paperless Future? Top UK Law Firms Ban Printing During Pandemic” —

  • “Clifford Chance and DWF have banned their lawyers from working from printed documents during the coronavirus pandemic, as other firms implement new measures for hard copy usage while their lawyers work from home.”
  • “Client confidentiality is at the heart of many of these measures, according to several firms, with CC having banned the unnecessary printing of documents since March in a bid to discourage lawyers from leaving sensitive documents accessible within their home working spaces.”
  • “Pinsent Masons’ chief information security officer Christian Toon meanwhile said that the firm had taken a ‘flexible approach’ to printing, which includes implemented a range of measures to improve data security. ‘This includes central monitoring and oversight of what is being printed and where, advice and training on confidential destruction, and looking at specific client requirements and safeguarding data — all key components of data loss prevention strategies,’ he said in a statement.”
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Risk Update

When Client Payment Terms Cause Conflicts Concerns (During Covid Times or Not)

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Many ages ago, during the heady days of the dotcom boom when I worked at a firm — and certainly today — it was not unheard for law firms to take client stock in lieu of cash payment. (At that time, even commercial landlords insisting on the same.) There was even a fresh-at-the-time Silicon Valley firm built on that premise. (Spoiler alert: dotcom crash.)

So Karen Rubin’s latest did indeed bring back some memories: “Take stock instead of legal fees? Take a hard look and mind the ethics rules” —

  • “One market effect of the ongoing COVID-19 pandemic is that transactional clients might be eager to offer you stock or some other form of participation in a deal in lieu of your legal fees. An uptick in proposals like this could come as clients try to limit cash outlays until the business climate and their operations become less unpredictable. In an arrangement like this, the client preserves cash and if the deal works out your investment in a client might increase in value, even above the cash fee you might have earned. It would seem like a win-win situation, right? Not so fast. Deals like this can raise risk for firms, and the ethics rule governing transactions between lawyers and clients has several requirements.”
  • “Taking stock or having a personal financial stake in a client’s transaction can potentially create a conflict of interest between your personal interest in the investment and the client’s interests, particularly if you will also be acting as a legal adviser in the deal. The optics by themselves can raise risk — namely the appearance that you might structure the transaction or advise in a way favoring your own interests over the client’s.”
  • “The real life risks are illustrated by a complaint filed last week here in Cuyahoga County (Cleveland), Ohio. The complaint’s allegations set out a complex transaction, but include the claim that the lawyer in the deal accepted a two percent ownership interest in the plaintiff at the same time he was representing the plaintiff, but without meeting the requirements of Ohio’s Rule 1.8(a). The relief sought includes a declaration that the defendant’s ownership interest was not lawfully obtained and is void. (No responsive pleading has been filed as of yet.)”
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Risk Update

Risk Roundup — Judicial DQ Denied, Client Communication Curated

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Don’t ‘Reply All’ If Client of Opposing Counsel CC’ed, Bar Says” —

  • “Attorneys who get an email from opposing counsel with that counsel’s client cc’ed shouldn’t hit “reply all” because this likely violates professional ethics rules, the Illinois State Bar Association recently advised.”
  • “Such a reply is deemed a communication with a person represented by counsel in a matter, which is prohibited unless the sending lawyer consents, according to the bar ethics committee’s opinion.”
  • “The opinion, which was approved in October and recently published, stemmed from questions posed by a lawyer representing condominium associations. The lawyer had said they sometimes copy the association board president when communicating via email with opposing counsel during association disputes.”
  • “The ethics committee agreed with other jurisdictions like Kentucky and New York that the act of copying the client doesn’t imply consent.”

Campaign contribution not a reason to disqualify judge from case, Court of Appeals rules” —

  • “A prominent attorney donated more than $200,000 against an Adams County judge’s retention election. But that did not mean the judge should have recused himself from a case involving the firm’s lawyers, the Colorado Court of Appeals ruled on Thursday.”
  • “‘[W]e conclude that the motion to disqualify did not, as a matter of law, allege sufficient facts supporting a reasonable inference of actual or apparent bias or prejudice to require disqualification,’ wrote former Justice Alex J. Martinez, who sat on the appeals panel at the chief justice’s direction.”
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