Risk Update

Complex Conflicts — Freivogel’s Fascinating Findings, Rhode Island SC on Simultaneous Representation Conflicts, Lawyer Corporate Board Seats & Conflicts

With a hat tip, as always, to the “Godfather of Conflicts,” here are the latest sightings of interest from Bill Freivogel:

  • Medtronic, Inc. v. Becton, Dickinson & Co., 2023 WL 4370686 (D. Kan. July 6, 2023).
    • “Medtronic made a motion to compel Becton to produce certain materials. Becton defended the motion to compel, in part, by claiming Medtronic’s lawyers had a Rule 1.7 conflict of interest.”
    • “In this opinion the magistrate judge rejected that defense, saying Becton could have made a motion to disqualify those lawyers. Because Becton did not, the court said it was ‘unnecessary’ to resolve the conflict issue. The court went on to grant in part, and deny in part, Medtronic’s motion to compel on other bases.”
  • Boozer v. Fischer, No. 22-0050 (Tex. June 30, 2023).
    • “This opinion is a mini-treatise on escrow agreements. We will focus on the one conflicts-related issue: Whether a lawyer for one party may act as an escrow agent for both parties.”
    • “Party A put $1 million in escrow for later payment to Party B if Party B prevailed in court. A’s lawyer (‘Lawyer’) was the escrow agent. Lawyer stole the money.”
    • “In this opinion the court ruled that the risk of loss fell on Party A. In the course of the opinion the court ruled that one party’s lawyer can be the agent in an enforceable escrow arrangement, provided, in part, that the agent’s interests do not conflict with those of the principal (in this case, Party A).”
  • In re Valentino, 2023 IL App (1st) 221155-U (Ill. App. 1st Dist. July 14, 2023).
    • “Son petitioned for guardianship for Son’s 90-year-old father (‘Father’), against Father’s wishes. Lawyer represented Father. The case settled, and Lawyer petitioned for fees. Son objected.”
    • “The trial court granted the fee request, and Son appealed. Son claimed that Lawyer had a conflict because Lawyer had done some things at Father’s request that benefitted Father’s lady-friend (‘Ms. G’). An issue in the case is whether Ms. G had wrongfully taken money from Father.”
    • “In this opinion the appellate court affirmed the fee order, holding that there was no evidence of a lawyer-client relationship between Lawyer and Ms. G, and that Lawyer’s doing things at Father’s request that benefitted Ms. G did not make Ms. G Lawyer’s client.”
  • Wheatley v. County of Orange, 2023 WL 4443011 (Cal. App. Unpub. July 10, 2023).
    • “The Wheatley law firm (‘Wheatley’) had a contract with Orange County to defend workers’ compensation cases. The county terminated the contract, and, in this case against the county, Wheatley is claiming the contract termination was wrongful.” The Lynberg law firm (‘Lynberg’) is defending the county.”
    • “As a result of the county’s termination, Wheatley let go one of its lawyers. That lawyer sued Wheatley for wrongful employment termination. Wheatley hired Lynberg to defend that case before this case went to court.”
    • “For a time, Lynberg was representing the county in anticipation of this case against Wheatley and representing Wheatley in the employment case. The opinion does not reveal how Lynberg missed the conflict. In any event, Wheatley moved to disqualify Lynberg in this case. The trial court granted the motion to disqualify. In this unpublished opinion the appellate court affirmed. Because this case involves a current client conflict, the court said rules relating to successive representation or screening are not applicable.”

It’s the ‘Golden Age’ for Lawyers Seeking Corporate Board Seats” —

  • “Public companies are increasingly looking for lawyers to become corporate directors, bringing legal expertise to the boardroom and prestige to attorneys who can navigate potential conflicts.”
  • “Lawyers have long served on the boards of privately held companies and nonprofits. US public companies are coming to see the value of having more legal know-how in the boardroom as the web of compliance and regulatory requirements grows, said Susan Hackett, a former top lawyer for the Association of Corporate Counsel.”
  • “Jeh Johnson, the former Homeland Security Department chief, is a prominent example. He serves as director at three companies—United States Steel Corp., MetLife Inc., and Lockheed Martin Corp.—while also working as a partner at Paul, Weiss, Rifkind, Wharton & Garrison. Robert Kimmitt, another former government official, serves on the board of Facebook parent Meta Platforms Inc. while working as senior international counsel for Wilmer Cutler Pickering Hale and Dorr.”
  • “Roughly 1,500 board seats become available each year, many of them with annual cash-and-stock compensation packages averaging $300,000, said Wendeen Eolis, a veteran legal recruiter.”
  • “Law firms have become more open to the potential business opportunity that comes with putting their lawyers on corporate boards, and less worried about conflicts that could impact current business.”
  • “‘You’re going to be in the presence of a significantly credentialed, capable, and highly respected group of fellow board members, many of whom are CEOs of other companies,’ Eolis said.”
  • “Williams and Eolis said the conventionally understood threshold for maximum number of directorships a lawyer can hold is likely three for public companies. While many firms appear to have loosened their restrictions, Williams said lawyers still ‘have to be very cautious on the conflicts side.'”
  • “Increased exposure fueled by merger mania in Big Law and an uptick in lateral hiring has compelled firms to address and resolve all kinds of conflicts, including those that arise from board service, Eolis and Hackett said.”
  • “Some companies require that lawyer-directors wall off or recuse themselves from legal matters involving their firm to ensure independence. But partners are compensated from the shared revenue of the firm where they work, said Goldstein. They could also supervise or oversee other lawyers that could be doing work for a company on whose board they serve, he said.”
  • “ISS recommends that companies avoid choosing directors from firms that are also their outside counsel. Providing legal services requires ‘close collaboration with senior management,’ Goldstein said.”
  • “Lawyers who retire from a firm can be considered for a board seat with a firm client, Goldstein said. This workaround allows some former Big Law partners to take on board roles and retain of counsel, senior counsel, or other roles with their firm that doesn’t include a share of the firm’s revenue and does not receive any form of compensation from the firm in excess of $10,000 a year.”

Rhode Island Supreme Court Ethics Advisory Panel Op. 2023-4 (Lawyers Weekly No. 75-016-23) (2 pages) (July 17, 2023): “Attorneys – Conflict of interest – Simultaneous representation” —

  • “Where (1) an attorney’s law firm was recently appointed as the town solicitor for a municipality and (2) the law firm is also legal counsel to a management agency that makes consistency determinations for certain development projects, the law firm’s simultaneous representation of the municipality and the agency does not present a conflict of interest despite the Town Council’s approval of a resolution in opposition to the certain type of development project that the agency is tasked with reviewing.”
    • ‘The inquiring attorney’s law firm was recently appointed as the Town Solicitor for a municipality (‘Town’). The law firm is also legal counsel to a management agency with regulatory functions (‘Agency’). As part of its regulatory functions, the Agency reviews and makes consistency determinations for certain development projects. It has recently conducted one such review and anticipates it will be conducting another such review in the future.’
    • ‘At a recent Town Council meeting, the Town Council approved a resolution in opposition to the certain type of development project that the Agency is tasked with reviewing. The inquiring attorney was present at this meeting, along with an associate from his/her law firm and both submitted a recusal form to the clerk and recused from the matter. The inquiring attorney advises that the resolution did not mention the Agency and was not forwarded to the Agency. Rather, it was forwarded to other municipalities and certain elected officials.’
    • ‘The inquiring attorney asks whether his/her law firm’s simultaneous representation of the Town and the Agency presents a conflict of interest.’
    • ‘It is the Panel’s opinion that there is no conflict of interest because, on the facts presented, the Agency and Town do not have adverse interests.’
    • ‘The inquiring attorney’s law firm has a lawyer-client relationship with the Town. Therefore, under Rule 1.7, he/she may not represent clients with interests adverse to the municipality. However, based on the facts described by the inquiring attorney, it is the Panel’s opinion that the Agency’s interest is not adverse to the Town or its Town Council. The Town Council simply took a position on the type of development project that the Agency is tasked with reviewing. In the absence of competing interests, there is no concurrent conflict of interest.’
    • ‘The Panel emphasizes, as it has done in the past, that whether a conflict of interest exists is determined on a case by case basis. While the Panel sees no conflict of interest based on the facts presented, it does caution the inquiring attorney to be mindful of the possibility of such a conflict arising in the future.’
  • PDF of the full opinion here.