Bressler Risk Blog

Tis the season for New Year’s risk resolutions and advice. Karen Rubin offers a nice summary of this ilk with: “Five ways to stay out of ethics trouble in 2020” —

• “Bill carefully. Billing was big news at the end of last year, with reports about the lawyer who failed to keep contemporaneous time records and was suspended for overcharging clients based on her reconstructions of the work. In addition, there was the federal suit filed early in the year, with the allegation that a firm’s “block billing” obscured overcharges. (The plaintiff voluntarily dismissed the case two weeks after filing it.) There are lots of ethics issues relating to legal fees in general — dividing them with other lawyers; whether you must deposit them in an IOLTA or IOTA; what to do in case of a fee dispute with a client — but everything depends on the core notions of charging a reasonable fee, communicating the basis of that fee to the client, and keeping the client informed about the bill as you go.
• “Watch for conflicts. Getting disqualified is never a good thing, but conflicts of interest led to just that result in a couple cases providing some important take-aways. For instance, in the government context, the DQ of an entire prosecutor’s office based on the chief prosecutor’s previous representation of the defendant while in private practice underscored the role that imputation plays under Model Rule 1.10 and 1.11 in spreading the “taint” of a disqualifying conflict. And a lawyer who represented a massage parlor in the sale of the business was DQ’d in a suit over the deal because his previous representation of the buyer was “substantially related” to his work for the seller under the state’s version of Model Rule 1.9.”
• “Keep it confidential. Technology played a role in two situations last year that spotlighted confidentiality concerns. In January, lawyers for President Trump’s former campaign chairman Paul Manafort failed to redact a document properly, leading to disclosure of the hidden contents when it was filed with the court. And a lawyer’s Facebook posts that disclosed enough information about a client that she recognized herself resulted in a public reprimand for violating the duty of confidentiality. The place where social media, technology and our confidentiality obligations intersect is a place to be cautious.”

The folks at Intapp were first to put this new risk issue on my radar, which goes into effect later this year, as it carries implications for law firm data capture on the intake/conflicts and compliance when working with clients on relevant matters in affected geographies: “What firm leaders need to know about DAC6” —

• “DAC6, the European Union directive on administrative cooperation — formally known as Council Directive 2018/822/EU of 25 May 2018 — sets down new regulations for certain cross-border arrangements, and mandates transparent reporting requirements for companies doing business in E.U. member states. Tax advisors, professional services firms, and taxpaying companies alike are grappling with new disclosure rules, which will be fully implemented my mid-2020.”
• “Under DAC6, companies entering into — or advising on — cross-border arrangements will need to report these arrangements to local authorities, regardless of whether or not the relevant transactions were primarily motivated by tax benefits. As a result, many relatively mundane financial transactions — leasing, reinsurance, corporate funding, and acquisition finance — are now subject to E.U. reporting mandates. And, in some cases, multinational entities with headquarters outside of the E.U. are also subject to DAC6 requirements.”
• “Notably for professional and financial services firms, DAC6 obligations apply equally to business intermediaries as to the taxpayer. DAC6 requirements are also shared by all intermediaries, so a single business event could trigger reporting requirements for a number of firms — lawyers, accountants, service providers, and private equity managers — in addition to entities that are party to the transaction.”

For those interesting in going deep, Allen & Overy offers quite the excellent analysis on the details and nuances: “DAC6 – Mandatory disclosure tax reporting what does it mean for you?”

• “All intermediaries involved in a transaction individually have an obligation to file. However, an intermediary is exempt from disclosing if it has proof, in accordance with national law, that the same information has been filed in another Member State.”
• “It will be important to ascertain this information in respect of a transaction at an early stage. In the case of doubt it may be safer for all intermediaries to make a disclosure.”

And this article in LegalFutures does a nice job of connect the dots more explicitly for law firm: “DAC6 compliance – seven timely recommendations” —

• “1. Review your engagement letter. You need to let clients know about the new requirements and the potential reporting obligation. One way to do this is to include the DAC6 reporting requirements in your client engagement letter. Some firms may decide to rely on legal professional privilege asserting that confidential client information does not need to be divulged to tax authorities. Firms using professional privilege will need to advise clients of their responsibility to report to another intermediary.”
• “2. Modify matter inception process. Flagging potential transactions that might be caught by DAC6 will help you track details when the reporting requirements are in force. Some firms have added a question on client/matter intake forms to determine whether DAC6 is likely to apply.”
• “4. Keep a register of all potentially reportable transactions. Not every transaction will be reportable, so tracking those that might be will help firms to decide which arrangements ultimately require reporting. DAC6 compliance requires firms to capture all the details of relevant transactions and later analyse whether they warrant further investigation. An online register will track and record transactions when hallmarks are present, flag those transactions and alert the appropriate staff.”

Happy 2020. Thought I’d kick off the year by catching up on several stories that were sitting in my virtual clipping pile that didn’t quite make it into December.

“Pa. Judge Says Old Bill To Firm’s Partner Doesn’t Create Bias” —

• “A Pennsylvania state court judge overseeing class action cases in Allegheny County said Thursday that a decades-old legal bill from his days as an attorney didn’t bias him against his former client’s law firm of Carlson Lynch, which has brought numerous class actions in state and federal courts.”
• “…when he was a lawyer in the early 1990s, he had represented Carlson Lynch partner Bruce Carlson, whose firm was now representing the proposed class of thousands of UPMC employees. Judge Ignelzi also told them that to the best of his recollection, Carlson had not paid his bill for that representation, but he emphasized in a special hearing Thursday that he did not believe that old obligation biased him against Carlson Lynch in the cases he had heard or would hear in the future involving the firm.”
• “Judge Ignelzi had asked his former partner, Michael Murphy of Ogg Murphy & Perkosky PC, to search the firm’s records for any information about its representation of Carlson. Under questioning from the judge Thursday, Murphy said it appeared that the file had been either thrown out or irreparably damaged when floods in the 1990s soaked old records that were stored in the basement of the building along Downtown Pittsburgh’s Monongahela riverfront.”
• “Judge Ignelzi said he had made the disclosure prior to an October hearing on UPMC’s preliminary objections because the Pennsylvania rules of professional conduct required him to disclose any potential conflicts, even if he felt they did not rise to a level that would disqualify him.”

“Both sides file motions in Powers lawsuit” —

• “In his complaint, Powers asked the court for a temporary and permanent injunction against the Board of Selectmen, alleging the board did not, on a number of occasions, follow Robert’s Rules of Order for making a motion and thus 37 motions made by the board in 2019 must be vacated and future motions must follow Robert’s Rules and other provisions of town policy.”
• “In his Oct. 30 motion, Powers requests Berchem Moses P.C., of Milford, the law firm representing the defendant, be dismissed because of a likely conflict of interest. Powers claims Ira Bloom, the town attorney for Wilton, and a partner with Berchem Moses, is a necessary witness in the suit regarding information Bloom provided to the Board of Selectmen about requirements about receiving/responding to Freedom of Information Act (FOIA) requests.”
• “In their Nov. 27 objection, the defendants say there is no conflict of interest with Berchem Moses, based on the Connecticut Practice Book’s rules of professional conduct which delineates what constitutes a conflict (primarily conflict an attorney has with another client).”
• “They claim the defendants’ interests are “aligned” and Berchem Moses’ representation of the defendants is not adverse ‘to any other client or a significant risk that representation will be limited by responsibilities to another client.'”

“3 Places Overbilling May Be Lurking” —

• “Over the last two decades or so, sophisticated buyers of legal services have tightened up billing standards, poured money and time into auditing, and routinely questioned what they’re getting for all those “0.2 hour” line items.”
• “At the same time, courts and the bar have also become far more strict about what constitutes a “good” — and ethical — legal bill and helped cure the profession of at least some of its worst timekeeping habits.”
• “The practice of block billing, in which lawyers include a long series of billable tasks in a single time entry, is widely understood to lead to client “upcharging” and has been rightly disparaged by many judges and bar ethics committees.”
• “Still, practice group leaders and supervising partners should double-check that block entries are used consistently and moderately. That’s particularly true in the last months of the year, as associates, and many partners, feel pressure to bill every hour possible.”
• “Kay Holmen, a senior auditor at KPC Legal Audit Services in Glendale, California, cautions against grouping more than three tasks in one block, or block billing a client for more than a single hour per entry. Lawyers can also avoid pushback by taking some extra care to describe each step covered by a block entry.”