Risk Update

Lawyer Lateral Hiring Week (Part 1) — On Prudent Due Diligence

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I’m fascinated by the vetting (or lack thereof) that goes on in evaluating lateral hires. So this article naturally caught my eye. Here are some key highlights from: “INSIGHT: Do You Really Know Everything About That Lateral Hire?” —

  • “When it comes to lateral hiring, no process, no matter how thorough and strictly employed, can guarantee complete safety against malpractice actions or impenetrable defenses to a suit arising from a pre-hire error, write Hinshaw & Culbertson attorneys. They recommend both pre- and post-hire actions to reduce risks.”
    “Among the most harmful threats to the fledgling relationship is a claim against the hiring firm arising from the lateral’s alleged pre-hire negligence.”
  • “At a minimum, due diligence before inking the deal is critical. Inquire whether the candidate has been a party to prior claims, lawsuits, or disciplinary matters. Verify the answers with docket searches and other on-line investigation. A simple internet search can uncover issues that might later blossom into costly claims.”
  • “Of course, conflicts must be investigated. Note that Model Rule 1.6(b)(7) contains a limited exception to client confidentiality for the purposes of assessing conflicts of interest arising from a lawyer’s change of employment… The hiring firm should also review and assess the clients and matters that the lateral attorney is bringing to the firm. This includes determining whether any errors might have occurred.”
  • “Firms can take advantage of other loss-control measures even after satisfactory completion of due diligence and the actual hiring of the lateral candidate… The firm’s client intake process also provides loss-control opportunities. For instance, the hiring firm should enter into new engagement agreements with the incoming clients. In addition to mapping out the new firm’s unique terms and conditions, the agreements could more precisely limit the scope of the firm’s representation, carve out specific services that the firm will not provide, or identify a default event that signals the end of the attorney-client relationship… Before doing so, Model Rule 1.8(h), which limits lawyers’ ability to make an agreement prospectively limiting malpractice liability, should be carefully reviewed.”
  • “Finally, during the lateral assessment and hiring process, consider seeking guidance from your professional liability insurance broker or carrier. Both brokers and carriers will have knowledge of and insight into the available insurance products and what coverage issues might exist.”

 

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Risk Update

Client Conflicts and Clashes — “Betrayed” Client and Side-switcher Stunned

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Flynn’s new legal team unleashes on his old lawyers in bid to withdraw guilty plea” —

  • “The new legal team for former national security adviser Michael Flynn unleashed a withering assault Wednesday on Flynn’s old lawyers, accusing them of a conflict of interest so severe that it merits allowing the ex-Trump aide to withdraw the guilty plea he entered more than two years ago.”
  • “Flynn’s current squad of attorneys contend that Flynn’s original legal counsel with the prominent Washington law firm Covington & Burling was too enmeshed in the early stages of Flynn’s legal troubles to give him detached advice about what to do once prosecutors from special counsel Robert Mueller’s office began threatening to prosecute the retired Army lieutenant general.”
  • “‘Mr. Flynn’s guilty plea (and later failure to withdraw it) was the result of the ineffective assistance of counsel provided by his former lawyers, who were in the grip of intractable conflicts of interest, and severely prejudiced him,’ Flynn’s current lead counsel, Sidney Powell, and her colleagues wrote in the 49-page motion filed on Wednesday afternoon. ‘That pernicious conflict infected and prejudiced his defense until he retained new counsel in 2019.'”

Law firm A&O told to drop client over conflict of interest” —

  • “Luxembourg’s bar association ordered Allen & Overy to stop working on behalf of fund services firm Alter Domus after a complaint the mandate constituted a conflict of interest for the magic circle UK law firm.”
    “A&O’s work for LFP I’s opponent showed the law firm had switched sides, LFP I argued, because it had represented the fund itself in a related case.”
  • “Alter Domus bought Luxembourg Fund Partners, the management company of LFP I, in December 2017, putting it in charge of financial and risk management, compliance and other administrative tasks at LFP I. But shareholders appointed new directors late in 2018, when they found millions of euros had gone missing from LFP I, an umbrella structure that allowed other managers to set up sub-funds within it.”
  • “The new directors sacked Alter Domus as the fund’s management company, and have since filed several lawsuits against it. Alter Domus had hired Allen & Overy to defend it against LFP I in one case concerning Columna, one of the several sub-funds under the umbrella structure. But the law firm had earlier been working for LFP I itself to defend it against a shareholder claim in a related case, which had to do with the Aventor sub-fund, according to the ruling of the bar association.”
  • “Allen & Overy argued the two cases were separate because they involved different sub-funds within LFP I, but the bar association said that sensitive information could have been compromised regardless.”
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Risk Update

Conflicts Cases & Updates — Fiduciary Duty Discussion

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I always find interesting updates (and the comments are worth reading) through Bill Freivogel’s web site. Here are some recent highlights involving conflicts and law firm fiduciary duty:

Malpractice Liability (posted January 15, 2020) Amer. E Group PLLC v. Livewire Ergonomics Inc., 2020 WL 209903 (S.D.N.Y. Jan. 14, 2020).

  • “AEG is suing Livewire on a note. Livewire brought a third-party complaint against the Barkats law firm because Barkats represented Livewire in obtaining the financing and preparing the note. Livewire is claiming that that the terms of the note were unfavorable to Livewire and that Barkats had a conflict of interest, thus breaching its fiduciary duty to Livewire. Livewire has also joined Elana Hirsch, a principal at AEG, as a third-party defendant, claiming she aided and abetted Barkats’ breach. Hirsch moved to dismiss the third-party complaint against her. In this opinion the court denied the motion.”
  • “The problem is that AEG is related to the Barkats law firm, including the fact that Hirsch is married to Sunny Barkats, the firm’s named partner. The engagement agreement between Barkats and Livewire said that Livewire was waiving any conflict that might arise out of the financing being with an entity related to Barkats. However, the court said that this reference to a possible future, “hypothetical,” conflict falls far short of Rule 1.7’s requirement for an informed consent (see, especially, footnote 4). [Our note: The opinion contains a helpful discussion of lawyers’ breach of fiduciary duty and of a third party’s aiding and abetting such a breach. The opinion also discusses the applicability of New York’s versions of Rules 1.7 and 1.8(a).]”

 

Commercial Negotiations; Both Sides of Deal (posted January 10, 2020) Doyle v. Otto, 2020 WL 105089 (Ia. App. Jan. 9, 2020).

  • “Geri Doyle and Caren De Voe were partners in a real estate brokerage business. Lawyer Mark Otto had represented both of them in various business contexts. When Doyle and De Voe agreed to part, they hired Otto to prepare the needed documents. Otto asked them to sign a conflicts waiver. De Voe insisted on a ten year non-compete clause. When Doyle asked Otto about the length, Otto opined that he did not think a court would enforce it for more than ‘two to three years.’ Doyle signed the contract Otto prepared, which included the ten-year non-compete provision.”
  • “Later, in a new business, Doyle started listing property in a county named in the non-compete. De Voe reminded Doyle about the non-compete. Doyle responded by filing this action seeking a declaration that the non-compete was not enforceable and seeking malpractice damages against Otto. We will focus on the claims against Otto. The trial court granted Otto summary judgment. In this opinion the appellate court affirmed. It was clear that De Voe and Doyle agreed on all the separation terms without Otto’s involvement and that Doyle was sophisticated about the real estate business. The court found that Otto’s prediction about the excessiveness of the ten-year term was good advice. Thus, the court held that Otto had not been negligent, and that he had not breached his fiduciary duty to Doyle.”
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Risk Update

Risk Roundup — Escrow Agent Risk & Ex-client Claims Extortion of $1M in Fees

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Serving as Escrow Agent Can Be Risky” —

  • “Firms often serve as escrow agent for clients, and sometimes the adversary as well — real estate closings, corporate transaction down payments, environmental clean-up and settlement agreements in litigation are just a few examples. But is your firm protected? Do you have a detailed escrow agreement that explicitly sets forth your obligations and spells out under what circumstances exactly you can disburse the funds and to whom? If all you do is put the money in your attorney trust account and follow your client’s instruction, what happens when the adversary disputes the release of funds?”
  • “That is the situation that was recently addressed by the Supreme Court of New Jersey in Meisels v. Fox Rothschild LLP, 2020 WL 97718. In that case, an intermediary entity wired funds to Fox Rothschild’s trust account in connection with a real estate deal the firm was handling. The wire transfer did not include any instructions as to how the money should be disbursed. The Supreme Court focused on two facts, (1) the funds were sent with no reference that they were on behalf of the Plaintiff and contained with no limiting instructions or conditions, and (2) plaintiff did not object to the disbursement of funds in a timely manner, and thereby dismissed the case against Fox Rothschild.”

Ex-White & Case Client Says Firm Tried To Extort $1M Fees” —

  • “A San Francisco-based cosmetics company has hit White & Case LLP with a lawsuit in New York state court, accusing its former legal counsel of pursuing a ‘campaign of extortion’ against it and repeatedly threatening to disclose its confidential client information to extract nearly $1 million in exorbitant legal fees.”
  • “…Shipman Associates LLC, which does business as theBalm, claims that the law firm breached its ethical and fiduciary duties by repeatedly and unnecessarily disclosing Shipman’s privileged information, and threatening to continue to do so, in an effort to recover legal fees.”
  • “White & Case allegedly represented Shipman during the early stages of a proposed transaction from February 2016 through March 2017. At the time, the firm allegedly refused to continue representing Shipman unless it entered a new agreement under which the firm received more than double it was charging in attorney fees, according to the suit.”
  • “After two failed rounds of mediation in the fee dispute, Shipman claims that a White & Case attorney began a ‘campaign of harassment and coercion.’ The attorney allegedly sent emails to Shipman’s owners ‘boasting’ about how eager he was to examine the company’s witnesses about its proprietary information before a jury.”
  • “Then, during a hearing, when a judge asked the White & Case attorney how it could be possible the firm never sent its client an invoice, he allegedly responded that it was because the firm was summarily fired,’ even though the firm actually quit, the suit claims. He also repeated Shipman’s confidential information in open court for a second time, the suit says.”
  • “The complaint claims that the firm violated New York Rules of Professional Conduct and emphasizes that Shipman never waived and does not intend to waive its attorney-client privilege with White & Case.”

 

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Risk Update

Efficient New Business Intake & Conflicts, Of Course — But Are You Closing Files Consistently?

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Via ALPS, which bills itself “the nation’s largest direct underwriter of lawyers’ malpractice insurance”: “Closure letters – What Are They and Why Should Lawyers Bother with Them?” —

  • “In the Claims world, we love closure letters. Unfortunately, we rarely see them in the files – perhaps that is because attorneys who send closure letters may not be sued as much as those who do not send closure letters! When we use the term, “closure letter” we are referring to a letter that the attorney sends the client at the conclusion of the matter on which the attorney has assisted the client. The closure letter can take many forms.”
  • “Many attorneys have misconceptions about closure letters. Attorneys want clients to consider the attorney as “their attorney” so that the next time the client has legal work, the client will automatically call that attorney. We have worked with attorneys who deliberately did not send a closure letter because they wanted the client to think of the attorney for future work and were afraid the closure letter will send a message that the attorney is completely through with the client and never wants to see the client again. Instead, the client forgot what the attorney told him or her and later sued claiming the client believed the attorney was going to do something wholly outside the scope of the original representation. With no closure letters, the claim can turn into a he-said-she-said litigated matter.”
  • “If the attorney re-frames the closure letter in terms of a thank-you letter, far from offending the client, it can convey the message that the attorney has appreciated the client and looks forward to working with the client again on future matters… Another advantage is that the date of the closure letter is a bright-line date from which the statute of limitations may start running.”
  • “For attorneys who work with business clients, a closure letter can be an excellent tool to clearly state who is responsible for business filings, corporate records, etc. A closure letter is a service to your client in clarifying the work and what, if anything, the client needs to think about in the future. Client’s memories fade and the letter is a useful tool in keeping the record straight. So, for 2020, we would suggest a New Year’s resolution to send closure letters in all client files!”

They offer some additional guidance on the substance of closing letters in: “Don’t Kiss Off The Importance Of Closure Letters.”

And for even more detail on navigating the topic of concluding client matters, the Advocate offers: “Terminating the attorney-client relationship.”

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Risk Update

When Firms Fail — Client Chases, Conflicts, Clashes, Disqualification Efforts & “Lord of the Flies”

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The final days of Pond Lehocky Stern Giordano? A war is raging within the Philly law firm” —

  • “The four law partners once worked in harmony in their Center City headquarters, raking in millions of dollars by successfully representing injured workers, and establishing themselves as major players in Democratic politics. More recently, however, that relationship has been strained. Now, it has disintegrated, to the point that one faction is fighting over clients with an excommunicated partner who was locked out of the building this week.”
  • “Legal filings provide an extraordinary play-by-play of a simmering management dispute that devolved into internecine war at the largest workers’ comp firm in Pennsylvania. The court docket reads like an alternative version of The Lord of the Flies, one where the boys grew up and started wearing suits.”
  • “In the petition, Stern said employees at the firm, within minutes of Stern’s supposed expulsion, began sending Stern’s clients letters and emails informing them of ‘Mr. Stern’s departure’ and forcing them to choose between going with Stern or switching to a remaining partner at the firm.”
  • “‘The Pond defendants have made it appear that Stern’s whereabouts are ‘unknown,’ causing some clients to believe Stern has been physically harmed and others to believe he stopped practicing law and otherwise causing extreme confusion and upsetment amongst his clients,’ wrote Stern’s attorney, Benjamin Garber, who added that some Stern clients ‘have informed Stern that they ‘love him’ and are extremely confused by the notices….'”
  • “‘We clearly disagree with the allegations — we have no apologies for demanding excellence for our clients,’ Pond said. ‘I’ve said all along that our concern first and foremost always is for our clients, staff and referral partners. That’s where our focus has to be and this will not disrupt our mission.’

Ex-Attys Can’t DQ New Counsel In $350M Shire Deal” —

  • “At a hearing in Tampa, U.S. District Judge Anthony E. Porcelli said Kevin Darken’s motion to disqualify Noel McDonell, Bryen Hill and their firm Macfarlane Ferguson & McMullen PA is moot because only the receiver of the now-defunct Barry A. Cohen PA firm — where Darken worked while handling the case — has standing to bring these claims and assert privilege over emails Darken says were obtained without authorization.”
  • “In his motion, Darken said McDonell and Hill, who currently represent Vinca, improperly used confidential emails from Barry A. Cohen PA to challenge the charging lien filed by Darken, Cohen and Saady & Saxe PA for a cut of the attorney fees.”
  • “Vinca, who fired his attorneys in March 2018, is suing Darken, the Cohen firm and Saady & Saxe for malpractice, claiming they cost him the full whistleblower’s cut of the Shire settlement. He says his former counsel’s failures forced him to share the whistleblower award of the settlement with the five other relators who filed FCA suits after his.”
  • “Darken argued that Vinca’s malpractice claim is based on stolen, privileged and confidential emails and documents from the Cohen firm. Vinca’s current attorneys say that when Cohen’s firm could not cover its financial obligations, employees were locked out but were left with their computers, so documents were not secured. Vinca, who has the right to claim attorney-client privilege, has not objected to the use of the documents.”
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