Risk Update

Risk… You Can’t Make This Stuff Up…. Just… Out of Title Ideas For These Updates…

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Firm Accused of Advising One Client to Hide Cameras in Another Client’s Closet” —

  • “Did a name partner at an AmLaw 200 firm advise one client—who is serving as the trustee of his late brother’s estate—to hide recording devices in a master bedroom closet of another client—the late brother’s widow? And did the cameras capture her undressing? Or prove she was trying to steal from the estate?”
  • “Right after Joe’s death but before Elizabeth returned from Bermuda, Aaron in court papers said he learned that ‘Elizabeth’s friends were entering [Joe and Elizabeth’s] house for hours at a time and had removed art from the walls.'”
  • “Aaron also said he knew that his brother kept large amounts of cash in the house, and that there was a wall safe in his brother’s master bedroom closet. (Elizabeth has her own separate closet.) ‘On advice of counsel, the trustee had motion-activated cameras installed inside Joe’s closet to ensure the preservation of the trust’s valuables contained therein,’ wrote Aaron’s current lawyers Howard Weitzman of Kinsella Weitzman Iser Kump & Aldisert and Jeryll Cohen of Freeman, Freeman & Smiley.”
  • “Elizabeth in her complaint says the lawyer was Jeffer Mangels name partner Burton Mitchell, and that in conversations with her probate counsel, Mitchell ‘acknowledged telling Aaron he could install these recording devices in Elizabeth’s home.'”
  • “A Jeffer Mangels spokeswoman said, ‘The attorney-client privilege prevents the firm from disclosing what, if anything, was discussed with the client Aaron Kaplan.'”
  • “‘It is despicable—and unlawful—for an attorney or a law firm to advise anyone to invade another individual’s legally protected privacy and to break various California penal laws and civil laws in doing so. It’s even worse when the victim is a client, as Elizabeth was a client of Mitchell and [Jeffer Mangels Butler & Mitchell],’ Cohen wrote.”
  • “When asked whether representing both Aaron and Elizabeth presented a conflict, a Jeffer Mangels spokeswoman responded, ‘There were signed explicit conflict waiver letters signed 10 years ago when Elizabeth was a client and the attempt to pretend that she did not sign one is as meritless as the rest of her claims.'”

We covered disqualification news tied to the Pierce Brainbridge saga a few months ago. More news on the latest developments relating to that firms advancing journey here: “Accusation of Fraud on the Court Against Attorney David Hecht of Hecht Partners and ex-Pierce Bainbridge Partner“.

 

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Risk Update

Insurance Update (Part 3) — Industry Data on $20m+ Law Firm Settlements/Verdicts

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Short update today, mostly to share an interesting statistic I just heard. And to highlight that when risk readers connect, good things happen.

In this instance, hat tip to Bill Freivogel for connecting me with Douglas Richmond, Managing Director at AON, for some of the latest industry data he keeps tally of. Doug shares:

  • “Over the years, there have been 76 publicly-reported settlements by, or verdicts against law firms of $20 million or more.  Fifty of them are attributable in whole or part to the firm’s representation of an unworthy client. Other leading causes include what we label ‘mistakes,’ i.e., some sort of professional negligence on a lawyer’s part, and conflicts of interest.”
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Risk Update

Playbook Conflicts — Tales of Three Reversals (Both Ways)

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At a recent public risk forum, I found myself graciously name-checked by a longtime reader and friend. Gracious indeed to be included in the same breath with risk hawk Bill Frievogel, who notes several recent playbook matters:

  • Former Client; Playbook (Rejected) (posted May 22, 2020) Plein v. USAA Cas. Ins. Co., No. 97563-9 (Wash. May 21, 2020.)
    • “…USAA balked at providing coverage for additional work, and the Pleins sued USAA for bad faith. Law Firm joined in the representation of the Pleins. The problem was that Law Firm had just recently terminated its representation of USAA.”
    • “That representation spanned some ten years and involved ‘at least 165 cases,’ some of which involved bad faith claims by homeowners. One case involved a bad faith claim arising out of defective remediation of smoke damage. USAA moved to disqualify Law Firm in this case.”
    • “The trial court denied the motion. The appellate court reversed. That court pretty clearly adopted the playbook approach to the substantial relationship test under Rule 1.9. The court noted the ‘legal strategies and defenses developed between USAA’ and Law Firm. The court concluded that Law Firm’s knowledge goes beyond the ‘general knowledge of the client’s policies and practices’ as discussed in Comment 3 to Rule 1.9.”
    • “In this opinion the Washington Supreme Court reversed the appellate court, holding that Law Firm’s knowledge of USAA’s attitudes and procedures in matters similar to this one do not rise to the level of ‘substantial relationship.’ The court focused largely on Comment 3 to Rule 1.9 (Evidently, Comment 3 in the Model Rules is quite similar to that in the Washington Rules.)”
  • Persichette v. Owners Ins. Co., No. 19SA188 (Col. May 4, 2020).
    • “Plaintiff is suing InsCo over an uninsured motorist matter, including claims of bad faith. Law Firm appeared for Plaintiff. Law Firm previously represented InsCo in 455 bad faith cases between 2004 and 2017. Twenty-three cases ‘mirror’ Plaintiff’s claim. Law Firm had put in place several of InsCo’s procedures and trained the adjuster handling this case. InsCo moved to disqualify Law Firm. The trial court denied the motion. In this opinion the Colorado Supreme Court reversed (made ‘the rule to show cause absolute’).”

Atty’s Internal Work For Insurer Spells DQ In Coverage Row” —

  • “In an en banc decision, the court said Englewood, Colorado, litigator Marc Levy carried a former client conflict of interest into a case he joined against Owners Insurance Co. and should not have been allowed to stay in the litigation by a lower court.”
  • “The seven-member panel said it was particularly troubled by the prospect of Levy being in position to ‘attack’ his own internal advisory and training-related work at Owners on behalf of an insured, even if he didn’t have specific factual information about his client’s case from his time working for the other side.”
  • “Overturning a district court decision not to disqualify Levy, the court said the district court judge misinterpreted the ‘substantially related’ standard of former client conflicts to mean a conflict was created by a lawyer working both sides of the same matter.”
  • “The court then incorrectly concluded that information Levy’s firm likely has from its prior work for Owners ‘is neither confidential nor advantageous to plaintiff,’ the decision states.”
  • “After initially hiring an Aurora-based firm, Persichette later hired Levy as co-counsel for the case. According to the decision, Levy Law PC was intimately familiar with the people and practices of Owners, having represented the insurer in more than 450 cases over a 13-year period ending in 2017 and collecting more than $5 million in fees in the last five years of that relationship.”
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Risk Update

When Client Identities are Confidential — Latest Guidance on Attorney-Client Client ID Privilege

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This one caught my eye as I considered the potential implications for information sharing typically conducted during lateral lawyer moves… If you’re in a specialized practice looking to make a lateral move, and the hiring firm asks for a list of clients… what then? Ask all clients for permission?

Fifth Circuit Reaffirms That Client Identity Is Privileged Only in Narrow Circumstances” —

  • “As a general proposition, a client’s identity is not protected by the attorney-client privilege and is therefore subject to subpoena. However, in cases where the disclosure of the client’s identity necessarily discloses the substance of the legal advice provided to the client by the attorney, the privilege may apply.”
  • “The U.S. Court of Appeals for the Fifth Circuit recently addressed how specific the link between client identity and advice given must be in order to constitute a disclosure of the substance of the legal advice provided to clients by their attorneys in Taylor Lohmeyer Law Firm P.L.L.C. v. United States, in which the IRS used a ‘John Doe’ summons that sought the identity of clients for whom the law firm had performed certain work.”
  • “Lawyers who receive subpoenas requiring the disclosure of client identities should carefully consider whether the clients’ identities and the substance of the legal services are inextricably connected, and they should be prepared to document this position in camera.”

And on the topic of what’s “public” (like client identity?) see: “New Jersey Supreme Court reiterates generally accepted notion that even if information is available to the public it is confidential if it is not generally known” —

  • “For this reason, the generally accepted definition of confidential information does not use the adjective “public.” According to this definition, confidential information is information related to the representation that is not generally known. (A couple of years ago, the ABA issued an ethics opinion clarifying the notion of generally known information.)”
  • “Thus, information can be public (in the sense that it is available to the public) but not generally known, in which case, the fact that the information is public does not change the fact that it is still confidential.”
  • “… recent decision by the New Jersey Supreme Court, again reiterates that this distinction is important and can result in problems for lawyers, often when the lawyers discuss information about former clients. The case is called In the Matter of Calpin, and the facts are similar to many other cases that have raised this issues in recent years. A client (or former client at the time) wrote a negative review about the lawyer in Yelp! and the lawyer decided to reply by, among other things, disclosing some information about the client. The information was “public” in the sense that it was available in public records, but is was not generally known and for that reason the court held that the lawyer violated the duty of confidentiality.”
  • For more, see: text of opinion
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Risk Update

Insurance Update (Part 2) — Insurer Survey in Greater Depth

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Legal malpractice claims on the rise – study” —

  • “In its 10th annual survey of lawyers’ professional liability claims, the broker polled 10 leading lawyers’ professional liability insurers, which, on a combined basis, provide insurance to about 80% of AmLaw 100 firms. Ames & Gough found that the number of claims resulting in large multimillion-dollar payouts – as well as the dollar amounts involved – spiked for the second straight year. Most of the insurers surveyed had made a claim payout of more than $150 million in the past two years, and at least two settlements exceeded $250 million.”
  • “‘Yet, according to the survey, the actual large-claims experience may be worse than reported; due to the increased cost to defend claims, a number of matters settled quickly (to avoid the added expense) with the resulting claims above their primary layer of insurance,’ Ames & Gough said.”
  • “Every year, insurers surveyed in the study have cited conflict of interest (including perceived conflicts) as the most common alleged legal malpractice error. This year followed the trend, with five of the 10 insurers surveyed citing conflicts as either the first or second leading cause of legal malpractice claims.”
  • “‘Law firms should not underestimate the importance of conducting thorough conflict checks, as well as the need to have systems in place to flag and address any situation involving a potential conflict,’ Garczynski said. ‘This calls for an ongoing and robust internal process that goes well beyond conducting a conflict check upon accepting a new engagement or making a lateral hire.'”
  • “The cost of defending malpractice claims continued to climb, the survey found. Nine of the 10 insurers surveyed said that defense costs had increased in 2019. The rates insurers paid defense counsel also continued to rise, with 80% reporting an increase in rates paid to defense counsel during the past year.”
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Insurance Update (Part 1) — Premiums and Payouts Spiking in Response to Pandemic & More

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Malpractice Insurance Bills To Climb Even Higher After Virus” —

  • “The BigLaw bill for legal malpractice insurance, already riding an upward trend in commercial coverage rates, is expected to head even higher amid an expected onslaught of pandemic-era disputes with attorneys.”
  • “If elite firms with solid claims histories ‘can demonstrate they’re still managing their risk really well, they will be able to get better terms than some others,’ said Ed Pickard of U.K.-based broker Miller Insurance, whose client list includes about 1,000 U.K. and international law firms. ‘But they’ll likely still see a 10-to-15% increase in premiums for the year, which we saw in April [policy] renewals and which we’re forecasting for October renewals as well,’ he said.”
  • “Eileen Garczynski, senior vice president at insurance broker Ames & Gough, said a significant bump in malpractice claims last year and more mega-payouts from insurers have already helped push up premiums for some large U.S. firms as much as 30%, representing millions of dollars in additional overhead this year.”
  • “Garczynski said an increasingly skittish insurance market has also forced some large firms to scramble to get hundreds of millions of dollars of coverage in place in ‘stacked’ policies that may include scores of underwriters that split up levels of policy coverage and risk… ‘Some insurers are saying they’re just not going to write large firms. It’s too risky, that they’re going to lose their entire $10 million or whatever it may be,’ Garczynski said.”
  • “An Ames & Gough survey of 10 legal malpractice insurers released this week found that seven had paid a claim of over $150 million in the last two years. Eight of 10 also reported that the overall number of claims filed in 2019 was the same or higher than the volume from 2018, marking a turnaround after a long period of relatively flat reported claims.”
  • “Earlier this month, broker and risk management biggie Marsh, a unit of Marsh & McLennan Companies, issued a report saying commercial insurance prices globally rose 14% on average in the first three months of the year compared with last year’s Q1.”
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Partner Exodus — Inside Story of Boies Schiller Lawyer Lateral Departures

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The inside story behind a 15-partner exodus at elite law firm Boies Schiller” —

  • “Fifteen partners are leaving law firm Boies Schiller Flexner to join King & Spalding, marking a culmination of exits that insiders say can be traced, at least in part, to internal friction following a merger with a California firm.”
  • “The moves sent tremors throughout the national legal community because Boies Schiller is no ordinary firm, led by the famous trial attorney David Boies, who earned star status by grilling Bill Gates in the Justice Department’s antitrust case against Microsoft and then representing Al Gore in the 2000 Florida recount.”
  • “Over the past three years, though, Boies has come under scrutiny after media reports of his role as Harvey Weinstein’s fixer, as well as his hardball tactics in representing Theranos, the failed medical technology startup, as chronicled in “Bad Blood,” the book by John Carreyrou.”
  • “Numerous partners in the recent batch of departures had joined Boies Schiller in 2017 as part of a merger with the California litigation boutique Caldwell Leslie, known for representing Hollywood studios, artists and other corporations. By at least five accounts, the merger did not go smoothly.”
  • “Hollywood studios, for instance, found Boies Schiller’s higher billing rates tough to swallow, according to three people familiar with the matter. And press coverage of David Boies’ representation of Harvey Weinstein didn’t do the Boies Schiller name any favors in those circles, these people said.”
  • “He [Nick Gravante, co-managing partner of Boies Schiller] said Caldwell Leslie did not integrate well with Boies Schiller overall, noting that some partners wanted to bring in ‘small matters’ that he said ‘would potentially present major conflicts for us down the road.'”
  • “During a months-long recruiting effort by King & Spalding, Willingham met… talks accelerated over Zoom and virtual conference meetings, as the coronavirus prevented in-person talks, marking the end of a process that included some 50 King & Spalding partners, according to interviews with Los Angeles managing partner Peter Strotz, and another partner and longtime friend of Willingham, Joe Akrotirianakis… The incoming Boies Schiller group, altogether, is expected to bring over to King & Spalding some tens of millions in revenue, according to Los Angeles partner Peter Strotz.”
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Risk Update

Law Firm Data Breach (A Different One) — Client (Insurance Provider Hiscox) Sues Its Firm

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Company Sues Its Law Firm Over Data Breach” —

  • “Security Boulevard reported on April 20 that insurance company Hiscox has sued one of its law firms, Warden Grier, a four-person firm in Missouri. It had hired the firm to assist with “first party” non-marine insurance claims. The firm represented insureds who had purchased insurance from Hiscox – it therefore had both personal information about these clients and attorney-client privileged information.”
  • “In December 2016, hacker group Dark Overlord hacked the law firm’s computers and stole data concerning Hiscox, as well as the clients of the insurance company. The law firm hired its own law firm and contacted the FBI to investigate, ultimately paying ransomware to the hacker group to keep the stolen data private. It is unknown whether the firm hired an independent forensics firm to investigate the scope and extent of the breach.”
  • “Warden Grier did not tell Hiscox or clients of the insurance company about the breach.”
  • “On March 27, 2020, the insurance company sued Warden Grier in federal court in Kansas City. Hiscox Insurance Co., et. al., v. Warden Grier, Dkt. No. 4:20-cv-00237-NKL (E.D. Missouri). The company alleged that the law firm breached its legal obligations under the retainer agreement with the company, that it breached its ethical obligations to protect client confidences, and that it was negligent in failing to protect the client data. The company also asserted that the law firm itself failed to notify its customer (the insurance company) as required by Missouri law and that this caused the insurance company to fail to timely notify its own clients (the insureds) as required by the same statute.”

See additional commentary from Anderson Kill: “In Novel Case, Insurer Sues Own Law Firm After Data Breach

  • “Disputes between insurers and third parties following data breaches often happen behind closed doors, attorneys who handle cyberinsurance cases say. But it is rare for such a dispute to surface in federal court filings.”
  • “‘You just don’t see this kind of situation and these kinds of allegations made every day,’ said Joshua Gold, chair of Anderson Kill PC’s cyber insurance recovery practice group.”
  • “Insurers have sued law firms that represent their policyholders in the past, but such cases normally claim that the law firm jeopardized a payout with malpractice or professional misconduct, Gold said.”
  • “‘I’ve definitely seen an uptick in insurance companies suing law firms in this kind of setting, but this is certainly the first case I’ve seen address an alleged misstep in reporting a data breach in a prompt fashion,’ Gold added.”
  • “Data breach notification statutes differ by state in the U.S, but cyberinsurance attorneys say law firms should as a best practice tell their clients when they have reason to believe that their data has been exposed in a cyberattack. The American Bar Association has also urged attorneys to notify clients in the event of a data breach and to keep them updated on subsequent investigations.”
  • “‘This case shows some of the hazards that all companies face when they choose to not proactively notify their business partners about a breach… You really need to review closely your contractual obligations to third parties, and think about them expansively, rather than narrowly,’ said Farella Braun & Martel LLP partner Tyler Gerking.”
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Law Firm Hacked & Data Leaked — Big Risk, Big Ransom, Big News

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Celeb Law Firm Refuses Hacker Ransom as Lady Gaga Files Leak” —

  • “Days after the celebrity law firm that represents Madonna, Bruce Springsteen, and Nicki Minaj admitted it was “victimized by a cyberattack,” the hackers that executed the breach released their first batch of stolen data Thursday: files that focused on the law firm’s work with Lady Gaga.”
  • “The unnamed hacker group, using ransomware dubbed “REvil,” launched the cyberattack against the internal data systems of Grubman Shire Meiselas & Sacks; on Wednesday, they asked the law firm for $21 million in exchange for the 756 gigabytes of stolen data. However, after the firm allegedly hired cyber-extortion specialists to combat the ransomware demands, the hackers released a 2.4 gigabyte batch of files Thursday.”
  • “The ‘first part’ was a 2.4-gigabyte folder including legal work the law firm did for Lady Gaga: contracts sent to producers, collaborators, and members of her touring ensemble; promotional agreements; expense sheets; confidentiality agreement forms; performer agreements; reimbursement forms for the artist Jeff Koons; a handful of promotional photos; and reams of tedious paperwork one would expect to find in the database of an entertainment law firm. (A representative for Lady Gaga declined to comment.)”
  • “‘Our elections, our government, and our personal information are under escalating attacks by foreign cybercriminals. Law firms are not immune from this malicious activity,’ a spokesperson for Grubman Shire Meiselas & Sacks told Rolling Stone in a statement. ‘Despite our substantial investment in state-of-the-art technology security, foreign cyberterrorists have hacked into our network and are demanding $42 million as ransom. We are working directly with federal law enforcement and continue to work around the clock with the world’s leading experts to address this situation.'”
  • “‘This is a lose-lose situation for both the firm and its clients,’ Callow tells Rolling Stone. ‘If the firm does not pay the criminals, it’s likely that more data will be published. If the firm does pay, it will simply receive a pinky promise from a bad-faith actor that the stolen data will be destroyed. But why would a criminal enterprise ever delete data that it may be able to further monetize, and especially if that data may have a high market value?’ For example, there is nothing preventing the hackers from reaching a settlement with the law firm, only to then turn around and shake down their celebrity clients with the stolen data.”
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Conflicts News & Allegations — Lawyers Finances in Focus, Retaliatory DQ Accusation

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PG&E victims’ lawyer scrutinized over Wall Street connections” —

  • “San Antonio lawyer Mikal Watts was telling the group about a $13.5 billion settlement he had helped broker with PG&E Corp. to pay victims of fires caused by the company’s power lines. Watts’ clients stood to benefit from that deal, a major milestone in PG&E’s bankruptcy case that became public days earlier.”
  • “Flipping through a presentation projected on a screen flanked by a Christmas tree and a U.S. flag, Watts reviewed the details of the settlement. Then, after at least 50 minutes of talking, he shifted gears. He jokingly told victims that he wanted to ‘be your daddy’ for a little bit, according to a video reviewed by The Chronicle.”
  • “Victims needed to consider ‘all sorts of conflicts of interest out there,’ Watts said. He stressed that he knew he had to earn his clients’ trust.”
  • “What followed was a somewhat confusing spiel about his ‘huge’ line of credit and various exchanges he had with other lawyers and Wall Street financiers before he agreed to the settlement with PG&E. Watts said he learned along the way that part of his line of credit had been ‘in effect, cordoned off,’ or allocated, to two New York financial firms, Apollo Global Management and Centerbridge Partners.”
  • “Apollo holds more than $600 million of PG&E debt and insurance claims against the company, according to court papers filed in April… Members of the group have said in court papers and interviews that Watts’ remarks signal a potential conflict of interest that he did not properly disclose. They have asked PG&E’s bankruptcy judge to intervene, arguing that fire victims were not fully informed when they began voting on the company’s plan to resolve its bankruptcy a few weeks ago.”

Tyson Slams ‘Retaliatory’ Bid To DQ Judge Who Repped It” —

  • “A law firm facing disqualification and its client shouldn’t be able to force out an Arkansas federal judge from a $5 million liability case because he once represented Tyson Foods Inc., as they are retaliating against him because he questioned whether the firm should exit the litigation, the food giant has contended.”
  • “Conway Olejniczak & Jerry SC and its client Robinson Metal Inc. fail to meet the standard set by legal precedent for U.S. District Judge Timothy L. Brooks to recuse himself from the case, even though the judge represented Tyson in unrelated matters about a decade ago, according to the response brief filed on Wednesday by subsidiary Tyson Mexican Original Inc.”
  • “‘Robinson’s motion to disqualify amounts to little more than a retaliatory and slanderous assault on the integrity of this court and its sound rulings on Robinson’s motion to dismiss,’ the response brief reads, ‘as well as a poorly disguised effort to both intimidate and discourage the necessary disqualification of its current counsel.'”
  • “Judge Brooks in March ordered Robinson to demonstrate why Conway Olejniczak should not be disqualified, given that attorney Steven J. Krueger had been deposed as part of the litigation and likely would need to serve as a witness in the case.”
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