Risk Update

Audit Letter Response — ABA Opinion, AICPA Rules & Ex-Partner’s Provocative Perspective

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I found myself going a bit deeper on audit letters, and thought I’d share some of the interesting resources discovered through that effort, starting with: “Beware The Belief Your Response To Auditor A Colossal Waste Of Time” —

  • “Some lawyers may create more potential professional liability over the coming months by drafting a single letter in response to their client’s independent auditor’s request for information than they will throughout the entire rest of the year.”
  • “The problem arises primarily because after 40 years of writing these letters to independent auditors, too many attorneys and auditors have concluded the entire process is a colossal waste of time.”
    “And yet, outside of a very few attorneys in the large, downtown corporate law firms, few attorneys responding to these requests have ever read the ABA Statement of Policy, much less the American Institute of Certified Public Accountant (AICPA) rules.”
  • “It should be noted, however, that the accounting profession continues to insist that the ABA Statement of Policy does not control, and it is the AICPA standards that govern the auditor’s request for information.”
  • “The ABA Statement provides different illustrative examples of response letters for ‘inside’ and ‘outside’ counsel. In general, the outside counsel may limit its response to particular matters to which it provided substantive attention or representation; whereas the inside general counsel represents he has general supervision for the company’s legal affairs and has ‘reviewed litigation and claims threatened or asserted involving the Company and [has] consulted with outside legal counsel’ where appropriate.”

That article pointed to this one, which was an interesting and provocative opinion piece on the whole matter: “Inside Straight: Stop The Audit Letter Lunacy!” —

  • “When I worked at a law firm, I knew that lawyers’ responses to audit letters — in which the firm confirms to auditors the status of litigation pending against a client — were a massive waste of time.”
  • “Firm policy dictated that we would speak only pablum in response to audit letters. We would identify each case by name, court, and number; explain that a complaint had been filed; list the causes of action; say where we stood in discovery and whether a trial date had been set; and then say that we didn’t have a clue who would win. (If we thought that the client’s chance of losing was either ‘probable’ or ‘remote,’ we were required to say so. I’m not sure we ever saw such a case.)”
  • “Every once in a while, a junior associate would receive an audit letter and write a real response to it — analyzing the lawsuit, the tactics, and who would win. When the powers that be learned about that mistake, there’d be hell to pay: ‘How could you write those things? Didn’t you run this past an audit letter review partner? We don’t actually provide information in those responses, you fool! Never do this again!'”
  • “As a partner at a firm, I knew that responding to audit letters was an expensive nuisance: A full-time audit letter assistant cranked out first drafts of responses to the letters. (That’s all she did, eight hours per day, 52 weeks per year — honest.) The appropriate client relationship partner reviewed each draft. An ‘audit letter review partner’ (I had the misfortune to be one of those for four or five years) took another pass at the thing. Only then — after the letter had been stripped of all content — did the response go out the door. That was an awful lot of time and money invested to insure that the firm didn’t accidentally say something.”


Risk Update

Audit Letter Response — WilmerHale Shares Its Automation “Saga” and Success at ILTA Conference (Case Study Summary)

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I’ve seen growing chatter about streamlining audit letter response workflow management. So with it was with great interest that I tuned in to WilmerHale’s case study presentation at the recent ILTA>ON conference. And I wasn’t the only one taking note — the firm was a finalist for ILTA’s “Transformative Project of the Year” award.

It was a great presentation (I confess their thematic “Star Wars” introduction didn’t hurt at all, in my book). And I found myself motivated to generate a summary of their particular solution story, with some highlights below of the complete version you here: “Audit Response Letters, Rebels & Risk Management: A Compliance Saga” —

At the session, Miranda Perkins (Knowledge Manager) and Mary Goldsmith (Business Relationship Manager) started things off just my speed…

The Wilmer team provided a very clear and concise overview of the audit letter risk management problem:

  • “When a client prepares audited financial statements, they are required to disclose any event that may affect their financial status, including pending and potential litigation.”
  • “The auditor confirms management’s assessment of these risks by reaching out to their lawyers.”
  • “The audit letter process is the means by which the accountant obtains that confirmation from us [the law firm].”

The Wilmer team shares how they designed and implemented a solution to automate this, with software-driven document creation and process workflow management (notifications, reminders, tracking, and reporting).

  • The Wilmer team reports that the new system slashed manual and repetitive work, making the process 36% more efficient by their metrics. That translated into saving hundreds of hours in short order, and earning significant kudos from lawyers and cheers from paralegals.
  • Seriously — partners on the audit committee called the new solution “magical” and “revolutionary” — quite the reviews indeed.
  • In the case of conflicts staff, the time they spend responding to audit letter request tasks has been slashed by 85%.

There’s more to the story, so see my complete article at: “Audit Response Letters, Rebels & Risk Management: A Compliance Saga” and give it a “like” on LinkedIn, if you’re so inclined.

Risk Update

A “Messi” Conflict Allegation — Professional Football (Soccer) Club (Team) Fires Law Firm

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Barcelona sack their own law firm for advising Lionel Messi on exit strategy” —

  • “According to a report in Marca which cites an initial Crónica Global story, the law firm had in the past represented both club and player, but that the longstanding relationship with Barcelona is now at an end.”
  • “It was revealed last week that Messi had signalled his intention to leave Camp Nou by sending Barca a burofax, a legal document that requires confirmation of receipt by the recipient and is commonly used in Spanish business.
  • “Messi’s departure from the club will likely remain a protracted affair, due to the lack of agreement between the club and himself over the break clause in his contract.”
  • “The clause states that Messi can leave for free providing he notifies Barcelona before the end of the season. The end of the season would generally be the end of May but, Messi’s lawyers are expected to argue, due to the delay and subsequent extension of the season due to coronavirus, the end of the season was pushed back to August.”

Messi Transfer: Barcelona Fire Law Firm For ‘disloyalty’ And ‘conflict Of Interest’“–

“The report states that Barcelona have blamed the law firm for disloyalty and conflict of interest.”

But looks like the actual exit has been called off: “Lionel Messi to Stay at Barcelona to Avoid Legal Conflict with Club: Report” —

  • “Lionel Messi has decided to stay at FC Barcelona to fulfill his current contractual obligations as the legal proceedings of the matter proved to be too much to go ahead with. Messi, who sent a burofax to the club to formally intimate them of his wish to leave on August 26, has been having discussion with the board after his father landed in the city.”
  • “After 10 days of discussion, the Messi camp has come to the conclusion that the legal conflict that will come into place if the player pushes to leave is too much and has decided to honour his current contract, according to TyC Sports. Even though Messi has been unhappy with the board of the club, he doesn’t want to leave the club on bad terms and amid the current situations, the parting is likely to get messy.”


Risk Update

Law Firm Risk Webinar Panel — “Inside the Minds of Clients & Firm Management” (Conflicts Complexities, Staffing, Communication & More)

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I was pleased to be asked by my friends at Wilson Allen to moderate an upcoming risk webinar.

  • Discussion is focused on a great theme: “Evolving Law Firm Risk: Inside the Minds of Clients & Firm Management.”
  • There’s a great panel on deck, featuring two consultants who have been around the risk block more than once, and the Assistant General Counsel, Global Head of Legal Ethics & Professional Responsibility at JPMorgan Chase & Co. (Michael Misiewicz, who previously worked in-firm as a conflicts lawyer with WilmerHale, and prior to that Hogan Lovells)
  • And I expect moderation will be satisfactory

As with these sorts of things the panel prep sessions are typically worth broadcasting in and of themselves. And this group’s experience was no exception. We’ve developed an agenda designed to address some expected and some fresh topics for the law firm risk audience:

  • Exploring the Mindset of the “Risk Reviewers” (External Clients & Firm Laywers)
  • How firm management and client leaders consider the policies, practices, and priorities of law firms
  • Considering Conflicts Complexities (Ethical conflicts, Business conflicts, Positional, and “fuzzy scenarios”)
  • Evolving Staffing Models (Why and How Centralization Matters)
  • Making the Case for Investment and Change (And Communicate Effectively with Firm Management)

The floor will also be open for attendee Q&A, commentary and discussion. So don’t be shy…

You can read more about what the panel plans to cover, so you can bring your most interesting questions and examples to share, and register here: “Evolving Law Firm Risk: Inside the Minds of Clients & Firm Management.”

Risk Update

Playbook Conflict Checked — (Or: 14 Years Ago is a Long Time…)

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MehaffyWeber Attys Beat DQ Bid In Texas Geological Data Suit” —

  • “U.S. District Judge Marcia A. Crone on Monday denied a request from Cinco Bayous LLC, Jim Wingate, Tanya Wingate and William Wingate to disqualify MehaffyWeber attorneys Morris C. Carrington and Corey Jacob Seel, whom they argued had gained access to their litigation ‘playbook’ through representation of them in an unrelated dispute from 2004 to 2006.”
  • “That means Carrington and Seel — as well as their colleague Jesse Franklin Beck, who was not involved in the earlier dispute — can continue working on the lawsuit Cinco Bayous and the Wingates brought against their client in August 2019.”
  • “Judge Crone wrote that it was ‘unclear’ how information gleaned from 14-year-old litigation could be used to Samson’s advantage here, saying it ‘is difficult to conclude’ that two years of work on a case would yield the MehaffyWeber team a ”playbook’ of substance or complexity that is still relevant” or applicable. The present lawsuit, she held, involves “different issues, properties, and parties.'”
  • Cinco Bayous and the Wingates alleged that both cases concerned the failure to ‘provide and transfer seismic information in relation to an oil and gas lease,’ and that the claims in both sets of lawsuits — breach of contract, fraudulent inducement and conversion — are also similar, the judge noted.
  • “‘Despite the overlap in the generic subject matter … plaintiffs do not delineate any other similarities,’ the judge held. ‘The mere fact that plaintiffs mention the term ‘seismic data’ in both lawsuits does not create a substantial relationship between the two suits when the seismic data in dispute is derived from different tracts of land and is offered for dissimilar reasons and context.'”


Risk Update

Judicial Disqualification Attempts — Brad, Angelina & Iran

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(I’m sure no one is going to click…) “Angelina Jolie ‘Clearly Failed’ Trying to Disqualify Me in Brad Pitt Custody Battle, Judge Says” —

  • “Fighting for fair trial. Judge John W. Ouderkirk asserted that he “can and will remain impartial” in Angelina Jolie and Brad Pitt‘s divorce case, despite his personal history with each party.”
  • “According to court documents obtained by Us Weekly earlier this month, Jolie, 45, alleged that the judge failed to disclose “ongoing business and professional relationships” between him and the team representing Pitt, 56, who noted that the judge had a “well-documented history” with the actors. In a response filed on Tuesday, August 18, Ouderkirk, who officiated the former couple’s 2014 wedding, fired back at the Salt star’s claims.”
  • “‘The Objection to my continued service does not change my ability to objectively view and evaluate the evidence presented by both sides and apply the law impartially,’ Ouderkirk explained, noting that Jolie had ‘clearly failed’ to prove any kind of bias in Pitt’s favor. ‘Thank you for considering the issues presented affecting the lives of these parties and their children.'”
  • “Though the Maleficent actress requested that the court disqualify Ouderkirk as the private judge presiding over her divorce, he claimed that he had continuously made both Jolie and Pitt aware of his involvement in other cases since he was hired to oversee their case — and that those cases ‘might involve a party, lawyer, law firm and/or witness involved in the Jolie/Pitt matter.'”

Angelina Jolie asks judge in Brad Pitt divorce proceedings to be removed” —

  • “The filing said that during the Jolie-Pitt proceedings, Ouderkirk has ‘failed to disclose the cases that demonstrated the current, ongoing, repeat-customer relationship between the judge and Respondent’s counsel.'”
  • “It goes on to say that Pitt’s attorney ‘actively advocated for Judge Ouderkirk’s financial interests in moving — over the opposing party’s opposition — to have his appointment (and his ability to continue to receive fees) extended in a high profile case.'”
  • “Pitt and Jolie, like other high-profile couples, are paying for a private judge in their divorce case to keep many of its filings and the personal and financial details within them sealed, though some legal moves must be made within standard court procedure.”

Halkbank Loses Bid To Recuse Judge In Iran Sanctions Case” —

  • “A federal judge in Manhattan said Monday he won’t recuse himself from overseeing an Iran sanctions case against Turkey’s Halkbank, calling “speculative, tenuous and false” the claim that the judge sided with a group deemed a terrorist organization by the country’s government.”
  • “U.S. District Judge Richard M. Berman said the bank had taken out of context remarks he made at a legal symposium in Istanbul in 2014. Halkbank, which is accused of taking part in a conspiracy to help get billions of dollars into Iran in violation of U.S. sanctions, had argued the judge appeared to be biased because his remarks could be read as siding with followers of Fethullah Gülen, an Islamic cleric accused of a coup attempt in Turkey.”
  • “When the judge, who moderated a panel at the event, said, ‘It is no secret that the rule of law as contrasted with the rule of man is under some attack in Turkey,’ Halkbank claimed he was referring to the Turkish government’s efforts to shutdown a corruption investigation the bank says is the basis for the U.S. case.”
  • “Ruling on the motion Monday, the judge called those claims ‘a belated rerun’ of arguments he already rejected when they were made by former Halkbank co-defendant Reza Zarrab in 2016. Having rejected the argument once, the judge said he would not revisit the issue.”
Risk Update

Remote Work, Recordings & Records — New “Wrinkles,” Risks & Requirements

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Remote Proceedings Bring New Wrinkles For Court Records” —

  • “Though the manner and extent of the use of live videoconferencing in federal civil proceedings have been varied in the courts that have ventured into the live-video arena, parties and courts using remote videoconferencing should carefully consider how they will preserve a clear record of the proceedings.”
  • “Will the videoconference be recorded? If so, can only the court and its staff record the proceedings? Can the parties or the public record the proceedings? If the court staff records the proceedings, will it become part of the official record?”
  • “The few federal district courts to address the question of recording videoconference-based proceedings appear to be adhering to a blanket prohibition on recording live video, mirroring the long-standing federal court ban on recording in-court proceedings.”
  • “Similarly, the U.S. District Court for the Northern District of Georgia has issued a standing order relating to the use of remote technologies during the COVID-19 pandemic, reiterating, ‘Persons receiving remote access to proceedings are prohibited from photographing, recording, and rebroadcasting court proceedings, including proceedings held by video teleconferencing or telephone conferencing.'”
  • “Under these prohibitions, the rules clearly appear to forbid the observing public, lawyers and parties from creating recordings of live videoconference.”
  • “Assuming video recording becomes part of the official record, what happens on appeal? If the current trend toward increased videoconferencing continues, will appellate courts come to require an official video record be submitted with the record on appeal? And, ultimately, will this trend lead appellate courts to undertake a less deferential review of fact finding, if a full video record of remote proceedings is available on appeal?”
Risk Update

Conflicts Allegations & Updates — “Witness Gamesmanship” Allegations Averted & Lawyer as Witness DQ

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Goodwin Ducks Sanctions Bid Over Witness Gamesmanship” —

  • “An Illinois federal judge has rejected a bid by an Illinois county to sanction Goodwin Procter LLP over the firm’s dealings with witnesses in a lending practices lawsuit involving Bank of America, finding that neither side took an unreasonable position in the dispute.”
  • “Cook County reasonably asserted that Goodwin could not represent the witnesses because they were adverse to firm client Bank of America, as testimony they gave in depositions had purportedly changed from prior declarations, U.S. Magistrate Judge Sunil R. Harjani held Tuesday.”
  • “But Goodwin also made a reasonable argument that it had offered to include conflict waivers with its bid to represent the witnesses, despite its concurrent assertion that a conflict between the witnesses and Bank of America had not necessarily materialized, according to the judge, who noted that both sides hired experts to make declarations.”
  • “‘Neither declaration is objectively unreasonable, frivolous, reckless or made in bad faith,’ Judge Harjani wrote.”
  • “The judge noted that Goodwin ultimately opted to withdraw from representing the witnesses, a decision that is ‘not akin to a surrender and a victory for plaintiff, but more akin to a calculated decision to compromise and move forward.’

Rule 3.7 Disqualification Upheld” —

  • “The South Carolina Court of Appeals affirmed as modified a trial court order disqualifying counsel as a necessary witness. The order makes clear that disqualification is for purposes of trial only and does not prevent the attorney from otherwise providing legal services to the client. The legal malpractice case involves issues with a real estate matter.”
    • “Altman, on behalf of Fine Housing, brought a legal malpractice suit against Sloan. In its complaint, Fine Housing alleged Sloan failed to identify the tax liens on the Properties, which required Altman to negotiate and obtain payoffs for the tax liens. Fine Housing also alleged Sloan failed to discover that the Properties were subject to the Clarke lease and the Crabtree and Foster lawsuits and failed to issue the title policies correctly.”
    • “In his answer, Sloan denied Altman was required to negotiate tax lien payoffs for the Properties. Sloan alleged Fine Housing failed to mitigate damages, suffered damages due to its own negligence, and its damages were caused by the intervening and superseding acts of others. On June 9, 2016, Sloan submitted his first set of answers to interrogatories, naming Altman as a witness.”
    • “At the hearing on the motion to disqualify Altman, Sloan also asserted Altman was the only one who could explain the tax liens and whether the Crabtree and Foster settlements were fair and reasonable. Lastly, he asserted Altman was a necessary witness as to the mitigation of damages based on Clarke’s offers to buy the Properties.”
  • “The circuit court granted the motion, finding that Altman was a necessary witness and that the dual roles of lawyer and witness would confuse the jury.
Risk Update

“Not Quite Yet” Conflicts Accusations (Steve Bannon Edition) — When Law Firm Conflicts are Just “Hinted At”

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Bannon Hires Quinn Emanuel’s Bill Burck, as Prosecutors Hint at Conflicts Issues” —

  • “Steve Bannon, the former top strategist to President Donald Trump, has turned to Quinn Emanuel Urquhart & Sullivan litigator William Burck in defending criminal charges that he stole from supporters of the president’s U.S.-Mexico border wall, reprising a role the litigator played during the height of Robert Mueller III’s probe in 2018.”
  • “Burck, a former federal prosecutor and veteran of the George W. Bush White House, has made a name as one of the most skilled white-collar lawyers in Washington, following an earlier stint in the Manhattan U.S. Attorney’s Office, which included his work on the high-profile prosecution of homemaker Martha Stewart on insider-trading charges.”
  • “In private practice, Burck has taken on state attorneys general, district attorneys and the U.S. Congress on behalf of his clients. But it was his work simultaneously representing Bannon and other former members of Trump’s inner circle amid the special counsel’s investigation into Russian meddling in the 2016 presidential election that grabbed attention outside of the Beltway.”
  • “Now, Burck’s previous work could raise potential conflicts of interest in Bannon’s criminal case, prosecutors hinted last week.”
  • “When briefly pressed by a federal magistrate judge, a government attorney said prosecutors had ‘discovered’ the possible conflict involving Quinn Emanuel’s representation of Bannon and were continuing to discuss it with defense counsel.”
  • “The issue, he said, could be the result of any number of factors, including past work that Burck or his firm may have performed for a bank, a corporation or possibly one of the other named co-defendants in the case.”