Risk Update

Relationships Conflicts — New ABA Opinion on Relationship Conflicts (Intimate Relationships, Friendships, and Acquaintances)

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“Brothers and sisters, I have none. But that man’s father is my father’s son,” one of my own father’s favorite riddles for me growing up came to mind as I came across: “ABA Issues Opinion Addressing Conflicts Arising out of Relationships with Opposing Counsel” —

  • “Thus, ABA Formal Opinion 494 (July 2020) (here) should be of interest. A comment to the Model Rules had explained that a ‘lawyer related to another lawyer, e.g., as parent, child, sibling or spouse, ordinarily may not represent a client in a matter where that lawyer is representing another party, unless each client gives informed consent.'”
    • “A personal interest conflict may arise out of a lawyer’s relationship with opposing counsel. Lawyers must examine the nature of the relationship to determine if it creates a Rule 1.7(a)(2) conflict and, if so, whether the lawyer reasonably believes the lawyer will be able to provide competent and diligent representation to each affected client who must then give informed consent, confirmed in writing.”
    • “To assist lawyers in applying Rule 1.7(a)(2), this opinion identifies three categories of personal relationships that might affect a lawyer’s representation of a client: (i) intimate relationships, (ii) friendships, and (iii) acquaintances.”
    • “Intimate relationships with opposing counsel involve, e.g. cohabiting, engagement to, or an exclusive intimate relationship. These relationships must be disclosed to clients, and the lawyers ordinarily may not represent opposing clients in the matter, unless each client gives informed consent confirmed in writing.”
    • “Because friendships exist in a wide variety of contexts, friendships need to be examined carefully. Close friendships with opposing counsel should be disclosed to clients, and, where required as described in this opinion, their informed consent obtained.”
    • “By contrast, some friendships and most relationships that fall into the category of acquaintances need not be disclosed, nor must clients’ informed consent be obtained. Regardless of whether disclosure is required, however, the lawyer may choose to disclose the relationship to maintain good client relations.”

Additional commentary and illustration from professional responsibility lawyer Brian Faughnan: “The ABA comes through with another quality ethics opinion” —

  • “Most importantly, it appropriately centers the analysis where it fits in the Model Rules: it is an issue involving RPC 1.7(a)(2) – material limitation conflicts arising from a lawyer’s own personal interests. The opinion stresses that ordinarily such conflicts are not imputed to others at the firm. And it lays out reasonable categories to help guide lawyers in their thinking about these issues.”
  • “It also makes the point that while, most of the time, the obligation on the lawyer is disclosure to the client and moving forward only if the client is willing to waive the conflict, there can be situations where the conflict is, itself, not waivable.”
  • “The opinion posits a relationship between two lawyers that is so close that the lawyer could never get comfortable filing a well-founded motion for sanctions against the other lawyer on behalf of a client as an example of a situation where the conflict may not even be waivable.”
    And that entire genre of thought has, over the years, been very helpful to me in talking lawyers through situations, both in their real practice, and just as an educational tool at seminars. I, like many other ethics CLE speakers, have used lots of hypotheticals to tease out ethics issues and one that has always been fun to discuss involves something like this scenario:

    • You are at lunch with opposing counsel on an appellate matter who is a close friend and former colleague. Unprompted, he says, “I bet you can’t wait to see what I’ve got in store for you in my response brief. Well, you’ll have to wait a bit because I’m going to take every day allowed for me before filing so you won’t get your hands on it until a week from tomorrow.” You know, because you just checked it before coming here, that his deadline for his brief is actually tomorrow. What do you say?
  • “This scenario usually prompts a good discussion and there is always someone in the crowd willing to say that they would tell their friend to, at least, go back and double check their math on the deadline. The problem, of course, is that doing that without first talking to your client to get approval would be extremely ethically dicey. The easiest way to drive that point home to lawyers is to ask them if, since the personal relationship with opposing counsel is so important to them, they secured informed consent from their client at the outset with respect to how the lawyer’s personal interest in their close friendship with opposing counsel could materially limit the representation.”
Risk Update

Verein Conflicts Considerations — Resource + Commentary

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Always nice to send a ping out and get a response with these updates. Hat tip to Max Welsh, law firm risk management consultant and educator, for the commentary and added links he shared on LinkedIn, following our earlier story on the Gartner/Norton Rose conflicts allegation. Here’s what he has to say, and a link to his LinkedIn post and thread for anyone looking to continue the dialogue.

  • “This one involves Norton Rose, which is organized as a Swiss verein, with the conflicting relationships belonging to separate firms within Norton Rose’s verein structure.”
  • “In looking for another conflict situation involving a verein (the Dentons US/Canada case involving an allegation of conflict in representing and being adverse to The Gap), I found a great article by Cassandra Burke Robertson on how courts and regulatory authorities should approach the imputation of conflicts of interest in the verein context. The article is available here [Conflicts of Interest and Law-Firm Structure].”
  • “Professor Robertson argues that determining whether a conflict of interest exists – that is, whether confidentiality and loyalty truly are at risk – in the verein context ‘requires an analysis of the particular facts and circumstances at hand.’ I certainly agree.”
  • “However I think that’s true outside of the verein context in evaluating the imputation of conflicts of interest. As Professor Robertson points out, the nature of law firms and the concepts of client confidentiality and loyalty have changed dramatically and the imputation of a conflict might make sense in certain circumstances (a 30-lawyer, one-office law firm) but not in others (a 1,000-lawyer firm spread across the world).”
  • “Of course, the question is: Who gets to conduct ‘the analysis of the particular facts and circumstances at hand’? If the conflict arises in litigation, it’s the court (and you hope you have a judge who understands conflicts). But what about in other matters? Our regulatory system isn’t set up to handle that type of evaluation. Do we let the lawyers/firms or clients decide? There’s significant bias in those positions. What do you think?”


Risk Update

Concerning Conflicts — More on Unfolding Adjacent Industry (Accounting Audit v Consulting Conflicts Considerations & Changes)

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From the continuing “it’s interesting to see how others are navigating conflicts” department, comes: “Conflict of interest rules cause headaches for Big Four auditors” —

  • “Deloitte, EY, KPMG and PwC must submit plans to their regulator this month for the ring fencing of their audit practices from their consulting arms.”
  • “The move is designed to eradicate conflicts deemed to have been so harmful to ensuring company bosses are held to account by auditors fearful of endangering lucrative consulting contracts by asking too many difficult questions.”
  • “A third of audits by the top seven firms failed to meet the watchdog’s standards in its latest industry review.”
  • “However, the audit divisions are not the only ones that have to manage awkward, and potentially untenable, conflicts of interest. Further splits 
are expected even if they are not forced by regulators.”
  • “‘It is an open secret that all these businesses are looking to restructure in some way because the conflict situation is just a complete nightmare,’ says one leading insolvency lawyer.”
  • “A firm that is asked to act as liquidator for a bust company faces a difficult balancing act, explains the boss of a leading accounting firm. Before accepting the appointment, a firm must ensure not only that it was not the collapsed company’s auditor, but that acting as liquidator would not place it in conflict with an existing client. A bust company could owe money to six or seven banks, he says.”
  • “Conflicts that stop parts of the Big Four taking on work are not the only gripe of partners in the divisions worst affected. Some feel they could also earn more money elsewhere.”
  • “London law firms have faced a similar threat, with some of their highest billing partners being poached by US-based firms which offer their star performers an ‘eat what you kill’ remuneration model, rather than the more socialised profit pool of more traditional firms.”
Risk Update

Risk Roundup — COVID and Office Openings, Ethical Walls (Accounting/Independence Variety) & SRA “Schemes” Warning

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Here are a variety of risk-related stories I’ve taken note of recently. This first is from a few weeks ago, but is worth note as organizations navigate the shifting pandemic landscape: “Biglaw Office Shut Down After COVID Outbreak” —

  • “The process of reopening Biglaw offices is bound to be a slow one filled with many stops and starts. Just ask Squire Patton Boggs. The international law firm had to shut down its Manchester office after lawyers tested positive for COVID-19.”
  • “Though the office is now reopened, according to a spokesperson it ‘remains, as it was previously, at limited capacity,’ and employees at the office are “doing so on a managed, voluntary basis and in accordance with the health and safety protocols put in place by the firm.'”
  • “One of the attorneys who tested positive was reportedly working on a corporate deal when the test result came in. The entire team was immediately sent home, and, as RollOnFriday notes, they had to depend on the kindness of another Biglaw firm to get everything done.”

This one is clearly outside the scope of law firms, but I do find it interesting to keep an eye on how related professional services industries (and other geographies) are navigating risk issues. In this case, an update on evolving rules governing ethical walls for accounting firms and the distinction between audit and advisory services: “Charting a new course of Independence for SMSF accounting and audit firms” —

  • “The Independence Guide clarifies that ethical walls aren’t sufficient for most SMSF engagements. It’s time to disengage from either the accounting and compliance or the audit of a SMSF.”
  • “The ATO has advised that accounting firms have until July 2021 to restructure their practice if they are providing accounting or compliance advisory services to SMSF audit clients.”
  • “The recent update to the Independence Guide (the Guide), jointly issued by the Accounting Professional and Ethical Standards Board (APESB) and Australia’s three professional accountancy organisations, places a spotlight on auditor independence, particularly for auditors of Self-Managed Superannuation Funds (SMSFs). In the past, it was considered acceptable for an accounting practice to offer both accounting and audit services to a SMSF, as long as ‘ethical walls’ were in place to reduce self-review threats to an acceptable level.”
  • “The Code and the Guide now make it very clear that safeguards to reduce self-review threats are no longer considered sufficient for most SMSF engagements.”
  • “Firms have been given window of time to make necessary changes; as the ATO has advised that it will adopt an educative approach during the 2020/21 financial year to enable firms time to restructure and implement the Code requirements.”

Solicitors still acting as fronts for ‘dubious schemes’”

  • “The Solicitors Regulation Authority has made a new warning to solicitors about becoming involved in dubious investment schemes after reviewing recent cases leading to the closure of seven firms and other regulatory action.”
  • “A thematic review of 40 past cases found that in 63% of the cases, solicitors had failed to carry out proper due diligence on those who ran the schemes, with no checks carried out at all in 20% of cases. Investigations led to seven firms being intervened in to and 20 referrals to the Solicitors Disciplinary Tribunal.”
  • “The Law Society said it supported the call for awareness. Simon Davis, president, said: ‘Historically fraud is a crime that increases during recessions. As the economy slides and unemployment rises, all solicitors must therefore be alert to that risk, especially if a deal seems too good to be true.'”


Risk Update

Magic Quadrant Conflict? — Gartner Alleges Its Firm’s on Other Side of $340m, Covid-cancellation Conflicts Square (Unwaived Conflict)

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For those of you not so much in the technology world, IT analyst firm Gartner is famous for its “Magic Quadrant” framework for evaluating plays in market categories along two axes (completeness of vision versus ability to execute). We’ll see how vision and execution play out in: “Gartner Seeks To DQ Norton Rose In $340M Coverage Suit” —

  • “Global research firm Gartner Inc. has moved to disqualify Norton Rose Fulbright LLP from representing U.S Specialty Insurance Co. in three federal disputes over up to $340 million in insurance coverage for events canceled because of COVID-19, saying that Gartner is a client of the law firm and did not consent to the conflict.”
  • “Gartner said Saturday in a New York lawsuit against U.S. Specialty that Norton Rose attempted to modify its guidelines agreement with Gartner rather than advise Gartner of the conflict and seek a waiver in an above board manner.”
  • “‘NRF’s representation of defendants in a matter directly adverse to Gartner, its client for over a decade, violates prevailing Second Circuit law, ethical rules, and the Gartner Guidelines,’ Gartner wrote in the New York motion.”
  • “According to Gartner, it has been a client of Norton Rose’s Australia office, or one of its predecessor firms for 15 years, and the firm has advised Gartner in matters throughout the Pacific region, including in Beijing and Singapore. The firm has also done significant work for Gartner recently as the research firm was forced to lay off staff during the pandemic, the motion said.”
  • “Despite the longstanding relationship, Gartner alleged, Norton Rose did not openly disclose the conflict when it chose to represent U.S. Specialty in filing the Texas lawsuits. Rather, the firm tried after the fact to amend the agreement with the firm, which expressly forbids conflicts of interest, to make the agreement more amenable to such arrangements, Gartner said.”
Risk Update

Ex-Clerk Conflicts? — “Playbook + Inside” Information Causing Concerns

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With a hunch that the provocative title a NYT editor crafted might raise eyebrows, I nevertheless found the substance of this discussion interesting, and certainly risk radar worthy: “Law Firms Pay Supreme Court Clerks $400,000 Bonuses. What Are They Buying?” —

  • “Supreme Court justices make $265,600 a year. The chief justice gets $277,700. Their law clerks do a lot better. After a year of service at the court, they are routinely offered signing bonuses of $400,000 from law firms, on top of healthy salaries of more than $200,000.”
  • “Still, the former clerks are typically young lawyers just a couple of years out of law school, and the bonuses have a second and more problematic element, said Stephen Gillers, an expert on legal ethics at New York University. ‘They’re buying something else: a kind of inside information about how the court is thinking and how individual justices might be thinking,’ he said.”
  • “The Supreme Court appears to recognize that this is a problem. Its rules impose a two-year ban barring former clerks from working on ‘any case pending before this court or in any case being considered for filing in this court.’ (The rules also impose a permanent ban on working on ‘any case that was pending in this court during the employee’s tenure.’)”
    “Professor Gillers said the rule was a partial solution. ‘The two-year ban is meant to dissipate the value of the inside information,” he said. “You cannot eliminate it altogether.'”
  • “Letting lawyers exploit that relationship raises concerns about fairness, the study said. ‘Law firms throw money at former clerks for the same reason companies, unions and organized interests hire former government officials as lobbyists: They expect these insiders to influence their previous employers,’ the study said.”
  • “Former clerks have come to dominate Supreme Court arguments. In the past 15 years, the study found, about 75 percent of arguments before the court included at least one former clerk.”
  • The article cites two studies on the matter: available here and here.

Curious, I looked for other discussion of this topic beyond the Supreme Court, surfacing a few relevant and interesting resources. First: “What to do when your adversary was the Judge’s clerk?” —

  • “Most of the reported cases involving judges and former clerks deal with the situation where the clerk was employed while a matter was pending and later joins a firm involved in the same matter or representing one of the parties. That law is well-settled.”
  • “But suppose the issue is not whether the case was in front of the judge in some fashion when your adversary was clerking; what if the issue is more thorny? Do they still have a close enough relationship to put your client at a perceived or actual disadvantage?”
  • “After reading about In Re: Gizella Pozsgai, case number 19-3872 in the U.S. Court of Appeals for the Third Circuit, you have to consider raising the delicate issue before the judge and the adversary and hope for honest and complete answers. (Although that doesn’t always work so well. See below).”
  • “In Patzner v Burkett, 779 F. 2d 1363 (8th Cir. C.A. 1985), the court noted recusal is left to the judge’s discretion and declined to act when the adversary made no claim of bias towards the former clerk, although the clerk had worked for the judge only nine months prior to the inception of the case.”
  • “The case is heading to the Third Circuit and bears watching. In the meantime, if you clerked and have a case assigned to your judge, promptly notify your adversary of the details of the clerkship and your present relationship with the judge.”

Next, Maryland on the matter, which mentions and distinguishes its treatment from other jurisdictions, all focusing on the judge side of the equation, in “Maryland Judicial Ethics Committee 2017-21

  • “Is a judge required to disclose the fact that a lawyer appearing before the judge is his/her former law clerk?”
  • “Absent a relationship between the judge and the former law clerk that would otherwise require the judge to recuse, a judge is not required to disclose the fact that a lawyer in a case over which the judge is presiding is a former law clerk.”
  • “Some states have addressed the law clerk issue by enacting rules or policies that impose temporal restrictions upon a judge’s ability to preside over cases in which former law clerks appear as counsel. See New Jersey Revised Code of Judicial Conduct Rule 3.17(e) (Judge should not preside over an action in which a former clerk appears for six months following termination of clerkship.); Delaware Conflict of Interest Policies for Law Clerks (same). There is no analogous provision in the Maryland Code of Judicial Conduct.”

This paper explores the “side switching” aspect of clerks movement, not the playbook element: “Conflicts of Interest for Former Law Firm Clerks Turned Lawyers” —

  • “There is no consensus for how the legal profession should treat a lawyer who has a conflict that arises from their time working as a law clerk while in law school.”
  • “Clerkships are beneficial to both the student and the potential employer, and to limit these educational experiences due to fear of subsequent imputed disqualification would be a detriment to the legal community.”
  • “It is necessary to implement a change in the ethical approach to a clerk’s conflicts of interest. One potential solution states could adopt is to permit a clerk to be screened in the same manner as a paralegal or legal assistant would. Consideration must be given to how a client would feel if they knew someone who had previously worked on their case was now working for the opposing law firm, and for this reason the ethics rules should be empathetic to a client’s legitimate concerns for a conflict of interest.”

Further, Karen Rubin digs into details on relevant Texas and Ohio opinions, in: “Hiring student law clerks and avoiding disqualification — two states weigh in.”

Risk Update

Stranger Risk Stories — Lateral Assistant Sued ($1m!), Bainbridge Again & “Better Call Saul” Story,

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Houston Immigration Firm Sues Legal Assistant For $1M After Move to Competitor Firm” —

  • “A small immigration firm based in Houston has sued a legal assistant, alleging she violated a noncompete when she jumped to a competitor, by taking with her knowledge of the firm’s proprietary procedures for handling immigration cases.”
  • “Law Offices of Manuel Solis seeks more than $1 million in damages from Lizzett Aguilar Navarrete in the breach of noncompetition suit it filed last week in state district court in Houston.”
  • “Manuel Solis’ firm alleges in the petition that its success in the competitive business of representing individuals in immigration work is due to confidential and proprietary procedures for managing cases, such as ‘procedures, internal forms and checklists for screening clients, and procedures for the oversight and tracking of each client’s case,’ Those procedures, the firm alleges, allow it to operate more efficiently, reduce client costs and ‘constitute an important competitive advantage’ over other immigration firms.”

Ex-Pierce Bainbridge Atty Wants Firm DQ’d In Defamation Suit” —

  • “Attorney Don Lewis told the Southern District of New York on Thursday that because he previously sought counsel from Wigdor attorney David Gottlieb and shared ‘privileged and confidential information’ that is “substantial[ly]” related to the case later filed by Selina Kyle, the court should bar the firm from representing her.”
  • “Lewis contends that because Wigdor is a relatively small firm, legal precedent holds that it would be insufficient to attempt to screen the attorneys working on Kyle’s case from the lawyer Lewis spoke with, according to a memorandum in support of the disqualification bid.”
  • “Kyle contends in her August complaint that Lewis sexually assaulted her shortly after she began working at Pierce Bainbridge Beck Price & Hecht LLP in June 2018 as a legal assistant.”
  • “Lewis has vehemently denied the allegations and claims the assault was fabricated to prevent him from blowing the whistle on sketchy financial dealings at Pierce Bainbridge. He and his former firm have engaged in various litigation battles since his departure.”

And Brian Faughnan reminds us that: “Truth is stranger than fiction.” —

  • “Christopher Brady used to be a Florida lawyer. He got disbarred for some Hollywood (California not Florida) style breaking and entering to steal a computer server from his former law firm.”
  • “I got pulled into writing about his story originally because the ABA Journal online ran a headline about how he got disbarred over punctuation which was, at best, partially correct. (He created a new law firm that had the same name as the firm that had terminated him but that added periods to the abbreviation part of the law firm name, so that his former employer was Barak Law Group, PA but his new firm was Barak Law Group, P.A.)”
  • “So, why am I rehashing this guy’s story? Well, because the ABA Journal got me with a headline again, but this time it appears the headline was 100% accurate: ‘Disbarred lawyer is convicted even though twin took responsibility for the crime.'”
  • “The criminal case that captured the ABA Journal’s attention this week involves a crime that has much more of a ‘Better Call Saul’ flavor rather than the ‘Breaking Bad’ style of the truck-door-computer server heist. The criminal act was the faking of a court order impacting child custody for the benefit of the lawyer’s twin brother.”