Risk Update

Managing Bankruptcy Conflicts — A Critical and Complex Risk Scenario

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My colleague Max Welsh at InOutsource sent word about his  latest article, which I found fascinating: “Managing Bankruptcy Conflicts: Navigating a critical and complex risk scenario” —

  • “The heart of conflicts management is identifying potential issues based on diligent analysis, reporting and review. And whether your firm’s conflicts model leaves it to practicing lawyers to review reports generated by your risk team and clear their own conflicts, or you have centralized or decentralized risk staff charged with both identifying potential conflicts and working to resolve them, the big conflicts questions are always a constant:
    • Whose interests do we represent — that is, who is a client?
    • Whose interests are adverse?”
  • “For many types of matters — a straightforward piece of litigation or a simple asset purchase, perhaps — the answers to those two questions likely are straightforward. There might be some question regarding the extension of the attorney-client relationship through affiliates and the conflict check might return some ambiguous information about whether an attorney-client relationship is ongoing, but usually it’s simple to identify whose interests the firm represents and whose interests are adverse.”
  • “In bankruptcy matters, however, those issues can be significantly harder to navigate — both to identify and to resolve.”
  • “On top of the conflicts in the rules of professional conduct, the bankruptcy laws impose their own set of conflicts and what I will call ‘conflicts-adjacent’ obligations on lawyers involved in bankruptcy proceedings, particularly for lawyers representing the debtor or the Committee.”
  • “Like the ethics rules, the Bankruptcy Code prohibits the involvement of lawyers who possess an ‘adverse interest.’ If the lawyer is involved on behalf of the debtor, the Committee, or the Trustee, the Bankruptcy Code also requires that the lawyer meet a standard of disinterestedness; the lawyer/firm cannot itself be a creditor of the debtor, for example.”
  • “All of this leads bankruptcy lawyers — and firms that have bankruptcy practice groups — in a complicated position when navigating the conflicts of interest and new business intake process.
  • “We have now reviewed some of the problems lawyers and firms face in navigating the conflicts and intake
    process when bankruptcy matters are implicated. Here are some solutions…”

 

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Risk Update

Conflicts Drama Allegations — Client Poaching, Suing Own Client & Expert Witness Conflicts Conflict

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Former Associate Accused of Client Poaching Wants Cicchiello & Cicchiello’s Lawyer Disqualified” —

  • “In an unusual move, the attorney for former Cicchiello & Cicchiello associate Alex Sarris, who the personal injury law firm said conspired with another law firm to lure clients away, has filed a motion asking Superior Court Judge David Sheridan to disqualify plaintiffs counsel Lawrence Connelli.”
  • “In a lawsuit filed last month, Cicchiello & Cicchiello alleges Sarris used the firm’s computer system to obtain information on all its workers’ compensation and personal injury clients.”
  • “The reason New London attorney Michael Bonnano, who represents defendant firm Dzialo, Pickett & Allen, gives in filing the motion Monday is that Connelli not only represents plaintiff Cicchiello & Cicchiello, but is also working for the defendant law firm giving expert advice in a pending car accident case.”
  • “The motion notes Connelli, an Avon solo practitioner, ‘is under contract to provide consulting and testimonial services to DPA. He has now sued his own client.'”
  • “But Leslie Levin, a Hugh Macgill professor of law at the University of Connecticut School of Law, said Bonnano should have been looking at a different part of the rule. ‘The defendant’s argument is that (Connelli) is the law firm’s client, but an expert witness for a firm is not serving as the firm’s lawyer,’ Levin said Tuesday. Levin isn’t a party to the litigation at hand.”
  • “Levin added: ‘It would be a bad thing if lawyers who are serving as expert witnesses were considered to be the lawyers for the law firm, because law firms would have too much authority to direct the lawyer’s testimony.'”
  • “Levin continued: ‘The better argument the defense could have made, but didn’t, is that Connelli would be materially limited in his ability to represent the plaintiff law firm in this action while also serving as an expert witness for the defendant client in the car accident litigation.'”
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Risk Update

Family Risk — Conflicts Case, Corporate Conflicts Staff-to-Lawyer Insider Trading Allegation

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It’s Out: Sills Cummis Forced Off Case That Could Affect Future Work” —

  • “A New Jersey judge has disqualified Sills Cummis & Gross from representing the defendant in a real estate dispute, after the firm represented a plaintiff in a related matter. The ruling suggests Sills Cummis, which has long represented the Nuckel family in connection with extensive real estate holdings, could find itself shut out of future work for the family.”
  • “Sills Cummis was disqualified from representing Jill Nuckel in a dispute with her brothers, Donald Nuckel and James Nuckel Jr., over management of an apartment complex. Superior Court Judge James DeLuca granted the motion to disqualify after hearing details of the firm’s 2015 representation of James Nuckel in a dispute with his sister over the same property.”
  • “James Nuckel claimed in court papers that Sills Cummis worked with him for many years on real estate matters, including disputes with his sister and brother… ‘Because of that representation, Sills Cummis knows intimate details of my life and business interests,’ he said.”
  • “The motion papers said Sills Cummis’ representation of Jill Nuckel violated a New Jersey Supreme Court directive barring a lawyer from representing an individual whose interests are adverse to another party the lawyer represents, even if the two representations are not related.”
  • “Fiorentino asserted that disqualification was not warranted because his consultation with James Nuckel was brief and narrow in scope and that he had no contact with James Nuckel in more than five years.”

Ex-Goldman Sachs analyst, brother charged in UK with insider trading” —

  • “Britain’s financial watchdog said it has started fraud and insider dealing proceedings against two brothers, one who worked as a Goldman Sachs analyst, the other as a lawyer at Clifford Chance.”
  • “‘Mohammed Zina was employed by Goldman Sachs International as an analyst in the Conflicts Resolution Group in their London office. Suhail Zina was a solicitor at Clifford Chance, also in London,’ the FCA said in a statement on Tuesday.”
  • “Goldman Sachs said the protection of confidential client information is of paramount importance for the bank, and it has worked very closely with the FCA. ‘Neither the firm nor any other current or former employee of the firm is the subject of an investigation into the matters giving rise to the proceedings,’ Goldman Sachs said.”
  • “Clifford Chance, a member of the elite group of ‘magic circle’ law firms, said Suhail Zina left in 2018, declining further comment.”
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Risk Update

Accellion-related Law Firm Security Breaches in Focus

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I just spotted the story below, which was published in January. That makes three firms known to be affected by the Accellion breach. That got me looking into more details, which I thought I’d share. First: “Australian Law Firm Allens Falls Prey to Cyberattack” —

  • “The top-tier Australian law firm Allens was struck in a cyberattack after an IT company it used to share sensitive information and client data was compromised, according to a media report.”
  • “The Australian Financial Review reported that a file-sharing system provided by Californian cloud company Accellion and used by Allens was accessed illegally earlier this month.”
  • “The sensitive information shared via Accellion included commercial-in-confidence documents related to Westpac, an Australian bank and financial services provider, in its defense of a case in which it was charged with breaching anti-money laundering laws, the newspaper reported.”
  • “In a statement, Palo Alto-based Accellion said it was made aware of the vulnerability in mid-December and released a patch within 72 hours. Fewer than 50 customers were affected, it said.”

Hack of Software Provider Accellion Sets Off Global Ripple Effects” —

  • “The hack of software provider Accellion USA LLC has renewed security experts’ fears of attacks on suppliers and highlighted the difficulty of defending against them in real time.”
  • “A growing list of affected customers have shared timelines of the attack and claims of inadequate software patches that at times contradict the vendor’s account of events. The disclosure this week that victims include Jones Day—a law firm that handles sensitive information for clients—underscores how individuals who don’t interact with Accellion directly nonetheless might be exposed, security experts say.”
  • “Palo Alto, Calif.-based Accellion said in a Jan. 12 blog post that it learned in mid-December of a vulnerability in its File Transfer Appliance software, a 20-year-old tool to share large documents. ‘Accellion resolved the vulnerability and released a patch within 72 hours to the less than 50 customers affected,’ the company said. In an update posted Feb. 1, Accellion said it notified “all FTA customers” of the vulnerability on Dec. 23.”
  • “Some customers affected by the hack have offered a different sequence of events. The Washington State Auditor’s Office, which reported that personal data of more than 1 million applicants for unemployment benefits might have been accessed through the FTA tool, said in a Feb. 1 news release that it ‘first learned of the incident on Jan. 12.'”
  • “Accellion shared information ‘over the next few weeks’ that helped the office conclude it was affected, Kathleen Cooper, a spokeswoman for the Washington State Auditor’s Office, said in a statement.”
  • “New Zealand’s central bank reported some of its files stolen in the attack… ‘Accellion failed to notify the bank for five days that an attack was occurring against its customers around the world, and that a patch was available that would have prevented this breach,’ bank Governor Adrian Orr said in a Feb. 9 statement.”
  • “The conglomerate Singapore Telecommunications Ltd. , known as Singtel, reported that the incident lasted weeks and led to hackers taking data, including information from 129,000 individual customers and 23 enterprises such as suppliers and corporate clients.”

Accellion Hack Prompts Class Action From Washington Residents” —

  • “Accellion Inc. is to blame for a recent hack of the Washington State Auditor’s Office because it negligently marketed the outdated file transfer system targeted in the cyberattack, according to a new proposed class action filed in California federal court.”

Accellion Security Incident Impacts Kroger Family of Companies Associates and Limited Number of Customers” —

  • “The Kroger Co. (NYSE: KR) Family of Companies today confirmed that it was impacted by the data security incident affecting Accellion, Inc. Accellion’s services were used by Kroger, as well as many other companies, for third-party secure file transfers.”
  • “At this time, based on the information provided by Accellion and its own investigation, Kroger believes that less than 1% of its customers, specifically customers of Kroger Health and Money Services, have been impacted. In addition, current and certain former associates will be notified that certain HR records have been impacted.”
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