Bressler Risk Blog

From Shari L. Klevens, partner at Dentons US: “Pay Attention to Conflict Issues in Hiring Nonlawyer Staff” —

• “The potential for conflicts of interest is not limited to attorneys. As the ethical rules recognize, the same considerations regarding the disclosure of a former client’s confidential information are present where a paralegal, legal assistant, or other nonlawyer moves from one firm to another. For that reason, firms and attorneys can be subject to some of the same restrictions based on the prior work of a nonlawyer as they would for a conflicted lawyer.”
• “California courts have also weighed in on the issue. In Kirk v. First Am. Title Ins. Co., the California Court of Appeals observed that when a tainted non-attorney employee of a law firm, possessing confidential case information, moves to an opposing law firm, vicarious disqualification of the opposing law firm is not necessary if the employee is effectively screened… Kirk further applied the same rule to a non-retained expert, which is another area that can give rise to potential conflicts but often is overlooked.”
• “The majority of states that have addressed this issue have similarly found that appropriate ethics screens may avoid an imputed conflict of interest when a nonlawyer brings a conflict to a new firm. For example, in Hodge v. Urfa-Sexton, LP, the Georgia Supreme Court held that the screening of nonattorney staff ‘is a permissible method to protect confidences held by nonlawyer employees who change employment.’ 295 Ga. 136 (2014). The court explained that a nonattorney’s conflict of interest may be remedied if the law firm employing that nonattorney uses effective and appropriate screening measures and promptly discloses the conflict.”
• “Conflicts can be an important consideration prior to the actual hiring of nonattorney staff. Some firms use a written application that inquires about the candidate’s prior legal employment, relationships with attorneys, and legal experience. If the conflicts system reveals that the prospective nonattorney staff hire has worked for, has experience with or is related to matters involving clients of the firm, then the hiring firm can conduct further inquiry.”
• “Indeed, the definition of ‘screened’ in the California Rules of Professional Conduct refers to the “timely imposition of procedures” to protect against the disclosure of information, which can be easier to accomplish if the firm has knowledge of potential issues in advance of hiring.”
• “The comments to Rule 1.10 further suggest that the obligation to identify potential conflicts among nonlawyers and to implement screening measures is part of an attorney’s responsibilities in managing or supervising nonlawyers pursuant to Rule 5.3.”

“New ABA ethics opinion clarifies obligations for language access in lawyer-client relationships” —

• “Attorneys often must take affirmative steps to ensure that they can communicate effectively with clients with limited English proficiency or with those with noncognitive physical disabilities, such as a hearing or a speech impairment.”
• “This may require the lawyers to engage an interpreter, translator or other assistive or language-translation technology, according to an ethics opinion released Wednesday by the ABA’s Standing Committee on Ethics and Professional Responsibility.”
• “The bulk of the opinion explains that when confronted with clients with language barriers, lawyers must obtain a qualified, impartial interpreter or translator who can understood and explain the law and legal concepts in the language of the clients.”
• “Lawyers may use ‘a multilingual lawyer or nonlawyer staff member within the firm to facilitate communication with a client.'”
• “The opinion adds that sometimes a friend or family member of the clients may function as the interpreter. But in these instances, lawyers must take particular care to ensure that such a friend or family member is not biased by a personal interest.”
• “If lawyers cannot obtain such an interpreter or translator without incurring ‘an unreasonable financial burden’ on the attorneys or the clients, then the attorneys should either decline or withdraw from representation.”
• “Finally, the opinion explains that attorneys must be cognizant of ‘social and cultural differences that can affect a client’s understanding of legal advice, legal concepts, and other aspects of the representation.’ The lawyers cannot assume that an interpreter or translator understands these social and cultural differences simply because the person can interpret and knows the client’s language.”

“Eckert Can’t Dodge Conflict-Of-Interest Suit, Game Maker Says” —

• “A Georgia-based game machine maker has urged a Pennsylvania federal court to deny a partial motion to dismiss its amended complaint against its onetime law firm, Eckert Seamans Cherin & Mellott LLC, which it accuses of breaching a fiduciary duty by working both for and against the company in different jurisdictions.”
• “Pace-o-Matic Inc., which refers to itself as an amusement machine supplier, on Friday accused the Pittsburgh-based law firm of knowingly engaging in a conflict of interest by representing Greenwood Gaming & Entertainment Inc. — which does business as Parx Casino — in litigation against the game maker. It further alleges that Eckert falsely denied involvement in the litigation and ‘surreptitiously’ worked through Hawke McKeon & Sniscak LLP ‘to conceal its breaches of fiduciary duty.'”
• “Pace-o-Matic had hired Eckert Seamans to represent it in a lawsuit in Virginia in 2016, where the firm argued that Pace-o-Matic’s game machines required the use of skill and therefore weren’t illegal gambling machines. But in 2018, when Pace-o-Matic filed two lawsuits in Pennsylvania over the removal of its games, Eckert Seamans took the opposite position and argued in an amicus brief for the casino operator that Pace-o-Matic’s products were gambling machines and should be barred, the game maker says.”
• “In April, the court denied the law firm’s argument against Pace-o-Matic’s motion for a preliminary injunction as moot, saying that Eckert Seamans’ declarations that it had withdrawn from representing Parx Casino weren’t enough to guarantee that it wouldn’t resume that representation, likening it to ‘pinky promises.'”
• “Regarding Eckert’s motion to dismiss, Pace-o-Matic said the firm echoed arguments made in its failed motion for a preliminary injunction, specifically that declaratory relief was unavailable because the issue occurred in the past.”
• “Further, Pace-o-Matic asked the court to dismiss Eckert’s argument that punitive damages were not available because the amended complaint did not allege ‘outrageous’ conduct. The game maker argued that federal and Pennsylvania courts have consistently held that intentional misrepresentations and knowing breaches of fiduciary duty are sufficient to support a demand for punitive damages.”

“Kirkland, KWM on Evergrande Group’s ‘Lehman Scale’ Crisis” —

• “Top global law firms are already involved in the debt crisis surrounding China Evergrande Group, the real estate company whose unwieldy debt has prompted concern around the globe about China’s financial system.”
• “King & Wood Mallesons has been appointed by the Chinese government to investigate the financial indebtedness of the company, according to a Bloomberg report. Kirkland & Ellis has been engaged to represent a group of bondholders to advise it on the potential restructuring of Evergrande.”
• “According to Eversheds Sutherland debt restructuring partner Kingsley Ong, Evergrande now faces a myriad of legal issues, including how much time will creditors indulge in the company, claims from employees, applications for insolvency protection of on- and offshore assets, for starters. The long list of creditors will also need strong legal representation for claims.”
• “Many top law firms have previously acted for Evergrande. As recently as this past May, Baker McKenzie advised Evergrande on its US$1.36 billion sale of shares. Last December, Sidley Austin represented Evergrande subsidiary, Evergrande Property Services Group Ltd., on its US$1.4 billion Hong Kong initial public offering. Last August, Sidley also advised Evergrande on a US$3 billion strategic investment from 14 investors.”
• “The potential conflicts, given the long list of Evergrande creditors, most of whom are based in Asia, are far-reaching. Firms such as Clifford Chance and Linklaters have also declined to comment. Akin Gump Strauss Hauer & Feld, Latham & Watkins, Fangda Partners and Zhong Lun Law Firm all did not respond to requests for comment.”

“McGuireWoods Faces DQ Bid In BofA Foreclosure Bias Fight” —

• “Keith Thomas told the court on Friday that McGuireWoods is violating the state’s legal ethics rules by representing itself, Bank of America NA and mortgage database company Mortgage Electronic Registration Systems Inc. in the case. Thomas, who is representing himself, cited a 1987 Georgia Supreme Court case known as Cherry v. Coast House that found that attorneys who are parties to a case should not represent co-parties in a matter, according to Friday’s motion.”

Plenty being written about these new revelations. Have had an eye out for interesting law firm angles in: “Pandora Papers: An offshore data tsunami” —

• “The Pandora Papers investigation also reveals how banks and law firms work closely with offshore service providers to design complex corporate structures. The files show that providers don’t always know their customers, despite their legal obligation to take care not to do business with people who engage in questionable dealings.”
• “ICIJ analyzed 109 so-called suspicious activity reports to financial authorities filed by the Panamanian law firm Alemán, Cordero, Galindo & Lee, or Alcogal, and learned that 87 of the anti-money-laundering forms were written only after authorities or journalists had publicly identified the firm’s clients as involved in alleged wrongdoing.”
• “ICIJ also read through several thousand publicly available employees’ profiles and found out that more than 220 lawyers associated with the giant law firm Baker McKenzie in 35 countries had previously held government posts in agencies including justice departments, tax offices, the EU Commission, and offices of heads of state.”

“BILLIONS HIDDEN BEYOND REACH” —

• “Executives at a politically connected Panama City law firm, for example, mentioned in a 2016 email ‘numerous requests from clients to confirm the security of our information systems’ after the Panama Papers stories, according to documents. The executives scrapped plans to convert paper records to digital storage, hoping to reassure wary clients.”
• “Executives at a politically connected Panama City law firm, for example, mentioned in a 2016 email ‘numerous requests from clients to confirm the security of our information systems’ after the Panama Papers stories, according to documents. The executives scrapped plans to convert paper records to digital storage, hoping to reassure wary clients.”
• “The trove, dubbed the Pandora Papers, exceeds the dimensions of the leak that was at the center of the Panama Papers investigation five years ago. That data was drawn from a single law firm, but the new material encompasses records from 14 separate financial-services entities operating in countries and territories including Switzerland, Singapore, Cyprus, Belize and the British Virgin Islands.”
• “The revelations include more than $100 million spent by King Abdullah II of Jordan on luxury homes in Malibu, Calif., and other locations…. The disclosures come as Abdullah is facing political turmoil, including an alleged coup plot this year, in a kingdom that depends on billions of dollars in aid from the United States and other countries. DLA Piper, a law firm representing Abdullah, said that ‘any implication that there is something improper about [his] ownership of property through companies in offshore jurisdictions is categorically denied.”

Hat tip to an extended, longtime reader for sending in the following via electronic pony express: “131 Federal Judges Broke the Law by Hearing Cases Where They Had a Financial Interest” —

• “More than 130 federal judges have violated U.S. law and judicial ethics by overseeing court cases involving companies in which they or their family owned stock. A Wall Street Journal investigation found that judges have improperly failed to disqualify themselves from 685 court cases around the nation since 2010. The jurists were appointed by nearly every president from Lyndon Johnson to Donald Trump.”
• “About two-thirds of federal district judges disclosed holdings of individual stocks, and nearly one of every five who did heard at least one case involving those stocks. Alerted to the violations by the Journal, 56 of the judges have directed court clerks to notify parties in 329 lawsuits that they should have recused themselves. That means new judges might be assigned, potentially upending rulings.”
• “The Journal reviewed financial disclosure forms filed annually for 2010 through 2018 by roughly 700 federal judges who reported holding individual stocks of large companies, and then compared those holdings to tens of thousands of court dockets in civil cases. The same conflict rules apply to criminal cases, but large companies are rarely charged, and the Journal found no instances of judges holding shares of corporate criminal defendants in their courts. It found that 129 federal district judges and two federal appellate judges had at least one case in which a stock they or their family owned was a plaintiff or defendant.”
• “In New York, Judge Edgardo Ramos handled a suit between an Exxon Mobil Corp. unit and TIG Insurance Co. over a pollution claim while owning between $15,001 and $50,000 of Exxon stock, according to his financial disclosure form. He accepted an arbitration panel’s opinion that TIG should pay Exxon $25 million and added $8 million of interest to the tab.”
• “In Colorado, Judge Lewis Babcock oversaw a case involving a Comcast Corp. subsidiary, ruling in its favor, while he or his family held between $15,001 and $50,000 of Comcast stock.”
• “At an Ohio-based appeals court, Judge Julia Smith Gibbons wrote an opinion that favored Ford Motor Co. in a trademark dispute while her husband held stock in the auto maker. After she and the others on the three-judge appellate panel heard arguments but before they ruled, her husband’s financial adviser bought two chunks of Ford stock, each valued at up to $15,000, for his retirement account, according to her disclosure form.”
• “Judge Ramos, who oversaw the Exxon case, was unaware of his violation, said an official of the New York federal court, because his ‘recusal list’—a tally judges keep of parties they shouldn’t have in their courtrooms—listed only parent Exxon Mobil Corp. and not the unit, whose name includes the additional word ‘oil.’ The official said the court conflict-screening software relied on exact matches.”
• “‘I dropped the ball,’ Judge Babcock said when asked about the recusal violation. He blamed flawed internal procedures. ‘Thank you for helping me stay on my toes the way I’m supposed to,’ he said. A Comcast spokeswoman declined to comment.”
• “Judge Gibbons from the Ford trademark case, appointed to the appeals court by former President George W. Bush, said she had mistakenly believed holdings in her husband’s retirement account didn’t require her recusal. She later directed the clerk of the Sixth U.S. Circuit Court of Appeals to notify the parties of the violation and said that her husband has since told his financial adviser not to buy individual stocks. ‘I regret my misunderstanding, but I assure you it was an honest one,’ she said.”
• “In response to the Journal’s findings, the Administrative Office of the U.S. Courts said: ‘The Wall Street Journal’s report on instances where conflicts inadvertently were not identified before a case was resolved or transferred is troubling, and the Administrative Office is carefully reviewing the matter.’
• “It said the federal judiciary ‘takes very seriously its obligations to preclude any financial conflicts of interest’ and has taken steps, such as conflict-screening software and ethics training, to prevent violations. ‘We have in place a number of safeguards and are looking for ways to improve,’ the office said.”
• “In response to the Journal’s findings, the Administrative Office of the U.S. Courts said: ‘The Wall Street Journal’s report on instances where conflicts inadvertently were not identified before a case was resolved or transferred is troubling, and the Administrative Office is carefully reviewing the matter.’
• “It said the federal judiciary ‘takes very seriously its obligations to preclude any financial conflicts of interest’ and has taken steps, such as conflict-screening software and ethics training, to prevent violations. ‘We have in place a number of safeguards and are looking for ways to improve,’ the office said.”

“Judge Rodney Gilstrap Sets an Unwanted Record: Most Cases With Financial Conflicts” —

• “No federal judge in America has heard more patent-infringement lawsuits in the past decade than Rodney Gilstrap, who presides over a small courthouse in Marshall, Texas.”
• “He also holds another record: Judge Gilstrap has taken on 138 cases since 2011 that involved companies in which he or a family member had a financial interest, more than any other federal judge, a Wall Street Journal investigation shows.”
• “The companies included Microsoft Corp. (53 cases), Walmart Inc. (36 cases), Target Corp. (25 cases) and International Business Machines Corp. (9 cases).”
• “A 1974 federal law requires judges to disqualify themselves from cases if they, their spouse or minor children hold a financial interest in a plaintiff or defendant, including the interest of a beneficiary in assets held by a trust.”
• “Judge Gilstrap, the chief judge for the U.S. District Court for the Eastern District of Texas, also disclosed one of the largest holdings in a conflicted company. He oversaw a patent-infringement case against a Walt Disney Co. unit while he or his wife reported holding between $100,001 and $250,000 of Disney stock. The plaintiff later withdrew its claim.”
• “The 64-year-old Judge Gilstrap, one of America’s most prominent district judges, said he believed he didn’t need to recuse himself from some cases because they required little or no action on his part, and in other cases because the stocks were in a trust created for his wife without her stock-picking input. Legal-ethics experts disagree on both counts.”
• “‘Judge Gilstrap declined interview requests. ‘I take my obligations related to potential conflicts/recusals seriously,’ he said in one of seven emails to the Journal. ‘Throughout my judicial career, I have endeavored to comply with all such obligations, and I will continue to do so.'”
• “Beyond violating law and ethics, the judges’ handling of lawsuits filed by and against companies in which they have financial interests threatens the federal courts’ hard-earned and crucial reputation for fairness, impartiality and objectivity.”
• “An unusually large role in patent litigation has made the Eastern District of Texas a lightning rod for criticism from some academics, corporations and think tanks. These critics say its rules encourage patent holders to bring suits there because they are dispatched swiftly, often with quick settlement payouts to the plaintiffs. A 2016 article in the Southern California Law Review described how it said the court engaged in ‘forum selling,’ a pejorative twist on “forum shopping,” the practice of lawyers seeking out friendly legal venues.”