Risk Update

Positional Conflicts — Clashing Arguments and Clients Cause Attorney Disqualification

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City Attorney Kicked Off HPD Shooting Lawsuit For Creating A Conflict Of Interest” —

  • “In late October, a city attorney representing three Honolulu police officers argued in court that the officers were not liable for the shooting death of Kyle Thomas because they were acting within the scope of their employment.”
  • “That day, the same attorney, who was also representing the City and County of Honolulu in the same civil rights lawsuit, argued that the case against the city should be thrown out because the officers were not acting within their scope of employment when Thomas, 26, was shot to death in Mililani on Feb. 20, 2019.”
  • “This week, Magistrate Judge Kenneth Mansfield removed that city attorney, Kyle Chang, from the case for creating a conflict of interest.”
  • “‘Mr. Chang divided his loyalties when he asserted conflicting legal positions on behalf of his clients,’ Mansfield wrote on Tuesday in the order disqualifying Chang from the case. ‘The Court thus finds that Mr. Chang cannot reasonably believe that he can provide competent and diligent representation to the City and the Officer Defendants under the particular circumstances of this case.'”
  • “The Department of Corporation Counsel, the chief legal adviser and representative of the city and its agencies, is now reviewing Mansfield’s decision to determine whether another member of the city’s legal department can take over the case or if they will have to retain an attorney from outside of the department.”
Risk Update

Law Firm Risk Staffing Trends — Survey Color Commentary on Conflicts, Plus Panel Webinar Recording

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Law.com brings us color commentary on the recently published Intapp risk staffing survey: “Checking for Conflicts Becomes a Team Sport at Growing Law Firms” —

  • “Top-down approaches to conflicts checks are increasingly a thing of the past at law firms as responsibility for analyzing potential conflicts of interest is shifting away from partners to teams of professional analysts, new research from legal tech company Intapp suggests.”
  • “Like many staff roles in the legal industry, those responsible for conflicts analysis are evolving into a specialized team of professionals, often with four-year degrees or J.D.s, rather than clerical personnel serving at the discretion of practice partners, according to survey authors. A similar evolution can be seen in the upskilling of executive assistants and attorney resource specialists in Big Law.”
  • “‘We’re stepping away from an administrative view of that role and talking more substantively about bringing legally trained folks in, whether that’s folks who are certified paralegals or whether that’s lawyers,’ said Makaylia Roberts Binkley, director of risk consulting for Intapp and former director of risk management for Ballard Spahr.”
  • “Survey data shows that practice partners saw their share of the responsibility for analyzing potential conflicts go from 48% in 2018 to 26% in 2020, and associates saw theirs remain steady at 29% then 30% during the same period; meanwhile, the proportion of conflicts analysts, conflicts lawyers and conflicts managers responsible for the same duty grew from 54% to 70%, 49% to 67% and 9% to 42%, respectively.”
  • “These trends reflect the ‘professionalization’ of the conflicts analyst role, giving those staff positions greater clout in determining whether or not a conflict exists, and progress toward an “end-to-end conflicts resolution team,” survey authors said.”
  • “Risk assessment has historically been viewed by law firm fee-earners as a liability, stymying the growth of their business and client relationships, said James Edwards, Intapp’s director of client experience. But Edwards said the shift in responsibility to professionals specializing in conflicts analysis allows them to have more involvement in a firm’s strategic priorities.”
  • “‘Not only are you being responsive to your professional liability requirements, but you’re ensuring the firm is more profitable because you’re ensuring that … you’re not going to be faced with fee write-downs because you weren’t accommodating clients’ requests,’ Edwards said.”
  • “A divide can also be seen in the divergence in conflicts analysts’ professional experience between firms with fewer than 500 lawyers and those with more; data shows small and midsize firms are staffing the conflicts analyst role with professionals who have double the experience than those at large and enterprise firms, which authors chalk up to newly implemented staff roles with higher educational requirements.”

For those who missed the live panel webinar, featuring commentary from Allison Martin Rhodes (Deputy General Counsel at Sheppard Mullin), Brenna Greenwald (Regional Counsel, Head of Business Acceptance at Freshfields Bruckhaus Deringer U.S.) and Meg Block (Intapp Vice President, Risk Consulting), that’s now available here:

 

Risk Update

Law Firm Risk News — PA Superior Court Cements Lateral Conflicts Standards, Insurer Questionnaire Conflict Question Results in Rescission

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Split Superior Court Panel Rules a Lateral Hire’s Conflict Disqualifies a Whole Firm” —

  • “The Pennsylvania Superior Court has sent a cautionary message to all lawyers who make lateral moves—and their new firms. In a 2-1 split, the court ruled Tuesday that an entire firm must be disqualified from handling a personal injury lawsuit because one of its lawyers formerly represented the defendant while working for another firm years earlier.”
  • “The decision cements a standard for determining whether a firm should be disqualified for an individual lawyer’s involvement with the opposing party.”
  • “Rule 1.10(b) of the Pennsylvania Rules of Professional Conduct addresses circumstances when attorneys’ past clients’ interests conflict with the interests of clients at their current firm. It notes exceptions for circumstances when a lawyer is screened from participation with the potentially conflicting matter and the lawyer gives notice to the former client.”
  • “The Superior Court… weighed the circumstances against five factors: the substantiality of the relationship between the attorney and former client; the time elapsed between conflicting disputes; the size of the involved firm and number of disqualified attorneys; the nature of the attorneys’ involvement; and the timing of the wall. It also took into account the strength of the wall.”
  • “‘Our review reveals no precedential Pennsylvania authority with a controlling analysis for the adequacy of a law firm’s conflict protocol,” Murray said. So the court used “numerous non-precedential Pennsylvania decisions’ to evaluate the effectiveness of a conflict-of-interest protocol the Munley law firm put in place only after hiring Mulcahey and initiating this lawsuit. Murray said the fact that Munley is a small firm of about 10 lawyers makes it harder to avoid sharing sensitive information about previous clients and strategy.”

Law Firm’s Misrepresentations in Insurance Application Warrant Recission Under Utah Statute”

  • “The United States District Court for the District of Utah, applying Utah law, has held that a law firm’s representation in its insurance application that it lacked knowledge of any incident, act, error, or omission that could be the basis of a claim, constituted a material misrepresentation in light of a former client’s threats of a claim against the firm and a judicial finding of improper conduct, warranting recission of the policy under Utah statutory law. Travelers Cas. & Sur. Co. of Am. v. Grimmer Davis Revelli & Ballif, P.C., 2021 WL 5234373 (D. Utah Nov. 10, 2021).”
  • “In June 2018, a former client of the firm filed a motion to disqualify the firm from a series of probate actions in Wyoming, citing conflicts of interest and breaches of professional duties, and stating that the former client had claims against the firm. In December 2018, the former client again stated that she intended to assert claims against the firm and would seek “substantial” damages. In March 2019, a special master issued a report finding improper joint representation and conflicts of interest by the firm and recommending disqualification, which the court accepted. Similarly, the court in a related litigation in South Carolina disqualified the firm based on conflicts of interest.”
  • “In April 2019, the firm sought liability insurance for a retroactive March 20, 2018 to March 20, 2019 policy period. In its application, the firm responded ‘no’ to the question whether ‘you or any member or employee of your firm have knowledge of any incident, act, error, or omission that is or could be the basis of a claim under this proposed professional liability policy[.]’ The firm also provided a letter confirming that ‘we are not aware of any facts, circumstances, or losses from the period of March 20, 2019 to the present as respects our lawyers’ professional lawyers insurance.’ After the policy issued, the former client asserted a malpractice claim against the firm. The insurer sought to rescind the policy based on the firm’s material misrepresentations during the application process and on the underwriter’s testimony that, had the firm disclosed the former client’s assertions and the courts’ findings, the insurer would not have issued the policy.”
jobs

BRB Risk Jobs Board — Director of Business Intake & Conflicts, Director of Risk Management (Planning & Special Projects), Conflicts Manager (Operations)

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I was delighted to receive a note from Ann Ostrander, Senior Director, Risk Management at Kirkland & Ellis, expressing enthusiastic interest in a sponsored post promoting several new risk opportunities at that firm.

Director of Business Intake & Conflicts” —

  • The Director–Business Intake Operations (“Director”) oversees the daily operations of the Firm’s Business Intake Conflicts Department (“BIC”).
  • This includes ensuring that the activities of BIC support the Firm’s values and goals, and help Firm lawyers comply with their duties of professional responsibility and other ethics or regulatory requirements.
  • The Director helps to develop both strategic and tactical plans for BIC and ensures the prompt, effective and efficient delivery of services to Firm lawyers and legal support staff.
  • The Director interfaces with partner-led new business committees, individual partners and with the Office of General Counsel as needed.
  • LOCATION: All US Offices

Director of Risk Management (Planning & Special Projects)” —

  • The Director of Risk Management–Planning and Special Projects (“Director”) provides support to leaders within the business units of the Firm’s Risk Management Department.
  • This support consists of guidance regarding both strategic and tactical planning, direct project management, and assisting individual leaders with their professional and skills development.
  • The Director is an internal consultant within the Risk Management Department, and uses developed consulting skills to help Risk Management leaders to become effective planners, implementers, and strategic/tactical thinkers.
  • LOCATION: All US Offices

Conflicts Manager” —

  • The Conflicts Manager is responsible for the day-to-day operations of the Firm’s Conflicts Department, and oversees processes related to the conflicts search and analysis of potential new clients and new matters, the conflicts evaluation of lateral attorneys and other new hires, and potential conflicts in restructuring/debtor representations.
  • This role is also responsible for determining staffing levels and global service coverage as well as workflow coordination to ensure all requests are being handled as expeditiously and accurately as possible.
  • The Conflicts Manager works with the Business Intake & Conflicts Staff Training & Development team to prepare new Conflicts personnel to work effectively, and to evaluate, enhance, and develop conflicts search and analysis processes that support compliance with the rules of professional conduct, regulatory requirements, and Firm policies.
  • LOCATION: Chicago Office

 

About Kirkland & Ellis:

  • “Kirkland & Ellis LLP is a preeminent, full-service law firm with offices around the world and a staff as diverse as the practice areas we support. Our clients range from Fortune 100 companies to medium and small corporations, financial institutions, and private equity firms. Known for our commitment to excellence, Kirkland strives to provide superior service to our clients as well as our fellow employees. From Information Technology to Human Resources, Paralegal Services to Business Development, Kirkland offers non-attorney professionals challenging careers in a variety of functional areas. Whether starting or growing your career, Kirkland can offer a performance-driven culture filled with bright and innovative teams of co-workers.”

Read more about these position and apply via individual entries linked above.

And if you’re interested in seeing your firm’s listings here, please feel free to reach out…

Risk Update

Conflicts Allegations — Ex-temp Calls Conflict on Judge, Power Company Campaign Contribution Complexity and Contention

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Potential conflict raised for law firm in botched JEA sale” —

  • “In late 2019, a lawyer in the Jacksonville office of Foley & Lardner provided legal guidance to employees at a Florida Power & Light consulting firm who were drafting a strategy to filter campaign contributions through a series of nonprofits, an idea those consultants hoped would to obscure the origins of those donations, according to a cache of secret documents sent to the Orlando Sentinel last month and shared with the Florida Times-Union.”
  • “At the same time, Foley attorneys in that Jacksonville office were billing JEA ratepayers hundreds of thousands of dollars in legal fees working on the controversial effort to sell the agency to a private operator. That work included helping former JEA executives craft a bonus plan that could have paid out millions of dollars in compensation if the utility had been sold to a private operator, an issue that appears to be at the heart of an ongoing federal investigation.”
  • “Former JEA executives attempted to sell the public utility through a formalized process called an “invitation to negotiate,” which is more secretive than traditional public procurement processes and requires almost every party involved to adhere to a strict ‘cone of silence’ intended to prevent conflicts of interest.”

More on the larger context of this story: “JEA’s billion-dollar bonus scheme caused rift with utility’s private lawyers.”

Ex-WilmerHale Temp Moves To DQ Judge In Employment Case” —

  • “Andrew Delaney, who worked as a Thai language document reviewer for WilmerHale through staffing agency HC2 or Hire Counsel, said in a motion to recuse Judge Liman Monday that his alleged former work as a WilmerHale partner was a conflict of interest.”
  • “Judge Liman’s relationships with two current WilmerHale partners, Jay Holtmeier and Jamie Gorelick, contributed to ‘rulings against Delaney without regard to the case law or applicable legal standards,’ and were further evidence of Judge Liman’s bias, according to that motion.”
  • “Hire Counsel sued Delaney in April, saying he was threatening to expose proprietary information about WilmerHale’s review of Toyota’s sensitive documents.”
  • “But Delaney said in his Monday filing that Judge Liman’s bias as a former WilmerHale partner resulted in the dismissal of his $20 million counterclaim against the agency for whistleblower retaliation and a number of other infractions in response to his assertion that the firm was sidestepping COVID-19 protections and regulations. Judge Liman’s bias had resulted in his dismissal of those claims, Delaney said.”
Risk Update

ABA Rules Under Review — Anti-money Laundering Comments Called For

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Professor Alberto Bernabe notes: “ABA Committees solicit comments on discussion draft document on possible amendments to the Model Rules” —

  • “The ABA Standing Committees on Ethics and Professional Responsibility and Professional Regulation have developed a Discussion Draft of possible amendments to the Comments of Model Rules of Professional Conduct 1.0 (Terminology), 1.1 (Competence), and 1.2 (Scope of Representation and Allocation of Authority between Client and Lawyer). The amendments contained in the Discussion Draft provide guidance on lawyers’ client due diligence obligations under the ABA Model Rules of Professional Conduct.”

That document: “For Comment: Discussion Draft of Possible Amendments to Model Rules of Professional Conduct Concerning Lawyers’ Client Due Diligence Obligations” —

  • “Anti-money laundering and counter terrorism financing regulations applicable to lawyers is a complex subject.3 The primary issues surrounding this subject generally can be divided into three overarching topics: (1) client due diligence; (2) disclosure of beneficial ownership information; and (3) suspicious activity reporting. The requests for comment on this Discussion Draft by the Standing Committee on Ethics and Professional Responsibility and Standing Committee on
    Professional Regulation are focusing on the lawyers’ client due diligence obligations under the ABA Model Rules of Professional Conduct (Model Rules).”
  • “Despite the ABA Good Practices Guidance, the Ethics Opinions, and the current text of the black letter and Comments to the Model Rules, the FATF, U.S. Government (including the Department of Treasury), and others continue to urge that the legal profession create an enforceable client due diligence obligation in the Model Rules. They point to the 2016 FATF Report’s recommendations, and events like the Paradise Papers, the Panama Papers, the 60 Minutes -Global Witness exposé, and the Pandora Papers , as necessitating further action by the legal profession. They argue the failure of the profession to act will result in increased federal legislative and regulatory action. To address these concerns about enforceable lawyer client due diligence obligations, the Ethics and ABA Standing Committee on Professional Regulation ( Regulation Committee) developed possible amendments to the Model Rules.”
  • “The Ethics and Regulation Committees propose adding a new Comment to Model Rule 1.0. The
    Comment will provide enhanced guidance regarding the statement in the black letter of Rule 1.0(f)
    that a person’s knowledge may be inferred from the circumstances:

    • [11] A lawyer’s knowledge may be derived from the lawyer’s direct observation, credible
      information provided by others, reasonable factual inferences, or other circumstances. For
      purposes of these Rules, a lawyer who ignores or consciously avoids obvious relevant facts may
      be found to have knowledge of those facts.”
  • “Specific Questions to Supplement General Comments:
    • 1. Are both “ignores” and “consciously avoids” necessary in the explanation or is
      ‘consciously avoids’ sufficient? Please explain why or why not.
      2. Does the suggested new Comment benefit by the inclusion of the modifier ‘obvious’
      before “relevant facts”? Please explain why or why not.”
Risk Update

Blockchains and Ethical Walls — SEC Sees Ripple Call Crypto Conflicts (Right Click Edition), Utility’s Slow Ethical Screen Insufficient

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U.S organization sues SEC for Ripple case, claims top officials had conflict of interest” —

  • “A U.S government oversight organization has sued the SEC for its handling of the Ripple lawsuit and accused former chair Jay Clayton and director Bill Hinman of having a conflict of interest that biased them for Ethereum and Bitcoin, but against XRP.”
  • “EMPOWR wants the SEC to comply with a Freedom of Information Act request in which the organization wants access to records maintained by the watchdog. These records concern potential conflict of interest by some of the top SEC officials relating to cryptocurrencies.”
  • “The first target is Hinman, the former director of the division of corporate finance at the SEC. Before joining the regulator, he was a partner at law firm Simpson Thatcher. EMPOWR claims that Hinman continued to receive millions of dollars from the law firm while at the SEC, with one outlet reporting that the money he received from the law firm was seven times his government salary.”
  • “Receiving the funds isn’t a crime by itself. However, Simpson Thatcher is a member of the Enterprise Ethereum Alliance which aims to drive the adoption of Ethereum. Of note is that Hinman did declare that Ethereum isn’t a security back in 2018.”

Pa. Court DQs Firm Over Conflict In Utility Pole Crash Suit” —

  • “A small Pennsylvania law firm can’t represent a client suing PPL Electric Utilities Corp. because it failed to build a ‘wall’ around an attorney who used to defend the utility company against personal injury cases, a divided Superior Court panel ruled on Tuesday.”
  • “The appellate court’s 2-1 majority found that Munley Law had not clearly established a policy to separate attorney John Mulcahey, who had previously been outside counsel to PPL while at Lenahan & Dempsey PC, from its other attorneys who took over the case representing plaintiff Matthew Darrow, so even though a Lackawanna County court had disqualified Mulcahey, it should’ve barred the rest of his firm from the suit as well.”
  • “PPL objected to the rest of the Munley firm representing Darrow or Rudalavage because Mulcahey could have “imputed” his conflict of interest to the rest of his firm under the Pennsylvania Rules of Professional Conduct. But the trial court determined that Munley Law could still handle cases against PPL since the firm had built a “wall” prohibiting Mulcahey from sharing his information with others at the firm — even though it had been established after his disqualification in the Darrow case and it had been years since Mulcahey had represented PPL.”
  • “The Superior Court majority said the late-erected barrier wasn’t enough in the Darrow case, weighing disqualification based on factors that the Eastern District of Pennsylvania established in its 1995 decision in Dworkin v. General Motors Corp.: the relationship between the attorney and the former client, the time between the cases, the size of the firm, the nature of the disqualified attorney’s involvement in the case and the timing of the ‘wall.'”
Risk Update

Conflicts Allegations and Implications — ‘Revolving Door’ Data Privacy Optical Conflicts Concern, Mediator Removed

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UK privacy chief denies conflict of interest in new role” —

  • “UK information commissioner will join a private law firm that represents technology companies she used to regulate, raising questions about conflicts of interest and drawing ‘revolving door’ criticisms”
  • “The UK’s outgoing information commissioner Elizabeth Denham is set to join global law firm Baker McKenzie, which previously defended Facebook against privacy enforcement by her office.”
  • “According to a press release from Baker McKenzie, Denham will join the firm’s London office from January 2022 as part of its global data and technology team, where she will work as a consultant to advise its clients on data protection best practice, strategy and wider technology regulation trends.”
  • “However, Denham’s exit from her regulatory role straight into a private sector job representing the companies she used to oversee the behaviour of has led some to decry the revolving door between regulators and industry.”
  • “Andrew Pakes, deputy general secretary and research director at union Prospect, said: “The revolving door between regulator and business speaks volumes about the lack of transparency in the world of Big Tech. It simply should not be possible for someone to be regulating one day and then potentially advising someone how to avoid that regulation the next.”
  • “Estelle Massé, global data protection lead at global human rights organisation Access Now, noted that the announcement of Denham’s new job comes just two days after she formally left the ICO on 30 November 2021. ‘The timeline of the move raises serious questions of independence and possible conflicts of interest. Was the commissioner in talks with Baker McKenzie for a job while investigating some of the companies the law firm represents, including Facebook? Was the ICO staff notified of possible conflicts of interest and what measures were taken to avoid them? The former commissioner and ICO should answer these questions,’ she said. ‘This case shows how crucial ensuring the independence of data protection authorities is. There should be clear rules and processes around positions that commissioners and DPA staff can move to limit conflicts of interest.'”
  • “In response to whether she sees a conflict of interest, Denham said: ‘No. I understand why this question is being asked, and it is completely valid. Both I and Baker McKenzie are very conscious of the need to respect my previous regulatory role and responsibilities, as well as all confidentiality and professional obligations that arise from them. All of this has been considered and planned for appropriately.'”

Conflict Bumps Retired Del. Judge From Scouts’ Ch. 11 Panels” —

  • “Retired U.S. Bankruptcy Judge Kevin J. Carey was removed Tuesday as a mediator in the Boy Scouts of America Chapter 11, with a judge in that case citing conflicts created by his also-scuttled proposed appointment as a special reviewer for some post-confirmation settlement trust proceedings.”
  • “U.S. Bankruptcy Judge Laurie Selber Silverstein said during a teleconference hearing that Carey’s impartiality as a mediator had been called into question by his selection by the Scouts for a proposed post-confirmation position as initial special reviewer. The job in part involves disputed settlement trust claim proceedings for alleged victims of sexual abuse.”
  • “Judge Silverstein said the debtors identified Carey as the initial special reviewer in a recently filed plan supplement, noting that she “had to go and find out what that was” because there had not been any prior court discussion. ‘That is a nonstarter. I will not be approving that selection’ for initial special reviewer, the judge said, adding afterward: ‘To put it simply, Mr. Carey now has a stake in the outcome of the mediation.'”
  • “Judge Carey, contacted by email, declined to comment on the development Tuesday afternoon. He became a partner with Hogan Lovells in late 2019, after his retirement, with Judge Silverstein approving him as a mediation panel member in June 2020.”

 

Risk Update

Law Firm Conflicts Charges — Jones Day Talc Trials, Morgan Lewis Deal Declarations

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Jones Day Bid to Represent Bankrupt J&J Talc Unit Under Fire”

  • “Jones Day LLP’s help creating Johnson & Johnson’s talc liability spinoff should disqualify the firm from serving as the unit’s lead bankruptcy counsel, the Justice Department and thousands of talc injury claimants said.”
  • “Jones Day “appears to be the architect” of J&J’s October corporate restructuring, the U.S. Trustee’s office—the DOJ’s bankruptcy watchdog—said in a court filing Wednesday. The move, known colloquially as the Texas Two-Step, allowed the manufacturing giant to isolate its exposure to more than 35,000 baby powder injury lawsuits and address those claims in Chapter 11.”
  • “By assisting J&J through the divisional merger and bankruptcy filing, Jones Day appears to lack the independence to be a fiduciary for the debtor, the U.S. Trustee told the U.S. Bankruptcy Court for the District of New Jersey.”
  • “‘The prepetition machinations orchestrated by Jones Day are ripe for investigation and challenge in this bankruptcy case,’ Aylstock, Witkin, Kreis & Overholtz PLLC said. “These circumstances make it impossible for Jones Day to meet its burden to show that it is a ‘disinterested person’ and does not ‘hold or represent an interest adverse to the estate.'”

Morgan Lewis Sued as Ex-Client Alleges Conflict in Deal Work Led to Bankruptcy” —

  • “Global megafirm Morgan Lewis & Bockius is facing a lawsuit that alleges the firm and one of its partners betrayed their fiduciary duties to clients by providing legal counsel to both the purchasing and selling parties in an employee stock ownership transaction.”
  • “The dispute arises out of Morgan Lewis’ alleged dual representation of bankrupt marketing agency Roni Hicks & Associates and the company’s retiring owners in a sale of their equity shares to employees via an employee stock ownership plan (ESOP).”
  • “Stadtmueller said the company’s financial woes came about because of the sellers’ ‘grossly overstated’ business projections, allegedly at the guidance of Morgan Lewis and Chicago-based employment partner Brian D. Hector.”
  • “But, the suit alleges, Hector wasn’t only in the sellers’ corner throughout the deal-making process. Court documents show Hector and Morgan Lewis represented Roni Hicks & Associates at the same time as they represented the company’s divesting owners.”
  • “The complaint finds fault in Morgan Lewis and Hector’s alleged failure to alert the parties of the conflict of interest that emerged out of their two-sided representation. It further alleges the firm and Hector advised sellers to seek the most lucrative price for their stock and failed to alert the marketing company that the loan necessary to finalize the purchase would likely be too much to pay back.”
  • “San Diego-based lawyer William Fennell, who represented Roni Hicks & Associates in claims that arose out of the stock purchase agreements, said the attorneys’ fees paid to Morgan Lewis ‘benefitted the sellers far more than the company.'”
  • “The complaint was filed more than one year after the stock sellers filed suit against Morgan Lewis and Hector on similar grounds that they failed to inform parties about the alleged conflict of interest resulting from the representation of both seller and buyer. In addition, seller-plaintiffs claimed Hector drafted into the stock purchase agreement an indemnity provision that was ‘adverse’ to sellers’ interests.”

 

Risk Update

Theranos Lessons — Client Definition, Engagement Letters, Conflicts and Client Privilege

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An Important Reminder Regarding the Scope of the Attorney-Client Privilege in the Corporate Setting” —

  • “Earlier this year, a federal judge in the Northern District of California ordered Elizabeth Holmes (“Holmes”), the founder and former CEO of now-defunct Theranos, Inc. (“Theranos”), to disclose communications between herself and attorneys at Boies Schiller Flexner LLP (“BSF”). Holmes objected to the court’s order, arguing that because BSF had represented her in her individual capacity, the communications were subject to her personal attorney-client privilege. Unpersuaded, the court held that the communications were subject only to Theranos’ corporate privilege, which had already been waived by the Theranos receiver.”
  • “The court placed the blame squarely on Holmes’ shoulders for failing to show she “made it clear that she was seeking legal advice in her personal capacity.”1 The issue is a bit more complex, however, as the scope of the relationship with BSF blurred over their years of representing Holmes and Theranos. Holmes’ dispute thus serves as a critical reminder to ensure corporate clients and their employees fully understand and appropriately document the scope of the attorney-client privilege.”
  • “However, before retaining a law firm to simultaneously represent a company and its employees, in-house counsel must also consider the risks associated with joint representations. The foremost risk is that the parties’ interests will diverge, potentially giving rise to a conflict of interest between the company and its employees.”
  • “In the event a conflict of interest arises, the law firm may be required to withdraw from representing either the company or its employees in the midst of litigation.”
  • “If the company wants to enter into a joint representation with an employee, the engagement letter should make clear that the company and its employees are represented by the same counsel. The letter should also document that the company is the primary client, and that in the event the company’s interests diverge from one or more of its jointly represented employees, counsel is entitled withdraw from its representation of the conflicted employees and continue to represent the company. Finally, the employee should be advised, both orally and in the engagement letter, that he or she may wish to obtain independent advice about whether to enter into a joint representation.”