Bressler Risk Blog

The folks at Hinshaw present a look at 2021: “11 Legal Ethics Opinions You May Have Missed in 2021” —

• California Lawyers Association Ethics Committee Formal Opinion No. 2021-1: Elements of Effective Ethical Screens
  • “Conflicts always top the list of risk management concerns. This opinion discusses six universally mandated elements for an effective ethical screen: 1) prompt imposition of the screen; 2) no fee-sharing; 3) notice to affected clients; 4) prohibiting communications across the screen; 5) limiting access to screened matter’s file; and 6) limiting access to the prohibited person’s documents. The opinion adds that monitoring the ethical screen should be performed on a quarterly basis.”
• DC Bar Ethics Opinion 380: Conflict of Interest Issues Related to Witnesses
  • “Imagine you are knee-deep in fact discovery for a hotly contested case you have handled for the past two years when the opposition discloses your former client as a key witness. This opinion squarely addresses the thorny legal ethics issues that arise from this simple fact pattern, along with issuing subpoenas to current or former clients, cross-examining clients, and imputation of confidences and secrets of clients. The opinion also highlights how some jurisdictions have reached different conclusions about whether a conflict exists under similar circumstances.”
• State Bar of Nevada Formal Opinion 58: Advance Waivers
  • “Advance conflict waivers are often a hot topic. In this opinion, Nevada finds that advance waivers may be permitted if they meet all of the requirements for waiving a present conflict of interest under Nevada Rule of Professional Conduct 1.7(b). The attorney must undertake an analysis of whether the conflict can be consented to and whether the client has given actual informed consent.”

And the Clyde & Co team explore an interesting question: “Are In-House Lawyers’ Non-Compete Agreements Enforceable?” —

• “The recent opinion in Ipsos-Insight, LLC v. Gessel, No. 21-CV-3992 (JMF), 2021 WL 2784634 (S.D.N.Y. July 2, 2021) addressed the topic of whether a former in-house counsel’s non-compete agreement was unenforceable.”
• “The Court granted the motion to dismiss brought by defendant Gessel, the plaintiff’s former in-house counsel, because the non-compete clause with plaintiff violated Rule 5.6(a).”
• “Despite its decision here, based on the guiding precedent in New York that such agreements are unenforceable, which it felt compelled to apply, the Court invited plaintiff to appeal to the Second Circuit in order to have the question certified to the New York Court of Appeals.”
• “However, the ethics opinions generally make clear that an in-house lawyer is still bound by Rules 1.6 and 1.9 to preserve the former employer’s confidentiality and not act adversely towards it, and a drafter would be wise to ensure any non-compete clause contains a savings clause.”

“‘Almost Insane’: Judge Criticizes Call for Recusal in Handling Amazon Case” —

• “A federal judge overseeing a lawsuit filed by Amazon, and who recently disclosed his wife held stock in the company, said claims he should recuse due to a conflict of interest are ‘almost insane’ and ‘100% flawed.'”
• “During a hearing Thursday, O’Grady slammed arguments from WDC Holding’s attorneys that his impartiality is reasonably in question as a result of his wife’s stockholding and that he knew of the conflict.”
• “‘The argument that even as you suggest, I had to have known about the Amazon stock holdings or put my head in the sand over the last 10 years, is wrong,’ he said. ‘But also the underlying basis for it is absurd. The idea that I would steer this case in Amazon’s favor because I felt that my wife’s $22,000 investment in Amazon’s stock would be at risk if I didn’t is almost insane.'”
• “‘Amazon is a multi-billion dollar company and this case in no way could ever affect the stock price in Amazon’s stock and nothing I could ever do in this case would have an impact. So the underlying basis for my impartiality being questioned is 100% flawed,’ he continued.”
• “In defending his impartiality, O’Grady pointed to a counterfeiting suit against Amazon he presided over in which he denied summary judgement for the company, writing “this is simply not a case where Amazon can avoid liability.” The case, Maglula v. Amazon, recently settled. ‘I think that clearly demonstrates my neutrality in handling cases involving Amazon,’ O’Grady said.”

(On first read of the headline, I missed the colon.)

“Ex-CEO Says Barnes & Thornburg Conflict Hurt His Defense” —

• “An Indiana nursing home chain’s former CEO urged the Seventh Circuit on Thursday to vacate the 10-year prison sentence he received for participating in a $16 million kickback scheme, arguing that Barnes & Thornburg LLP’s failure to disclose significant conflicts harmed his defense.”
• “During oral arguments, James Burkhart, the former CEO of American Senior Communities, urged a three-judge panel of the U.S. Court of Appeals for the Seventh Circuit to help correct the ‘unprecedented’ circumstance in which 14 Barnes & Thornburg lawyers who defended him against federal fraud charges and convinced him to plead guilty never disclosed that the firm had also been representing the Health and Hospital Corporation of Marion County, the victim of his scheme.”
• “For instance, it prevented his counsel from disclosing powerful impeachment evidence that could have disrupted the portrayal of Health and Hospital as a harmless victim, and it dissuaded his lawyers from sufficiently developing the defense that he never intended to defraud the hospital system, Byrne argued.”
• “Circuit Judge Diane Sykes pushed back on the argument, saying there seems to be a missing link between Burkhart’s plea and the pre-existing attorney-client relationships he’s targeting. His plea instead appears to have been motivated by certain co-defendants’ decisions to plead guilty and cooperate in the government’s case, including his brother Joshua Burkhart and the nursing home chain’s former chief operating officer Daniel Benson, Judge Sykes said.”
• “‘We can’t even get to causation without correlation, but we don’t even have correlation,’ she said. ‘The fact that one standing hospital client avoided a risk by your client’s guilty plea has no connection to the plea, in terms of the advice that was given.'”
• “But Circuit Judge Ilana Rovner pushed back, telling Linder that while she acknowledges all the things the firm did to defend Burkhart, she is ‘very concerned about the one thing they did not do, and that was reveal their representation’ of Health and Hospital Corp. ‘Mr. Burkhart essentially had an office at Barnes & Thornburg,’ she said. ‘He was involved in the smallest minutiae of trial planning, but he didn’t know about the elephant in the room.'”

“Mishcon de Reya fined £232,500 over numerous AML failings” —

• “High profile London firm Mishcon de Reya has agreed to pay £232,500 – one of the biggest fines ever imposed by the regulator – over several breaches relating to money laundering rules.”
• “The firm admitted failing to secure adequate due diligence on four related clients and misplacing the evidence of diligence it had carried out.”
• “It was also accepted by the firm that inadequate training was provided for the partner relied on to comply with anti-money laundering regulations, and that funds were improperly transferred from a client ledger to discharge fees and disbursements.”
• “In an agreed outcome published today, the Solicitors Regulation Authority said the financial penalty should be 0.25% of the firm’s £155m turnover – equating to £387,500 but reduced by 40% to take account of mitigating factors.”
• “Mishcon de Reya said it cooperated with the SRA investigation and acknowledged its due diligence and training failings. New IT systems have been introduced with centralised record-keeping to prevent future similar breaches.”
• “Following the outcome, a spokesperson for the firm said: ‘We are pleased to have come to a settlement with the SRA relating to two separate and historic investigations in relation to which we have made appropriate admissions. Mitigating factors such as our cooperation with the SRA throughout the investigations and the corrective action we have taken since to prevent a recurrence have been recognised by the SRA in reaching this outcome.'”

Other recent focus on Anti-money Laundering: “Law Society responds to Chatham House AML report” —

• “The Law Society of England and Wales has issued a response to London-based thinktank Chatham House’s recent report criticising the UK’s anti-money laundering (AML) laws.”
• “The report states that un-policed and often unenforceable anti-corruption laws have made the UK the global money-laundering capital for a post-Soviet Union elite, severely damaging Britain’s international reputation and the rule of law, and calls for new measures to constrain professional enablers.”
• “The report also suggests that the Office for Professional Body Anti-Money Laundering Supervision found that 81% of the 22 professional bodies had not implemented an effective risk-based approach, and only one-third of them were effective in developing and recording adequate risk profiles for their sector.”
• “A Law Society spokesperson responded: ‘Law firms already play an important and significant role in tackling money laundering. This is demonstrated by the substantial costs and resources allocated by the profession to complying with its AML and financial crime obligations, resulting in a substantial public benefit… It is widely recognised by the UK government, law enforcement, the regulator and the UK’s National Risk Assessment that the vast majority of the sector is trying its best to do the right thing. However, the legal sector cannot be complacent or naïve and must remain vigilant against the ever-changing threat of illicit finance.'”

See the Chatham House report.

In parallel, I noted the SRA promoting its recent article: “Money Laundering Governance: Three Pillars of Success” —

• “Every person in a firm has a responsibility to make sure that it is not used for money laundering, and that relevant reports are made of any suspicious activity. MLCOs and MLROs form the keystone of the firm’s efforts. The success of the firm’s AML regime as a whole is likely to depend on suitably knowledgeable, skilled and authoritative people holding these roles.”
• “Below, we set out what we consider to be the three main attributes a successful MLCO or MLRO should have:
  • Authority: The ability to command respect, to make decisions and to follow them to completion, and the ability to access and use all information held by the firm.
  • Independence: A focus on the firm’s legal obligations rather than short-term gain, the ability to make decisions without being influenced by other fee earners or by clients.
  • Resources: To be given the time and space to consider what the best course of action should be, to have provision, where possible, for a deputy to cover for them, and supportive colleagues.”

“Appeals Court Vacates Disqualification of Lawyer Where Prior Representation Was Unauthorized” —

• “A lawyer’s past representation of a manufacturing company in litigation is not grounds to disqualify him from representing a former member of the board of directors who is being sued by the company, a New Jersey appeals court has ruled.”
• “The attorney, Paul Bucco, was disqualified for representing Vincent Tomei, a director of H&H Manufacturing Co., in a suit by the company, based on his prior representation of both H&H and Tomei in a related case. But the appeals court said the trial judge erred in finding that Bucco represented H&H in the earlier case.”
• “Although Bucco and his firm entered an appearance on behalf of H&H in the earlier case, they were not authorized to represent the company, and therefore the representation cannot serve as the basis for disqualification, Appellate Division Judges Garry Rothstadt and Arnold Natali Jr. ruled.”
• “Bucco represents Vincent Tomei in the Camden County case, but H&H moved for his disqualification, claiming the attorney is conflicted out based on his prior representation of H&H and because he is a fact witness in the case. The trial judge ruled for H&H, finding the two matters substantially related.”
• “On appeal, Rothstadt and Natali said that Vincent Tomei lacked standing to file the Delaware County suit against H&H because its board of directors never approved his filing of the suit. In addition, no attorney-client relationship formed between Bucco and H&H in the prior case, based on the Delaware County court’s findings.”
• “‘Simply put, Paul Bucco and Davis Bucco did not actually ‘represent’ H&H, they merely alleged they did, and whatever consequences may flow from that inaccurate characterization, such self-serving pronouncements cannot serve as the sole basis for the creation of an attorney-client relationship,’ the appeals court said.”

“Be Cautious During Holiday Parties, Lawyers Warn” —

• “While it is certainly a time to be merry, the holiday season also poses unique risks to lawyers. Being mindful of these issues will help ensure that the New Year starts off on the right foot.”
• “First, there is a risk that lawyers providing advice, even in a casual setting, can be found to have created an implied attorney-client relationship with the person seeking the advice… Therefore, there can be a risk that even a lawyer providing casual advice at a party has created an attorney-client relationship, which could give rise to a legal malpractice claim, albeit a weak one. Even if there is no implied attorney-client relationship, these casual party situations can implicate potential conflict-of-interest issues.”
• “Consider this example: A partygoer meets a lawyer at a party and asks the lawyer’s advice on the partygoer’s struggles with his landlord. The lawyer tells the partygoer that local statute entitles the partygoer to withhold rent or to file a suit against the landlord. Upon returning to work after the holidays, the lawyer receives an irate call from another partner, noting that a valued client of the firm (a property management company) is in a dispute with a tenant based on advice provided by the client’s law firm to withhold rent. Even if there is no attorney-client relationship between the lawyer and the partygoer, the lawyer may have created a conflict of interest and a problematic client management issue.”
• “Another risk for lawyers at holiday parties is that they might be asked for an opinion on a subject that goes beyond their level of expertise. Most family members or friends seek casual advice on common family law, tax, estate or real estate issues. A lawyer may be creating unnecessary risk by answering questions that are outside the lawyer’s expertise, even when speaking casually. Such areas of practice are often highly specialized. And, coincidentally or not, these areas of law are among those that see the highest rates of legal malpractice claims, year after year.”

“An Amazon Suit Encounters a Snag: a Judge With a Conflict of Interest” —

• “For nearly two years, U.S. District Judge Liam O’Grady has handed Amazon.com Inc. a string of court victories in a continuing suit in which it accuses two former employees of taking kickbacks from a real-estate developer and violating Amazon’s conflict-of-interest policies.”
• “All that time, Judge O’Grady had a conflict of his own: a financial interest that under federal law barred him from hearing the case in the first place.”
• “Throughout the case, Judge O’Grady’s wife owned Amazon stock. Judges are forbidden by a Watergate-era law to hear cases involving companies in which they or their spouses have a financial interest, however small.”
• “After The Wall Street Journal contacted Judge O’Grady about the conflict, his wife’s investment adviser earlier this month sold the Amazon shares, valued at more than $20,000.”
• “‘I should have disqualified myself,’ Judge O’Grady said in a Dec. 1 email. He said he would remove himself from the case if asked to. After learning of the conflict, the defendants—the two ex-Amazon employees and a Colorado real-estate developer—asked the judge to step aside in a Dec. 21 court filing, on which he hasn’t yet ruled. A hearing is scheduled for Jan. 6.”
• “Judge O’Grady is by all accounts a skilled and accomplished lawyer who has sat on the federal bench since 2007, handling major espionage, drug and government-leak cases, as well as complex patent litigation. Yet by his own admission he misunderstood how federal law applied to his situation. He said he mistakenly believed his wife’s account was a mutual fund, which doesn’t require judges to disqualify themselves.”
• “A recusal by Judge O’Grady from the Amazon case would create duplication of work and compounded costs as a new judge gets up to speed. The case already has featured about a half-dozen hearings and has nearly 500 docket entries with more than 4,000 pages of court filings.”
• “A Journal review found 65 additional cases Judge O’Grady has heard in the Alexandria, Va., federal courthouse while his wife was invested in plaintiffs or defendants, among them Bank of America Corp., International Business Machines Corp. and Verizon Communications Inc.”