Bressler Risk Blog

Webinar recording: “AML in 2022: Nothing Can Be as Bad as 2021…Right?” —

• “One of the many ever-increasing challenges firms currently face is ensuring proper due diligence while managing their risk assessment processes. Firms are constantly seeking out new ways to address this issue and implement best practices for conducting necessary checks throughout the client and matter opening processes.”
• “We [spoke] with two leading subject matter experts on risk-related issues such as Solicitors Regulation Authority (SRA) expectations and expanding risk awareness.”
• Panelists: Emma Oettinger (Head of Financial Crime and Risk, Ashurst) and Amasis Saba (Head of Business Acceptance for U.K., CE, and MENA, Freshfields Bruckhaus Deringer)
• Oettinger:
  • “…as this last week has shown us with the Russia/Ukraine conflict, as the compliance team, operationally, you’re going to be able to have to react really quickly on individual matters and engaging… management you’ll probably also be finding is asking you for the big picture questions on ‘What’s my exposure?'”
  • “Yes a lot of systems are designed to be looking at countries. But again what this has kind of shown us and we’ve known for a number of years you need to be aware of Crimea and Savastopol. But how had people started actually going: “Am I aware of what my Donbas region exposure is within my Russia?’ Is there a way that I can see that? Maybe it’s through the conflicts system rather than a risk system that you’re picking that up… that issue of being able to track within your system if you can or being able to see that yes just because my client is based in Cyprus and my UBO [Ultimate Beneficial Ownership] had a Maltese passport, actually they’re also a Russian oligarch. Can your system log those three points?”
• Saba:
  • “… the difference with the sanctions part to note is it’s not entirely a risk-based approach. It’s effectively a zero-sum game. If you breach sanctions you breach sanctions, the end. So there is that to be bear born in mind, especially in relation to transactional work… a lot of places take a great deal of comfort in “Don’t worry we’ve checked the name,” but making sure that your teams are across elements such as dual use, or ‘Hey this involves no Russian companies but appears to involve mining, offshore, or deep or shale. Sometimes it’s really important that, if you’ve got a vague description, especially if you have a Russian office or you know that the client might be be working in that area those are really places where you need to make sure that people are aware of the risk.”

“‘Baker McKenzie Should Be Disqualified’: Georgia Lawyer Wants to Stop Firm Representing Russian Bank” —

• “As pressure builds for Western law firms to break ties with major Russian clients amid the fast-developing conflict in Ukraine, a Georgia law firm is seeking to disqualify an international firm from representing a commercial Russian bank.”
• “Baker McKenzie International partner Jacob M. Kaplan of New York is representing VUZ-Bank JSC, a wholly owned subsidiary of Ural Bank for Reconstruction and Development CB PJSC, in its request to take discovery in the United States District Court for the Northern District of Georgia for use in alleged fraud proceedings in Dubai.”
• “But Poole Huffman trial attorney Luke Andrews of Tucker, Georgia, has motioned to disqualify Baker McKenzie International from continuing to represent VUZ-Bank, citing a conflict of interest.”
• “The motion remains pending from December, but the current escalation of the Russia-Ukraine conflict, coupled with Baker McKenzie’s recent decision to cut ties with other Russian clients, might impact the litigation.”
• “‘A most fundamental obligation of lawyers worldwide is the duty to protect client confidences, and a fortiori, not to deploy a client’s confidential information against that client,’ the motion drafted by Andrews read. ‘It most definitely precludes lawyers and law firms from obtaining a prospective client’s information concerning an existing dispute—while already representing the other side in that dispute—and then continuing to represent the other side in that dispute. Baker McKenzie’s representation of VUZ-Bank and Ural Bank against Hakan Agro offends this fundamental obligation, and must be stopped. Baker McKenzie should be disqualified.'”
• “In the disqualification motion, Andrews noted that in mid-2021 Baker McKenzie sought to be retained by Hakan Agro to advise on a corporate restructuring, ‘despite already representing VUZ-Bank against Hakan Agro and the entire Hakan Group.'”
• “Baker McKenzie is one of several firms that began parting ways with major Russian clients last week amid heightened sanctions and a growing call for the West to take action, as Ukraine continues to defend against the Russian invasion.”

(Reported last Friday): “Moscow: Global corporates are turning their back on Russia in their droves: It’s time for law firms to step up” —

• “Legal IT Insider asks international law firms with a Moscow office what their plans are for the jurisdiction. The time for legalistic twaddle is over, argues editor Caroline Hill.”
• “For many law firms, however, the war in Ukraine has been a PR nightmare, whether it be Norton Rose Fulbright telling lawyers they can’t comment on sanctions, to the many firms that have issued vague, legalistic statements when asked if they will sever ties with Russia. Then there’s the business of Tory MP Bob Seely exercising parliamentary privilege to allege that lawyers from Harbottle & Lewis, CMS and Carter Ruck, plus a barrister from Matrix Chambers are ‘amoral for working with Putin allies.’”
• “Many international law firms have an office in Moscow, and we asked the majority – based on Legal 500’s Russia directory – what their plans are in and for the region. As a quick preface, we also spoke to the Solicitors Regulation Authority, which said (our words not theirs) that it’s not an option for law firms to ditch their office in Russia BP-style. But lawyers can speak up against the Ukraine invasion. They can decline new instructions. They can end relationships with Russian entities. And in many cases they are obliged to. So, are they?”
• “Allen & Overy, which has 24 lawyers in Moscow and advises companies including VTB Leasing and AerCap, has issued an unequivocal statement condemning the actions taken by Russia. The magic circle firm is reviewing its Russia-related portfolio, and says that it will refuse new instructions and stop all Russia-linked work that goes against its values.”
• “While Morgan Lewis didn’t pass public judgment on the invasion, spokesperson told us: ‘Across our global offices we are and will remain in full compliance with the sanctions regimes outside of Russia where we practice, including with respect to ceasing and declining client representations.'”
• “Similarly, White & Case said: ‘We are reviewing our Russian and Belarusian client representations and taking steps to exit some representations in accordance with applicable rules of professional responsibility. Our Moscow office is open and continues to operate. We are complying fully with all applicable sanctions, and we continue to closely monitor this rapidly evolving situation.'”
• “A more heartfelt statement came from DLA Piper, although it’s unclear how big the statement is on teeth. A spokesperson said: ‘We have watched in dismay and disbelief at the invasion of Ukraine by Russia. We stand with the people of Ukraine and our thoughts are with them and all those in the region, and beyond, who are affected by this tragedy. We are closely monitoring the rapidly changing situation and providing support to our people and their families wherever we can. We are of course complying fully with all applicable sanctions worldwide and are urgently reviewing all Russia-related client engagements to ensure we do not act in a way that conflicts with our values.'”
• “And a slightly less committal Hogan Lovells said: ‘We can’t comment on specific client relationships but we continue to closely monitor the situation and the fast-evolving laws and sanctions globally and to align our client work, and our operations, accordingly. That may mean ceasing work where appropriate. We continually evaluate our operations and portfolio of work and any new client mandates to ensure we are complying with sanctions requirements and local government guidance, including the advice from UK, U.S. and other governments. Our thoughts are with all those people affected by the situation in Ukraine, including many of our own colleagues who have relatives in the region.'”
• “Bryan Cave Leighton Paisner said: ‘As with most multinational organizations operating in the region, we have been closely coordinating to navigate the complexities of the situation. We are adapting to comply with applicable sanctions and responding as required in the circumstances. Due to confidentiality, we are not able to share more.'”
• “We’ve got nothing back from Eversheds Sutherland, Akin Gump, Dentons, Latham & Watkins, Cleary Gottlieb Steen & Hamilton, Clifford Chance and Dechert, all who have offices in Moscow.”

(on Monday): “Law firm Norton Rose Fulbright to exit Russia over Ukraine invasion” —

• “Norton Rose Fulbright is ending its operations in Russia, becoming the largest law firm so far to exit the country since Russian forces invaded Ukraine and triggered waves of international sanctions.”
• “The 4,000-lawyer firm said in a statement early Monday that it is closing its Moscow office ‘as quickly as we can, in compliance with our professional obligations,’ calling the wellbeing of its staff in the region a ‘priority.'”
• “The London-founded firm Linklaters on Friday said it will also leave Russia and will decline to represent any entities under the influence of the country’s current regime.”
• “Two other major law firms with a Russia presence, CMS and Baker Botts, have said they are reviewing their future in the country. Swedish firm Mannheimer Swartling last week suspended its Russian operations and is determining whether it can leave the market.”

“Attorney’s Failure To Disclose Conflict Of Interest Before Accepting Representation Can Constitute Fraud And Negligent Misrepresentation” —

• “Attorneys often argue that attempted claims of fraud against them are nothing more than legal malpractice claims and therefore are duplicative and must be dismissed. This is indeed a viable defense. See Gourary v Green, 143 A.D.3d 580 (1st Dep’t 2016)“
• “As shown by a new decision of the Supreme Court in New York County, that defense may not always be effective to dispense with fraud claims at the pleadings stage. Federal Insurance Company v. Lester Schwab Katz & Dwyer, LLP, Index No. 151093/2021 (NY Sup. Ct, NY Co., Nov. 16, 2021).”
• “Plaintiff alleged various acts of alleged malpractice, and also included claims of fraud and negligent misrepresentation against the attorneys. Both of those claims were based upon the same underlying factual assertion – that defendants allegedly had a conflict of interest with a co-defendant in the underlying personal injury action and did not disclose that to the insurance company plaintiff prior to being retained to defend the insureds in that action. (The defendants did contend that the conflict of interest was disclosed ‘to the carrier’ and was further identified in their initial report on the underlying personal injury litigation.)”
• “In rejecting defendants’ attempt to dismiss the fraud claim, the Court simply commented in passing that the allegations were sufficient to state such a claim, ‘distinct from the legal malpractice claim.'”
• “Identifying actual or potential conflicts of interest is obviously an important obligation for an attorney prior to accepting a representation. This should always be undertaken and adequately documented. This is not only required by the Rules of Professional Conduct (see,e.g., Rules 1.7 through 1.12), but failing to do so adequately and properly prior to the representation and/or when conflicts may arise can in fact form the basis for fraud claims.”

“Ex-Client’s Claims Against Buchanan, Royer Cooper Survive Motions to Dismiss” —

• “Certain legal malpractice claims against Buchanan Ingersoll & Rooney and Royer Cooper Cohen Braunfeld will be allowed to proceed, a federal judge ruled this week, in a case stemming from alleged conflicts of interest in the partial sale of a vending machine business.”
• “Former client and business owner Alan Simons sued the law firms in January 2021, alleging that he lost millions of dollars as a result of the firms allegedly concealing changes to a sale agreement that favored his business partner.”
• “U.S. District Judge Cynthia M. Rufe of the Eastern District of Pennsylvania on Monday refused to dismiss Simons’ claim that Buchanan breached its fiduciary duty and engaged in professional negligence. But allegations that the firm committed a breach of contract, negligent misrepresentation and tortious interference with contractual relations were dismissed.”
• “Brown had retained Buchanan to represent him in updating the agreement. But, Simons alleged, the firm had entered into a fee agreement with Simons in 2013 to provide legal services for RDS’ business ventures. Simons alleged in court documents that neither firm informed him of the potential conflict of interest.”
• “Simons alleged the valuation date in the agreement that he signed in December 2015 differed from a prior draft and that both firms concealed this change to benefit Brown. As a result, Simons claims, he lost millions of dollars when he exercised his put option in March 2020. Simons said he became aware of the damage that the change in the valuation date caused in March 2020.”
• “Since Simons’ amended complaint asserts he had an attorney-client relationship with Buchanan and Buchanan represented Brown in negotiating the update to the put-call agreement, Rufe reasoned that ‘these facts support an inference that the Buchanan firm was disloyal to Simons’ and denied Buchanan’s motion to dismiss the breach of fiduciary duty claim.”
• “Buchanan is represented by lawyers at the firm. They did not respond to requests for comment.”

“Ropes & Gray Beats DQ Bid In Computer Network IP Suit” —

• “A Virginia federal judge Tuesday refused to disqualify Ropes & Gray LLP from representing cybersecurity company Palo Alto Networks Inc. as it defends against a suit accusing it of infringing computer network patents held by rival Centripetal Networks Inc.”
• “U.S. District Judge Roderick C. Young denied Centripetal’s bid to disqualify Ropes & Gray based on Centripetal’s claim that the law firm possesses the company’s confidential information from an earlier, separate transaction, saying there’s nothing to suggest that Centripetal and Ropes & Gray used to have an attorney-client relationship.”
• “Centripetal contends that the parties discussed its patents, prospective litigation and other confidential and privileged information, while Palo Alto claims Ropes & Gray’s attorneys sought to confirm their understanding of the public record in the separate litigation, according to the order. Ropes & Gray’s attorneys said they didn’t recall future litigation being discussed.”
• “Centripetal then set up a ‘data room’ to store confidential information and provided Ropes & Gray with access to it, the order states. Palo Alto said two Ropes & Gray attorneys tested their access to the data room, but never actually accessed any documents because Silver Point told the firm to stop working on the transaction.”
• “In May, Ropes & Gray attorneys began representing Palo Alto in the current action and made appearances for the company in the inter partes review proceedings before the U.S. Patent and Trademark Office in July, according to the order. Centripetal asked Ropes & Gray to withdraw its representation, but the law firm declined, saying it didn’t possess any of Centripetal’s confidential information, the order states.”
• “But in his order Tuesday, Judge Young disagreed with Centripetal, finding that a nondisclosure agreement it entered makes it clear there was no attorney-client relationship between it and Ropes & Gray. Centripetal had its own counsel when drafting the NDA and during negotiations in the Silver Point transaction, the judge said. Judge Young also noted that the NDA is not substantially related to the current dispute, according to the order.”

“NRA Wants Dorsey & Whitney DQ’d From Ad Agency Suit” —

• “The NRA claimed in a motion Monday that a privilege log recently revealed that Dorsey & Whitney LLP worked briefly with Virginia lawyer Mark Dycio, who had advised the association on matters relevant to the case.”
• “‘The incurable conflicts arising from Dycio’s misconduct, which also taint Dorsey, could have been dealt with at the outset of this litigation,’ the motion said. ‘But they were not — because defendants concealed evidence of Dycio’s involvement from their initial disclosures and document productions.'”
• “Dycio began a relationship with both the NRA and NRA Executive Vice President Wayne LaPierre back in 2013, helping LaPierre with personal matters and the NRA with internal issues like executive pay and corporate governance, the motion says. The association claims that Dycio was privy to confidential communication and meetings about efforts the NRA was making to prepare itself for increased regulation in New York, which involved discussions about what information was sought from ad agency Ackerman McQueen.”
• “But when the NRA sued the ad agency in 2019, Dycio ‘switched sides’ and began representing Ackerman McQueen, the motion says. According to the NRA, Dycio and his firm Dycio & Biggs joined up with partners at Dorsey & Whitney to ‘craft tactical, misleading correspondence, and even affirmative litigation.'”
• “Although the NRA knew that Dycio was involved in preliminary stages of the litigation, the NRA claims that it did not know that he had been working directly with Dorsey & Whitney during that time.”
• “‘We don’t blame them for wanting to disqualify us,’ [Dorsey & Whitney partner Mike] Gruber said. ‘We wouldn’t want to try a lawsuit against us either. This is something that they’ve known about for three years, and it’s completely baseless.'”
• “The NRA filed multiple suits against the ad agency, claiming it refused to provide documents from New York Attorney General Letitia James’ investigation of the association’s status as a tax-exempt nonprofit and had attempted to seize control of the organization by getting LaPierre to resign under threats of a smear campaign.”

Bloomberg Law Columnist Vivia Chen asks: “Microsoft Sets Bar on Investigating Harassment. Who Will Follow?” —

• “You’d think that the brilliant brains running America’s shiniest institutions would get it right by now. They’re hardly virgins in the arena of sexual harassment, discrimination, bullying, and other unlawful conduct in the workplace.”
• “Just a few weeks ago, Microsoft did something simple and logical in laying out a road map on how to handle investigations into those thorny issues: It hired a firm (Arent Fox) that’s not its regular counsel to review its prior investigation into harassment allegations against Bill Gates, and benchmark its ‘current practices against ‘best practices’ adopted by other companies.'”
• “Independent review. Benchmarking. How radical. Microsoft might be leading the way, but are other institutions following this course?”
• “For instance, in the CNN imbroglio involving former anchor Chris Cuomo and its now ex-president Jeff Zucker, the network turned to longtime counsel Cravath Swaine & Moore to investigate the sexual harassment claims against Cuomo. And speaking of the Brothers Cuomo, the New York Assembly picked Davis Polk & Wardwell last spring to investigate charges of sexual harassment against then Gov. Andrew Cuomo, who had various personal ties to the firm.”
• “Though there’s no indication that either Cravath or Davis Polk failed to do their job fairly, questions inevitably arise whether there’s a conflict of interest. So why don’t companies and institutions pick a fresh firm?”
• “‘The optics are certainly better if a company hires a firm with which it has no prior professional relationship,’ says NYU law professor Stephen Gillers. Whether that practice will become the standard, though, is another matter: ‘I think the great majority of shareholders focus on the stock price and dividends,’ adds Gillers. ‘If the use of regular counsel is more likely to protect these, they’ll favor it. If the ensuing negative publicity risks harming profits and share price, they’ll press for an outside review.'”
• “But using a regular counsel for investigations should not be verboten, argues Bridgit Blinn-Spears, a partner at Nexsen Pruet in Raleigh, N.C. ‘The optics might be better if there’s no existing relationship but the disadvantage is that the firm won’t know the company as well,’ says Blinn-Spears. The key, she explains, is to have one set of regular counsel for investigations and another for litigation that might spring from the investigation. ‘The solution is to have a clean division.'”
• “Some institutions aren’t even debating this issue because they’re handling investigations internally—and they’re making a mess. That seems to be the situation with Tesla Inc., which got slapped with a $137 million verdict in October in a racial discrimination suit and is now facing a suit by the California Department of Fair Employment and Housing for discrimination and harassment against Black factory workers.”

“When employment causes a conflict of interest for expert testimony” —

• “James Finkel of Kroll considers the public sector and private sector considerations around conflicts of interest in expert testimony.”
• “It is explicitly prohibited under regulation (5 CFR § 2635.805 (a)) for federal employees to serve as an expert witness, other than on behalf of the US (with or without compensation), in any proceeding before a court or agency of the US in which the US is a party or has a direct and substantial interest unless the employee’s participation is authorised by the relevant federal agency.”
• “This rule importantly provides a means of review and consideration of the conflict-of-interest issues involved with the potential expert testimony and thus does not act as an absolute bar – in contrast to the blanket prohibition that the Fifth Circuit in the Hoover case disallowed.”
• “The US federal’s Ethics in Government Act also provides restrictions on former federal employees. This ethics rule thus squarely addresses what a conflict-of-interest process would otherwise entail – if there was substantial participation in the matter at issue while previously in government by the potential expert witness, and involving the party on whose behalf the expert would be testifying. Thus, it would seem the precision of this rule would allow it to stand, whereas a blanket prohibition on a former government employee from being an expert witness would presumably not be upheld. “
• “The New York Public Officer’s Law § 73(3)(a) provides that: ‘No statewide elected official, member of the legislature, legislative employee, full-time salaried state officer or employee shall receive, directly or indirectly, or enter into any agreement express or implied for, any compensation, in whatever form, for the appearance or rendition of services by himself or another against the interest of the state in relation to any case, proceeding, application or other matter before, or the transaction of business by himself or another with, the Court of Claims.'”
• “The Connecticut rule appears to provide a blanket ban on state employees acting as expert witnesses in state-related regulatory proceedings, also having no presence of a conflict-of-interest determination process, which may be the rule’s shortcoming under the federal legal precedents.”
• “The second rule above raises fascinating questions in the rare case where the state employee is affiliated with a firm that might have a testifying engagement for an ‘adverse’ party in a state regulatory proceeding. In such a case, the firm would be barred even if the state employee would not be involved in the matter in any way.”
• “Some states go beyond the state employee context, for example, prohibiting a treating health care provider from serving as an expert witness in matters involving one of their clients. It seems incongruous that the state should be displacing the professional conflict of interest determinations that such health care provider would otherwise make under his or her own ethical considerations and standards of conduct.”
• “For testifying experts in the private sector, conflicts of interest remain either individualised – where the expert is not employed by a larger firm (and it appears that even being an outside consultant to a larger firm would continue to allow the expert to be considered ‘independent’), or collective – where the expert is an employee of a larger company or enterprise and the firm’s own conflict issues come into play.”
• “One thing that remains clear is that in all cases (perhaps until artificial intelligence reaches new heights), a testifying expert must still be a ‘person’. Although not the only time explored, the Delaware Chancery Court considered whether a party to an action could designate a corporation to serve as an expert witness. The court answered in the negative on the ground that, under the rules of evidence, an expert witness must be a biological person – i.e., possess “a body and a brain” in re Dole Food Co, Inc. Stockholder Litigation, (2015).”
• “Whatever the employment status of the testifying expert may be, conflicts of interest relating to a particular litigation must always be considered. And in the case of the testifier being an employee of a larger firm, this can raise thornier issues in resolving certain eligibility requirements. For those acting as independent (non-employee) expert witnesses, and those employed at larger firms but nevertheless providing testimony in their independent capacity, it is imperative that conflicts of interest are cleared through a robust process.”
• “Such a process necessarily involves the consideration of ‘issue’ conflicts and ‘party’ conflicts. The former, in essence, is whether the testifier previously opined in a contradictory way to the testimony now being sought. The latter involves a clear understanding of who all the parties to the litigation are (sometimes scratching below the surface to determine corporate holdings or relationships), and in certain circumstances, consideration even of non-parties that may be directly affected by the outcome of the litigation.”
• “For large companies, such as consulting or accounting firms, to determine ‘direct’ party conflicts requires adequate recordkeeping of engagements, but the process also involves casting the net over broader ‘indirect’ conflict issues engendered by wide-ranging and significant business relationships (as well, at times, whether the firm can maintain its ‘independence’ when an employee is an expert testifier).”
• “In all cases, the conflict-of-interest resolution process ultimately rests with the expert witness himself or herself as a matter of professional responsibility, being both thorough with respect to issues and parties, but also making, as appropriate (and within the bounds of confidentiality), adequate disclosure. If an expert witness holds any doubt as to whether there may be even a highly remote or conceptual conflict, transparency about what the issues may be, whether in disclosure to counsel or stated in the expert report, is always the best course of action.”