Risk Update

Judicial Conflicts & Disqualifications — Recusal, Reversal, Review

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BREAKING: Endo Wins Reversal Of Opioid Default, Judge DQ’d” —

  • “A Tennessee appeals court on Wednesday erased a trial judge’s stunning decision finding Endo Pharmaceuticals liable for opioid abuse because of discovery misconduct, calling the sanction faulty because of pending efforts to disqualify the judge for bias against the drugmaker.”
  • “In a seven-page opinion, the Tennessee Court of Appeals vacated the default judgment against Endo after finding that Circuit Court Judge Jonathan Lee Young appeared ‘antagonistic to the interests of those in the pharmaceutical industry’ when — in Facebook posts and an interview with Law360 — he discussed opioid litigation.”
  • “In the interview, Judge Young called Endo’s failure to produce important documents during opioid litigation ‘the worst case of document hiding that I’ve ever seen,’ adding that ‘it was like a plot out of a John Grisham movie.'”
  • “‘To promote confidence in our judiciary, we conclude that the trial judge erred in refusing to recuse himself from the case,’ the court wrote.”
    “Because Judge Young should have bowed out, his Feb. 28 order granting sanctions, including default liability, must be nullified, the court said.”

Federal judge finds no improper influence on case from colleague’s financial conflict” —

  • “A federal judge has found his colleague’s undisclosed financial conflict of interest had no influence over the ruling in a debt collection lawsuit against Wells Fargo.”
  • “U.S. District Court Senior Judge John L. Kane, without prompting from any party to the lawsuit, issued a decision on Friday following his independent review of Dennis Obduskey’s 2015 complaint against Wells Fargo and the McCarthy Holthus law firm. Obduskey alleged the defendants violated the the Fair Debt Collection Practices Act while carrying out foreclosure proceedings on his home.”
  • “Although Obduskey’s lawsuit reached the U.S. Court of Appeals for the 10th Circuit and also the U.S. Supreme Court, Kane took the extraordinary step of initiating his own audit in response to revelations last fall that the original judge in the case, R. Brooke Jackson, was one of 131 federal judges nationwide who handled civil lawsuits despite owning a financial stake in one of the corporate parties to a case.”
  • “The Wall Street Journal initially broke the news of the conflicts of interest, noting at least 36 instances in which Jackson failed to recuse himself as the law requires. Jackson, a 2011 appointee of the Obama administration, undertook his own review of his cases and discovered additional conflicts, which Colorado Politics in turn examined this year.”
  • “Federal law governing recusal indicates that judges must disqualify themselves if they or their spouses have a financial stake in a case. Judges also have a duty under the law to reasonably inform themselves about their financial interests. While apologetic for his failure to conduct himself accordingly, Jackson also explained that he remained in the dark about his finances and that his wife prepared the financial disclosure reports.”
Risk Update

Side-switching and Ethical Screens (Or Not) — Ethical Wall Works for Moved Mediator, Trademark Matter Moving to DQ

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After $166M Verdict Reversed, Job-Switching Mediator Isn’t Cause for Firm’s Disqualification” —

  • “A New Jersey appeals court has rejected a motion to disqualify Wilentz, Goldman & Spitzer from representing the defendant in a high-stakes legal malpractice suit, where an arbitrator in the case joined the Wilentz firm.”
  • “Mazie Slater was initially represented in the suit by Margolis Edelstein, but in January 2021 it retained the Wilentz firm. A month later, Keefe was part of a team of six attorneys and seven legal professionals who moved from the Keefe Law Firm to Wilentz.”
  • “The firm of Nagel Rice, which represents Escobar in the malpractice suit, moved to disqualify Mazie Slater, claiming that the firm’s representation by Wilentz constituted a violation of New Jersey’s RPC 1.12. That rule says a lawyer shall not represent anyone in connection with a matter in which the lawyer participated personally as a judge, arbitrator, mediator or other neutral party, unless all parties to the proceeding have given written consent to the representation.”
  • “The appeals court found that former Superior Court Judge John Keefe’s decision to join Wilentz after mediating in the malpractice case does not warrant disqualification of another Wilentz lawyer, Brian Molloy.”
  • “The appeals court agreed with Lynott’s finding that disqualification of Molloy from representing Mazie Slater would be warranted, if not for the measures taken to screen Keefe from participating as a lawyer in the matter or receiving any cut of the fee from the case.”
  • “‘Having reviewed this record, we agree with Judge Lynott that plaintiff failed to carry her burden to prove that disqualification of the Wilentz firm is justified,’ the appeals court said in an unsigned ruling.”
  • “Escobar provided no basis ‘to second-guess the judge’s ruling that the procedures the firm has put in place are sufficient to ensure the mediator will not participate in defendants’ representation, or share in any fees earned by the firm for its services to defendants,’ the panel said.”

Florida Law Firm Closer to Disqualification in Trademark Fight” —

  • “A law firm based in Florida shouldn’t be able to represent an online educational services agency in its trademark suit accusing a private company of using confusingly similar marks, a magistrate judge has recommended.”
  • “Independent public agency Florida Virtual School sued foreign for-profit company K12 Inc. in 2020, saying K12 used its marks to promote its materials and breached a settlement agreement stemming from a 2011 lawsuit with similar allegations.”
  • “K12 moved to dismiss GrayRobinson PA as plaintiff’s counsel, claiming that one of its attorneys previously represented K12 in the earlier suit. Stephanie Carman was privy to privileged information from when she worked for Hogan Lovells LLP, prior to joining GrayRobinson, the defendant alleged.”
  • “U.S. Magistrate Judge Embry J. Kidd of the U.S. District Court for the Middle District of Florida recommended approving that motion April 20, rejecting the argument that the matters aren’t substantially related.”
  • “The court noted that ‘perhaps the most revealing of the substantial relatedness of the matters’ is that the current complaint relates the instant action to the settlement agreement and prior litigation.”

Managing Client Terms of Engagement and OCGs — Hogan Lovells + Intapp Terms Case Study (Sponsor Spotlight)

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In this month’s sponsor spotlight, Intapp is highlighting a webinar case study showcasing how Hogan Lovells is using Intapp Terms to manage Outside Counsel Guidelines, engagement letters and other contractual/professional obligations.

I actually attended this session and found the real-world story and perspective shared by Thomas Patteson (Hogan Lovells Conflicts Client Engagement Attorney and Manager) to be quite engaging indeed. (Pun intended. Sorry.) He described the firms vision and progress in streamlining this increasingly complicated but vital risk responsibility, and shared some stats including:

  • Total number of documents stored: 42,000+
  • Total number of terms: 1.2 million+
  • Total number of activate templates [or categories] (standard and custom): 107
  • Percentage of documents categorized by AI: 99%
  • Document types uploaded:
    • Outside counsel guidelines
    • Engagement letters
    • Secondment agreements
    • Business association agreements (BAA)
    • Non-disclosure agreements (NDA)

And he details the journey, strategy and path the firm has taken to achieve (and build on) its success with the product.

For more details and to download the on-demand recording: “User Community Event Series: OnePlace Risk & Compliance for Legal — Intapp Terms.”

Risk Update

Sport and School Conflicts Allegations — Football Fights, Teacher Trials

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Premier League accused of ‘unacceptable conflict of interest’ over use of law firm run by interim chairman” —

  • “The Premier League has been accused by the former sports minister Tracey Crouch of an ‘unacceptable conflict of interest’ for using a law firm run by its interim chairman to carry out checks on club takeovers.”
  • “Peter McCormick, who was appointed the interim chairman of the Premier League in January, is the senior partner of McCormicks Solicitors in Harrogate, Yorkshire, and is also the long-serving chairman of the Premier League’s Legal Advisory Group and Football Board and an FA board member.”
  • “McCormick’s firm has carried out the owners’ and directors’ test checks for the league when clubs are being taken over or new directors appointed, and has previously been paid hundreds of thousands of pounds in legal fees.”
  • “Crouch, who headed last year’s fan-led review of football, said the arrangement was another argument for the English game to have an independent regulator, which would carry out such checks on club takeovers.”
  • ‘”Sources have told The Times that McCormicks Solicitors was involved in the owners’ and directors’ test checks for the most recent top-flight takeover — the purchase of Newcastle United in October by a consortium led by Saudi Arabia’s Public Investment Fund (PIF). It is understood that the firm could also be used in the process for the new Chelsea owners.”
  • “Crouch told The Times: ‘This strikes me as an unacceptable conflict of interest. Any firm or organisation that carries out any checks for the owners’ and directors’ test should not be connected to any senior figure within the Premier League. This is exactly the kind of situation that would be avoided under an independent regulator.'”
  • “Other senior figures in football have privately expressed surprise about the arrangement but McCormick defended his and his firm’s roles. He told The Times: ‘Tracey Crouch has commented without checking the facts. I, along with my firm, have been an adviser on the OADT [owners’ and directors’ test] for 12 years. It was agreed before I took the interim chair that the board wished that service to continue and it was agreed that I would not participate in the decision-making process on any club takeover while interim chair. Clubs were informed of this at the shareholders’ meeting which appointed me — at which I was not present, in accordance with good practice.'”
  • “The Premier League added that McCormicks had been used to advise on the owners’ and directors’ test for more than a decade, along with other firms, and that McCormick himself would not take part in any vote by the league’s board on a takeover.”

State Supreme Court considers attorney’s ‘conflicts’ in APS test-cheating appeal” —

  • “A public defender representing six former educators convicted in the Atlanta Public Schools test-cheating scandal argued Tuesday he should not be required to represent all six clients in their appeals because to do so would raise conflicts of interest.”
  • “If forced to represent them on his own, the educators ‘would proceed with motions for a new trial with counsel divided in his loyalty, his attention, his orientation of the defense,’ Fulton County public defender Stephen Scarborough told the Georgia Supreme Court.”
  • “The appeal is occurring almost seven years after the conclusion of the trial, believed to be the longest in state history. Scarborough was appointed to represent six of the defendants on appeal, beginning with their motions for a new trial before trial judge Jerry Baxter.”
  • “At least two years after taking the case, Scarborough told Baxter he realized he should not be representing all six because they had competing interests. But Baxter, expressing frustration by the lengthy passage of time, denied Scarborough’s motion to allow his clients to have separate, conflict-free counsel.”
  • “Criminal charges were brought against Atlanta educators after The Atlanta Journal-Constitution, in both 2008 and 2009, revealed some schools were posting statistically unbelievable scores on state tests. Of the 35 educators indicted for racketeering and other offenses, 21 pleaded guilty and two died before trial. Of the 12 who stood trial, which lasted almost eight months, 11 were convicted.”
  • “During arguments, some justices expressed concern that a ruling in Scarborough’s favor would open a Pandora’s Box that would allow countless future defendants to file appeals asserting their attorneys have conflicts of interest. They also noted that even if Scarborough has an alleged conflict and is required to proceed, his clients could later file appeals seeking to correct the problem.”
  • “Even though justices worried about the precedent they might set in Scarborough’s appeal, some expressed concern about requiring Scarborough to proceed if he has divided loyalties to his six clients.”
  • “‘If my counsel is representing both of us and in order to best represent my co-defendant is required to implicate me and does so, have I received conflict-free counsel?’ Justice Charles Bethel asked. ‘No.'”


Risk Update

Law Firm Information Security — Cloud Security Advantages, ISO 27001 Certifications, Reputation Risk Software

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Baker Donelson Achieves ISO 27001 Certification for Information Security Management” —

  • “Baker Donelson has achieved ISO 27001 certification, an internationally recognized certification for information security management.”
  • “Earning the ISO 27001 certification shows that Baker Donelson is in compliance with rigorous international standards regarding utilization of best practices, ongoing governance, and management of information systems to ensure the security of client and firm data. Baker Donelson was awarded this certification by BSI, a leading provider of business improvement solutions.”
  • “‘As a law firm, it is critically important that we safeguard the security of our clients’ information. Protecting the interests of our clients has always been paramount for us, and earning the ISO 27001 certification demonstrates that Baker Donelson has the necessary controls in place to ensure that all client data is secure and protected,’ said the Firm’s Chief Information Officer Lance N. Rea.”

Stark & Stark Achieves ISO 27001 IT Certification” —

  • “The law firm of Stark & Stark [100+ lawyers] announced its achievement of ISO 27001 certification, one of the most widely recognized and internationally accepted information security standards that defines how an organization should manage and treat information. Lawrenceville’s Stark & Stark is among a select group of law firms to achieve this certification.”
  • “‘Providing our clients with great service is the core of what we do at Stark & Stark, and the security of our clients’ information is at the foundation of great service,’ Thomas Kline, Stark & Stark’s Director of Information Technology, stated. ‘Achieving the ISO 27001 certification illustrates our commitment to continuously improve our information security management, and it tests that commitment through annual audits that adhere to an internationally recognized standard.'”
  • “The certification means Stark & Stark has adopted a best practices approach to information security management and has established policies and procedures to ensure the security of the firm’s client information will be continuously improving and evolving.”
    “Stark & Stark Managing Shareholder Michael Donahue stated, ‘Our drive to achieve this level of security is client satisfaction. We are committed to continuous improvement to information security. Obtaining this certification for our Firm was truly a team effort.'”

How Law Firms Can Avoid Data Breaches Using the Cloud” —

  • “Reports of increased cyberattacks significantly impacted the legal industry during the pandemic, with widely publicized ransomware attacks striking several prominent firms, resulting in serious reputational damage and significant liability. There’s little doubt that other attacks occurred but did not become public.”
  • “Although firms may think they have appropriate protocols for cyberattack prevention and breach-response plans in place, data has shown that less than half of law firms participating in the ABA survey use even basic security tools like encryption, two-factor authentication, intrusion detection and prevention, or remote-device management protocols.”
  • “As the ethical and practical imperatives for data security become clearer, some firms have adopted a stop-gap approach—purchasing insurance to mitigate financial exposure—while others are taking a wait-and-see approach, and the ABA survey reports only about a third of firms hold cyber liability insurance policies.”
  • “Although it’s wise to purchase insurance policies, they don’t prevent data breaches, nor do they protect a company from contractual or regulatory consequences.”
  • “Compounding poorly mitigated data-breach risk, many Big Law lawyers remain in the dark regarding security incidents at their firms. Whereas about three-quarters of survey respondents from firms with 50 lawyers or fewer report they are in the loop, nearly two-thirds of lawyers working in firms with 100 lawyers or more say they have no visibility into their firms’ data breaches.”
  • “Firms rightfully worry about cybersecurity in the cloud generally and client contractual obligations specifically. Because outside counsel guidelines usually stipulate that client data must be stored in a specific fashion—which often entails keeping sensitive information in a firm-managed environment—firms are obligated to audit and update these contracts transparently before migrating client records to the cloud. For a large firm staring down thousands of contracts, it’s an onerous and expensive exercise”
  • “Although advanced cloud models for risk and compliance incorporate key elements of secure computing by meeting or exceeding common regulatory requirements—and often provide a higher level of safety than on-premises deployment—the EU General Data Protection Regulation (GDPR) has generated renewed concerns about cloud storage for the legal industry.”
  • “Because cloud service providers’ reputations and business models rely on state-of-the-art data security, these vendors invest heavily in robust security teams and rapid platform updates. It’s a simple matter of scale: It’s impossible for a single firm to develop and execute the same breadth and depth of security and innovation protocols as a cloud service provider.”
  • “Most cloud service providers have a wide range of clients. As a result, they may be subject to stringent regulatory requirements; many voluntarily adhere to industry best practices and guidelines, such as ISO27001, which entail strict standards for building and maintaining data centers, as well as regular independent audit cycles to ensure compliance.”
  • “In the past, law-firm data breaches often went unreported—and possibly undetected. Now, all 50 states plus the District of Columbia, Guam, Puerto Rico, and the Virgin Islands have enacted security breach notification laws requiring businesses to inform affected parties when their personal information is breached.”
  • “Today, lawmakers continue to expand existing laws; 22 states strengthened security breach regulations in 2021, including shortening the window for firms to report breaches and requiring private sector entities to report breaches to the attorney general or other state entity.”
  • Survey data shows that cybersecurity remains a key challenge for law firms, and the sector finds itself increasingly targeted due to its wealth of sensitive data—and deep pockets. With representatives of nearly two-thirds of the 100 leading Big Law firms identifying cybersecurity threats as a key concern, it’s eye-opening that less than one-quarter of these firms employ a cybersecurity committee that reports into the party charged with governance.”
  • “Although many persist in the belief that in-house servers are more reliable and secure than cloud-based solutions, cloud storage offers strategic redundancies that both protect data durability and availability and prevent file loss due to equipment error, damage, or data breach. As threats become increasingly relentless and sophisticated, firms focused on long-term data security are embracing the protections afforded by the cloud.”

Kennedys-led consortium receives £783k from Innovate UK to develop reputational risk software” —

  • “A consortium led by UK top 50 law firm Kennedys has been awarded £783,000 in funding from Innovate UK to develop software that is able to identify and assess reputational risk, as part of a £1.2m project. The difference will be covered by Kennedys and four fellow consortium members: The University of Manchester and University College London; public relations group Cicero/amo; and risk management company RiskCovered Limited.”
  • “Reputation Advisor will be developed to analyse content – from corporate documents to publicly available information – to create a reputational index of risk relating to an organisation’s corporate citizenship via ESG (environmental, social and governance) practices that impact on a company’s bottom line.”
  • “Reputation risk is considered as an intangible asset that is rising in company value. Karim Derrick, product and innovation director for Kennedys’ tech arm Kennedys IQ said: ‘In a world where companies are often accused of greenwashing, Reputation Advisor will also provide robust and transparent evidence of a firm’s genuine green credentials. From an insurance perspective, the product will help insurers in their conversations with their own clients to quantify ESG related risk.'”
Risk Update

Confidentiality Considerations — Lawyer/App Client Contact Sharing Concerns, Canadian Conflict Called

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Just “Smartphones”? Or are cloud/server/desktop-enacted LinkedIn/Outlook/Microsoft Teams integrations also in scope (among other data flows)?: “New York Bar Issues Ethics Opinion on Protecting ‘Confidential’ Client Identity Information on Smartphones” —

  • “On April 8, 2022, the New York Bar issued an opinion to protect “confidential” client identity information stored on an attorney’s smartphone. In particular, the opinion prohibits an attorney who stores ‘confidential’ (as defined under Rule 1.6 of the New York Rules of Professional Conduct) client identity information in the attorney’s “contacts” folder on the attorney’s smartphone from consenting to share their “contacts’ with a smartphone app, unless certain criteria are met.”
  • “The opinion is based on Rule 1.6(c), which provides that an attorney is required to ‘make reasonable efforts’ to prevent the disclosure of “confidential’ client information. The opinion explains that, before an attorney grants access to his or her smartphone’s contacts folder, the attorney must first determine whether any contact information is ‘confidential’ client information within the meaning of Rule 1.6. If clients’ names constitute ‘confidential’ information, the opinion states that an attorney must ‘make reasonable efforts to prevent the unauthorized access of others to those names, whether stored as a paper copy in a filing cabinet, on a smartphone, or in any other electronic or paper form.'”
  • “If the attorney’s smartphone ‘contacts’ folder contains ‘confidential’ client information, the attorney may not consent to share the contacts folder with a smartphone app, unless the attorney determines that (1) no person will view the information and (2) the information will not be sold or transferred to additional third parties, without the client’s consent.”

Former Alberta justice minister, ex-law partner accused of conflict of interest in Kamikaze campaign probe” —

  • “Former Alberta justice minister Jonathan Denis and his ex-law partner Dale Fedorchuk have been accused of conflict of interest in connection with the Kamikaze campaign investigation — and of making one client ‘the scapegoat’ for another: United Conservative Party heavyweight Jeff Callaway.”
  • “The allegation came out in an interview Cameron Davies, Callaway’s former communications director, gave to the Office of the Election Commissioners (OEC) as part of its probe into Callaway’s 2017 UCP leadership campaign. He also accused the two lawyers of breaching solicitor-client privilege, details of which are contained in the OEC investigator’s interview transcript and summary obtained by CBC News.”
  • “Davies was Callaway’s co-campaign manager and ran communications. He told investigators he’d convinced a number of people to go along with putting their names on donations they didn’t make — and received two $7,500 fines in February 2019 for obstructing the investigation into the campaign by Alberta’s election commissioner. Davies was also fined $12,000 for facilitating irregular donations for the Callaway campaign.”
  • “But the transcripts from the first in-person interview Davies gave to election commissioner investigators in March 2019 — a month after his obstruction fine — include allegations that his lawyer, Fedorchuk, wasn’t acting in his best interest.”
  • “Instead, he alleges that the lawyer gave privileged information to his law partner, Denis, in order to help another client under investigation by the OEC: Callaway”
  • “When contacted by CBC News, Fedorchuk and Denis said through Guardian Law that solicitor-client privilege prevents them from responding to these allegations — or even confirm their involvement in the case. Davies subsequently sent Guardian Law an email waiving his privilege for this story, but Guardian Law and Fedorchuk reiterated they’d be violating privilege were they to answer any of the inquiries.”
  • “The interview and investigator’s summary include specific claims made by Davies, which would violate Law Society of Alberta rules if proven accurate.”
  • “Running a dark horse campaign like Callaway’s isn’t against electoral law in itself. But much of its funding was, according to a months-long investigation by the election commissioner’s office.”
  • “In the OEC interview, Davies said when he learned he could be targeted by the commission’s investigation, he was initially referred to Denis, who served as Alberta’s attorney general and justice minister from 2012 to 2015. But Davies said the former Progressive Conservative cabinet minister assigned the case to Fedorchuk, his then-partner at Guardian Law Group.”
  • “What he didn’t know then, he said, is that Denis was representing Callaway. If a law firm is representing two clients who may have different interests, it’s essential to at least build an ethical wall between the two, University of Calgary assistant professor of law Gideon Christian says.”
  • “‘You cannot be a slave to two masters,’ he said. ‘The law firm should have put in place a structure to prevent confidential information to be exchanged between the two lawyers acting on behalf of different individuals in this case.'”
  • “Davies told investigators that no such wall existed. In fact, he said Denis was often present on privileged phone calls between himself and Fedorchuk.”
Risk Update

BD + NFT — Non-fungible Tokenization Matter Law Firm Conflicts Allegation (Much Wow), Business Development Risk (New ABA Opinion),

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Lawyers have an obligation to ensure employees don’t solicit clients, new ABA ethics opinion says” —

  • “Attorneys not only must refrain from engaging in improper direct solicitation of potential clients, but there is also an ethical responsibility to ensure that employees or others hired by the lawyers do not engage in such misconduct, according to a new ethics opinion from the ABA’s Standing Committee on Ethics and Professional Responsibility.”
  • “Formal Opinion 501, released Wednesday, identifies that a solicitation under ABA Model Rule of Professional Conduct 7.3(a) is a communication initiated on or behalf of a lawyer or a law firm directed to a specific person that the lawyer knows or reasonably should know needs legal services. The rule permits such direct, face-to-face solicitation if the contacted person is a lawyer, a family member or a close friend or a person who routinely uses the types of services offered by the lawyer.”
  • “The opinion focuses on a lawyer’s ethical responsibilities regarding third parties who solicit on behalf of the lawyer. Model Rule 8.4(a) provides that it is professional misconduct for a lawyer to knowingly assist or induce another to violate the rules—including engage in impermissible solicitation. The lawyer is subject to discipline under 8.4(a) if the lawyer knows of the third party’s conduct or requests or authorizes it.”
  • More via ABA at: “ABA issues guidance on ‘live person’ lawyer solicitation to clarify existing model rules

Fox Rothschild Faces DQ Bid In Athlete Shares Fraud Case” —

  • “A startup that aimed to ‘tokenize’ and sell shares of professional athletes says the firm representing investors in a $1 million fraud suit in New York federal court, Fox Rothschild LLP, once represented a co-defendant and should be tossed from the case.”
  • “New York-based SportBLX seeks to ‘tokenize’ professional athletes ‘by dividing them into tradeable, fungible units that fans and investors could buy and trade,’ according to the lawsuit. This would be done through a blockchain platform that SportBLX would create.”
  • “Cypress Holdings III LP sued startup SportBLX, parent company GlassBridge Enterprises and the startup’s founders, George Hall and Joseph DePerio, in February alleging investors were duped into pouring $1 million into the venture in 2019 based on misrepresentations of a business plan that didn’t materialize.”
  • “GlassBridge said in a letter Thursday that Fox Rothchild represented it ‘before and during the time period at-issue in this litigation on substantially related matters,’ including the company’s directors and officers liability insurance policy.”
  • “GlassBridge paid Fox Rothschild $847,285 in legal fees before the firm ended the representation in early November 2021, two months before Cypress filed its lawsuit, according to the letter filed in Manhattan federal court.”
  • “‘Through the prior representations, and at a time when GlassBridge first purchased and owned SportBLX assets, Fox Rothschild obtained sensitive and confidential information having to do with GlassBridge’s business,’ information that is ‘essential to Cypress’s allegations and GlassBridge’s defense,” the letter said.”
Risk Update

Consulting Conflicts — Ethical Walls, Client Relationships, Pitch and Experience Management, Regulatory Compliance

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Hat tip to a kind reader for sending word of this fascinating update [see previously]: “McKinsey Opened a Door in Its Firewall Between Pharma Clients and Regulators” —

  • “The firm let consultants advise both drugmakers and their government overseers, internal records show. ‘Who we know and what we know’ was part of their pitch.”
  • “Jeff Smith, a partner with the influential consulting firm McKinsey & Company, accepted a highly sensitive assignment in December 2017. The opioid manufacturer Purdue Pharma, beleaguered and in financial trouble, wanted to revamp its business, and an executive there sought out Dr. Smith….But the corporate reorganization was not Dr. Smith’s only assignment at the time. He was also helping the Food and Drug Administration overhaul its office that approves new drugs — the same office that would determine the regulatory fate of Purdue’s new line of proposed products.”
  • “The story of Dr. Smith’s simultaneous work for Purdue and its federal regulator is told through previously undisclosed internal McKinsey records. More broadly, they contain evidence of a porous firewall between the consulting firm’s work for private companies and for the authorities that oversee them.”
  • “A review by The New York Times of thousands of internal McKinsey documents found that the firm repeatedly allowed employees who served pharmaceutical companies, including opioid makers, to also consult for the F.D.A., the drug industry’s primary government regulator.”
  • “And, the documents show, McKinsey touted that inside access in pitches to private clients. In an email in 2014 to Purdue’s chief executive, a McKinsey consultant highlighted the firm’s work for the F.D.A. and stressed ‘who we know and what we know.'”
  • “Since 2010, at least 22 McKinsey consultants have worked for both Purdue and the F.D.A., some at the same time, according to the committee’s 53-page report drafted by its Democratic majority. The firm provided no evidence to the committee that it had disclosed the potential conflicts of interest as required under federal contracting rules — an ‘apparent violation,’ the report said.”
  • “McKinsey also allowed employees advising Purdue to help shape materials that were intended for government officials and agencies, including a memo in 2018 prepared for Alex M. Azar II, then the incoming secretary of health and human services under President Donald J. Trump.”
  • “McKinsey says that its consultants are forbidden to share confidential information or discuss their work with clients that have competing interests, and in a statement a spokesman disputed that there was a disclosure requirement related to the work it did for the F.D.A.: ‘Since McKinsey has not advised the F.D.A. on specific regulatory decisions or on specific pharmaceutical products, our consulting engagements with pharmaceutical companies did not create a conflict of interest with McKinsey’s consulting work for the F.D.A.,’ the spokesman said. ‘Because there was not a conflict of interest, there was not a requirement for a disclosure.'”
  • “For nearly a century, McKinsey has taken on clients in the same industries, with internal rules meant to prevent trade secrets from leaking to competitors. As McKinsey expanded to 67 countries, serving many of the world’s biggest companies, it also began to mine a new source of revenue: governments, including in the United States, Europe and Asia. It wasn’t until McKinsey began to work extensively with federal agencies that potential conflicts of interest drew the attention of Congress.”
  • “McKinsey’s own guidelines on dealing with conflicts of interest for government work, which are based on federal rules, state that ‘even the appearance’ of a conflict compels its consultants to make a report to the government client’s contracting officer.”
  • “In one F.D.A. proposal, McKinsey did note that Dr. Smith had previously served an unnamed opioid manufacturer, and in its statement to The Times, the firm’s spokesman said it had ‘repeatedly made the agency aware of our industry experience and our colleagues’ expertise in the pharmaceutical industry.’ But the committee’s report criticized McKinsey’s disclosures as ‘isolated and vague’ and not in accordance with the firm’s own policy. The F.D.A. has previously said it was unaware of McKinsey’s work for Purdue until 2021.”
  • “In 2016, while Dr. Smith advised the F.D.A. on its use of data for tracking drug safety, colleagues sought his counsel on how the firm might draw on that work with the agency to help Purdue. The documents indicate multiple occasions when McKinsey promoted its connections with federal regulators when pitching its services to pharmaceutical clients.”
  • “Earlier, in a 2009 presentation offering its services to a pharmaceutical industry group, McKinsey wrote that it directly supported regulatory bodies ‘and as such have developed insights into the perspectives of the regulators themselves.'”
Risk Update

Conflicts News — Amazon IP Conflict Prime for Protest, Judge (Blind) Trust, Judicial Conflicts Rules Review

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[Judge] Alsup Calls Amazon In-House Atty’s LinkedIn Gap ‘Suspicious’” —

  • “Mulling a motion to disqualify Amazon’s counsel from litigation accusing the e-commerce giant of infringing MasterObjects Inc.’s search engine patents, U.S. District Judge William Alsup said Wednesday it ‘looks suspicious’ that an Amazon in-house lawyer omitted from his LinkedIn profile a two-year stint at a law firm that represented MasterObjects.”
  • “U.S. District Judge William Alsup didn’t issue a ruling Wednesday on MasterObjects’ bid to boot from the case both Amazon’s in-house lawyer and outside counsel at Hueston Hennigan LLP, taking the matter under submission. He did, however, deny Amazon’s request for sanctions against MasterObjects and its Hosie Rice LLP counsel for bringing the motion, saying he didn’t find it to be frivolous.”
  • “Wednesday’s arguments focused on Scott Sanford, a senior in-house patent lawyer at Amazon.com Inc. who is leading the company’s defense case. He worked from 2000 to 2002 for Fliesler Meyer LLP, a San Francisco firm that handled MasterObjects’ patent prosecution. Sanford was not present for Wednesday’s court proceedings.”
  • “In a declaration, Sanford said he doesn’t pay close attention to his LinkedIn resume and inadvertently left that off. However, his positions before and after his employment at Fliesler Meyer were on his LinkedIn resume, and that’s a red flag, said Diane Rice of Hosie Rice, a lawyer for MasterObjects.”
  • “MasterObjects also submitted a declaration from a lawyer, Karl Kenna, who worked with Sanford at Fliesler Meyer. Kenna said it was a very small law firm, with attorneys working in a small San Francisco office. ‘They were cheek to jowl,’ Rice said, ‘and courts understand that people who work in close quarters talk to each other about their work.'”
  • “While Sanford claims he didn’t do work for MasterObjects during his time at Fliesler Meyer, the lawyer had access to information about the client, Rice argued.”

Judge’s Blind Trust Didn’t Resolve Financial Conflict of Interest, Federal Circuit Strongly Hints” —

  • “The $1.9 billion bench verdict Centripetal Systems won against Cisco Systems Inc. in 2020 is going to be sent back for a do-over. That much was clear following arguments at the U.S. Court of Appeals for the Federal Circuit on Monday.”
  • “The question now will be how much needs to be redone due to U.S. District Judge Henry Morgan’s failure to divest or to recuse himself after finding out midtrial that his wife held $4,688 worth of Cisco stock. Monday’s argument provides a judicial test of an issue highlighted last fall by a series of Wall Street Journal articles about judges or their family members holding stock in companies that appear in the judges’ court.”
  • “Kramer Levin Naftalis & Frankel partner Paul Andre argued that the verdict should stand because Morgan hired a lawyer who immediately devised a blind trust once the judge learned about the holding. But Federal Circuit Judges Timothy Dyk, Richard Taranto and Tiffany Cunningham sounded convinced that the judicial disqualification laws require actual divestment of the financial interest.”
  • “Cisco argued that the judge’s financial interest in Cisco, however minor, mandated his recusal under 28 U.S.C. 455(b). Morgan ruled that Section 455(b) requires recusal only if a judge has actual knowledge of the financial interest.”

Congressional Democrats propose new rules on recusal, secrecy for U.S. judges” —

  • “Democrats in the U.S. Congress proposed a raft of new rules for the federal judiciary on Wednesday including a formal mechanism to remove judges from hearing cases in the event of a conflict of interest and another intended to reduce secret court filings.”
  • “The bill comes as U.S. Supreme Court Justice Clarence Thomas has faced calls by some Democrats to recuse himself from any cases involving the Jan. 6, 2021, attack on the U.S. Capitol by former President Donald Trump’s supporters, citing the activities of the justice’s wife Virginia Thomas, a conservative political activist. read more.”
  • “Under current practice, the nine Supreme Court justices individually decide whether to recuse themselves from a case because of a conflict of interest. Under the proposed legislation, the full Supreme Court would be required to review requests for recusal.”
  • “In addition, the legislation would require the Supreme Court to provide live video of its oral arguments on the internet as well as other ethics guidelines for judges. The Supreme Court has not allowed video of its arguments but began allowing live audio in 2020 at the outset of the COVID-19 pandemic and has continued that practice.”
Risk Update

Law Firm Confidentiality — Conflicts Management, Merger Due Diligence, Outsourcing Legal Services and More (Updated SRA Guidance)

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SRA Guidance: Confidentiality of client information (Updated 5 April 2022)” —

  • “You need to have appropriate arrangements in place to help you to meet your obligations in relation to confidentiality. This will mean that any information supplied to you by clients is kept confidential in accordance with, as well as data protection law, any terms of engagement between you and the client. For example:
    • Information should not be passed to third parties without the client’s consent. This includes via marketing materials (including contributions to law firm directories or league tables) or passing client details by way of referral.
    • Confidential information regarding one client should not be passed to another.
    • Consider limiting the confidential information that you obtain from the client before a conflict check has been carried out and it has been established that you can act. This minimises the risk of such information being inadvertently disclosed, within the firm.”
  • “Disclosure may be permitted by law. For example, you may be permitted or even required by law to disclose the potential commission of a criminal offence by your client, such as money laundering.”
  • “Some firms may have overseas or connected offices or be part of a group structure where they are separate legal entities (such structures are often known as a “Verein” after a type of association of separate legal entities allowed under Swiss law).”
  • “Such a firm may wish to share information about their clients with other parts of the group for conflict of interest checks or other due diligence. For example, a UK firm may be part of an international group that has set up a business acceptance unit within one overseas jurisdiction to carry out conflict and anti- money laundering checks for all the group’s prospective clients.”
  • “Firms should provide current and prospective clients with an explanation of the group structure and of any data sharing and confidentiality arrangements within the group before seeking their consent to the disclosure of confidential information to separate legal entities in the group or their individual members or directors. As well as obtaining consent firms should consider whether it is in their client’s best interests to share the information across other members of the group and should restrict access in terms of the data supplied, and those who see it, to that necessary for the purpose.”
  • “In the example given of the international group structure above, there may well be advantages to having all conflict and other checks carried out by a specific unit which puts in place information barriers to reduce the spread of information around the group. This could help prevent, for example, information about potential competing bids being shared between offices within the group and perhaps inadvertently released to clients (see case studies on reporting duties in the Overseas Rules).”
  • “We recognise that, where firms are proposing to merge, or one firm is proposing to acquire another or part of another practice, that they will need to understand key information in relation to the other’s business. This can present challenges in terms of sharing information about your client base.”
  • “You will wish to consider carefully what information you actually need and what is available in the public domain (for example where the firm is on the public record as acting for a key client) or without recourse to client specific information (for example, financial data about billing in respect of the business generally and specific practice areas or aggregated into bands).”
  • “Any disclosure of confidential information should only be with consent and should be limited to that necessary for the purpose.”
  • “In order to enable conflict checks to be carried out you may wish to disclose the identity of key clients, and in general terms the type of work done for the client. Including a provision in the client’s terms of business permitting disclosure expressly limited to this information for the purposes of merger discussions may be sufficient if it amounts to informed consent on the part of the client. More detailed information about work done or client billings is likely to require specific consent to be taken.”
  • “It should be borne in mind for example, that the merger or acquisition may not proceed and that the proposed acquiring firm may act for those with interests adverse to the other firm’s clients. Therefore, there should be express requirements limiting the data to be disclosed and who sees it, their obligations to protect it and its return or destruction if the transaction does not proceed.”
  • “In 2018, an SRA regulated firm received a large fine after it disclosed unredacted and in some cases sensitive and privileged confidential information and documents from over 7,000 client matter files to another firm that was proposing to acquire it. This disclosure was made without the knowledge or consent of the relevant clients. The purchasing firm which inspected that confidential material was also fined on the basis that it had failed to act with independence and behave in a way that maintains public trust in legal services by inspecting the unredacted confidential information and documents provided by the other firm without the knowledge or consent of the relevant clients and also by disclosing unredacted confidential information and documents from the acquisition targets’ client matter files to two other firms without the relevant clients’ knowledge or consent.”