Risk Update

Information Risk — Law Firm Malpractice/Cyber Insurance & Inadvertent Disclosure Risk, Lateral Fight Over Alleged Client Poaching & Confidential File Exfiltration

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Abraham Watkins Sues Ex-Associate, Alleging He Took Confidential Information, Solicited Clients” —

  • “Houston plaintiffs firm Abraham, Watkins, Nichols, Agosto, Aziz & Stogner has sued a former associate, alleging he solicited clients and copied files in preparation for a move to another firm, and then after he left, continued to use confidential client contact information.”
  • “Abraham Watkins seeks up to $1 million in damages from Festeryga, now an associate at Ammons Law Firm in Houston.”
    “In a written statement, Alarcon said Festeryga ‘categorically denies’ the allegations.”
  • ‘The central allegations in AW’s petition—that Mr. Festeryga secretly solicited clients while employed by AW and that he wrongfully retained client files—are false…What this case is really about is a law firm trying to fleece a young lawyer from a bonus that he earned after recovering a multimillion-dollar fee for the firm. Would-be associates of AW should take notice.'”
  • “The firm also sought a temporary restraining order to, among several things, prevent Festeryga from destroying or distributing any information he took from his former firm, using any of its confidential or trade secrets information for any purpose, willfully or intentionally interfering with any of the firm’s clients relationships, communicating with any firm employee for the purpose of aiding or abetting disclosure of confidential or privileged information, or publishing or continuing to publishing any videos on social media or secretly recorded conversations.”
  • “Dale Jefferson, who represents Abraham Watkins, said 333rd District Judge Brittanye Morris granted the TRO late Monday afternoon following a zoom hearing.”
  • “As alleged in the original petition, Abraham Watkins managing partner Benny Agosto received information in September that Festeryga was leaving to join another firm and soliciting clients, and he confirmed on Sept. 27 with a client that the associate had told her she was ‘obligated’ to go with him to the new firm.”
  • “That same day, according to the petition, Agosto confronted Festeryga about the information ‘that he was leaving the law firm, that he had already accepted other employment, that he was copying files, and that he was attempting to solicit AW [Abraham Watkins] clients to leave.'”
  • “As alleged in the petition, Abraham Watkins sent Festeryga a demand that he return the information, but he has not done so and has instead continued to publicize private information on social media, including information about a confidential settlement.”

Firms Could Face More Pressure From Insurers Following Public, Inadvertent Disclosures” —

  • “The inadvertent disclosures in the Alex Jones trial and Jan. 6 investigation are likely to put more attention, and more pressure, on law firms’ technology competence.”
  • “However, while many firms have legal malpractice insurance, Hinshaw & Culbertson partner Steve Puiszis, a member of the firm’s professional liability practice, noted that inadvertent disclosures aren’t always covered by these policies.’You get professional liability coverage to protect against errors or omissions that occur in the delivery of legal services,’ Puiszis said. ‘Depending on the nature of the policy, there can be exclusions written into the policy for privacy violations and perhaps the inadvertent disclosure of confidential information depending on how that exclusion is written.'”
  • “Puiszis argued that this lack of coverage is another reason for lawyers to purchase cyber coverage.”
  • “Recently, however, many firms have decided to forgo cyber insurance altogether, as policy coverage is shrinking and premiums are hitting record levels.”
  • “Meanwhile, in some cases, an insurer can actually play a big role in helping prevent those mistakes in the first place. Take, for instance, mutual insurers. ‘We are a mutual, so it’s different. We have a unitary rating. So it’s not like their firms’ rates are going to change,’ said Mary Beth Robinson, senior vice president for loss prevention at the Attorneys’ Liability Assurance Society. ‘Instead, we go in there with education.'”
  • “‘…We have a data security prototype policy that we circulate that our members have access to that talks about all kinds of things like inadvertent email transmission, dealing with highly sensitive information, document creation [and] cloud-based file sharing…We will turn firms away if we don’t think that they have adequate processes and policies and claims history to join… So, there is a process to be able to join and a minimum size,’ she said.”
Risk Update

Risk-a-Palooza? CoaRiskChella? — Year in Review “Rollicking” Risk Webinar (Ethics CLE Pending)

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(“Rollicking” risk review fun from two experts? Count me in!)

Thursday, December 15, 2022 | 12:00 noon – 1:00 p.m. CT

  • Join Lucian Pera [Partner, Adams and Reese] and Trish Rich [Partner, Holland & Knight] for a rollicking one-hour review of the most important developments of the last year (or so) in legal ethics and lawyering.
  • They will distill practical guidance from ethics opinions and case law from all over, and review what lawyers should know to protect their clients and themselves and practice more effectively.
  • Topics will include:
    • Judicial ethics and recusal
    • Responding to negative online reviews
    • Crowdfunding
    • Dealing with bad client conduct
    • Cybersecurity
    • Plagiarism
    • Conflicts of interest
    • …and more!

Lucian and Trish promise more ethics fun in an hour than lawyers should be allowed to have.

Ethics CLE credits have been applied for. Approvals pending.

Register here

Risk Update

Risk Rules Reviewed — Entertainment “Conflict” Update (aka MSG Tickets Master Matter), “Snitch” Standard Spotlighted

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Remember this story about the lawyers being barred from attending entertainment events at Madison Square Garden and other venues due to some claim about professional rules? Here’s an update via Brian Faughnan: “Dot. Dot.Dash (3 updates)” —

  • “…there has now been a ruling in that MSG case where the lawyers for MSG were badly misusing RPC 4.2 to justify barring certain attorneys from attending events at Madison Square Garden in New York City. The good news from a lawyer ethics standpoint is that the Court at least implicitly appears to grasp the flawed nature of the RPC 4.2 argument:
    • ‘The Court also believes that the balance of the equities continues to favor plaintiffs for the reasons previously indicated by this Court, that there appears to be no rational basis for the policy instituted by the defendants except to dissuade attorneys from bringing suit against them. The concern that the defendants could be prejudiced by allowing attorneys who are representing those who have brought action against the defendant to attend events with thousands of other people is unavailing to this Court.’
  • “The bad news for the lawyer plaintiffs is that they still didn’t quite manage a win as the only thing they get to attend are concerts not sporting events. The bad news for legal ethics is that the MSG lawyers apparently still do not get it.”
  • “According to this ABA Journal online article [“Lawyer can see Billy Joel but not Knicks at Madison Square Garden as result of judge’s ruling“], they are continuing to send letters to lawyers representing people in lawsuits against MSG that continues to assert a ban on lawyers as long as they are engaged in active litigation. The letters, however, at least do not appear to try to argue that the action is justified by New York’s 4.2.”

[If I were a lawyer caught in this web, and the resolution of a matter had some bearing on the ability to attend this Taylor Swift concert series I hear is quite popular, I confess I’d probably be receiving domestic pressure to settle. Thankfully, none of that applies. Though if anyone has a line on Bay Area tickets…#itsmehi]

[I’m the sort that also might be curious that if the grounds for this maneuver stood — revoking a license as the ticket providers put it — would mean that technology vendors involved in legal matters might be able to turn off licenses and access provided to adverse lawyers — since those lawyers might file a support ticket, for example, leading to “prohibited contact”… There goes your phone, word processor, and email server… Just thinking aloud…]

Tom Girardi Scandal Prompts State Bar to Reconsider Misconduct ‘Snitch Rule’ for Lawyers” —

  • “A state bar leader said Thursday that he wants the agency to revisit a potential rule that would require state-licensed attorneys to report colleagues who have committed professional misconduct.”
  • “Ruben Duran, chair of the State Bar of California’s board of trustees, said in brief comments at the board’s regularly scheduled online meeting that ‘it’s time to reconsider’ the issue of a so-called snitch rule in light of the recent prosecution and disbarment of trial lawyer Tom Girardi. Duran referred the matter to the bar’s Committee on Professional Responsibility and Conduct, which, among other things, drafts ethics opinions and advises the board on related issues.”
  • “Duran made no specific requests but mentioned the American Bar Association’s Model Rule 8.3, which requires a lawyer who ‘knows’ a fellow lawyer or judge has violated professional rules to notify the appropriate authorities.”
  • “California lawyers have balked at adopting such a mandate for years, most recently during an overhaul of the Rules of Professional Conduct in 2017. A memo written by a rules drafting team at the time expressed concerns that mandated reporting would force lawyers to breach confidentiality requirements or possibly create a loyalty conflict with current and past clients.”
  • “Attorney Carol Langford, who was a member of the rules revision committee, said she and her colleagues dug into issues surrounding a possible mandatory reporting requirement, including whether the perceived misconduct should have to rise to the level of a felony. In the end, she said, members were concerned about the rule’s enforceability, particularly a showing that a lawyer ‘knows’ misconduct was committed.”
  • “‘Sometimes you have rules because you want to let people know you don’t like that type of conduct,’ Langford said. ‘But they’re hard to enforce.'”
  • “George Cardona, the bar’s chief trial counsel, told the Los Angeles Times last month that he thought adoption of a mandatory reporting rule might help restore public confidence in the state bar.”
Risk Update

Conflicts Allegations & Operations — Big Four Auditors Shut Down Legal Ops in China, DOJ Lateral Draws a Look

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Big Four auditors shut down legal ops in China” —

  • “In a major development for Asia’s legal industry, PwC and Deloitte confirmed that they had closed their associated Chinese law firms. KPMG and EY have also closed, Law.Com reports, and both no longer have operational local law-firm websites.”
  • “Several lawyers in the region said that the decisions were made after the firms were raided by local regulators. All four firms declined to comment on the raids.”
  • “Foreign law firms are not permitted to provide law advice in China. Over the past few years, many international firms – including the Big Four – have allied themselves with domestic law practices, in the hope of being able to provide a more prolific China offering.”
  • “None of the closures were made public, but they have been the topic of much debate in the local market as scores of employees have started to trickle back to local and international law firms.”
  • “Some of the Big Four’s affiliated Chinese lawyers were given the option of integrating with the general advisory and consulting business, but the catch was that they will not be able to practice Chinese law or provide any legal services.”
  • “Lawyers in the greater China market say that there is heightened sensitivity there now about financial auditing and data security, so what happened with the Big Four and their Chinese practices wasn’t entirely surprising.”
  • “‘The issue at hand has been the same issue for a long time now,” said one Beijing-based partner at a US law firm. ‘How will the accounting firms provide legal advice without compromising data security, not to mention it’s a conflict galore,’ he added.”
  • “The Big Four firms are familiar with resistance against their expansion into the legal sector. They are prohibited from advising on US law, and from offering legal services on American soil, the largest legal market in the world.”

[Ed: Odds we’ll see more of this flavor in 2023?] “Top Biden DOJ official going to work for law firm that defends Hunter Biden”  —

  • “A top Biden DOJ criminal division official is going to work for the law firm that is defending Hunter Biden amid the Justice Department’s investigation into him.”
  • “Nicholas McQuaid was appointed acting chief of the Justice Department’s Criminal Division for the Biden administration. McQuaid had been a partner at Latham & Watkins with Hunter Biden defense lawyer Christopher Clark and worked on cases with him until McQuaid took the job at the Justice Department, according to court filings reviewed by the Washington Examiner. “
  • “McQuaid, who worked as acting assistant attorney general and then deputy assistant attorney general for the DOJ’s criminal division, returned to Latham earlier this month. However, the firm says he is not involved in any work involving President Joe Biden’s son.”
  • “‘McQuaid did not represent Hunter Biden nor have any involvement in the matter when he was previously at Latham,’ a spokesperson for Latham told the Washington Examiner. ‘He also had no involvement in the Hunter Biden investigation while he was at the Department of Justice and he will not be representing Mr. Biden now that he has returned to Latham.'”
  • “The DOJ hinted in February 2021 that McQuaid may have recused himself from the Hunter Biden case but did not say so directly. The DOJ told the Washington Examiner that McQuaid was ‘screened and recused from matters in which he has a financial interest or a personal business relationship, including matters involving his former law firm.'”
  • “‘Obviously, there is a potential conflict of interest, but it would depend on (a) how much — if any — involvement McQuaid had in L&W’s representation of Hunter, and (b) how much interaction U.S. Attorney Weiss has with the Criminal Division at Main Justice regarding the Biden investigation,’ Andrew McCarthy, a contributing editor at National Review and a former prosecutor, told the Washington Examiner.”




Risk Update

Law Firm Conflicts News — Crypto Risk Revealed as FTX-related Matters Unfold, Indiana on Imputed Conflicts

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Paul Weiss Drops Ex-FTX CEO Bankman-Fried Due to Conflicts” —

  • “Paul Weiss said Friday it has stopped representing embattled crypto mogul Sam Bankman-Fried, citing conflicts of interest.”
  • “Bankman-Fried, the former CEO of bankrupt crypto exchange FTX, is losing the firm’s help as US lawyers for the platform claim he is disrupting reorganization efforts through ‘incessant and disruptive tweeting.'”
  • “‘We informed Mr. Bankman-Fried several days ago, after the filing of the FTX bankruptcy, that conflicts have arisen that precluded us from representing him,’ Paul Weiss counsel Martin Flumenbaum said in a statement.”
  • “Flumenbaum is a longtime litigator whose past clients include the junk-bond trader Michael Milken and AIG. He currently represents Christian Larsen, the chairman of blockchain company Ripple Labs.”
  • “Court filings show that the exchange engaged with the law firm as its liquidity crisis became ‘increasingly dire.’ FTX and its vast network of related companies, including trading house Alameda Research, have estimated their assets and liabilities to between $10 billion and $50 billion. Bankman-Fried, once worth $16 billion, has seen his assets wiped out.”
  • “Bankman-Fried and several celebrity promoters of the exchange were also hit with a class action on Thursday accusing them of perpetrating a fraud designed to take advantage of ‘unsophisticated investors.’ The complaint, filed by the Moskowitz Law Firm and Boies Schiller on behalf of investors, alleges Bankman-Fried violated U.S. securities laws and that American consumers sustained over $11 billion worth of damages.”

A reporter who spoke with Mr. Bankman-Fried, tweeted a not safe for work summary of his take regarding the dialogue with his former counsel, for those curious. [And here is one of those ads mentioned in the last bullet, maybe Larry David had the right idea after all?]

Disciplinary Commission issues advisory opinion for law firms on imputed conflicts of interest” —

  • “The Indiana Supreme Court’s Disciplinary Commission on Friday published a nonbinding advisory opinion focused on Rules of Professional Conduct Rule 1.10, which outlines when a law firm is prohibited from representing a client based on imputed conflicts of interest.”
  • “In short, the commission reminded law firms should decline to represent, or withdraw from representing, a client when any individual lawyer at the firm (or joining the firm) is conflicted from the representation.”
  • “This is the situation unless the conflict is personal to that lawyer, or unless the affected clients have provided informed consent, the commission wrote.”
  • “‘When a lawyer departs a firm, the firm can represent parties adverse to the departing lawyer’s client unless the matter is the same or substantially related to the one the departing lawyer worked on while at the firm, or others remaining at the firm have information that would preclude representation under Indiana Professional Conduct Rules 1.6 and 1.9,’ the advisory opinion states. ‘A firm is not required to withdraw from a case if a lawyer joining the firm worked on behalf of an adverse party if the lawyer was not the primary lawyer on the case; the lawyer is effectively screened from the case at the firm; and sufficient written notice is provided to affected clients.'”
  • “The disciplinary commission further wrote that when potential conflicts inevitably arise in practice, firms need to have effective conflict check procedures, including, ‘carefully screening matters against the client matters of incoming and outgoing lawyers; taking steps to avoid entering an appearance on a case when a Rule 1.10 conflict exists; and, when possible, avoiding disqualification of the firm from current matters.'”
  • More details and scenarios in their advisory opinion.
Risk Update

Law Firm DQ Fights — Ethical Walls and Screens Spotlighted, Conflict-driven Counsel Change Causes Controversy

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Leon Black’s law firm fights disqualification bid in Russian model’s case” —

  • “A law firm defending billionaire investor Leon Black in a defamation and sexual misconduct lawsuit is fighting to keep its role in the case, after Black’s accuser said the firm should be disqualified for hiring a New York prosecutor who once investigated him.”
  • “Last month Ganieva said Perry Guha should be thrown off the case because the law firm had recently hired Illuzzi-Orbon from the Manhattan District Attorney’s Office, where she led the trial division.”
  • “Illuzzi-Orbon received confidential information about Black, the former head of private equity firm Apollo Global Management Inc, when Ganieva reported his alleged sexual misconduct to Manhattan prosecutors last year, Ganieva alleged. Allowing Perry Guha to stay on as Black’s counsel would be a flagrant ethical violation, she argued.”
  • “But in an affidavit filed Tuesday in New York County Supreme Court, Illuzzi-Orbon said she is ‘completely walled off’ from Perry Guha’s work on Black’s case.”
  • “Perry Guha separately called Ganieva’s move to disqualify it ‘shameful,’ saying it was not based on any actual conflict. Samidh Guha, a partner at Perry Guha, said in a statement the disqualification motion is ‘a cynical litigation tactic that has no basis in law or fact.'”
  • “Illuzzi-Orbon told the court she could not publicly confirm or deny any investigation of Black by the Manhattan District Attorney’s Office. She added that her former office ‘had no concerns about the propriety of my work with Perry Guha or my conduct.'”
  • “Lawyer Jeanne Christensen, a partner at Wigdor representing Ganieva, said Perry Guha’s filings this week indicate that they did not ‘give notice’ about Illuzzi-Orbon’s hire ‘or implement any screening formally in their office for months.'”
  • “Last month, Black filed a separate lawsuit against Ganieva and her law firm Wigdor, alleging Ganieva broke a confidentiality agreement she had with him. That case is also pending in New York County Supreme Court.”

California Lawyers Union Sues to Void State Use of Outside Firms” —

  • “California’s Civil Rights Department violated state contracting law when it outsourced legal services for two high-profile discrimination lawsuits, according to a complaint filed Wednesday by the union representing state-employed attorneys.”
  • “‘CASE and its members have been irreparably harmed by the Board Decision as it authorizes the outsourcing of legal work that could and should be performed by CASE members, who are rank-and-file civil service attorneys employed by the State of California,’ according to the complaint.”
  • “The Civil Rights Department, then known as the Department of Fair Housing and Employment, sued Riot Games in 2020 on behalf of female employees who said they faced sexual harassment, unequal pay, and other forms of gender bias. Three years later, the agency went after Activision over similar allegations.”
  • “The agency hired the two firms because the civil-service lawyers faced potential conflicts of interest in each of the video game company lawsuits, according to the civil rights agency.”
  • “In the Activision case, state-employed attorneys faced a potential conflict due to their previous work with the federal Equal Employment Opportunity Commission.”

Improve Legal Risk Management and Compliance — How Midsize Law Firms Can Continue to Thrive in a Post-pandemic Market (Sponsor Spotlight)

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In this month’s sponsor spotlight, Intapp highlights recent analysis and advice from Bryn Bowen, Practice Group Leader, Legal Risk: “Improve legal risk management and compliance: How midsize law firms can continue to thrive in a post-pandemic market” —
  • “During the last year, midsize law firms have increased demand, maintained productivity, and experienced lower turnover overall than small and large firms.”
  • “Risk and compliance, for example, remains a complex area that firm leaders struggle to properly address. Oftentimes, midsize firms lack the resources to properly manage compliance for the numerous matters they work on, while a general lack of knowledge around the evolving best practices for due diligence increases the risk of accepting unfavorable clients.”
  • “The American Bar Association (ABA) also amended Comment 8 to Model Rule 1.1, which now requires that lawyers keep abreast with the capabilities of available technology and ensure its use will properly serve their clients; furthermore, lawyers must be competent in actually using that technology, and must ensure compliance with all other ethical responsibilities. By failing to implement or properly use suitable available technology, lawyers put their clients’ data at risk and may unintentionally run afoul of the ethics guidelines.”
  • “Many midsize firms want risk and compliance tools that are equal or superior to those used by larger firms, and that will provide the same qualitative analysis and protection that large firms often enjoy.”
  • “OnePlace Risk & Compliance, a cloud-based and AI-powered Intapp suite, can help your firm improve conflicts clearance, mitigate risk, and ensure compliance throughout the client lifecycle. Like all Intapp products, OnePlace Risk & Compliance was designed by experts who have a deep understanding of the unique characteristics, complexities, and challenges of midsize law firms. Clients can count on Intapp technology to meet their specific needs that other generic solutions fail to address.”
  • “Throughout their lifetime, these tools can substantially reduce the need for non-knowledge work associated with admin processes, and by largely automating administrative tasks such as new business intake, your firm can onboard clients and accept new engagements more quickly. Additionally, by leveraging advanced AI-powered tools, your firm can reduce the risk of human error and better determine which clients and matters are problematic or profitable.”
  • “Midsize law firms need to examine the lifecycle of all their work and ensure that all standards and requirements are continually being met. Properly equipped with the right software, your firm can successfully and efficiently manage risk and compliance throughout every stage of the client relationship lifecycle to improve the overall performance of your firm.”

For more detail, see the complete blog post.

Risk Update

Law Firm Conflicts News — Earplug Bankruptcy Conflict Cleared (With a Catch), Whistleblower Conflict Called, Private Equity/Finance/Auction Conflicts Management

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Texas Doc Claims Atty Had Conflict In Whistleblower Case” —

  • “A Texas doctor who was hit with a judgment of more than $2.5 million is claiming in a new lawsuit that his interests were in conflict with other defendants also represented by his former lawyer, who is now a senior counsel with Clark Hill PLC.”
  • “Dr. Emelike Agomo alleges that Lara Maria Longo, formerly Lara Maria Silva of the Silva Law Firm, should not have represented him while also representing his then-employer Outreach Eye Care because he was a salaried employee who had little to do with the fraudulent billing that led to the multimillion-dollar judgment for False Claims Act violations in the Southern District of Texas.”
  • “In the complaint filed Friday in a Texas district court in Harris County, Agomo claims Longo is guilty of malpractice and breach of fiduciary duty.”
  • “U.S. District Judge Lynn N. Hughes found Agomo and the owner of Outreach Eye Care, Dr. Mustapha Kibirige, liable for wrongful billing to Medicare for glaucoma testing in an order granting partial summary judgment in March 2020. The relator in the whistleblower suit is an optometrist who alleged that he repeatedly told Agomo, the clinic’s former medical director, that the procedure they were billing for wasn’t authorized under the medical code they were using and which resulted in fraudulently obtained payments from Medicare.”
  • “Agomo said Longo’s representation fell below acceptable standards for attorneys when she took him on as a client along with co-defendants whose interests were in conflict with his and when she failed to ‘disclose and inform’ him of the conflict.”
  • “Agomo further faults Longo for keeping him ‘entangled’ with his former employer and for ‘failing to withdraw as soon as she came to the knowledge that the plaintiffs in the underlying action sought to nail Dr. Agomo with a humongous judgment along with the other co-defendants.'”

Law firm Kirkland cleared to represent bankrupt 3M earplug subsidiary” —

  • “A U.S. bankruptcy judge on Thursday allowed Kirkland & Ellis to continue representing bankrupt 3M subsidiary Aearo Technologies, rejecting calls to disqualify the firm because of its work defending 3M in a massive litigation over allegedly defective military earplugs.”
  • “U.S. Bankruptcy Judge Jeffrey Graham in Indianapolis said that Aearo and 3M do not have conflicting interests, as both companies are working to reach a bankruptcy settlement that would resolve more than 200,000 lawsuits they are facing alleging that 3M’s earplugs contributed to veterans’ hearing loss.”
  • “A conflict could arise in the future, if, for example, Aearo and 3M disagreed about the terms of a future settlement, Graham said. If that happened, Kirkland could face disqualification, loss of fees, or even potentially the dismissal of Aearo’s bankruptcy case, according to the judge.”
  • “‘Kirkland & Ellis is navigating a minefield,’ Graham said. ‘This isn’t a blanket endorsement saying that K&E is in the driver’s seat no matter what happens in the future.'”
  • “Kirkland’s Mark McKane told Graham that his firm’s deep knowledge of the earplug litigation would benefit Aearo’s restructuring effort, and that the firm had put guardrails in place to prevent future conflicts from derailing the case.”
  • “Kirkland has defended 3M in the MDL, and it represents Aearo in the bankruptcy case that was meant to spur a settlement of the earplug lawsuits. Aearo’s bankruptcy filing failed to pause the lawsuits against 3M, and the bankruptcy is proceeding in parallel with consolidated litigation in Florida federal court.”
  • “The plaintiffs and the U.S. Department of Justice’s bankruptcy watchdog sought to disqualify Kirkland from representing Aearo in the bankruptcy, saying it could not faithfully serve both Aearo and 3M.”

Managing and mitigating conflicts of interests in GP-led transactions” —

  • “GP-led secondary transactions enable a sponsor or general partner (GP) to manage one or more existing assets in a newly formed fund capitalized by new investors through a fund restructuring. These transactions are often proffered as a win-win-win — for GPs, investors and buyers — but as the market continues to expand against a backdrop of increased regulatory scrutiny, navigating the conflicts of interests has become increasingly important. This article explores key considerations in managing conflicts of interests in GP-led transactions.”
  • “GP-led transactions present an inherent conflict of interest due to the GP’s position as both seller and buyer… To further complicate the web of conflicts, GPs may offer co-investment or staple investment opportunities for other funds managed by the GP as part of the transaction.”
  • “One of the first steps a GP should take in mitigating conflicts is to survey the governing documents relevant to the existing fund, including the operating agreements, side letters, offering documents, other fund documents and underlying asset documents. These documents may contain provisions concerning restrictions, rights and obligations relevant to the transaction, including clawback obligations, consent requirements, rights of first refusal and tag and drag rights.”
  • “Legal diligence of the fund documents can also unveil whether amendments will be required and provide guidance on the voting requirements for the limited partner advisory committee (LPAC).”
  • “An important role of the LPAC in any private fund is to advise on conflicts for related-party transactions. As such, another important early step in managing conflicts is engaging the LPAC to ultimately obtain its waiver of any conflict.”
  • “Many GPs approach the LPAC for informal approval in the early stages of exploring a transaction before the sale process is actually initiated and then obtain formal approval once bids from prospective buyers are received.”
  • “Certain LPAC members may need to recuse themselves from the formal approval if their institution intends to participate as a prospective buyer. While the LPAC is not charged with approving the terms or price of the transaction, full and fair disclosure of all material terms of the transaction and potential conflicts of interests is essential.”
  • “The LPAC will want to understand why the proposed transaction is the best option for existing investors and what price discovery methods the GP intends to employ. In some instances, the LPAC may request a fairness opinion or third-party valuation.”
  • “A fairness opinion is produced by an independent opinion provider or valuation agent and opines on whether the price being offered is within a fair range. Typically, the opinion is accompanied by a valuation report focused on pricing the target assets. While fairness opinions are used to help mitigate conflicts of interest, they do not necessarily ensure the highest price and other price legitimization tools exist.”
  • “Recently, some GPs have coupled the GP-led auction process with a minority direct sale to a third party. If the GP ran a direct sale process to no avail or the price offered in connection with the GP-led sale process is better, these facts also help mitigate concerns around conflicts of interest with respect to price.”
  • “Offering existing investors the opportunity to roll on the same economic terms and conditions as the existing fund (a ‘status quo’ option) can also mitigate conflicts of interest.”
  • “In order to successfully navigate the conflicts of interest present in GP-led transactions, GPs must carefully consider the various mitigation tools available and tailor their approach based on the specific conflicts present.”
Risk Update

Clients, Judges, Conflicts & Risk Management — On Client Non-engagement Declination Letters, Judicial Stock Dealings Database Now Online

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How to Stop Having to Write and Send Declination Letters” —

  • “Declination letters, also referred to as non-engagement letters, are those letters that say, “thanks, but no.” Some lawyers use them religiously and others not so much. Those in the not-so-much crowd apparently just don’t see the need and the excuses vary. Such letters may be viewed as unwarranted in most matters, irrelevant, or not cost-effective in terms of the necessary time and energy to prepare.”
  • “If you count yourself as a proud member of the not-so-much crowd, you need to hearthat those excuses are just that, excuses. Declination letters have their place as an effective risk management tool. As such, they should never be dismissed out of hand because the failure to write and send one of these letters can pave the way for a viable malpractice claim.”
  • “While I will readily admit that the number of malpractice claims that arise as the result of a failure to write and send out a declination letter isn’t large, this doesn’t mean we never see them. We certainly do. Sometimes these claims are the result of a missed conflict of interest. In short, the creation of a declination letter was what normally would trigger the entering of the name of a declined client into the conflict database. No letter, no name entry, no memory, and no hit when a name search is eventually run. Whoops.”
  • “More frequently, the claim involves an allegation of failing to move a matter forward in some fashion. Most concerning are the times when the claim is made after a statute of limitations date has run. Of course, the subject lawyer will always state there was never any obligation to do anything further and the prospective client will always claim otherwise. Here’s the problem. If the lawyer is unable to provide documentation that an attorney-client relationship never was established, which is exactly what declination letters do, this lawyer will be facing an uphill battle.”
  • “Lawyers often use a client intake form during the initial consultation. If you do so as well, consider making a few modifications to this form that will allow you to use it to conveniently document an engagement or declination. At the conclusion of the initial consultation, give the prospective client a copy of the client intake form, and then you and your prospective client will sign both the copy and the original.”
  • “And then at the end of the client intake form, you would add something similar to the following… If I do not agree to represent you, then we have not formed an attorney-client relationship, even though we had this initial consultation. Neither this firm nor I will represent you on the matters set forth in this client intake form or discussed during this initial consultation… By signing below, you acknowledge that you have received a copy of this completed client intake form. Your signature also confirms that you understand that I have not been hired as your attorney and that this firm will take no further actions on your behalf.”

US Courts Begin Posting Judge Stock Disclosures Online” —

  • “An online database for tracking stock and other financial disclosures by federal judges went live Monday, a congressionally mandated site aimed at making information about courts more accessible to the public.”
  • “The database includes annual financial disclosure reports and periodic disclosures for transactions over $1,000 for federal judges for 2021 and 2022. It comes two days ahead of a deadline set by Congress to create such a database as part of a law, the Courthouse Ethics and Transparency Act (P.L. 117-125), enacted in May. “
  • “The database was praised as progress by advocates, who also pointed out shortcomings like the number of steps users must take to access records. Currently, 600 of about 2,400 reports have been filed, with more coming, a spokesman for the Administrative Office of the US Courts said.”
  • “Congressional efforts to require the judiciary to create a financial disclosure database came after the Wall Street Journal reported that more than 130 federal judges failed to recuse in cases where they or a family member had a financial stake.”
Risk Update

Lawyer Conflicts Complexities — More Verein Pain, Ethical Wall Declarations, Lawyer Staff Sharing Ethics Rules,

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Dentons Loses $32 Million Challenge to Swiss Law Firm Model” —

  • “Dentons lost its latest bid to overturn a $32.3 million legal malpractice award it must pay a former client.”
  • “The Ohio Supreme Court’s decision Tuesday could have implications for the Swiss verein law firm ownership model used by Dentons and other major firms. Swiss verien firms market services from loosely affiliated legal operations under a single brand.”
  • “The ruling treats affiliated firms as the same entity for conflict-of-interest purposes. That means firms will have to drop clients or sit out matters if there is a conflict based on work that affiliates are doing for other clients.”
  • “The high court declined to reconsider the award for RevoLaze Inc., a former Dentons client. A state court ruled that Dentons had a conflict of interest when it represented RevoLaze because a Dentons affiliate in Canada represented Gap Inc., which RevoLaze had sued for patent infringement.”
  • “At least six major US law firms have adopted the Swiss verein model, including DLA Piper, Squire Patton Boggs, Baker McKenzie, Norton Rose Fulbright and Littler Mendelson.”
  • “Dentons global chairman Joe Andrew said in July interview that the firm isn’t considering changing its ownership model, which has allowed for rapid growth. He also suggested that the firm could try to take its case to federal court.”
  • “Swiss verein firms are not likely to overhaul their business structures as a result of the decision, according to Cassandra Burke Robertson, director of the center for professional ethics at Case Western Reserve University School of Law, ‘The potential risk of liability for conflict of interest can be managed separately, either by seeking client consent to waive potential conflicts or to limit the clients that are accepted by the firm,’ she said via email.”
  • “The case may, however, serve as a ‘cautionary note,’ Robertson said. The ruling encourages firms to conduct careful conflicts reviews before accepting a new client, she said, and to make a full disclosure to clients in the event that a conflict arises after representation has begun. “

Brooke Jenkins Swears She Did Not Violate Ethics in Case Involving Family Member’s Killing” —

  • “San Francisco District Attorney Brooke Jenkins swore under oath that she did not violate any ethical rules in a murder case where the victim was a member of her family, a filing obtained by The Standard shows.”
  • “The case—one of two in which Jenkins has a conflict of interest—involves the alleged killers of 18-year-old Jerome Mallory, her husband’s cousin.”
  • “‘I have never breached the ethical wall in this case,’ Jenkins said in a sworn declaration filed in the case. ‘I have never accessed any district attorney files, papers or electronic, or investigative files, and did not direct the investigation of this case in any way or attempt to influence the production of this case.'”
  • “…Attorney General Rob Bonta has weighed in, arguing that the existing ethical walls—systems in place that limit Jenkins’ personal interactions with the case—erected before and after Jenkins took office, are sufficient for fair trials.”
  • “Now, defense attorneys have filed a recusal motion, asking a judge to make the final decision on who handles the case.”
  • “After Jenkins left the District Attorney’s Office in October 2021, she began working to oust her former boss Chesa Boudin, in a successful June recall campaign. In that time, she made public statements about how she thought that Boudin was not handling the Mallory case appropriately.”
  • “Pam Herzig, who is representing Mitchell, said in court Monday that the central issue is the public statements Jenkins made about the case after she left the DA’s Office. ‘The court can’t take her at her word,’ said Herzig about Jenkins’ declaration.”
  • “A lawyer for the Attorney General’s Office argued to the court that defense attorneys require proof via declaration that ethical walls were breached, not simply public statements made by Jenkins.”

Ohio ethics opinion provides valuable insight on office-sharing considerations” —

  • “Earlier this month, the Ohio Board of Professional Conduct (‘Board’) issued an Opinion which provides guidance to attorneys engaged or contemplating engaging in an office-sharing arrangement.”
  • “While nonlawyer staff can generally be shared, there are limitations. The Board cites Ky. Ethics Op. E-406 and cautions that when lawyers sharing office space represent adverse clients in a matter, the same nonlawyer staff member cannot be assigned to both lawyers during the representation.”
  • “The Board recommends implementing a written policy to identify conflicts when office sharing lawyers do use the same nonlawyer staff.”
  • “And though not addressed in the Opinion, one could certainly imagine problems, even disqualification, if steps are not implemented to ensure that documents are not segregated from staff working for adverse parties.”
  • “The Board recommends separating and safeguarding electronic and physical client files from other lawyers’ filing systems, keeping all in-person, telephonic, electronic, and written communications regarding clients in a manner to prevent unintentional disclosure; and ensuring that staff and lawyers alike refrain from communicating with or about clients in waiting and common areas. Lawyers should train nonlawyers staff on how to protect confidential client information.”
  • “DC’s Opinion 303 reminds lawyers that office sharing arrangements by unaffiliated attorneys can create a risk of public