Bressler Risk Blog

“Judge Dismisses Legal Mal Suit Against Cozen O’Connor for Second Time” —

• “A federal judge has again dismissed a legal malpractice suit against Cozen O’Connor after an appeals court determined the district court improperly analyzed the plaintiff’s complaint the first time around.”
• “This time examining Cozen O’Connor’s motion to dismiss as a merits-related standing issue, U.S. District Judge Nitza Quiñones Alejandro of the Eastern District of Pennsylvania determined Thursday that the plaintiff’s amended complaint failed to state a claim.”
• “The plaintiffs, Adam Potter and Moxie HC, filed suit against Cozen O’Connor in 2020 over an alleged conflict of interest in selling several companies in which the plaintiffs owned 100% membership interest.”
• “According to the Thursday opinion, then-Cozen O’Connor attorney Anne Blume advised Potter on the sale of his companies to another firm client. Potter claimed that Blume denied the existence of a conflict of interest surrounding the firm’s representation of both the buying and selling entities in the transactions.”
• “After the deal’s close, however, the shareholders allegedly learned their company had been sold substantially below market value, and that confidential information Blume learned while working with Potter had been used to aid the purchaser.”
• “But Alejandro ruled that because the terms of the asset purchase agreement stated the companies were to receive the purchase price, an allegedly unfair sale would harm the companies themselves. As shareholders, Alejandro held, the plaintiffs did not suffer direct harm and therefore did hot have standing to sue.”

“FTX’s Law Firm Hit With Queries on Work Before Crypto Collapse” —

• “FTX’s legal troubles are reaching its law firm, Fenwick & West, which faces federal law enforcement subpoenas and a class-action lawsuit tied to the failed crypto exchange.”
• “Bankruptcy counsel for FTX has discussed ‘federal law enforcement subpoenas to Fenwick’ with the law firm’s general counsel, Kathryn Fritz, according to a court document filed in March.”
• “Fenwick is also among a number of companies targeted with a class-action lawsuit alleging the firm helped aid a massive fraud led by Sam Bankman-Fried, the FTX founder now facing 13 criminal charges. Services Fenwick provided were ‘central to SBF’s fraud,’ according to a February suit filed in Miami federal court on behalf of a proposed class of investors.”
• “It’s awkward for any law firm to answer questions about actions for a client but particularly for Silicon Valley-founded Fenwick, which cemented its reputation as a go-to operation for the world’s top tech companies after it helped Steve Jobs incorporate Apple Inc. in 1976. The firm, whose clients have included Amazon.com Inc., Tesla Inc. and Meta Platforms Inc., nearly doubled its revenue in the five years leading up to 2021.”
• “‘Any time you have even the hint of regulatory impropriety in the practice of law, you and the firm take a hit,’ said James Cox, a Duke University law professor. ‘It’s hard to say how long it lasts and how deep it is. But it’s certainly not a feather in your cap.'”
• “Fenwick advised FTX and its sister trading shop, Alameda Research, on areas including trademarks, tax and litigation before the crypto exchange’s implosion into bankruptcy in November. It also helped set up US-based companies affiliated with FTX and Alameda.”
• “Daniel Friedberg, once the Seattle-based chair of Fenwick’s payments practice, joined FTX in 2020 and would later become its chief regulatory officer. Former FTX general counsel Can Sun was a past Fenwick associate.”
• “Fenwick has axed references to FTX on its website. The firm trimmed FTX from a list of prominent clients on its homepage.”
• “‘Fenwick & West helped FTX to develop ‘compliance’ procedures designed to skirt FTX’s regulatory obligations or conceal its noncompliance,’ the class action suit, which seeks unspecified monetary damages from Fenwick, alleges. The complaint besides Fenwick targets 20 other third parties with an alleged FTX connection, including auditors and venture capital firms.”
• “Finding a third-party such as a law firm liable for any underlying fraud is a steep hurdle, said Patrick Coughlin, a Scott & Scott lawyer who represented shareholders of Enron following its collapse.”

A reader sent word of: “Clarence Thomas Secretly Accepted Luxury Trips From Major GOP Donor” —

• “In late June 2019, right after the U.S. Supreme Court released its final opinion of the term, Justice Clarence Thomas boarded a large private jet headed to Indonesia. He and his wife were going on vacation: nine days of island-hopping in a volcanic archipelago on a superyacht staffed by a coterie of attendants and a private chef.”
• “If Thomas had chartered the plane and the 162-foot yacht himself, the total cost of the trip could have exceeded $500,000. Fortunately for him, that wasn’t necessary: He was on vacation with real estate magnate and Republican megadonor Harlan Crow, who owned the jet — and the yacht, too.”
• “For more than two decades, Thomas has accepted luxury trips virtually every year from the Dallas businessman without disclosing them, documents and interviews show. A public servant who has a salary of $285,000, he has vacationed on Crow’s superyacht around the globe.”
• “These trips appeared nowhere on Thomas’ financial disclosures. His failure to report the flights appears to violate a law passed after Watergate that requires justices, judges, members of Congress and federal officials to disclose most gifts, two ethics law experts said. He also should have disclosed his trips on the yacht, these experts said.”
• “Through his largesse, Crow has gained a unique form of access, spending days in private with one of the most powerful people in the country. By accepting the trips, Thomas has broken long-standing norms for judges’ conduct, ethics experts and four current or retired federal judges said.”
• “‘It’s incomprehensible to me that someone would do this,’ said Nancy Gertner, a retired federal judge appointed by President Bill Clinton. When she was on the bench, Gertner said, she was so cautious about appearances that she wouldn’t mention her title when making dinner reservations: ‘It was a question of not wanting to use the office for anything other than what it was intended.'”
• “Virginia Canter, a former government ethics lawyer who served in administrations of both parties, said Thomas ‘seems to have completely disregarded his higher ethical obligations.'”
• “‘When a justice’s lifestyle is being subsidized by the rich and famous, it absolutely corrodes public trust,’ said Canter, now at the watchdog group CREW. ‘Quite frankly, it makes my heart sink.'”
• “Federal judges sit in a unique position of public trust. They have lifetime tenure, a privilege intended to insulate them from the pressures and potential corruption of politics. A code of conduct for federal judges below the Supreme Court requires them to avoid even the ‘appearance of impropriety.’ Members of the high court, Chief Justice John Roberts has written, ‘consult’ that code for guidance. The Supreme Court is left almost entirely to police itself.”
• “Thomas’ approach to ethics has already attracted public attention. Last year, Thomas didn’t recuse himself from cases that touched on the involvement of his wife, Ginni, in efforts to overturn the 2020 presidential election. While his decision generated outcry, it could not be appealed.”
• “Crow said that he and his wife have funded a number of projects that celebrate Thomas. ‘We believe it is important to make sure as many people as possible learn about him, remember him and understand the ideals for which he stands,’ he said.”

“Clarence Thomas says trips paid for by billionaire were ‘personal hospitality,’ not business” —

• “Thomas said in a statement that Crow and his wife, Kathy, are ‘dearest friends’ and that he and his wife have joined them on family trips for years.”
• “‘Early in my tenure at the Court, I sought guidance from my colleagues and others in the judiciary, and was advised that this sort of personal hospitality from close personal friends, who did not have business before the Court, was not reportable,’ Thomas said.”
• “‘I have endeavored to follow that counsel throughout my tenure, and have always sought to comply with the disclosure guidelines,’ he added.”

“Supreme Court justices under new ethics disclosures on trips, other gifts” —

• “Supreme Court justices and all federal judges must provide a fuller public accounting of free trips, meals and other gifts they accept from corporations or other organizations, according to revised regulations quietly adopted this month.”
• “The new requirements mark a technical but significant change that lawmakers and court transparency advocates hope will lead to more disclosure by judges and justices and also make it easier for parties in specific cases to request that judges remove themselves from cases when potential conflicts arise.”
• “Gifts such as an overnight stay at a personal vacation home owned by a friend remain exempt from reporting requirements. But the revised rules require disclosure when judges are treated to stays at commercial properties, such as hotels, ski resorts or corporate hunting lodges. The changes also clarify that judges must report travel by private jet.”
• “The revisions come after years of pressure from members of Congress, who say the judiciary should follow ethics guidelines closer to those that apply to the executive and legislative branches.”
• “Rules around subsidized trips are not the only questions of ethics at the Supreme Court recently. Separately, the court has been under pressure to adopt a code of conduct specific to the nine justices. The high court has failed to reach consensus on a policy despite discussion that dates to at least 2019. Last month, leaders of the American Bar Association joined those calling on the court to act, saying that ‘the absence of a clearly articulated, binding code of ethics for the justices of the Court imperils the legitimacy of the Court.'”
• “The justices are not bound by the code of conduct that covers other U.S. judges. They say they voluntarily comply with the same ethics standards. But scrutiny of the justices has increased with the court’s heightened profile as a new conservative majority has moved quickly to rule on polarizing cases.”
• “The new disclosure rules clarifying what constitutes personal hospitality apply to more than 3,000 judges nationwide, a group that includes senior judges, magistrate judges and Supreme Court justices.”
• “That change would not have been needed at all had the judiciary been following the law the way Congress and the executive branch claimed to be following it, according to Kedric Payne, senior director for ethics at the Campaign Legal Center, an advocacy group. ‘We don’t know if the Supreme Court justices are, on their own, interpreting this rule to allow them to hide these gifts,’ he said of the exemption.”

CNA reminds us: “A Bad Economy Increases Risks for Lawyers” —

• “Experts may disagree as to whether we are in a recession, but there is no question that our economy has been in a weakened state for a lengthy time period, which may impact professional liability claims for lawyers. For example, virtually all areas of practice for lawyers showed an increase in claims as a result of the 2008-09 recession. As a result, lawyers should be keenly aware of liability exposure as professional liability claims tend to increase during bad economies.”
• “Avoid the Risky Client. Financial pressures may force some law firms to consider potential clients that they would probably decline in better economic times. Such law firms need to balance the need for increased revenue against the liability risks of accepting a marginal client. Client intake represents a critical component in endeavoring to avoid legal malpractice claims.”
• “Decline to Dabble. During tough economic times, some lawyers may be tempted to dabble in practice areas in which they have no experience in order to earn more law firm revenues. However, the risks may outweigh the rewards for lawyers who deviate from their traditional areas of practice.”
• “Think Twice Before Suing a Client for Fees. Another tactic firms often employ to boost their accounts receivable is to bring collection actions against clients who have not paid their invoices for legal fees and expenses. Notably, such collection lawsuits often result in counterclaims for legal malpractice.”
• “Guard Against Conflicts of Interest. Financial concerns may lead law firms to slash expenses related to their risk control protocols, such as the personnel and resources devoted to conflict of interest checking systems… But saving a little money upfront in exchange for a weaker conflict of interest system and later expending money, time, and resources due to a professional liability claim arising from a missed conflict of interest issue becomes penny wise and pound foolish.”
• “Communicate Regularly with Clients and Discuss the Impact of a Bad Economy on Their Matters. Documenting your client file strengthens client communications and may protect lawyers against professional liability claims. A well drafted engagement letter with a narrowly tailored “Scope of Representation” provision will help set expectations at the outset of the attorney-client relationship. Throughout the course of the representation, lawyers should have a paper (or electronic) trail of correspondence with the client referencing any legal advice provided, summaries of discussions on the benefits and risks of a particular litigation or transaction strategy, and client decisions regarding settlement negotiations, among other issues. Memorializ- ing these interactions is critical in the event that the client decides to act contrary to your advice, sets time or financial constraints upon your representation, or tells you not to pursue certain causes of actions, defenses, or other important issues.”
• “Address Errors Promptly. Lawyers may commit errors at any point in their careers, but as noted earlier, claims typically rise in a bad economy and financial pressures may increase the likelihood of an error that leads to a professional liability claim. Errors can run the gamut from minor and correctible to substantial and damaging.”

“City of Atlanta Reaches $3.3M Settlement as Outside Counsel Hit With $584K Sanction” —

• “More than a decade after an improperly working traffic signal contributed to a deadly crash, the city of Atlanta has settled a nuisance complaint for $3.35 million.”
• “Plaintiff counsel credits the settlement as “the largest amount the city has ever paid to settle a personal injury [or] nuisance case,” but alleged the improper conduct of the defendant’s initial trial counsel has resulted in an additional $584,000 sanction for attorney fees and expenses.”
• “Rogers said plaintiff counsel learned of multiple occasions leading to the date of their client’s January 2012 death ‘where employees had reported this signal, and others, not working.'”
• “But it’s what the city’s outside defense counsel with Scrudder, Bass, Quillian, Horlock, Lazarus & Adele allegedly did after the jury had been selected that led the trial judge to later award a $584,000 sanction against it.”
• “‘We spent two days picking a jury, only at the last minute to have counsel for the city stand up and announce they had just discovered a conflict and needed to withdraw from the case,’ Rogers said. Led by Matthew Lazarus, Scrudder Bass counsel allegedly refused to divulge to the court and opposing counsel the specifics of the conflict, according to plaintiff counsel.”
• “When the city’s continued refusal resulted in Jacobs declaring a mistrial, plaintiff counsel said the trial judge issued its own sua sponte motion for sanctions against the city of Atlanta Law Department and Scrudder Bass. The court also allowed the Dietch + Rogers attorneys to conduct discovery to determine the conflict.”
• “The conflict turned out to be time records that revealed a city employee had not worked on the dates relevant to two service requests that’d been submitted bearing her credentials.”
• “But in his motion for sanctions, Jacobs determined ‘a review by Scrudder Bass and the City of Atlanta Law Department of the documents produced by their clients would have revealed the conflict years ago.'”
• “‘These records were not obscured, as they had been the subject of pretrial motions and relied upon in eliciting deposition testimony,’ Jacobs’ sanctions order read. ‘The prospect that [the employee] might not have authored the Service Requests was specifically raised during her deposition almost four years prior to trial.'”
• “Jacobs wrote that, because ‘the documents would and should have been in the possession of the City of Atlanta Law Department’ and ‘Scrudder Bass after their early 2018 entry of appearance,’ the firm’s discovery of the conflict ‘after the jury had been selected on March 2, 2022, rather than any point prior to trial cannot be the result of proper conduct.'”
• “‘Of course, to be clear, the disclosure of the conflict itself is not what the Court finds improper,’ Jacobs wrote. ‘The Court finds improper the overall conduct surrounding the disclosure, i.e., the failure to timely disclose an apparent conflict to the point that a mistrial resulted when the necessary disclosure was made after a jury had been selected. There was ample opportunity for counsel to satisfy their real professional duties and obligations without necessitating a mistrial.'”

“CNN anchor appears stunned as one Trump attorney throws another under the bus” —

• “There was an odd moment of apparent legal one-up-manship on CNN during an interview regarding the representation of Donald Trump following his indictment.”
• “Asked by CNN anchor Kaitlan Collins if Mr Tacopina was the ‘right person’ to defend the former president against the more than 30 charges purportedly in the sealed New York indictment, Mr Parlatore [one attorney for the former president] brought up a significant conflict of interest.”
• “‘As to who’s going to try the case? I know that Joe has certain potential conflict issues, given his prior contacts, with Stormy Daniels. So, who’s the right attorney, to take it to trial, is something that the client will have to decide.'”
• “Mr Parlatore walked back his reply when Collins pressed him on it and said he would not comment on Mr Tacopina, despite having just done so.”
• “Mr Tacopina had exchanges with Ms Daniels in 2018 regarding potential representation and these were handed over to the Manhattan District Attorney’s office by her current lawyer Clark Brewster who sees them as a conflict of interest.”
• “Mr Tacopina has denied any conflict of interest or that confidential information was shared with him or his office. He has also denied ever meeting or speaking with Ms Daniels.”
• “In addition, in a 2018 appearance on CNN, Mr Tacopina seemed to criticise Mr Trump’s payments to Ms Daniels as potentially ‘illegal’ and a ‘fraud.'”

“He already rocked MAGA world — twice. Now he’s Trump’s judge.” —

• “Donald Trump fumed last week that the judge conducting his arraignment Tuesday — and likely overseeing his criminal trial — ‘HATES ME.'”]
• “The basis for Trump’s assessment, made on Truth Social Friday, is that the judge, Juan Merchan, presided over two unrelated criminal tax fraud cases involving Trump’s real estate firm and his former CFO, both of which resulted in outcomes unfavorable to the defense. In the case of former CFO Allen Weisselberg, Merchan, citing corporate greed, said he would have imposed a ‘stiffer sentence’ than the five months jail time the ex-executive got from a plea deal.”
• “Given that history, some New York lawyers suggested it would be bad optics for Merchan to preside over the new case against Trump. The court’s chief judge could intervene and handle the trial herself or replace Merchan with a different judge, according to a former court official.”
• “But experts said there’s no legal basis to bar Merchan from presiding.”
• “‘If there were some facts showing that the judge had become irrational or infuriated then there might be an argument, but simply having sat in these other cases is not grounds for disqualification,’ said Steven Lubert, co-author of ‘Judicial Conduct and Ethics.'”

“New York Law Firm Pays $200,000 to State AG to Resolve HIPAA Violations” —

• “A New York law firm that suffered a LockBit ransomware attack has agreed to pay a financial penalty of $200,000 to the New York Attorney General to resolve alleged violations of New York General Business Law and the Privacy and Security Rules of the Health Insurance Portability and Accountability Act (HIPAA).”
• “On or around Christmas Day 2021, the LockBit ransomware gang gained access to its network and encrypted files. The investigation confirmed that files were exfiltrated in the attack, including legal documents, patient lists, and medical records. The patient information included names, birthdates, medical histories, treatment information, Social Security numbers, and health insurance information.”
• “The investigation confirmed the LockBit gang gained access to its network in November 2021 by exploiting unpatched Microsoft Exchange vulnerabilities.”
• “The incident was investigated by the Office of the New York Attorney General to determine whether the law firm had violated state laws and the HIPAA Rules. The NY AG determined the vulnerabilities exploited by the LockBit gang had been identified by Microsoft in April and May 2021 and patches had been released shortly thereafter to fix those vulnerabilities. Despite the vulnerabilities being well known, they remained unpatched for more than 6 months, which left firm’s email server vulnerable to attack.”
• “The NY AG determined 17 provisions of the HIPAA Privacy and Security Rules had been violated and there were also violations of New York General Business law by failing to implement reasonable security practices to protect private information and the failure to issue timely notifications to 61,438 New York residents.”

“ABA Outlines Choice-of-Law Issues for Multijurisdictional Ethics” —

• “A lawyer won’t be disciplined if their conduct complies with the rules of a jurisdiction where the attorney reasonably believes their conduct will have the most predominant effect, the American Bar Association clarified on Wednesday.”
• “The ABA clarification, issued as a formal opinion on Wednesday, highlights that litigation and non-litigation matters are treated separately for the purposes of determining which disciplinary authorities govern certain alleged misconduct, and which rules are applicable.”
• “Model Rule 8.5 in the ABA Model Rules of Professional Conduct dictates that, when there is a choice-of-law question in a case before a tribunal and a lawyer practices law in multiple jurisdictions, the lawyer must comply with the rules associated with the location of the tribunal. Conduct before a tribunal is considered under the disciplinary authority of the jurisdiction in which the tribunal sits, the association said.”
• “In matters for which there is no litigation in effect, a lawyer’s conduct is determined by the location in which the predominant effect is felt, regardless of where the attorney practices law, the opinion says.”
• “The rule stands firm when applied to fee agreements, law firm ownership, reporting professional misconduct, confidential duties, and screening attorneys making lateral firm moves, according to the ABA’s Standing Committee on Ethics and Professional Responsibility.”

[Succession spoiler alert, for those not caught up on the latest greggs and tomlettes.] “When emotions run high: representing a warring family in a commercial deal” —

• “This week on Charles Russell Speechlys Succession Watch, we look at what trustees should do to get the best possible outcome for their beneficiaries (and protect themselves) in commercial deals involving competing beneficial interests and non-commercial considerations.”
• “Episode 1 of Succession Series 4 saw a bidding war ensue between Logan Roy and his outcast children, Kendall, Shiv and Roman, for the acquisition of family-controlled media group Pierce. It also saw Nan Pierce, majority shareholder and family representative of Pierce, hold her nerve in negotiations with the Roy family to try to achieve the best possible deal on the sale of her beloved family company.”
• “As family representative, Nan was responsible not only for herself in these negotiations, but the wider family and shareholders; people with different financial positions, outlooks and views about the future of the company itself. And, as Episode 1 portrayed so clearly, where families and family businesses are involved, there’s also emotion. In Succession they call it the ’emotional premium’ that takes the value of the company beyond its usual price tag and can mean negotiations spiral out of control and at times appear to lose all commercial sense.”
• “To prioritise the interests of the beneficiaries when trying to achieve the best possible deal. Trustees should take comfort that the ‘best possible deal’ does not necessarily mean the best deal from a commercial perspective, though trustees are likely to avoid criticism where their decisions make business sense and they have taken advice (see below).”
• “Identify conflicts early. Competing and conflicting interests will inevitably exist where there are family shareholdings and a group of beneficiaries. Where a trustee is also a beneficiary, or has their own personal shareholdings, then the potential for conflict is even greater. Under Jones v Firkin Flood a conflict of interests can vitiate a trustee’s otherwise reasonable decision.”
• “It may be that conflicts can be managed simply by acting on professional advice or it may be that an independent trustee can be brought in to effectively neutralise them. Where conflicts look to be insurmountable it can be possible to get prior approval from the Court to proceed on the company sale despite the conflict (see below). Episode 1 threw up a further conflict in that Shiv and Tom, while married, were or were working for rival bidders. In such a situation it might be possible as trustee to limit the information disclosed to either of them and ensure suitable confidentiality agreements are in place.”
• “Especially in circumstances where the trustees lack relevant expertise. In Episode 1, we saw the Roy and Pierce families supported by a team of advisors. Trustees should consider what advice is going to be needed: this could include corporate finance advice, valuations, tax advice, legal advice and, where you are dealing with a HNW family like the Roys, reputational advice. Trustees should also take into account and seek possible advice on what happens if the company sale falls through: are they faced with a depreciating asset and further family conflict? What price should they put on that?”

“Pembroke mayor’s law firm colleague is paid to represent the city. Some residents say that’s not OK” —

• “A Pembroke, Ont., homeowner says a road plowing dispute with the city snowballed into what she calls a ‘threatening’ letter from the law firm where both the city solicitor and mayor work — a situation she believes is both a conflict of interest and an ‘abuse of power.'”
• “Arianna Nolet said she was outraged after learning taxpayers are paying Mayor Ron Gervais’s law firm colleague Robert Sheppard for legal services, and questions the implications of the city’s top elected official continuing to work at the same firm — Sheppard & Gervais — as its solicitor.”
• “‘There is a large conflict,’ said Nolet. ‘How does the city’s interests align with Mayor Gervais’s interests, and then [how do] his interests further align with his law firm? It raises a lot of eyebrows.'”
• “The dispute began in December when Nolet contacted the city over what she described as city plows repeatedly ‘dumping the entire street of snow’ on her property, which sits at the end of her street.”
• “In February, Nolet received a letter in the mail from the law firm Sheppard & Gervais… ‘This is to advise that should you engage in conduct that is contrary to the By-law that you risk being prosecuted by the City of Pembroke for such activity,’ Sheppard wrote.”
• “The letterhead includes both Sheppard’s and Gervais’s credentials, and their full names are printed at the bottom.”
• “One 2012 agreement with the Town of Deep River describes the firm’s ‘extensive history’ of expertise in the municipal sector and touts it as “one of the oldest law firms in the county. According to the firm’s proposal, Gervais was billing $226/hour and Sheppard $288.15/hour for legal services at the time.”
• “Under the act [Ontario’s Municipal Conflict of Interest Act], conflict of interest relates only to pecuniary (financial) interests. An official has an indirect pecuniary interest if they are a shareholder, director or senior officer with a private company that has a direct financial interest in the matter, or ‘if they are a partner of a person or is in the employment of a person or body that has a pecuniary interest in the matter.'”
• “According to the city, Gervais twice declared a pecuniary interest regarding his offer to purchase the city land adjacent to his property, on March 7 this year and Sept. 6, 2022. There were no declarations regarding the matter with Nolet.”
• “Despite his law firm’s name, Gervais is not a partner there but an employee, the city’s CAO David Unrau pointed out in an email to CBC.”
• “John Mascarin, a lawyer with Aird & Berlis and the integrity commissioner for dozens of Ontario municipalities, said the situation in Pembroke ‘may very well give rise’ to an indirect pecuniary interest, and said ‘it doesn’t really matter’ whether Gervais is a partner at the firm… However, even the perception of conflict of interest can be problematic, Mascarin said.”