Risk Update

Conflicts Considerations — Law Firm Financial/Fiduciary Conflicts in the UK, DOJ Calls Crypto Conflicts Concern

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DOJ Pulls Back from Choosing NY Law Firm for Binance Oversight, Citing FTX Connections” —

  • “The Department of Justice (DOJ) is reportedly reconsidering selecting a prominent New York law firm to handle a critical assignment related to Binance, due to the firm’s prior work for rival exchange FTX.”
  • “Sullivan & Cromwell, the law firm managing FTX’s bankruptcy proceedings, was initially designated as Binance’s independent monitor. This appointment was a stipulation under the $4.3b agreement where Binance acknowledged culpability for infringing upon US money-laundering regulations and trade sanctions.”
  • “Further, former federal prosecutor Sharon Cohen Levin, a partner at the firm, was slated to lead the monitorship team.”
  • “However, Bloomberg reported Tuesday that DOJ officials have raised concerns regarding criticism levied against the law firm due to its prior work for FTX, which was a Binance competitor at one point.”
  • “In light of these concerns, the department is evaluating alternative candidates for the monitorship role. Sources told the outlet that FinCEN remains intent on appointing Sullivan & Cromwell.”
  • “Sullivan & Cromwell represented the now-defunct crypto exchange prior to its collapse and throughout its Chapter 11 proceedings. The firm subsequently submitted invoices exceeding $170m for its services.”
  • “In February, FTX investors filed a class-action lawsuit against the law firm, alleging the firm’s complicity in the $8b fraud.”
  • “The lawsuit contends that Sullivan & Cromwell’s advisory role to FTX throughout 2021 and 2022 provided it with a unique vantage point. This could have allowed the firm to gain deep insight into the FTX entities’ convoluted organizational structure.”

“‘One plus one makes two’: Court of Protection finds conflict of interest within law firm structure” —

  • “The Court of Protection handed down a judgment in March 2024 concerning a law firm, Irwin Mitchell, who acted as a professional deputy whilst also offering asset management services through an affiliated company within its structure. Having considered the underlying legal principles, the Court of Protection determined that a conflict of interest was present in such an arrangement and could not be overcome unless the affiliated asset management company did not charge for its services.”
  • “The case has undoubtedly caused a stir for law firms who operate, or are considering operating, in a similar way to Irwin Mitchell. However, it potentially also has further-reaching implications for all kinds of fiduciary relationships and fiduciary service providers where possible conflict issues have not been fully appreciated.”
  • “Because IMTC is a wholly owned subsidiary of Irwin Mitchell LLP, and Irwin Mitchel Holdings Ltd is both a controlling member of Irwin Mitchel LLP and the sole owner of IMAM, the question was raised in the Court of Protection whether IMTC was able to act without a conflict of interest where it instructed IMAM to look after the relevant person’s assets.”
  • “A deputy (like all fiduciaries) should not enter into engagements in which they have or can have a personal interest conflicting, or which possibly may conflict, with the interests of the protected party, unless they are expressly authorised to do so (known as the ‘self-dealing rule’). Transactions where such a conflict exists are capable of being set aside by the court. As a matter of agency law, a principal may ratify the conflicted acts of an agent, but only the Court of Protection can ratify conflicted acts by a deputy (as opposed to the protected party, who lacks capacity, or a family member).”
  • “In the Irwin Mitchell case, the Judge presiding, Her Honour Justice Hilder, held that the primary question she was required to determine was whether the appointment by IMTC as deputy of IMAM as asset manager for PW’s funds gave rise to a conflict of interest. It is an established principle of law, restated by the House of Lords in Boardman v Phipps (1967), that the relevant question to ask is whether ‘the reasonable man’ (a common benchmark in legal tests), looking at the relevant facts and circumstances of the particular case, would think that there was a ‘real sensible possibility’ of conflict (known as the ‘conflict of interest rule’).”
  • “There is no direct English authority on the question whether the engagement by a fiduciary of a related investment company presented a ‘real sensible possibility’ of conflict. IMTC as the applicant before the Court of Protection accepted that there was a “theoretical potential” of conflict but argued that there was no real sensible possibility because it had adopted procedures which eliminated that potential.”
  • “In support of this argument, IMTC cited two foreign (and therefore non-binding) cases in which no conflict of interest was found to exist: Jones v AMP Perpetual Trustee Company NZ Ltd (1994) (New Zealand) and HSBC (HK) Ltd v Secretary of State for Justice (2001) (Hong Kong). The relevant facts and conclusions of these cases are succinctly summarised in the judgment. However, HHJ Hilder respectfully considered the court’s reasoning in neither case to be persuasive.”
  • “HHJ Hilder’s conclusion on the question of an existence of a conflict was summarised in two steps: (1) the decision to appoint IMAM was made by IMTC in its fiduciary role and (2) IMTC is financially better off if IMAM is appointed. She said: ‘[at] a most basic level, those two concessions amount to recognition of the existence of a conflict of interest: one plus one makes two.’ There was a ‘very clear, not remotely fanciful actual conflict of interest in IMTC appointing IMAM to manage PW’s funds.'”
  • “HHJ Hilder did not agree that the procedures Irwin Mitchell had put in place could, or did, extinguish the actual conflict because they did not remove the financial benefit to IMTC if IMAM were to be appointed. HHJ Hilder commented that such procedures (including the way they used scorecards as part of the beauty parade process) were vulnerable to biases, subjective interpretation, and human error. She also noted that IMAM would better know what boxes it needs to tick as part of the process, giving it an advantage over its competitors.”
  • “Overall, HHJ Hilder concluded that a way to remove the conflict altogether would be for IMTC to waive any fees otherwise due to IMAM where IMTC was the instructing deputy. She recognised that Irwin Mitchell would be unlikely to adopt this model given that it lacked commercial and practical sense for them but said that, without removing the financial benefit, the processes did not get to the heart of the conflict of interest.”
  • “The final question for HHJ Hilder to consider was whether the Court should ratify the conflict now. However, she concluded that there was not sufficient evidence before her to do so and invited the parties to agree further directions. The point is therefore left open for another date, should Irwin Mitchell wish to retain the appointment of both IMTC and IMAM in PW’s case.”
Risk Update

Conflicts Allegations & Resolutions — Bankruptcy Representation Contested, Judge’s Stock Ownership Earns Ethics Okay

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Law firm Kirkland conflicted in Invitae bankruptcy, DOJ watchdog says” —

  • “The U.S. Department of Justice’s bankruptcy watchdog said on Monday that genetic test maker Invitae Corp should not be allowed to hire Kirkland & Ellis as bankruptcy counsel because of the law firm’s work for one of Invitae’s lenders.”
  • “The Office of the U.S. Trustee, a part of the DOJ that oversees the administration of bankruptcies, said in a court filing, opens new tab that Kirkland has a conflict of interest because one of its current clients is private equity firm Deerfield Partners, which is Invitae’s top lender and the ‘main beneficiary’ of a 2023 debt restructuring that placed Deerfield at the front of the line for repayment in Invitae’s bankruptcy.”
  • “Kirkland, which has said it represents Deerfield in matters ‘unrelated’ to Invitae’s bankruptcy, did not represent Invitae at the time of the debt transaction. Deerfield is represented by separate counsel in Invitae’s bankruptcy case.”
  • “But the U.S. Trustee argued that Kirkland could not concurrently represent Invitae while Deerfield was its client. ‘The fact that K&E represents Deerfield in unrelated matters does not change the existence of a conflict of interest,’ the U.S. Trustee wrote in an objection filed on Monday in New Jersey bankruptcy court.”
  • “U.S. Bankruptcy Judge Michael Kaplan will consider Invitae’s request to hire Kirkland at an April 29 hearing in Trenton, New Jersey.”
  • “Invitae filed for bankruptcy protection in February, seeking to find a buyer and reduce its $1.5 billion in debt. Invitae does not expect equity shareholders to receive any recovery in its bankruptcy, according to court documents.”
  • “Invitae’s junior creditors raised concerns about Kirkland’s role in the bankruptcy in an objection, opens new tab filed about a week before the DOJ’s objection.”
  • “The creditors may seek to unwind the 2023 debt transaction so that they can free up “hundreds of millions of dollars” to repay junior creditors, instead of Deerfield.”

Judge’s Citi Investment Doesn’t Merit Recusal, Ethics Panel Says” —

  • “A federal appellate court judge with a stake in Citigroup Inc. doesn’t need to recuse himself from the banking industry’s challenge to an $8 cap on credit card late fees, a federal judiciary oversight committee said.”
  • “An investment held by Judge Don Willett of the US Court of Appeals for the Fifth Circuit in the country’s second largest credit card issuer was too ‘indirect and contingent’ to trigger a requirement that he recuse himself from the case, Judge Gerald A. McHugh, the acting chairman of the US Judicial Conference’s Committee on Codes of Conduct, said in a letter posted Wednesday.”
  • “The Consumer Financial Protection Bureau, which released the credit card late fee rule March 5, has pushed for Willett to recuse himself from the case due to the Citigroup investment. Along with being a major credit card issuer, Citigroup is a member of the US Chamber of Commerce, the American Bankers Association, and the Consumer Bankers Association, three of the six trade groups suing to block the rule, the CFPB said.”
  • “But the judicial ethics committee previously determined that owning stock in a company that belongs to a trade group involved in litigation didn’t automatically require a judge’s recusal, McHugh, a judge in the US District Court for the Eastern District of Pennsylvania, said in a letter to Willett dated April 16.”
  • “The CFPB was effectively arguing for a standard that a judge should recuse any time a litigant raised concerns about impartiality, McHugh said.”
  • “‘The judicial system could not function effectively under such a standard, and that is exactly why the Code imposes a standard of reasonableness,’ he wrote.”
  • “Willett in an April 9 statement said his Citigroup stake amounted to $2,000 in a Coverdell Education Savings Account for one of his children.”
Risk Update

Risk Reading — Jointly-requested DQ on Clerk’s Conflict, Law Firm Data Breach Settlement Conflict, NY on AI Risks for Law Firms & Engagement Letter Notice

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New York state’s Advisory Committee on Judicial Ethics: “Judicial Ethics Opinion 23-96” —

  • “Digest: A judge must insulate their law clerk from all matters in which the law clerk had any personal involvement as an attorney, but need not disqualify, provided the judge believes the judge can be fair and impartial.”
  • “Both sides have asked the judge to recuse on the basis of an alleged conflict of interest or appearance of impropriety arising from the judge’s recent hiring of a former assistant district attorney as a law clerk.”
  • “During their former employment with the DA’s office, the law clerk conducted legal research on this specific case, which was incorporated in the People’s opposition to the defendant’s currently pending motion to vacate. The inquiring judge is confident that they can be fair and impartial in the matter, and is willing and able to insulate the law clerk from any involvement in the case (including the motion to vacate, the hearing on the issue, and the written decision). The judge asks if recusal is nonetheless required.”
  • “A judge is not automatically disqualified from presiding in a case merely because the judge’s law clerk was personally involved in it during the law clerk’s prior employment (see Opinions 15-233; 15-43; 08-71). Rather, if, as here, the judge believes they can be fair and impartial, the judge must insulate the law clerk from all matters in which the law clerk was personally involved and disclose the insulation and the reason for it (see id.).”
  • “No lapse of time affects the requirement that the law clerk be insulated from all matters in which they were personally involved to any extent, and the insulation may not be waived or remitted (see Opinions 15-233; 15-43), even where the law clerk’s involvement in the matter consisted of only a single court appearance (see Opinion 21-42).”
  • “Accordingly, on the facts presented, we conclude the judge must fully and permanently insulate their law clerk from this case and disclose the insulation, but may thereafter preside as long as the judge can be fair and impartial.”

Zalkin Law Firm’s $285K Data Breach Settlement Rejected by Court” —

  • “The Zalkin Law Firm PC’s proposed $285,000 settlement of a lawsuit over a data breach that exposed the sensitive personal information of the firm’s clients who were victims of sexual abuse and harassment was rejected by a federal court.”
  • “Plaintiff Ariana Deats’ motion for preliminary approval of the deal provided inadequate support for the settlement amount, was vague in weighing the strengths and weaknesses of the plaintiff’s case, and didn’t properly assess the plaintiff’s damages, Judge M. James Lorenz of the US District Court for the Southern District of California said Monday.”
  • From the decision:
    • “On April 4, 2023,a known cybercriminal group specializing in ransomware infiltrated Defendant’s computer network and accessed client information including driver’s license and social security numbers, medical information, and highly sensitive details from client case files concerning sexual abuse and harassment.”
    • “Although Defendant learned of the data breachon April 6, 2023, it did not start notifying its clients until September 6, 2023. Defendant sent a Notice of Data Breach to 523 clients.”
    • “Assuming for the sake of argument that all requested amounts are approvedin fulland all 523 individuals who were sent Notice of Data Breach submit valid claims,each would receive approximately $309.”
    • “Based on this standard, the Court has a duty to look for any ‘subtle signs that class counsel have allowed pursuit of their own self-interests and that of certain class members to infect the negotiations.’ Bluetooth, 654 F.3d at 947. One such subtle sign is ‘when the parties negotiate a ‘clear sailing’ arrangement[.]'”
    • “The Settlemen there includes a ‘clear sailing’ arrangement (Mot. at 4) whereby ‘the defendant agrees not to oppose a petition for a fee award up to a specified maximum value.’ Bluetooth, 654 F.3d at 940 n.6. This ‘carries the potential of enabling a defendant to pay class counsel excessive fees and costs in exchange for counsel accepting an unfair settlement on behalf of the class.’ Id. at 947.”
    • “Plaintiff provides only a cursory opinion of Class Members’ potential recovery after trial and is vague in weighing of the strengths and weaknesses of Plaintiff’s case. (See Mot. at 8-10.) Plaintiff’s analysis is based almost entirely on prior settlements of data breach cases; however, the cases cited appear to involve only personally identifiable data. They are not analogous because, according to Plaintiff herself, her case involves ‘extraordinarily sensitive information.’ (Mot. at 10.)”

Report and Recommendations of the New York State Bar Association Task Force on Artificial Intelligence” —

  • “RPC Rule 1.6 states, in part, that “[a] lawyer shall not reveal information relating to the representation of a client unless the client gives informed consent.” This duty of confidentiality also extends to what client information a lawyer may share when using certain generative AI tools. Because AI models depend on data to deliver salient results, privacy protection must become an integral part of their design.127”
  • “Confidentiality concerns arise when entering information into AI engines, such as chatbots, and when such entries are then added to the training set for the AI. Such uses may violate protective orders for prior and future cases involving different parties.”
  • “Such issues are especially important when some or all data that the AI ‘learns’ is used for training the AI for work on future cases. Lawyers should cautiously use these tools, being mindful of a client’s privacy”
  • “In fact, the California bar association128 recommends that lawyers inform their clients if generative AI tools will be used as part of their representation. The Florida bar association129 takes its recommendation a step further, suggesting that lawyers obtain informed consent before utilizing such tools. Whether an attorney informs the client or obtains formal consent, the ethical obligation to protect client data remains unchanged from the introduction of generative AI tools.”
  • “Pursuant to the Model Rules of Professional Conduct and New York RPC, lawyers must
    take reasonable efforts to prevent inadvertent and unauthorized disclosure of or access to client information. When utilizing generative AI tools such as ChatGPT, attorneys need to be knowledgeable about the technology they are using and/or ask for assistance from those lawyers or trusted technology experts who do understand its use and limitations, including IT personnel. If none of these options is possible, then the attorney should not utilize such technologies until they are competent to do so per the duty of competency.”
  • “Open AI/ChatGPT may raise both ethical violations and cybersecurity issues. For example, ‘if there is a cyber intrusion [into OpenAI or ChatGPT], not only will that data potentially be lost to threat actors, but they could conceivably also obtain the firm’s searches… [gaining] access into the mind of a lawyer and the arguments they might be raising.’140”
  • “Data preservation and litigation hold obligations may present similar challenges for
    attorneys and the court. If the data that is inputted into the AI application is temporary/ephemeral, but also relevant and responsive to the litigation, parties have the duty to preserve this electronically stored information. Yet, how do you preserve what may no longer exist?”
    • “Use of Generative AI: While representing you, we may use generative AI tools and technology to assist in legal research, document drafting and other legal tasks. This technology enables us to provide more efficient and cost-effective legal services. However, it is important to note that while generative AI can enhance our work, it is not a substitute for the expertise and judgment of our attorneys. We will exercise professional judgment in using AI-generated content and ensure its accuracy and appropriateness in your specific case.”
Risk Update

Conflicts News — Judicial Spousal Interest Disqualification, Local Government Conflict Called

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Spousal Interest Disqualification” —

  • “Judge is disqualified from serving on county election canvassing board for the specific race involving the elected county official by whom the judge’s spouse is employed as general counsel where the spouse’s continued employment in that position likely depends on the outcome of the upcoming contested election. Judge is not disqualified from serving on the canvassing board for other races during that election cycle.”
  • “The judge’s duties as a member of the canvassing board include many tasks that would not be perceived as affecting the outcome of any contested race. However, the canvassing board, according to the inquiring judge and the governing statute, may determine whether an absentee vote was properly executed or timely received and may also be called upon to determine the voter’s intent if the voter’s ballot was not clearly marked. The judge acknowledged that some races can be decided by a very close margin, meaning that any decision by the canvassing board regarding even a single ballot could conceivably change the outcome of any given race.”
  • “Because the judge’s spouse’s continued employment as general counsel is likely contingent on the outcome of that specific election, that means that the judge’s spouse has more than a de minimis interest and indeed has an economic interest in the proceedings, should there be any contested or questioned ballots.”
  • “There are occasionally circumstances that make judicial recusal impractical if it would result in delay and distant travel for the parties when there is only one county judge who would be ethically disqualified from ruling on urgent or emergency matters affecting those parties.”
  • “There is nothing to suggest that the judge or the judge’s spouse has any similar interest in the outcome of the other races; thus, general disqualification of the judge from serving on the canvassing board is not required by the Code of Judicial Conduct.”

Conflict Gets 8 Officials Disqualified From Hearing Warehouse Application” —

  • “A New Jersey judge disqualified eight members of Sparta’s municipal planning board from ruling on a warehouse application because they belonged to an organization formed to oppose the project.”
  • “Superior Court Judge Stuart Minkowitz, in Sussex County Superior Court, said the eight board members belong to Sparta Responsible Development, an organization formed to stop the warehouse project in question.”
  • “That makes it ‘virtually impossible’ to separate the organization’s goals from the need to impartially rule on the site plan application, Minkowitz ruled.”
  • “Such a large-scale disqualification appears to be unprecedented, said Adam Garcia, an attorney from Giordano, Halleran & Ciesla of Red Bank, New Jersey, who challenged the board members’ impartiality on behalf of Diamond Chip Realty, the company seeking to build the warehouse project.”
  • “‘I think the takeaway is: impartiality is key. You know everybody comes to an application with their own views. But you can’t align yourself with an organization that has already determined that the application must fail,’ Garcia said.”
  • “Giant warehouses have been a booming sector in New Jersey real estate, spurred by an uptick in online shopping during the pandemic. But as developers seek local approval for their warehouse projects, opponents have become more vocal.”
  • “A founder of SRD, Neill Clark, was elected to the township council in November 2022 on a ‘no mega warehouses’ platform, and he allegedly participated in the appointment of warehouse opponents to the planning board, Garcia claimed.”
  • “In September 2023, Diamond Chip filed a suit seeking the removal of eight of the nine planning board members on the basis that they belonged to SRD.”
  • “The case can now proceed with a board consisting of members who were not disqualified, along with substitutes from Sparta’s Zoning Board of Adjustment, as provided for in the state Municipal Land Use Act, Garcia said.”
  • “‘Because the eight identified appointees are current and active members of an organization that was solely formed to challenge [Diamond Chip Realty’s] application, there is a clear conflict, as it is virtually impossible to separate their organizational membership goals in SRD and the impartiality necessary to render a fair determination on a site plan approval,’ Minkowitz wrote. ‘The interest does not have to actually influence the action of the eight members, but only that the interest creates a conflict.'”
  • “Minkowitz also denied Garcia’s requests to appoint a special master to supervise the planning board. Collins, the attorney for Sparta, did not respond to a request for comment on the case.”
Risk Update

Financial Risk Review — Judicial Stock Ownership Conflict Clash, PE Litigation Funding Fundraising News

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Judge’s Potential Recusal Over Citi Stock Divides CFPB, Industry” —

  • “Parties in a lawsuit challenging the Consumer Financial Protection Bureau’s credit card late fee rule are divided on whether a federal appeals judge hearing the case might stand to financially benefit from the court fight.”
  • “Attorneys with the CFPB on Thursday told the US Court of Appeals for the Fifth Circuit that the outcome of the litigation ‘could substantially affect’ stock owned in any of the large card issuers affected by the case. Groups challenging the rule, led by the US Chamber of Commerce, downplayed the impact the litigation would have on those issuers and said that recusal in such cases would lead to ‘an unworkable system.'”
  • “Fifth Circuit Judge Don Willett, one of the judges presiding over the case, has disclosed owning stock in Citigroup Inc., which he said amounts to roughly $2,000 in his child’s education savings account. But he said he had received advice that he didn’t need to recuse himself from the case, before the CFPB flagged that large credit card companies could be financially affected by the matter.”
  • “Willett last week authored the majority opinion in a 2-1 decision rejecting a Texas trial judge’s ruling that the case should be transferred out of his court to one in Washington, D.C.”
  • “In Thursday’s letter, attorneys from the CFPB said that, in addition to the financial impact of the case, the ‘appearance of partiality created by an ownership stake in a large card issuer could also trigger a judge’s recusal obligation.’ The CFPB’s final rule, which is set to cap credit late fees at $8, could reduce covered companies’ annual revenue by about $10 billion, the lawyers said.”
  • “In their letter, the rule’s opponents said the CFPB’s own filings in the case cut against the agency’s argument that there would be an ‘easily ascertainable substantial effect on any, much less all, of their stock prices.'”

[Has anyone yet argued that if a judge has a “cash back” or mileage credit card, or got a sign up bonus, or gets travel discounts through a card’s portal, or complimentary purchase/travel insurance, that’s an issue too, as those programs and benefits may be affect as well? Because I now have that on my bingo card…]

Quinn Emanuel Inks $40 Million Deal to Fund Private Equity Suits” —

  • “Quinn Emanuel Urquhart & Sullivan will receive $40 million in litigation funding from Longford Capital to finance lawsuits for private equity firms and their portfolio companies. “
  • “The deal, announced Thursday, will offer funding for private equity clients who want to pursue litigation without harming profit and loss statements, according to the law firm. Quinn Emanuel said liquidity challenges posed by high interest rates make outside funding particularly attractive for private equity companies.”
  • “Funding will be available for private equity clients across different types of litigation, said Jonathan Bunge, co-chair of Quinn Emanuel’s national trial practice and managing partner of the Chicago office. That sets it apart from the firm’s previous arrangements with Longford and others, in which funding was decided on a case-by-case basis, he said.”
  • “There might be a reason, given their business model, why they don’t want to pursue a valid claim held by a portfolio company because of the impact that might have on the portfolio company’s earnings,’ Bunge said. ‘What we’re trying to do is listen to those concerns of our clients and come up with an alternative that they might find attractive.'”
  • “Longford will provide financing for attorneys fees and costs, while also offering private equity clients the option of investing directly with the company. The funder will treat legal claims as corporate assets that can be monetized, it said, after underwriting and due diligence.”
  • “The funding will finance business disputes, such as breach of contract, fraud, and intellectual property cases. Much of those fights among private equity companies are waged behind closed doors in arbitration.”
  • “Litigation finance is a $15.2 billion industry in which investors fund lawsuits in exchange for a portion of any award. It’s become increasingly attractive to Big Law firms, even as the overall market for deals slows.”


Risk Update

Litigation Funding — Renewed Spotlight on Law Firm Risks, Rules and Revelations

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Russian Use of Litigation Finance Needs Scrutiny, Treasury Says” —

  • “The Treasury Department needs to look into the use of the litigation finance in the US by foreign actors, Deputy Secretary Wally Adeyemo said.”
  • “His comments came after Sen. Bob Menendez (D-N.J.) asked whether he believed the lack of transparency in the litigation finance industry could create a gap in sanctions enforcement. Menendez referenced a Bloomberg Law investigation that found a firm established by Russian billionaires tied to Russian President Vladimir Putin has backed lawsuits in New York and London both before and after three of its founders were sanctioned following the 2022 invasion of Ukraine.”
  • “Menendez also referenced a Government Accountability Office report from 2022, which found sovereign wealth funds may be investing in litigation finance, and he raised the issue of patent litigation being financed by foreign companies.”
  • “The Senate Committee on Banking, Housing, and Urban Affairs held the hearing to get an update on efforts to counter illicit finance, terrorism, and sanctions evasion from the Treasury Department. Menendez was indicted last year by federal prosecutors in Manhattan for allegedly providing sensitive US government information and taking steps that secretly aided Egypt. He is a senior member of the banking committee.”
  • “Last year, House Speaker Mike Johnson (R-La.), Sen. John Kennedy (R-La.), and Sen. Joe Manchin (D-W.V.) introduced legislation that would regulate foreign entities’ ability to fund litigation. The proposed Protecting our Courts from Foreign Manipulation Act, which has not been heard in committee, would require disclosure of any foreign agents or investors financing a suit. It also would ban sovereign wealth funds and foreign governments from funding US litigation.”

The General Counsel of Unified Patents weighs in: “As Litigation Funders Skirt Sanctions, It’s Time for Disclosure” —

  • “Unsurprisingly, the US government doesn’t like being in the dark. But they appear to be when it comes to Russian sanctions and litigation financing. That’s in part due to the nature of the litigation financing industry, and lack of laws requiring transparency about who or what is funding the litigation.”
  • “It’s high time that litigation financing be held to similar mandatory disclosure standards that courts already require for insurers and publicly traded investors.”
  • “At times, they will themselves create shell companies, hide their identities, and sue; more often, they will fund others’ cases and do so without transparency. These deals can be for hundreds of millions, and are sometimes worth billions. Yet they claim these private, undisclosed deals worth billions offer them no control. Sure.”
  • “While information is undisclosed and thus scarce, investments in US litigation are a multibillion-dollar industry, comprising a growing share of some types of commercial litigation.”
  • “Class actions, bankruptcy, and patent cases seem to attract much of it, though insurance, workers’ comp, and even high-profile divorces have been financed.”
  • “Unlike buying a house or trading stocks or even private equity investing, litigation funders generally don’t disclose their terms, their involvement, or who their investors might be to anyone—the government, the courts, even the people they’re suing. Right now, the law doesn’t require it.”
  • “If no one is aware it’s happening, couldn’t foreign governments, money launderers, or other bad actors take advantage? What about judicial conflicts? Or companies funding suits against strategic competitors or key industries?”
  • “And if there were some fraud upon the court, how would it ever be identified? The Judicial Conference, the self-governing body of the US Federal Courts—which reports to the Supreme Court—began considering modest disclosure requirements as far back as 2014.”
  • “Funders responded vociferously to these modest calls for transparency, arguing such concerns were overblown, irrelevant, or some kind of sideshow.”
  • “They rejoined that funding cases increased access to justice, so the risk was worth it. And they argued that conflicts of interest would be rare—that there were other, better ways for others to interfere in industry, and there were no national security concerns. They wrote dozens of letters to the Judicial Conference arguing against disclosure.”
  • “So it should no surprise that just last month, investigative reporters revealed that sanctioned Russian oligarchs have been using litigation funding to evade US sanctions in US courts.”
  • “Notably, less than two years ago, some forward-thinking judges began requiring modest disclosures (as others had before them), and soon, it revealed Chinese investors were backing US patent suits against US companies in US courts. And recent government reports showed some of the biggest investors in litigation funds are as-yet-undisclosed sovereign nation wealth funds.”
  • “As it turns out, allowing billions of dollars a year to flow through completely undisclosed, much less unregulated, financial products invites investors seeking to avoid scrutiny.”
  • “The Judicial Conference, which represents all federal judges and makes recommendations on rules changes, has since 2017 been considering mandatory disclosure akin to what courts already require for insurers and publicly traded investors.”
  • “It would be nothing more than a long-overdue tweak to existing Rules 7.1 and 26 of the Federal Rules of Civil Procedure, something the judiciary itself can implement. But they have been characteristically slow to act, giving the issue due consideration over the past seven years.”

Litigation Funders Set to Prosper in Proposed NY Rule Change” —

  • “A New York City bar committee is pushing to change state rules to allow law firms to assign or pledge fees in exchange for outside financing.”
  • “Funding to law firms tied to the results of specific cases should be permitted, the New York City Bar Association’s Professional Responsibility Committee proposed last week in two amendments to Rule 5.4(a). The rule bans lawyers and law firms from sharing fees with nonlawyers.”
  • “If adopted, the amendments would resolve uncertainty over litigation funding deals in New York. Litigation finance has grown to a $13.5 billion industry in which investors fund lawsuits and take a portion of any successful awards.”
  • “The proposed amendments reiterate that lawyers must not allow their judgment be impaired by the relationship with a financial provider. It also would require law firms to notify clients of financial arrangements that could impact the representation of the client and field questions about it.”
  • “The rule has been modified in recent years in some states, which positioned looser restrictions as a way to increase access to legal services for lower and middle income populations. Litigation funders have also benefited from the relaxing of these rules.”
  • “In New York, litigation funding for law firms was stymied by a 2018 opinion issued by the City Bar Committee on Professional Ethics that concluded funding agreements with law firms would violate Rule 5.4.”
  • “The 2018 opinion caused a stir in the litigation funding community and prompted the NYC Bar president to form the Litigation Funding Working Group later the same year. The goal of the group, which consisted of 25 lawyers, academics and funders, was to study litigation finance and provide a report with recommendations regarding its practices.”
  • “Their 90-page report, which was released in March 2020, presented two amendments to Rule 5.4. A separate Professional Responsibility Committee rejected the proposals as too complicated and overly broad.”
  • “‘You get to the same point, but I think we get there in a more straightforward and simpler fashion,’ said Aegis Frumento, former chair of the Professional Responsibility Committee, of the recent amendments.”
  • “The proposed amendments will now go the State Bar Association of New York, which if they agree, will then submit them for approval to the four appellate divisions of the New York State Supreme Court for adoption to the rules of professional conduct.”


Risk Update

Client Intake & Insurance Risk — Representation Scope Matters, OCG Indemnity Provisions Prove Painful

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No We Didn’t Agree To Handle That Claim” —

  • “One area that can lead to claims against lawyers occurs when the lawyer accepts one part of a representation but declines to represent the client in another matter. Any declination should be communicated clearly to the client and confirmed in writing. If you don’t do that, the client may later bring a malpractice claim against you.”
  • “In Boukari v. Schwartzberg, LLC, 2024 NY Slip Op 01247 (March 7, 2024), the plaintiff hired the defendant firm to complete a Workers’ Compensation matter. The lawyers declined to represent the plaintiff in any personal injury action. Plaintiff sued alleging that the firm missed the statute of limitations on the personal injury claim. The Appellate Division held that summary judgment for the law firm should have been granted. The explanation:
    • ‘Plaintiff’s legal malpractice action should have been dismissed. Contrary to the motion court’s finding, the record conclusively established, as a matter of law, that defendants had clearly informed plaintiff during their initial meetings in May 2014, by way of unambiguous writings confirmed by plaintiff’s signature, that defendants were only assisting her in substituting counsel in a Workers’ Compensation matter and that they had declined to represent her in any personal injury action against the building owner or any third party arising from her slip and fall. Plaintiff opposed the motion only with an attorney affirmation.’
    • ‘She did not submit an affidavit setting forth her version of the initial conversations with defendants or any other interactions that would support her attorney’s contentions that she was under a reasonable impression that defendants had agreed to represent her on a personal injury claim or that the law firm did not clearly disclaim representation (see Zuckerman v New York, 49 NY2d 557 [1980] [an attorney affirmation is insufficient to put before the court facts of which she has no knowledge]'”
  • “Comment: this problem can come up in any number of matters. Please disclaim in writing any claim you refuse to handle.”

Why You Should Never Minimize the Significance of Client Driven Indemnity Provisions” —

  • “I continue to get the occasional call from a lawyer wanting to know my thoughts about a new business opportunity. It’s a call that often starts out with the lawyer sharing that so and so company wants the lawyer to be their exclusive local point person and the lawyer is hoping I’ll give the idea my risk manager’s stamp of approval. After talking through the issues, I always ask the one question most callers rarely seem to think about. Is there an indemnification provision in the contract? I have yet to hear any lawyer tell me no.”
  • “Truth be told, a number of the lawyers who call about various types of contracts they are considering signing seem surprised when I ask about the presence of any indemnification language. Apparently, they just gloss over certain sections of the contract. Trust me, that’s a misstep. Indemnification provisions are not something to be ignored because they raise very real and potentially significant insurance coverage concerns.”
  • “Have you ever stopped to consider how a malpractice insurer might view client driven indemnity provisions? The language often used significantly expands what the lawyer may ultimately be liable for. Absent said language, the lawyer would be liable for any attorney negligence. However, depending upon the specific language at issue, by agreeing to an indemnity provision the lawyer can become liable for all kinds of client losses that are not the result of any attorney negligence. “
  • “This is what creates the coverage problem. In short, by voluntarily agreeing to contractually expand your exposure, you can create a coverage gap because your malpractice insurance company isn’t going to be subject to the terms of this agreement. In addition, malpractice polices routinely contain language that will exclude coverage for obligations assumed by contract that go beyond the obligation to provide professional services. Often, however, signing an agreement that contains an indemnity provision does exactly that.”
  • “Unfortunately, this concern isn’t limited to contracts a lawyer is thinking about entering into. Suppose a client inserts an indemnification clause into the boiler plate language of their guidelines and sends that to you. Might your continued representation after receiving the guidelines constitute an acceptance of that clause? I certainly wouldn’t want to be the one who ends up having to find out the hard way.”
  • “Today, when more and more lawyers are being treated like general service providers as opposed to trusted advisors, what can you do to avoid this problem? At the outset, read client guidelines and contract proposals front to back. Don’t continue with the representation or sign anything without understanding what your true exposure will be. If you are not comfortable with that exposure, see if the client will remove the problematic language. In the alternative, you could see if inserting language along the lines of “but only to the extent covered by my malpractice insurance policy” at the end of any indemnity clause would be acceptable. Hopefully some clients (your good clients) will understand that the risk they are asking you to take is unfair and they will work to make the agreement acceptable. On the other hand, if any client responds by telling you everyone else signs this so if you want the work, you will too, then I guess you have a decision to make. At least now you know it’s going to boil down to how comfortable you are in self-insuring that risk.”
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BRB Risk Jobs Board — Conflicts Analyst (Quarles)

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I’m always delighted to see repeat participants on the jobs board. This week, I’m pleased to highlight a new open role at Quarles: “Conflicts Analyst” —

  • We are seeking a Conflicts Analyst to support our Chicago, Indianapolis, Milwaukee, Naples, Tucson, Madison, Minneapolis, Phoenix, St. Louis, Tampa, or Washington D.C. office.
  • This position is also open to remote or hybrid schedules.


  • Perform corporate research to identify corporate affiliates, principals and nature of business in order to search and identify ethical and business issues in the firm’s conflicts database.
  • Create conflict reports that identify and summarize issues relating to new clients, new matters, lateral attorneys, marketing requests and special projects.
  • Work closely with Conflicts Counsel and take necessary steps to confirm conflicts of interest are resolved including closing dormant matters and working with relationship lawyers to confirm cures are in place.
  • Evaluate and escalate difficult or highly sensitive conflicts and matter opening issues to General Counsel’s Office, senior conflicts personnel and/or Loss Prevention Partners and work with them to address the issues.
  • Review and resolve various issues related to opening legal matters, including business conflicts, area of practice issues, billing and client credit issues, pro-bono related questions and internal Firm policies.
  • Assist Legal Recruiting by summarizing conflicts and business issues, providing clearance assistance and requesting screens related to the onboarding of lateral attorney hires.
  • Maintain current knowledge of trends and developments impacting the conflicts function.
  • Possess knowledge of the Model Rules of Professional Responsibility that apply to conflicts of interest.
  • Recommend new policies and procedures related to conflicts analysis and clearance, business intake and risk compliance.


  • Bachelor’s degree or equivalent experience
  • Two years prior conflicts of interest experience in a law firm
  • Experience with a conflicts database preferred, especially Intapp
  • Basic Excel skills
  • Ability to work with diverse populations and resolve issues
  • Excellent sensitivity, confidentiality and judgment when it comes to difficult issues
  • Excellent organizational, interpersonal relations, written and oral communication skills
  • Strong customer service attitude
  • Work well under pressure, good problem solver
  • Ability to work independently required
  • Ability to coordinate many issues/projects at once
  • Accuracy and strong attention to detail required

See the complete job posting for more details on the job and to apply for this position.

About Quarles

Our team of business professionals — across functions such as finance, human resources, marketing and business development, information technology and office administration — plays a pivotal role in the ongoing success of the firm. Our leadership recognizes this and so do our attorneys. That’s why we’re as committed to your growth as you are to ours. At Quarles, you will be surrounded by colleagues who are focused on the success of the team, who want to see you succeed and who are as persistent and hard-working as you. You will be part of a culture where great people are working to achieve great things, together, and where the contributions of every individual — attorney and business professional — are equally valued.

For more detail, see their careers page.


And if you’re interested in seeing your firm’s listings here, please feel free to reach out

Risk Update

Relationship Conflicts Concerns — CEO Former Firm Wrap Up, Estate Planning/Non-profit Conflicts Ethics, and an Interesting Referee Removal

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JetBlue Winds Down Relationship With New CEO’s Former Law Firm” —

  • “The longstanding association between Holland & Knight and JetBlue Airways Corp. is tapering down as Joanna Geraghty, who is married to the law firm’s current head of litigation, takes over as the airline’s new chief executive officer.”
  • “JetBlue, which recently paid a $69 million termination fee to Spirit Airlines Inc. after a federal judge scuttled its $3.8 billion bid for the budget carrier, remains a client of Holland & Knight, but the latter is getting closer to being left at the gate.”
  • “A source at Holland & Knight verified that the work the firm has done for JetBlue has been ‘declining year-over-year’ for at least 10 years, so much so that it no longer merits a standard potential conflict of interest disclosure. A spokesman for the airline confirmed it remains a Holland & Knight client. Both parties claim they have crafted protocols to avoid conflicts.”
  • “Publicly traded companies in the US must detail certain ‘related party’ transactions, such as if a vendor or business partner is related to a company’s board member or a senior executive, according to securities rules. Companies and their boards also enjoy some latitude in what they consider ‘material’ information that must be disclosed to shareholders.”
  • “JetBlue first began disclosing what it paid Holland & Knight in fiscal 2018, the first year in which Geraghty was listed as one of its six highest-paid executives. JetBlue’s most recent proxy statement filed March 22 did not include what Holland & Knight received from it in legal fees during fiscal 2023.”
  • “From 2018 to 2022, Holland & Knight’s JetBlue work ranged from between .0025% to .18% of its annual revenue, billables that roughly add up to several million dollars. Holland & Knight’s gross revenue broke the $1 billion mark in 2020 and last year neared $2 billion, per reporting by The American Lawyer.”
  • “In its 2022 proxy, JetBlue stated that Geraghty—then its president and chief operating officer—is married to a Holland & Knight partner. Multiple lawyers at Holland & Knight, including Geraghty’s husband, litigation section leader Christopher Kelly, have performed ‘various legal services for many years,’ JetBlue said. The New York-based company said its relationship with Holland & Knight predated Geraghty coming aboard in 2005.”
  • “JetBlue said in its 2022 proxy that ‘Geraghty’s spouse did not have a material interest’ in Holland & Knight’s relationship with JetBlue as ‘he was no longer involved in providing or supervising services’ that the firm did for the airline.”
  • “Kelly also didn’t receive direct compensation from fees paid by JetBlue to Holland & Knight in recent years, according to disclosures by the airline.”
  • “Holland & Knight had a role on more than 20% of cases involving JetBlue in US federal courts since 2007, according to Bloomberg Law data. Kelly and others represented the company in disputes with passengers and labor-related affairs. Within the last decade, however, Holland & Knight’s work for JetBlue has tapered off as Geraghty’s duties expanded. Bloomberg Law records show that the firm’s handled only two federal court cases for JetBlue in the past five years.”

MA Ethics Opinion 2024-1: Nonprofit organization + Estate planning” —

  • “When a Client asks a Lawyer to draft an estate plan that includes a testamentary gift to a non-profit organization for which the Lawyer serves as an officer or board member, the Lawyer’s relationship with the non-profit creates a conflict of interest necessitating the Client’s informed consent, confirmed in writing, before the Lawyer may proceed. In obtaining the Client’s informed consent, the Lawyer should advise the Client of the enhanced risk that an undue influence claim based on the Lawyer’s relationship with the non-profit may be asserted.”
    ““An estate planning Lawyer is the President of a small non-profit social service agency with limited financial means. The non-profit is not a client of the Lawyer or of the Lawyer’s firm. One of the Lawyer’s clients asked the Lawyer to draft an estate planning document that includes a substantial testamentary gift to the non-profit.”
    “The Lawyer’s role as President of a non-profit organization creates a conflict of interest when working with a Client who wishes to make or alter testamentary gifts to the non-profit. As President, the Lawyer has a personal interest in the non-profit’s success, which is at least partially dependent on charitable gifts to the non-profit. Since the non-profit has limited means and the proposed gift is substantial, there is a significant risk that the Lawyer’s personal interest will influence the Lawyer’s advice regarding the Client’s estate plan.”
    “In this case, the Lawyer has an attorney-client relationship with the Client who intends to make a gift, but not with the non-profit. Accordingly, before going forward with drafting the estate planning document, the Lawyer should fully inform the Client of the potential conflict of interest and obtain the Client’s informed consent confirmed in writing as required by Rule 1.7(b)(4).”
    “Even though the Committee believes that the conflict is consentable, the Lawyer should proceed cautiously. The preparation of an instrument benefitting the non-profit by one of its officers or board members could create the appearance of undue influence, which is one of the grounds on which a will may be contested by a decedent’s heirs or the devisees under a prior will.”
    “Accordingly, in seeking the Client’s informed consent, the Lawyer should point out to the Client that the Client’s testamentary wishes would be less susceptible to a challenge if the Client’s will were prepared by an independent lawyer.”

NCAA removes game official at halftime because of background conflict” —

  • “The NCAA changed one of the officials at the half of the Chattanooga-N.C. State game Saturday because of a background conflict.”
  • “‘There was a switch of game officials at halftime of the Chattanooga-N.C. State first-round game because it was learned after the game had started that Umpire 2 Tommi Paris had a background conflict that, if known, would prevent her from working that assigned game,’ the NCAA said in a statement after an inquiry from The Associated Press.”
  • “An online profile for Paris says that she received a master’s degree from Chattanooga. The NCAA asks all officials who are being considered for the NCAA Tournament to disclose school affiliations to avoid potential conflicts. In this case, it wasn’t disclosed.”
Risk Update

Law Firm Risk Reading — Lateral In-house Counsel Conflicts, Arbitrator Conflicts Standards, Client Acceptance Concerns

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Supreme Court to Review Standard for Showing ‘Evident Partiality’ by Arbitrators”

  • “Conflicts of interest are of great interest to law firms, prosecutors and arbitrators. In two major international arbitrations, parties are seeking review by the U.S. Supreme Court of the standard that courts should apply when considering whether to vacate an arbitration award based on an alleged conflict of interest. The cases are important not only because of the large size of the awards at issue, but also because arbitration is the preferred method by which the world’s commercial disputes are being resolved.”
  • “U.S. courts are divided on how they should apply the “evident partiality” standard contained in the Federal Arbitration Act, which must be demonstrated in order to vacate an arbitration award based on an arbitrator’s alleged conflict of interest. Five circuit courts follow the U.S. Court of Appeals for the Second Circuit standard requiring an award to be vacated only if a court would have to conclude an arbitrator was partial. The Ninth Circuit requires only a reasonable impression of possible bias and the Eleventh Circuit articulates the Second Circuit standard, but applies the Ninth Circuit standard. The litigants petitioning for certiorari arise in different procedural postures, but both cases request clarification of the standard.”
  • “In Occidental Exploration and Production Company (OEPC) v. Andes Petroleum Ecuador Limited (Andes), US Supreme Ct No. 23-506, OEPC filed a similar petition for certiorari in connection with an arbitration in which Andes was awarded more than $550 million award. Like Grupo in the Panama Canal case, OEPC contends that the lower courts applied the wrong standard in reviewing OEPC’s claim of arbitrator conflicts of interest. In opposition, Andes argued that OEPC would have lost under any standard. Andes further notes that the Supreme Court has previously denied petitions for certiorari presenting the same general question at least fifteen times in the last 25 years.”
  • “The U.S. District Court for the Southern District of New York denied OEPC’s motion to vacate the arbitration award and the Second Circuit affirmed. The Second Circuit ruled that, “Unlike a judge, who can be disqualified in any proceeding in which his impartiality might reasonably be questioned, an arbitrator is disqualified only when a reasonable person, considering all the circumstances, would have to conclude that an arbitrator was partial to one side.” The circuit court also noted that it had ruled, in an earlier case, that it did not think that “the fact that two arbitrators served together in one arbitration at the same time that they served together in another is, without more, evidence that they were predisposed to favor one party over another in either arbitration.””
  • “In its petition for certiorari, OEPC argued that the Second Circuit applied too strict a standard in assessing the arbitrator’s alleged conflict of interest. It argued that the standard should not be whether a reasonable person “would have to conclude” the arbitrator was actually biased, but rather whether the arbitrator “might reasonably be thought to be biased.” In response, Andes argued that “whatever differences may exist in terminology are academic,” as OEPC would have lost under any standard.”

The State Bar seeks public comment on Proposed Formal Opinion Interim No. 21-0003 (Ethics of In-House Counsel).” —

  • “Comments should be submitted using the online Public Comment Form. The online form allows you to input your comments directly and can also be used to upload your comment letter and/or other attachments.”
  • “Proposed Formal Opinion Interim No. 21-0003 considers:
    • Is there a conflict of interest when an in-house lawyer moves from one company to another?
    • Does a stock option agreement present a lawyer with any conflicts of interest and, if so, how and when should such conflicts of interest be addressed with the employer?”
  • “The opinion digest states: It is common for in-house lawyers to move from one company to another, often within the same industry. And, although conflicts rules apply equally to in-house lawyers as to law firm lawyers, the conflicts analysis must take into account the unique characteristics of the in-house role, which is typically both an attorney-client and employer-employee relationship.”
  • “A former client conflict of interest under Rule of Professional Conduct 1.9 does not arise simply because an in-house lawyer moves between companies that are economic competitors. A conflict of interest will arise if the lawyer was personally involved in representing their former employer on a matter that is factually and legally identical or similar to a matter the lawyer is to handle for their new employer, and in which the companies are materially adverse.”
  • “Alternatively, a conflict of interest will arise if the lawyer was not personally involved in the representation, but they obtained confidential information during their prior employment concerning the same or substantially similar, adverse matter. The conflict may be imputed to the entire legal department of the new employer unless screening measures may be implemented under rule 1.10.”
  • See also the detailed analysis presented in the PDF: “PROPOSED FORMAL OPINION INTERIM NO. 21-0003

SRA can’t tell us whom to represent, says regulatory specialist”

  • “The Solicitors Regulation Authority should be wary of dictating to firms how they conduct litigation and which clients they choose to take on, a leading regulatory lawyer has said.”
  • “Iain Miller, partner with London firm Kingsley Napley, said there was a danger in the SRA referring to a solicitor’s duty as being to ‘uphold the public interest’ when this was such a broad and unqualified term.”
  • “Speaking at the Law Society’s risk and compliance conference today, Miller said the public interest served by lawyers is different to that of healthcare workers or other professionals.”
  • “‘We all support society but in different ways,’ he said. ‘Once this is understood it becomes much easier to understand what we can and cannot do for our clients. For example, it would be wrong to draft a non-disclosure agreement that inhibited the work of the courts or regulators. It would also be wrong to use our skills as lawyers to advance an unmeritorious claim in correspondence in order to achieve what no court would ever order.”
  • “‘However, these issues are very fact dependant,’ he said. ‘This is particularly because we operate in a common law adversarial system. We are entitled to advance claims on behalf of our clients which are arguable, but think they may not succeed.’”
  • “The SRA has come under pressure from lobby groups and academics to do more to address certain types of abusive litigation, particularly those dubbed strategic lawsuits against public participation (SLAPPs).”
  • “Paul Philip, SRA chief executive, has said that solicitors must act with integrity and not abuse the litigation process, but equally they should ‘act fearlessly in their client’s interest when bringing legitimate claims.’”
  • “Miller told the conference that all members of society were entitled to legal advice ‘in any circumstances’, no matter what societal reservations there may be about, for example, a client’s environmental impact.”