Bressler Risk Blog

“US law firm Mayer Brown to split from Hong Kong partnership” —

• “U.S. law firm Mayer Brown said on Thursday that it plans to separate from its current Hong Kong operations, as many international law firms rethink or reduce their presence in China.”
• “Mayer Brown has roughly 170 lawyers in Hong Kong, Beijing and Shanghai, with the majority in Hong Kong, according to its website.”
• “Clients of Mayer Brown’s China practice have included Chinese conglomerates CITIC, Fosun and Sinochem, and non-Chinese multinationals ConocoPhillips, Nestlé and Unilever, the firm’s website said.”
• “A growing number of U.S. and international law firms have pulled back from the Chinese market amid growing pressures on foreign businesses and converging economic and geopolitical challenges.”
• “New Chinese government rules on data privacy and cybersecurity were among the reasons cited by law firm Dentons last year when it ended its combination with China’s Dacheng, an 8,000-lawyer firm that accounted for its entire presence in mainland China.”
• “The major U.S. firms with a presence in China are all revisiting their footprint in the market, legal industry consultant Peter Zeughauser said.”

Texas Bar Opinion 700 (February 2024) —

• “A lawyer has departed a law firm for a new practice. Some clients chose to leave the lawyer’s former firm and follow the lawyer to the new practice. The lawyer believes that the prior firm’s legal services agreement forms the basis for a client’s relationship with the lawyer’s new practice. Therefore, the lawyer does not ask these clients to enter into new legal services agreements with the new firm. Further, the lawyer concludes that there is no ethical obligation to advise the clients regarding their potential financial obligations under the prior firm’s legal services agreement before the lawyer begins representing them in the lawyer’s new practice.”
• “With respect to a lawyer who has departed a firm:”
  • “Must the lawyer enter into a new legal services agreement with clients who followed the departed lawyer to a new firm, or may the lawyer rely on the former law firm’s legal services agreement as continuing to serve as the contract with those clients?”
    • “Under the Texas Disciplinary Rules of Professional Conduct, a lawyer who has departed from a law firm must enter into a new legal services agreement with a client who terminates the lawyer’s prior firm and follows the lawyer to a new practice.”
  • What disclosure obligations does that lawyer have in advising clients who propose to follow the lawyer to the new practice regarding the clients’ financial obligations under the prior firm’s legal services agreement?
    • “Before contracting with clients who propose to follow the departed lawyer to a new practice, the lawyer must alert the clients to any continuing financial or other contractual obligations known to the lawyer that the clients may have to the prior law firm.”

Texas Bar Opinion 699 (February 2024) —

• “A lawyer employed by a law firm plans to leave the firm. When the lawyer joined the firm, the firm insisted on a written employment agreement, to which the lawyer agreed. That contract contained provisions (1) requiring that the lawyer give at least 90 days’ notice of departure; (2) prohibiting the lawyer, post-departure, from soliciting the firm’s clients; and (3) prohibiting the lawyer from retaining client information or files upon departure, absent written direction of the client.”
• “When the lawyer informed the firm of the impending departure, the firm did not agree to the lawyer’s proposed departure announcement to clients whom the lawyer currently represents. Further, the firm directed the lawyer not to communicate with the firm’s clients about the lawyer’s departure. The firm refused to provide any written announcement to the lawyer’s clients about the lawyer’s impending departure.”
• “The lawyer has given 30 days’ notice of departure and disagrees with the employment agreement’s 90-day minimum departure notice provision. The lawyer also plans to make copies of client files and retain client information regarding matters on which the lawyer has actively worked, including information relating to schedules and deadlines. Further, the lawyer disagrees that the firm may ethically prohibit the lawyer from soliciting clients of the firm after the lawyer has departed. The firm has invoked its employment agreement with the lawyer to prevent these actions.”
• Through an employment agreement between a law firm and its lawyers:
  • “May the law firm impose a minimum departure notice period for lawyers who wish to depart the law firm?”
    • “Under the Texas Disciplinary Rules of Professional Conduct and notwithstanding any agreement to the contrary, a lawyer may not attempt to impose or enforce an unreasonable minimum departure notice period upon a departing lawyer, reassign a client matter to new attorneys (absent client direction or exigent circumstances required for the protection of the client’s interest) in a way that prevents a departing lawyer from fulfilling ethical obligations owed to the client before departure, or deny a departing lawyer access to firm resources necessary to continue to represent clients competently and efficiently during the pre-departure period. Similarly, with respect to client matters for which a departing lawyer is personally responsible, the lawyer must make reasonable efforts to avoid materially jeopardizing or disadvantaging those client matters by the timing or manner of their voluntary departure.”
  • “May the law firm prohibit a departing lawyer from accessing and copying client information and files?”
    • “A law firm’s employment agreement may not contain a blanket prohibition that prevents a departing lawyer from making and retaining copies of any client files or information on matters in which the lawyer has personally represented the client. A departing lawyer must be allowed to retain sufficient former client information to avoid conflicts of interests involving the lawyer’s new practice (or subsequent practices with future firms or in various co-counsel arrangements) and, therefore, be available to serve clients where no conflict exists.”
  • “May the law firm prohibit a departing lawyer from notifying clients of the impending departure?”
    • “Assuming that a departing lawyer is responsible for a client’s representation or currently plays a principal role in the law firm’s delivery of legal services to that client, the departing lawyer has a duty to ensure that a client is timely informed (a) that the lawyer is leaving the firm, (b) that the client has the ultimate right to decide who will continue the representation, and (c) whether there are any contractual or financial ramifications of the client’s decision. Preferably, the law firm and the lawyer will agree on a joint announcement regarding the lawyer’s departure. When the firm and the lawyer have provided a joint notification, or when the firm has made a timely, accurate, and adequate unilateral announcement regarding the lawyer’s departure, the lawyer is not obligated to provide a redundant announcement. A lawyer must provide notice of departure to a client, notwithstanding contrary instructions from the law firm, if the lawyer knows the law firm has not provided timely, accurate, and adequate notice. There may be instances in which both the firm and the lawyer make separate announcements, consistent with the clients’ best interests and any legal and ethical obligations that the firm and the lawyer may have to the clients and to each other.”
  • “May the law firm prevent a lawyer from soliciting the law firm’s clients after the lawyer has departed from the firm?”
    • “Finally, a lawyer may not participate in offering or making a partnership or employment agreement that restricts the right of a lawyer to solicit clients after termination of the relationship between the lawyer and the law firm, except an agreement concerning benefits upon retirement.”

“U.S. Legal Insurers Report All-time High Claim Costs: Survey” —

• “Legal insurers in the U.S. need to do more to contain the spiraling cost of malpractice claims as unprecedented claim costs reach an all-time high. That’s according to lawyer and liability specialist Eileen Garczynski, an SVP and equity partner at specialty insurance brokerage and risk management consultancy Ames & Gough.”
• “Speaking to P&C Specialist Commercial following the release of Ames & Gough’s 14th annual legal malpractice claims study this week, Garczynski said that the costs of claims were ‘out of control.'”
• “‘Lawyers are charging more, and the underlying deals are bigger. The bigger the deals are, the bigger the clams become,’ Garczynski said, adding that the costs of defending cases have ‘gone way up.'”
• “Ames & Gough’s survey, which canvassed 13 U.S. legal insurers that collectively insure 85% of the country’s largest law firms, found that 11 had paid out on claims totaling more than $100 million during the past two years.”
• “Five insurers had paid out on a legal malpractice claim worth $150 million to $300 million, and four had paid a claim topping $300 million.”
• “Those numbers were up sharply from last year, when seven of 10 survey participants had paid out on a claim of more than $50 million during the previous two years, three had paid out more than $100 million, and two had paid $150 million to $300 million.”
• “The survey found that although the rate at which claims are filed had remained flat, their value had soared amid social inflation – a rise in claims costs exceeding the level of economic inflation – which nine of the 13 insurers identified as contributing to the risk of large claim payouts.”
• “When it came to the types of cases generating the biggest claim payouts, most of the respondent insurers pointed to conflicts, which were their No. 1 source of legal malpractice claims, and drafting errors, which ranked second.”
• “‘Conflicts of interest produce a disquieting number of legal malpractice claims as well as ethics complaints and law firm disqualifications,’ the survey report said, noting that such conflicts had serious consequences as law firms sued for conflicts would also be sued for breaching their fiduciary duty to their clients.”
• “The survey found that the largest number of claims stemmed from the same key practice areas as had been the case during the past several years: trusts and estates, business transactions, and corporate and securities activity.”
• “Nine of the 13 insurers polled said they were seeing an increase in cyber-related legal malpractice claims.”
• “‘They’re very worried about that,’ Garczynski said. ‘Almost all the underwriters said that the cyber risks are hitting their legal malpractice insurance policies, because a lot of law firms don’t have enough cyber coverage in place, or they don’t have IT personnel that have enough expertise in cyber compared to other industries – yet they have a larger duty to protect client information than maybe any other industry.'”

In Texas: “Opinion 701 (May 2024)” —

• “Do the Texas Disciplinary Rules of Professional Conduct permit a lawyer to offer legal services under a subscription service fee model in which the client pays a monthly fee for legal services that the client may or may not utilize?”
• “If the Rules permit such an arrangement, must the lawyer keep the fees paid by the client in the lawyer’s trust account until the end of each month and make an appropriate refund upon termination?”
• “Under the Texas Disciplinary Rules of Professional Conduct, a lawyer may enter into a subscription fee agreement with a client, and charge and collect a subscription fee under that agreement, if the fee is not unconscionable under the circumstances. A lawyer should ordinarily retain subscription legal fees in the lawyer’s trust account until the end of the recurring subscription period.”
• “A contract provision forfeiting the entire amount of a monthly subscription fee if the subscription is cancelled before the end of the month is impermissible.”

“WarnerMedia seeks to disqualify mass arbitration firm, alleges ethics breaches” —

• “WarnerMedia is seeking to disqualify plaintiffs firm Zimmerman Reed from representing claimants in a mass arbitration campaign against the entertainment conglomerate, accusing the law firm’s managing partner of committing serious ethical breaches.”
• “Warner’s petition, opens new tab to disqualify, filed last week in New York State Supreme Court, alleges that Zimmerman Reed managing partner Caleb Marker and two other unnamed Zimmerman Reed professionals engaged in deceit and dishonesty when they signed up as claimants in identical mass arbitration campaigns against the company by two different plaintiffs firms.”
• “Warner contends that Marker and the other two Zimmerman Reed professionals – an associate and a data analyst – were never legitimate claimants but signed up as clients of Keller Postman and Labaton Sucharow in order to ‘surreptitiously gain access to information’ to boost Zimmerman Reed’s own mass arbitration campaign.”
• “The company claimed that as spurious mass arbitration clients, Zimmerman Reed gained ‘improper insight’ into how Warner responded to demands and settlement offers from Keller Postman and Labaton campaigns. Warner asserted that Zimmerman Reed tailored its demands to reflect what it learned from the other firms’ efforts.”
• “The petition alleges that in 2023, Marker contacted Warner and Discovery Digital, both affiliates of Warner Bros Discovery (WBD.O), opens new tab, on behalf of about 70,000 purported clients who alleged that the Discovery video streaming platform illicitly disclosed their viewing history to Facebook parent Meta (META.O), opens new tab. Zimmerman Reed claimed that Discovery’s disclosures violated the Video Privacy Protection Act, which includes statutory damages of $2,500.”
• “Marker did not inform Warner and Discovery, according to the petition, that he and the other Zimmerman Reed professionals, both of whom worked in the firm’s mass arbitration practice, were claimants in ongoing mass arbitration campaigns in which Keller Postman and Labaton Sucharow accused the company’s HBOMax platform of violating the Video Privacy Protection Act.”
• “Warner said in its petition that it uncovered the alleged overlap by reviewing client lists provided by Labaton and Keller Postman when they asserted arbitration demands. According to Warner, Marker’s name first turned up on a list of Labaton claimants who sent a demand letter to the company in December 2022. The following month, Warner received a pre-arbitration notice of dispute in which Keller Postman said it represented Marker.”
• “The petition argued that the only way to block Zimmerman Reed from making use of its allegedly ill-gotten information is to disqualify the firm from representing claimants in mass arbitration against Warner.”
• “The company also alleges that Marker and the other Zimmerman Reed professionals probably breached their retainer agreements with Keller Postman and Labaton by signing up with both firms to pursue identical claims.”
• “The Warner petition is not the first time Zimmerman & Reed has been sued by the target of a mass arbitration campaign. As my Reuters colleague David Thomas reported earlier this year, French skincare company L’Occitane accused the plaintiffs firm in a Los Angeles federal court complaint, opens new tab of conspiring with about 3,100 clients to manufacture frivolous website tracking claims under California’s Invasion of Privacy Act.”
• “The law firm, according to the complaint, continued to encourage prospective clients to visit L’Occitane’s website after the company informed Zimmerman Reed that it was not authorized to access the site.”
• “The judge also, however, dismissed, opens new tab L’Occitane’s case against the law firm and its clients. The Computer Fraud and Abuse Act, Anderson held, does not apply when the operator of a public website allegedly revokes authorization to access the site but does not impose technological barriers to block unwanted visitors.”

“Dilworth Paxson Attys Disciplined Over NJ Eatery Conflict” —

• “Two Dilworth Paxson LLP partners were sanctioned by the New Jersey Supreme Court this week [May 2] for investing in a restaurant on the campus of The College of New Jersey at the same time they were legally representing another investment group on the project.”
• “In separate orders filed Wednesday, the state Supreme Court admonished Michael Gluck, managing partner of the firm’s Freehold office, and reprimanded partner Christopher Walrath over misconduct that occurred when they were at their own firm of GluckWalrath LLP, which was absorbed by Dilworth Paxson last year.”
• “Gluck and Walrath did not give their investor clients written notice about the potential conflict of interest or get the clients’ written consent to the arrangement, thus violating state ethics rules, the Supreme Court’s Disciplinary Review Board wrote in its report to the court on the case.”
• “Gluck and Walrath maintained that they gave verbal notice about the implications of the conflict, though, and the DRB noted other mitigating factors, including that both attorneys have otherwise spotless ethical records, that the attorneys entered into a stipulation with the DRB and that the investment deal happened years ago in 2015.”
• “The case centered on Gluck and Walrath’s investment in a restaurant project at the college called the Brickwall at Campus Town. Gluck and Walrath became involved in the project when they introduced a group of investors they had represented in previous matters to Brickwall’s property manager in May 2015. However, in October 2015, the pair also decided to invest in the project, although their investment group client remained the majority owner with the sole authority to make decisions.”
• “The DRB determined that the pair did not give written notice to the investors that they may want to seek independent counsel after their investment, and they did not get informed, written consent from the investors that they understood the pair’s role in the project.”

Jason Nash, Solicitor at law firm Browne Jacobson and Nicola Anthony, Risk Manager at Lockton write: “Law firms: limiting liability in engagement letters” —

• “Most firms very wisely seek to limit their liability to clients in their engagement letters. It makes sense to do this so the firm and the client both know how much financial compensation might be available if things go wrong.”
• “But while limiting liability is good risk management practice, such clauses must be drafted carefully to be effective. Problems arise where the perceived losses are more than the limit of liability contained in the engagement letter. And if restrictions and exclusions are too onerous, they could be deemed unenforceable, leaving liability unrestricted.”
• “There are several parties who are very interested in the effectiveness of liability clauses – the client, the firm and their professional indemnity insurance (PII) insurers, lenders, litigation funders, or anyone else who is interested in the outcome of a professional negligence claim.”
• “Professional indemnity claims are a significant concern for the profession and their insurers. In recent years, whilst the volume of claims has remained steady, the sums being claimed have risen significantly. As PII is one of the biggest costs to law firms, (together with rent and salaries) this means the higher costs of claims and resulting impact on premiums can have a devastating effect on a firm. “
• “To protect themselves against the burden of claims, many firms seek to include a standard term in their engagement letters excluding liability for breach of contract or negligence or limiting the damages that can be claimed. This is sometimes linked to a clause seeking to reduce the limitation period to a shorter period of time than prescribed by statute.”
• “It’s also useful to consider what might happen if a high value transaction went wrong. When claims arise, a simple mistake can have severe financial consequences.”
• “A limitation of liability clause in an initial engagement letter is not a ‘get out of jail free card’; if it’s decided the clause is ineffective, the full limit of cover will be exposed – trying to use both the limitation of liability twinned with a lower level of cover might not be effective if the clause is found to be unenforceable. The firm itself is then at risk once the full limit of insurance has been eroded, either by one single claim or a number of aggregated claims.”
• “Firms must also consider whether any limitation of liability clauses comply with SRA regulations. In 2021, the Solicitors Disciplinary Tribunal (SDT) imposed a fine on a firm for seeking to improperly limit liability and/or limit the timeframe for when a claim could be made. The SDT found these breached various provisions of the Solicitors’ Code of Conduct 2007 and the SRA’ Code of Conduct 2011.”
• “Below, we’ve offered some key recommendations to keep in mind before and during implementation:
  • Document any challenges and/or negotiations concerning a limitation of liability clause, explain why it is fair and reasonable and does not breach SRA Code of Conduct.
  • Ensure adequate and appropriate insurance cover is in place to avoid a potential regulatory sanction
  • If possible, document the reasons for any attempt to limit liability to a figure below the level of insurance cover
  • Where a formula is used for determining a limitation of liability, make the basis for calculation clear
  • Remember that it is not possible to exclude liability for matters such as fraud or an SRA regulated activity
  • Where caps on liability are introduced, make clear whether the cap is an aggregate limit on liability, or applies separately to each breach or each claim
  • Where possible, the client should be given sufficient time to consider the matter and/or take legal advice”

“‘A Leap of Faith’: Some In-House Leaders Join Fight to Fix Big Law’s Mental Health Crisis” —

• “Not all in-house lawyers watching the recent reckoning over the mental health of law firm lawyers have been passive observers… For instance, Minneapolis-based U.S. Bank in 2021 collaborated with seven of its law firms to develop wellness guidelines for outside counsel, an effort that has since expanded to another 11 firms. And Atlanta-based radio and TV station owner Cox Media Group added similar principles to its outside counsel guidelines after Eric Greenberg became general counsel in 2021.”
• “‘The danger comes from people feeling like their meaning and humanity have become completely divorced from the pure, unadulterated radioactive challenge of what lawyers do,’ Greenberg said. ‘We as in-house counsel have an opportunity to reinject into our outside counsel’s work a sense of accomplishment and meaning that makes someone able to tolerate the challenges of the hard work,’ he said.”
• “Some legal department leaders unnecessarily escalate the stress on outside counsel by treating routine matters as five-alarm fires, thinking outside lawyers’ hefty hourly rates entitle them to be extra-demanding.”
• “While Stephen Mar, general counsel of the supply-chain-software firm Odeko, acknowledges the inconvenience of after-hours work and limits those asks to the most urgent matters, he said that ‘the primary responsibility to own and drive any initiatives related to the mental health of their lawyers lies with law firms and their leadership.'”
• “The lawyers doing the work also need to prioritize their own well-being, ‘as it directly impacts their ability to provide high-quality service,’ said Michael Kraut, a partner at Morgan, Lewis & Bockius, one of the firms that helped create the U.S. Bank guidelines.”

“SRA seeks power to launch ‘spot checks’ of law firms” —

• “The Solicitors Regulation Authority (SRA) has called for the power to launch ‘wide-sweeping inspections’ of law firms without needing the trigger of a specific allegation of misconduct.”
• “Chief executive Paul Philip made the request while revealing that the first two cases involving alleged SLAPPs (strategic lawsuits against public participation) have been referred to the Solicitors Disciplinary Tribunal (SDT).”
• “He said the regulator had two legislative asks: new powers to issue unlimited fines, which has been a request for some years, and to make spot checks.”
• “It came in the context of questions about the SRA’s two thematic reviews on SLAPPs, the second of which was only published last month. These involved visits to multiple law firms but Mr Philip stressed that thematic reviews were ‘an opportunity to highlight good practice and… sharp practice’ – they were not inspections of those firms, although any potential misconduct the SRA came across would be referred for investigation.”
• “‘We don’t have the statutory powers to do a spot check or an inspection other than in anti-money laundering work,’ Mr Philip explained. ‘So in terms of asks, we would very much like to do spot checks or inspections of firms across the board but at the moment we need a very specific trigger in relation to an allegation of misconduct to do that.'”

“Tesla threatened to fire law firm in bid to block Musk pay critic – court document” —

• “A Delaware law professor accused Tesla on Monday of threatening to fire one of its longtime law firms if he proceeded with plans to file a friend-of-the-court brief criticizing the company’s bid to restore CEO Elon Musk’s $56 billion pay package.”
• “Retired professor Charles Elson of the University of Delaware alleged in a legal filing, that Holland & Knight, for which Elson has worked for nearly three decades as a consultant, told him that Tesla said it would end its relationship with the law firm unless Elson abandoned plans to submit his brief.”
• “Tesla’s tactic was ‘extraordinary and appalling,’ Elson said in the filing, which seeks permission from the court to submit the brief.”
• “After he learned of the electric carmaker’s alleged threat to Holland & Knight, Elson said in the filing, he resigned from his consulting arrangement ‘to protect that firm from retaliation while upholding the important principle of academic freedom.'”
• “Tesla did not respond to a query about Elson’s allegations.”
• “Holland & Knight denied in an email statement that it was pressured by Tesla. ‘Holland & Knight determined that Charles Elson’s proposed course of action was inconsistent with the firm’s obligations to its client, Tesla,’ the statement said. ‘This determination was not based on any coercion or threats by anyone, including Tesla.'”
• “Holland & Knight represents Tesla in unrelated employment matters, including a race discrimination suit by a California civil rights agency and a separate race discrimination case by the U.S. Equal Employment Opportunity Commission, according to news reports.”
• “Elson, a corporate governance expert, submitted a previous friend-of-the-court brief that was cited several times in the Delaware Chancery Court opinion that voided Musk’s pay package. The judge called the compensation granted by Tesla’s board “an unfathomable sum” that was unfair to shareholders.”
• “Elson sought to file his second brief after Tesla announced last month that it intends to hold a new shareholder vote to reinstitute Musk’s compensation. Elson’s proposed brief argues that Delaware law does not permit the ‘unprecedented’ maneuver of undoing a Chancery Court judgment through a shareholder vote.”
• “Elson’s lawyer, Joel Fleming from the Equity Litigation Group, sent the proposed new brief to Tesla on Friday morning, according to Elson’s filing. A Tesla lawyer from DLA Piper called Fleming later that day to assert that Elson had a conflict of interest, and that Fleming should wait before filing the proposed brief, Elson’s filing said.”
• “Elson said in his filing that there is no conflict of interest because he is not a lawyer at Holland & Knight but only consults with the firm on corporate governance matters. Elson also said he is acting as a friend of the court, not an advocate, in the Musk case.”
• “‘I am very disappointed with these events,’ said Elson in an interview. He declined to say how much Holland & Knight paid him, but said the monthly payment ‘helped cover my mortgage.'”

“Sullivan Hits Back Against FTX Investors’ ‘Dubious’ Fraud Claims” —

• “FTX law firm Sullivan & Cromwell is slamming the ‘claim by some of the failed crypto exchange’s investors that its lawyers were complicit in a billion-dollar fraud.”
• “A federal lawsuit against the firm by FTX investors is based on ‘innuendo masquerading as facts,’ Sullivan Cromwell said Monday in a court filing. Defrauded FTX customers are set to get all of their money back from the failed exchange in bankruptcy proceedings, according to the firm.”
• “‘Plaintiffs in this action, a handful of alleged FTX customers, purport to bring claims against Sullivan & Cromwell to recover the same damages for which they are already being compensated through the bankruptcy process,”’ the firm said, asking a federal judge in Florida to dismiss the lawsuit.”
• “A proposed class of investors represented by The Moskowitz Law Firm in February sued the firm for allegedly aiding and abetting the fraudulent activity that happened at the exchange. The firm is also facing a court-mandated review into whether it has any conflicts of interest that should have been addressed as it leads FTX through bankruptcy proceedings.”
• “Controversy over the powerful Wall Street firm’s work for FTX ultimately caused it to lose out on a high-profile outside monitor assignment overseeing crypto exchange Binance Holdings Ltd, Bloomberg News reported.”
• “In Monday’s filing in the US District Court for the Southern District of Florida, the firm said FTX investors have still made no accusation that Sullivan & Cromwell had knowledge of any fraud while performing certain legal services. Courts have held that ‘lawful legal services to a fraudster does not impute knowledge of the fraud,’ said the firm’s counsel, lawyers from Hunton Andrews Kurth.”

“High Court: Sanctioned Russians “probably owned” litigation funder” —

• “There is ‘reasonable cause to suspect’ that the funder of the claimant in a $1.3bn action was controlled by sanctioned Russians, the High Court has ruled.”
• “Mrs Justice Cockerill said the sale of A1 LLC for a mere £714 as its founders were sanctioned was of particular concern.”
• “‘The figure given for the sale price is surprising on its face. The financial documentation adduced (in a lengthy and full exchange of evidence) fails to provide a coherent or robust justification for that figure.'”
• “Her ruling was the latest in long-running litigation brought by Vneshprombank LLC (VPB) over an alleged massive fraud carried out by Georgy Bedzhamov.”
• “In the hearing before Cockerill J, Mr Bedzhamov sought a declaration that there was reasonable cause to suspect that A1 – which had to that point funded VPB and the trustee – was owned or controlled by designated persons under the Russia sanctions regulations.”
• “The judge said the application ‘has to some extent been prompted by judicial concerns’ – Mrs Justice Falk said in a ruling last year that it was ‘impossible at this stage to dispel the concern that the March 2022 transaction was not genuine, but instead arranged to give the appearance that A1 is no longer under the control of sanctioned individuals.'”
• “Falk J said A1’s role was ‘an unusual one that appears to go well beyond that of a conventional litigation funder,’ as it was managing the proceedings on the liquidator’s behalf.”
• “A1 is no longer funding the case, having been replaced by Cezar Legal Consulting Agency in March, after the latest hearing.”
• “A1 is part of the Alfa Group, which describes itself as ‘one of the largest privately owned financial-investment conglomerates in Russia.'”
• “Up until March 2022, A1 was owned by a Luxembourg company whose major shareholders were Mikhail Fridman, German Khan and Alexey Kuzmichev. All three were all designated under the sanctions regime on 15 March 2022.”
• “VFB said that, around the date but before Mr Khan and Mr Kuzmichev – who between them held 52% of A1 Investment – were designated, they sold their shares to an Alfa director who was not. A week later, all the shares were sold to another undesignated director of A1, a Mr Fayn, for £714.”

Hinshaw partner Matthew Henderson on: “What Law Firms Should Know Amid Rise In DQ Motions” —

• “Disqualification motions are being filed with more frequency. But that only tells half of the story. Such motions are often filed under seal, either by counsel seeking to avoid publicity or by corporate clients that do not want to air their dirty laundry — such as employment discrimination claims, white collar criminal matters, etc. — in a public forum. Also, law firms may quietly withdraw from representation when initially faced with a well-grounded request before anything has been filed.”
• “Disqualification motions tend to be more prevalent in intellectual property litigation, particularly in the bioscience and chip technology sectors, because of the relatively small number of practitioners in those highly technical areas.”
• “When a lateral partner moves to a competitor, there is a risk of disqualification motions being filed by the partner’s former clients, who may become adverse to the new firm. However, the risk may not be realized unless the new client engages in litigation with the lateral partner’s prior client, possibly months or years later.”
• “To reduce the risk of disqualification motions, law firms are proactively including advance conflict waivers in their engagement letters.”
• “Two recent cases — IBM Corp. v. Micro Focus (US) Inc., decided in May 2023 by the U.S. District Court for the Southern District of New York, and SuperCooler Technologies Inc. v. The Coca-Cola Co., decided in July 2023 by the U.S. District Court for the Middle District of Florida[4] — suggest that such prior consent can be effective in opposing disqualification.””The risk of disqualification motions can be considerable for clients engaged in high-stakes litigation, including losing their counsel of choice who are familiar with the case and having to retain successor attorneys to get up to speed.”
• “Disqualification can likewise lead to a claim for legal malpractice, as illustrated in the April 2022 decision of RevoLaze LLC v. Dentons in the Eighth Appellate District of the Ohio Court of Appeals,[6] or breach of fiduciary duty against a law firm.”
• “Disqualification motions can also have profound financial implications for law firms that earn large fees in complex and protracted litigation, particularly in the intellectual property field. Thus, law firms seeking to preserve attorney-client relationships in high-profile cases may choose to pay outside counsel themselves to oppose disqualification motions. Alternatively, in close cases of disqualification, clients may be willing to pay the attorney fees to retain access to their counsel of choice.”
• “The best risk management practice is to identify and analyze potential conflicts of interest at the onset of the attorney-client relationship. This is a labor-intensive process that involves reviewing attorney time records and interviewing lawyers to determine the scope of the prior representation and what confidential information the law firm may possess.”
• “Careful vetting of lateral attorneys is likewise imperative to reduce the possibility of facing a disqualification motion. Often, law firms want to move quickly in onboarding a new partner. However, it pays to complete thorough conflicts checks going back three, five or even seven years.”
•  Engagement letters should contain (1) a disclaimer of future duties after termination of the attorney-client relationship, and (2) a sunset provision setting forth that if the law firm has not performed any legal work for the client in 12 months, it will be treated as a former client for conflicts purposes.”
• “Given that concurrent and former conflicts of interest are imputed to entire law firms, it is also prudent to have robust screening protocols to ensure that lawyers with potential conflicts are unable to access confidential client information on a law firm’s server. Disqualification may be avoided where a law firm can demonstrate that it had promptly and carefully screened allegedly conflicted counsel.”
• “Once a disqualification motion has been filed, a law firm must promptly consult with its client, evaluate the chances of prevailing and obtain its client’s informed consent to oppose the motion. If the conflict is serious, it is often best to withdraw.”
• “Disqualification motions appear to be proliferating in both public and private forums, including arbitration proceedings. Law firms need to be aware of the types of conflicts that most often lead to disqualification and the types of attorneys who may be affected.”

“ABA Issues Opinion on Disclosing to Clients When Using Listservs” —

• “Lawyers should not reveal any information relating to a client’s representation to a wide group of lawyers in a computer listserv, or group email list, without informed consent, the American Bar Association has advised in a formal opinion Wednesday.”
• “The new guidance for the use of email lists by lawyers addresses when it’s permissible to ask large groups of other lawyers questions that could identify a client and their legal issues.”
• “‘Participation in most lawyer listserv discussion groups is significantly different from seeking out an individual lawyer or personally selected group of lawyers practicing in other firms for a consultation about a matter,’ according to the opinion issued Wednesday by the ABA Standing Committee on Ethics and Professional Responsibility.”
• “Without informed client consent, the opinion found, ‘lawyer participating in listserv groups should not disclose any information relating to the representation that may be reasonably connected to an identifiable client.'”
• “The opinion added that lawyers may participate in listserv discussions related to legal news or changes in the law without getting a client’s consent, if the lawyer doesn’t disclose information about a client representation.”
• See complete text of Formal Opinion 511.

In California, noted in the May meeting of the Committee on Professional Responsibility and Conduct: “Discussion of Draft Opinion 19-0004 [re Client File Release and Retention Duties], and Possible Approval for Circulation for Public Comment” —

• “What are the ethical obligations of lawyers with respect to retention and destruction of client files, materials, and property in closed civil and criminal matters?”
• “California Rules of Professional Conduct do not specify a fixed retention period for closed client files. A lawyer’s file retention duties generally turn on the lawyer’s obligations as the bailee of the client’s papers and property and the lawyer’s duty to avoid reasonably foreseeable prejudice to a former client.”
• “If not returned to the client, original documents, property furnished to the lawyer by the client, and items of intrinsic value must be retained by the lawyer and cannot be discarded or destroyed without the client’s consent.”
• “In civil matters, absent an agreement to the contrary, other client materials and property may only be destroyed after the lawyer uses reasonable means to notify the client of their intended destruction and gives the client a reasonable time to respond. If a client cannot be located or fails to respond to reasonable notice of intended destruction of the file, the lawyer may destroy items whose retention is not required by law and is not necessary to avoid reasonably foreseeable prejudice to the client. Items that the lawyer believes are reasonably necessary to the representation may be preserved in electronic form only, unless the lawyer believes the loss of physical copies will prejudice the rights of the client.”
• “Client file retention and disposal can be challenging for California lawyers due in no small part to the absence of a clear rule on the topic. The California Rules of Professional Conduct and the State Bar Act do not specify how long a lawyer must retain a client’s file in a closed matter. They also do not provide when and how a lawyer may destroy the contents of closed client files.”
• “Ethics opinions generally agree that absent an agreement or other legal proscription to the contrary, certain file contents in closed civil matters may be destroyed after the lawyer makes reasonable efforts to notify the client of their intended destruction, but they disagree on whether there should be a fixed, minimum retention period applicable to all file contents.”
• “The California Rules of Professional Conduct and the State Bar Act are also silent on the destruction of closed client files. Regardless, before disposing of any item in a closed client file, a lawyer must take certain precautions to prevent any reasonably foreseeable prejudice to the former client.”
• “Before disposing of any item in a closed civil file, absent an agreement to the contrary, a lawyer must make reasonable efforts to locate and notify the former client of the existence of the file, of the client’s right to examine and retrieve the file, and of the intended destruction.”
• “If the lawyer is without personal knowledge of the contents of the file, the lawyer should consider whether to examine the file to determine whether there are any items that must be retained (as described above) or might result in reasonably foreseeable prejudice to the client if destroyed.”
• See the complete draft document for a number of submitted comments.

“Bankruptcy Judges Aren’t ‘Clubby’—Ethical Networking Is Key” —

• “The resignation of former US Bankruptcy Judge David Jones and scrutiny of a popular two-judge panel in Houston has prompted questions over whether bankruptcy judges should attend social events with bankruptcy practitioners.”
• “There is an unwritten rule about attendance by judges at social events. Small talk such as the weather, a recent Supreme Court decision, your golf game, or your favorite sports team are permissible… Any attorney worth their salt knows this rule and doesn’t want to alienate a judge by breaking it.”
• “Because bankruptcy law is highly specialized, the bankruptcy bar is a relatively small group. Practitioners tend to deal with the same people on a regular basis. If you have been practicing long enough, you probably know everyone in the bankruptcy bar. Bankruptcy judges often are former bankruptcy practitioners. All this can contribute to a public impression of ”clubbiness.'”
• “Attendance by bankruptcy judges at social events may be viewed as supporting a mission of the host organization. Their attendance also may be a ‘draw’ for practitioners to attend such events.”
• “This creates a potential dilemma for members of the judiciary about which events to attend, especially since socializing with practitioners at events is impossible to avoid. But does it—or should it—create an appearance to the public of impropriety or a lack of impartiality?”
• “The commentary to Canon 4 acknowledges that ‘a complete separation of a judge from extrajudicial activities is neither possible nor wise; a judge should not become isolated from the society in which the judge lives.'”
• “The code of conduct specifically says judges may attend fundraising events of law-related and other organizations. The problem is with judges’ behavior at such events—socializing with practitioners—and the public’s perception of that behavior. Judges and practitioners know the rules, and social interaction shouldn’t be interpreted as anything other than that.”

“Prepetition Waivers Sway Invitae Judge On Kirkland Hire” —

• “A New Jersey bankruptcy judge approved the retention of Kirkland & Ellis LLP as bankruptcy counsel for debtor Invitae Corp. Tuesday, the same day he approved a $239 million sale of its assets to Labcorp.”
• “During a hearing in Trenton, U.S. Bankruptcy Judge Michael B. Kaplan said a prepetition waiver signed by Kirkland client Deerfield Management Co. — the largest secured creditor in Invitae’s Chapter 11 case — swayed him to overrule the objections to Kirkland’s retention as the debtor’s bankruptcy counsel.”
• “But Judge Kaplan said the prebankruptcy relationship between Kirkland and Deerfield did not create a situation where there is a conflict in Kirkland representing Invitae in its restructuring.”
• “‘The existence of the expansive prepetition advance waivers as well as language in the retainer agreement are significant for this court,’ Judge Kaplan said of Deerfield’s agreement not to assert a conflict. ‘You cannot waive yourself, or your firm, out of meeting the requirements of Section 327 as a whole. But the waivers can, if done appropriately and tactfully, address some of the issues the court must decide if there is a level of adversity warranting a finding of potential actual conflict.'”
• “Kirkland and Invitae argued in court filings and at Tuesday’s hearing that a debtor’s choice of counsel should be given deference, and that disqualification should only be applied in extreme cases. Here, Kirkland represented Deerfield in fund formation matters unrelated to restructuring and the total amount billed by Kirkland over the life of its representations is about $2.4 million. That amount represented about 0.03% of the firm’s annual revenue, according to Kirkland attorney Mark McKane.”
• “Deerfield’s waiver of conflicts allowing Kirkland to work for Invitae in the Chapter 11 case are also an important factor in considering the retention applications, he said. ‘There is no actual conflict here,’ McKane argued. ‘We have valid, enforceable waivers that delineate whether it’s an actual conflict or a potential conflict.'”
• “Committee attorney Christopher M. Shore of White & Case LLP argued that Kirkland’s relationship with Deerfield creates a conflict in a critical facet of the case, namely a 2023 debt exchange transaction through which Deerfield obtained 78% of Invitae’s secured debt. Kirkland failed to disclose the prepetition work for Deerfield to the debtor and should be relegated to a more minor role in the Chapter 11 case, he said.”