Bressler Risk Blog

Lucian Pera writes on: “The Madness of the Lawyer Fee-Sharing Ban” —

• “To begin to test that premise, consider with me this question: Does today’s law on what is, and is not, prohibited as fee-sharing with nonlawyers make sense? Does it consistently protect a lawyer’s professional independence?”
• “I submit that no rational person—note I did not say ‘lawyer’—could believe that the law as it stands today is a sensible and good policy, consistently aimed at protecting the independence of lawyer judgment. I invite you to check my work.”
• “Virtually every state follows reasonably closely the core verbal formulation of ABA Model Rule of Professional Conduct 5.4(a): ‘A lawyer or law firm shall not share legal fees with a nonlawyer,” followed by a series of exceptions, about which more later.'”
• “A legal fee is the $1 that Perry Mason occasionally asked a new client to give him to seal the deal to become their lawyer (and prove their innocence within the hour)… Lawyers are not accountants, but every ethics opinion on this subject takes a much more expansive view of a legal fee. We ethics lawyers uniformly tell lawyers that the fee-sharing ban means that not only can Perry not share that $1 before he hands it to Della, he also cannot share his revenue from his firm, or the profits from his firm, with any nonlawyer.”
• “Knowing now that the ban actually covers fees, revenues and profits, Rule 5.4(a) means we cannot “share” them ‘with a nonlawyer.’ Sounds like we cannot give a nonlawyer a portion or percentage of them. Clearly, Perry can, in fact, pay Paul Drake’s expenses or the rent with money that comes from fees. But many authorities blur this line. Sadly, some aim directly at innovative services that would, in fact, aid in the availability of legal services.”
• “Over the decades, a patchwork of exceptions to the ban have been recognized, many ill-defined. Many seem to have little justification when compared to similar situations where the ban remains strong. See if you can find the common policy thread, tied to lawyer independence, that controls.”
• “Profit-sharing bonuses with employees versus consultants. Nonlawyer employees of lawyers can be paid a share of the firm’s profits, so long as they are not paid a share of fees on individual cases or specific groups of cases. But employees certainly cannot be paid a share of the profits from the cases on which they worked. And there’s no exception at all for consultants to lawyers and law firms, as opposed to employees, even if the consultants are doing the same work as an employee—for example, marketing.”
• “Financing. Someone who advances money for a law firm’s expenses—say, to market or pay the expenses of a new line of work—cannot be paid a fee for that financing based on the profits resulting from that line of work. Unless, of course, the financier is a licensed lawyer, in which case, that’s perfectly fine.”
• “Sharing court-awarded fees. In most states, a lawyer may share court-awarded fees with a nonprofit organization that employed, retained or recommended the lawyer’s employment. But not with a for-profit organization that did the same.”
• “So, do you think that lawyers who engage in conduct prohibited above are less independent in their professional judgment for clients than lawyers controlled by these prohibitions?”
• “First, is the professional judgment of a lawyer who does share fees with a nonlawyer impaired, or somehow less than, the professional judgment of a lawyer who does not? I have never understood that logic, especially in the face of so many other sources of a lawyer’s obligation to maintain the independence of her professional judgment for, and her undivided loyalty to, a client.”
• “Second, even assuming an affirmative answer to the first question, does the current patchwork, inconsistent ban on fee-sharing effectively separate problematic fee-sharing from benign fee-sharing? Clearly not. Are we really worried about percentage leases, or fee-sharing with law firm employees leading to lack of professional independence?”

“Delaware Supreme Court Holds MFW Inapplicable Based on Banker Conflict Disclosure Deficiencies” —

• “The Delaware Supreme Court has reversed a Court of Chancery decision dismissing challenges to the acquisition of Inovalon Holdings, Inc. by a consortium led by Swedish private equity firm Nordic Capital in a decision demonstrating the importance of disclosure of financial advisor conflicts in order to obtain the benefit of business judgment rule review under Kahn v. M&F Worldwide Corp. – the MFW decision.”
• “The Supreme Court held that the majority-of-the-minority stockholder vote approving the transaction was not fully informed, based on inadequate disclosure of conflicts of interest on the part of financial advisors to the special committee of Inovalon’s board.”
• “The Court found that the Inovalon proxy statement failed to adequately disclose conflicts of both financial advisors. It found that language stating that the second advisor “may provide” services to Nordic and its co-investors was misleading given that the advisor was in fact providing such services, creating a concurrent conflict.”
• “In the case of the first advisor, the Court held that disclosure that the bank would receive “customary compensation” in connection with disclosed concurrent representations was insufficient because it kept stockholders from “contextualizing and evaluating” the conflicts. It also found that the proxy statement failed to disclose the first advisor’s fees for prior work for members of Nordic’s equity consortium, which amounted to nearly $400 million in the relevant two-year period.”
• “The Court stated that while ‘there is no hard and fast rule that requires financial advisors to always disclose the specific amount of their fees from a counterparty in a transaction,’ the question is subject to a materiality standard. The Court found that in this case that materiality standard was met, noting that the undisclosed compensation was roughly 25 times the disclosed fees that the first advisor received from Nordic and 10 times the fees that it received in the transaction, thus creating a misleading picture.”
• “Finally, the Court addressed disclosure about the second advisor’s role in the bidder outreach process, which the plaintiffs claimed had been overstated in the proxy. The Court observed that the disclosures about the second advisor’s role ‘do not sit comfortably’ with corresponding accounts in the minutes, and it cautioned boards, committees and their advisors to take care in accurately describing events and roles played by board and committee members and their advisors – but the Court declined to “pile on” another basis for reversal.”

“Research Finds Companies Where Chief Legal Officer is Also Corporate Secretary Experience Fewer Incidents of Shareholder Litigation, Regulatory Violations, and Regulatory Penalties” —

• “The Association of Corporate Counsel (ACC) today announced its selection for the inaugural winner of the Carl Liggio Memorial Paper Competition. The winning submission examines the legal risk implications at companies where the Chief Legal Officer (CLO) is also the Corporate Secretary, showing that the upside impact is significant, especially when combined with an independent board of directors. These companies experience fewer incidents of shareholder litigation, regulatory violations, and regulatory penalties.”

The paper itself: “Independent or Informed? How Combining the Roles of Corporate Secretary and Chief Legal Officer Impacts Legal Risk” —

• “On the other hand, serving in a dual capacity as a corporate secretary and CLO may exacerbate conflicts of interest. This conflict arises because the board is responsible for overseeing the CLO (and the rest of the executive team) but does so based on the information and advice received by the CLO.”
• “This provides the opportunity for the CLO to “gloss over” legal issues (for which she is responsible) and avoid accountability for failing to minimize legal risks.”
• “Furthermore, both roles are demanding. One person who fulfills both capacities will necessarily have less time and attention to devote to any singular role, leading to less effective management of legal risks. We refer to this as the ‘impaired independence’ explanation.”

“Judge should be censured for street brawl, conflict of interest, New York judicial conduct commission says” —

• “A New York judge should be censured for engaging in a street brawl with his neighbors and for participating in matters involving an attorney who was buying the judge’s law practice, according to the New York State Commission on Judicial Conduct.”
• “Grisanti is a judge on the court of claims and is an acting justice for the trial-level supreme court in Erie County, New York.”
• “The street brawl happened in Buffalo, New York, in June 2020, according to findings of fact by the judicial conduct commission. It involved neighbors said to have a history of conflict with others. The confrontation began after the neighbors parked their cars near Grisanti’s driveway. Grisanti called 911 to request that the cars be ticketed or towed if they weren’t moved.”
• “One of the neighbors ripped off Grisanti’s shirt… When Grisanti’s wife resisted handcuffing, an officer brought the 110-pound woman to the ground. Grisanti shoved the officer. A second officer restrained Grisanti with a bear hug. Grisanti warned officers that they should not arrest his wife. He said his son and daughter are police officers, and he was good friends with the mayor of Buffalo. Prosecutors did not file charges against the Grisantis.”

For the conflict issue: “STATE OF NEW YORK COMMISSION ON JUDICIAL CONDUCT” —

• “Charge III alleged that in or about 2016, respondent filed a Financial Disclosure Statement (“FDS”) with the Ethics Commission for the New York State Unified Court System in which he inaccurately reported the income he received from the sale of his law practice in 2015.”
• “On or about May 18, 2015, respondent entered into an agreement to sell his law practice to attorneys Peter J. Pecoraro and Matthew A. Lazroe. The agreement provided for the sale of the “goodwill” of respondent’s law practice for $50,000, with $15,000 down and monthly payments of $730 beginning on July 1, 2015 and extending until the balance was fully paid.”
• “Upon becoming a judge, respondent placed Mr. Pecoraro on his recusal list, but did not include Mr. Lazroe on the list.”
• “From in or about May 2015 through in or about June 2019, in connection with the agreement for the sale of his law practice, respondent received approximately $27,530 from Mr. Lazroe which included monthly installments during that period. The final installment of $365 was paid in June 2019.”
• “Respondent took judicial action in five cases involving Mr. Lazroe while Mr. Lazroe and respondent were engaged in an ongoing financial relationship.”

New York State Bar: “Ethics Opinion 1265: Conflicts of interest” —

• “A lawyer formerly employed by a Legal Aid Society office would not have a conflict in representing a client in a matter adverse to a party who had been represented by other lawyers in that office at that time unless the lawyer, while at Legal Aid, acquired confidential information that was material to the new matter and the matters were substantially related.”
• “The inquirer was employed by the Legal Aid Society of her county for a number of years, representing clients in Family Court. She left employment at Legal Aid and practiced in another area of the law and now is representing clients in the same Family Court in private practice (not as an employee of the Legal Aid Society). She inquires whether she has a conflict in representing clients adverse to a party that was represented in Family Court by another Legal Aid Society lawyer during the time she was employed by the Society.”
• “Does a lawyer formerly employed by the Legal Aid Society have a conflict of interest in appearing in Family Court adverse to a party who was represented by a different Legal Aid Society lawyer during the time that the inquiring lawyer was employed by the Society?”
• “Under Rule 1.9(b), a lawyer who did not herself represent a client of the Legal Aid Society would have a conflict in representing someone “materially adverse” to that former Legal Aid Society client only if the lawyer had “acquired” confidential information that was ‘material’ to the new matter and if the matters were ‘substantially related’ … But even if the matters were substantially related, if the lawyer did not acquire material confidential information about the former matter on which other Legal Aid Society lawyers worked (but on which the inquirer personally did not work), then the lawyer would have no conflict appearing adverse to the former Legal Aid Society client.

“A Defense Win in Texas on the Issue of ‘But For’ Proximate Causation in a Legal Malpractice Case” —

• “The Texas Court of Appeals held that when a plaintiff’s claim against her former attorney properly is grounded in professional negligence, the plaintiff cannot also bring a breach of fiduciary duty claim against the attorney.”
• “Further, the court ruled that a legal malpractice plaintiff must prove that her lawyer’s negligence was the proximate cause of cognizable damages and, in situations regarding contract formation, that the other contracting party would have agreed to the aPlaintiff alleged that defendant failed to exercise ordinary care and had various undisclosed conflicts of interest. Specifically, plaintiff alleged that the contracts were negligently drafted and allowed Schnur and Anderson to ‘circumvent’ or ‘cut out’ plaintiff from future deals.dditional or changed contractual terms.”
• “In June 2014, plaintiff entered into a series of contracts with Alan Schnur and David Anderson, who owned several apartment complexes for investment purposes. The series of contracts executed between plaintiff, Schnur and Anderson essentially merged their businesses and formed a new entity to solicit new investors to purchase additional properties. Plaintiff alleged that her attorney, the defendant, represented not only the plaintiff but also Schnur and Anderson during the contract negotiations and drafting.”
• “Plaintiff claimed that defendant did not draft the contracts herself but engaged another law firm to draft the contracts without plaintiff’s consent. Plaintiff also alleged that defendant had financial interests in the apartment properties. If the defendant had disclosed her conflicts, plaintiff would have hired new counsel and benefited from more favorable contract terms.”
• “Plaintiff argued that she had an attorney-client relationship with defendant, and that defendant breached her fiduciary duty by undertaking the representation ‘fraught with conflicts of interest’ and by hiring a separate law firm to draft the agreements.”
• “The court held that Forshee’s allegation that Moulton hired another law firm to draft the agreements sounded in negligence, not a breach of fiduciary duty. The court also held that simultaneous representation, without more, did not constitute a breach of fiduciary duty, noting that plaintiff failed to show that defendant obtained any improper benefit or placed her own financial interests over plaintiff’s interests.”

“Massachusetts lawyer reprimanded after accidentally copying opposing counsel email to lawyer with plan to avoid judge’s call” —

• “… the recent Massachusetts Board of Overseers Order imposing a reprimand on a lawyer who sent an email to another lawyer to evade a judge’s and accidentally copied opposing counsel.”
• “The judge stated that he wished to telephone the bankruptcy attorney from the bench, and CSI’s counsel provided the bankruptcy attorney’s phone number to the clerk.”
• “While the clerk was dialing the bankruptcy attorney’s number, the respondent took his cell phone from his pocket and sent the bankruptcy attorney an email that stated ‘Court is going to call you. Don’t pick up.’ He also sent the bankruptcy attorney a text message that stated: ‘Don’t pick up your phone.’ The bankruptcy attorney did not pick up the phone because he was occupied with another client, and not because of the respondent’s email and text.”
• “The respondent did not inform the judge that he was sending the email and text to the bankruptcy attorney. However, he inadvertently copied the email to CSI’s counsel. The next day, CSI’s counsel brought the email to the judge’s attention.”

“Former Watergate Defense Attorney Leaves Squire Patton Boggs for Boutique, Citing Conflicts” —

• “Miami-based boutique Heise Suarez Melville is bringing on a former managing partner for Squire Patton Boggs’s Miami office after he spent almost two decades there.”
• “Alvin Davis began his career in the U.S. Airforce, where he served as a staff judge advocate in Southeast Asia. Shortly after, he started practicing civil law in D.C., focusing on election law, where he defended Jeb Magruder, one of the people who pled guilty for involvement in the Watergate scandal.”
• “Davis eventually moved to Florida where he served as Squire Patton Boggs’s Miami managing partner after the firm acquired his previous firm Steel Hector & Davis, where he also served as its Miami managing partner. Since he moved to Florida, Davis has represented some local staples such as Florida Power & Light as well as the Miami Herald.”
• “Davis says he left Squire Patton for a boutique firm, partly because he kept running into conflict issues at the bigger firm.”
• “‘With a large firm, there are a lot more business conflicts where you have clients that don’t want you to take on other clients. There are legal theories that you may want to use that may cause problems for other clients,’ Davis said. ‘This is a time in my practice when the advantages of a small firm are very appealing to me.'”
• “The conflicts were especially in the way over the past few years, according to Davis.”
• “Despite the many practices global firms like Squire Patton may offer, Davis says smaller firms can also offer plenty of opportunities. ‘There are clients who are adverse to large firms because they don’t want to pay for the large apparatus of the large firm. There are lawyers who will not refer matters to a large firm because they’re afraid that they’ll refer the matter and lose the client,” he said. “So I think there are going to be a number of opportunities that will arise at the new firm that might not have occurred, where I [was].'”

“Kirkland Moves to Dismiss Suit Tying Firm to Texas Judge Romance” —

• “Kirkland & Ellis LLP moved to dismiss a lawsuit accusing the legal giant of helping to hide a romantic relationship involving a prominent Texas bankruptcy judge and a local lawyer.”
• “‘That relationship has nothing to do with Kirkland,’ the firm said in a Tuesday filing in the US District Court for the Southern District of Texas.”
• “The former CEO of petroleum barge company Bouchard Transportation Co. Inc. accused Kirkland of making misleading legal filings to conceal the romance between bankruptcy Judge David R. Jones and onetime Jackson Walker attorney Elizabeth Freeman. Kirkland often partnered with Jackson Walker to handle large Chapter 11 cases in Texas, including Bouchard’s. Jones presided over Bouchard’s bankruptcy in the US Bankruptcy Court for the Southern District of Texas.”
• “‘Bouchard brings serious claims against Kirkland on what amounts to a tortured theory of bystander liability,’ Kirkland said in the filing.”
• “That theory rests on what the firm called an inaccurate assertion that Kirkland should have acted on allegations about the relationship between Freeman and Jones, who resigned in October. Bankruptcy Judge Marvin Isgur had determined in 2021 that the allegations weren’t ‘credibly substantiated’ after holding a hearing related to the bankruptcy of McDermott International, Kirkland said.”
• “Bankruptcy rules didn’t require Kirkland to disclose potential conflicts of Jackson Walker, the firm said in the Tuesday filing.”

“Conflict Draws Reciprocal Suspension” —

• “The full Massachusetts Supreme Judicial Court imposed a three-year suspension as reciprocal discipline for a sanction imposed by the United States Patent & Trademark Office.”
  • “In 2019, an administrative law judge determined that Correll had violated several sections of the USPTO Code of Professional Responsibility… by representing private parties before the USPTO while he was employed by the Federal government (as an electronics engineer for the United States Department of the Navy). The director of the USPTO subsequently affirmed the administrative law judge’s decision in a final order issued in February 2021.”
  • “The detailed facts of Correll’s misconduct — of his representation of private parties before the USPTO while he was a Federal government employee — are set forth in the final order from the USPTO, as well as in two Federal court decisions, see note 4, supra, and need not be reiterated here.”
  • “As to Correll’s primary argument, in particular, that his suspension violates his First Amendment rights to free speech and association… Correll was not disciplined — his license was not suspended — on the basis of the content of his speech, but rather on the basis that in representing private parties before the USPTO, he violated certain of the USPTO’s disciplinary rules. Moreover, as the District Court noted, ‘the only prohibition on [Correll’s] speech was the speech [he] exercised when representing private clients in front of the USPTO. [He] was free to speak on patent and trademark matters otherwise.'”
  • “Acting through his firm, Mr. Correll represented private clients, for pay, at the PTO while a Navy employee, filing or prosecuting 211 patent applications and 80 trademark registration applications between 2002 and October 25, 2017. S. App’x 130, 132. He did this despite receiving a reminder, as part of a PTO-distributed practitioner survey in 2003, that federal employees may not represent private clients at the PTO. S. App’x 199. Mr. Correll did not resign from federal employment until September 2018.”

“Conflict Disqualifies Entire Wyoming Bar Counsel Office” —

• “Andrea Richard moved the Review and Oversight Committee (ROC) to disqualify Special Bar Counsel Wes Reeves and the Office of Bar Counsel from prosecuting the pending disciplinary proceeding against her due to a conflict of interest. She sought the appointment of a new, conflict-free special bar counsel.”
• “The ROC disqualified Mr. Reeves but declined to impute his conflict of interest to the Office of Bar Counsel. After the ROC determined there was probable cause to allow Bar Counsel to file a formal charge, Ms. Richard asked the hearing panel for the Board of Professional Responsibility (BPR) to disqualify the Office of Bar Counsel due to an additional conflict of interest that was unknown to her at the time she filed her first motion and because Bar Counsel used Mr. Reeves’s work product when drafting the formal charge. The BPR denied Ms. Richard’s motion.”
• “We granted Ms. Richard’s petition to review the BPR’s order. We conclude the Office of Bar Counsel must be disqualified due to existing conflicts of interest, and we reverse with instructions to appoint a new, conflict-free special bar counsel.”
• “During the investigation into one of those seven cases, Fields v. Waterhouse, Ms. Richard was briefly represented by Mr. Wes Reeves. Mr. Reeves’s representation consisted of writing letters to then Bar Counsel, Ms. Rebecca Lewis, asserting Ms. Richard’s conduct in that matter did not constitute a violation of the Rules of Professional Conduct. Ultimately, this Court adopted the BPR’s report and recommendation finding Ms. Richard committed multiple rule violations when she forced opposing parties to file repeated motions to compel discovery, failed to comply with court orders to provide meaningful discovery, caused unnecessary delay and needlessly increased the costs of litigation, filed pleadings that were not well grounded in fact or warranted by good faith argument, made allegations in court documents that were not true, and made repeated misrepresentations concerning discovery and other matters.”
• “In November 2022, Mr. Gifford informed Ms. Richard that Mr. Reeves and Ms. Anna Reeves Olson were appointed to serve as Special Bar Counsel in the present disciplinary proceeding. This correspondence indicated Mr. Gifford was aware Mr. Reeves previously represented Ms. Richard in connection with the 2014 Suspension, but Mr. Gifford determined Mr. Reeves did not have a conflict of interest and could serve as Special Bar Counsel. Mr. Reeves did not notify Ms. Richard of any potential conflict prior to accepting the representation, nor did he seek her consent before accepting the representation.”
• “The ROC disqualified Mr. Reeves and Ms. Olson from serving as Special Bar Counsel finding Mr. Reeves’s prior representation was ‘either a conflict of interest, or at the very least the appearance of a conflict of interest, such that Special Bar Counsel cannot continue on in this matter.’ The ROC did not impute Mr. Reeves’s conflict to the Office of Bar Counsel.”
• “The BPR denied Ms. Richard’s motion to disqualify the Office of Bar Counsel and her motion for an order prohibiting the turnover of work product. The BPR found Ms. McCorkle did not have a conflict of interest under W.R.P.C. 1.9 reasoning: “the events that resulted in the 2014 [S]uspension and the 2017 [R]einstatement are in no way related to or in any way the same or substantially related to those at issue in this matter. The persons and the alleged facts are completely different and in no way related to earlier events.” For those same reasons, the BPR found Mr. Reeves “did not and does not now” have any conflict of interest that would require the disqualification of the Office of Bar Counsel or a restriction on access to work product.”
• “The conclusion the current disciplinary proceeding is substantially related to the 2014 Suspension and the 2017 Reinstatement is readily apparent from the pleadings filed by Mr. Reeves and Mr. Gifford in this proceeding. These pleadings show all three proceedings involve the same client, are “relevantly interconnected,” and reveal Ms. Richard’s alleged “pattern of conduct.”
• “Because the proceedings are substantially related, under our case law, there is an irrebuttable presumption Ms. Richard communicated confidential information to Mr. Reeves and Ms. McCorkle during the prior representations.”
• “Similarly, Mr. Gifford sought Mr. Reeves’s appointment as Special Bar Counsel before meeting with Mr. Reeves to discuss any potential conflicts. Once Mr. Gifford became aware of Mr. Reeves’s prior representation of Ms. Richard, rather than seeking the appointment of a new special bar counsel, Mr. Gifford unilaterally determined Mr. Reeves did not have a conflict of interest and could continue with the representation. Because Mr. Reeves was not properly screened and Ms. Richard did not consent to him serving as Special Bar Counsel, we must impute Mr. Reeves’s conflict of interest to Mr. Gifford.”
• “Once Mr. Reeves was disqualified, Mr. Gifford used Mr. Reeves’s work product to draft the formal charge he filed in this proceeding. Although we have not previously addressed whether substitute counsel can use a previously disqualified attorney’s work product, other jurisdictions have recognized once an attorney has been disqualified, transferring the work product of that disqualified attorney poses the same threat to the client’s confidential information, and it may be necessary to restrict access to the disqualified attorney’s work product in order to effectuate the purpose of disqualification.”
• “Given the numerous conflicts of interest that have occurred in this proceeding, the only appropriate remedy is to remand this matter to the ROC with instructions to appoint a new, conflict-free special bar counsel and to prohibit the Office of Bar Counsel from turning over any of Mr. Reeves’s or Mr. Gifford’s work product. This means new special bar counsel will have to begin the investigation anew based on the four complaints.”

“Conflict alleged as Grossman uses same attorney representing DA defendant in Gascón office” —

• “The headline-grabbing criminal case against a top aide to Los Angeles County District Attorney George Gascón has a potentially problematic connection to the ongoing Rebecca Grossman saga: the two high-profile defendants are using the same lawyer.”
• “According to the deputy district attorneys who successfully prosecuted Grossman for second-degree murder in February, a conflict of interest could arise since Assistant DA Diana Teran was above them in the prosecutor’s office chain of command when she was hit with a charge of illegally using police data on April 24. “
• “In a motion filed the following day, prosecutors Ryan Gould and Jamie Castro said Grossman should sign a waiver acknowledging a potential conflict before being represented in post-conviction matters by attorney James Spertus, who is also defending Teran. A hearing on the matter is set for May 17 in Van Nuys Superior Court.”
• “The news about the Teran charge was still a month away, but there was already a wrinkle concerning Grossman’s latest lead attorney: he’s an old coworker of the judge.”
• “‘Mr. Spertus is someone I know from the U.S. attorney’s office when I was a federal prosecutor,’ Brandolino said. ‘He’s not a close friend to the point where I think it would affect my ability to be fair in this case.'”
• “Though he didn’t think the relationship required his recusal in the case, Brandolino considered it worth disclosing. ‘I’ve seen him socially in the past, I haven’t seen him in a while,’ the judge said. Spertus did not respond to a request for comment. He told the Daily Journal, a legal publication, that there is no conflict since he is ‘adverse to the People of the State of California’ in both cases.”

“The State of Information Governance and the Disconnect Between Policy and Reality” —

• “Law firms are playing a game of catch up as the sheer volume of data, both in hard copy and electronic form, they routinely handle continues to skyrocket exponentially. To further complicate matters, most of this data is sensitive and/or confidential, driving the emergence of firms adopting robust information governance (IG) policies/strategies. Chief legal officers rank key components of a comprehensive IG program, such as cybersecurity, regulatory compliance, and data privacy as the most important issues they face year over year, according to the 2023 ACC CLO Survey.”
• “Implementing an information governance policy in a law firm involves navigating a myriad of complexities, including:
  • Diverse Data Sources: Law firms handle diverse data types, including legal documents, client records, emails, and multimedia files, each with unique governance requirements.
  • Regulatory Compliance: Law firms must comply with an array of regulations such as GDPR, CCPA, HIPAA, and legal industry-specific guidelines, adding layers of complexity to IG implementation.
  • Client Confidentiality: Preserving client confidentiality is paramount for law firms, necessitating robust data protection measures and access controls.
  • Legacy Systems: Law firms often grapple with legacy systems and disparate data repositories, making data discovery and management challenging.
  • Collaboration Requirements: Legal professionals collaborate extensively, requiring seamless data sharing while ensuring data security and compliance.”
• “However, while most firms now recognize the importance of having an IG policy in place, there’s an industry-wide gap between policy and implementation—and that’s exactly what we found in the Mattern 2024 Information Governance (IG) Report with survey results from 50 law firms, ranging in size from 21 to 3,000 attorneys.”
• “The report takes a deep dive into the practices and policies law firms have related to information governance and provides a representative industry-wide benchmark for firm self-assessment, in the context of answering the question: What are our peer firms doing in this area?”
• “The responses show that despite a growing heightened awareness and steady momentum in recent years toward the development and implementation of IG policies across law firms of all sizes, there is still plenty of work to be done to achieve defensible IG programs, and the road to that goal is not without its fair share of challenges.”
• “Enforcement/compliance is clearly the biggest challenge, at firms of all sizes. Overall, only 4% of all respondent firms reported strict compliance with their IG policies (9% of large firms and 0% of small firms), with nearly half the respondent firms reporting ‘substantial non-compliance.'”
• “These staggering compliance marks are evidence of having an IG policy and/or an in-house position dedicated to records/IG, while undoubtedly a step in the right direction, just scratches the surface. Although mandating strict adherence to any/all IG policies/procedures may seem like an easy fix, taking a step back reveals the lack of enforcement/compliance is far more complex than that and is driven by other IG related variables.”
• “Policy exceptions are a threshold concern. Over 30% of firms, both large and small, reported an endemic culture of granting exceptions to their IG policies/processes. Exceptions inherently introduce the proverbial slippery slope, but a closer look reveals it is even more problematic, with inconsistency across why exceptions are being granted, by whom, for how long, and at what frequency those exceptions are being reviewed for merit.”
• “Data organization is a common challenge as well. Twenty-seven percent of firms indicated they have no formal structure in place for network share drive content. A lack of meaningful folder taxonomy perpetuates poor IG practices, in so much that information cannot be associated with specific clients or matters for the application of appropriate retention schedules and/or ethical walls. Remediating information in network shares is a daunting task exacerbating the issue and associated risks.”
• “Additionally, independent of how well a firm’s data is structured, there is the constant struggle regarding retention. Retention is relevant to a wide array of data repositories.”
• “Further complicating matters, a significant percentage of firms, both large and small (56%), indicated they currently have no strategy in place for limiting data sprawl. Responses regarding what to keep and for how long differed greatly, but a common theme did emerge. The most common retention schedule currently adopted by firms, of any size, regardless of the type of record it is or where it is stored is unlimited. They have no retention schedule in place.”

“ChatGPT’s hallucinations draw EU privacy complaint” —

• “ChatGPT’s ‘hallucinating’ and making up of information breaches European Union privacy rules, according to a complaint filed by privacy group noyb to the Austrian data protection authority.”
• “Noyb, a Vienna-based non-profit founded by activist Max Schrems, said its complaint was triggered by ChatGPT’s failure to supply Schrems’ correct birthday, making a wild guess instead. The chatbot doesn’t tell users that it doesn’t have the correct data to answer a request. “
• “A person’s date of birth is personal data under the GDPR which sets various requirements for how personal data should be handled.”
• “Noyb claims that the chatbot’s behavior violates the General Data Protection Regulation (GDPR) on privacy, the accuracy of information as well as the right to correct inaccurate information. It also argues that the AI firm refused to correct or delete wrong answers, and won’t disclose any information about the data processed, its sources or recipients.”
• “‘It’s clear that companies are currently unable to make chatbots like ChatGPT comply with EU law, when processing data about individuals,’ said Maartje de Graaf, noyb’s data protection lawyer. ‘If a system cannot produce accurate and transparent results, it cannot be used to generate data about individuals. The technology has to follow the legal requirements, not the other way around,’ she said.”
• “The New York Times previously reported that ‘chatbots invent information at least 3 percent of the time — and as high as 27 percent.'”
• “Noyb is now asking the Austrian authority to investigate OpenAI to check on the accuracy of the personal data it handles to fuel its large language models. They also ask the authority to ensure that the company complies with the complainant’s request to access their own personal data.”
• “Violating the EU’s GDPR can lead to a penalty of up to 4 percent of a company’s global revenue.”

Kirkland responds to Invitae matter conflicts allegation: “Invitae Corporation, Docket No. 3:24-bk-11362 (Bankr. D.N.J. Feb 13, 2024), Court Docket” —

• “Kirkland does not hold or represent any interest adverse to these chapter 11 estates and is disinterested, as the term is defined by section 101(14) of the Bankruptcy Code.”
• “Kirkland ‘holds’ absolutely no interest adverse to these estates: it is neither a creditor of these estates nor economically motivated to do anything other than zealously represent the Debtors as fiduciaries for all stakeholders. Just as Kirkland does in every single debtor representation, irrespective of who is invested in the capital structure. The record in these cases is equally clear: Kirkland has and will continue to serve the Debtors’ interests—and only the Debtors’ interests—in these chapter 11 cases.”
• “Kirkland also does not “represent” any interest adverse to these estates. The Committee and the U.S. Trustee seek to disqualify Kirkland because Kirkland represents Deerfield in fund formation matters entirely unrelated to these chapter 11 cases. But Kirkland has not, does 4 not, and will not represent Deerfield in connection with these chapter 11 cases or in matters adverse to the Debtors.”
• “Notably, Kirkland’s limited funds work for Deerfield falls well short of the Committee’s assertion that Deerfield is a “significant” Kirkland client. Deerfield accounts for a tiny fraction of total firm revenue: approximately 0.03% of Kirkland’s annual revenue, less than $1,885,000 in 2023, and less than $2,400,000 in the aggregate for all time.”
• “Kirkland properlydisclosed its ongoing unrelated representation of Deerfield consistent with the requirements of the Bankruptcy Rules and Local Rules. And Kirkland has an advance waiver from Deerfield that expressly enables Kirkland to be adverse to Deerfield in any matter, including any restructuring, bankruptcy, or litigation matter.”
• “In similar facts, the Bankruptcy Court for the District of Delaware recently overruled an objection to retention of debtors counsel that also concurrently represented a secured lender in unrelated matters, where the law firm had an applicable waiver on file and fee receipts were approximately 0.1% of firm revenues. See In re Art Van Furniture, LLC, 617 B.R. 509, 519 (Bankr. D. Del. 2020) (Sontchi, J.).”
• “The Committee and U.S. Trustee have failed to meet their burden. They have not shown that any actual conflict or adversity exists… At bottom, the Committee Objection is purely tactical—a potentially value-destructive attack on the Debtors’ restructuring efforts deployed to circumvent the traditional requirements for derivative standing (for the second time in this case).”
• “The only question currently before the Court is whether the Debtors may retain Kirkland under section 327 of the Bankruptcy Code and this Circuit’s prevailing jurisprudence. The answer is clearly yes. Kirkland (i) does not hold an interest adverse to the estates, (ii) does not represent any interest adverse to these chapter 11 estates, and (iii) is disinterested. Therefore, Kirkland clearly satisfies the standard for retention.”

Chuck Lundberg presents an interview with Cassie Hanson (Conflicts and Ethics Counsel at Fredrikson & Byron) and Sara Gross Methner (Chief Attorney Talent Officer and Senior Counsel for Nilan Johnson Lewis) on: “Navigating the Ethical Landscape: Supervisory Practices in Law Firms” —

• “This month’s column offers a deep dive into an increasingly critical issue for any law firm seeking to avoid ethics complaints and malpractice claims. The ethics rules affirmatively require firms to adopt supervisory practices for all firm lawyers and non-lawyer staff, and effective supervision is an essential component of law firm risk management.”
• “Q: What constitutes “reason- able” supervision under the ethics rules?”
• “The rules do not de- fine ‘reasonable efforts,’ nor what degree of certainty is required to establish ‘reasonable assurance’ of ethical compliance by lawyers in a firm. But under Rule 1.01(i), ‘reasonable conduct by a lawyer denotes the conduct of a reasonably prudent and competent lawyer.’ Community standards are highly relevant when determining what is reasonable (and therefore a subject of expert testimony). Ultimately, the question of reasonableness is fact-specific and tailored to the role of the lawyer in a law firm. At a minimum, ‘reasonable’ probably includes written policies, training, and auditing for compliance to ensure that policies are followed.”
• “Q: The COVID-19 pandemic fundamentally changed how lawyers practice together in a firm setting. Most law firms permit employees to work hybrid and/ or fully remote. What are the biggest challenges that hybrid/remote work present for law firms in terms of supervisory duties?”
• “It’s hard to have eyes on what your associates and staff are doing when they’re not on-site. One major ethics challenge is maintaining effective communication and oversight. In a hybrid or remote work environment, it is more difficult for supervisors to stay connected with their team members, leading to potential gaps in supervision and guidance. This lack of direct, in-person interaction can hinder the ability to promptly address issues, provide feedback, and ensure that work is being conducted ethically and in compliance with firm policies.”
• “I always encourage lawyers with supervisory responsibilities to engage in ‘active supervision’ with supervisees. That means getting to know them, asking how work is going, having an open-door policy, and implementing regularly scheduled check-ins — both as a team and one-on-ones.”
• “It’s also important to consider jurisdictional issues — making sure there are controls to keep remote attorneys from engaging in the unauthorized practice of law by inadvertently holding themselves out as practicing in jurisdictions where they’re physically located but not licensed.”
• “Q: Statistically, what areas present the greatest risk and need for formal written supervisory policies and procedures?”
• “Trust account issues are the single biggest area of risk. For 2022, OLPR reports 39 admonitions and 125 probations related to safekeeping client property. Even if the firm’s finance employees are performing the day-to-day trust account recordkeeping, the firm’s attorneys remain responsible for reasonable assurance of compliance with the rules. Clear policies and procedures are particu- larly important in this area.”

“Orrick, Herrington & Sutcliffe Agrees $8 Million Settlement to Resolve Class Action Data Breach Lawsuit” —

• “The San Francisco, CA-based law firm Orrick, Herrington & Sutcliffe has agreed to a $8 million settlement to resolve a class action lawsuit filed in response to a 2023 cyberattack and data breach.”
• “In March 2023, the law firm that specializes in helping companies that have experienced security breaches suffered one of its own. On March 13, 2023, hackers were discovered to have gained access to its network, with the forensic investigation revealing they had access for around two weeks between February 28 and March 13, 2023, before the intrusion was detected.”
• “The personal and protected health information of 637,620 individuals was compromised; however, it took months to determine how many individuals had been affected with the last batch of notification letters mailed to affected individuals in January 2024. The affected individuals were offered 2 years of complimentary credit monitoring services.”
• “A lawsuit was filed against Orrick, Herrington & Sutcliffe in the U.S. District Court for the Northern District of California shortly after the announcement about the breach. The lawsuit made several allegations, including the failure to secure its systems, the failure to prevent and stop the breach, the failure to detect the breach in a timely manner, and the failure to disclose material facts that adequate system security measures were not in place to prevent data breaches. The lawsuit also alleged Orrick, Herrington & Sutcliffe did not honor repeated promises and representations to protect the information of the breach victims and failed to provide timely notifications. Several other lawsuits were filed over the breach that made similar claims, and they were consolidated into a single action – In re Orrick Herrington & Sutcliffe LLP Data Breach Litig.”
• “The proposed settlement was deemed to be reasonable and fair by class counsel and has received preliminary approval from the court. Under the terms of the settlement, class counsel may claim up to 25% of the settlement amount and after costs of up to $50,000 and $2,500 service awards for the lead plaintiffs have been deducted, the remainder of the settlement will cover claims from individuals affected by the data breach.”

“FINRA orders Barclays unit to pay $700K over conflicts of interest” —

• “A Barclays unit agreed to pay $700,000 to settle allegations levied by the Financial Industry Regulatory Authority (FINRA) that its research analysts violated conflict-of-interest rules and the firm failed to sufficiently supervise their trades.”
• “Barclays failed to identify and disclose 99 instances of its research analysts holding stock in a company in which they published a report and three instances of research analysts trading in their brokerage accounts in a manner inconsistent with published recommendations, FINRA alleged.”
• “From January 2016 to August 2019, the firm did not establish or maintain a supervisory system to detect such violations of FINRA’s conflict-of-interest rules, per the order.”
• “The firm’s written supervisory procedures ‘did not include a process for the review of securities transactions in equity research analysts’ external managed accounts reasonably designed to identify potential violations of securities laws, including potential market manipulation and insider trading,’ the order stated.”
• “From at least April 2021 through March 2022, the firm failed to obtain client data to ‘determine whether it needed to disclose specified conflicts of interest in its research reports,’ per the order. As a result, the firm failed to disclose at least 803 reports covering 22 issuers that an affiliate ‘received non-investment banking related compensation from the issuer within the prior 12 months,’ the order stated.”

SRA Webinar (13 May 2024): “Your anti-money laundering questions answered” —

• “We have a whole host of questions and answers about common money-laundering issues in the AML section of our website, while our other webinars have attracted frequently occurring queries from the profession. From high-level queries about what legal services fall within the scope of money laundering, to drilling down into how far to go with client due diligence, there’s always lots to learn. You can also submit your own queries to our expert panel when you book your place or live during the webinar.”
• “By signing up for this free webinar, you will:
  • Hear from members our expert anti-money laundering team
  • Find out about some of the most frequently-asked questions – and their answers!
  • Get the chance to put your own questions to the panel”
• “All of this should help you develop your existing AML policies, controls and procedures and keep criminal money out of legal services.”