Risk Update

Conflicts News and Views — Insurer’s Judicial Recusal Motion Draws Intense Ire, Changes Proposed in Client Transaction Conflicts Rules

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Judge Blasts Liberty Mutual in Declaring He Will Not Disqualify Because He’s an Insured” —

  • “A federal judge in New Jersey, in a blistering opinion, has refused to disqualify himself from a case involving his insurer, Liberty Mutual, and accused the insurer of seeking his recusal and attacking his integrity because it did not like the substance or tenor of one of his rulings.”
  • “­Senior Judge Stanley R. Chesler of the U.S. District Court for New Jersey said Liberty Mutual offered no evidence to support its claim that the judge’s history with the company or a ruling he issued raised the perception of bias.”
  • “In a recent motion for disqualification, Liberty Mutual asserted that given the totality of the circumstances involving Chesler and the insurer, it was reasonable to conclude that the judge’s involvement in the case raised questions about bias and impartiality that the law is meant to prevent.”
  • “The insurer further maintained that the judge’s failure to disclose his ties with Liberty at the outset heightens the perception of bias.”
  • “Chesley found that Liberty Mutual had information about his relationship with the insurer in its possession and could have acted on it at any time but only did so after he denied a summary judgment motion sought by the insurer. Chesley maintains that this matter raises ‘serious questions’ about the conduct of a major national insurer and repeat litigant before the federal courts.”
  • “‘Even a cursory reading of Liberty Mutual’s moving papers reveal that the motion and the assertions contained therein in fact constitute a carefully choreographed effort to attack the integrity and ethics of this Court both directly and by innuendo,’ Chesler wrote.”
  • “The judge criticized what he termed the ‘untenable proposition’ that any judge who is a policyholder of an insurer must disclose that status and recuse from cases where the insurer is a party. Chesler wrote that that argument ‘would render hundreds, if not thousands, of judges incapable of presiding over large swaths of their dockets’ and thus it cannot be the standard envisioned by the framers of the law.”
  • “In its motion for disqualification, Liberty Mutual took the position that the burden of disclosure of potential conflict rested with the judge and he should have disclosed his status as an insured and claimant at the outset of the case. But the judge cited a case noting that if a party’s attorney is aware of the grounds supporting recusal but fails to act until the judge issues an adverse ruling, the recusal motion is not timely.”
  • “The judge also said he agreed with Liberty Mutual that a court should disclose when it has knowledge in its possession which could arguably form the grounds for a recusal motion. But, he concluded, none of the reasons offered by Liberty Mutual in fact constitutes grounds for disqualification and, therefore, none of these facts required disclosure.”
  • “The insurer cited Chesler’s long tenure as a customer and, in particular, four claims filed while the case was before the court. Liberty Mutual also alleged it had pursued an investigation into jewelry claims filed by the judge and his wife.”
  • “The judge dismissed suggestions that his claims history is an issue. He criticized Liberty Mutual for not supplying factual evidence or documents about his claims. He reported he has had 14 claims in his 44 years as an insured of Liberty Mutual and there has never been a dispute. Regarding the four recent claims cited by Liberty Mutual, he said none coincided with his actual involvement in the case, all were settled without dispute, and several were brought by third parties.”
  • “He also took issue with Liberty Mutual’s claim that he was investigated. He said he and his wife were never informed about the insurer’s concerns over jewelry claims and thus he could not have been affected by that if it were true.”
  • “The insurer further claimed that the judge committed errors and was highly critical and negative in tone towards the insurer in a summary judgment order, which the insurer said raised questions about whether he was being impartial.”
  • “In closing his 25-page opinion, Chesler took aim at what he characterized as the insurer’s position that ‘every judge who has an insurance policy with an insurer defendant and presides over a case involving that insurer defendant is required to disclose that policy’s existence, the claims history, and other personal information relating to the judge’s insurance and potentially recuse himself or herself.'”

Changes Wanted on Law Firm Supervisor Role and Prohibited Client Transaction Rules” —

  • “Two of the twelve proposed disciplinary rule changes pending approval by the Texas Supreme Court address the supervisory responsibilities of law firms and prohibited transactions with clients.”
  • “Rule 1.08: Conflict of Interest – Prohibited Transactions. The proposed rule replaces the current rule and specifies the requirements with which a lawyer must comply before acquiring ownership or a business interest in property belonging to a client.”
  • “Committee Chair Lewis Kinard said a revision was considered necessary because there is often unequal bargaining power during representation between an attorney and the client.”
  • “Using the example of a client that wants to write a book about his life but cannot afford to get it published, Kinard said the client’s attorney may want to invest in the book for a share of royalties.”
  • “The rule would ban oral agreements, require the agreement be in writing, and states the client get legal advice on the agreement from an independent attorney.”
  • “The committee took heed of suggestions from Andrea Lowe, a rules attorney speaking for the Office of Chief Disciplinary Counsel, which raised issues with language in the rule that appeared to create a conflict in certain types of fee agreements.”
  • “‘For example, a fee agreement that includes stock in a start-up company to pay for the lawyer’s services requires compliance with Rule 1.08(a). Is such an arrangement adverse to a client who has no other means to afford legal services?’ Lowe said.”
  • “Lowe also told the committee to clarify that the rule would not apply to renegotiated fee agreements.”
Risk Update

Risk News — “Client”-driven Conflicts Appeal on Sanctions Matter, Town Solicitor’s Law Firm Colleague Not a Conflict

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Columbia Motion Rebuts Quinn Emanuel’s Sanctions Appeal” —

  • “Columbia University is seeking to submit new testimony in an appeal where the university is defending a nearly-$300 million contempt ruling against lawyers at white shoe law firm Quinn Emanuel.”
  • “Quinn represented Gen Digital Inc., formerly NortonLifeLock, in a district court case where it was sued by the Ivy League school in 2013 for infringing its patented computer security technology. A jury in 2022 found that Norton owed Columbia $185 million for its infringement of two university patents.”
  • “A federal district judge in Virginia later enhanced the award by $296 million, after finding Norton’s lawyers had prevented a French computer scientist who once worked at the company, Marc Dacier, from giving ‘what would almost certainly be damaging testimony to Norton” at the trial.'”
  • “Quinn—which has maintained that it couldn’t provide the district court with information it gleaned from Dacier because it also represented him—in early April called the district judge’s sanctions and conflict-of-interest analysis ‘flawed at every turn’ and ‘unaccompanied by even the minimum necessary procedural protections,’ in an opening brief signed by leading appellate litigator Paul Clement.”
  • “Columbia on Tuesday asked the Federal Circuit to supplement the record with a fresh sworn statement Dacier gave to the university after he was made aware of Quinn’s appellate arguments. It said the new information ‘contradicts’ the law firm’s arguments about an attorney-client relationship that it characterized as being ‘central to Quinn’s appeal.'”
  • “‘Dacier states, among other things, that he did not want Quinn’s representation, that he agreed to that representation only when informed that he had no choice, and that he has no recollection of Quinn ever consulting with him’ before asserting the attorney-client privilege, Columbia wrote in a motion seeking to supplement the appellate record.”
  • “Columbia acknowledged in the filing that supplementing an appeal in this way is unusual. But it argued providing the additional information was necessary given the ‘extraordinary circumstances.’ The university said the declaration ‘reveals misconduct in forcing a critical witness into an unwanted attorney-client relationship and then misrepresenting to a court the purported client’s wishes with respect to privilege and other matters.'”
  • “It said it filed the motion only after seeking advice from an ethics lawyer who ‘advised that counsel must bring this issue to the Court’s attention.'”
  • “Quinn responded Wednesday, calling Columbia’s filing ‘wholly improper.’ ‘This motion marks an after-the-fact effort to rewrite the record on appeal before the Federal Circuit, furthering a narrative of this case that is revisionist and false,’ the firm said in a statement.”

Town solicitor’s law firm colleague may represent developer” —

  • “It would not be a violation of the Code of Ethics for a law firm partner of an attorney serving as the Cumberland town solicitor to represent a landowner seeking the town’s approval of a mixed-use development, the Ethics Commission has decided.”
  • “The petitioner, Kelley Morris Salvatore, was appointed solicitor by the town’s mayor, with the Town Council’s approval. In her private capacity, she is a non-equity, contract partner with DarrowEverett in Providence.”
  • “There is currently pending before the Cumberland Planning Board an application for a mill conversion to a mixed-use development. The owner of the property associated with the project has asked one of the petitioner’s colleagues at the law firm to represent him.”
  • “Having stated that she is prepared to recuse from continuing to provide advice and representation to the town on all matters relating to the project if her colleague assumes representation of the property owner, the petitioner sought guidance from the Ethics Commission regarding whether her colleague could represent the owner of the property.”
  • “‘The Ethics Commission acknowledges the Petitioner’s… preparedness to recuse from all matters involving the project if her colleague assumes representation of the owner of the property associated with the project. The Ethics Commission further acknowledges that, because the Petitioner is not an equity partner in the firm and does not share in the firm’s general revenue, she does not stand to be personally financially impacted by her colleague’s representation of the property owner before the planning board, mayor, or town council,’ the commission wrote.”
  • “‘Accordingly, based on the facts as represented, the applicable provisions of the Code of Ethics, and previous advisory opinions issued, it is the opinion of the Ethics Commission that, following the Petitioner’s recusal in her role as solicitor on all matters relating to the project, the Code of Ethics would not prohibit the other attorney from the law firm by which the Petitioner is employed from representing the owner of the subject property relative to the project before the Cumberland planning board, mayor, and town council,’ the commission concluded.”
  • Full text: Rhode Island Ethics Commission Advisory Opinion 2024-16
Risk Update

Conflicts Allegations — Twitter/X Data Law Firm Conflict Called, Arbitrator Accused

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Musk’s X Corp faces bid to disqualify law firm in data-scraping case” —

  • “An Israeli data-scraping company sued by Elon Musk’s X Corp is taking aim at the social media company’s legal team, telling a judge in San Francisco that X’s law firm Quinn Emanuel Urquhart & Sullivan switched allegiances and must be thrown off the case.”
  • “Lawyers at Quinn Emanuel entered the case last week, seeking to file an amended lawsuit accusing Bright Data Ltd of illegally copying data from X, formerly known as Twitter. X’s initial complaint, filed by another firm, was dismissed in May.”
  • “Bright Data on Monday [6/10] asked U.S. District Judge William Alsup to disqualify Quinn Emanuel, accusing it of brazenly switching sides and ignoring ethical conflicts.”
  • “Quinn Emanuel, a 1,000-lawyer litigation-focused firm, has represented Musk and his companies in court cases involving the U.S. Securities and Exchange Commission and other matters.”
  • “Bright Data Ltd said it had hired lawyers from Quinn Emanuel in 2023 to evaluate its litigation strategy in a related matter involving Facebook parent Meta Platforms Inc, paying the firm nearly $40,000.”
  • “Although the individual Quinn Emanuel lawyers hired earlier by Bright Data do not appear on X’s recent filing, the entire firm owes a duty of loyalty and confidentiality to Bright Data, the company argued in Monday’s filing.”
  • “‘Lawyers may switch firms, but firms may not switch sides. Quinn must be disqualified,’ Bright Data said.”
  • “Alsup on Tuesday ordered Bright Data to re-file its disqualification motion after the data scraper apparently misidentified key dates in the filing. ‘If these dates are inaccurate, it undermines the integrity of the entire motion,’ Alsup wrote.”

Ex-Morgan Stanley Broker Seeks to Overturn $5 Million Award in Recruiting Loan Case” —

  • “A former Morgan Stanley broker in Florida has asked a court to toss an arbitration award issued last month requiring him to repay the wirehouse over $5 million tied to a recruiting loan that it said became due when he left the firm.”
  • “Federico Cardona, who is now based in Guaynabo, Puerto Rico, claims that the decision should be vacated because the sole public arbitrator had allegedly failed to report that he had previously served on panels for six cases in which Morgan Stanley was a party.”
  • “Cardona also alleged that the nearly $130,000 in legal fees that Morgan Stanley was awarded constituted ‘blatant overbilling,’ according to the complaint filed on Wednesday in Florida state court.”
  • “‘The bedrock of the legal system requires full disclosure of conflicts and potential conflicts by jurors and arbitrators, and this case involves yet another prejudicial failure of an arbitrator’s material failure to disclose ongoing conflicts,’ Cardona’s lawyer, Seth I. Rubinson in Houston, wrote in the complaint. “
  • “Claims such as Cardona’s appear to be a long shot as courts are largely deferential to arbitrators. Federal and state law provide narrow grounds for a judge to vacate an award, including that there was ‘evident partiality,’ corruption or misconduct ‘prejudicing the rights of a party to the arbitration proceeding,’ according to the Florida arbitration act.”
  • “It may also be challenging for Cardona to contest the award or show that the arbitrator was biased because he did not participate in the proceeding.”
  • “The six prior Morgan Stanley cases which the arbitrator, Langfred W. White, presided over included customer complaints and other promissory note claims dating back to 2009, according to a review of awards that Cardona attached to his lawsuit. White and his co-panelists found in favor of Morgan Stanley or other claimants in most cases but ruled against the firm in a customer dispute in 2019 in which the wirehouse was ordered to pay over $242,000.”
Risk Update

DQs, Relationships & Judicial Recusal Drama — (Baseball Metaphor Here) and An Alleged Judicial Recusal Squeeze Play

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SUPPLEMENTAL MEMORANDUM IN SUPPORT OF MOTION TO DISQUALIFY COZEN AND O’CONNOR LAWYERS” —

  • “Moments ago, Judge Baylson issued a Supplemental Memorandum faithfully disclosing additional facts of his relationship with Stephen Cozen and the Cozen firm. In light of those facts,it strains credulity that Mr. Cozen and his firm did not enter this case for any reason other than to trigger Judge Baylson’s recusal.”
  • “As recently as May 17, 2024, Mr. Cozen and other members of his firm socialized with Judge Baylson at Mr. Cozen’s invitation to a box at a Phillies game.”
  • “In accepting the invitation, Judge Baylson had no way of knowing that doing so might impact these cases since, for four years, Cozen has had absolutely nothing to do with this litigation. But, Mr. Cozen and his firm certainly knew about hosting Judge Baylson at theirPhillies outing when the Cozen attorneys entered their appearances.”
  • “The conclusion is regrettably unavoidable that the Cozen lawyers entered their appearances either to force Judge Baylson’s recusal or, in the absence of recusal,to raise the appearance of their favored status in the eyes of the Court because of personal relationships.”
  • “Whether or not that was their intent, those are undeniable facts.1That is highly improper and their appearances should be rejected.For the foregoing reasons and those set forth in their opening Memorandum of Law, Plaintiffs respectfully submit that the Court should enter an Order disqualifying Stephen A. Cozen, Elizabeth A. Malloy and Cozen O’Connor from representing the Defendant in these cases and that their entries of appearance be stricken.

Texas Bankruptcy Scandal Draws Judge’s Concerns Over No-Recusal” —

  • “A Texas court case involving two major law firms, a disgraced ex-bankruptcy judge, and the judge’s live-in attorney girlfriend left a federal judge deeply concerned, she said Thursday during the first hearing in the evolving scandal.”
  • “Alia Moses, chief judge of the US District Court for the Western District of Texas, said that it was ‘mandatory’ for Jones disqualifying himself on any case his girlfriend, former Jackson Walker partner Elizabeth Freeman was involved in.”
  • “At one point, Moses cut off Freeman’s lawyer who said Jones didn’t have to recuse because the two weren’t married, saying, ‘this should have been very clear to any judge.'”
  • “The hearing marked the first court proceeding for the ex-judge in the scandal since a bombshell lawsuit rocked the bankruptcy world in October, unearthing a tightly-guarded romantic relationship between Judge David R. Jones of the US Bankruptcy Court for the Southern District of Texas and Freeman, his one-time clerk.”
  • “Moses said Jones failing to disclose the relationship gives her ‘heartburn just a little bit.'”
  • “The scandal has seemingly impacted Houston as a popular destination for bankruptcy firms—a reputation Jones helped establish through rule changes aimed at resolving complex cases with fast, consistent decisions. Jackson Walker regularly represented clients before Jones while it employed Freeman, who raked in $1.1 million in fees the judge approved while they kept their relationship under wraps.”
  • “Michael Van Deelen, the plaintiff, was a shareholder in a bankruptcy case that played out in Jones’ court. He’s alleging a conspiracy that wiped out his entire investment of 30,000 shares in McDermott International, Inc. stock. He’s seeking at a minimum costs he incurred as a pro se litigant to challenge Jones’ authority to hear the case.”
  • “Moses didn’t rule from the bench. She said Jones should’ve disqualified himself from cases that Freeman worked on, but that she’s not convinced that his failure to do so impacted Van Deelen in the bankruptcy.”
  • “‘That’s a difficult part about this case,’ she said, adding the bankruptcy proceeding was “no doubt unfair.” Moses said she lacks authority to toss the McDermott judgment but it gives the potential for a judge to ‘misbehave, walk into court, issue an order, then be completely absolved’ gives her pause, she said.”
  • “Moses questioned why Kirkland & Ellis, which maintains a Houston office, needed Jackson Walker’s assistance to litigate dozens of bankruptcy cases in Jones’ Houston court. ‘The need was for that one connection, Mrs. Freeman, wasn’t it?’ she said.”
  • “Kirkland portrayed Van Deelen as unhinged, saying his lawsuit advances a baseless conspiracy and continues a pattern of irrational behavior. The firm showed through court records Van Deelen was suspended from coaching a little league team for using profanity, and also barred from school property for using inappropriate language and obscene hand gestures at a wrestling match.”
  • “The hearing came two weeks after Jackson Walker dropped a blockbuster allegation shifting blame from the firm to Jones. A partner at the firm, Matthew Cavenaugh, said he was asked by Jones to file a potentially false court disclosure about his relationship with Freeman, the firm said in court papers.”
Risk Update

Conflicts & Laterals — Texas Looking to Lower Lateral Conflicts with Electronic Ethical Walls, Conflicts Concerns Over Firm Selection in Tennessee

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Texas Bar Hopes to Get in Line With Nation on Conflict Rule for Attorneys” —

  • “One of 12 disciplinary rules pending approval of the Texas Supreme Court would bring Texas in line with other states, and make it harder for parties to ‘conflict-out’ law firms because of who they hire.”
  • “A rule titled ‘Imputation of Conflicts of Interest: General Rule,’ also known as the “screening rule,” was approved by 80.36% of the voting bar members in their April referendum. It is now under review by the high court, which is set to decide its fate by the end of summer.”
  • “In the event a client of the departed law firm looks to retain the law firm that now employs the relocated lawyer, the current rule views this as a conflict.”
  • “The argument for revising the rule comes down to technology and with it the ability through electronic management systems and other tools to screen lawyers based on whether they had actual knowledge of a case because they worked on some aspect of it, versus having just coincidentally worked at the former firm.”
  • “This type of screening is working in many other states and has been allowed to a limited extent with regard to former government lawyers moving to the private sector, Kinard said. This would be the first time it would apply to Texas law firms.”
  • “The current rule has been a problem, Kinard noted, when it comes to lawyers’ mobility since it hinders their ability to switch firms. It is a particularly thorny issue for associates.”
  • “‘Firms merge, they dissolve. These associates, especially, don’t often have much control over the changes,’ Kinard said. ‘This way, it protects the non-involved lawyers, the new law firms and the clients of the new law firm.'”

Concerns raised in how Memphis law firm was chosen for investigation into MNPD allegations” —

  • “Nashville Mayor Freddie O’Connell is responding to allegations that high-ranking officers with the Metro Nashville Police Department lobbied state legislators to get a law passed. That law weakened police oversight boards across the state.”
  • “O’Connell agreed to the Metro Community Review Board’s request for a third party firm to investigate the claims. However, some are already raising concerns about the process and how the independent law firm was chosen.”
  • “Mayor O’Connell announced Friday that Memphis-based Butler Snow law firm would take on the investigation into Garet’s claims, led by former U.S. attorney Edward Stanton, who had previously worked under President Obama’s administration.”
  • “The Metro Legal Department recommended Stanton, according to O’Connell. However, Metro Legal is involved in upcoming discussions between the CRB and MNPD, on what access the CRB will have to police documents under the new law, when looking into a citizen complaint over an officer.”
  • “The CRB hired its own outside, non-city attorney for those negotiations, as board members believed it would be a conflict of interest to have Metro Legal representing both MNPD and the CRB. Metro Legal has also publicly taken a similar stance as MNPD, regarding its viewpoint of the new law.”
  • “After the announcement, some are saying it’s a conflict of interest that Metro Legal helped pick the firm handling the investigation. CRB board members have told Fox 17 News that Metro Legal is, in effect, representing MNPD during upcoming negotiations, which stem from the fallout of the law at the center of the investigation.”
  • “One MTSU political professor, Sekou Franklin, posted on X, ‘I am skeptical and don’t trust this process. Reading between the lines, Metro Legal/Law Department has its hands on this investigation. Metro Legal has been against police accountability and Drake has been right there with Metro Legal.'”
  • “CRB Chair Alisha Haddock responded to FOX 17 News with a statement:
    • “We are grateful to Mayor O’Connell for stepping in and ensuring the investigation of the 61-page complaint filed by a former MNPD Lieutenant will be handled by a third party entity. Although the CRB would have liked to have had a greater role in choosing the investigative body, the CRB must be made aware of the process and progress of the investigation through its duration, as it is our duty to ensure complaints of police misconduct of any kind are taken seriously, leads to the truth, and creates a safer Nashville for everyone.”
  • “‘Mr. Stanton will oversee the investigation,’ said Metro Legal Director Wally Dietz at the press gathering. ‘It will not be just him. It will be in particular one of his partners Keenan Carter who works with him, plus other attorneys at that firm. He will oversee it. He will work in conjunction with the office of OPA It’s very possible he will make recommendations about policies which we will gladly receive and consider.'”
Risk Update

Risk Reading — Law Firms Criminally Liable for Wage Theft, AI & Ethical Billing Practices, ‘Manufactured’ Mass Arbitration Claims

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Law Firms Can Now Be Criminally Liable for Wage Theft. Is Yours?” —

  • “When Governor Kathy Hochul signed an amendment to the New York Penal Law this past fall, designating ‘wage theft’ as a form of criminal larceny, she and the State Legislature targeted ‘bad faith’ employers who violate New York’s Labor Law by improperly withholding timely payment of their employees’ earned wages.”
  • “The most recent amendment to this statute—adding ‘wage theft’ as a form of larceny under the criminal code–was signed into law by Governor Kathy Hochul on September 6, 2023 (Senate Bill S2832A). It became effective immediately. The new law does not include any carve-out provisions or exemptions for particular positions or industries and as such, covers the legal profession.”
  • “The new amendment adds ‘compensation for labor or services’ to the definition of “property”, thereby establishing ‘wage theft’ as another way in which an employer can commit the crime of larceny. Notably, the new wage theft larceny law is in addition to, and does not replace, existing criminal wage theft offenses in New York that apply to employers and their officers and agents for ‘failing to pay the wages of any of [their] employees.'”
  • “This legislative action followed a 2023 announcement by the Manhattan District Attorney’s Office that it had partnered with the New York State Department of Labor to create the Office’s first-ever ‘Worker Protection Unit’ to investigate and criminally prosecute wage theft charges against companies and executives that ‘steal’ wages.”
  • “In recent years, a number of out-of-state law firms with satellite offices in New York have been accused of wage theft when they failed to pay accrued wages owed to a former employee under his productivity-based compensation formula. The employers claimed that upon the attorney’s termination of employment, he automatically forfeited his percentage share of all post-termination collections—even those which were attributable to his pre-termination services on the employer’s behalf.”
  • “Such a financial penalty is intended to discourage employed attorneys from leaving the law firm.”
  • “For those employed attorneys who choose to leave nonetheless, the scheme enables the law firm to unjustly enrich its profit-sharing partners by allowing them to share among themselves the money that their law firm should have paid instead to their former employee as W-2 salary.”
  • “Law firms should review their payroll practices to make sure that their employees (and former employees) receive the compensation they are promised in a timely manner in order to avoid the significant penalties associated with wage theft in New York. Employers should also examine their wage payment practices to ensure: (1) that employees are paid the correct amount and on time; (2) that all statutorily-mandated notifications from the employer to its employees are adhered to; and (3) that accurate payroll records are maintained which establish that their employees have been paid properly.”

NJ Bar Warns of AI’s Impact on Billing in Guidance for Lawyers” —

  • “Lawyers using AI tools must be careful not to run afoul of rules about ethical billing practices, a New Jersey State Bar Association task force warned.”
  • “AI tools for lawyers are promising to make some legal work more efficient, which ‘could significantly disrupt the industry’s traditional hourly billing model,’ the New Jersey task force said.”
  • “‘Significant use of these technologies may conflict with current billing practices’ under the American Bar Association’s model rule 1.5(a)(1), the task force added. That rule describes a reasonable fee as being based on the amount of time, work, skill and difficulty a legal service entails.”
  • “The California bar’s practical guidance on generative AI said lawyers can use AI to work more efficiently, but ‘must not charge hourly fees for the time saved by using generative AI.’
  • “New Jersey appointed a task force late last year made up of 27 lawyers and AI experts. Their report, issued Friday, includes recommendations and is intended to serve as a ‘practical resource.'”

Fox’s Tubi sues law firm over ‘manufactured’ mass arbitration claims” —

  • “Fox Corp’s streaming TV subsidiary Tubi has sued a plaintiffs’ law firm for allegedly manufacturing tens of thousands of meritless discrimination claims against it in the hopes of coercing a settlement.”
  • “In a lawsuit filed Friday, in Washington, D.C., federal court, Tubi accused the firm Keller Postman of filing nearly 24,000 uninvestigated complaints of discrimination with private arbitration service JAMS, putting the streaming company on the hook for $48 million in upfront arbitration fees unless it settled.”
  • “Keller Postman in May demanded a total of $71.2 million to settle the claims, or $3,000 per claimant, Tubi alleged. It accused the firm of ‘weaponizing the arbitration process,’ calling it a pioneer of ‘mass arbitration’ that relies on unethical client solicitation and abuse of arbitration fee provisions.”
  • “‘Keller Postman manufactured claims against Tubi, failed to conduct an investigation to learn specific facts about each of its clients’ claims, and filed tens of thousands of cookie-cutter claims to force Tubi into an arbitration that should not be taking place,’ the lawsuit said.”
  • “Tubi said Keller Postman filed 23,736 arbitration demands alleging discrimination through targeted advertising based on age, gender or sex. The demands did not identify the ads or the claimants’ age, gender or sex, the lawsuit said.”
  • “Lawyers for Tubi declined to comment.”
Risk Update

Conflicts Complexities — Negligence Sanction Reversed on Appeal, Solicitor’s Challenge Backfires

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Court of Appeals Reverses Professional Negligence Sanctions Against Scrudder Bass” —

  • “The Georgia Court of Appeals recently overturned half a million dollars in professional negligence sanctions against law firm Scrudder Bass Quillian Horlock Lazarus & Adele.”
  • “Doing so, the court found a DeKalb County trial court abused its discretion by issuing the penalty and addressing a firm’s duty of confidentiality when a conflict is discovered which requires the firm’s immediate withdrawal from the case.”
  • “Four years later, at the outset of the trial, Scrudder Bass told the court it just became aware of a conflict of interest and would need to withdraw because it could no longer represent all three clients. When asked when it became aware of the conflict, the firm said it would have arisen years ago, but the information it received that morning was ‘brand new’ and it had only just begun investigating its legal and ethical obligations.”
  • “The trial court scheduled a hearing on Scrudder Bass’ emergency motion to withdraw, but the firm instead asked for an in-camera revue because it couldn’t publicly disclose the basis for the conflict because of client confidentiality.”
  • “The judge, however, refused to grant an in-camera review and instead declared a mistrial and ordered the defense to pay a half-million dollars in sanctions, reasoning that the plaintiffs would have to completely redo their work in preparation for a new trial and Scrudder Bass should have been aware of the potential conflict when it came on as counsel because Green testified she wasn’t sure where the work order entries in question came from the year before. The order also noted that the disclosure of conflict itself wasn’t improper, but rather the timing of the disclosure because it unnecessarily expanded the proceedings.”
  • “The unanimous opinion, authored by Presiding Judge Stephen Dillard, reasoned that the firm did the right thing by withdrawing, and even if it had known about the conflict of interest before such a late stage in the proceedings, withdrawing wasn’t a severe enough offense to warrant so much sanctions—though he said his analysis might be different if the evidence showed the firm purposefully waited until the last possible minute.”
  • “He cited the trial court’s refusal of an in-camera review as a second error. ‘doing so, the trial court erred in suggesting that it could not hear such evidence without risking disqualification,’ Dillard explained.”
  • “At oral argument, many of Dillard’s questions focused on this decision to not grant in-camera review and indicated some skepticism toward whether the trial court judge was correct in refusing it. Dillard asked the defendant-appellants if the judge was fully aware of the details of the conflict and, had he considered those details, could have led him to make a different decision. Judge Trenton Brown noted that the plaintiff-appellants said there was a thorough hearing after Jacobs denied in camera review, and whether after that hearing, in camera review would have been beneficial.”
  • Decision here.

Solicitor’s reprimand challenge backfires with tougher penalty for acting in conflict” —

  • “The founder of an NSW boutique firm was hit with a harsher penalty after appealing the reprimand she received for acting in conflict by representing both a longstanding client and her family members.”
  • “Maria Di Giovanni, a founder of Iron Cove Law in Drummoyne, was ordered to complete an ethics course and issue an apology to a client she had known for a decade and had formed a relationship with that was “closer to friendship” than solicitor-client.”
  • “In May 2023, the Council of the Law Society of NSW found Di Giovanni engaged in unsatisfactory professional conduct by advising both the client and her family members in a commercial property conveyance of a multimillion-dollar property in Sydney.”
  • “The council originally imposed a reprimand and ordered that she undertake an ethics course, which, ‘to her credit,’ Di Giovanni completed despite challenging the findings simultaneously.”
  • “This month, NSW Civil and Administrative Tribunal (NCAT) principal member Aaron Suthers and senior member Michelle Sindler said Di Giovanni’s conduct in the appeal ‘indicates that she has not learnt from the course in respect of having gained an understanding of the fundamental complications of acting for both parties.'”
  • “Given Di Giovanni’s evidence that conveyancing forms ‘a considerable part of her practice,’ she was ordered to complete a further course on informed consent and how conflicts arise.”
  • “The tribunal was told that by the time of the conveyancing, the client was struggling with regulatory compliance issues from owning a commercial property in a superannuation fund – which Di Giovanni also acted for – and this was ‘exacerbated’ by his wife’s death.”
  • “The client had asked Di Giovanni to assist with selling the property but, when he changed his mind, Di Giovanni discussed the potential advantages of a private sale and advised him ‘certain members of her family … may have an interest in purchasing it.'”
  • “After the contract was executed, Di Giovanni wrote to her family members about the potential dangers of acting for both parties and advised them the firm would cease acting if this became an issue. She did not issue this same advice to the client at that time.”
  • “When the client said he wanted to resile from the contract, Di Giovanni did not cease acting. Instead, she attempted to negotiate mutual rescission, with the client’s company to pay the family member’s reasonably incurred costs. NCAT said this did not work.”
  • “It was then that Di Giovanni told the client it ‘may be prudent for you to obtain independent legal advice.'”
  • “The client alleged in a letter to the Law Society that he ‘felt like the property had been stolen from under my nose by my solicitor and sold to her relatives for the same price I paid for it two years earlier.'”

 

Risk Update

Lawyer Disqualification — Firm DQ’d in Bankruptcy Matter Due to Shareholder Client Conflict + “Impossible” Ethical Walls Scenario

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Wood-Pellet Maker’s Bankruptcy Lawyers Ousted Over Conflict of Interest” —

  • “Law firm Vinson & Elkins can’t represent Enviva because its largest shareholder is also a client, bankruptcy judge says”
  • “A bankruptcy judge rejected a law firm’s application to represent wood-pellet maker Enviva while it works for its largest shareholder Riverstone, saying the firm’s work for the private-equity backer amounts to a conflict of interest.”
  • “Vinson & Elkins can’t represent Enviva while negotiating against Riverstone, another client of the law firm that accounted for 1.4% of its revenue collections in the last fiscal year, said Judge Brian Kenney of the U.S. Bankruptcy Court in Alexandria, Va. He said the law firm’s relationship with Riverstone violates the core principle of bankruptcy law that companies only employ professionals who are “disinterested” parties.”

MEMORANDUM OPINION AND ORDER DENYING DEBTORS’ APPLICATION TO EMPLOY VINSON & ELKINS L.L.P.” —

  • “On April 3, 2024, the Court entered an Order Continuing the Hearing on the V&E Application, noting that V&E had disclosed: (a) that it represents certain Officers and Directors of the Debtors in shareholder and derivative litigation; and (b) that it represents the Riverstone entities, which are equity security holders in the Debtors (discussed below). Docket No. 224. See also Docket No. 183, Meyer Decl. pp. 9-11. The Court further noted that V&E had not discussed any ethical walls in its Application. Docket No. 224.”
  • “Mr. Meyer disclosed in his first Supplemental Declaration that V&E represents certain members of the Ad Hoc Group in unrelated matters… Specifically, V&E represents Ares Management, LLC, Morgan Stanley & Co., LLC, Oaktree Capital Management, LP, and Monarch Alternative Capital LP.”
  • “The U.S. Trustee asserts that V&E failed to disclose its connection with Oaktree, and that the U.S. Trustee discovered this connection on its own.”
  • “The Monarch representation is notable because it began in April 2024, after V&E filed the Petitions in this case on behalf of the Debtors.”
  • “V&E represents several of the Debtors’ Officers and Directors in shareholder and derivative litigation.”
  • “The U.S. Trustee argues that V&E’s representation of the Officers and Directors represents a conflict because the Ad Hoc Group RSA provides that the Debtors’ management will receive 3.5% of the equity in the reorganized entities, and additional warrants to purchase equity in the reorganized entities.”
  • “The first Meyer Declaration disclosed that Riverstone Investment Group, LLC, and its affiliates (collectively ‘Riverstone’), are current clients of V&E.”
  • “Riverstone and its affiliates collectively own 43% of the common equity ofEnviva, Inc.”
  • “Two members of Enviva’s 13-member board are affiliated with Riverstone.”
  • “V&E currently represents Riverstone in matters unrelated to this case.”
  • “There are no ethical walls erected at V&E concerning its simultaneous representation of Enviva and Riverstone… In fact, there are attorneys at V&E who currently represent both Enviva and Riverstone, thereby making any ethical walls impossible.”

 

Risk Update

DQ News — Lawyer Disqualification Affirmed on Appeal, Lawyer-as-Witness Survives DQ

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Recycler attorney disqualification stands” —

  • “A pair of attorneys who had represented two competing metal recyclers will remain disqualified from representing one in an ongoing dispute between the companies.”
  • “Northern Metals last year sued competitor Crow Wing Recycling and the Minnesota Pollution Control Agency (MPCA), claiming violations of the Minnesota Environmental Rights Act and the public-trust doctrine. The complaint alleged that Crow Wing Recycling was releasing pollutants into the environment without proper permitting and pollution controls in place and that the MPCA didn’t take sufficient action.”
  • “Crow Wing hired three attorneys from Taft Stettinius & Hollister to represent it in the suit: Jack Y. Perry, Jason R. Asmus and Brayanna J. Smith. Perry and Asmus had previously represented Northern Metals on behalf of a firm that was later acquired by Taft.”
  • “Northern Metals notified Crow Wing Recycling that it did not consent to its counsel arrangement and asked its lawyers in the case to withdraw. When they declined to do so, Northern Metals moved to disqualify counsel under Minnesota Rules of Professional Conduct 1.9 and 1.10, which spell out duties owed by attorneys to former clients. After a hearing, Ramsey County District Court granted the motion and disqualified counsel from representing Crow Wing Recycling in the matter. Crow Wing appealed the disqualification order.”
  • “Crow Wing’s answer to Northern Metals’ complaint identified the attorneys it was using in the matter. When it later moved to disqualify counsel from representing Crow Wing, Northern Metals asserted that two of its competitors’ attorneys had previously represented Northern Metals ‘on substantially related issues’ from 2012 to 2016, during which time counsel ‘obtained confidential information as part of the prior representation that has neither become public since then nor rendered obsolete over the passage of time.'”
  • “Northern Metals further claimed that there was factual and legal overlap between counsel’s former representation of Northern Metals and the later matter. In support of the motion to disqualify, Northern Metals submitted the affidavit of an attorney expert, who opined that counsel was disqualified due to a conflict of interest.”
  • “After a hearing on Northern Metals’ motion to disqualify counsel, the district court granted the motion in a written order. The court concluded that there was significant overlap, indicating a substantial relationship, between the two Taft attorneys’ former representation and the facts alleged in two of the three counts in the motion. Crow Wing and its counsel appealed the order.”
  • “The Minnesota Court of Appeals affirmed the lower court decision in an unpublished opinion.”
  • “Citing a number of disputes with the appellate court’s findings, Perry said Taft is likely to petition the Minnesota Supreme Court to review the case.”
  • “‘One thing we’re concerned about is whether the district court has subject-matter jurisdiction on the issue of disqualification,’ Perry said. ‘We take our ethics seriously, and disqualification motions are a very big deal. The district court did not have the authority to rule on that issue.'”

No Disqualification Under Lawyer As Witness Rule” —

  • “The Delaware Court of Chancery has denied a disqualification motion:”
    • “Brex seeks to disqualify Su’s trial counsel under Rule 3.7(a) of the Delaware Lawyers’ Rules of Professional Conduct (the “DLRPC”). That rule states that “[a] lawyer shall not act as advocate at a trial in which the lawyer is likely to be a necessary witness unless . . . disqualification of the lawyer would work substantial hardship on the client.” Because Su’s lawyer is not likely to be a necessary witness, Rule 3.7(a) does not require disqualification.”
    • “Patterson has represented Su in this litigation since it was filed in August 2022. He was admitted pro hac vice on September of 2022. On July 21, 2023, Brex raised its belief that Patterson was ‘a material witness in this case.'”
      “Patterson was undeterred, and continued to serve as Su’s lead counsel. Brex sought to depose Patterson, and Su resisted; addressing Brex’s motion to compel, the special discovery master in this case concluded Patterson’s knowledge about his communications with Su warranted a limited deposition. No party took exception. At his deposition, Patterson testified that he does not remember the May 2022 call with Marsh, and that if he did say he spoke to Su three to four months before the call, he ‘was wrong.'”
    • “Su does not intend to call Patterson in his case-in-chief. Brex intends to call Patterson in its case-in-chief to bolster evidence that Patterson told Marsh that Patterson spoke with Su during the due diligence period, which Brex claims goes to whether Su was terminated for cause. Certainly, the reasons why Brex’s board terminated Su are central to this case. But Patterson’s testimony is cumulative of and peripheral to Marsh’s: Marsh shared his own impression with the board. Patterson’s testimony is further peripheral to the issue of what the board did with Marsh’s impression. And Patterson’s testimony that he does not remember the call, and if he said he spoke to Su during that period he was wrong, does nothing to bolster the conflict between Marsh’s and Su’s testimony.”
    • “Brex also intends to call Patterson to demonstrate that in this litigation, he contradicted his statement to Marsh. Patterson has not done that: he testified he does not remember the call, and that if he said he spoke to Su in that time period he was wrong. And the argument that someone is a necessary witness because they can be impeached presupposes that his testimony is necessary. As explained, it is not.”
    • “Brex also intends to call Patterson to demonstrate the board investigation Su is attacking as inadequate was deficient because Patterson gave Marsh “wrong” information. This is a peripheral rebuttal argument, not a central case-in-chief argument.”
    • “I cannot conclude that Patterson is likely to be a necessary witness under DLRCP 3.7(a) at trial.”
Risk Update

Risk Landscape — Conflicts and Optics When Private Equity and Torts Clash

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The Law Firm Disrupted: When Private Equity and Mass Torts Collide in the Same Firm” —

  • “Skadden served as deal counsel for an investment giant that’s also funding claims against a firm client. Such tensions may grow even more common as multistrategy investors look for new opportunities.”
  • “Last Friday, Skadden product liability partner Allison Brown, representing Johnson & Johnson, penned a letter to a U.S. magistrate judge, seeking a subpoena against plaintiffs firm Beasley Allen, which is representing clients in a mass tort over the company’s baby powder.”
  • “All in a week’s work for a global law firm with over 1,600 attorneys, right? But there’s an added wrinkle here. Beasley Allen has a litigation funding arrangement with Fortress, and Brown indicated in a footnote that the investment shop should also be looking out for a subpoena.”
  • “In other words, Skadden served as deal counsel for an investment giant that’s also funding claims against a firm client.”
  • “There’s no indication that representing an investment shop in a deal involving one of its portfolio companies (or as it’s acquired by a larger player, as in the case of Skadden and Fortress) presents an ethical conflict when other attorneys at the firm are representing a client who’s facing off against an adversary backed by that same investment shop.”
  • “As one partner at an Am Law 100 firm who does work on behalf of third-party funders told me, the firm takes the position that this representation is not directly adverse to that on behalf of another firm client, legally.”
  • “Other firms, particularly those with strong relationships with the tech industry, can be more unyielding. These tech clients’ position as a frequent target of funders’ claims makes certain firms unwilling to take on any work on behalf of funders.”
  • “But there are optics considerations to take into account. When the partner, who sought anonymity to speak about firm policies, does take on one of these representations, they look to see who the defendants are, and then runs it by the firm.”
  • “‘If it came out, would it be a problem?’ the partner said. ‘What are the chances of it being disclosed, and what kind of relationship issue would it raise?'”
  • “Similarly, Parikh raised concerns about ‘bad optics’ surrounding these overlapping ties, while also recognizing that sophisticated firms like Skadden maintain ‘very particular and focused engagement letters’ with all of their clients to ward off conflict issues.”
  • “Indeed, akin to a global law firm home to hundreds of partners pursuing a range of different work on behalf of a diverse client base, investment firms like Fortress are also sprawling, disjointed entities.”
  • “‘We consider a lot of large investment firms as a monolith, but they have all these different arms, and they are all operating somewhat independently,’ Parikh said. ‘To the extent there are some tensions here, it’s on both sides of the fence.'”
  • “And with mass tort claims presenting a ripe opportunity for private equity investment, expect to see more examples of tension.”