Bressler Risk Blog

ABA Formal Opinion 515: “A Lawyer’s Discretion to Report When a Client Commits a Crime Against the Lawyer or Against Someone Associated with, or Related to, the Lawyer” —

• “A lawyer who is the victim of a crime by a client or prospective client may disclose information relating to the representation to the appropriate authority in order to seek an investigation and potential prosecution of the alleged offender or other services, remedy, or redress. To the extent that the information would otherwise be subject to the lawyer’s duty of confidentiality under Model Rule of Professional Conduct 1.6, the information is subject to an implicit exception to the Rule.”
• “This implicit confidentiality exception also applies when someone associated with the lawyer or related to the lawyer is a victim of the client’s crime and the lawyer is a witness to that crime.”

“Trump expands clash with law firms with order against Perkins Coie” —

• “U.S. President Donald Trump on Thursday signed an executive order suspending security clearances for employees of law firm Perkins Coie and targeting the firm’s business with federal contractors, citing its diversity practices and political activities.”
• “Seattle-founded Perkins Coie has long drawn criticism from Trump allies over its prior work for Trump’s 2016 Democratic election opponent Hillary Clinton.”
• “The order also directed federal officials to investigate other ‘large, influential, or industry leading law firms’ over their compliance with laws against racial discrimination.”
• “‘This executive order will suspend security clearances and access to certain federal resources for that law firm and also launch a holistic review of unlawful DEI (diversity, equity and inclusion) practices at some of the nation’s largest law firms,’ Trump aide Will Scharf said during an Oval Office signing event with reporters.”
• “Perkins Coie in a statement said the executive order is ‘patently unlawful, and we intend to challenge it.'”
• “The executive order targeting Perkins Coie went further, ordering agencies to require that federal contractors must disclose any business with the firm and saying contracts related to that business may be terminated. The order also said Perkins Coie employees’ ability to access federal government buildings would be restricted to protect U.S. interests and national security.”
• “White House officials said federal agencies would refrain from hiring Perkins Coie employees ‘unless specifically authorized’ and block business with contractors that work with Perkins Coie because of the firm’s involvement in ‘partisan lawsuits against the United States.'”
• “Perkins Coie and Covington are among nearly a dozen major U.S. law firms representing clients in lawsuits against the Trump administration, challenging executive actions related to immigration, transgender rights and other issues.”
• “Legal scholars said they were not aware of a U.S. presidential administration ever taking such official actions against specific law firms in the past.”
• “University of Minnesota law professor Richard Painter, who served as associate White House counsel from 2005 to 2007, said he could see no direct connection between law firm diversity initiatives and risks to national security that would entail stripping a law firm’s security clearances.”
• “Perkins Coie is widely known for its legal work for tech companies and other clients. It is defending Alphabet’s Google against a lawsuit by the Republican National Committee accusing the tech giant of sending its emails to users’ spam filters. The firm has represented Amazon in a number of court cases. The companies did not immediately respond to requests for comment.”
• “Its work for Hillary Clinton’s campaign led to criticisms from Trump supporters, including Elon Musk.”

“The Expanding Cyber Liability Landscape for Attorneys: Upstream and Downstream Risks” —

• “Attorneys and law firms face increasing cyber liability from multiple directions, including regulators, state attorneys general, and class action litigants. As stewards of highly sensitive client data, legal professionals are being held accountable not only for their own cybersecurity practices but also for those of their vendors and service providers.”
• “Cybersecurity threats to law firms are intensifying as regulators, clients, and the courts impose stricter requirements on the legal profession’s handling of sensitive data.”
• “Downstream liability, by contrast, arises when clients, affected individuals, or business partners seek damages due to a law firm’s cybersecurity failures, leading to compliance and negligence claims, breach of fiduciary duty lawsuits, or class actions. Attorneys must navigate these risks while maintaining ethical duties to safeguard client information.”
  Regulatory and Enforcement Risks (Upstream Liability)”
• “Federal and State Regulatory Scrutiny”
  • “Regulatory agencies and state authorities are poised to hold attorneys and law firms accountable for cybersecurity failures. Agencies such as the Federal Trade Commission (FTC), the Securities and Exchange Commission (SEC), and state attorneys general have broadened their enforcement actions against businesses, including law firms that fail to maintain reasonable cybersecurity.”
  • “Gramm Leach Blilely Act (GLBA): Revised in 2023, the GLBA Safeguards Rule (16 CFR Part 313) covers those entities involved in activities ‘incidental to…financial activities’ of covered institutions and requires both enhanced breach disclosure and reporting requirements.”
  • “SEC Cybersecurity Compliance Requirements: Effective December 2023, Regulation S-K 106, law firms advising publicly traded companies or handling material nonpublic information (MNPI) must comply with SEC cybersecurity disclosure rules, which require firms to assess and disclose cyber risks and incidents. Advisors to covered companies may similarly be subject to heightened regulatory scrutiny.”
  • “Health Insurance Portability and Accountability Act (HIPAA): When counsel is deemed a business associate of a covered entity and experiences a cybersecurity incident involving a covered entity’s PHI, a law firm is subject to investigation and fines for violations of the HIPAA Security Rule (45 CFR Part 160 and Subparts A and C of Part 164). In 2016, Business Associate Catholic Health Care Services of Philadelphia (CHCS) entered into a settlement with the U.S. Department of Health and Human Services in connection with CHCS’s alleged violation of HIPAA’s Security Rule. https://www.hhs.gov/hipaa/for-professionals/compliance-enforcement/agreements/catholic-health-care-services/index.html “
  • “State Attorneys General Actions: State attorneys general (AGs) enforce data breach notification laws and consumer protection statutes. Firms failing to report breaches or safeguard consumer data may face investigations, fines, and consent decrees mandating stronger cybersecurity programs. Enforcement actions against law firms have commenced by the New York Attorney General for violations of the New York SHIELD ACT (General Business Law 899-aa and 899-bb). https://ag.ny.gov/press-release/2023/attorney-general-james-secures-200000-law-firm-failing-protect-new-yorkers”
• “Ethical and Professional Responsibility Risks”
  • “State bar associations and legal ethics committees impose strict obligations on attorneys that unquestionably now include cybersecurity compliance. The ABA Model Rules of Professional Conduct, particularly Rules 1.1 (Competence), 1.6 (Confidentiality), and 5.3 (Supervision of Non-Lawyers), require attorneys to safeguard client data and oversee third-party service providers.”
  • “Failure to implement cybersecurity safeguards can result in disciplinary action, malpractice claims, and reputational damage. Attorneys must not only secure their own systems but also ensure that MSPs entrusted with client data meet equivalent security and compliance standards.”
• “MSP Risks: Upstream Cyber Liability from Service Providers”
  • “Law firms increasingly rely on third parties (MSPs) for document management, cloud storage, e-discovery, and cybersecurity solutions. While these MSP enhance efficiency, they also introduce significant upstream liability risks when they experience breaches or fail to comply with legal and ethical obligations.”
    Common MSP-Related Cyber Risks”
• “Client and Third-Party Litigation Risks (Downstream Liability)”
  • “Law firms are also vulnerable to downstream liability, as clients, clients or customers of clients, and even non-clients affected by a breach, as well as business partners seek legal recourse after cybersecurity incidents.”
• “Common Legal Theories in Cyber Liability Lawsuits”
  • “Negligence Claims: Clients may argue that a law firm failed to implement reasonable cybersecurity measures, leading to a data breach that exposed sensitive information.”
  • “Negligence Per Se: Affected individuals may file claims based on violation of cybersecurity laws even where the laws themselves do not provide a private right of action.”
  • “Breach of Fiduciary Duty: Attorneys owe clients a fiduciary duty of confidentiality. A cyber incident exposing client data can lead to claims that the firm breached this duty.”
  • “Breach of Contract: Engagement agreements often contain confidentiality and data security provisions. A breach may result in contractual liability if security commitments are not met.”
  • “Consumer Protection and Privacy Statutes: Clients may sue under state consumer protection laws, the CCPA, or GDPR, seeking statutory damages for improper handling of their data.”
    “Mitigating Downstream Liability”
• “Provide Client Transparency on Cybersecurity Measures: Firms should educate clients about their cybersecurity practices and clearly define data protection obligations in engagement letters.”
• “To mitigate these risks, attorneys must adopt proactive cybersecurity governance, including service provider risk management, contractual safeguards, regulatory compliance, and robust client data protection strategies. As cyber threats and legal obligations continue to evolve, law firms that prioritize cybersecurity will be best positioned to protect their clients, their reputations, and their legal standing.”

“Judge disqualified for unusual conflict prior to bench” —

• “Justice Cameron Moore stepped away from the Greensill Bank AG v Insurance Australia Limited proceedings after concerns were raised about his involvement in the matter prior to his appointment.”
• “In his recent judgment, Justice Moore explained he appeared as senior counsel for one of the parties in November 2024 – just a month before his appointment to the bench – on an interlocutory application concerning the Harman obligation.”
• “While the issue itself was not for determination, or had any direct bearing, in the substantive hearing, the application was ‘collateral’.”
• “‘I was briefed on that application because both senior counsel briefed for the Marsh [Limited and Marsh Pty] entities in the proceedings were unavailable on the date set down for the hearing of the Harman application. I was not briefed in the matter generally,’ he said.”
• “In January this year, after the proceedings were allocated to Justice Moore, he said he considered whether his involvement in the Harman application would prevent him from the allocation.”
• “Justice Moore said that the fact a judge may have appeared in the same matter they presided over ‘does not of itself necessarily give rise to a reasonable apprehension of bias’, nor would the mere identification of the issues during an interlocutory dispute.”
• “On the face of the matter, Justice Moore said his prior involvement would not necessarily require his disqualification.”
• “‘However, the [Greensill] parties contend the submissions advanced by me on behalf of the Marsh entities went further than merely identifying uncontroversial issues in the proceedings and suggested how those issues might be approached and resolved,’ he said.”
• “Having reviewed the material provided by Greensill, Justice Moore said he agreed certain passages ‘went further and were suggestive of a particular outcome on issues’ that require resolution in the substantive proceedings and interlocutory issues.”
• “‘In those circumstances, a fair-minded lay observer might reasonably apprehend that I might not bring an impartial mind to the resolution of those issues, and I am satisfied that I ought to recuse myself from further involvement in the proceedings,’ Justice Moore said.”

“Treasury Department Announces Suspension of Enforcement of Corporate Transparency Act Against U.S. Citizens and Domestic Reporting Companies” —

• “The Treasury Department is announcing today that, with respect to the Corporate Transparency Act, not only will it not enforce any penalties or fines associated with the beneficial ownership information reporting rule under the existing regulatory deadlines, but it will further not enforce any penalties or fines against U.S. citizens or domestic reporting companies or their beneficial owners after the forthcoming rule changes take effect either.”
• “The Treasury Department will further be issuing a proposed rulemaking that will narrow the scope of the rule to foreign reporting companies only. Treasury takes this step in the interest of supporting hard-working American taxpayers and small businesses and ensuring that the rule is appropriately tailored to advance the public interest.”
• “‘This is a victory for common sense,’ said U.S. Secretary of the Treasury Scott Bessent. ‘Today’s action is part of President Trump’s bold agenda to unleash American prosperity by reining in burdensome regulations, in particular for small businesses that are the backbone of the American economy.'”

“KPMG Must Pivot Around Audit Clients in Creating US Law Practice” —

• “KPMG must overcome a prohibition against giving legal advice to audit clients as it becomes the first Big Four accounting firm to practice law in the US.”
• “The prohibition stops the company from gaining potential legal customers from the hundreds of Fortune 500 and privately held companies it audits. KPMG agreed to the limitation to win Arizona Supreme Court approval Thursday to practice law in the state.”
• “‘This is the biggest challenge when you’re dealing with the Big Four—they have conflicts,’ said Howard Rosenberg, head of talent intelligence and acquisition at Baretz + Brunelle. A prohibition against accounting firms providing consulting and auditing services under the same roof prompted, in part, EY to scrap the spin-off of its consulting business in 2023.”
• “KPMG said it never planned to offer legal services to audit clients. The firm will apply the service restriction to both its public company and privately held audit clients, including those served by affiliates around the globe. Rather than shedding clients to comply with the order, the firm said it expects to gain ‘many’ customers as a result of being able to practice law in Arizona.”
• “KPMG has said it seeks to provide services to multinational corporations that largely complement the work of traditional law firms, such as harmonize thousands of legal contracts as part of post-merger integration or help re-orient supply chains.”
• “US auditor independence rules generally bar accountants from acting on behalf of company managers and US securities laws specifically prohibit auditors from providing legal services to their publicly traded clients.”
• “The Arizona high court’s decision extends that logic to prevent possible conflicts of interest, said Robert Knechel, director of the International Accounting and Auditing Center and accounting professor at the University of Florida. ‘Law is by definition an advocacy service, and auditing is not,’ Knechel said.”
• “The Arizona court’s decision ‘still leaves open a wide market of non-audit clients to sell services to,’ said Tom White, a retired Wilmer Hale partner and lecturer at Columbia Law School.”
• “Over the past two decades, the Big Four have amassed lucrative consulting arms despite strict conflict-of-interest rules set after accounting scandals toppled Enron Corp. and WorldCom Inc. and now policed by the Securities and Exchange Commission. KPMG’s US advisory business generated roughly 40% of the firm’s $12.6 billion in revenue in 2024.”
• “As an Arizona alternative business structure, KPMG will have an internal compliance watchdog, said Natalie Knowlton, associate director for legal innovation for Stanford Law School. This watchdog, identified by KPMG Law US as longtime KPMG attorney David Rizzo, will be required to comply with Arizona’s requirement to file compliance reports twice a year.”
• “‘This is a much more heavily regulated environment than any other jurisdiction in the US,’ Knowlton said. ‘There’s a compliance lawyer who is required to report to the bar in case there are any incidences of malfeasance or any lawyers have gone outside of the boundaries the court has set up. You don’t see that in any other law firms.'”

“Covington Revenge Deepens Worries of Defending Trump Targets” —

• “President Donald Trump’s decision to punish Covington & Burling for representing former Special Counsel Jack Smith will feed some firms’ worries about letting lawyers volunteer to represent former Justice Department attorneys.”
• “Private attorneys seeking to represent DOJ workers being forced out or investigated had already faced pushback from their firms’ executive committees over concerns such work will hurt their brands and cut into billings, according to interviews with 12 attorneys.”
• “Some firm leaders, citing corporate clients threatening to walk if they get crosswise with Trump, have rejected outright or put up roadblocks to partners seeking approval to represent DOJ lawyers, FBI agents, and other civil servants who’ve faced various forms of attack, three lawyers familiar with the decisions told Bloomberg Law. That was before Trump’s executive order Tuesday pulling the security clearances of Covington lawyers and vowing to cancel any government business with the firm.”
• “‘I continue to see as I reach out and recruit lawyers to help me that there is an absolute battle in many of the firms between playing a role or staying out of it,’ said Mark Zaid, a national security lawyer who’s been helping Trump’s perceived foes at DOJ and other agencies match with pro bono counsel from large and small shops.”
• “Zaid last month sued on behalf of FBI agents to halt the administration from releasing identities of those involved in Trump-related investigations. He said the problem is pronounced at law firms that have well-established Washington offices and are governed by out-of-town managing partners.”
• “There are Democratic and Republican partners at firms who are ‘gung ho and really want to play a role in challenging this administration,’ but they’re getting pushback from leadership, Zaid said. It’s typically over the unprofitable time suck of pro bono matters and the potentially negative public relations impact on existing and prospective clients, added Zaid, who himself had his security clearance pulled by Trump earlier this month.”
• “The attorneys declined to name law firms due to the sensitive nature of internal deliberations.”
• “Individual attorneys want to enter what they see as a nonpartisan battle to preserve democracy by filing merit systems complaints for terminated federal employees, representing Jan. 6 prosecutors under investigation from DOJ and Congress, or participating in litigation to halt Trump policies. Firms’ senior decisionmakers, however, agonize about the sustainability of representing current and former government employees opposite the administration, according to multiple attorneys.”
• “Such strain isn’t new, but one Big Law partner said he’s never witnessed this level of concern in which firm leadership worries they could jeopardize their economic future by protecting the rule of law.”
• “‘I am seeing from individual attorneys who are former DOJers a real wakeup moment with the Thursday night massacre’ in which multiple prosecutors resigned over leadership’s order to dismiss charges against New York’s mayor, said Erica Newland, who leads Protect Democracy’s civil service protection project. ‘They are enraged and understand the existential nature of the threat for both the culture and norms of the Department of Justice.'”
• “Zaid said that some Big Law partners have found a workaround when firm leaders block their involvement. They’ve continued supporting the cause in the background, while letting lawyers from other firms sign court filings, he said. This can protect the reputation of white collar defense partners when later advocating for corporate clients, such as in urging DOJ to decline prosecution.”
• “Adding to firm leaders’ concerns is that a few competitors have warmed up to Trump, a significant turnabout from when much of Big Law shunned the president following the Jan. 6 Capitol insurrection.”

“Elon Musk’s DOGE Adventure Leads to Knotty Accounting Question for Tesla” —

• “How much influence does Elon Musk have over the U.S. government? Enough that Tesla will need to make a judgment call on a disclosure issue that once would have been unthinkable for an American private-sector company to contemplate.”
• “Here is the question at hand: Are Tesla and the government ‘related parties’ for purposes of generally accepted accounting principles?The answer would appear to be yes, as wild as that might seem.”
• “As the functional leader of the Trump administration’s Department of Government Efficiency, or DOGE, Musk has rapidly amassed enormous power over vast portions of the U.S. government, nearly wiping out entire agencies and targeting others for elimination, while directing mass employee layoffs. Officially, Musk has been designated a ‘special government employee.’ He also is synonymous with Tesla, the electric-vehicle maker where he is chief executive, the largest shareholder and the face of the company.”
• “The related-party designation would mean Tesla, in its disclosures to investors, could have to start reporting transactions it has with the government if they are significant. It also would underscore how powerful Musk has become. U.S. accounting standards say the reason for requiring such disclosures is that ‘transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free-market dealings may not exist.'”
• “Other public companies have named the U.S. government as a related party before in their disclosures, including American International Group, General Motors, Fannie Mae and Freddie Mac. But that was because the government had bailed them out and taken large ownership stakes during the 2008 financial crisis. If Tesla were to start identifying the government as a related party in its reports to investors, it would be because of the amount of control Musk wields over the government, not the other way around.”
• “Under U.S. accounting standards, Tesla and the government would be considered related parties if one of them ‘can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests.'”
• “Jack Ciesielski, founder of the asset manager R.G. Associates in Towson, Md., and a member of the Financial Accounting Standards Board’s Emerging Issues Task Force, said Tesla and the government fit that description. ‘Tesla and Musk have significant influence over the U.S. government,’ he said. ‘I don’t think there’s any definition you can come up with that says they’re not related parties.'”
• “The same analysis would apply in principle to Musk’s other companies, including SpaceX, which has billions of dollars of federal contracts, and the social-media company X. However, unlike Tesla, those other companies aren’t publicly held, so they don’t file their financial statements with securities regulators.”
• “Tesla in its latest annual report identified several of Musk’s other companies as related parties, including SpaceX and X. It said its transactions with those companies didn’t have a material impact on its financial statements. Tesla didn’t say how much of its $98 billion of revenue last year came from the government. The company didn’t respond to requests for comment.”
• “The importance of Tesla’s relationship with the government goes beyond commercial transactions. Tesla customers can receive as much as $7,500 in federal tax credits for the purchase of electric vehicles, under current law. Tesla also has been the subject of numerous government investigations, including by the National Highway Traffic Safety Administration, where DOGE has been directing layoffs.”
  Tesla mentioned DOGE only once in its last annual report, filed Jan. 30. In a risk-factor disclosure, Tesla said it is highly dependent on Musk’s services and that ‘he does not devote his full time and attention to Tesla,’ noting that he holds management positions at five other companies and is involved with other ventures, as well as DOGE.”
• “Listing the U.S. government as a related party might not trigger any other immediate changes to Tesla’s books, and it shouldn’t be a problem for Tesla shareholders. If the government and Tesla do significant amounts of business together, the related-party designation would help provide transparency into the extent of those dealings. Investors would be the intended beneficiaries of the disclosure. Taxpayers, too, could benefit from some additional sunlight.”

“Ethics ruling bars law firm from taking hospital clients in Blue Cross case” —

• “A judge in Alabama has barred a large U.S. law firm from representing plaintiffs in major litigation accusing Blue Cross Blue Shield of underpaying hospitals, physicians and other medical providers for years.”
• “The decision on Wednesday [2/26] was a rebuke for 1,100-lawyer law firm Polsinelli, which is known for representing healthcare companies and which had been advising clients on potentially opting out of a $2.8 billion class-action settlement in the Blue Cross case in order to sue the insurer on their own.”
• “Chief U.S. District Judge R. David Proctor in Birmingham said in his ruling that attorneys who now work at Polsinelli had earlier represented Blue Cross Blue Shield of Alabama in the case, creating an ethical conflict.”
• “‘Lawyers who until recently did substantial work for (Blue Cross) in this litigation are now at a firm that is taking materially adverse positions against it — in that same litigation,’ Proctor wrote in his order.”
• “In the underlying litigation, hospitals and other health providers claimed Blue Cross and some of its affiliates violated antitrust law by dividing the country into exclusive areas where they agreed not to compete with each other. The providers’ class action, filed in 2012, said the alleged conspiracy increased the cost of insurance and drove down reimbursements. Blue Cross Blue Shield denied wrongdoing but agreed in October to settle with the plaintiffs for $2.8 billion.”
• “Alabama-founded law firm Maynard Nexsen had been one of the firms defending a Blue Cross affiliate in the case, Blue Cross Blue Shield of Alabama, billing thousands of hours. In 2024, some of the Maynard Nexsen attorneys left the firm to join Polsinelli, the decision said.”
• “Lawyers for the plaintiffs who negotiated the settlement complained earlier this month that a different Polsinelli lawyer was talking with clients about opting out of the deal and potentially filing their own lawsuits, violating ethics rules against conflicts of interest.”
• “Attorneys for Polsinelli denied that Polsinelli’s hiring of a handful of lawyers from Maynard Nexsen created a conflict. Polsinelli said clients that are weighing whether to accept the settlement did business with non-Alabama Blue Cross companies. ‘The right to counsel of one’s choosing is a bedrock principle of American jurisprudence,’ Polsinelli told Proctor.”

“KPMG Wins Approval to Launch First US Law Firm for Big Four” —

• “KPMG gained approval to practice law in Arizona, making it the first Big Four accounting, tax, and consulting company set to operate a law firm in the US.”
• “The Arizona Supreme Court today [2/27] granted KPMG a license to operate a so-called alternative business structure. KPMG Law US will be an independent law firm operated as a wholly-owned subsidiary of the company.”
• “The law firm will provide legal services that include integrating legal contracts and tech systems after corporate mergers, KPMG has said. KPMG’s tech capabilities, scale, and pricing structure give it an advantage over traditional law firms, Stuart Bedford, the company’s global head of legal services said in an interview earlier this month.”
• “‘KPMG Law US is uniquely positioned to transform the delivery of legal services,’ Rema Serafi, KPMG’s vice chair for tax, said in a statement. ’By combining cutting-edge artificial intelligence and advanced technology solutions with legal services, we are proud to be a first mover with this capability and to offer the most holistic range of tech-enabled services in the marketplace for our clients’ evolving needs.'”
• “The move follows years of Big Four expansion into legal services in other markets, such as the UK and Australia. Professional regulations for US lawyers have largely barred non-lawyers from owning law firms. The Arizona ABS program created an exception in 2021, hoping new law firm models would spur better access to costly lawyer advice. Mass tort firms have taken to Arizona’s alternative business structures and use them for lead generation and advertisement nationally.”
• “KPMG Law US can practice law in the state on the condition that it refrains from performing legal services for any of KPMG’s audit clients, the court said in the Thursday order. The restrictions have broader application beyond US securities law that prohibit accounting firms from performing legal services for its US clients.”
• “The initiative faces several questions, including to what extent, or how, KPMG Law will provide services in other states. Law firms tracking new competition will be watching to see what types of legal matters clients hire KPMG to handle.”
• “‘One question is are they engaged in the unauthorized practice of law in other states in which they are giving advice because that’s where the clients are located,’ said legal ethics professor Bruce Green, who teaches at Fordham Law School.”

“Move Over KPMG, This Accounting Firm Has a Vision for Providing Legal Services Nationwide” —

• “When Atlanta-based accounting and business advisory firm Aprio announced a merger with an Arizona business law boutique earlier this month, leaders from the new entity—dubbed Aprio Legal—indicated that they aimed to deliver legal services to clients beyond the Grand Canyon State.”
• “Representatives from both Aprio, with 25 U.S. offices but no presence in Arizona, and Radix Law, with 15 attorneys in Scottsdale, emphasize they will use co-counsel relationships to serve clients around the country. But some observers, however, question whether the traditional co-counsel relationship is being stretched when used in conjunction with a firm that is, in reality, supposed to only be offering legal services in Arizona under an intrastate Alternative Business Structure license.”
• “Both firms were already previously approved to operate ABS law firms – Radix in 2021, the year the Arizona program began, and Aprio in 2024 – but firm leaders say the joint venture could lead to better servicing of Arizona legal clients and could also potentially open up the opportunity for cross-border legal work.”
• “‘We believe we are pioneering a new, holistic approach that re-imagines the client experience,’ Kopelman said in written comments. ‘Ultimately, working alongside the Arizona Supreme Court’s Alternative Business Structure Program, we hope our model inspires similar collaborations across the U.S. and helps reshape how legal services are delivered. As we look forward, we will work closely with the ABS program to shape any expansion beyond Arizona.'”
• “Kopelman and Kveisc did not say which law firms outside of Arizona could serve as possible opportunities for co-counsel relationships.”
  Crossing State Lines”
• “‘Only Arizona lawyers can practice law in, and be employed in, an Arizona ABS, at least in theory,’ said Lynda Shely, an Arizona ethics lawyer.”
• “Because most other states have ethics rules that prohibit the formation of ABS law firms, they would likely frown upon an Arizona ABS attempting to open an office in states outside of Arizona, Shely said.”
• “Aprio and Radix, however, do not seem overly concerned, given their focus on delivering services outside of Arizona through the use of co-counsel relationships, which is something that is generally already permitted in other circumstances.”
• “‘None of us are aware of any jurisdiction that has that type of limitation,’ Lucian Pera, a partner at Adams and Reese who focuses on legal ethics, said about co-counsel relationships. Arizona lawyers are already permitted to enter into co-counsel relationships with attorneys in other states, Pera said, and the only limitation on this would be if a court were to issue rules preventing such cross-border relationships.”
• “Another way the Aprio Legal Arizona ABS lawyers could partner with outside counsel is to operate as a multi-jurisdictional practice, according to Pera. In 2002, he said, the ABA issued a rule that has since been adopted by around 40 states that would permit some temporary practice of law by lawyers in different states.”
• “Under this setup, lawyers in one state—Arizona, in this example—could become associated with a local attorney, get temporarily admitted to practice law in a state other than their own, and then handle certain legal work outside of their home state, including arbitration, mediation and other matters that are ‘reasonably related to your practice back home,’ Pera said.”
• “Pera also said this type of cross-border legal work can also be done through the use of legal staffing companies. Essentially, there are already numerous ways lawyers can handle certain legal matters in states in which they’re not licensed. ‘I don’t know what Aprio has got in mind, but those are some tools they can use,’ Pera said. ‘They would be using the same tools that my law firm and I use to do the same thing.'”
• “Pera said as far as he knows, there do not currently appear to be any restrictions on the use of these various methods in situations where the firm seeking to develop a co-counsel relationship is structured as an ABS versus a traditional law firm.”
• “Pera called Kvesic, of Radix, ‘a really fine, smart lawyer,’ and he acknowledged the scope and reach of Aprio, saying the joint venture will likely see success and could possibly spur other accounting firms or consultancies to get involved in the legal business.”
• “‘My feeling is the fact that someone is trying this is as important as how many clients that particular firm reaches, because it will, frankly, expand the imagination of other lawyers and accountants as to what’s possible,’ Pera said. ‘They could be the next behemoth. I think it’s as important for people to see what they’re doing, and ask the questions you’re asking.'”

“You Can Buy Me Dinner, But Don’t Expect to Choose My Entrée: Motion to Disqualify for Non-Party Litigation Funding Conflicts of Interest” —

• “You can pay for the dinner, but you cannot pick when, where or what we’re eating. At least that’s what a Magistrate Judge in the District of New Jersey decided last week in Harish v. Arbit, No. CV 21-11088-EP-AME, 2025 WL 354434 (D.N.J. Jan. 31, 2025), a patent dispute that resulted in the disqualification of two law firms from representing two defendants because the defense was funded, at least in part, by a non-party with an interest in the patent.”
• “Plaintiff maintained that defense counsel violated N. J. Rule of Professional Conduct 1.8(f) when they represented defendants and a non-party payer. The Court held that the plaintiff, as an adversary, had standing to raise a potential conflict of interest and bring a motion to disqualify. While the Court noted that the Third Circuit had not ruled on the issue directly, ‘this District has held that ‘[a]dversaries, as well as former clients, may raise conflict of interest concerns.’'”
• “The Court found that the issues were governed by the New Jersey Supreme Court’s opinion in In re State Grand Jury Investigation, 200 N.J. 481 (2009) because a non-party was paying for the defense. The Court rejected defendants’ argument that Grand Jury only applied when evaluating whether an attorney may accept payment from a nonclient and not when an attorney is jointly representing multiple clients with a common interest.”
• “Under the Grand Jury test, an attorney may represent a client, accepting payment directly or indirectly from a non-party, only if each of the following six factors is satisfied:

1. 1. There is informed consent by the client.”
   2. Non-party payer may not direct, regulate or interfere with the attorney’s professional judgment in representing the client.”
   3. There may not be any current attorney-client relationship between the attorney and non-party payer.”
   4. The attorney may not communicate with the non-party payer regarding the substance of his representation of his client.”
   5. The non-party payer shall process and pay such invoices within the regular course of its business, consistent with manner, speed and frequency it pays its own counsel.”
   6. Once a non-party payer commits to pay for the representation of another, they shall not be relieved of that obligation without leave of court brought on prior written notice to the attorney and the client.”

• “Applying these factors to the facts, the Court here found that there was objective evidence from email communications between the parties that the non-party payer’s interests have ‘commandeered, or at least directed with primacy, Defense Counsel’s approach to its defense of Defendants.'”
• “The Court further stated that ‘[t]he record makes clear that [the non-party] is directing, regulating, and interfering with Defense Counsel’s professional judgment in its representation of Defendants.’ The Court found that there was clearly an attorney-client relationship between the attorneys and non-party payer because defense counsel stated they represented the non-party and were advising both the defendants and the non-party payer.”
• “The Court further noted that defense counsel continuously and regularly informed the non-party about the substance of defendants’ representation and a representative from the non-party was present and participated in a settlement conference. Finally, the Court found that Grand Jury’s sixth condition was not met because there was an indemnity clause that would release the non-party payer from its obligation to pay if legal fees surpassed a certain threshold.”
• “This case is an important decision on the impact and contours of what litigation funders can and cannot do. It serves as a roadmap for representation letters, waivers and communications with non-parties whenever a separate entity is involved in paying for litigation, and a cautionary tale for joint representation.”

“Russian Oligarch Wants Court Nemesis’ Litigation Funding Details” —

• “A sanctioned Russian billionaire is asking a Florida court for details about a Miami litigation funder that bankrolled an overseas case against him.”
• “Andrey Guriev claimed in a filing on Wednesday that 777 Partners was among a group of funders financing cases filed against him by former friend Alexander Gorbachev claiming he owned 24% of Guriev’s company. 777 and subsidiary Sphinx Funding LLC paid Gorbachev’s litigation costs, after-the-event insurance and living expenses to the tune of over £‎11 million ($13.9 million), according to court documents.”
• “Guriev now seeks discovery from Gorbachev’s funders asking for documents relating to 777 Partners’ general funding standards and policies, an organization chart of 777, corporate meeting minutes, and documents and communication relevant to Sphinx’s agreement with Gorbachev. He also seeks to depose a representative of 777.”
• “‘Mr. Guriev hopes to discover information relevant to the identities and ultimate sources of the funds provided by the third-party funders who financed Mr. Gorbachev’s failed, frivolous, and potentially fraudulent claims, as well as the true motives and objectives in bringing those claims,’ counsel for Guriev from Boies Schiller Flexner wrote in the memorandum of law supporting the discovery application.”
• “Guriev is a founder of Russian phosphate fertilizer company PhosAgro and a close associate of Russian President Vladimir Putin, according to the UK Office of Financial Sanctions Implementation. He was sanctioned by the US Office of Foreign Assets Control in 2022 for operating within the Russian Federation economy.”
• “In 2023, Gorbachev revealed that third parties were paying his litigation expenses, with two paying direct costs for the UK proceedings. Sphinx was one of those funders and had an agreement with him since 2021. It fronted the cost of a £5 million ($6.3 million) after-the-event insurance policy and Sphinx was entitled to the higher of either £40 million ($50.7 million) or 20% of the case proceeds.”
  Funders’ Role”
• “Guriev applied to have the funders added as parties to the litigation. In response, Joshua Wander wrote that he is the managing partner and co-founder of 777 Partners and Sphinx is a subsidiary. Wander wrote that 777 has no entitlement or any stake in the outcome of the proceedings and never has, despite 777 paying some of the funding payments to Gorbachev.”
  “The case is v. 777 PARTNERS LLC, S.D. Fla., 25-mc-20896, 2/26/25”