“Training AI Tools on Client Data? Talk to Clients First” —

• “Big Law firms are sitting on a mountain of data from past client engagements, and the AI tools they’re developing require real world data to be accurate and useful. The perfect match? Not so fast, clients say.”
• “‘My first initial reaction would be I would not want my organization’s data used in a learning situation, because I don’t know what’s going to happen when they do that,’ said Av Maharaj, VP of Canadian legal and corporate affairs and global legal procurement at Kraft Heinz Company.”
• “Maharaj is one of several in-house counsel who expressed varying reservations about the prospect of their company’s data being used to train or inform AI tools at law firms.”
• “In addition to concerns about sensitive data leaking and falling into the wrong hands, in-house counsel, consultants and even law firm AI leaders raised another issue: precedent.”
• “‘If I go to a law firm and say, ‘Hey can you tell me what the market rate for a management fee and carried interest for this kind of fund is?’ I’d say 100% that the law firm is going to look at all the data they have on hand, whether it’s their client or not,’ said SmartEsq CEO Esther Chiang. While not a novel use of law firms’ internal databases, accessing precedent in the AI era amounts to ‘doing what I described on steroids forever,’ Chiang said.”
• “That capability has shifted the conversation about how law firms use precedent altogether, Crowell & Moring chief innovation and value officer Alma Asay said.”
• “‘Because of generative AI, clients have become more hesitant about how and where law firms use precedent to inform work moving forward because of the concern that precedent is used in ways that weren’t expected, and at a scale that is different than one lawyer looking at how they wrote a provision in the past,’ Asay said. ‘If they’re using that to inform how they write a similar provision for another client, that’s a different use case.'”
• “The idea that a bespoke, savvy and expensive solution crafted for one client might be rapidly repurposed for a competitor raises ethical questions about how data owned by clients ought to be used, said Clio lawyer in residence Joshua Lenon.”
• “‘That data belongs to the client,’ Lenon said. ‘When we look at training AI, are we training AI for the benefit of the client or the benefit of the law firm? If it’s for the benefit of the law firm and future unaffiliated clients, that is a bit of an ethical gray area at best.'”
• “Also top of mind for clients is the confidentiality of sensitive data they turn over to law firms.”
• “‘The confidentiality point becomes very, very important. What if my information gets out into the open? What does that look like? And what are the implications for my solicitor-client privilege?’ Maharaj said. ‘There are lots of questions being opened up. We’re getting there slowly on these answers, but I think there are a lot of questions.'”
• “In turn, law firms have agreements with enterprise software providers that prohibit the latter party from training their models on client data, and law firm AI leaders said questions about those agreements are increasingly surfacing in outside counsel guidelines.”
• “And law firms can help by adding specific AI clauses in their own engagement letters, Polsinelli COO Regan Lemke said. ‘Whether we or clients are bringing it up, we’re making sure we’re talking to them about what we’re doing with their data.'”
• “Clients are also asking firms to exclude or redact particularly sensitive data from AI tools altogether, regardless of confidentiality provisions.”
• “Despite varying reservations, clients are coming around to the idea of their data being used to help law firms improve their AI tools and, in turn, client service.”
• “‘The biggest thing I find interesting is the journey in outside counsel guidelines,’ said Katten Muchin Rosenman chief innovation officer Andrew Sprogis. ‘They went from ‘Don’t do anything’ to ‘We need you to do it and we need you to do it safely,’ even in the past six months.'”
• “Ultimately, Big Law AI leaders emphasized the importance of ongoing communication between law firms, clients and vendors as all three parties mature in the AI era.”

“ABA Issues New Rule on Government Lawyer Misconduct” —

• “Government lawyers have a duty to report unlawful conduct by fellow government employees. The duty applies when the misconduct could substantially harm the government agency they represent, according to a new ethics opinion from the American Bar Association (ABA). The guidance explains how attorneys should respond to wrongdoing within public agencies.
• “Although the opinion is not legally binding, it carries significant influence. Many states rely on the ABA’s Model Rules of Professional Conduct when interpreting attorney ethics obligations. Consequently, the guidance could shape how government attorneys, agencies, and state disciplinary authorities handle misconduct investigations.”
• “The ABA’s Standing Committee on Ethics and Professional Responsibility released Formal Opinion 524. The opinion explains how Rule 1.13 of the ABA Model Rules applies to lawyers representing government organizations instead of private clients.”
• “The committee concluded that government lawyers cannot ignore unlawful conduct by government officials or employees. The duty applies when the misconduct is likely to cause substantial injury to the agency. Instead, attorneys must take appropriate action to protect the government organization they represent.”
• “Furthermore, the opinion explains that a government lawyer’s client is the government organization itself. It is not an individual officer, employee, or elected official. As a result, attorneys must place the organization’s interests first when misconduct occurs.”
• “According to the ABA, reporting obligations arise when a government lawyer knows an officer or employee violated the law. The duty also applies when someone breaches a legal obligation while acting in an official role.”
• “The committee stated that unlawful conduct may expose an agency to financial losses or legal liability. It may also damage public confidence. Therefore, attorneys should help prevent or reduce those harms whenever possible.”
• “Additionally, the opinion recognizes that government agencies serve the public interest. Consequently, misconduct by public officials may have broader consequences than similar violations in private organizations.”
• Opinion; here.

“Texas law firm agrees $15mn settlement over judicial scandal” —

• “One of the most prominent Texas law firms has agreed to pay a $15mn settlement to resolve a lawsuit brought by US federal authorities over a judicial scandal that gripped the US bankruptcy system.”
• “Jackson Walker LLP had been accused by the Office of the US Trustee of failing to disclose a romantic relationship between one of its former partners, Elizabeth Freeman, and Judge David Jones. Freeman had served as a judicial clerk to Jones before being hired by Jackson Walker. The firm appeared in more than 30 Chapter 11 cases between 2018 and 2023 where Freeman represented clients in front of Jones.”
• “Jones, whose influence among bankruptcy advisers had turned Houston into the US’s insolvency capital, quickly resigned from the bench in October 2023 after admitting to the relationship when confronted by questions from the media. In late 2022, Freeman had left Jackson Walker to start her own practice, which would work with her former employer.”
• “The US bankruptcy code allows debtors to have bankruptcy estates pay their professional fees but requires that advisers be independent and disclose to the court any possible conflicts of interest they may have in cases.”
• “Jackson Walker had typically served as a local counsel to debtors represented by national lawyers from Kirkland & Ellis, who routinely filed major cases in the Southern District of Texas where Jones would become the chief bankruptcy judge.”
• “The US Trustee, which represents the public’s interest in Chapter 11 cases, said Jackson Walker knew or should have known about the Freeman-Jones relationship. The agency had been seeking to claw back more than $30mn in fees Jackson Walker had been paid in 33 different cases where Freeman had participated, including the high-profile restructurings of JC Penney and Neiman Marcus.”
• “The Texas bankruptcy court earlier this summer had separately approved settlements that Jackson Walker had struck with several individual bankruptcy estates to pay back nearly $5mn in fees that had been disbursed in those cases.”
• “A federal district judge in 2024 dismissed a racketeering lawsuit filed by a bankruptcy claimant against Jones, Freeman, Jackson Walker and Kirkland & Ellis, but criticised the group for not previously disclosing the conflict of interest stemming from the relationship.”
• “The US Trustee settlement requires the approval of the Texas bankruptcy court, and Jackson Walker said in the settlement filing on Monday it had also made changes to its ‘conflict screening and disclosure practices’ and intended to hire a third-party consultant to review its compliance.”