Bressler Risk Blog

“Morgan & Morgan Accuses Carlton Fields of Putting ‘Cash Ahead of Duties’ in Malpractice Case” —

• “Morgan & Morgan’s Florida Business Trial Group has hit Tampa-based Am Law 200 firm Carlton Fields and four of its attorneys with a legal malpractice lawsuit claiming Carlton Fields betrayed a client by representing a company on the opposite side of a transaction.”
• “The complaint claims that after years of representing Orlando title insurance trust Attorneys’ Title Insurance Fund, defendants Nathaniel L. Doliner, Marty J. Solomon, William G. Giltinan and Christopher W. Smart began simultaneously representing its business partner Old Republic National Title Holding Co. in a deal that worked against the plaintiff’s interests.”
• “‘Sadly, Carlton Fields made the conscious decision to put cash ahead of the duties it owed to ATIF,’ the complaint said.”
• “Carlton Fields represented Attorneys’ Title Insurance Fund in this deal among others and billed at least $1.4 million in fees in four years, according to the lawsuit. The agreement went through various amendments until it become a master agreement—which Carlton Fields allegedly worked with Old Republic to draft without getting a conflict waiver from their client first. They did eventually get a conflict waiver, but the lawsuit claims that was invalid because it wasn’t approved by the plaintiff’s board or shareholders and waived only ‘potential’ conflicts and not ‘actual conflicts.'”
• “‘We have acted in accordance with our ethical and fiduciary duties. We believe that the claims are baseless and will vigorously defend ourselves,’ Carlton Fields spokesperson Kate Barth said in an emailed statement.”

“Allegations Fly Against Lawyers on Both Sides of 3M’s Bair Hugger Lawsuits” —

• “Three lead plaintiffs attorneys accused in a sanctions motion of disclosing sealed documents in lawsuits over Bair Hugger surgical blankets have brought their own motion for sanctions, claiming 3M’s lawyers ‘resorted to fabricating facts.'”
• “Last month, 3M Corp. filed a motion for contempt and sanctions against the plaintiffs lawyers, who are leading more than 5,000 lawsuits alleging its Bair Hugger warming blankets, used in surgeries, increased the risk of infection. The three attorneys, 3M’s lawyers wrote, disclosed sealed documents, most recently in a publicly filed motion to compel, submitted for a separate state court case in Texas, according to 3M’s motion.”
• “‘Contempt and the imposition of sanctions are warranted where, as here, an attorney repeatedly violates court orders governing the confidentiality of documents,’ wrote 3M attorney Benjamin Hulse. ‘MDL counsel have repeatedly expressed their disagreement with this court’s sealing orders and have repeatedly shown they have no qualms about violating them when it suits their purpose. Nothing short of a sanction order from this court will curb their misconduct.'”
• “According to 3M’s sanctions motion, filed June 6, plaintiffs lawyers in the multidistrict litigation disclosed a sealed 2015 opinion by a federal judge in the Southern District of Texas in a Bair Hugger case called Walton v. 3M as part of a motion to compel filed earlier this year in a separate lawsuit in Hiladgo County District Court. They also disclosed sealed documents about a 3M product called ‘Bair Paws’ that addressed why some practitioners do not use the Bair Hugger system, the sanctions motion says.”
• “Plaintiffs lawyers wrote back that 3M’s injunction argument ‘defies common sense, equity and fairness, and principles of federalism, not to mention the overwhelming weight of binding Supreme Court authority.’ The three plaintiffs attorneys targeted in the sanctions motion also denied that they disclosed sealed documents, stating that the information was publicly available.”

“Judge Rules Exec Can Cite Alleged Weil Conflicts To Seek New Opioids Trial” —

• “The former national sales director of opioid medicine manufacturer Insys Therapeutics, seeking a new trial, has accused his ex-defense lawyers at Weil, Gotshal & Manges of hiding a conflict from him because their firm is also working on Insys’ bankruptcy.”
• “On Monday, however, Simon went further, saying it had become apparent that his lawyers at Weil had a conflict they didn’t tell him about. While supposedly defending him, Simon said, Weil advised Insys with its pending bankruptcy as the company helped the government investigate its former executives, including Simon.”
• “U.S. District Judge Allison Burroughs of the District of Massachusetts on Tuesday partly granted his motion to submit supplement arguments seeking a new trial. She gave Simon through Sept. 9 to file a brief with more details.”
• “In a statement, a Weil representative said at no point was the firm representing adverse interests and said Simon was aware of its work for Insys ‘at the outset…In addition, Weil did not provide any advice to Insys or communicate with its other legal counsel with respect to whatever cooperation Insys provided to the Department of Justice in connection with the deferred prosecution agreement,’ the statement continued.”

“DQ Order Nixed In Wyndham Suit Against Timeshare Exit Cos.” —

• “A Tennessee federal judge has vacated a magistrate judge’s recommendation to disqualify two attorneys representing a timeshare exit company in a false advertising suit brought by Wyndham Vacation Ownership Inc., saying there’s not enough evidence to support ruling out the lawyers as possible witnesses.”
• “U.S. District Chief Judge Waverly D. Crenshaw Jr. on Monday returned Wyndham’s attempt to disqualify attorneys Aubrey Givens and Kristin Fecteau Mosher to Magistrate Judge Jeffery S. Frensley. Judge Crenshaw ordered him to develop a record of evidence that would determine whether the lawyers could serve as essential witnesses in the case accusing Legal Timeshare Aid and owner Charles Simerka of running a scheme in which they falsely claimed they could help Wyndham timeshare owners terminate their purchase contracts.”
• “‘Particular care must be taken in the context of motions to disqualify because the ability to deny one’s opponent the services of capable counsel is a potent weapon that can be misused as a technique of harassment,’ Judge Crenshaw wrote in his order.”

Back with more to blog about. Today it’s an interesting article from Karen Rubin and Tom Zych at Thompson Hine: “Do we need a new ‘data-breach privilege’? Thoughts on the Sedona Conference proposal”

• “The outlines of the attorney-client privilege and work-product doctrine are well-established. But how should they apply when an organizational client suffers a cybersecurity event or other intrusion that results in a data breach? Should information about the company’s security policies pre-breach and its post-breach response be given any enhanced protection? Under what circumstances?”
• “The questions are burning ones, given recent data-security catastrophes that have exposed financial, health and other data of millions of people. After each event, claimants quickly line up to file suit, and discovery demands for information inevitably follow.”
• “The Sedona Conference, a non-profit, non-partisan institute whose working groups have been influential in e-discovery and other cutting-edge issues, recently published draft commentary recommending adoption of a qualified stand-alone protection for information prepared in a cybersecurity context, even when not involving communication with an organization’s lawyer.”
• “Based on evaluating and balancing the competing interests, the Working Group proposed what it calls a ‘stand-alone cybersecurity privilege modeled on the work-product doctrine’ that would extend to all documents and tangible things reflecting “mental impressions, conclusions, opinions, assessments, evaluations or theories’ regarding a cyberattack, as well as ‘actual or potential actions in anticipation or response to a cyberattack.'”
• “Caution can be called for here, because creating a new privilege might come back and bite in unintended ways.”

Read on for their analysis and thoughts.

Chuck Lundberg recently shared his latest thinking in Minnesota Lawyer: “Quandaries and Quagmires: Trending: legal ethics and risk management,” covering key developing stories including Varsity Blues and  The Epstein case:

• “To be sure, dealing with alleged conflict situations like this is a recurring issue for lawyers. Significantly, conflict allegations are all too common in legal malpractice cases. And all too dangerous — a conflict allegation can turn a simple, vanilla malpractice case into a serious matter, aggravating compensatory damage exposure and potentially implicating punitive damages. So I imagine that the esteemed BigLaw defense counsel in the Varsity Blues cases at a minimum (1) had outside ethics counsel check the potential conflicts every which way before undertaking the representation and (2) retained independent outside counsel to advise each client about the risks and benefits of waiving the conflict.”
• “In my view, however, an even more important law firm risk issue was raised at the very outset of the Varsity Blues case. At 6:30 am on Tuesday March 12th, the day the scandal broke, Gordon Caplan, the co-chairman of megafirm Willkie Farr & Gallagher, was arrested and charged with criminal conspiracy to bribe college admissions officials to gain college admission for his daughter… On the same day, Law360 also ran a critical story, quoting several ethics experts and crisis management and PR strategy consultants, all saying that the firm’s response was too little, too late. One said the law firm’s first misstep was the fact it took a whole day to respond publicly to news that was generating enormous media attention. Others said the law firm’s statement did not go far enough in condemning the alleged behavior. Some even went so far as to say placing Caplan on leave was not a strong enough response from the firm in light of the allegations, and that a resignation would be better when it comes to preserving the firm’s brand. “From a spin control standpoint, the sooner he is referred to as a former co-chairman and attorney at the firm, the better,” said one of the consultants.”

• “Another recent blockbuster news story, the Jeffrey Epstein prosecution for child sex trafficking, presents a very different kind of risk management issue: Can a lawyer be criticized for negotiating too good a deal for the client? Put differently, would a legal malpractice claim alleging that one’s lawyer got the client ‘too good a deal’ state a claim for relief?”
• “In any event, the 33-page written record of the long negotiations in the Order vacating the non- prosecution agreement is fascinating to read and should be an instructive story for many lawyers.8 One imagines that at least one of Epstein’s Dream Team of lawyers had the presence of mind to tell him, ‘Jeff, I just want you to know that there’s a possibility that the whole settlement could be vacated years from now because we got the feds to agree to too much, including not to tell the victims about the agreement. Are you sure you want to take that risk?'”

I’m a sucker for a creative headline, we all know. And an effort in story form. And this topic is always of interesting. So from Dentons partners Shari L. Klevens and Alanna Clair we have: “Looking a Gift Horse in the Mouth: Negotiating Terms for Outside Counsel Guidelines” —

• “You receive a call about a new client with a very large potential matter. The client is a corporation whose regular outside counsel has a conflict, and this new matter creates an opportunity to establish a good relationship with a potentially lucrative client. But there’s a catch… Although your firm routinely begins new client representations by means of a standard engagement letter, this client sends you ‘outside counsel guidelines’ to which it requires agreement. The guidelines cover a host of issues, from billing protocols to technology requirements to the scope of the representation. Is there a risk to accepting the client’s guidelines? Can you negotiate the terms?”
• “Agreeing to comply with a client’s outside counsel guidelines can help law firms obtain work in a competitive marketplace. However, the guidelines also can create risks for law firms that do not take the time to fully consider or vet the requirements’ guidelines.”
• “Engagement letters from a law firm are often drawn to define the relationship and, at times and where permissible, to shape a law firm’s potential exposure to the client. If the attorney-client relationship is governed solely by the client’s outside counsel guidelines, however, those same protections may not be in place.”
• “For example, the definition of who the ‘client’ is in a set of outside counsel guidelines could be expansive, including not only the direct corporate client but also related entities. Such a scenario could create complications for a law firm’s exposure or in future conflicts analysis. Indeed, the law firm could be found to owe duties to an entity that the law firm did not expect—but might have been able to consider or negotiate if the risk had been identified.”
• “The competition for high-profile or other legal work can be significant: law firms may be tempted to agree to terms without giving proper consideration to whether the law firm has the ability to comply with the terms.”
• “For example, many outside counsel guidelines will have specific requirements regarding billing (frequency of invoices, rates, compliance with an electronic system). It can create issues for a law firm to agree to a required electronic billing process if it then lacks the staff or resources to comply, as required.”
• “If a law firm agrees to incorporate certain cybersecurity protections or protocols but then is unable to do so, the client may argue that the law firm is liable to the client for any future breaches or issues. The law firm could then be in the difficult position of having to explain why it agreed to protocols that were beyond what was realistic.”
• “After the law firm reviews and approves of outside counsel guidelines, a next step is for the law firm to educate the team members working on a particular matter about the specifics of the guidelines. By agreeing to the guidelines but then failing to implement the guidelines among the team, a law firm could create an uncomfortable situation with the client…As such, many firms in this situation will discuss the terms with the team working on a matter to reduce the administrative overhead of compliance.”

Kevin Shepherd, partner at Venable, writes: “Inside The New Anti-Money Laundering Guidance For Attys” —

• “Over a decade ago at its plenary meeting in October 2008, the Paris-based Financial Action Task Force [FATF] issued a guidance paper for the global legal profession on how to detect and prevent money laundering and terrorist financing. “
• “At its June 2019 plenary meeting, FATF adopted an updated ‘Guidance for a Risk-Based Approach — Legal Professionals.’ The 2019 guidance bears structural similarities to the 2008 guidance, but contains several significant changes. This article will provide an overview of the 2019 guidance and highlight several of these changes that may be of most interest to U.S. lawyers.”
• “In addition to identifying broadly the specified activities covered by the 2019 guidance, the 2019 guidance lists 15 areas that may — or may not — fall within the category of a specified activity.”
• “Unlike the 2008 guidance, the 2019 guidance devotes six paragraphs[16] to legal professional privilege and professional secrecy, and recognizes that these concepts present challenges in implementing a risk-based approach.”
• “The analogous concept of legal professional privilege is known in the United States as the attorney-client privilege, and the 2019 guidance notes that the United States recognizes a ‘crime-fraud’ exception to the attorney-client privilege.”
• “Supervision of Risk-Based Approach in the U.S. Recommendation 28 of the FATF standards requires that legal professionals be subject to adequate AML/CFT regulation and supervision. Section IV of the 2019 guidance provides detailed guidance to supervisors, much of which is inapplicable to the U.S. given its ‘alternative supervisory system.’ In recognition of this different system, the FATF included a text box in Annex 4 focused on the U.S., which the FATF recognizes as the country with the largest number of lawyers subject to such a system. The lengthy text box describes the fit and proper requirements in the U.S., including the entry and ongoing requirements for lawyer licensing.”

In the US, see: “The American Bar Association is fighting Washington’s efforts to tackle money laundering” —

• “The body representing America’s lawyers has staked out an eye-opening position in recent years—lobbying against efforts in Congress to close a loophole that enables terrorism, human trafficking, money laundering, and a host of other crimes.”
• “Unlike banks, law firms don’t legally have to do due diligence before taking on clients—the closest thing they have to regulation is ABA guidelines.”
• “When the Financial Action Task Force (FATF), an international anti-money laundering organization, analyzed 106 global cases of the owners of illicit money hiding their identities, it found that most schemes used either lawyers, trust or corporate service providers, or accountants. Lawyers were the most likely of those three to be used in the real estate schemes outlined in the Global Witness sting, FATF found.”

And for those looking for some training, I found a consult’s webinar recording on law firm compliance: “Anti Money Laundering – Ask me anything! Join me for this AML update webinar, where you can ask me anything you’ve always wanted to know about AML.”

Hat tip to Karen Rubin at Thomson Hine: “No marketing using client’s info without express consent, says S.C. supreme court, even if ‘generally known‘” —

• “As we’ve noted before (here and here), the ethical duty of confidentiality is broad, and can even cover publically-available information. Now comes a reminder that based on the confidentiality rule you should obtain consent before using your client’s name in marketing materials — and that some jurisdictions go even farther. For instance, South Carolina last month added a comment to its version of Model Rule 1.6 that expressly requires permission before using client information for advertising purposes, even including “generally-known” client information.”
• “The South Carolina bar had filed a petition last year seeking to amend Rule 1.6 to allow lawyers to reveal citations to published judicial opinions without getting consent from clients involved in the case. But the law of unintended consequences kicked in.”
• “Instead of approving the petition, the state supreme court tightened the confidentiality rule, saying in its order, ‘We decline to amend the rule as proposed by the Bar. Instead, we … add a new comment to the rule reminding lawyers that Rule 1.6 requires lawyers obtain informed consent from clients before revealing information about the representation to advertise their services. The comment further clarifies [that] this obligation applies regardless of whether any information revealed is contained in court filings or has become generally known.'”
• “This goes farther than other state versions of Model Rule 1.6, and may be a burdensome slippery slope when it comes to ‘generally-known’ information.”
• “On the other hand, clients value confidentiality and many want complete control over whether a firm publicizes its relationship with that client. For instance, as a condition of the representation, many large organizations expressly prohibit their outside counsel from mentioning the fact of the representation in their marketing materials without express consent.”

And to Joseph Corsmeier: “California Bar examines proposal that non-lawyers be permitted to provide legal advice and have a financial interest in law firms” —

• “… the recent proposals of a State Bar of California task force which would, inter alia, permit legal technicians to offer legal advice and also permit non-lawyers to have a financial interest in law firms. The proposals were approved by the State Bar Board of Trustees on July 11, 2019.”
• “The proposals were developed by the California Bar’s Task Force on Access Through Innovation of Legal Services. The task force’s proposals would make sweeping changes by modifying the restrictions on the unauthorized practice of law and ethics rules that prohibit fee sharing with nonlawyers and would also permit legal technicians to provide legal advice and practice law. The California Bar press release announcing the proposals is here. The California Bar agenda item with the proposals is here.”
• “The proposals also would also permit state-approved businesses to use legal technology to deliver legal services. Regulatory standards governing the provider and the technology would be established and client communications with such entities would be covered by attorney-client privilege/confidentiality.”
• “Bottom line: These California Bar proposals have a long way to go before being potentially implemented; however, if they are eventually implemented, California will be another one of the few states which would permit legal technicians to offer legal advice and the only jurisdiction (other than the District of Columbia) to permit nonlawyers to hold a financial interest in law firms. Stay tuned…”

“A Warning to Law Firms and Litigants: Unlawful Disclosure of PHI in Litigation Can Lead to Trouble” —

• “The handling of sensitive data with appropriate care in litigation is a critical aspect of legal practice. Recent ABA Formal Opinions 477 and 483 discuss requirements for securing protected client information and lawyers’ obligations after a cyberattack. Conduct during litigation is no different. Unless stated otherwise by statute, the context of litigation does not effect a person’s legal duties when handling sensitive data. In Menorah Park Ctr. for Senior Living v. Rolston, 2019 Ohio App. LEXIS 2175 (May 30, 2019 Ohio Ct. App.), a plaintiff of a small-claims matter is learning this lesson the hard way.”
• “Menorah Park attached to its complaint non-redacted copies of several account billing statements that included descriptions of medical services provided, dates the services were rendered, medical procedure codes, charges, credits, and balances.”
• “Rolston opposed the motion, arguing that her claim was not preempted and that, in any event, Menorah Park’s disclosure was unlawful under HIPAA because, by filing non-redacted copies of the statements, Menorah Park had not undertaken ‘reasonable efforts’ to limit the disclosure of the protected health information (PHI) to the ‘minimum necessary’ for the purpose of collecting payment.”
• “The Court of Appeals appeared to reject the contention that the disclosure of Rolston’s medical information was authorized under HIPAA, noting that Menorah Park had used non-redacted copies of the account statements.”
• “There are several implications that arise from this decision, the first being that law firms and litigants must undertake care when handling personal information, even an adversary’s in litigation… The clear lesson here is to take care when handling sensitive data.”

And for those looking for a refresher, Thomson Reuters recently published: “Understanding HIPAA compliance for law firms” —

• “The definition of business associate under HIPAA’s regulations expressly includes attorneys who perform legal services for a HIPAA-covered entity (for example, a health plan), if the attorneys are not members of the covered entity’s workforce. For purposes of HIPAA’s privacy and security requirements, the definition applies if the legal services provided involve disclosure of PHI from the covered entity (or from another business associate) to the attorney.”
• “An attorney who is a business associate must comply with HIPAA’s requirements as applicable to business associates (for example, by providing satisfactory assurances to the covered entity that it will safeguard PHI).”
• “HIPAA non-compliance may result in severe penalties and correction requirements. HHS has taken an aggressive approach to enforcing HIPAA’s requirements in recent years. HHS’s enforcement actions have resulted in numerous highly publicized settlement agreements with noncompliant covered entities, and typically require significant monetary payments and stringent corrective actions.”

In a six page PDF well worth the read, Arnold & Porter partner and former head of the Market Abuse Unit of the SEC’s Division of Enforcement notes: “The SEC Is Cracking Down On Insider Trading By Lawyers” —

• “A recent series of insider trading actions charging senior lawyers in legal departments of prominent public companies suggests that insider trading by lawyers may be on the rise.”
• “Over the past several months, the U.S. Securities and Exchange Commission has brought enforcement actions charging insider trading in advance of earnings announcements by senior lawyers at Apple and SeaWorld. In a third action, filed in early May 2019, the general counsel of Cintas Corporation was an unwitting victim of a house guest, a lifelong friend, who, the SEC alleges, surreptitiously pilfered merger related information from a folder in the lawyer’s home office.”
• “These actions are noteworthy not only for the brazenness of the conduct involved,
  but because they suggest that insider trading by lawyers remains a ‘profound problem.'[1] And, as the case of the Cintas general counsel demonstrates, innocent lawyers may also fall prey to others, such as close friends and family, looking to exploit their access to material nonpublic information, or MNPI.”
• “In recent years, however, a new wave of enforcement actions, coupled with the SEC’s development of new technology, and its adoption of the trader-based approach[3] to insider trading investigations, has rekindled the question of whether companies and law firms should be doing more to protect against the misuse of MNPI by lawyers and legal personnel. Increasingly, the SEC has touted its use of data analysis to identify patterns of suspicious trading and relationships… Because legal departments and law
  firms are repositories of large amounts of MNPI, they are among the first places that regulators look to determine whether a lawyer is the source of prohibited information.”
• Improved Controls Over MNPI: “Law firms and legal departments should revisit their insider trading policies and procedures and consider whether improvements can be made for how they handle MNPI. The use of project code words for transactional matters is generally effective at protecting against
  disclosure of the identities of the parties to the transaction. The risk of disclosure, however, increases if members of the deal team are inconsistent in their use of code words.[18]”
• Similarly, where law firm attorneys and legal personnel share information in connection with running conflict of interest checks, there is an increased risk of such information being misused. Adopting procedures to shield incoming public company transactional matters from firmwide disclosure can reduce the number of attorneys and employees exposed to MNPI.”
• File Access on a Need-to-Know Basis: “When new project files or client file directories are established, law firms and legal departments should
  consider restricting access to persons on a need-to-know basis. Establishing a permissions process will
  prevent employees who are outside the deal team or earnings process from being able to access file
  folders concerning MNPI.”

“5th Circuit Tosses Conflict-of-Interest Claim Over Dallas Lawyer’s Source of Payment” —

• “The U.S. Court of Appeals for the Fifth Circuit has denied a criminal defendant’s arguments that her defense attorney had a conflict of interest from who paid him to represent her. The Monday opinion in United States v. Palacios explained that defendant Gloria Ann Palacios pleaded guilty to conspiracy to possess with the intent to distribute methamphetamine. She argued that her attorney, Dallas criminal defense solo practitioner Mark Fernandez, gave ineffective assistance of counsel because of an alleged conflict of interest.”
• “In October 2015, Palacios pleaded guilty in her case and said under oath that she was satisfied and had no complaints with Fernandez’s representation…Later, Palacios filed a motion that asserted ineffective assistance based on the alleged conflict, among other grounds. For example, she claimed Fernandez prohibited her from cooperating with the government by giving information about her cousin.”
• “The U.S. District Court for the Northern District of Texas in Fort Worth denied all of the grounds for relief. The Fifth Circuit granted a certificate of appealability on her conflict-of-interest claim. The Fifth Circuit’s July 1 ruling denied her arguments. It said that when Palacios pleaded guilty in her case, she waived her conflict-of-interest claim. She had many opportunities to speak up about it before, and never did so.”

“Carlton Fields Switched Sides In Transaction, Suit Says” —

• “The trustee of a bankrupt title insurance company has filed a suit in Florida state court against Carlton Fields accusing the law firm of sending the company into insolvency by setting up a joint venture then jumping ship to represent the company’s partner.”
• “…liquidating trustee Daniel Stermer accused Carlton Fields of breaching its fiduciary duty to ATIF Inc. by advising it to enter into a joint venture that ultimately resulted in Old Republic National Title Holding Company taking control of nearly all of its assets, then taking on Old Republic as a client without dropping ATIF.”
• “‘Incredibly, after representing ATIF for the amended JV agreement, Carlton Fields switched sides and decided to represent Old Republic in connection with the master agreement while still concurrently representing ATIF,’ he said.”
  “Carlton Fields spokeswoman Kate Barth said the firm has acted within its ethical and fiduciary duties in a statement.”