Bressler Risk Blog

“NY Judge Disqualifies Sidley’s James Cole From Defending Huawei” —

• “A federal judge on Tuesday barred James Cole, a former deputy U.S. attorney general, from continuing to defend the Chinese telecom Huawei, siding with federal prosecutors who argued the Sidley Austin partner should be disqualified based on his role in an unspecified investigation during his tenure at the Justice Department.”
• “U.S. District Judge Ann M. Donnelly’s decision to disqualify Cole came almost six months after federal prosecutors in Brooklyn argued that an “obvious conflict of interest” should prevent him from representing Huawei, which is facing charges it violated sanctions against Iran.”
• “In extensively redacted papers, federal prosecutors did not publicly specify the past investigation that purportedly presented a conflict of interest, but they raised concerns that Cole could use information from the probe to help Huawei. Prosecutors said the court could have “no confidence that Cole will not use, whether intentionally or not, information” from that investigation.”

“DOJ Can’t DQ Munger Tolles In Sprint, T-Mobile Merger Fight” —

• “A New York federal judge on Thursday shot down a bid by the U.S. Department of Justice to intervene in several states’ effort to block Sprint and T-Mobile’s planned merger, saying that it was “inexcusable” that the attempt to disqualify the states’ lead counsel at Munger Tolles & Olson was filed so late.”
• “The DOJ had argued that Munger Tolles attorney Glenn D. Pomerantz and the firm should have been disqualified because of Pomerantz’s work for the federal government in its 2011 challenge of AT&T’s bid to purchase T-Mobile.”
• “In addition to the fact that the request was filed at the eleventh hour, the judge also criticized the government for not being able to identify how it might be hurt by Pomerantz’s involvement in the case, in which the DOJ is not a party.”
• “Munger Tolles is helping represent a contingent of 16 attorneys general — led by New York, California and Texas — that are suing to block the planned merger between T-Mobile and Sprint. The challenge has persisted despite the DOJ reaching a settlement clearing the deal in July with the sale of Sprint’s prepaid business and other assets to Dish Network.”

Having spent some time swimming in lateral stories, I went beyond recent news and with the help of a friendly search engine found this fascinating report on the matter. While this covers more than lateral risk, it’s definitely in there. Earlier this year, from ALM and a sponsor company which appears to be in the business of background checks and advisory services comes data gathered from 50 Am Law 200 firms in: “Risky Business: Rethinking Lateral Hiring” —

• “Part of the problem is that defining what constitutes a ‘failed’ lateral hire is extremely difficult. No single study is detailed enough to accurately measure the many ways a lateral hire can ‘fail’. Measuring ‘failure rates’ requires understanding the individual components of ‘failure’, which are fragmented across many sources. For instance, one study… found that almost half of all laterals do not even last five years at their new firm. [This present report] found that nearly 70% of hires underperform in bringing their expected book of business. Such low success rates are particularly striking given the sky high costs of hiring laterals. ALM Intelligence estimates hiring a lateral partner in today’s market averages $2.3 million dollars, with the most coveted partners costing well over $5 million. These figures suggest that the return on investment in the lateral markets is low.”

The report includes a section: “Questions All Law Firms Should Be Asking In Their LPQs,” which are excellent:

• 1. Reputational Risks to the Firm. Are you aware of any facts or circumstances that would result in damage or embarrassment to FIRM or to you if you join FIRM as a partner? (If yes, please elaborate).
• 2. Malpractice. Have you ever been involved in a matter that resulted in a malpractice claim or allegation against you (whether or not an action was actually filed and whether or not you were individually named as a defendant)? (If yes, please describe and state the status and outcome of each).
• 3. Sexual Harassment. Have you ever been the subject of a claim of sexual harassment, unlawful discrimination, or other claim or allegation made in the context of the workplace (whether or not any formal action was taken)? (If yes, please describe and state the status and outcome of each).
• 4. Problems with Past Employers. Have you ever been asked (explicitly or implicitly) to leave a legal employer or partnership?
• 5. Crimes and Investigations. Are you now, or have you ever been, a party (plaintiff or defendant) in any pending administrative or employment proceedings, arbitrations, or criminal or civil court actions (exclusive of routine, non-alcohol-related or non-drug-related motor vehicle offences)? Have you ever been charged or convicted of a felony or misdemeanor, the penalty for which could be incarceration? (If yes, please describe and state the status and outcome of each).
• 6. Additional Conflicts. Are you aware of any other matters that may create a conflict with FIRM? (If yes, please describe the matter(s)).
• 7. Professional Standing. Have you ever been disciplined by any Bar or equivalent professional licensing body, or, to your knowledge, have there ever been any complaints lodged against you with any such body (if yes, please describe and state the status and outcome of each).

“Are Law Firm Mandatory Retirement Policies Enforceable? In This Instance – Yes.” — (Von Kaenel v. Armstrong Teasdale, LLP, No. 18-2850 (8th Cir. 2019)) —

• “In Von Kaenel v. Armstrong Teasdale, LLP, No. 18-2850, an equity partner at the firm was forced out at age 70 at the conclusion of 2014. He alleged that but for the firm’s mandatory retirement policy, he would have retired at or around 75. After his departure from the firm, Von Kaenel continued to practice law, rendering him ineligible for a two-year severance benefit available to retiree lawyers pursuant to the firm’s policies. Von Kaenel filed charges with both the Equal Employment Opportunity Commission (EEOC) and the Missouri Commission on Human Rights.
• “The Missouri Commission determined that Von Kaenel fell outside the protected age group, and the EEOC separately terminated its proceedings and issued a Right to Sue. Von Kaenel then filed suit in federal court, where the central issue was whether he was an employee covered under the ADEA.”
• “Essentially, the question before the Eighth Circuit was whether Von Kaenel was an owner in the firm or an employee subject to protections of the ADEA. In 2003, the United States Supreme Court established a six-factor test in Clackamas Gastroenterology Associates, P.C. v. Wells, 538 U.S. 440 (2003), to determine whether an individual is likely an owner or an employee… The Eighth Circuit also cited favorable decisions from the Seventh, Eleventh, and Tenth Circuit involving shareholders in closely held corporations and bona fide partners in professional firms. There were facts Von Kaenel could not argue around.”
• “Law firms should be careful in applying this decision. Not all partners in every firm are created equally, and firms with multitiered partnership levels should tread carefully. Most non-equity partners—and even some equity partners, those with little or no management authority, and few voting rights—potentially could be considered employees under the ADEA.”

“Insurer Ends $6M Suit Against Buckley Over Founder’s Exit” —

• “D.C. financial services firm Buckley LLP and an insurance company that revealed that founder Andy Sandler’s abrupt exit was triggered by an internal misconduct investigation have agreed to end a federal suit over a $6 million insurance claim.”
• “‘The parties have conferred and Buckley LLP consents to this dismissal,’ the notice states.”
  “The withdrawal marks a swift end to a suit that revealed Buckley leaders hired a Latham & Watkins LLP investigator in late 2017 to look into unspecified allegations against Sandler. Within weeks, Sandler had been removed as chairman and then resigned from the firm, a move he characterized internally and publicly as voluntary.”
• “But Oxford alleged that Buckley leaders were aware that the allegations against Sandler were serious enough that they could lead to his termination, and hid that information from Oxford amid underwriting of a $6 million policy covering business losses stemming from the voluntary departure of ‘key partners.'”
• “The company argued that it shouldn’t have to pay because Sandler himself had said during a review of the firm’s policy-limit claim that he’d been forced out, despite having negotiated with managing partner Benjamin Klubes and other partners a separation agreement that couched his departure as a ‘retirement.'”

Apologies to those missing updates these past few weeks. I assure you all is well… Just a combination of my day job and too much Thanksgiving turkey. Definitely thankful for a few prods from readers missing their (“sometimes even fun”) risk fixes. Now, back once again. Starting us up this week, a look at some interesting updates on lateral rules and departure risk:

First, via Professor Alberto Bernabe: “New opinion by the ABA Standing Committee on Ethics addresses obligations related to lawyers changing firms” —

• “The ABA Standing Committee on Ethics and Professional Responsibility has issued ABA Formal Ethics Opinion 489 – Obligations Related to Notice When Lawyers Change Firms. You can read it here. Here is the summary.”
• “Lawyers have the right to leave a firm and practice at another firm. Likewise, clients have the right to switch lawyers or law firms, subject to approval of a tribunal, when applicable (and conflicts of interest).”
• “The ethics rules do not allow non-competition clauses in partnership, member, shareholder, or employment agreements.”
• “Lawyers and law firm management have ethical obligations to assure the orderly transition of client matters when lawyers notify a firm they intend to move to a new firm. Firms may require some period of advance notice of an intended departure. The period of time should be the minimum necessary, under the circumstances, for clients to make decisions about who will represent them, assemble files, adjust staffing at the firm if the firm is to continue as counsel on matters previously handled by the departing attorney, and secure firm property in the departing lawyer’s possession.”
• “Firms also cannot restrict a lawyer’s ability to represent a client competently during such notification periods by restricting the lawyer’s access to firm resources necessary to represent the clients during the notification period. The departing lawyer may be required, pre- or post-departure, to assist the firm in assembling files, transitioning matters that remain with the firm, or in the billings of pre-departure matters.”

“Risk Management Issue: Is e-mail ‘spoofing’ covered under the computer fraud provision in an insurance policy?” —

• “Medidata submitted a claim for the loss under its insurance policy issued by the Defendant Federal Insurance Company (‘Federal’). The policy included a Computer Fraud Coverage provision, which covered ‘direct loss of Money, Securities or Property sustained by an Organization resulting from Computer Fraud committed by a Third Party.’ The policy defined ‘Computer Fraud’ as ‘the unlawful taking or the fraudulently induced transfer of Money, Securities or Property resulting from a Computer Violation.’ In turn, ‘Computer Violation’ included both ‘the fraudulent: (a) entry of Data into . . . a Computer System; [and] (b) change to Data elements or program logic of a Computer System.'”
• “On appeal, the Second Circuit rejected Federal’s argument that the spoofing attack was not covered and affirmed the lower court’s ruling. In particular, the Court held that “the spoofing code enabled the fraudsters to send messages that inaccurately appeared, in all respects, to come from a high-ranking member of Medidata’s organization. Thus the attack represented a fraudulent entry of data into the computer system, as the spoofing code was introduced into the email system. The attack also made a change to a data element, as the email system’s appearance was altered by the spoofing code to misleadingly indicate the sender.” Id. at 118-119. The Court further concluded that spoofing attack “clearly amounted to a violation of the integrity of the computer system through deceitful and dishonest access, since the fraudsters were able to alter the appearance of their emails so as to falsely indicate that the emails were sent by a high-ranking member of the company.” On this basis, the Court concluded that Medidata’s losses were covered by the terms of the computer fraud provision. Id. at 118.”

“How Law Firms Can Preserve In-House Privilege” —

• “arlier this decade, there were several high-profile decisions in states like Georgia and Massachusetts examining the extent to which law firms enjoy the protections of the in-house privilege. The complicating factor, according to courts, was that if a law firm is seeking internal advice about an ongoing client factor, there may be a conflict of interest between the law firm’s interests and the client’s interests. Indeed, some critics maintained, if a lawyer is seeking legal advice internally while a client representation is ongoing, is it possible that the lawyer is thinking about his or her own interests before the client’s? However, most jurisdictions have soundly resolved this issue in favor of law firms to protect their privilege with their in-house general counsel—with some parameters and caveats.”
• “Although general counsel or the risk manager of a firm is often part of the firm’s management or leadership, it is helpful to remember to treat the general counsel or risk manager as counsel to the firm, both in form and in substance. For some firms, this means having a specifically-identified general counsel or deputies. A constant pro hac assignment of GC responsibilities for a revolving door of firm attorneys may cause a third-party to question whether the firm is truly treating their in-house attorney as an attorney to the firm.”
• “Ensuring the effectiveness of in-house counsel typically involves the assignment of responsibilities to that counsel, including the investigation and analysis of matters that might involve attorney exposure and generally advising firm attorneys on risk management. In-house counsel’s role may also include purchasing legal malpractice insurance, identifying and resolving conflicts of interests, advising attorneys on ethical obligations, reporting potential claims and actual claims, and updating the status of the firm’s partnership agreement or corporate structure.”

“Podcast on paralegal ethics” —

• “Because paralegals hold vulnerable information in trust, competence in ethical rules is crucial to protecting their firm, cients, and even themselves. But what exactly are paralegal ethics and why do they matter?”
• “Those are some of the questions that are addressed in this recent podcast of the Paralegal Voice, in which the hosts discuss a broad overview of basic ethics definitions and then zero in on best practices for conscientious adherence to ethics rules.”

“O’Melveny Legal Malpractice Drama Heads Back to Court” —

• U.S. District Judge Christina Snyder is presiding over a long-running case that pits Aletheia Research and Management’s Chapter 7 estate trustee, Jeffrey I. Golden, against the BigLaw firm.
  But Golden likely will face an uphill battle to convince Snyder that arbitrator Gary Feess “disregarded” the law in June when he found that O’Melveny’s joint representation of Aletheia and its founders didn’t violate conflict of interest rules.
  Golden now argues that public policy demands vacating the Feess’s ruling because it ignores state law prohibiting attorneys from jointly representing clients with conflicting interests without informed written consent.
  O’Melveny argues that Golden’s allegations are baseless. Feess found no conflict in the firm’s joint representation and Golden “has not proved that anything O’Melveny did or failed to do caused damage to Aletheia,” it said.

“Firm DQed After Repping Both Sides In Business Sale Dispute” —

• “A New York federal judge has disqualified Tannenbaum Helpern Syracuse & Hirschtritt LLP in a business sale dispute involving a marketing company that was acquired by a rival and the company’s previous owners, finding the law firm had concurrently represented both sides.”
• “As the dispute was ripening in October 2018, Tannenbaum Helpern counseled both the Stephensons and Mission Media, including its then-chief operating officer and general counsel, according to the opinion.”
• “‘It very may well be that there is an innocent explanation for [Tannenbaum Helpern’s] conduct in October 2018 while it represented both Mission Media and the Stephensons, but the Stephensons have not provided it to this court,’ the opinion said.”

“Insys Exec Trial Fair Despite Alleged Weil Conflict, Judge Says” —

• “A convicted former Insys Therapeutics Inc. executive ‘got a fair trial’ despite Weil Gotshal & Manges LLP representing him during his criminal trial while guiding the company through its bankruptcy, a federal judge said following a fiery Thursday afternoon hearing over the alleged conflict.”
• “At one point during the hearing, one of Simon’s new attorneys, William Fick of Fick & Marx LLP, questioned why Weil Gotshal “billed $3 million to ride the coattails” of one of the lawyers for Insys founder John Kapoor.”
• “‘My gut reaction here is, he got a fair trial in this courtroom,’ Judge Burroughs said at the end of a contentious, hourlong sparring match between Simon’s new legal team and federal prosecutors. “He got a fair trial, they all did,” the judge said. ‘I don’t love what Weil did here and I think it could have been handled other ways, but I am not sure whether it rises to the level of a new trial.'”

“Waivable Conflict Not Validly Waived, Leads To Remand for New Trial” —

• “In United States v. Arrington, 17-4092-cr (October 18, 2019) (Lynch, Lohier, Judge Brian M. Cogan of the United States District Court for the Eastern District of New York, sitting by designation), the Second Circuit vacated Defendant-Appellant Roderick Arrington’s convictions for murder in aid of racketeering and related convictions, and remanded for a new trial, holding that he was not provided with adequate information prior to waiving his attorney’s actual conflict of interest.”
• “While defendants should have their counsel of choice, and have the right to waive most conflicts of interest, the defendant needs to have sufficient information and independent advice to make a knowing and intelligent waiver of the right to conflict-free counsel. The Court of Appeals has long policed the boundaries of this issue and Arrington will give courts and counsel further guidance about how to approach these notoriously tricky Sixth Amendment questions.”

“Pa. Examples Show How Vendor Data Breaches Are Putting Law Firms at Risk” —

• “While law firms are often considered a weak point in the security of corporations’ sensitive information, firms or their employees have frequently suffered potential leaks through their own third-party vendors, according to Law.com’s investigation of law firm data breaches across the country. The breaches that law firms reported to state authorities varied in severity, and some incidents were unrelated to the strength of the law firm’s cyber defenses and didn’t risk or relate to client data.”
• “The Law.com investigation also revealed that three Pennsylvania firms—Philadelphia-based Blank Rome and Goldberg, Miller & Rubin, as well as Pittsburgh-based Cipriani & Werner—reported breaches, albeit not in Pennsylvania. All three of those incidents involved vendors as the access point.”
• “At Blank Rome, it was an outside accounting and consulting firm; at Goldberg Miller, it was a vendor contracted to maintain the firm’s electronic files ‘for backup and disaster recovery purposes’; and at Cipriani & Werner, the breach was believed to have originated with an online portal set up by a payroll software vendor.”
• “Jon Washburn, the chief information security officer at Stoel Rives, said the legal community has become more attuned to the risk of vendor threats, with many firms ramping up their efforts to address third-party risk. Some law firms now require that vendors that access, store, process or transmit confidential information be able to demonstrate through certifications or reports that the vendor has strong controls in place to reduce the risk of a data breach, Washburn said.”

“Lawyers are failing at cybersecurity, says ABA TechReport 2019” —

• “‘In fact, the results are shocking and reflect little, if any, positive movement in the past year or even in the past few years,’ reads the article on cybersecurity released Wednesday. ‘The lack of effort on security has become a major cause for concern in the profession.'”
• “Since 2018, the number of respondents reading vendor privacy policies fell from 38% to 28%. While a mere 23% investigated a vendor’s history, even though 94% said vendor reputation mattered when deciding who to contract with.”
• “Among other findings, the 2019 survey reports that lawyers using cloud-based technology increased slightly, from 55% to 58% since the 2018 report. Only 25% of respondents reported that they are reviewing ethics opinions related to cloud technology. Ironically, the survey indicates that lawyers are tepid about the cloud because of cybersecurity concerns.”

“Feds Fight To Keep Judge Whose Ex-Clerk Works On Case” —

• “The government urged a Pennsylvania federal court Friday not to disqualify the judge presiding over its decades-old Clean Water Act lawsuit, arguing that the judge can be impartial even though an assistant U.S. attorney working on the case once clerked for her.”
• “In a 12-page response brief, the federal government argued that the defendant, property owner Gizella Pozsgai, filed a ‘meritless’ motion seeking to disqualify U.S. District Judge Anita B. Brody due to her relationship with Assistant U.S. Attorney Landon Y. Jones III, who clerked for the judge 14 years ago. ‘The fact that a judge’s former law clerk is representing a party in a case before the judge is not sufficient to make a reasonable person question the judge’s impartiality,’ the brief said.”
• “Jones declined to recuse himself or provide a list, but he admitted that he’s interacted with the judge on a few social occasions over the years and he’s attended a few ‘law clerk reunion’ events, including the judge’s portrait unveiling.”
• “Shortly afterward, Pozsgai’s counsel filed a motion to disqualify the judge, pointing out Jones’ own admissions and multiple public ‘extra-judicial statements’ that Judge Brody made expressing her strong familial sentiments toward former law clerks.”
• “The government noted that courts routinely conclude that a former law clerk’s appearance does not create a ‘reasonable appearance of partiality.’ Also, the government argued disqualifying such judges would burden the courts and lead to a flood of frivolous disqualification motions.’Disqualification would penalize law clerks for their service to the judicial system, and cause judges to suffer a limitation in their recruitment of future law clerks,’ the brief says.”

And from the always insightful Professor Alberto Bernabe: “Wisconsin Appellate Court disqualifies judge because of a ‘Facebook friendship’” —

• “At the end of last year, I reported that the Florida Supreme Court issued an opinion holding that sometimes, the relationship between a judge and a litigant or lawyer might be a basis for disqualification of the judge but that there is no reason that Facebook “friendships” should be singled out and subjected to a per se rule of disqualification.”
• “I am writing about this today because I just read that the Wisconsin Appellate Court has issued an opinion disqualifying a judge because of an undisclosed ‘Facebook friendship.'”
• “The case is called In re Paternity of BJM, and you can read the opinion here.”

Yesterday we highlighted departure rules. Today we look at the other side (upside down?) of the coin. First: “Attorney takes client information from law firm and is ordered to return the data and pay $775,000.” —

• “Attorney Chelsea Merta was ordered to pay more than $775,000 to the Stange Law Firm where she was employed for expenses incurred in its attempt to get her to return electronic files she was accused of taking before her she resigned. The funds are being requested to cover the law firm’s costs of investigating the matter, including an exam conducted by a forensics expert to determine exactly what information had been hijacked and associated attorney fees. This was reportedly more than $100,000. Merta was also ordered to either destroy or return the stolen files to the firm. She served a two-day jail sentence for contempt earlier this year.”
• “In a confession of judgment recently filed, Merta admitting to taking no less than 22,000 data files from the law firm in February 2018, a week before her resignation. She had indicated she wanted to contact the clients she had previously represented with the firm and urge them to work with her again at her own firm. She said she had made contact with a number of clients, notifying them of her resignation. However, this wasn’t entirely true.”

“Cokinos Young, Former Marketing Director Settle Suit Over Confidential Client Info”

• Cokinos Young has settled a suit it filed in July against its former marketing director, Brittany O’Brien, that alleged she kept confidential client contact information when she resigned and threatened to use client cellphone numbers to ‘make this a war.'”
• “On Wednesday, 113th District Court Judge Rabeea Collier of Houston signed an agreed permanent injunction and final judgment that restrains O’Brien from disclosing or using any confidential or trade secret information she obtained from Cokinos Young, a midsize construction law firm based in Houston.”
• “It also requires O’Brien to return any confidential information she has from the firm “to the extent she has any,” including promotional materials and all documents she used as director of client and external relations for Cokinos Young. And she was ordered to return or delete any private contact information for the firm’s clients other than those who contact her. The order does not prevent O’Brien from communicating with people or companies who contact her on their own.”
• “O’Brien’s attorney, Gregg Rosenberg of Rosenberg & Sprovach in Houston, said his client is pleased the litigation settled. He said O’Brien left Cokinos Young because she did not want to sign a non-compete agreement. ‘This case is very unique because we never felt she did anything wrong. All Brittany did was refuse to sign a noncompete when she was working there,’ he said. The settlement frees O’Brien to seek another job in her field, he said, noting that nothing in the order precludes her from working in the legal industry.”