Bressler Risk Blog

“Former Watergate Defense Attorney Leaves Squire Patton Boggs for Boutique, Citing Conflicts” —

• “Miami-based boutique Heise Suarez Melville is bringing on a former managing partner for Squire Patton Boggs’s Miami office after he spent almost two decades there.”
• “Alvin Davis began his career in the U.S. Airforce, where he served as a staff judge advocate in Southeast Asia. Shortly after, he started practicing civil law in D.C., focusing on election law, where he defended Jeb Magruder, one of the people who pled guilty for involvement in the Watergate scandal.”
• “Davis eventually moved to Florida where he served as Squire Patton Boggs’s Miami managing partner after the firm acquired his previous firm Steel Hector & Davis, where he also served as its Miami managing partner. Since he moved to Florida, Davis has represented some local staples such as Florida Power & Light as well as the Miami Herald.”
• “Davis says he left Squire Patton for a boutique firm, partly because he kept running into conflict issues at the bigger firm.”
• “‘With a large firm, there are a lot more business conflicts where you have clients that don’t want you to take on other clients. There are legal theories that you may want to use that may cause problems for other clients,’ Davis said. ‘This is a time in my practice when the advantages of a small firm are very appealing to me.'”
• “The conflicts were especially in the way over the past few years, according to Davis.”
• “Despite the many practices global firms like Squire Patton may offer, Davis says smaller firms can also offer plenty of opportunities. ‘There are clients who are adverse to large firms because they don’t want to pay for the large apparatus of the large firm. There are lawyers who will not refer matters to a large firm because they’re afraid that they’ll refer the matter and lose the client,” he said. “So I think there are going to be a number of opportunities that will arise at the new firm that might not have occurred, where I [was].'”

“Kirkland Moves to Dismiss Suit Tying Firm to Texas Judge Romance” —

• “Kirkland & Ellis LLP moved to dismiss a lawsuit accusing the legal giant of helping to hide a romantic relationship involving a prominent Texas bankruptcy judge and a local lawyer.”
• “‘That relationship has nothing to do with Kirkland,’ the firm said in a Tuesday filing in the US District Court for the Southern District of Texas.”
• “The former CEO of petroleum barge company Bouchard Transportation Co. Inc. accused Kirkland of making misleading legal filings to conceal the romance between bankruptcy Judge David R. Jones and onetime Jackson Walker attorney Elizabeth Freeman. Kirkland often partnered with Jackson Walker to handle large Chapter 11 cases in Texas, including Bouchard’s. Jones presided over Bouchard’s bankruptcy in the US Bankruptcy Court for the Southern District of Texas.”
• “‘Bouchard brings serious claims against Kirkland on what amounts to a tortured theory of bystander liability,’ Kirkland said in the filing.”
• “That theory rests on what the firm called an inaccurate assertion that Kirkland should have acted on allegations about the relationship between Freeman and Jones, who resigned in October. Bankruptcy Judge Marvin Isgur had determined in 2021 that the allegations weren’t ‘credibly substantiated’ after holding a hearing related to the bankruptcy of McDermott International, Kirkland said.”
• “Bankruptcy rules didn’t require Kirkland to disclose potential conflicts of Jackson Walker, the firm said in the Tuesday filing.”

“Conflict Draws Reciprocal Suspension” —

• “The full Massachusetts Supreme Judicial Court imposed a three-year suspension as reciprocal discipline for a sanction imposed by the United States Patent & Trademark Office.”
  • “In 2019, an administrative law judge determined that Correll had violated several sections of the USPTO Code of Professional Responsibility… by representing private parties before the USPTO while he was employed by the Federal government (as an electronics engineer for the United States Department of the Navy). The director of the USPTO subsequently affirmed the administrative law judge’s decision in a final order issued in February 2021.”
  • “The detailed facts of Correll’s misconduct — of his representation of private parties before the USPTO while he was a Federal government employee — are set forth in the final order from the USPTO, as well as in two Federal court decisions, see note 4, supra, and need not be reiterated here.”
  • “As to Correll’s primary argument, in particular, that his suspension violates his First Amendment rights to free speech and association… Correll was not disciplined — his license was not suspended — on the basis of the content of his speech, but rather on the basis that in representing private parties before the USPTO, he violated certain of the USPTO’s disciplinary rules. Moreover, as the District Court noted, ‘the only prohibition on [Correll’s] speech was the speech [he] exercised when representing private clients in front of the USPTO. [He] was free to speak on patent and trademark matters otherwise.'”
  • “Acting through his firm, Mr. Correll represented private clients, for pay, at the PTO while a Navy employee, filing or prosecuting 211 patent applications and 80 trademark registration applications between 2002 and October 25, 2017. S. App’x 130, 132. He did this despite receiving a reminder, as part of a PTO-distributed practitioner survey in 2003, that federal employees may not represent private clients at the PTO. S. App’x 199. Mr. Correll did not resign from federal employment until September 2018.”

“Conflict Disqualifies Entire Wyoming Bar Counsel Office” —

• “Andrea Richard moved the Review and Oversight Committee (ROC) to disqualify Special Bar Counsel Wes Reeves and the Office of Bar Counsel from prosecuting the pending disciplinary proceeding against her due to a conflict of interest. She sought the appointment of a new, conflict-free special bar counsel.”
• “The ROC disqualified Mr. Reeves but declined to impute his conflict of interest to the Office of Bar Counsel. After the ROC determined there was probable cause to allow Bar Counsel to file a formal charge, Ms. Richard asked the hearing panel for the Board of Professional Responsibility (BPR) to disqualify the Office of Bar Counsel due to an additional conflict of interest that was unknown to her at the time she filed her first motion and because Bar Counsel used Mr. Reeves’s work product when drafting the formal charge. The BPR denied Ms. Richard’s motion.”
• “We granted Ms. Richard’s petition to review the BPR’s order. We conclude the Office of Bar Counsel must be disqualified due to existing conflicts of interest, and we reverse with instructions to appoint a new, conflict-free special bar counsel.”
• “During the investigation into one of those seven cases, Fields v. Waterhouse, Ms. Richard was briefly represented by Mr. Wes Reeves. Mr. Reeves’s representation consisted of writing letters to then Bar Counsel, Ms. Rebecca Lewis, asserting Ms. Richard’s conduct in that matter did not constitute a violation of the Rules of Professional Conduct. Ultimately, this Court adopted the BPR’s report and recommendation finding Ms. Richard committed multiple rule violations when she forced opposing parties to file repeated motions to compel discovery, failed to comply with court orders to provide meaningful discovery, caused unnecessary delay and needlessly increased the costs of litigation, filed pleadings that were not well grounded in fact or warranted by good faith argument, made allegations in court documents that were not true, and made repeated misrepresentations concerning discovery and other matters.”
• “In November 2022, Mr. Gifford informed Ms. Richard that Mr. Reeves and Ms. Anna Reeves Olson were appointed to serve as Special Bar Counsel in the present disciplinary proceeding. This correspondence indicated Mr. Gifford was aware Mr. Reeves previously represented Ms. Richard in connection with the 2014 Suspension, but Mr. Gifford determined Mr. Reeves did not have a conflict of interest and could serve as Special Bar Counsel. Mr. Reeves did not notify Ms. Richard of any potential conflict prior to accepting the representation, nor did he seek her consent before accepting the representation.”
• “The ROC disqualified Mr. Reeves and Ms. Olson from serving as Special Bar Counsel finding Mr. Reeves’s prior representation was ‘either a conflict of interest, or at the very least the appearance of a conflict of interest, such that Special Bar Counsel cannot continue on in this matter.’ The ROC did not impute Mr. Reeves’s conflict to the Office of Bar Counsel.”
• “The BPR denied Ms. Richard’s motion to disqualify the Office of Bar Counsel and her motion for an order prohibiting the turnover of work product. The BPR found Ms. McCorkle did not have a conflict of interest under W.R.P.C. 1.9 reasoning: “the events that resulted in the 2014 [S]uspension and the 2017 [R]einstatement are in no way related to or in any way the same or substantially related to those at issue in this matter. The persons and the alleged facts are completely different and in no way related to earlier events.” For those same reasons, the BPR found Mr. Reeves “did not and does not now” have any conflict of interest that would require the disqualification of the Office of Bar Counsel or a restriction on access to work product.”
• “The conclusion the current disciplinary proceeding is substantially related to the 2014 Suspension and the 2017 Reinstatement is readily apparent from the pleadings filed by Mr. Reeves and Mr. Gifford in this proceeding. These pleadings show all three proceedings involve the same client, are “relevantly interconnected,” and reveal Ms. Richard’s alleged “pattern of conduct.”
• “Because the proceedings are substantially related, under our case law, there is an irrebuttable presumption Ms. Richard communicated confidential information to Mr. Reeves and Ms. McCorkle during the prior representations.”
• “Similarly, Mr. Gifford sought Mr. Reeves’s appointment as Special Bar Counsel before meeting with Mr. Reeves to discuss any potential conflicts. Once Mr. Gifford became aware of Mr. Reeves’s prior representation of Ms. Richard, rather than seeking the appointment of a new special bar counsel, Mr. Gifford unilaterally determined Mr. Reeves did not have a conflict of interest and could continue with the representation. Because Mr. Reeves was not properly screened and Ms. Richard did not consent to him serving as Special Bar Counsel, we must impute Mr. Reeves’s conflict of interest to Mr. Gifford.”
• “Once Mr. Reeves was disqualified, Mr. Gifford used Mr. Reeves’s work product to draft the formal charge he filed in this proceeding. Although we have not previously addressed whether substitute counsel can use a previously disqualified attorney’s work product, other jurisdictions have recognized once an attorney has been disqualified, transferring the work product of that disqualified attorney poses the same threat to the client’s confidential information, and it may be necessary to restrict access to the disqualified attorney’s work product in order to effectuate the purpose of disqualification.”
• “Given the numerous conflicts of interest that have occurred in this proceeding, the only appropriate remedy is to remand this matter to the ROC with instructions to appoint a new, conflict-free special bar counsel and to prohibit the Office of Bar Counsel from turning over any of Mr. Reeves’s or Mr. Gifford’s work product. This means new special bar counsel will have to begin the investigation anew based on the four complaints.”

“Conflict alleged as Grossman uses same attorney representing DA defendant in Gascón office” —

• “The headline-grabbing criminal case against a top aide to Los Angeles County District Attorney George Gascón has a potentially problematic connection to the ongoing Rebecca Grossman saga: the two high-profile defendants are using the same lawyer.”
• “According to the deputy district attorneys who successfully prosecuted Grossman for second-degree murder in February, a conflict of interest could arise since Assistant DA Diana Teran was above them in the prosecutor’s office chain of command when she was hit with a charge of illegally using police data on April 24. “
• “In a motion filed the following day, prosecutors Ryan Gould and Jamie Castro said Grossman should sign a waiver acknowledging a potential conflict before being represented in post-conviction matters by attorney James Spertus, who is also defending Teran. A hearing on the matter is set for May 17 in Van Nuys Superior Court.”
• “The news about the Teran charge was still a month away, but there was already a wrinkle concerning Grossman’s latest lead attorney: he’s an old coworker of the judge.”
• “‘Mr. Spertus is someone I know from the U.S. attorney’s office when I was a federal prosecutor,’ Brandolino said. ‘He’s not a close friend to the point where I think it would affect my ability to be fair in this case.'”
• “Though he didn’t think the relationship required his recusal in the case, Brandolino considered it worth disclosing. ‘I’ve seen him socially in the past, I haven’t seen him in a while,’ the judge said. Spertus did not respond to a request for comment. He told the Daily Journal, a legal publication, that there is no conflict since he is ‘adverse to the People of the State of California’ in both cases.”

“The State of Information Governance and the Disconnect Between Policy and Reality” —

• “Law firms are playing a game of catch up as the sheer volume of data, both in hard copy and electronic form, they routinely handle continues to skyrocket exponentially. To further complicate matters, most of this data is sensitive and/or confidential, driving the emergence of firms adopting robust information governance (IG) policies/strategies. Chief legal officers rank key components of a comprehensive IG program, such as cybersecurity, regulatory compliance, and data privacy as the most important issues they face year over year, according to the 2023 ACC CLO Survey.”
• “Implementing an information governance policy in a law firm involves navigating a myriad of complexities, including:
  • Diverse Data Sources: Law firms handle diverse data types, including legal documents, client records, emails, and multimedia files, each with unique governance requirements.
  • Regulatory Compliance: Law firms must comply with an array of regulations such as GDPR, CCPA, HIPAA, and legal industry-specific guidelines, adding layers of complexity to IG implementation.
  • Client Confidentiality: Preserving client confidentiality is paramount for law firms, necessitating robust data protection measures and access controls.
  • Legacy Systems: Law firms often grapple with legacy systems and disparate data repositories, making data discovery and management challenging.
  • Collaboration Requirements: Legal professionals collaborate extensively, requiring seamless data sharing while ensuring data security and compliance.”
• “However, while most firms now recognize the importance of having an IG policy in place, there’s an industry-wide gap between policy and implementation—and that’s exactly what we found in the Mattern 2024 Information Governance (IG) Report with survey results from 50 law firms, ranging in size from 21 to 3,000 attorneys.”
• “The report takes a deep dive into the practices and policies law firms have related to information governance and provides a representative industry-wide benchmark for firm self-assessment, in the context of answering the question: What are our peer firms doing in this area?”
• “The responses show that despite a growing heightened awareness and steady momentum in recent years toward the development and implementation of IG policies across law firms of all sizes, there is still plenty of work to be done to achieve defensible IG programs, and the road to that goal is not without its fair share of challenges.”
• “Enforcement/compliance is clearly the biggest challenge, at firms of all sizes. Overall, only 4% of all respondent firms reported strict compliance with their IG policies (9% of large firms and 0% of small firms), with nearly half the respondent firms reporting ‘substantial non-compliance.'”
• “These staggering compliance marks are evidence of having an IG policy and/or an in-house position dedicated to records/IG, while undoubtedly a step in the right direction, just scratches the surface. Although mandating strict adherence to any/all IG policies/procedures may seem like an easy fix, taking a step back reveals the lack of enforcement/compliance is far more complex than that and is driven by other IG related variables.”
• “Policy exceptions are a threshold concern. Over 30% of firms, both large and small, reported an endemic culture of granting exceptions to their IG policies/processes. Exceptions inherently introduce the proverbial slippery slope, but a closer look reveals it is even more problematic, with inconsistency across why exceptions are being granted, by whom, for how long, and at what frequency those exceptions are being reviewed for merit.”
• “Data organization is a common challenge as well. Twenty-seven percent of firms indicated they have no formal structure in place for network share drive content. A lack of meaningful folder taxonomy perpetuates poor IG practices, in so much that information cannot be associated with specific clients or matters for the application of appropriate retention schedules and/or ethical walls. Remediating information in network shares is a daunting task exacerbating the issue and associated risks.”
• “Additionally, independent of how well a firm’s data is structured, there is the constant struggle regarding retention. Retention is relevant to a wide array of data repositories.”
• “Further complicating matters, a significant percentage of firms, both large and small (56%), indicated they currently have no strategy in place for limiting data sprawl. Responses regarding what to keep and for how long differed greatly, but a common theme did emerge. The most common retention schedule currently adopted by firms, of any size, regardless of the type of record it is or where it is stored is unlimited. They have no retention schedule in place.”

“ChatGPT’s hallucinations draw EU privacy complaint” —

• “ChatGPT’s ‘hallucinating’ and making up of information breaches European Union privacy rules, according to a complaint filed by privacy group noyb to the Austrian data protection authority.”
• “Noyb, a Vienna-based non-profit founded by activist Max Schrems, said its complaint was triggered by ChatGPT’s failure to supply Schrems’ correct birthday, making a wild guess instead. The chatbot doesn’t tell users that it doesn’t have the correct data to answer a request. “
• “A person’s date of birth is personal data under the GDPR which sets various requirements for how personal data should be handled.”
• “Noyb claims that the chatbot’s behavior violates the General Data Protection Regulation (GDPR) on privacy, the accuracy of information as well as the right to correct inaccurate information. It also argues that the AI firm refused to correct or delete wrong answers, and won’t disclose any information about the data processed, its sources or recipients.”
• “‘It’s clear that companies are currently unable to make chatbots like ChatGPT comply with EU law, when processing data about individuals,’ said Maartje de Graaf, noyb’s data protection lawyer. ‘If a system cannot produce accurate and transparent results, it cannot be used to generate data about individuals. The technology has to follow the legal requirements, not the other way around,’ she said.”
• “The New York Times previously reported that ‘chatbots invent information at least 3 percent of the time — and as high as 27 percent.'”
• “Noyb is now asking the Austrian authority to investigate OpenAI to check on the accuracy of the personal data it handles to fuel its large language models. They also ask the authority to ensure that the company complies with the complainant’s request to access their own personal data.”
• “Violating the EU’s GDPR can lead to a penalty of up to 4 percent of a company’s global revenue.”

Kirkland responds to Invitae matter conflicts allegation: “Invitae Corporation, Docket No. 3:24-bk-11362 (Bankr. D.N.J. Feb 13, 2024), Court Docket” —

• “Kirkland does not hold or represent any interest adverse to these chapter 11 estates and is disinterested, as the term is defined by section 101(14) of the Bankruptcy Code.”
• “Kirkland ‘holds’ absolutely no interest adverse to these estates: it is neither a creditor of these estates nor economically motivated to do anything other than zealously represent the Debtors as fiduciaries for all stakeholders. Just as Kirkland does in every single debtor representation, irrespective of who is invested in the capital structure. The record in these cases is equally clear: Kirkland has and will continue to serve the Debtors’ interests—and only the Debtors’ interests—in these chapter 11 cases.”
• “Kirkland also does not “represent” any interest adverse to these estates. The Committee and the U.S. Trustee seek to disqualify Kirkland because Kirkland represents Deerfield in fund formation matters entirely unrelated to these chapter 11 cases. But Kirkland has not, does 4 not, and will not represent Deerfield in connection with these chapter 11 cases or in matters adverse to the Debtors.”
• “Notably, Kirkland’s limited funds work for Deerfield falls well short of the Committee’s assertion that Deerfield is a “significant” Kirkland client. Deerfield accounts for a tiny fraction of total firm revenue: approximately 0.03% of Kirkland’s annual revenue, less than $1,885,000 in 2023, and less than $2,400,000 in the aggregate for all time.”
• “Kirkland properlydisclosed its ongoing unrelated representation of Deerfield consistent with the requirements of the Bankruptcy Rules and Local Rules. And Kirkland has an advance waiver from Deerfield that expressly enables Kirkland to be adverse to Deerfield in any matter, including any restructuring, bankruptcy, or litigation matter.”
• “In similar facts, the Bankruptcy Court for the District of Delaware recently overruled an objection to retention of debtors counsel that also concurrently represented a secured lender in unrelated matters, where the law firm had an applicable waiver on file and fee receipts were approximately 0.1% of firm revenues. See In re Art Van Furniture, LLC, 617 B.R. 509, 519 (Bankr. D. Del. 2020) (Sontchi, J.).”
• “The Committee and U.S. Trustee have failed to meet their burden. They have not shown that any actual conflict or adversity exists… At bottom, the Committee Objection is purely tactical—a potentially value-destructive attack on the Debtors’ restructuring efforts deployed to circumvent the traditional requirements for derivative standing (for the second time in this case).”
• “The only question currently before the Court is whether the Debtors may retain Kirkland under section 327 of the Bankruptcy Code and this Circuit’s prevailing jurisprudence. The answer is clearly yes. Kirkland (i) does not hold an interest adverse to the estates, (ii) does not represent any interest adverse to these chapter 11 estates, and (iii) is disinterested. Therefore, Kirkland clearly satisfies the standard for retention.”

Chuck Lundberg presents an interview with Cassie Hanson (Conflicts and Ethics Counsel at Fredrikson & Byron) and Sara Gross Methner (Chief Attorney Talent Officer and Senior Counsel for Nilan Johnson Lewis) on: “Navigating the Ethical Landscape: Supervisory Practices in Law Firms” —

• “This month’s column offers a deep dive into an increasingly critical issue for any law firm seeking to avoid ethics complaints and malpractice claims. The ethics rules affirmatively require firms to adopt supervisory practices for all firm lawyers and non-lawyer staff, and effective supervision is an essential component of law firm risk management.”
• “Q: What constitutes “reason- able” supervision under the ethics rules?”
• “The rules do not de- fine ‘reasonable efforts,’ nor what degree of certainty is required to establish ‘reasonable assurance’ of ethical compliance by lawyers in a firm. But under Rule 1.01(i), ‘reasonable conduct by a lawyer denotes the conduct of a reasonably prudent and competent lawyer.’ Community standards are highly relevant when determining what is reasonable (and therefore a subject of expert testimony). Ultimately, the question of reasonableness is fact-specific and tailored to the role of the lawyer in a law firm. At a minimum, ‘reasonable’ probably includes written policies, training, and auditing for compliance to ensure that policies are followed.”
• “Q: The COVID-19 pandemic fundamentally changed how lawyers practice together in a firm setting. Most law firms permit employees to work hybrid and/ or fully remote. What are the biggest challenges that hybrid/remote work present for law firms in terms of supervisory duties?”
• “It’s hard to have eyes on what your associates and staff are doing when they’re not on-site. One major ethics challenge is maintaining effective communication and oversight. In a hybrid or remote work environment, it is more difficult for supervisors to stay connected with their team members, leading to potential gaps in supervision and guidance. This lack of direct, in-person interaction can hinder the ability to promptly address issues, provide feedback, and ensure that work is being conducted ethically and in compliance with firm policies.”
• “I always encourage lawyers with supervisory responsibilities to engage in ‘active supervision’ with supervisees. That means getting to know them, asking how work is going, having an open-door policy, and implementing regularly scheduled check-ins — both as a team and one-on-ones.”
• “It’s also important to consider jurisdictional issues — making sure there are controls to keep remote attorneys from engaging in the unauthorized practice of law by inadvertently holding themselves out as practicing in jurisdictions where they’re physically located but not licensed.”
• “Q: Statistically, what areas present the greatest risk and need for formal written supervisory policies and procedures?”
• “Trust account issues are the single biggest area of risk. For 2022, OLPR reports 39 admonitions and 125 probations related to safekeeping client property. Even if the firm’s finance employees are performing the day-to-day trust account recordkeeping, the firm’s attorneys remain responsible for reasonable assurance of compliance with the rules. Clear policies and procedures are particu- larly important in this area.”

“Orrick, Herrington & Sutcliffe Agrees $8 Million Settlement to Resolve Class Action Data Breach Lawsuit” —

• “The San Francisco, CA-based law firm Orrick, Herrington & Sutcliffe has agreed to a $8 million settlement to resolve a class action lawsuit filed in response to a 2023 cyberattack and data breach.”
• “In March 2023, the law firm that specializes in helping companies that have experienced security breaches suffered one of its own. On March 13, 2023, hackers were discovered to have gained access to its network, with the forensic investigation revealing they had access for around two weeks between February 28 and March 13, 2023, before the intrusion was detected.”
• “The personal and protected health information of 637,620 individuals was compromised; however, it took months to determine how many individuals had been affected with the last batch of notification letters mailed to affected individuals in January 2024. The affected individuals were offered 2 years of complimentary credit monitoring services.”
• “A lawsuit was filed against Orrick, Herrington & Sutcliffe in the U.S. District Court for the Northern District of California shortly after the announcement about the breach. The lawsuit made several allegations, including the failure to secure its systems, the failure to prevent and stop the breach, the failure to detect the breach in a timely manner, and the failure to disclose material facts that adequate system security measures were not in place to prevent data breaches. The lawsuit also alleged Orrick, Herrington & Sutcliffe did not honor repeated promises and representations to protect the information of the breach victims and failed to provide timely notifications. Several other lawsuits were filed over the breach that made similar claims, and they were consolidated into a single action – In re Orrick Herrington & Sutcliffe LLP Data Breach Litig.”
• “The proposed settlement was deemed to be reasonable and fair by class counsel and has received preliminary approval from the court. Under the terms of the settlement, class counsel may claim up to 25% of the settlement amount and after costs of up to $50,000 and $2,500 service awards for the lead plaintiffs have been deducted, the remainder of the settlement will cover claims from individuals affected by the data breach.”

“FINRA orders Barclays unit to pay $700K over conflicts of interest” —

• “A Barclays unit agreed to pay $700,000 to settle allegations levied by the Financial Industry Regulatory Authority (FINRA) that its research analysts violated conflict-of-interest rules and the firm failed to sufficiently supervise their trades.”
• “Barclays failed to identify and disclose 99 instances of its research analysts holding stock in a company in which they published a report and three instances of research analysts trading in their brokerage accounts in a manner inconsistent with published recommendations, FINRA alleged.”
• “From January 2016 to August 2019, the firm did not establish or maintain a supervisory system to detect such violations of FINRA’s conflict-of-interest rules, per the order.”
• “The firm’s written supervisory procedures ‘did not include a process for the review of securities transactions in equity research analysts’ external managed accounts reasonably designed to identify potential violations of securities laws, including potential market manipulation and insider trading,’ the order stated.”
• “From at least April 2021 through March 2022, the firm failed to obtain client data to ‘determine whether it needed to disclose specified conflicts of interest in its research reports,’ per the order. As a result, the firm failed to disclose at least 803 reports covering 22 issuers that an affiliate ‘received non-investment banking related compensation from the issuer within the prior 12 months,’ the order stated.”

SRA Webinar (13 May 2024): “Your anti-money laundering questions answered” —

• “We have a whole host of questions and answers about common money-laundering issues in the AML section of our website, while our other webinars have attracted frequently occurring queries from the profession. From high-level queries about what legal services fall within the scope of money laundering, to drilling down into how far to go with client due diligence, there’s always lots to learn. You can also submit your own queries to our expert panel when you book your place or live during the webinar.”
• “By signing up for this free webinar, you will:
  • Hear from members our expert anti-money laundering team
  • Find out about some of the most frequently-asked questions – and their answers!
  • Get the chance to put your own questions to the panel”
• “All of this should help you develop your existing AML policies, controls and procedures and keep criminal money out of legal services.”

“DOJ Pulls Back from Choosing NY Law Firm for Binance Oversight, Citing FTX Connections” —

• “The Department of Justice (DOJ) is reportedly reconsidering selecting a prominent New York law firm to handle a critical assignment related to Binance, due to the firm’s prior work for rival exchange FTX.”
• “Sullivan & Cromwell, the law firm managing FTX’s bankruptcy proceedings, was initially designated as Binance’s independent monitor. This appointment was a stipulation under the $4.3b agreement where Binance acknowledged culpability for infringing upon US money-laundering regulations and trade sanctions.”
• “Further, former federal prosecutor Sharon Cohen Levin, a partner at the firm, was slated to lead the monitorship team.”
• “However, Bloomberg reported Tuesday that DOJ officials have raised concerns regarding criticism levied against the law firm due to its prior work for FTX, which was a Binance competitor at one point.”
• “In light of these concerns, the department is evaluating alternative candidates for the monitorship role. Sources told the outlet that FinCEN remains intent on appointing Sullivan & Cromwell.”
• “Sullivan & Cromwell represented the now-defunct crypto exchange prior to its collapse and throughout its Chapter 11 proceedings. The firm subsequently submitted invoices exceeding $170m for its services.”
• “In February, FTX investors filed a class-action lawsuit against the law firm, alleging the firm’s complicity in the $8b fraud.”
• “The lawsuit contends that Sullivan & Cromwell’s advisory role to FTX throughout 2021 and 2022 provided it with a unique vantage point. This could have allowed the firm to gain deep insight into the FTX entities’ convoluted organizational structure.”

“‘One plus one makes two’: Court of Protection finds conflict of interest within law firm structure” —

• “The Court of Protection handed down a judgment in March 2024 concerning a law firm, Irwin Mitchell, who acted as a professional deputy whilst also offering asset management services through an affiliated company within its structure. Having considered the underlying legal principles, the Court of Protection determined that a conflict of interest was present in such an arrangement and could not be overcome unless the affiliated asset management company did not charge for its services.”
• “The case has undoubtedly caused a stir for law firms who operate, or are considering operating, in a similar way to Irwin Mitchell. However, it potentially also has further-reaching implications for all kinds of fiduciary relationships and fiduciary service providers where possible conflict issues have not been fully appreciated.”
• “Because IMTC is a wholly owned subsidiary of Irwin Mitchell LLP, and Irwin Mitchel Holdings Ltd is both a controlling member of Irwin Mitchel LLP and the sole owner of IMAM, the question was raised in the Court of Protection whether IMTC was able to act without a conflict of interest where it instructed IMAM to look after the relevant person’s assets.”
• “A deputy (like all fiduciaries) should not enter into engagements in which they have or can have a personal interest conflicting, or which possibly may conflict, with the interests of the protected party, unless they are expressly authorised to do so (known as the ‘self-dealing rule’). Transactions where such a conflict exists are capable of being set aside by the court. As a matter of agency law, a principal may ratify the conflicted acts of an agent, but only the Court of Protection can ratify conflicted acts by a deputy (as opposed to the protected party, who lacks capacity, or a family member).”
• “In the Irwin Mitchell case, the Judge presiding, Her Honour Justice Hilder, held that the primary question she was required to determine was whether the appointment by IMTC as deputy of IMAM as asset manager for PW’s funds gave rise to a conflict of interest. It is an established principle of law, restated by the House of Lords in Boardman v Phipps (1967), that the relevant question to ask is whether ‘the reasonable man’ (a common benchmark in legal tests), looking at the relevant facts and circumstances of the particular case, would think that there was a ‘real sensible possibility’ of conflict (known as the ‘conflict of interest rule’).”
• “There is no direct English authority on the question whether the engagement by a fiduciary of a related investment company presented a ‘real sensible possibility’ of conflict. IMTC as the applicant before the Court of Protection accepted that there was a “theoretical potential” of conflict but argued that there was no real sensible possibility because it had adopted procedures which eliminated that potential.”
• “In support of this argument, IMTC cited two foreign (and therefore non-binding) cases in which no conflict of interest was found to exist: Jones v AMP Perpetual Trustee Company NZ Ltd (1994) (New Zealand) and HSBC (HK) Ltd v Secretary of State for Justice (2001) (Hong Kong). The relevant facts and conclusions of these cases are succinctly summarised in the judgment. However, HHJ Hilder respectfully considered the court’s reasoning in neither case to be persuasive.”
• “HHJ Hilder’s conclusion on the question of an existence of a conflict was summarised in two steps: (1) the decision to appoint IMAM was made by IMTC in its fiduciary role and (2) IMTC is financially better off if IMAM is appointed. She said: ‘[at] a most basic level, those two concessions amount to recognition of the existence of a conflict of interest: one plus one makes two.’ There was a ‘very clear, not remotely fanciful actual conflict of interest in IMTC appointing IMAM to manage PW’s funds.'”
• “HHJ Hilder did not agree that the procedures Irwin Mitchell had put in place could, or did, extinguish the actual conflict because they did not remove the financial benefit to IMTC if IMAM were to be appointed. HHJ Hilder commented that such procedures (including the way they used scorecards as part of the beauty parade process) were vulnerable to biases, subjective interpretation, and human error. She also noted that IMAM would better know what boxes it needs to tick as part of the process, giving it an advantage over its competitors.”
• “Overall, HHJ Hilder concluded that a way to remove the conflict altogether would be for IMTC to waive any fees otherwise due to IMAM where IMTC was the instructing deputy. She recognised that Irwin Mitchell would be unlikely to adopt this model given that it lacked commercial and practical sense for them but said that, without removing the financial benefit, the processes did not get to the heart of the conflict of interest.”
• “The final question for HHJ Hilder to consider was whether the Court should ratify the conflict now. However, she concluded that there was not sufficient evidence before her to do so and invited the parties to agree further directions. The point is therefore left open for another date, should Irwin Mitchell wish to retain the appointment of both IMTC and IMAM in PW’s case.”

New York state’s Advisory Committee on Judicial Ethics: “Judicial Ethics Opinion 23-96” —

• “Digest: A judge must insulate their law clerk from all matters in which the law clerk had any personal involvement as an attorney, but need not disqualify, provided the judge believes the judge can be fair and impartial.”
• “Both sides have asked the judge to recuse on the basis of an alleged conflict of interest or appearance of impropriety arising from the judge’s recent hiring of a former assistant district attorney as a law clerk.”
• “During their former employment with the DA’s office, the law clerk conducted legal research on this specific case, which was incorporated in the People’s opposition to the defendant’s currently pending motion to vacate. The inquiring judge is confident that they can be fair and impartial in the matter, and is willing and able to insulate the law clerk from any involvement in the case (including the motion to vacate, the hearing on the issue, and the written decision). The judge asks if recusal is nonetheless required.”
• “A judge is not automatically disqualified from presiding in a case merely because the judge’s law clerk was personally involved in it during the law clerk’s prior employment (see Opinions 15-233; 15-43; 08-71). Rather, if, as here, the judge believes they can be fair and impartial, the judge must insulate the law clerk from all matters in which the law clerk was personally involved and disclose the insulation and the reason for it (see id.).”
• “No lapse of time affects the requirement that the law clerk be insulated from all matters in which they were personally involved to any extent, and the insulation may not be waived or remitted (see Opinions 15-233; 15-43), even where the law clerk’s involvement in the matter consisted of only a single court appearance (see Opinion 21-42).”
• “Accordingly, on the facts presented, we conclude the judge must fully and permanently insulate their law clerk from this case and disclose the insulation, but may thereafter preside as long as the judge can be fair and impartial.”

“Zalkin Law Firm’s $285K Data Breach Settlement Rejected by Court” —

• “The Zalkin Law Firm PC’s proposed $285,000 settlement of a lawsuit over a data breach that exposed the sensitive personal information of the firm’s clients who were victims of sexual abuse and harassment was rejected by a federal court.”
• “Plaintiff Ariana Deats’ motion for preliminary approval of the deal provided inadequate support for the settlement amount, was vague in weighing the strengths and weaknesses of the plaintiff’s case, and didn’t properly assess the plaintiff’s damages, Judge M. James Lorenz of the US District Court for the Southern District of California said Monday.”
• From the decision:
  • “On April 4, 2023,a known cybercriminal group specializing in ransomware infiltrated Defendant’s computer network and accessed client information including driver’s license and social security numbers, medical information, and highly sensitive details from client case files concerning sexual abuse and harassment.”
  • “Although Defendant learned of the data breachon April 6, 2023, it did not start notifying its clients until September 6, 2023. Defendant sent a Notice of Data Breach to 523 clients.”
  • “Assuming for the sake of argument that all requested amounts are approvedin fulland all 523 individuals who were sent Notice of Data Breach submit valid claims,each would receive approximately $309.”
  • “Based on this standard, the Court has a duty to look for any ‘subtle signs that class counsel have allowed pursuit of their own self-interests and that of certain class members to infect the negotiations.’ Bluetooth, 654 F.3d at 947. One such subtle sign is ‘when the parties negotiate a ‘clear sailing’ arrangement[.]'”
  • “The Settlemen there includes a ‘clear sailing’ arrangement (Mot. at 4) whereby ‘the defendant agrees not to oppose a petition for a fee award up to a specified maximum value.’ Bluetooth, 654 F.3d at 940 n.6. This ‘carries the potential of enabling a defendant to pay class counsel excessive fees and costs in exchange for counsel accepting an unfair settlement on behalf of the class.’ Id. at 947.”
  • “Plaintiff provides only a cursory opinion of Class Members’ potential recovery after trial and is vague in weighing of the strengths and weaknesses of Plaintiff’s case. (See Mot. at 8-10.) Plaintiff’s analysis is based almost entirely on prior settlements of data breach cases; however, the cases cited appear to involve only personally identifiable data. They are not analogous because, according to Plaintiff herself, her case involves ‘extraordinarily sensitive information.’ (Mot. at 10.)”

“Report and Recommendations of the New York State Bar Association Task Force on Artificial Intelligence” —

• “RPC Rule 1.6 states, in part, that “[a] lawyer shall not reveal information relating to the representation of a client unless the client gives informed consent.” This duty of confidentiality also extends to what client information a lawyer may share when using certain generative AI tools. Because AI models depend on data to deliver salient results, privacy protection must become an integral part of their design.127”
• “Confidentiality concerns arise when entering information into AI engines, such as chatbots, and when such entries are then added to the training set for the AI. Such uses may violate protective orders for prior and future cases involving different parties.”
• “Such issues are especially important when some or all data that the AI ‘learns’ is used for training the AI for work on future cases. Lawyers should cautiously use these tools, being mindful of a client’s privacy”
• “In fact, the California bar association128 recommends that lawyers inform their clients if generative AI tools will be used as part of their representation. The Florida bar association129 takes its recommendation a step further, suggesting that lawyers obtain informed consent before utilizing such tools. Whether an attorney informs the client or obtains formal consent, the ethical obligation to protect client data remains unchanged from the introduction of generative AI tools.”
• “Pursuant to the Model Rules of Professional Conduct and New York RPC, lawyers must
  take reasonable efforts to prevent inadvertent and unauthorized disclosure of or access to client information. When utilizing generative AI tools such as ChatGPT, attorneys need to be knowledgeable about the technology they are using and/or ask for assistance from those lawyers or trusted technology experts who do understand its use and limitations, including IT personnel. If none of these options is possible, then the attorney should not utilize such technologies until they are competent to do so per the duty of competency.”
• “Open AI/ChatGPT may raise both ethical violations and cybersecurity issues. For example, ‘if there is a cyber intrusion [into OpenAI or ChatGPT], not only will that data potentially be lost to threat actors, but they could conceivably also obtain the firm’s searches… [gaining] access into the mind of a lawyer and the arguments they might be raising.’140”
• “Data preservation and litigation hold obligations may present similar challenges for
  attorneys and the court. If the data that is inputted into the AI application is temporary/ephemeral, but also relevant and responsive to the litigation, parties have the duty to preserve this electronically stored information. Yet, how do you preserve what may no longer exist?”
• APPENDIX C: SAMPLE ENGAGEMENT LETTER PROVISION
  • “Use of Generative AI: While representing you, we may use generative AI tools and technology to assist in legal research, document drafting and other legal tasks. This technology enables us to provide more efficient and cost-effective legal services. However, it is important to note that while generative AI can enhance our work, it is not a substitute for the expertise and judgment of our attorneys. We will exercise professional judgment in using AI-generated content and ensure its accuracy and appropriateness in your specific case.”

“Spousal Interest Disqualification” —

• “Judge is disqualified from serving on county election canvassing board for the specific race involving the elected county official by whom the judge’s spouse is employed as general counsel where the spouse’s continued employment in that position likely depends on the outcome of the upcoming contested election. Judge is not disqualified from serving on the canvassing board for other races during that election cycle.”
• “The judge’s duties as a member of the canvassing board include many tasks that would not be perceived as affecting the outcome of any contested race. However, the canvassing board, according to the inquiring judge and the governing statute, may determine whether an absentee vote was properly executed or timely received and may also be called upon to determine the voter’s intent if the voter’s ballot was not clearly marked. The judge acknowledged that some races can be decided by a very close margin, meaning that any decision by the canvassing board regarding even a single ballot could conceivably change the outcome of any given race.”
• “Because the judge’s spouse’s continued employment as general counsel is likely contingent on the outcome of that specific election, that means that the judge’s spouse has more than a de minimis interest and indeed has an economic interest in the proceedings, should there be any contested or questioned ballots.”
• “There are occasionally circumstances that make judicial recusal impractical if it would result in delay and distant travel for the parties when there is only one county judge who would be ethically disqualified from ruling on urgent or emergency matters affecting those parties.”
• “There is nothing to suggest that the judge or the judge’s spouse has any similar interest in the outcome of the other races; thus, general disqualification of the judge from serving on the canvassing board is not required by the Code of Judicial Conduct.”

“Conflict Gets 8 Officials Disqualified From Hearing Warehouse Application” —

• “A New Jersey judge disqualified eight members of Sparta’s municipal planning board from ruling on a warehouse application because they belonged to an organization formed to oppose the project.”
• “Superior Court Judge Stuart Minkowitz, in Sussex County Superior Court, said the eight board members belong to Sparta Responsible Development, an organization formed to stop the warehouse project in question.”
• “That makes it ‘virtually impossible’ to separate the organization’s goals from the need to impartially rule on the site plan application, Minkowitz ruled.”
• “Such a large-scale disqualification appears to be unprecedented, said Adam Garcia, an attorney from Giordano, Halleran & Ciesla of Red Bank, New Jersey, who challenged the board members’ impartiality on behalf of Diamond Chip Realty, the company seeking to build the warehouse project.”
• “‘I think the takeaway is: impartiality is key. You know everybody comes to an application with their own views. But you can’t align yourself with an organization that has already determined that the application must fail,’ Garcia said.”
• “Giant warehouses have been a booming sector in New Jersey real estate, spurred by an uptick in online shopping during the pandemic. But as developers seek local approval for their warehouse projects, opponents have become more vocal.”
• “A founder of SRD, Neill Clark, was elected to the township council in November 2022 on a ‘no mega warehouses’ platform, and he allegedly participated in the appointment of warehouse opponents to the planning board, Garcia claimed.”
• “In September 2023, Diamond Chip filed a suit seeking the removal of eight of the nine planning board members on the basis that they belonged to SRD.”
• “The case can now proceed with a board consisting of members who were not disqualified, along with substitutes from Sparta’s Zoning Board of Adjustment, as provided for in the state Municipal Land Use Act, Garcia said.”
• “‘Because the eight identified appointees are current and active members of an organization that was solely formed to challenge [Diamond Chip Realty’s] application, there is a clear conflict, as it is virtually impossible to separate their organizational membership goals in SRD and the impartiality necessary to render a fair determination on a site plan approval,’ Minkowitz wrote. ‘The interest does not have to actually influence the action of the eight members, but only that the interest creates a conflict.'”
• “Minkowitz also denied Garcia’s requests to appoint a special master to supervise the planning board. Collins, the attorney for Sparta, did not respond to a request for comment on the case.”

“Judge’s Potential Recusal Over Citi Stock Divides CFPB, Industry” —

• “Parties in a lawsuit challenging the Consumer Financial Protection Bureau’s credit card late fee rule are divided on whether a federal appeals judge hearing the case might stand to financially benefit from the court fight.”
• “Attorneys with the CFPB on Thursday told the US Court of Appeals for the Fifth Circuit that the outcome of the litigation ‘could substantially affect’ stock owned in any of the large card issuers affected by the case. Groups challenging the rule, led by the US Chamber of Commerce, downplayed the impact the litigation would have on those issuers and said that recusal in such cases would lead to ‘an unworkable system.'”
• “Fifth Circuit Judge Don Willett, one of the judges presiding over the case, has disclosed owning stock in Citigroup Inc., which he said amounts to roughly $2,000 in his child’s education savings account. But he said he had received advice that he didn’t need to recuse himself from the case, before the CFPB flagged that large credit card companies could be financially affected by the matter.”
• “Willett last week authored the majority opinion in a 2-1 decision rejecting a Texas trial judge’s ruling that the case should be transferred out of his court to one in Washington, D.C.”
• “In Thursday’s letter, attorneys from the CFPB said that, in addition to the financial impact of the case, the ‘appearance of partiality created by an ownership stake in a large card issuer could also trigger a judge’s recusal obligation.’ The CFPB’s final rule, which is set to cap credit late fees at $8, could reduce covered companies’ annual revenue by about $10 billion, the lawyers said.”
• “In their letter, the rule’s opponents said the CFPB’s own filings in the case cut against the agency’s argument that there would be an ‘easily ascertainable substantial effect on any, much less all, of their stock prices.'”

[Has anyone yet argued that if a judge has a “cash back” or mileage credit card, or got a sign up bonus, or gets travel discounts through a card’s portal, or complimentary purchase/travel insurance, that’s an issue too, as those programs and benefits may be affect as well? Because I now have that on my bingo card…]

“Quinn Emanuel Inks $40 Million Deal to Fund Private Equity Suits” —

• “Quinn Emanuel Urquhart & Sullivan will receive $40 million in litigation funding from Longford Capital to finance lawsuits for private equity firms and their portfolio companies. “
• “The deal, announced Thursday, will offer funding for private equity clients who want to pursue litigation without harming profit and loss statements, according to the law firm. Quinn Emanuel said liquidity challenges posed by high interest rates make outside funding particularly attractive for private equity companies.”
• “Funding will be available for private equity clients across different types of litigation, said Jonathan Bunge, co-chair of Quinn Emanuel’s national trial practice and managing partner of the Chicago office. That sets it apart from the firm’s previous arrangements with Longford and others, in which funding was decided on a case-by-case basis, he said.”
• “There might be a reason, given their business model, why they don’t want to pursue a valid claim held by a portfolio company because of the impact that might have on the portfolio company’s earnings,’ Bunge said. ‘What we’re trying to do is listen to those concerns of our clients and come up with an alternative that they might find attractive.'”
• “Longford will provide financing for attorneys fees and costs, while also offering private equity clients the option of investing directly with the company. The funder will treat legal claims as corporate assets that can be monetized, it said, after underwriting and due diligence.”
• “The funding will finance business disputes, such as breach of contract, fraud, and intellectual property cases. Much of those fights among private equity companies are waged behind closed doors in arbitration.”
• “Litigation finance is a $15.2 billion industry in which investors fund lawsuits in exchange for a portion of any award. It’s become increasingly attractive to Big Law firms, even as the overall market for deals slows.”

“Russian Use of Litigation Finance Needs Scrutiny, Treasury Says” —

• “The Treasury Department needs to look into the use of the litigation finance in the US by foreign actors, Deputy Secretary Wally Adeyemo said.”
• “His comments came after Sen. Bob Menendez (D-N.J.) asked whether he believed the lack of transparency in the litigation finance industry could create a gap in sanctions enforcement. Menendez referenced a Bloomberg Law investigation that found a firm established by Russian billionaires tied to Russian President Vladimir Putin has backed lawsuits in New York and London both before and after three of its founders were sanctioned following the 2022 invasion of Ukraine.”
• “Menendez also referenced a Government Accountability Office report from 2022, which found sovereign wealth funds may be investing in litigation finance, and he raised the issue of patent litigation being financed by foreign companies.”
• “The Senate Committee on Banking, Housing, and Urban Affairs held the hearing to get an update on efforts to counter illicit finance, terrorism, and sanctions evasion from the Treasury Department. Menendez was indicted last year by federal prosecutors in Manhattan for allegedly providing sensitive US government information and taking steps that secretly aided Egypt. He is a senior member of the banking committee.”
• “Last year, House Speaker Mike Johnson (R-La.), Sen. John Kennedy (R-La.), and Sen. Joe Manchin (D-W.V.) introduced legislation that would regulate foreign entities’ ability to fund litigation. The proposed Protecting our Courts from Foreign Manipulation Act, which has not been heard in committee, would require disclosure of any foreign agents or investors financing a suit. It also would ban sovereign wealth funds and foreign governments from funding US litigation.”

The General Counsel of Unified Patents weighs in: “As Litigation Funders Skirt Sanctions, It’s Time for Disclosure” —

• “Unsurprisingly, the US government doesn’t like being in the dark. But they appear to be when it comes to Russian sanctions and litigation financing. That’s in part due to the nature of the litigation financing industry, and lack of laws requiring transparency about who or what is funding the litigation.”
• “It’s high time that litigation financing be held to similar mandatory disclosure standards that courts already require for insurers and publicly traded investors.”
• “At times, they will themselves create shell companies, hide their identities, and sue; more often, they will fund others’ cases and do so without transparency. These deals can be for hundreds of millions, and are sometimes worth billions. Yet they claim these private, undisclosed deals worth billions offer them no control. Sure.”
• “While information is undisclosed and thus scarce, investments in US litigation are a multibillion-dollar industry, comprising a growing share of some types of commercial litigation.”
• “Class actions, bankruptcy, and patent cases seem to attract much of it, though insurance, workers’ comp, and even high-profile divorces have been financed.”
• “Unlike buying a house or trading stocks or even private equity investing, litigation funders generally don’t disclose their terms, their involvement, or who their investors might be to anyone—the government, the courts, even the people they’re suing. Right now, the law doesn’t require it.”
• “If no one is aware it’s happening, couldn’t foreign governments, money launderers, or other bad actors take advantage? What about judicial conflicts? Or companies funding suits against strategic competitors or key industries?”
• “And if there were some fraud upon the court, how would it ever be identified? The Judicial Conference, the self-governing body of the US Federal Courts—which reports to the Supreme Court—began considering modest disclosure requirements as far back as 2014.”
• “Funders responded vociferously to these modest calls for transparency, arguing such concerns were overblown, irrelevant, or some kind of sideshow.”
• “They rejoined that funding cases increased access to justice, so the risk was worth it. And they argued that conflicts of interest would be rare—that there were other, better ways for others to interfere in industry, and there were no national security concerns. They wrote dozens of letters to the Judicial Conference arguing against disclosure.”
• “So it should no surprise that just last month, investigative reporters revealed that sanctioned Russian oligarchs have been using litigation funding to evade US sanctions in US courts.”
• “Notably, less than two years ago, some forward-thinking judges began requiring modest disclosures (as others had before them), and soon, it revealed Chinese investors were backing US patent suits against US companies in US courts. And recent government reports showed some of the biggest investors in litigation funds are as-yet-undisclosed sovereign nation wealth funds.”
• “As it turns out, allowing billions of dollars a year to flow through completely undisclosed, much less unregulated, financial products invites investors seeking to avoid scrutiny.”
• “The Judicial Conference, which represents all federal judges and makes recommendations on rules changes, has since 2017 been considering mandatory disclosure akin to what courts already require for insurers and publicly traded investors.”
• “It would be nothing more than a long-overdue tweak to existing Rules 7.1 and 26 of the Federal Rules of Civil Procedure, something the judiciary itself can implement. But they have been characteristically slow to act, giving the issue due consideration over the past seven years.”

“Litigation Funders Set to Prosper in Proposed NY Rule Change” —

• “A New York City bar committee is pushing to change state rules to allow law firms to assign or pledge fees in exchange for outside financing.”
• “Funding to law firms tied to the results of specific cases should be permitted, the New York City Bar Association’s Professional Responsibility Committee proposed last week in two amendments to Rule 5.4(a). The rule bans lawyers and law firms from sharing fees with nonlawyers.”
• “If adopted, the amendments would resolve uncertainty over litigation funding deals in New York. Litigation finance has grown to a $13.5 billion industry in which investors fund lawsuits and take a portion of any successful awards.”
• “The proposed amendments reiterate that lawyers must not allow their judgment be impaired by the relationship with a financial provider. It also would require law firms to notify clients of financial arrangements that could impact the representation of the client and field questions about it.”
• “The rule has been modified in recent years in some states, which positioned looser restrictions as a way to increase access to legal services for lower and middle income populations. Litigation funders have also benefited from the relaxing of these rules.”
• “In New York, litigation funding for law firms was stymied by a 2018 opinion issued by the City Bar Committee on Professional Ethics that concluded funding agreements with law firms would violate Rule 5.4.”
• “The 2018 opinion caused a stir in the litigation funding community and prompted the NYC Bar president to form the Litigation Funding Working Group later the same year. The goal of the group, which consisted of 25 lawyers, academics and funders, was to study litigation finance and provide a report with recommendations regarding its practices.”
• “Their 90-page report, which was released in March 2020, presented two amendments to Rule 5.4. A separate Professional Responsibility Committee rejected the proposals as too complicated and overly broad.”
• “‘You get to the same point, but I think we get there in a more straightforward and simpler fashion,’ said Aegis Frumento, former chair of the Professional Responsibility Committee, of the recent amendments.”
• “The proposed amendments will now go the State Bar Association of New York, which if they agree, will then submit them for approval to the four appellate divisions of the New York State Supreme Court for adoption to the rules of professional conduct.”