Bressler Risk Blog

“Alston & Bird Kicked Off California Copyright Case Over Conflict” —

• “Alston & Bird LLP has been sidelined in a copyright spat between the owner of the My Perfect Resume website, Bold Limited, and rival site operator Rocket Resume Inc.”
• “Lawyers in the firm’s intellectual property practice group had been representing Rocket, which is defending against Bold’s claims it copied from the My Perform Resume site in a suit in the US District Court for the Northern District of California. But that representation ended as Judge Beth Labson Freeman disqualified the firm due to its prior representation of Bold in IP matters over a four-year period from 2013 to 2017.”
• “Five current Alston & Bird partners ‘had a sufficiently direct relationship with Bold such that the Court may presume that these attorneys obtained confidential information,’ Freeman wrote in an order docketed Tuesday granting Bold’s motion to disqualify the firm.”
• “Freeman also found that one of the prior Bold matters in which Alston & Bird represented the company was sufficiently similar to the current copyright case to require disqualification.”
• “Rocket had argued the current litigation was about a Bold database registered with the US Copyright Office in late 2020, more than five years after Alston & Bird lawyers ceased doing work for Bold. The company urged Freeman not to bar two Alston & Bird attorneys, Chaka Patterson and Dana Zottola, who hadn’t been staffed on any of the older Bold matters.”
• “Zottola hasn’t made an appearance in the case but Rocket said she’s worked as an adviser to the company. She’s also married to Stephen Zimmerman, Rocket’s founder and CEO and a co-defendant in the case, according to the court’s order.”
• “‘The overlap of factual and legal issues between the prior and current representations indicates that information about Bold’s copyright registration and enforcement practices and its IP portfolio are material to the evaluation, prosecution, settlement, or accomplishment in this case,’ Freeman wrote.”

“Latham & Watkins cuts off its Hong Kong lawyers from international databases” —

• “US law firm Latham & Watkins is cutting off automatic access to its international databases for its Hong Kong-based lawyers, in a sign of how Beijing’s closer control of the territory is forcing global firms to rethink the way they operate.”
• “The world’s second-highest-grossing law firm has told staff that while Hong Kong will have access by default to China documents, from this month they will not be able to see other content in its international databases unless specifically given permission, according to two people with knowledge of the matter.”
• “The move underscores the growing difficulties for global companies operating in a city that made its name as an international financial hub. It comes after Beijing introduced new anti-espionage and data laws restricting information flows out of the country.”
• “Latham & Watkins is now ‘treating Hong Kong as the same as mainland China,’ one of the people said, as US firms grow wary over Beijing’s closer control of the territory. The law firm declined to comment.”
• “It is already considered best practice to wall off confidential client data, restricting access only to those who need to see it. However, the change will mean staff in Hong Kong no longer have default access even to non-private files from outside China.”
• “Latham & Watkins is also separating its Hong Kong office database from the rest of Asia — its offices in Seoul, Singapore and Tokyo — to create a new ‘Greater China’ database shared with the Beijing office, the people said.”
• “‘There’s definitely a concern over the new [Hong Kong security law] . . . that essentially puts Hong Kong data laws on par with China’s,’ the first person added.”
• “‘What it means is if you have . . . raids in Hong Kong, law enforcement [can only] access Hong Kong and China databases,’ the second person said.”
• “Beijing’s political crackdown on Hong Kong, with a sweeping national security law imposed on the city in 2020, has silenced dissent, curbed civil freedoms and dented the once freewheeling territory’s appeal for foreign investors and businesses.”

“Law firm Proskauer settles trade secrets fight with ex-COO” —

• “U.S. law firm Proskauer Rose on Thursday [Feb 1] said, opens new tab it has struck a settlement agreement with its former chief operating officer, whom it accused of stealing a trove of confidential information and trying to recruit other firm employees to a competitor.”
• “As part of the deal, Proskauer Rose and the former executive, Jonathan O’Brien, asked a federal judge in Manhattan to issue an order, opens new tab barring O’Brien and others from using any of Proskauer’s proprietary and confidential information.”
• “Other settlement terms reached between the firm and O’Brien were not disclosed. Lawyers for Proskauer and O’Brien did not immediately respond to requests for comment. A spokesperson for the firm also could not be reached.”
• “The settlement ends Proskauer’s year-old lawsuit against O’Brien, who was fired in December 2022 as he was poised to join rival firm Paul Hastings.”
• “Proskauer alleged O’Brien downloaded 34 gigabytes of data before his planned departure to Paul Hastings. The firm said he took financial performance data, client lists and profitability metrics, compensation records and evaluations of every one of Proskauer’s more than 200 partners.”
• “O’Brien denied Proskauer’s claims that he planned to take its secrets to another employer. He said he downloaded the data in order to work during a two-week vacation to Mauritius that coincided with his planned final days at the firm.”

“Dechert to Settle UK Hacking Claim From Aviation Executive” —

• “Dechert will pay a multimillion-dollar settlement to resolve a claim in the UK that it participated in an illegal scheme to hack aviation executive Farhad Azima.”
• “The two sides disagree on how big the settlement will be. Dechert said in a statement it agreed to pay $3.8 million (£3 million) plus Azima’s ‘costs, which have yet to be agreed between the parties or determined by the court.'”
• “An Azima spokesman, Tim Maltin, said the settlement will come out to nearly $15 million, including $11 million in costs and $3.8 million in damages.”
• “‘While this substantial payment resolves Mr. Azima’s limited claim in the UK, Mr. Azima will continue to pursue the significant claims he has brought against Dechert and others based on their conduct against him in the US and the damages they caused him there,’ Maltin said in a statement.”
• “Dechert, a Philadelphia-based law firm with offices around the world, has faced multiple lawsuits from Azima alleging that it participated in an illegal hack of his computer systems while working for one of the United Arab Emirates.”
• “The accusations center around the emirate, Ras Al Khaimah, which hired Neil Gerrard, once a top white-collar lawyer in Dechert’s London office, in 2013 to aid an investigation into the former head of the emirate’s investment fund.”
• “Azima, who once did business with the fund, has claimed he became a target of Ras Al Khaimah due to his efforts to publicize its human rights abuses. He was hacked and his emails were dumped online as part of an effort by the emirate to gain leverage in a court spat over a prior commercial agreement, Azima claimed in his US lawsuit.”
• “His case against Dechert, which is pending in New York’s Southern District, also names Gerrard and one other former Dechert lawyer as defendants. Dechert last June asked the court to dismiss the lawsuit, arguing in part that the suit failed to adequately support claims including witness tampering and obstruction of justice.”

“Conflict ‘inherent’ for firms with public, private clients: Scyne” —

• “The PwC spin-off tells a[n Australian] parliamentary committee its mission is ‘purpose over profit’ compared to other big four firms, which have failed to divest their government work.”
• “Firms that consult for the public and private sector have ‘inherent’ conflicts of interest that cannot be resolved unless they divest their government work like PwC, according to Scyne Advisory director Adrian Loader.”
• “Mr Loader, who is also the co-founder of Allegro Funds, the private equity investor that purchased Scyne from PwC for $1, said the firm could only be ‘conflict-free’ as a corporation without private clients. “
• “‘[Scyne] had to be its own corporate, rather than a partnership, and therefore a different legal entity. And it had to be conflict-free from private sector companies, because of the inherent conflict of interest,’ he told a NSW upper house committee into consulting services on Monday.”
• “When asked by Greens MP and committee chair Abigail Boyd whether this meant there was an inherent and existing conflict of interest in the other big accounting firms – EY, Deloitte and KPMG, which had yet to separate their government consulting arms – Mr Loader said ‘it goes further than that.'”
• “Mr Loader singled out partners doing work ‘for both sides’ as being ‘where the inherent conflict is.'”
• “Managing partner Richard Gwilyn told the committee that Scyne’s goal was to carry out ‘for-purpose work in a commercial manner’ and it held itself to ‘different’ standards that would see it refrain from pursuing ‘profit over purpose.'”
• “‘The ethics frameworks that we’ve put in place we do believe are different in the way in which we have looked at governance, the independent board members that we have in our organisation, and the standard that we are going to try and hold ourselves to is one that is different,’ he said.”

Hat tip to the GC at a prominent Canadian firm for pointing me to this one (and a reminder to readers that pointers and links are always welcome!): “Tax reporting law faces opposition from B.C. lawyers” —

• “The Law Society of BC is part of a pending constitutional challenge against amendments to the Income Tax Act; lawyers charge that new reporting requirements infringe on charter rights of solicitor-client privilege.”
• “Lawyers in B.C. and across Canada are challenging a new law that will cause them to report more instances of client transactions where abusive and aggressive tax avoidance is suspected and introduce penalties, including jail, for not doing so.”
• “Late last month, the Federation of Law Societies of Canada was granted an injunction against the federal government to delay the implementation of new laws under the Income Tax Act (Bill C-47) designed to further compel lawyers to report such transactions to the Canada Revenue Agency (CRA).”
• “Supreme Court of B.C. Justice Lisa Warren granted the injunction on Nov. 24 ahead of a constitutional challenge by the federation, which represents 14 laws societies and more than 141,000 lawyers across the country.”
• “At issue is alleged state overreach by the attorney general of Canada into the affairs of individuals. Lawyers contest new reporting requirements infringe on the constitutional right of solicitor-client privilege.”
• “‘Lawyers and other members of the legal profession, owe a duty of commitment to their client’s cause and are also bound by rules of professional conduct to maintain the confidentiality of information received from their clients,’ the federation has stated in an online backgrounder.”
• “Warren’s judgment found an injunction was warranted as it was apparent there was a serious issue to be tried in court. And before the challenge is heard, implementing the law would do irreparable harm should it be found to be unconstitutional, ruled Warren.”
• “Warren noted mandatory disclosures of reportable transactions have existed since 2013 but Bill C-47 lowered the reporting threshold and also implemented a punishment for lawyers and other professionals who do not comply — a fine of up to $25,000 and imprisonment for a term of up to 12 months.”
• “Warren also noted that the new law provides that ‘disclosure is not required ‘if it is reasonable to believe that the information is subject to solicitor-client privilege.’'”
• “Parliament enacted the amendments to improve the gathering of relevant information to assist the CRA to respond to tax risks. The lack of timely, comprehensive and relevant information on aggressive tax planning strategies is one of the main challenges faced by tax authorities worldwide, including the CRA, the government stated in its response to the injunction application.”

“Lawyers temporarily exempted from CRA’s mandatory disclosure requirements” —

• “Critically for lawyers, the new rules place the onus on every advisor or promoter involved in a reportable or notifiable transaction to make their own separate disclosure to the CRA, rather than relying on a single report from the taxpayer.”
• “During the parliamentary review process, an exemption was added to the law confirming that disclosure requirements do not apply where it is ‘reasonable to believe that the information is subject to solicitor-client privilege.'”
• “However, Roy Millen, the FLSC’s lead lawyer, explained that the law forces legal counsel to choose between their own and their clients’ interests. Penalties for non-compliance by advisors could rise to as high as $110,000 plus the value of all fees charged.”
• “‘The end result is still a requirement for lawyers to report, and the concept of a lawyer reporting on their client is, in our view, in conflict with a lawyer’s duty of loyalty to their client,’ said Millen, a partner with the Vancouver office of Blake Cassels and Graydon LLP.”

“SRA imposes near maximum fine for breaching AML rules” —

• “A firm which failed to check any of the sources of funds for three property transactions has been fined £23,216 – almost the maximum the Solicitors Regulation Authority can impose.”
• “The sanction was made against Ilford firm TTS Legal Ltd after an investigation into the transactions between 2018 and 2020. The three deals were all financed through mortgages and the clients’ own funds. In the third matter, the firm was instructed by a financial adviser to the client whose identity was not verified by lawyers.”
• “The SRA found ‘areas of concern’ over the firm’s compliance with money laundering regulations and its code of conduct. TTS Legal had no firm-wide risk assessment in place until January 2020 and no policies, controls and procedures to mitigate the risks of money laundering.”
• “In one of the property matters, information received from the client was inconsistent with how they were funding the purchase. The firm recorded that a deposit of £185,000 had purportedly been paid to the seller’s solicitor by a previous firm but TTS Legal failed to make any enquiries to verify this payment.”
• “The SRA said: ‘The firm failed to undertake, evidence or scrutinise source of funds, of significant amounts of money. The firm’s enquiries were limited to the location of the funds, as opposed to identifying how and from where the client got the money for the transaction. This meant the firm was unable to satisfy itself that the funds were not the proceeds of crime.’”
• “The firm was fined 2% of its annual turnover, reduced by 20% to take account of mitigating factors. TTS Legal must also pay £1,350 costs.”

“Hefty fine for law firm owner who relied on 2003 AML manual” —

• “A former law firm owner who failed to update its anti-money laundering manual since 2003 has been handed a five-figure fine. The Solicitors Regulation Authority said Richard Lionel Jones had breached regulations for ‘longer than was reasonable’ and demonstrated a pattern of non-compliance.”
• “In January 2020 he completed a declaration on behalf of the firm in response to a request from the SRA, stating that it had a fully compliant risk assessment which took account of information and updates published by the regulator. The form included references to the firm’s customers, the areas it operated in, its products and services and transactions.”
• “Five months later, the SRA began a forensic investigation and found that the firm had not verified the source of client funds in conveyancing matters.”
• “There was no firm-wide risk assessment as required by regulations updated in 2017 and the firm’s office manual referred only to 2003 money laundering regulations. No separate money laundering policies were in place, the SRA confirmed.”

“SRA writes to over 1,000 firms about poor sanctions compliance” —

• “The Solicitors Regulation Authority (SRA) has written to give guidance to more than 1,000 law firms that admit they do not have basic controls in place to mitigate sanctions risk.”
• “More than 3,000 firms completed the survey, of which nearly 1,700 did not do, or were unsure if they did, one or more of the following: identify their clients, verify their clients’ identities, check source of funds and check if a client was subject to sanctions.”
• “The SRA found that more than 1,000 firms had a greater risk of having a client who was a designated person for sanctions purposes because of their areas of work or because they (or their clients) had a connection to a sanctioned country.”
• “Twenty-six firms had dealt with a matter involving a designated person.”
• “Juliet Oliver, SRA deputy chief executive, said: ‘Strengthening the financial sanctions regime is an important part of the government’s response to war in Europe, and law firms have to a key role to play.”

“Sublime band sues attorneys over business deal losses” —

• “Members of the band Sublime accused their former attorneys with King, Holmes, Paterno & Soriano LLP of legal malpractice for allegedly playing both sides in business deals and pushing the musicians into merchandising deals they claim led to losses of several millions of dollars.”
• “Sublime’s complaint says King, Holmes, Paterno & Soriano breached its duty to Sublime with ‘conflicts galore.'”
• “It alleges that the firm did not disclose a conflict before representing the band and their one-time manager in the same transactions, in which the firm is accused of favoring the manager in the negotiations.”
• “It says that they directed the band toward a merchandising deal with another KHPS client without disclosing the conflict or taking Sublime’s merchandise out for bid.”
• “And it calls out the firm’s Peter T. Paterno, claiming he obtained a producer credit and $30,000 producer fee on a Sublime documentary. ‘To add insult to injury, Paterno felt entitled enough to bill Sublime for negotiating his own ego trip — that is — the time he spent negotiating his own producer credit and producer fee. Thus, KHPS charged Sublime tens of thousands of dollars for legal fees so that Paterno could collect a producer fee, and satiate his ego and need for Hollywood "street cred" with a production credit,’ reads the complaint.”
• “Managing partner and named defendant Howard E. King responded to an emailed request for comment with a brief statement: ‘Welcome to Fantasyland. Please enjoy the ride.'”

“Contract requiring exiting lawyer to pay fee for every client he takes can’t be enforced, top state court says” —

• “The Colorado Supreme Court ruled Tuesday [Jan 16] that a law firm can’t enforce a contract provision that required departing lawyers to pay $1,052 for each client they take with them when leaving.”
• “The state supreme court ruled for Grant Bursek, a former Denver associate at Johnson Family Law, which did business as Modern Family Law, Law360 reports. The firm told Bursek that he was required to pay $18,936 when he left the firm with 18 clients.”
• “The Colorado Supreme Court said the contract provision violated a Colorado ethics rule banning employment and partnership agreements that restrict the right of a lawyer to practice when leaving.”
• “‘There may be circumstances in which a firm can seek reimbursement of specific client costs when the client leaves a firm to follow a lawyer,’ the Colorado Supreme Court said in its Jan. 16 opinion. ‘But a firm may not require a departing attorney to pay an undifferentiated fee in order to continue representing clients who wish to maintain their relationship with that attorney.'”
• “The firm had characterized the fee as reimbursement for marketing expenses that were difficult to determine for clients. Bursek signed the agreement in April 2019 and left Modern Family Law in September 2019. Reimbursement applied only to clients gained while Bursek was working with the firm. If he did not pay within 30 days of leaving, the contract said, he would be assessed 1.5% in monthly interest on unpaid amounts.”
• “States that have adopted ethics rules similar to the one cited by the Colorado Supreme Court have adopted differing approaches to agreements that impose financial costs on lawyers leaving firms.”
• “The majority view is that any financial burden imposed on departing lawyers is a violation of the ethics rule, the Colorado Supreme Court said.”
• “The minority view is that financial disincentives to departure are not per se violations of the ethics rule. Instead, disincentive agreements are reviewed based on a balance of interests. On one side are the interests of client choice and attorney autonomy. On the other are a firm’s interest in financial and practice stability.”
• “The Colorado Supreme Court also endorsed the minority view requiring a balancing approach with a reasonableness inquiry. But in Bursek’s case, the ‘undifferentiated fee’ assessed for clients following the departing lawyer is a violation of the ethics rule, the state supreme court said.”

On this one, Brian Faughnan comments: “Another failed effort to pretend Rule 5.6(a) has no teeth” —

• “The courts ultimately determined that such a “per client” charge in a set amount was incompatible with the prohibition in the ethics rules on restrictions on lawyer’s ability to practice.”
• “This outcome is not at all surprising. After all, even though the Colorado Supreme Court decided to align itself with a minority of jurisdictions and conclude that a ‘reasonableness’ analysis rather than a per se prohibition was the right standard, it was easily able to brush aside the notion that such a per client fee could ever be reasonable:”
• “The fact that the firm in question put such a provision into their contract with the attorney also, sadly, isn’t surprising. The economic issues in law firms and the viewpoint that prevails often that firms should be able to protect themselves from having lawyers leave and take clients with them often pushes lawyers to tread up as close to the line as possible to try to disincentivize something that the rules say is fair game.”
• “But the fact that the firm decided to file a lawsuit over $18,000 and put their partners at substantial risk of discipline when the associate refused to pay is quite surprising.”
• “It appears clear from the opinion that they had able counsel to represent them in the litigation, but I am highly curious about whether those lawyers ever got the opportunity to try to talk the firm out of filing such a suit or not.”

“Associate Finally Joins Abraham Watkins, 5 Years After His Move Was Blocked by a Client” —

• “Trial lawyer Efrain Gonzalez Jr. has joined Abraham, Watkins, Nichols, Agosto, Aziz & Stogner as an associate in Houston, nearly five years after USA Gymnastics, a client of his former firm, blocked his move by refusing to waive a conflict of interest.”
• “Gonzalez’s unusual career progression began in September 2018 when Abraham Watkins offered him a position as an associate, and the young lawyer put in his notice at MehaffeyWeber, where he had practiced for about a year and a half. However, USA Gymnastics refused to grant a waiver for Gonzalez, so he could not join the firm.”
• “Gonzalez filed a petition in 2018 state district court in Harris County, seeking a declaratory judgment that there is ‘no actual or imputed’ conflict of interest based on his previous employment as an associate at MehaffyWeber and potential future employment at Abraham Watkins, which then represented individuals who sued USA Gymnastics.”
• “Gonzalez sought a court order to restrain USA Gymnastics from impeding his ability to work at Abraham Watkins, including the filing of any motion to disqualify him or the firm in litigation against USA Gymnastics. He alleged in the petition that he attested in an affidavit that he never worked on USA Gymnastics matters.”
• “However, less than two weeks later, on Dec. 5, 2018, USA Gymnastics filed for Chapter 11 protection from creditors and all proceedings in Gonzalez’s litigation were stayed. That lawsuit was dismissed for want of prosecution in 2021. Meanwhile, in 2021, USA Gymnastics agreed to a global settlement in litigation filed on behalf of U.S. gymnasts who were abused by a former doctor. USA Gymnastics’ final plan of reorganization was approved by a federal bankruptcy judge in 2022.”
• “Gonzalez said he joined Abraham Watkins, because the firm he formed in 2018 had become so busy that he had to hire more lawyers or move to another firm.”

“Trump lawyer Alina Habba makes, then backs off, ‘conflict’ allegation against E. Jean Carroll judge” —

• “Former President Donald Trump’s attorney Alina Habba on Tuesday backed off of a conflict of interest claim against the judge who presided over the E. Jean Carroll defamation trial after Carroll’s lawyer threatened to pursue sanctions.”
• “Habba on Monday filed a letter with the court citing a New York Post story that said U.S. District Judge Lewis Kaplan and Carroll attorney Roberta Kaplan, who are not related, had worked at the major law firm Paul, Weiss, Rifkind, Wharton & Garrison in the 1990s.”
• “An unidentified former partner at the firm, which employs around 1,000 lawyers, told the Post that Lewis Kaplan had been ‘like her mentor.'”
• “Habba told the New York Post that the situation was ‘insane and so incestuous.'”
• “The article included a quote from Roberta Kaplan’s spokesman Zak Sawyer, who said while they’d worked at the same large law firm, they ‘overlapped for less than two years in the early 1990s.’ The now-judge ‘was a senior partner and she was a junior associate and she never worked for him,’ Sawyer said.”
• “In her letter on Monday, Habba said, ‘If Your Honor truly worked with Ms. Kaplan in any capacity—especially if there was a mentor/mentee relationship—that fact should have been disclosed before any case involving these parties was permitted to proceed forward.’ She suggested he had violated the judicial code of conduct and that she might use the allegation as ammunition in a request for a new trial.”
• “She noted she’d had ‘many clashes’ with the judge during the trial and another last year and said he’d been ‘overtly hostile towards defense counsel.’ Her letter suggested the ‘conflict’ might have something to do with his ‘rulings, tone, and demeanor.'”
• “Roberta Kaplan responded in a letter of her own to the judge Tuesday, saying the ‘allegations are utterly baseless.'”
• “Roberta Kaplan said the allegation was part of the Trump team’s scheme to discredit the judicial system and suggested that she might seek sanctions against Habba.”
• “Habba responded with another letter a short time later, saying she hadn’t made any ‘false allegations.'”
• “‘The purpose of the letter was simply to inquire as to whether there is any merit to a recently published New York Post story which reported on the alleged existence of such a relationship,’ she wrote. ‘Since Ms. Kaplan has now denied that there was ever a mentor-mentee relationship between herself and Your Honor, this issue has seemingly been resolved.'”

“Legal Malpractice Claims Grow in Size as Clients Turn on Counsel” —

• “Law firms are being targeted with increasingly expensive lawsuits, as large insurance policies, client resistance to paying fees and the role of investors in litigation put legal operations on the defensive.”
• “Law firms are being hit with client suits that allege missteps such as conflicts of interest or failure to timely file a document. The clients bringing the suits are turning to attorneys who have developed specialties in suing law firms.”
• “‘There’s a greater willingness for clients to turn against their lawyers,’ said Bethany Kristovich, a litigation partner in the Los Angeles office of Munger, Tolles & Olson who defends Big Law firms against suits. Clients often see the firms ‘as simply as another pot of money,’ she said.”
• “Law firm insurance claims resulting in multimillion-dollar payouts increased year over year, insurance broker and consultant Ames & Gough said in a 2023 report. Of 10 companies that insure about 80% of Am Law 100 firms, seven paid a claim of more than $50 million in 2021 or 2022—and two paid a claim that topped $150 million, according to the report.”
• “Trusts and estates, followed by business and commercial transactions, are the leading practice areas for malpractice claims against law firms, Ames & Gough’s report found. The role of litigation finance in client suits—with investors paying the cost of a litigation while seeking a return—is boosting the risk of large payouts, the broker said.”
• “Law firms’ appearance of being backed by deep-pocketed insurers helps make them malpractice targets, said Leslie Corwin, managing partner of Eisner LLP, who represents law firms in malpractice cases.”
• “Market pressures and economic turmoil also make law firms more vulnerable to legal attacks, Corwin said. Clients are more likely to contest a big bill when business is tough, he said.”
• “TerraForm Power LLC sued Orrick, Herrington & Sutcliffe and Cleary Gottlieb Steen & Hamilton in 2021, claiming the company faced $300 million in payments because lawyers at the firms allowed the word ‘buyers’ instead of ‘buyer’ into a purchase agreement.”
• “Lawyers who once hesitated to bring legal actions against the industry that employs them are take cases today without fear of repercussions and reputational harm.”
• “Bill Reid, a lawyer on Musk’s team suing Wachtell, said attorneys used to fear bringing actions against law firms ‘in part based on the notion that they will soon become a pariah in the legal world and that other law firms won’t send them business.’ But Reid said that hasn’t been his experience since he took on the work that ‘no one else was willing to do’ two decades ago.”
• “Few of Reid’s cases end up on a public docket. He said he engages in a pre-suit process that allows firms’ and their insurance carriers to engage with a client. The discretion, he said, buys Reid good favor with insurance carriers and the law firms, which, he said, still send him referrals.”
• “Law firms will face more legal claims in the coming year alleging breaches of fiduciary duties and breach of conflicts, said Kristovich of Munger, Tolles & Olson. ‘The size of the claims continue to grow as lawyers and law firms handle bigger and bigger transactions and deals,’ she said.”

“UK: What’s Behind Large Losses in Law Firms?” —

• “Paul Smith, Senior Risk Management Consultant at Travelers Europe, studies data about losses in solicitor firms in an effort to identify such patterns which hopefully shines a spotlight on where risk management can help. Recently, he reviewed sets of solicitors’ data between October 2000 and September 2023 to gather a significant data set of large loss claims, which the insurers defined as being over £250,000. While that figure in 2001 would represent a much larger amount than it does in 2023, due to inflation, there are still some clear themes that emerged from the research.”
• “Large losses are persistent, becoming more costly, and happen for law firms of all sizes: Smith noted that there have been a high number of claims for large losses in recent years and the total severity of those claims has been trending up. While one might assume large firms are responsible for the largest losses, these claims tend to spread across all sizes of firm, not just the large or small firms.”
• “The top five areas driving large losses in law firms appear consistently over time: From 2001-2023, commercial work represented 30% of claims notifications and 50% of damages claimed. The remaining four areas included commercial litigation, commercial property, residential property, and trust & probate. However, commercial work remains a clear outlier in the severity and frequency of its risks to firms.”
• “There are patterns in the kinds of errors that lead to claims for large loss: Firstly, large loss cases tend to involve more failures of advice than in the overall book. Secondly, the most frequently notified errors pertain to retainer management failure. These errors are often very simple, such as not following instructions, taking the wrong step in a process, or missing a time limit. Finally, dishonesty has been on an upward trajectory since 2020 and involves a mix of methods, such as identity theft, fraudulent sellers, or the interception of payments and the changing of bank details.”
• “Mapping legal work areas onto errors reveals more specific risk management targets: Commercial work presents the main challenge for firms looking to reduce errors in retainer management, drafting and advice as all three areas are claim hotspots. Commercial property and commercial litigation generate claims in retainer management and advice. In residential conveyancing, claims involving dishonesty (whether the dishonesty is by an employee or a third party) are a hotspot where firms could focus their attention.raudulent sellers, or the interception of payments and the changing of bank details.”

“States Hiring Outside Lawyers Need to Ask Who Else They Represent” —

• “O.H. Skinner, former solicitor general of Arizona, lays out best practices state and local governments should implement to stop outside counsel from unethically profiting by representing other governments and private plaintiffs.”
• “A federal opioid case in Ohio involving a law firm and the City of Chicago has drawn needed attention to a problem that arises when government lawyers outsource enforcement to outside trial lawyers: ethics and conflicts of interest.”
• “My former office—the Arizona Attorney General’s Office—offers a clear and easily implementable way forward that can protect against the problems in Ohio.”
• “The core problem being addressed in Ohio is that, in interrelated opioid litigation, trial lawyers at law firm Motley Rice are simultaneously representing not only various state attorneys general, but also city prosecutors in places like Chicago, as well as various private clients.”
• “This led OptumRx, one of the defendants in the high-profile Ohio opioid matter, to file a motion formally seeking to disqualify lawyers from Motley Rice from the case. Citing Motley Rice representation of the D.C. Attorney General, the Hawaii Attorney General, and the City of Chicago, the motion claims Motley Rice attorneys obtained confidential information from OptumRx in connection with various government subpoenas, then ‘weaponized that knowledge against the same companies in separate private litigation for other clients and for their own financial gain.'”
• “On the surface, the attorneys at Motley Rice, who were given titles as special government attorneys and signed various confidentiality agreements in that role, appear to be in a position where they are simultaneously receiving confidential government information about defendants in the Ohio opioid matter, and representing private clients against the same defendants in an adversarial posture where the private interests are adverse to the defendants.”
• “At a minimum, Motley Rice seems to have a problem on their hands and some explaining to do. And it could be much worse if they have no magic bullet defense and end up being disqualified by the judge in the case.”
• “Regardless of the motion for disqualification’s outcome, the conflict of interest issue is a broad concern. I saw this firsthand in the Arizona Attorney General’s Office. In that role, more than once, outside counsel seemed to see representation of a state as a gateway to increasing their return on investment in a related private action against the same defendants.”
• “This was a problem we saw as so important that we found a structural solution. The office changed its standard outside counsel contract for consumer contingency cases to have clear limits on dual representations. Under the new contractual language, potential outside counsel had to notify the office if counsel was serving as counsel in a private class action. And, we made such a notification the basis for termination “for cause,” as in termination without entitlement ‘to compensation or reimbursement of any kind under this Agreement.'”
• “The approach the office put in place under Arizona Attorney General Mark Brnovich sets a path others can follow. It moves beyond background application of various ethical canons and imposes a clear contractual limit on representing private parties at the same time and on the same topic as a representation of the state.”
• “Knowing what I know now, I would go further than we did originally. I would make dual representation a mandatory termination situation, rather than simply have it serve as an allowable basis for terminating a contract ‘for cause.’ And I would expand the list of potential conflicts to cover representation of local governments, as the conflicts that have come to light between cities, counties, and states over various pools of settlement money in recent years really underline the importance of avoiding conflicting loyalties for outside counsel in those situations.”

“Third Circuit Orders Independent Examiner in FTX Bankruptcy” —

• “An outside investigation into FTX Group is mandatory under the US bankruptcy code, a federal appeals court ruled Friday, reversing a Delaware judge’s original order denying an independent examiner.”
• “The Third Circuit ordered US Bankruptcy Judge John Dorsey to appoint an examiner to investigate the collapse of the FTX crypto exchange. FTX commenced Chapter 11 bankruptcy in November 2022 amid widespread fraud allegations.”
• “‘In addition to providing much-needed elucidation,’ the panel wrote, ‘the investigation and examiner’s report ensure that the bankruptcy court will have the opportunity to consider the greater public interest when approving the FTX Group’s reorganization plan.'”
• “The independence of an examiner is relevant, the circuit panel said, given the law firm Sullivan & Cromwell’s work for FTX prior to the bankruptcy and the conflict of interest issues that have been raised over it. The US Trustee has also pushed for an outside investigation to determine whether any employees or officers of FTX who engaged in wrongdoing are still with the company.”

“EY Oceania accused of potential conflict of interest over government contracts on climate policy” —

• “Consultancy firm EY Oceania was supporting the oil and gas industry’s lobbying efforts while being paid by the federal government for independent advice on its signature climate policy and gas emissions.”
• “The firm, which is a member of the oil and gas lobby and audits Santos, insists there was no conflict of interest between its work for industry and government. But a bipartisan group of politicians and transparency advocates is not convinced and has demanded more information.”
• “In late October, EY Oceania was hired by Australian Energy Producers (AEP) to publish a report on the future of the gas industry…EY Oceania was also hired to support AEP – formerly known as the Australian Petroleum Production & Exploration Association – and prepare a submission outlining concerns about the government’s future gas strategy, which was being developed by the industry department. The submission, also submitted on 27 November, frequently cited EY’s analysis and conclusions.”
• “While EY was working for AEP, it was also contracted by the Department of Climate Change, Energy, the Environment and Water (DCCEEW) to provide “analysis and advice on emission outputs for oil and gas facilities”, “analysis and advice under the safeguard mechanism” and “professional advice on market modelling services electricity”. These contracts were worth $510,000, according to government records.”
• “EY did not tell the government it was a member of the AEP. ‘There is no overlap of subject matter nor is there a risk of one EY team reviewing the work of another EY team,’ the spokesperson said. ‘When a conflict of interest exists, or arises during an engagement, we will disclose this to the client, which may result in EY declining to act, as required by professional standards.'”
• “Despite claiming there was no conflict of interest, EY was required to sign a non-disclosure agreement while working on the safeguard mechanism and to submit written assurances about how internal conflicts would be managed with regard to staff and other engagements.”
• “‘It’s not a good look to have the government paying hundreds of thousands of dollars to a consultancy firm for independent advice on the oil and gas industry while the same firm is also on the payroll of the oil and gas industry,’ [chief executive of Transparency International] Moore said.”

Mark Hinderks, head Stinson LLP’s legal ethics and professional responsibility practice writes:  “Navigating a Tricky Matter-Intake Problem Involving a Conflict and Confidential Information” —

• “A former law school classmate newly appointed as a corporate general counsel called to ask me to represent his company to file a preemptive suit in a favorable forum against a competitor.”
• “He told me confidentially that based on internal documents, they believe the suit probably only has a 40-60% chance of success, but by getting to the favorable forum, they hope there will be sufficient pressure on the opponent to lead to an early and more favorable settlement.”
• “I ran a conflict check and discovered that the firm (not involving me) currently represents the opposing party in a small, unrelated real estate matter. What can I do to be able to go forward? This could be a really big ongoing client.”
• “At first read, this appears to be a straightforward Model Rule 1.7 concurrent conflict concerning unrelated matters that could be ameliorated by an appropriate waiver request to each client, with approvals confirmed in writing. The twist here is that you may be unable to effectively ask for the waiver. In order for a waiver of a conflict to be effective under Rule 1.7(b), there must be ‘informed consent.’ That requires that ‘each affected client be aware of the relevant circumstances and of the material and reasonably foreseeable ways that the conflict could have adverse effects on the interests of that client.’ Rule 1.7, Cmt.18.”
• “Here, the company that wishes to hire you is trying to beat the competitor to the courthouse (and thereby establish the first filing in a favorable forum different than the one the competitor (the firm’s current client) would choose.”
• “This puts you in a bit of a ‘Catch-22.’ You would have to disclose to your firm’s existing client the nature of the matter and the prospective client’s identity to obtain ‘informed consent’ and, therefore, an effective waiver.”
• “Because the prospective client’s strategy here is a preemptive surprise attack that requires confidentiality until executed, you would need your prospective client’s consent to disclose the relevant information to your existing client. But it is likely that your prospective client will not agree to your disclosure of that information to their opposition, because their opponent will then be able to withhold consent long enough, or otherwise act quickly to file their own action in a different forum.”
• “This likely means you must decline the matter, at least for now. It is possible that you could seek informed consent from the existing real estate client to be involved later (with the approval of the prospective client to make necessary disclosures) after the suit has already been filed and the reason for secrecy about the identity of the client and the matter has passed.”
• “But, you also have another issue. You have received confidential information from the prospective client about their race-to-the-courthouse strategy and their in-house assessment of the strength of their case before running a conflict check, and before specific agreement to be their counsel. By doing so, you have already placed yourself and the firm in a dilemma concerning duties to the existing real estate client.”
• “The best practice when discussing a new matter with a prospective client (or a current client) is to perform and clear a conflict check before acquiring any information the prospective client considers to be confidential. The most direct way to do this is to state to the prospective client at the time of initial contact to only provide you with the basic information necessary to perform the conflict check…”