Bressler Risk Blog

“Law firm informs 255K of HIPAA data incident 10 months after hack” —

• “Warner Norcross & Judge recently informed the Department of Health and Human Services of a Health Insurance Portability and Accountability Act data breach impacting 255,160 individuals. The law firm provides employment and immigration services to healthcare entities, including three of the largest hospital systems in Michigan.”
• “On Oct. 22, 2021, WNJ first discovered unauthorized activity on ‘some of its systems’ and took steps to secure the network. A digital forensics firm was brought on to investigate and to perform a ‘data mining and manual review.'”
• “WNJ found that personal and protected health information was contained in the protected systems, including names, dates of birth, Social Security numbers, driver’s licenses, passports, and government IDs, annual compensation amounts, benefit contribution details, credit or debit card numbers and PINs, financial accounts or routing numbers, and other sensitive data.”
• “The notice appears to explain the lengthy delay in notifying patients as tied to its data mining to identify impacted information and individuals. But under HIPAA, covered entities and business associates are required to report within 60 days of discovery, not at the close of an investigation.”

“Firm Yanks Atty From Ga. Clinic FCA Suit After DQ Bid” —

• “A Georgia law firm agreed to pull one of its attorneys from representing doctors at an orthopedic clinic defending a False Claims Act suit, after a former clinic executive raised concerns that the attorney worked for the U.S. Department of Justice when she filed whistleblower allegations.”
• “Griffin Durham Tanner & Clarkson LLC said it will replace attorney Charles W. Byrd on the case defending two Athens Orthopedic Clinic surgeons against claims they violated federal anti-kickback laws. The clinic’s former chief operating officer, Rebecca Hockaday, agreed to drop her motion to disqualify the firm with Byrd no longer on the case.”
• “Hockaday alleged in her disqualification motion that Byrd had access to confidential and privileged information that could be integral to her case as part of his role as an assistant U.S. attorney at the time she filed the whistleblower complaint against the clinic.”
• “Clarkson assured Hockaday that neither he nor anyone else at the firm had received confidential or privileged information from Byrd regarding the case, she said in the motion. The firm also agreed to ensure that Byrd was ‘timely screened from any participation in the matter,’ Hockaday said, and would receive no part of the fees arising from it. She also said the firm agreed to give the government the ability to ensure those promises were kept.”
• “The surgeons had previously responded to the disqualification motion by arguing Byrd couldn’t recall having any substantive involvement in the suit when he was an assistant U.S. attorney and said that, prior to agreeing to represent them, he had inquired with the U.S. Attorney’s Office for the Middle District of Georgia about whether he had any involvement with the suit during his tenure with the office. According to the filing, Byrd was told he hadn’t and that it had been handled by another attorney.”

And via Bill Freivogel:

• “Lecompte v. C.F. Woodford & Son, Inc., 2022 WL 4129410 (Super. Ct. Conn. Sept. 12, 2022). Plaintiff is suing Defendants for injuries suffered on Defendants’ premises. Firm 1 represents Defendants. Firm 2 represents Plaintiff. Lawyer was employed at Firm 1 when this case began. Lawyer moved to Firm 2. Defendants moved to disqualify Lawyer and Firm 2. In this opinion the court denied the motion. In a fact-intensive analysis the court found that Lawyer did not represent Defendants while at Firm 1 and learned nothing about the case while there. Thus, there was no basis to disqualify Lawyer or Firm 2 and no need for a screen at Firm 2.”
• “In re Maxus Energy Corp., 2022 WL 4113656 (3d Cir. Sept. 9, 2022). In this Chapter 11 proceeding the liquidating trustee is suing YPF S.A., and others, for fraudulent conveyance and related claims. Firm 1 is representing the trustee. Firm 2 is representing YPF. Lawyer, while at Firm 2 did substantial work on the case for YPF. Lawyer moved to Firm 1, which erected a timely screen. YPF moved to disqualify Firm 1. The bankruptcy judge denied the motion, terming the screen “robust.” In this opinion the Third Circuit affirmed. The court noted that the Bankruptcy Court for the District of Delaware had adopted the ABA Model Rules. The only unique circumstance here was that when Lawyer changed firms, she was engaged to a lawyer in her new firm. (They ultimately married, but the opinion is not clear when.) While Lawyer was not apportioned any fees from this case, her “spouse” was not so treated. YPF felt that for the screen to be effective, the spouse should also be denied a share of fees from the case. Nope, said the Third Circuit, construing Model Rule 1.10(a)(2)(i).”
• “Lowes v. Lowes, 2022 MBQB 156 (CanLII) (Ct. Q.B. Man. July 29, 2022). Divorce case filed by W. One of W’s lawyers was Lawyer employed by Law Firm 1. After W replaced lawyer, Lawyer left Firm 1 and joined Law Firm 2. Law Firm 2 is representing H in this case. W moved to disqualify Law Firm 2. In this opinion the master denied the motion. Firm 2 had erected an “ethical wall” (herein, “Screen”). In an exhaustive discussion of authorities throughout Canada on screening laterals, the master relied primarily upon guidelines in the Law Society of Manitoba Code of Professional Conduct. The Manitoba guidelines are consistent with those recommended by the Federation of Law Societies and the Canadian Bar Association. We will not set forth the guidelines’ requirements for Screens other than to say that they work in Canada, and there were no surprises here.”

The acting Attorney General of New Jersey has released updated Outside Counsel Guidelines which go into effect this November. More at this page: “New Jersey Office of the Attorney General” with a PDF of the complete guidelines themselves here.

• “Law firms retained by the Division of Law are required to comply with the Division’s Outside Counsel Guidelines, which were last updated in January 2015. Over the past several months, the Guidelines have undergone a thorough revision and are posted here for a reference. The new Guidelines go into effect on November 1, 2022. The Guidelines include detailed information about conflicts of interest, staffing, billing, confidentiality, and engagement of third-party vendors, among other topics.”
• “One common question is whether a private law firm can perform work for a particular state agency when that firm also represents clients adverse to a different state agency. The issue has been discussed in a number of ethics opinions and court rulings, which were most recently summarized in a May 2019 Attorney General letter.”

From the guidelines:

• “State agencies cannot waive any conflicts that the Rules of Professional Conduct (“RPCs”) prohibit, and counsel should neither request nor expect the Attorney General to grant such a waiver. See RPC 1.7(b)(1 ), 1.8(1) and 1.9(d)”
• “State agencies cannot waive any conflicts that the rules of professional conduct prohibit, and counsel should neither request nor expect the attorney general to grant such a waiver.”
• “Counsel must avoid a conflict of interest involving the State client they represent. As part of the retention process, the Division of Law will identify those entities the Division deems to be the ‘client’ for conflicts of interest purposes.”
• “The Division prohibits counsel that represent a State client from:
  • a) Representing private parties before the State client (or its officers) in an adversarial, transactional or non-adversarial proceeding…
  • b) Representing private parties in any matter in which the State client is also a party, if the private party has interests adverse to the State client.
  • c) Representing the State client in a matter in which a private client is adverse to the State if the firm represents the private client in other matters, even if the firm does not represent the private client in the matter involving the State client.
  • d) Representing the State agency in a matter in which a private client appears before the agency, submits an application to the agency or otherwise is requesting the agency take some action or refrain from taking some action, if the firm represents the private client in other matters, even if the firm does not represent the private client in the matter before the agency.
  • e) Representing a private party who has interests adverse to the State client.
  • f) Representing another client where the outside counsel’s knowledge of the State’s legal positions or strategy, derived from the representation or prospective representation of the State client, could be used to the advantage of the other client or to the disadvantage of the State client.”
• “A conflict may also arise from counsel’s advocacy of positions conflicting with important State interests. Positional conflicts could arise in litigation matters, transactional matters, and lobbying efforts. Prior to your engagement, your firm should carefully review whether any such conflict exists or if there is a potential for such a conflict. Whether a positional conflict exists is a fact-sensitive determination.”
• “Outside counsel, however, should generally avoid advocating a position that would limit the authority of the State client, would expand the scope of potential liability of the State client, or would require the State client to divulge information that the State client generally regards as confidential or privileged.”
• “Outside counsel must promptly report positional conflicts to the designated attorney before the firm accepts an engagement that will require the firm to advocate a position that may be adverse to a State legal interest or otherwise prejudicial to the interests of the State.”

And for those tracking Congressional activity on AML rules, Nigel Riley at Intapp advises: “ENABLERS Act: Enhance your risk and compliance management” —

• “For years, experts have warned professional service firms in the U.S. that they need to start preparing for money laundering regulations. And in recent months, those warnings have become impossible to ignore.”
• “The latest and loudest alert came in July 2022, when the U.S. House of Representatives proposed the Establishing New Authorities for Businesses Laundering and Enabling Risks to Security (ENABLERS) Act. This bipartisan legislation, aimed at so-called gatekeepers, would expand anti-money laundering (AML) surveillance — currently required of financial institutions — to professional services firms, requiring accounting and law firms to collect, monitor, and report specific types of client information.”
• “Passage of the ENABLERS Act is not guaranteed. It’s currently an amendment to the National Defense Authorization Act (NDAA), which observers expect congress to vote on by December. It could undergo significant changes prior to the final vote, or not pass at all this year.”
• “My advice to firm leaders is simple:
  • Don’t delay. Proactively prepare by enhancing your KYC and AML processes.
  • Focus on the long-term. Augmenting your firm’s risk and compliance programs can have ongoing, positive impacts on other aspects of your business.”
• “Firms will have to find their own path, but they can get there by focusing on three key areas:
  • Process — Now is the time to thoroughly review current policies and practices, including overall governance framework and risk and compliance protocols for assessing risks associated with accepting new clients and engagements, clearing conflicts, onboarding new business, monitoring engagement performance, and managing client relationships. You can also map out a plan for review and conduct a gap analysis against the newly proposed requirements.
  • People — The risk and compliance team shouldn’t be the only function to prepare for the new regulatory requirements. Instead, a cross-functional evaluation of the client lifecycle and all touchpoints provides a better approach to comprehensively assessing your firm’s current risks, capabilities, and staffing needs. Enhancing team resources, upskilling staff, and identifying inefficiencies can create additional capacity to satisfy the new requirements and allow staff to allocate more time to higher-value work and analysis.
  • Technology — It’s critical to determine if your firm’s current software is optimal enough to support more robust tracking, greater amounts of data, and enhanced reporting as required by the proposed legislation. Take this opportunity to reconsider the software tools currently in use at your firm, evaluate paper-based or manual processes, and identify areas prone to human error where automation and systems integration could mitigate risks and make adopting new regulations easier.”
• “As my colleague and risk management expert Meg Block notes, preparing for the requirements of the ENABLERS Act will require firms to review client onboarding procedures and create additional mechanisms for ongoing monitoring throughout the client lifecycle. This process could create long-term benefits.”
• “Whether or not the ENABLERS Act passes this year, the message is clear: Professional services firms need to prepare for AML regulatory requirements. By starting now, firms can better understand how the regulations may affect them and where they need to focus.”

Finally, interesting news on a law firm CEO conflict for the Ince Group plc (Stock Ticker: INCE), which describes itself: “As well as providing legal services, The Ince Group provides accounting, financial services, consulting and pensions advice to clients.” “Former Ince chief exec removed as company director over ‘conflict of interest’ concerns” —

• “The former chief executive of the listed law firm Ince has been removed from his position as a company director with immediate effect, it was announced yesterday.”
• “In July, Adrian Biles confirmed he would step down from his role as Ince’s chief executive and resign from the board upon completion of £8.6 million fund raising project through the issuance of new shares and a loan.”
• “In an announcement to the stock market yesterday, Ince said Biles ‘has been removed as a director of the Company with immediate effect, as a result of circumstances which may give rise to a conflict of interest between Adrian Biles and the Company.'”
• “The consequences of all this can be seen in the company’s latest financial results in which revenues dipped 3% to £97 million. Ince’s share price also dived 50% to around 5p following the July announcement that it would be undergoing further financing. The listed law firm’s shares price tumbled further to 4.33p in the wake of yesterday’s announcement.”

“White & Case Lawyer Conflict Screen Cleared by Appeals Court” —

• “White & Case LLP properly screened a newly hired attorney from a conflict that would have otherwise spread to the entire firm and disqualified it from participating in a bankruptcy case, the Third Circuit ruled on Friday.”
• “Jessica Lauria, formerly called Jessica Boelter, worked at Sidley Austin LLP, which represented YPF SA in a case brought by Maxus Liquidating Trust in connection with the Chapter 11 bankruptcy of Maxus Energy Corp. She was later hired by White & Case, which represented the trust and is where her husband also works.”
• “White & Case timely screened Lauria from involvement in the matter, but her former client YPF sought to disqualify the firm, saying the screening was insufficient. The bankruptcy court denied the disqualification bid.”
• “The US Court of Appeals for the Third Circuit affirmed that decision, agreeing with the lower court that White & Case’s screening followed the rules, which included a requirement that the conflicted attorney not receive any portion of the fees.”]
• “The appeals court rejected the argument that Lauria’s husband receiving fees meant the screen was not properly conducted.”

via the always excellent Legal Profession Blog: “Fee Dispute Leads To Directly Adverse Conflict” —

• “This appeal involved a dispute over the division of a personal injury settlement between a predecessor law firm (“Litster”), a successor law firm (“IILG”), and a client who was subjected to unfair and deceptive trade practices in violation of the Idaho Consumer Protection Act (“ICPA”). Litster represented Melissa Gryder for approximately three years before IILG took over representation and settled Gryder’s case roughly two months later.”
• “Gryder had followed her attorney, Seth Diviney, from Litster to his new firm, IILG. After Gryder’s case was settled, Litster sued IILG and Gryder, claiming a portion of the settlement fund for its incurred attorney fees and costs. Gryder, through Diviney as her attorney, counterclaimed that Litster had violated the ICPA and could not recover from the fund.”
• “The district court granted Gryder summary judgment on the liability portion of her ICPA counterclaim but reserved the mechanics of her elected ICPA remedy (rescission) for trial. By the time of the bench trial, the district court understood, based on representations by Diviney, that only IILG and Litster claimed a stake in the disputed fund—not Gryder. From this, the district court balanced the equities and divided the disputed fund between only IILG and Litster while reducing Litster’s share to account for its ICPA violation. IILG and Gryder appealed the district court’s division of the fund and Litster cross-appealed the grant of partial summary judgment to Gryder.”
• “Next, the Court concluded, sua sponte, that Diviney had engaged in an unwaivable concurrent conflict of interest on appeal—and throughout this case below. The Court explained that Litster, IILG, and Gryder have competing claims on how to distribute the fund. Yet, at all times, Diviney represented both Gryder’s and IILG’s directly adverse claims in the same litigation.”
• “To ensure procedural due process, the Court declined to, on appeal, determine the appropriate sanction for Diviney’s ethical violation. Instead, the Court remanded the matter for the district court to determine the appropriate sanction after a hearing.”
• The court wrote:
  • “We note that the cost of disqualifying Diviney from representing Gryder on her ICPA claim may, at this stage, outweigh any benefits Gryder would receive from conflict-free counsel. It has been nearly six years since Gryder’s underlying personal injury occurred, the parties have been disputing the distribution of Gryder’s personal injury settlement for over two years, one trial has already occurred, and a judgment against Gryder has been entered. Moreover, Diviney and IILG’s right to compensation in Gryder’s underlying personal injury case is materially entwined with Gryder’s right to deny Diviney and IILG a fee for the same under Gryder’s ICPA cause of action.”

Hat tip to Bill Freivogel for noting a recent opinion issued by the Advisory Committee on Professional Conduct (New Jersey): “OPINION 743: RPC 1.10(a) – Imputing Conflicts of Interest That Are Based on a Personal Interest of the Lawyer” —

• The Advisory Committee on Professional Ethics received an inquiry regarding a law firm that was retained to advise a client entity in a commercial loan refinancing. The client entity is fully owned by a parent limited liability company that has two members who each own equal shares. A shareholder in the law firm is one of the two members of the parent company.
• “The Committee found that the lawyer with the financial stake has a conflict of interest based on a personal interest of the lawyer, Rule of Professional Conduct 1.7(a)(2), and that the affected lawyer’s conflict of interest is imputed to the firm under Rule of Professional Conduct 1.10(a).”
• “The exception for imputing ‘personal interest’ conflicts in Rule of Professional Conduct 1.10(a) is narrow and generally includes only interests arising due to family relationships or personal beliefs, not business or investment interests.”
• “See Michels, K., New Jersey Attorney Ethics, § 24:3-1(a), p. 618 (Gann 2022) (the ABA comments suggest that the RPC 1.10(a) exception for imputing personal conflicts ‘does not apply when the affected lawyer’s interest is pecuniary or proprietary’).”
• “Family-based or belief-based personal interests ordinarily are not considered to present a significant risk of materially limiting the representation of the client by the remaining lawyers in the firm. Conflicts arising from a lawyer’s personal business interests – particularly when those business interests affect the client’s objectives of legal representation – ordinarily would present a significant risk of materially limiting the representation of the client by the other lawyers in the firm.”
• “If, however, the lawyer with the relationship is not handling the case, the conflict is not likely to materially and adversely impair the representation of the client by the remaining lawyers in the firm. This personal interest conflict generally is not imputed to the firm 5under RPC 1.10(a), though the affected lawyer should be screened from the matter. Ibid. In this case, the client need not be informed of the relationship or provide consent to a conflict.”

“Judicial Ethics Opinion 21-164” —

• “Provided the judge is satisfied they can be fair and impartial, the judge may preside in a case where (1) the plaintiff is an attorney who frequently appears before the judge and was previously co-counsel with the judge’s sibling on several discrete cases and (2) plaintiff’s counsel rents office space in the same office as the judge’s sibling and also is an elected county legislator representing the district where the judge resides.”
• “We note, initially, that there is no indication here that the judge’s sibling has any involvement or interest in the case before the judge. Nor does the inquiry suggest that any litigant or attorney in the case is the partner or associate of the judge’s sibling (see Opinion 06-111) or has a current, ongoing business relationship with the judge’s sibling (cf. Opinion 95-35 [judge should recuse in cases involving appearances by a law firm, where the judge’s spouse, who is a lawyer, has a continuing counsel relationship with the law firm, and not merely a retainer interest in occasional, separate, discrete cases]).”
• “We do not believe the judge’s impartiality can reasonably be questioned merely because plaintiff’s counsel “rents office space in the same office” as the judge’s sibling (see e.g. Opinion 14-91).”
• “We have also advised that a judge is not disqualified in a matter merely because a litigant or witness before them is an attorney who regularly practices before the judge (see e.g. Opinions 17-130; 14-120; 14-62; 09-239; 07-122; 92-49). We likewise conclude here that the judge’s impartiality cannot be reasonably questioned merely because plaintiff is also an attorney who regularly appears before the judge.”
• “Finally, we believe the judge’s impartiality cannot reasonably be questioned merely because the plaintiff was previously co-counsel with the judge’s sibling “on several high-profile criminal cases.” We note that a judge is disqualified, subject to remittal, when their sibling’s law partners or associates appear before the judge (see Opinion 06-111).”

“Judicial Ethics Opinion 22-16” —

• “A judge need not disqualify from a custody case merely because the judge’s confidential secretary has connections to both parties through marriage, but must insulate the secretary from any involvement in the matter. If a party objects to the judge’s participation in the case, the judge has the sole discretion to decide whether to exercise recusal.”
• “A judge is presiding in a custody case in which the judge’s secretary has personal connections to both sides through marriage. Specifically, the secretary was formerly married to one party and formerly married to an ex-partner of the other party.”
• “Where a judge’s staff member has a conflict, ‘it is ordinarily sufficient to insulate the staff member and disclose the insulation’ (Opinion 19-72).”
• “Here, too, we believe the judge’s impartiality cannot ‘reasonably be questioned’ based on the secretary’s personal connections with both sides in the custody case (22 NYCRR 100.3[E][1] [emphasis added]). Accordingly, this judge need not disqualify merely because the judge’s confidential secretary has connections to both parties through marriage, but must insulate the secretary from any involvement in the matter. Because disqualification is not mandatory here, the judge ‘is the sole arbiter of recusal’ (People v Moreno, 70 NY2d 403, 405 [1987]) even if a party objects to the judge’s participation.”

“Samsung Wants Former In-House Atty DQ’d From Patent Suit” —

• “Samsung has asked a federal judge in Texas to disqualify its former top in-house IP attorney from participating in a suit over smart speaker technology being pursued by the lawyer’s new patent-rights venture.”
• “The tech giant filed a disqualification motion on Thursday arguing that Dr. Seung-Ho Ahn, the founder of the Singapore-based Synergy IP Corp., should be barred from involvement in the case as he could unfairly leverage information he gained during his nearly two decades of service for Samsung.”
• “Synergy, which Ahn founded shortly after his departure from Samsung in 2019, is suing the company alongside co-plaintiff Staton Techiya LLC for alleged patent infringement related to Samsung’s Bixby smart speaker platform.”
• “But Samsung argued on Thursday that Ahn and another former Samsung lawyer, Sungil Cho, who joined Synergy not long after its founding, needed to be ‘walled off’ from participating in the case.”
• “Neither Ahn nor Cho is listed as counsel for Synergy or Staton Techiya, although Samsung claims they’re providing legal guidance and information they only have because of their previous employment there.”
• “‘Synergy’s business model is essentially legal in nature, as it makes money by acquiring patent rights with the goal of convincing counsel at target companies to take a license — and sues those companies if they refuse to pay,’ the disqualification motion said.”
• “While the motion’s heavy redactions make murky some of the specific allegations against Ahn and Cho, it is clear Samsung wants to level a playing field it claims has been tilted by the use of its former lawyers’ deep understanding of the company’s inner workings.”
• “‘Ahn’s actions violate his obligations under Texas and national ethical standards that prohibit attorneys from participating in matters that are both adverse to a previous client and substantially related to matters in which they previously represented that client — standards that apply to Ahn’s conduct in this case regardless of whether he chooses to enter a formal appearance,” Samsung argued. “It would severely prejudice Samsung to be forced to litigate this case against its own former in-house IP attorneys, and Samsung therefore requests that the court disqualify them and order them to refrain from any input, decision-making, or advice related to the patent infringement claims in this litigation.'”
• “Samsung argued that Synergy can’t disguise Ahn’s alleged legal work for Synergy by giving him the title of CEO rather than general counsel or legal chief, and that Cho shouldn’t be permitted to sidestep ethical tenets either.”
• “According to court records, Synergy and Staton Techiya have agreed to put voluntary measures in place to screen Ahn and Cho from communications regarding the patent infringement claims being raised as part of the litigation.”

[h/t to Simon Chester for noting]: “Ernst & Young splits into separate audit and advisory businesses” —

• “Bosses at the ‘big four’ accountancy firm Ernst & Young have decided to move ahead with a radical break-up plan to separate its audit and advisory businesses, which will now be put to a vote by its 13,000 partners.”
• “Voting at EY, which has offices in more than 150 countries and employs 312,000 people globally, is expected to begin on a country-by-country basis towards the end of this year and conclude early next year.”
• “The industry has come under pressure for a major overhaul to tackle potential conflicts of interest to avoid future accounting scandals and business failures.”
• “Its leaders hope the audit and advisory arms can grow faster once they have been separated, as the break-up will remove conflicts of interest and operational challenges.”
• “EY’s chief executive, Carmine Di Sibio, has said a global split could bring in an extra $10bn a year for the consulting arm in advisory fees from big technology companies, as the firm is barred from selling advice to audit clients.”
• “The proposed split has received support from Sir Jon Thompson, the chief executive of the Financial Reporting Council, the UK accounting regulator.”

“Tether wants Roche Freedman off case over founder’s alleged conflict” —

• “Tether wants Roche Freedman removed from a case against the cryptocurrency company after allegations that one of the law firm’s founders abused investor lawsuits to aid a corporate client.”
• “On Thursday, Roche pulled out of other cases in California, including one against Binance U.S. over the collapse of stablecoin Terra USD.”
• “The move came after a website called Crypto Leaks published video clips purportedly showing Roche admitting to using investor lawsuits to target competitors of Ava Labs, a crypto company in which he and other partners at the firm had a financial stake.”
• “He said in a statement that the report contains falsehoods and that the video was illegally obtained by a person working for someone he sued and edited to remove context.”
• “Founded in 2019 by a group of attorneys who left Boies Schiller Flexner, Roche Freedman is known for suing big crypto issuers and exchanges on behalf of investors. In withdrawal notices, Roche said he is ‘no longer involved’ in the firm’s class action practice.”
• “Nonetheless, Tether asked U.S. District Judge Katherine Polk Failla on Thursday to remove Roche Freedman from the case against the company, saying that Roche’s withdrawal alone would not eliminate the conflict.”
• “‘Even if he is no longer counsel of record, he would still have access to discovery materials, would retain the ability to direct the conduct of other lawyers at his firm and would profit from any potential recovery in this lawsuit,’ the company said in a letter.”

“SEC Seeks Early Win In FOIA Fight Over Crypto Conflict Docs” —

• “The Securities and Exchange Commission asked a Virginia federal judge on Wednesday to give it an early win in its records dispute with a watchdog group over documents that might reveal former high-ranking SEC officials’ conflicts of interests associated with their oversight of cryptocurrency.”
• “The SEC argues that any withholding or redaction of documents was legally justified, and that its search process need not be perfect, just reasonably designed to find all relevant records.”
• “Empower’s records requests focused on three former SEC officials – chairman Jay Clayton, corporate finance head William Hinman and acting enforcement leader Marc Berger – and decisions they made with respect to certain cryptocurrencies.”
• “Clayton, for example, stated publicly in June 2018 while head of the SEC that Bitcoin was not a security, leading its value to skyrocket, according to the lawsuit. He later left the SEC and joined One River Asset Management, a cryptocurrency hedge fund that focuses on Bitcoin and Ether. The lawsuit raised similar concerns relating to Berger and Hinman, both of whom are now employed at Simpson Thacher & Bartlett LLP, which is part of an industry group that seeks to ‘drive the use’ of Ethereum blockchain technology.”
• “‘The SEC produced some records at the last minute ahead of its motion for summary judgement,’ Empower president and founder Jason Foster said in a statement. ‘Given the SEC’s pattern of bad faith negotiations on search terms and history of incomplete productions, we are skeptical that this production is fully responsive.'”
• “In one instance, the commission cites the exemption covering trade secrets and confidential commercial or financial information to justify its decision to withhold parts of documents that have the ‘non-public name of a Simpson Thacher client, Simpson Thacher’s billing practices, and confidential information about the business operations of AT&T submitted to the SEC,’ that were provided as part of a confidential SEC investigation.”
• “The commission also cites the exemption for deliberative process records, saying it redacted parts of records that showed internal discussions between the SEC’s Office of Ethics Counsel and the U.S. Office of Government Ethics about Hinman’s payments from a retirement plan. The agency said the records also showed internal talks between Hinman and OEC staff about whether he could attend a meeting of the London arm of a group of securities law firms.”

“Why Lowenstein Sandler Was Barred From Representing a Client” —

• “A New Jersey appeals court granted a motion to disqualify Lowenstein Sandler from representing one of the executors of the estate of a pharmaceuticals executive.”
• “The appeals court overturned a ruling denying a motion by Angela Krivulka to disqualify Lowenstein Sandler from representing an attorney from the firm, Michael Lerner, as co-executor of the estate of Krivulka’s late husband, Joseph. But the panel also affirmed a lower court ruling removing Krivulka from her post as co-executor.”
• “Krivulka sought to disqualify Lowenstein from administration of her late husband’s estate based on the firm’s representation of both her and her husband in their estate planning matters, beginning in 2009. And the appeals court, in an unsigned opinion, said her husband deliberately structured his estate, and concealed information from Krivulka, so that certain of his assets, as community property, would not pass to her.”
• “‘Thus, we are satisfied that Lowenstein’s obligations to Mrs. Krivulka as her estate planning attorney presented a clear conflict that should have precluded Lowenstein from representing Mrs. Krivulka and Lerner jointly as coexecutors,’ the appeals court said.”
• “Lowenstein, noting that the couple asked the firm to provide them joint representation, advised them about a potential conflict in that type of representation, and obtained waivers of the conflict. However, two weeks after signing the waiver, Angela Krivulka raised concerns about a conflict arising over Lerner’s relationship to Lowenstein. Later, in July 2020, Krivulka sued Lowenstein and Lerner for malpractice in federal court in New Jersey, claiming Lerner failed to provide her certain information about the estate.”
• “Joseph Krivulka’s will gave Lerner the authority to appoint a third co-executor, and he named Harriet Derman, a former state judge now with DiFrancesco Bateman Kunzman Davis Lehrer & Flaum in Warren to that post. Derman proceeded to file a complaint in Monmouth County Probate Court, seeking confirmation that two out of three of the co-executors could authorize use of estate assets to pay administrative expenses of the estate.”
• “The panel said Lerner’s interest in administering Joseph Krivulka’s estate consistent with his will ‘is clearly adverse to Mrs. Krivulka’s individual interest to obtaining the maximum financial benefit from the estate.'”

“El Paso County sex assault convictions overturned due to lawyer’s offenses” —

• “A defense lawyer had an actual conflict of interest when he represented an El Paso County defendant at the same time the lawyer’s own drunk driving cases were pending before the same prosecutor’s office, Colorado’s second-highest court determined on Thursday.”
• “Because the U.S. Constitution guarantees the right to conflict-free legal representation and District Court Judge David A. Gilbert failed to ensure the defendant knowingly gave up that right, a three-judge panel for the Court of Appeals reversed the convictions of Matthew Rodolfo Vansant Lopez.”
• “‘Here, the court only asked if Lopez was aware of ‘current circumstances,’ and made no mention of the fact that defense counsel had been criminally charged,’ wrote former Supreme Court Justice Alex J. Martinez, who sat on the panel at the chief justice’s assignment. ‘Thus, the court’s inquiry was procedurally deficient.'”
• “Unusually, at the same time he was representing Lopez, prominent defense attorney Dennis Hartley had cases pending against himself in El Paso County. Court records show a lengthy series of charges for driving under the influence, driving without a license and other traffic infractions. Most recently, Hartley pleaded not guilty in March of this year to five other driving-related charges.”
• “The Court of Appeals previously recognized that when a defendant and his lawyer are both being prosecuted by the same district attorney’s office, there is a danger prosecutors ‘might take umbrage at a vigorous defense’ from the attorney and treat them more harshly in their own criminal case. Therefore, a conflict of interest is not hypothetical, but real.”

“Coaching an Attorney’s Kid Doesn’t Automatically Disqualify Judge, Ethics Panel Says” —

• “Judges who coach should watch for curveball facts that might lead someone to reasonably wonder if they can be impartial in a case involving an attorney whose child is a player on their team, the Supreme Court Committee on Judicial Ethics Opinions wrote.”
• “The Supreme Court Committee on Judicial Ethics Opinions warned in a formal opinion, however, that judges who coach should disclose on the record ‘reasonably relevant’ information about why they did not step away from such a case.”
• “San Joaquin County Superior Court Judge Barbara Kronland and Bryan Borys, director of research and data management at the Los Angeles County Superior Court, both raised concerns about the draft opinion’s use of the phrase ‘discretionary disqualification.’ The formal opinion includes a footnote discussing the differences between a judge stepping away from a case for ‘mandatory’ or ‘discretionary’ reasons.”
• “As long as a judge-coach does not have a shared financial interest with the athlete’s parent, an insider’s knowledge of facts in a case or some other obviously disqualifying trigger, he or she can hear the parent-attorneys case, the formal opinion said. But the judge-coach must consider three other questions: Does the judge believe disqualification is in the interest of justice? Does the judge doubt his or her ability to be impartial? Would the average person doubt the judge’s impartiality?”
• “The 12-page opinion does not say who or what prompted a review of the issue. The committee posted a draft version of the opinion in June and received just three responses.”
• “‘THIS IS ABSOLUTELY RIDICULOUS TO BE SPENDING TIME DEALING WITH THIS ALLEGED ISSUE!!!!!!’ Los Angeles County Superior Court Judge Kelvin Filer wrote. ‘as a judge, let’s just NOT get involved in our children’s activities?'”

“The ‘Conflict of Interest’ Defense to Shareholder Derivative Standing” —

• “In shareholder derivative litigation, defendants occasionally argue that the plaintiff – who ostensibly sues on behalf of the company and its owners in a fiduciary capacity – has some form of conflict of interest with the company or its remaining owners, so the court should disqualify the plaintiff from serving as plaintiff.”
• “The classic, most simple conflict of interest is where the plaintiff herself has engaged in some form of wrongdoing against the company, for which the entity or its owners have lodged (or may lodge) counterclaims.”
• “The theory is that if the plaintiff is herself a bad actor, she cannot be expected to be an adequate steward and representative of the legal rights and interests of the entity she herself has harmed.”
• “Other disqualification cases in New York followed Steinberg. A fairly comprehensive discussion of the state of New York law (up to that time) of shareholder derivative plaintiff conflicts of interest was found in Pokoik v Norsel Realties, 55 Misc 3d 1208[A] [Sup Ct, NY County 2017]), in which former Manhattan Commercial Division (now Appellate Division – First Department) Justice Jeffrey K. Oing ruled that there was a ‘prototypical conflict of interest’ requiring disqualification because the plaintiffs purported to sue on behalf of an entity’s partners while at the same time suing them as defendants.”
• “Similarly, in Delaware, there is a line of case law emanating from Katz v Plant Indus., Inc. (an unpublished 1981 Delaware Chancery Court decision) and Youngman v Tahmoush, 457 A2d 376 [Del Ch 1983]), both holding that Delaware’s class action statute, Court of Chancery Rule 23.1, applies to shareholder derivative suits, and that Delaware courts should under Rule 23 examine the plaintiff’s adequacy as a derivative plaintiff (both at the pre-answer dismissal stage and at the final approval of any derivative settlement), including whether any conflicts or ‘economic antagonism’ between the plaintiff, the entity, or the other owners.”
• “Youngman announced the Delaware standard that ‘purely hypothetical, potential or remote conflicts’ are not enough, and that to prove the need to disqualify a derivative plaintiff, ‘a defendant must show that a serious conflict of interest exists, by virtue of one factor or a combination of factors, and that the plaintiff cannot be expected to act in the interests of others because doing so would harm his other interests.'”
• “The Youngman standard has worked its way into New York jurisprudence, including a decision last fall from Manhattan Commercial Division Justice Joel M. Cohen, TNJ Holdings, Inc v Rubenstein (Decision and Order [Sup Ct, NY County Sept. 13, 2021]), in which the Court, applying Delaware law, dismissed a shareholder derivative suit for lack of standing under CPLR 3211 (a) (3) because the plaintiff brought a mix of direct and derivative claims, the value of the direct claims eclipsing the derivative claims.”
• “In the past month and a half, a pair of decisions in both New York and Delaware have thrown cold water on the “conflict of interest” defense to shareholder derivative standing.”
• [See the complete article for more detail on]:
  • “The first was Larsen v Larsen (2022 NY Slip Op 32415(U) [Sup Ct, Kings County July 18, 2022]“
  • “Less than a month after Larsen, the Delaware Supreme Court, in Griffith v Stein (___A3d ___ [Del Aug. 16, 2022]“

“Trump’s Lawyers May Become Witnesses or Targets in Documents Investigation” —

• “Two lawyers for former President Donald J. Trump are likely to become witnesses or targets in the investigation into how he hoarded documents marked as classified at his Florida estate — and secretly held onto some even after they claimed all sensitive materials had been returned, legal specialists said.”
• “During the visit, Mr. Trump’s representatives turned over 38 documents with classified markings and indicated that all the records had been kept in a storage room, that no other records were stored elsewhere and that all available boxes had been searched, prosecutors said.”
• “According to the statement, Ms. Bobb signed on behalf of Mr. Trump that ‘based upon the information that has been provided to me,’ all documents responsive to the subpoena were being returned after a ‘diligent’ search.”
• “The sequence of events raises the question of whether the two lawyers knowingly misled the Justice Department. If so, they could be charged with crimes like obstruction and making false statements. But they could defend themselves by saying they in turn had been lied to by someone else and so did not know the statements were misleading.”
• “It is not clear whom Ms. Bobb was referring to — Mr. Corcoran, Mr. Trump, both, or someone else — when she qualified her statement with the phrase “based upon the information that has been provided to me.” Investigators may seek to ask her that. If Ms. Bobb were to single out Mr. Corcoran, the focus would shift to him.”
• “Notably, if either of them were to say that Mr. Trump had assured them that no other documents marked as classified remained at Mar-a-Lago, that would create a conflict of interest, specialists said: Mr. Trump’s defense would likely be to deny he had said that. If such a clash arises, it is doubtful they could continue representing him as a matter of legal ethics.”

In the United States: “Lawyers Fight Bill Forcing Them to Report Suspicious Client Acts” —

• “Lawyers are pushing back against anti-money laundering legislation that would require them to report suspicious transactions by clients, as banks already must do.”
• “Opponents worry the plan would disrupt attorney-client privilege and empower the Treasury Department to conduct random audits. ‘The audit power really is quite broad and unconstrained,’ Covington & Burling partner Nikhil Gore said in an interview.”
• “The legislation, prompted in part by Pandora Papers disclosures last year, is aimed at shutting down what supporters see as loopholes in the Bank Secrecy Act that let oligarchs such as those allied with Vladimir Putin take advantage of US entities to launder money.”
• “The American Bar Association said the legislation would regulate services law firms provide, such as trust formation and company registration, and interfere with attorney-client relationships.”

In Australia: “90% of lawyers concerned with money laundering” —

• “More Australian lawyers are concerned about money laundering than ever; new research has revealed.”
• “A new report conducted by anti-money laundering (AML) and counter-terrorism financing (CTF) platform First AML has shown that 90 per cent of lawyers and accountants are more concerned about money laundering since discussions around Tranche 2 — the name of the part of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 that applies to legal professionals, accountants, real estate agents and trust and company service providers.”
• “According to the research, the two main reasons for this are that 79 per cent of Australian companies are increasing their focus on customer transparency and ethical customer onboarding, with 70 per cent preparing for expected Tranche 2 implementation. Other reasons include reducing siloed documentation (64 per cent), increased risk of fines (61 per cent) and external risks (47 per cent).”
• “In addition, a whopping 95 per cent of respondents admitted that a money laundering incident would impact their company’s ability to attract new clients and retain existing ones and 89 per cent said they are proactively putting more rigid AML policies in place.”
• “Compliance steps being put in place include technology, outsourcing services such as a policy consultant or external training and hiring AML experts.”