Bressler Risk Blog

“SEC probing Big Four accounting firms over conflict-of-interest concerns: report” —

• “The Securities and Exchange Commission (SEC) has launched a probe into conflict-of-interest concerns within the financial sector that includes the Big Four accounting firms — Deloitte , Ernst & Young, KPMG, and PricewaterhouseCoopers.”
• “Sources told The Wall Street Journal on Tuesday that the probe will focus on whether accounting firms undermined their ability to conduct independent audits by offering other consulting or non-audit services to clients. “
• “The SEC’s Miami office reportedly sent letters to the big four companies and smaller accounting firms last year seeking information about client work that would cause auditors to violate rules requiring them to be independent of clients whose finances they inspect.”
• “All four of the biggest firms have paid fines to the agency since 2014 to settle regulatory investigations of audit independence violations, the Journal reported.”
• “The SEC has also asked audit firms to disclose instances to regulators when they provided non-audit services such as consulting, tax advice, and lobbying to audit clients — and instances in which their financial outcomes depended on those ties, such as making fees contingent on a particular result.”

WSJ: “Big Four Accounting Firms Come Under Regulator’s Scrutiny” —

• “The Big Four audit 66% of all public companies with a market capitalization over $75 million, according to Audit Analytics. All four have paid fines to the SEC since 2014 to settle prior regulatory investigations of audit independence violations.”
• “SEC rules prohibit accounting firms from doing other work for an audit client that could impair their objectivity and impartiality as auditors. Companies pay audit firms to test their accounting and then issue an opinion stating whether shareholders can rely on the financial numbers and systems designed to reduce the risk of fraud or error.”
• “Public companies disclose audit and nonaudit fees in their annual proxy statements. About 47 companies in the S&P 500 index paid significant nonaudit fees to firms hired to test their accounting practices, according to Audit Analytics. The analysis defined significance as nonaudit fees that constituted more than 25% of total fees paid to the accounting firm.”
• “PwC paid almost $8 million in 2019 to settle SEC claims that it helped an audit client design software that was part of its accounting-compliance systems. The arrangement violated audit-independence rules because it put PwC in the position of potentially auditing its own project-management functions, according to an SEC settlement order.”
• “Ernst & Young has twice in the past seven years settled SEC investigations alleging it violated independence rules.”
• “KPMG in 2014 paid $8.2 million to settle an SEC investigation that alleged it provided prohibited nonaudit services such as bookkeeping to affiliates of companies whose books it audited.”
• “Deloitte & Touche LLP in 2015 paid $1.1 million to settle an SEC enforcement action claiming audit independence violations. Both firms settled without admitting or denying misconduct.”

For more commentary, see this dialogue published in 2018 by the Financial Times and others: “Should the Big Four accountancy firms be split up? Two experts debate how best to reform auditing ” —

• “Yes — Separating audit from consulting would prevent conflicts of interest”
• “Auditors are supposed to underpin trust in financial markets. Major stock markets require listed companies to hire auditors to verify their accounts, providing reassurance to shareholders that material matters have been inspected and their capital is protected. In the UK, auditors must certify that the published numbers give a ‘true and fair view’ of circumstances and income; that they have been prepared in accordance with accounting standards; and that they comply with company law.”
• “Multiple market failures need to be addressed. The most obvious problem is that audit quality is invisible to those whom it is intended to benefit: the shareholders. It is difficult to differentiate good and bad audits. Even with the introduction of extended auditor reports in the UK (and starting in 2019 in the US), formulaic notes about audit risks often hide more than they convey.”
• “Even when questions are raised about the quality of audits, shareholders almost always vote to retain auditors, with most receiving at least 95 per cent support.”
• “The dominance of the Big Four in large company audits is another concern: when large and powerful firms are able to crowd out high quality competitors, the damage is lasting.”
• “Taken together, these failures have resulted in a dysfunctional audit market that needs a broad revamp. Splitting audit from consulting would prevent the most insidious conflict of interest. When non-audit work makes up around 80 per cent of fee income for the Big Four (and just over half of income from audit clients), the influence of this part of the business is huge.”

• “No — Lopping off advisory services would hurt performance”
• “Forcing Deloitte, EY, KPMG and PwC to shed their non-audit businesses would neither add competition nor boost smaller competitors. Lopping off the Big Four’s consulting and advisory services would degrade their performance, weaken them financially, and hamper their ability to meet the needs of their clients and the capital markets.”
• “Although the UK regulator is raising competition concerns, the root problem is global. The growth of the Big Four, operating in more than 100 countries, reflects their multinational clients’ needs for breadth of geographic presence and specialised industry expertise.”
• “The suggestion that competition and choice would be increased by splitting up the Big Four is doubly unrealistic. Forcing them to spin off their non-auditing business would not create any new auditors.”
• “A split by industry sector — say, assigning auditing of banking and technology to Firm A-1, while manufacturing and energy go to new Firm A-2 — would be no better. Each sector would still be served by just four big firms. If each firm were split in half, the two smaller firms would struggle to amass the expertise, personnel and capital necessary to provide the level of service that big companies expect.”
• “Splitting auditing from advisory work is a solution in search of a problem. Many jurisdictions, including the UK, EU and US, restrict the ability of firms to cross-sell other services to their audit clients. Concerns about inherent conflicts of interest are overblown.”
• “Auditors should be held accountable for their mistakes, but these issues are too complex for simplistic solutions. Rather than a quick amputation, we need a full-scale re-engineering of the current model with all of its parts.”

“Firm fined almost £100,000 over ransomware attack” —

• “Criminal defence firm Tuckers Solicitors has been fined £98,000 after failing to secure sensitive court bundles that were later published on the dark web and held to ransom by organised criminals. The information commissioner found that a ransomware attack on the national firm resulted in the encryption of 972,191 files, of which 24,712 related to court bundles. Of the encrypted bundles, 60 were taken by the attackers and then posted in underground data marketplaces.”
• “The decision notice said: ‘The commissioner considers that Tuckers’ failure to implement appropriate technical and organisation measures over some or all of the relevant period rendered it vulnerable to the attack.’”
• “The ICO made clear that while primary culpability for the incident rested with the attacker, the firm had given them a ‘weakness to exploit’ and was responsible for the protection of personal data. The firm had not used multi-factor authentication for remote access to its systems, despite this being recommended since 2018.”
• “The ICO said this extra protection was a ‘comparably low-cost preventative measure which Tuckers should have implemented’, which would have substantially increased the difficulty of an attacker entering its network. Entry could have been gained through the exploitation of a single username and password, and the Tuckers system was exposed to cyber-attacks because of the lack of multi-factor authentication.”
• “The ICO said infringements to data protection rules showed that the firm’s approach to data protection compliance ‘was not of an appropriate standard’.”

See the ICO’s “MONETARY PENALTY NOTICE” —

• “In particular, the privacy watchdog noted the lack of multi-factor authentication (MFA) for remote access to the Tuckers systems, the slow pace at which software vulnerabilities were patched and a failure to encrypt personal data.”

That PDF redacts all the good bits. But it didn’t take much sleuthing to arrive at the likely conclusion that the underlying unpatched software was the firm’s Citrix system.

It took ~six months from when the security patch was issued to when the firm applied it… A powerful reminder for the IT and information security folks out there. The ICO offers a convenient security guide on ransomware and data protection compliance.

More generally, see: “Zero Trust Architecture: An Imperative for Law Firms” —

• “Sadly, law firms are a ‘one-stop shop’ for cybercriminals. Break into a company and you will primarily get that company’s data. Break into a law firm and you’ll get the data of many clients. As an example, imagine breaking into a merger and acquisitions firm (among many other desirable law firm targets). Data is the new oil, right? You could hold the data for ransom, make a killing on Wall Street or use the data to infiltrate the law firm’s clients. The nightmare scenarios are endless, as many law firms have discovered to their chagrin.”
• “Zero Trust Architecture (ZTA) has been coming at us for a while and it is now officially here, championed by the U.S. government, leading technology firms and cybersecurity experts.”
• “The National Security Agency has stated, ‘The Zero Trust security model assumes that a breach is inevitable or has likely already occurred, so it constantly limits access to only what is needed and looks for anomalous or malicious activity. Zero Trust embeds comprehensive security monitoring; granular risk-based access controls’ and system security automation in a coordinated manner throughout all aspects of the infrastructure in order to focus on protecting critical assets (data) in real-time within a dynamic threat environment. This data-centric security model allows the concept of least-privileged access to be applied for every access decision, allowing or denying access to resources based on the combination of several contextual factors.'”
• “Assuming a breach means all access should be denied by default. Harsh, but necessary. It also means that we need to have a way to continuously monitor access to all resources, monitor any configuration changes and certainly monitor all network traffic for suspicious activity.”
• “What Will Zero Trust Implementation Cost? The short answer is that most law firms don’t know — yet. We expect that, by now, the reader understands the complexities of Zero Trust. Implementing it will not be cheap — or easy. Selling it to law firm management may be difficult. Management is not likely to find this wholesale change in security appealing, both because of the monies and time expended, but also because you cannot ‘set it and forget it’ when it comes to Zero Trust.”

“Appeals court rules convicted CEO doomed by evidence, not by attorney’s conflict of interest” —

• “The 7th Circuit Court of Appeals ruled Tuesday that Barnes & Thornburg had a conflict of interest when defending James Burkhart against federal fraud charges, but that the disgraced CEO of American Senior Communities failed to show he suffered as a result.”
• “Burkhart was charged with 32 counts and accused of participating in a scheme in which the nursing home operator’s vendors inflated their invoices and then kicked back profits to Burkhart and other company officials.”
• “When federal agents executed a search warrant on Burkhart’s home in Carmel during the investigation, he contacted what is now Faegre Drinker Biddle & Reath. However, the firm declined to provide representation because of a conflict it had with the Health and Hospital Corp. of Marion County, which owned the nursing homes that American Seniors had been operating. HHC was one of the victims of the scheme, incurring financial losses.”
• “On Faegre’s recommendation, Burkhart contacted Larry Mackey at Barnes & Thornburg and signed an engagement letter with the firm in September 2015. Apparently undisclosed and unknown to Burkhart at the time was that HHC was a client of Barnes & Thornburg as well.”
• “After his sentencing, Burkhart learned of Barnes & Thornburg’s conflict of interest and filed a lawsuit in December 2018. He challenged his conviction and alleged the law firm’s conflict violated his Sixth Amendment right to effective counsel.”
• “A Southern Indiana District Court ruled against the appeal. And on Monday, the 7th Circuit affirmed the ruling, agreeing that the conflict of interest did not ‘adversely affect Burkhart’s representation.'”
• “‘Nobody disputes that Barnes & Thornburg was conflicted in its representation of Burkhart,’ Judge Michael Scudder wrote for the court. ‘The question is not close.'”
• “However, the panel noted Burkhart had to go a step further by establishing that the conflict impaired his lawyer’s performance. In addition, because he resolved his case by a plea agreement, Burkhart must show that his counsel’s conflict affected both the attorney’s actions and the defendant’s decision to plead guilty.”
• “The 7th Circuit reviewed Barnes & Thornburg’s actions and did not see any indication the firm acted contrary to Burkhart’s interests. During the 2 1/2 years the firm represented Burkhart, it moved to dismiss the charges, hired multiple experts, expired multiple defenses, developed trial exhibits and issued trial subpoenas. Also, it conducted three mock jury exercises which all ended with unanimous votes to convict and the jurors describing Burkhart as manipulative and greedy as well as being a crook.”

“DraftKings Wants Firm DQ’d From Gaming Patent Row” —

• “DraftKings wants a New Jersey federal court to disqualify Shore Chan LLP from representing an online betting-related patent owner in an infringement lawsuit, arguing that attorneys at the firm are inventors and that they should not be able to get the betting giant’s confidential information.”
• “DraftKings said Shore Chan attorneys Michael W. Shore and Alfonso G. Chan are inventors who have issued patents and pending patent bids on the kinds of patents-at-issue in the present case. DraftKings argued that it will have to hand over confidential information on the case, and that ‘there is significant risk of misuse’ of such information.”
• “If the court doesn’t grant DraftKing’s bid, the company wants other relief, such as blocking Shore Chan from being able to see any of DraftKing’s confidential information.”
• “Shore said that ‘the motion was filed by DraftKings because they and their outside counsel are scared to death of facing Shore Chan’s team in trial,’ and added that ‘the motion will be denied because it is completely, utterly and totally meritless… Taking the arguments of DraftKings to their illogical conclusion, Baker Botts represents multiple clients in active prosecution of patent portfolios that DraftKings likely infringes, but DraftKings has no issue with Baker Botts’ lawyers seeing their confidential information without first banning Baker Botts from prosecuting patents in the technology areas where DraftKings operates,’ Shore said.”

“No Conflict Found Where Attorney Challenged Prenup She Had Reviewed For Client” —

• “An attorney who had counselled a client in connection with a prenuptial agreement that barred post-divorce spousal support later represented that same client when she later claimed she had misunderstood and been pressured to sign the agreement.”
• “By a 2-1 vote, an Oregon Trial Panel concluded that the change in postion did not amount to a sanctionable conflict of interest.”
• Decision:
  • “Voytyuk came to Oregon on a “fiancée visa,” planning to marry Lamb. She moved in with him and a wedding date was set in June of 2007. A few days before the wedding, Lamb told Voytyuk that she had to sign a prenuptial agreement (the “Agreement”) or else he would not marry her and she would be forced to return to Russia. Lamb presented her with the Agreement that had been drafted by his lawyer. He told Voytyuk that she needed to have the Agreement reviewed by a lawyer. Lamb randomly selected Respondent to advise Voytyuk, apparently picking Respondent’s name from the phone book. Lamb and Respondent had no prior relationship.”
  • “Respondent filed an opposition to the motion on October 13, 2017. The response stated that, “Petitioner did not sign the prenuptial agreement voluntarily … Petitioner was under duress at the time she signed the agreement, and did not understand English well…” Ex. 17. Voytyuk also signed a declaration in which she stated, ‘I showed the prenuptial agreement to Ms. Smith-Koop, but I really did not understand it. I did not speak much English at that time because I had very little practice, and I did not understand listening to it. I signed the prenuptial agreement, but not voluntarily.’ Ex. 17.”
• “The judge raised the conflicts issue and threatened a bar complaint if the attorney did not withdraw… The attorney withdrew… The trial panel found no conflict.”
  • “The Bar’s argument suffers from the same flaw that caused the judge to believe a conflict existed. The Bar states that “[Respondent] certified that Voytyuk had understood the agreement.” Respondent did not certify that fact. Respondent certified that Voytyuk acknowledged she understood the agreement. There is no dispute that Voytyuk expressly told Respondent that she understood the agreement. Voytyuk later revealed that she lied to Respondent when she said this, but the Bar produced no evidence that Respondent should have been aware of this. Absent evidence to the contrary, an attorney is entitled to rely on a client’s assurances that she understands what the attorney is explaining.”

“NJ Court Must Rethink Archer DQ In Dental Office Biz Dispute” —

• “A New Jersey state appeals panel on Thursday ordered a lower court to rethink its disqualification of law firm Archer from representing a dental practice in a business dispute, ruling that the motion judge didn’t thoroughly probe the matter as required by state Supreme Court precedent.”
• “A three-judge Appellate Division panel reasoned that a Camden County Superior Court judge merely accepted the argument by defendant RRI Gibbsboro LLC and its principals that attorney Kerri E. Chewning can’t represent plaintiff Dental Health Associates South Jersey and an affiliate. RRI reasoned that disqualification was in order because Chewning’s Archer colleague, Anthony D. Dougherty, represented its principals in separate litigation in New York.”
• “The Camden County judge must now conduct the “fact-sensitive analysis” set forth under the state high court’s 2010 decision in City of Atlantic City v. Trupos . Trupos requires courts considering disqualification bids to probe if the lawyer received confidential information from the former client that can be used against that client in the firm’s subsequent representation of that client’s adversary, or if facts relevant to the prior matter are relevant and material to the subsequent matter.”
• “However, the motion judge accepted defendants’ contention that the New York litigation and the New Jersey matter were substantially related.”
• “In the disqualification motion, Scott Singer argued that Dougherty knew about the trial strategy and defenses in the New York matter and had obtained confidential information about the Singers, the appeals decision said. Chewning and Dougherty each opposed the motion, certifying that they “worked in different Archer offices and had never met, let alone spoken with each other about defendants or their cases,” the appeals decision said. Archer’s general counsel also certified that Dougherty had no access to the file in the present matter, according to the appeals decision.”

Webinar recording: “AML in 2022: Nothing Can Be as Bad as 2021…Right?” —

• “One of the many ever-increasing challenges firms currently face is ensuring proper due diligence while managing their risk assessment processes. Firms are constantly seeking out new ways to address this issue and implement best practices for conducting necessary checks throughout the client and matter opening processes.”
• “We [spoke] with two leading subject matter experts on risk-related issues such as Solicitors Regulation Authority (SRA) expectations and expanding risk awareness.”
• Panelists: Emma Oettinger (Head of Financial Crime and Risk, Ashurst) and Amasis Saba (Head of Business Acceptance for U.K., CE, and MENA, Freshfields Bruckhaus Deringer)
• Oettinger:
  • “…as this last week has shown us with the Russia/Ukraine conflict, as the compliance team, operationally, you’re going to be able to have to react really quickly on individual matters and engaging… management you’ll probably also be finding is asking you for the big picture questions on ‘What’s my exposure?'”
  • “Yes a lot of systems are designed to be looking at countries. But again what this has kind of shown us and we’ve known for a number of years you need to be aware of Crimea and Savastopol. But how had people started actually going: “Am I aware of what my Donbas region exposure is within my Russia?’ Is there a way that I can see that? Maybe it’s through the conflicts system rather than a risk system that you’re picking that up… that issue of being able to track within your system if you can or being able to see that yes just because my client is based in Cyprus and my UBO [Ultimate Beneficial Ownership] had a Maltese passport, actually they’re also a Russian oligarch. Can your system log those three points?”
• Saba:
  • “… the difference with the sanctions part to note is it’s not entirely a risk-based approach. It’s effectively a zero-sum game. If you breach sanctions you breach sanctions, the end. So there is that to be bear born in mind, especially in relation to transactional work… a lot of places take a great deal of comfort in “Don’t worry we’ve checked the name,” but making sure that your teams are across elements such as dual use, or ‘Hey this involves no Russian companies but appears to involve mining, offshore, or deep or shale. Sometimes it’s really important that, if you’ve got a vague description, especially if you have a Russian office or you know that the client might be be working in that area those are really places where you need to make sure that people are aware of the risk.”

“‘Baker McKenzie Should Be Disqualified’: Georgia Lawyer Wants to Stop Firm Representing Russian Bank” —

• “As pressure builds for Western law firms to break ties with major Russian clients amid the fast-developing conflict in Ukraine, a Georgia law firm is seeking to disqualify an international firm from representing a commercial Russian bank.”
• “Baker McKenzie International partner Jacob M. Kaplan of New York is representing VUZ-Bank JSC, a wholly owned subsidiary of Ural Bank for Reconstruction and Development CB PJSC, in its request to take discovery in the United States District Court for the Northern District of Georgia for use in alleged fraud proceedings in Dubai.”
• “But Poole Huffman trial attorney Luke Andrews of Tucker, Georgia, has motioned to disqualify Baker McKenzie International from continuing to represent VUZ-Bank, citing a conflict of interest.”
• “The motion remains pending from December, but the current escalation of the Russia-Ukraine conflict, coupled with Baker McKenzie’s recent decision to cut ties with other Russian clients, might impact the litigation.”
• “‘A most fundamental obligation of lawyers worldwide is the duty to protect client confidences, and a fortiori, not to deploy a client’s confidential information against that client,’ the motion drafted by Andrews read. ‘It most definitely precludes lawyers and law firms from obtaining a prospective client’s information concerning an existing dispute—while already representing the other side in that dispute—and then continuing to represent the other side in that dispute. Baker McKenzie’s representation of VUZ-Bank and Ural Bank against Hakan Agro offends this fundamental obligation, and must be stopped. Baker McKenzie should be disqualified.'”
• “In the disqualification motion, Andrews noted that in mid-2021 Baker McKenzie sought to be retained by Hakan Agro to advise on a corporate restructuring, ‘despite already representing VUZ-Bank against Hakan Agro and the entire Hakan Group.'”
• “Baker McKenzie is one of several firms that began parting ways with major Russian clients last week amid heightened sanctions and a growing call for the West to take action, as Ukraine continues to defend against the Russian invasion.”

(Reported last Friday): “Moscow: Global corporates are turning their back on Russia in their droves: It’s time for law firms to step up” —

• “Legal IT Insider asks international law firms with a Moscow office what their plans are for the jurisdiction. The time for legalistic twaddle is over, argues editor Caroline Hill.”
• “For many law firms, however, the war in Ukraine has been a PR nightmare, whether it be Norton Rose Fulbright telling lawyers they can’t comment on sanctions, to the many firms that have issued vague, legalistic statements when asked if they will sever ties with Russia. Then there’s the business of Tory MP Bob Seely exercising parliamentary privilege to allege that lawyers from Harbottle & Lewis, CMS and Carter Ruck, plus a barrister from Matrix Chambers are ‘amoral for working with Putin allies.’”
• “Many international law firms have an office in Moscow, and we asked the majority – based on Legal 500’s Russia directory – what their plans are in and for the region. As a quick preface, we also spoke to the Solicitors Regulation Authority, which said (our words not theirs) that it’s not an option for law firms to ditch their office in Russia BP-style. But lawyers can speak up against the Ukraine invasion. They can decline new instructions. They can end relationships with Russian entities. And in many cases they are obliged to. So, are they?”
• “Allen & Overy, which has 24 lawyers in Moscow and advises companies including VTB Leasing and AerCap, has issued an unequivocal statement condemning the actions taken by Russia. The magic circle firm is reviewing its Russia-related portfolio, and says that it will refuse new instructions and stop all Russia-linked work that goes against its values.”
• “While Morgan Lewis didn’t pass public judgment on the invasion, spokesperson told us: ‘Across our global offices we are and will remain in full compliance with the sanctions regimes outside of Russia where we practice, including with respect to ceasing and declining client representations.'”
• “Similarly, White & Case said: ‘We are reviewing our Russian and Belarusian client representations and taking steps to exit some representations in accordance with applicable rules of professional responsibility. Our Moscow office is open and continues to operate. We are complying fully with all applicable sanctions, and we continue to closely monitor this rapidly evolving situation.'”
• “A more heartfelt statement came from DLA Piper, although it’s unclear how big the statement is on teeth. A spokesperson said: ‘We have watched in dismay and disbelief at the invasion of Ukraine by Russia. We stand with the people of Ukraine and our thoughts are with them and all those in the region, and beyond, who are affected by this tragedy. We are closely monitoring the rapidly changing situation and providing support to our people and their families wherever we can. We are of course complying fully with all applicable sanctions worldwide and are urgently reviewing all Russia-related client engagements to ensure we do not act in a way that conflicts with our values.'”
• “And a slightly less committal Hogan Lovells said: ‘We can’t comment on specific client relationships but we continue to closely monitor the situation and the fast-evolving laws and sanctions globally and to align our client work, and our operations, accordingly. That may mean ceasing work where appropriate. We continually evaluate our operations and portfolio of work and any new client mandates to ensure we are complying with sanctions requirements and local government guidance, including the advice from UK, U.S. and other governments. Our thoughts are with all those people affected by the situation in Ukraine, including many of our own colleagues who have relatives in the region.'”
• “Bryan Cave Leighton Paisner said: ‘As with most multinational organizations operating in the region, we have been closely coordinating to navigate the complexities of the situation. We are adapting to comply with applicable sanctions and responding as required in the circumstances. Due to confidentiality, we are not able to share more.'”
• “We’ve got nothing back from Eversheds Sutherland, Akin Gump, Dentons, Latham & Watkins, Cleary Gottlieb Steen & Hamilton, Clifford Chance and Dechert, all who have offices in Moscow.”

(on Monday): “Law firm Norton Rose Fulbright to exit Russia over Ukraine invasion” —

• “Norton Rose Fulbright is ending its operations in Russia, becoming the largest law firm so far to exit the country since Russian forces invaded Ukraine and triggered waves of international sanctions.”
• “The 4,000-lawyer firm said in a statement early Monday that it is closing its Moscow office ‘as quickly as we can, in compliance with our professional obligations,’ calling the wellbeing of its staff in the region a ‘priority.'”
• “The London-founded firm Linklaters on Friday said it will also leave Russia and will decline to represent any entities under the influence of the country’s current regime.”
• “Two other major law firms with a Russia presence, CMS and Baker Botts, have said they are reviewing their future in the country. Swedish firm Mannheimer Swartling last week suspended its Russian operations and is determining whether it can leave the market.”

“Attorney’s Failure To Disclose Conflict Of Interest Before Accepting Representation Can Constitute Fraud And Negligent Misrepresentation” —

• “Attorneys often argue that attempted claims of fraud against them are nothing more than legal malpractice claims and therefore are duplicative and must be dismissed. This is indeed a viable defense. See Gourary v Green, 143 A.D.3d 580 (1st Dep’t 2016)“
• “As shown by a new decision of the Supreme Court in New York County, that defense may not always be effective to dispense with fraud claims at the pleadings stage. Federal Insurance Company v. Lester Schwab Katz & Dwyer, LLP, Index No. 151093/2021 (NY Sup. Ct, NY Co., Nov. 16, 2021).”
• “Plaintiff alleged various acts of alleged malpractice, and also included claims of fraud and negligent misrepresentation against the attorneys. Both of those claims were based upon the same underlying factual assertion – that defendants allegedly had a conflict of interest with a co-defendant in the underlying personal injury action and did not disclose that to the insurance company plaintiff prior to being retained to defend the insureds in that action. (The defendants did contend that the conflict of interest was disclosed ‘to the carrier’ and was further identified in their initial report on the underlying personal injury litigation.)”
• “In rejecting defendants’ attempt to dismiss the fraud claim, the Court simply commented in passing that the allegations were sufficient to state such a claim, ‘distinct from the legal malpractice claim.'”
• “Identifying actual or potential conflicts of interest is obviously an important obligation for an attorney prior to accepting a representation. This should always be undertaken and adequately documented. This is not only required by the Rules of Professional Conduct (see,e.g., Rules 1.7 through 1.12), but failing to do so adequately and properly prior to the representation and/or when conflicts may arise can in fact form the basis for fraud claims.”

“Ex-Client’s Claims Against Buchanan, Royer Cooper Survive Motions to Dismiss” —

• “Certain legal malpractice claims against Buchanan Ingersoll & Rooney and Royer Cooper Cohen Braunfeld will be allowed to proceed, a federal judge ruled this week, in a case stemming from alleged conflicts of interest in the partial sale of a vending machine business.”
• “Former client and business owner Alan Simons sued the law firms in January 2021, alleging that he lost millions of dollars as a result of the firms allegedly concealing changes to a sale agreement that favored his business partner.”
• “U.S. District Judge Cynthia M. Rufe of the Eastern District of Pennsylvania on Monday refused to dismiss Simons’ claim that Buchanan breached its fiduciary duty and engaged in professional negligence. But allegations that the firm committed a breach of contract, negligent misrepresentation and tortious interference with contractual relations were dismissed.”
• “Brown had retained Buchanan to represent him in updating the agreement. But, Simons alleged, the firm had entered into a fee agreement with Simons in 2013 to provide legal services for RDS’ business ventures. Simons alleged in court documents that neither firm informed him of the potential conflict of interest.”
• “Simons alleged the valuation date in the agreement that he signed in December 2015 differed from a prior draft and that both firms concealed this change to benefit Brown. As a result, Simons claims, he lost millions of dollars when he exercised his put option in March 2020. Simons said he became aware of the damage that the change in the valuation date caused in March 2020.”
• “Since Simons’ amended complaint asserts he had an attorney-client relationship with Buchanan and Buchanan represented Brown in negotiating the update to the put-call agreement, Rufe reasoned that ‘these facts support an inference that the Buchanan firm was disloyal to Simons’ and denied Buchanan’s motion to dismiss the breach of fiduciary duty claim.”
• “Buchanan is represented by lawyers at the firm. They did not respond to requests for comment.”

“Ropes & Gray Beats DQ Bid In Computer Network IP Suit” —

• “A Virginia federal judge Tuesday refused to disqualify Ropes & Gray LLP from representing cybersecurity company Palo Alto Networks Inc. as it defends against a suit accusing it of infringing computer network patents held by rival Centripetal Networks Inc.”
• “U.S. District Judge Roderick C. Young denied Centripetal’s bid to disqualify Ropes & Gray based on Centripetal’s claim that the law firm possesses the company’s confidential information from an earlier, separate transaction, saying there’s nothing to suggest that Centripetal and Ropes & Gray used to have an attorney-client relationship.”
• “Centripetal contends that the parties discussed its patents, prospective litigation and other confidential and privileged information, while Palo Alto claims Ropes & Gray’s attorneys sought to confirm their understanding of the public record in the separate litigation, according to the order. Ropes & Gray’s attorneys said they didn’t recall future litigation being discussed.”
• “Centripetal then set up a ‘data room’ to store confidential information and provided Ropes & Gray with access to it, the order states. Palo Alto said two Ropes & Gray attorneys tested their access to the data room, but never actually accessed any documents because Silver Point told the firm to stop working on the transaction.”
• “In May, Ropes & Gray attorneys began representing Palo Alto in the current action and made appearances for the company in the inter partes review proceedings before the U.S. Patent and Trademark Office in July, according to the order. Centripetal asked Ropes & Gray to withdraw its representation, but the law firm declined, saying it didn’t possess any of Centripetal’s confidential information, the order states.”
• “But in his order Tuesday, Judge Young disagreed with Centripetal, finding that a nondisclosure agreement it entered makes it clear there was no attorney-client relationship between it and Ropes & Gray. Centripetal had its own counsel when drafting the NDA and during negotiations in the Silver Point transaction, the judge said. Judge Young also noted that the NDA is not substantially related to the current dispute, according to the order.”

“NRA Wants Dorsey & Whitney DQ’d From Ad Agency Suit” —

• “The NRA claimed in a motion Monday that a privilege log recently revealed that Dorsey & Whitney LLP worked briefly with Virginia lawyer Mark Dycio, who had advised the association on matters relevant to the case.”
• “‘The incurable conflicts arising from Dycio’s misconduct, which also taint Dorsey, could have been dealt with at the outset of this litigation,’ the motion said. ‘But they were not — because defendants concealed evidence of Dycio’s involvement from their initial disclosures and document productions.'”
• “Dycio began a relationship with both the NRA and NRA Executive Vice President Wayne LaPierre back in 2013, helping LaPierre with personal matters and the NRA with internal issues like executive pay and corporate governance, the motion says. The association claims that Dycio was privy to confidential communication and meetings about efforts the NRA was making to prepare itself for increased regulation in New York, which involved discussions about what information was sought from ad agency Ackerman McQueen.”
• “But when the NRA sued the ad agency in 2019, Dycio ‘switched sides’ and began representing Ackerman McQueen, the motion says. According to the NRA, Dycio and his firm Dycio & Biggs joined up with partners at Dorsey & Whitney to ‘craft tactical, misleading correspondence, and even affirmative litigation.'”
• “Although the NRA knew that Dycio was involved in preliminary stages of the litigation, the NRA claims that it did not know that he had been working directly with Dorsey & Whitney during that time.”
• “‘We don’t blame them for wanting to disqualify us,’ [Dorsey & Whitney partner Mike] Gruber said. ‘We wouldn’t want to try a lawsuit against us either. This is something that they’ve known about for three years, and it’s completely baseless.'”
• “The NRA filed multiple suits against the ad agency, claiming it refused to provide documents from New York Attorney General Letitia James’ investigation of the association’s status as a tax-exempt nonprofit and had attempted to seize control of the organization by getting LaPierre to resign under threats of a smear campaign.”

Bloomberg Law Columnist Vivia Chen asks: “Microsoft Sets Bar on Investigating Harassment. Who Will Follow?” —

• “You’d think that the brilliant brains running America’s shiniest institutions would get it right by now. They’re hardly virgins in the arena of sexual harassment, discrimination, bullying, and other unlawful conduct in the workplace.”
• “Just a few weeks ago, Microsoft did something simple and logical in laying out a road map on how to handle investigations into those thorny issues: It hired a firm (Arent Fox) that’s not its regular counsel to review its prior investigation into harassment allegations against Bill Gates, and benchmark its ‘current practices against ‘best practices’ adopted by other companies.'”
• “Independent review. Benchmarking. How radical. Microsoft might be leading the way, but are other institutions following this course?”
• “For instance, in the CNN imbroglio involving former anchor Chris Cuomo and its now ex-president Jeff Zucker, the network turned to longtime counsel Cravath Swaine & Moore to investigate the sexual harassment claims against Cuomo. And speaking of the Brothers Cuomo, the New York Assembly picked Davis Polk & Wardwell last spring to investigate charges of sexual harassment against then Gov. Andrew Cuomo, who had various personal ties to the firm.”
• “Though there’s no indication that either Cravath or Davis Polk failed to do their job fairly, questions inevitably arise whether there’s a conflict of interest. So why don’t companies and institutions pick a fresh firm?”
• “‘The optics are certainly better if a company hires a firm with which it has no prior professional relationship,’ says NYU law professor Stephen Gillers. Whether that practice will become the standard, though, is another matter: ‘I think the great majority of shareholders focus on the stock price and dividends,’ adds Gillers. ‘If the use of regular counsel is more likely to protect these, they’ll favor it. If the ensuing negative publicity risks harming profits and share price, they’ll press for an outside review.'”
• “But using a regular counsel for investigations should not be verboten, argues Bridgit Blinn-Spears, a partner at Nexsen Pruet in Raleigh, N.C. ‘The optics might be better if there’s no existing relationship but the disadvantage is that the firm won’t know the company as well,’ says Blinn-Spears. The key, she explains, is to have one set of regular counsel for investigations and another for litigation that might spring from the investigation. ‘The solution is to have a clean division.'”
• “Some institutions aren’t even debating this issue because they’re handling investigations internally—and they’re making a mess. That seems to be the situation with Tesla Inc., which got slapped with a $137 million verdict in October in a racial discrimination suit and is now facing a suit by the California Department of Fair Employment and Housing for discrimination and harassment against Black factory workers.”