Bressler Risk Blog

The folks at Intapp were first to put this new risk issue on my radar, which goes into effect later this year, as it carries implications for law firm data capture on the intake/conflicts and compliance when working with clients on relevant matters in affected geographies: “What firm leaders need to know about DAC6” —

• “DAC6, the European Union directive on administrative cooperation — formally known as Council Directive 2018/822/EU of 25 May 2018 — sets down new regulations for certain cross-border arrangements, and mandates transparent reporting requirements for companies doing business in E.U. member states. Tax advisors, professional services firms, and taxpaying companies alike are grappling with new disclosure rules, which will be fully implemented my mid-2020.”
• “Under DAC6, companies entering into — or advising on — cross-border arrangements will need to report these arrangements to local authorities, regardless of whether or not the relevant transactions were primarily motivated by tax benefits. As a result, many relatively mundane financial transactions — leasing, reinsurance, corporate funding, and acquisition finance — are now subject to E.U. reporting mandates. And, in some cases, multinational entities with headquarters outside of the E.U. are also subject to DAC6 requirements.”
• “Notably for professional and financial services firms, DAC6 obligations apply equally to business intermediaries as to the taxpayer. DAC6 requirements are also shared by all intermediaries, so a single business event could trigger reporting requirements for a number of firms — lawyers, accountants, service providers, and private equity managers — in addition to entities that are party to the transaction.”

For those interesting in going deep, Allen & Overy offers quite the excellent analysis on the details and nuances: “DAC6 – Mandatory disclosure tax reporting what does it mean for you?”

• “All intermediaries involved in a transaction individually have an obligation to file. However, an intermediary is exempt from disclosing if it has proof, in accordance with national law, that the same information has been filed in another Member State.”
• “It will be important to ascertain this information in respect of a transaction at an early stage. In the case of doubt it may be safer for all intermediaries to make a disclosure.”

And this article in LegalFutures does a nice job of connect the dots more explicitly for law firm: “DAC6 compliance – seven timely recommendations” —

• “1. Review your engagement letter. You need to let clients know about the new requirements and the potential reporting obligation. One way to do this is to include the DAC6 reporting requirements in your client engagement letter. Some firms may decide to rely on legal professional privilege asserting that confidential client information does not need to be divulged to tax authorities. Firms using professional privilege will need to advise clients of their responsibility to report to another intermediary.”
• “2. Modify matter inception process. Flagging potential transactions that might be caught by DAC6 will help you track details when the reporting requirements are in force. Some firms have added a question on client/matter intake forms to determine whether DAC6 is likely to apply.”
• “4. Keep a register of all potentially reportable transactions. Not every transaction will be reportable, so tracking those that might be will help firms to decide which arrangements ultimately require reporting. DAC6 compliance requires firms to capture all the details of relevant transactions and later analyse whether they warrant further investigation. An online register will track and record transactions when hallmarks are present, flag those transactions and alert the appropriate staff.”

Happy 2020. Thought I’d kick off the year by catching up on several stories that were sitting in my virtual clipping pile that didn’t quite make it into December.

“Pa. Judge Says Old Bill To Firm’s Partner Doesn’t Create Bias” —

• “A Pennsylvania state court judge overseeing class action cases in Allegheny County said Thursday that a decades-old legal bill from his days as an attorney didn’t bias him against his former client’s law firm of Carlson Lynch, which has brought numerous class actions in state and federal courts.”
• “…when he was a lawyer in the early 1990s, he had represented Carlson Lynch partner Bruce Carlson, whose firm was now representing the proposed class of thousands of UPMC employees. Judge Ignelzi also told them that to the best of his recollection, Carlson had not paid his bill for that representation, but he emphasized in a special hearing Thursday that he did not believe that old obligation biased him against Carlson Lynch in the cases he had heard or would hear in the future involving the firm.”
• “Judge Ignelzi had asked his former partner, Michael Murphy of Ogg Murphy & Perkosky PC, to search the firm’s records for any information about its representation of Carlson. Under questioning from the judge Thursday, Murphy said it appeared that the file had been either thrown out or irreparably damaged when floods in the 1990s soaked old records that were stored in the basement of the building along Downtown Pittsburgh’s Monongahela riverfront.”
• “Judge Ignelzi said he had made the disclosure prior to an October hearing on UPMC’s preliminary objections because the Pennsylvania rules of professional conduct required him to disclose any potential conflicts, even if he felt they did not rise to a level that would disqualify him.”

“Both sides file motions in Powers lawsuit” —

• “In his complaint, Powers asked the court for a temporary and permanent injunction against the Board of Selectmen, alleging the board did not, on a number of occasions, follow Robert’s Rules of Order for making a motion and thus 37 motions made by the board in 2019 must be vacated and future motions must follow Robert’s Rules and other provisions of town policy.”
• “In his Oct. 30 motion, Powers requests Berchem Moses P.C., of Milford, the law firm representing the defendant, be dismissed because of a likely conflict of interest. Powers claims Ira Bloom, the town attorney for Wilton, and a partner with Berchem Moses, is a necessary witness in the suit regarding information Bloom provided to the Board of Selectmen about requirements about receiving/responding to Freedom of Information Act (FOIA) requests.”
• “In their Nov. 27 objection, the defendants say there is no conflict of interest with Berchem Moses, based on the Connecticut Practice Book’s rules of professional conduct which delineates what constitutes a conflict (primarily conflict an attorney has with another client).”
• “They claim the defendants’ interests are “aligned” and Berchem Moses’ representation of the defendants is not adverse ‘to any other client or a significant risk that representation will be limited by responsibilities to another client.'”

“3 Places Overbilling May Be Lurking” —

• “Over the last two decades or so, sophisticated buyers of legal services have tightened up billing standards, poured money and time into auditing, and routinely questioned what they’re getting for all those “0.2 hour” line items.”
• “At the same time, courts and the bar have also become far more strict about what constitutes a “good” — and ethical — legal bill and helped cure the profession of at least some of its worst timekeeping habits.”
• “The practice of block billing, in which lawyers include a long series of billable tasks in a single time entry, is widely understood to lead to client “upcharging” and has been rightly disparaged by many judges and bar ethics committees.”
• “Still, practice group leaders and supervising partners should double-check that block entries are used consistently and moderately. That’s particularly true in the last months of the year, as associates, and many partners, feel pressure to bill every hour possible.”
• “Kay Holmen, a senior auditor at KPC Legal Audit Services in Glendale, California, cautions against grouping more than three tasks in one block, or block billing a client for more than a single hour per entry. Lawyers can also avoid pushback by taking some extra care to describe each step covered by a block entry.”

Okay, like overly-retained records, IG Week turned out to run a little longer than planned. But this final update I wanted to share from the ILTA IG White Paper touches concepts near and dear to my heart (with lessons applicable well beyond IG).

From Lauren Doerries (Information Governance Business Process Manager at Morgan Lewis) comes: “Using Marketing Principles to Effectively Communicate Your Information Governance Program.” For specific details and recommendations, do check out the complete article. Here are some thematic highlights —

• “The act of ‘marketing’ can be described as the process of communicating value to your customers… In this article, we’ll explore how traditional marketing strategies and techniques can help you to elevate the visibility and communicate the value of information governance within your firm.”
• “A key element of any successful marketing strategy is deciding on how to best position your product to appeal to your target market. It’s no secret that buy-in and support from sponsors and high-level stakeholders is critical for an IG program to become established and continue to thrive. Still, many of us struggle with how to attract the attention of the busiest, most important (and often most elusive) people at your firm while at the same time convincing them of your value.”
• “Framing your IG initiatives through the lens of how they align with existing internal compliance efforts allows you to go where the attention of leadership already is, instead of competing for it with larger, more established and often better funded groups.”
• “Developing an effective internal communication strategy to market your IG program, and IG itself, is an important first step towards planning how you’ll engage with your audience… Creating a communication plan doesn’t have to be complicated, and chances are you’ve already informally mapped out some of the components. A basic plan can be as simple as documenting the ‘Who’, ‘What’ and ‘How’ of what it is you’re trying to say.”
• “Once you’ve identified your audience and crafted your message, it’s time to start developing ideas for how to get and keep your audience actively engaged.”
• “In order to keep your IG program relevant to your organizational culture, and to sustained employee engagement levels, you must be willing to continually reimagine your role as an IG professional. One way to do this is by continuing to embrace new stakeholders and tools.”
• “Successfully adapting and applying marketing strategies to your IG program will help you to build and strengthen relationships with your stakeholders by creating and sharing a compelling story about the true value of information governance to your firm.”

Next up on IG, something from the NYC chapter of ARMA, recently published in its “Exchange” magazine:  “Making Mountains Into Molehills — Managing Information Assets in a Complex IG World (Part 1)” —

• “The regulatory environment for how businesses manage information continues to grow in complexity and uncertainty. Information and records management professionals are now tasked with understanding the implications of laws and regulations such as GDPR, CCPA, HIPAA, SOX, FCPA and AML, and evolving standards such as the Generally Accepted Recordkeeping Principles, the Information Governance Body of Knowledge (IGBOK) and international standards from ISO and other regulatory bodies.”
• “In addition to defining their own IG policies to comply with standards, many organizations face cybersecurity, data privacy and records retention requirements from clients, business partners and vendors that enact strict guidelines and frequent privacy and cybersecurity audits. In this environment, companies may no longer be able to accept the risks associated with an approach to IG which is tantamount to: Keep it forever because computer storage is cheap, and so is offsite hard-copy storage.”

Next up from the recent ILTA IG white paper comes: “The Elephant in the Room: The Hidden Costs and Risks of Electronic Records Retention” —

• “As of August 2019, NetDocuments was managing over 9.1 billion files across more than 2,500 organizations globally, while iManage was serving more than 2,000 law firms. And that’s just one piece of the puzzle. A typical law firm may have client matter information stored in as many as 30 different types of repositories, and the volume of data continues to grow every day.”
• “Given the industry trend to embrace more “paper- lite” approaches, it’s understandable that most records management and information governance teams have focused on reducing the volume of physical records in offsite storage, rather than worrying about the impact of cumulative growth in electronic records over time.”
• “However, the reality is that most law firms today are now storing virtual mountains of digital records they no longer need—including matter files from ex-clients which have been inactive for more than a decade. The costs and risks of this “keep everything just in case” approach are significant and pose looming threats for law firms that fail to act.”
• “Identifying which electronic records to dispose of can be a mammoth task initially, particularly if your firm has not disposed of electronic records previously. Technology can help. An advanced records management system will be able to provide you with an integrated view of all repositories across your firm—indexing all items within the DMS, file shares, e-discovery archives and even your physical archives. Legal holds related to specific client matters should be applied consistently regardless of where the information resides.”
• “Just inches from the finish line, some firms find that the biggest challenge for them is getting final sign-off on destroying the massive backlog of aging electronic records that should be destroyed… Lawyers are also trained to be cautious, and in a culture where “having a memory like an elephant” is prized, it can be difficult to let go of the “keep everything” mindset, even if they accept that the status quo is untenable.”
• “One thing is certain: Left unchecked, the information elephant will continue to grow. For most firms, the volume of digital information received and produced on a daily basis is staggering. Data growth is likely
  to continue at an accelerated pace, and the strain on firm resources could soon reach the breaking point for many.”
• “Taking a more proactive approach to electronic disposition is a critical step toward more effective information governance, risk management and client service delivery and more cost-efficient use of your digital infrastructure. By eliminating the backlog of electronic records that are no longer needed and automating retention and disposition moving forward, firms can take control and finally start to realize the full rewards of transitioning to “paperless” and ‘paper-lite’ environments.”

Another interesting ILTA article of note comes from Leigh Isaacs (Director, Information Governance & Records Management at Proskauer Rose) and Doug Smith (Records Manager at Crowell & Moring) present a fascinating take on: “Politics of Information Governance” —

• “How do you identify the dominant culture in your firm? Does your firm encourage innovation and free market success to find creative solutions? Do they prefer to take a more methodical approach and identify a best way to move forward which, while not as innovative, yields a more predictable result? Perhaps your firm lies somewhere between, allowing innovation in some areas while requiring standardization in others.”
• “Once you have identified your firm culture, we will present some steps to establish a successful information governance initiative. These steps will serve as a starting place for you to lead the evolution of information management for your organization.”
• “In short, starting your journey with a firm grasp of your firm’s culture can go a long way to securing the endorsement and support you need. IG is not a “one size fits all” in any organization but this investment in time and resources will help you navigate the political landscape to achieve success.”

“Conservative” Firms:

• “Conservative firms might encourage users to operate within a traditional model using a standard taxonomy, very secure systems and traditional tools. These firms want to encourage safe innovation modeling to others, breeding success while taking fewer risks. Their risk tolerance is very low and while not yielding huge, quick benefits, ensures a predictable, stable return. These firms are sometimes referred to those that like to ‘be first at being second.'”
• “So you have identified your firm as being generally conservative in nature. What information governance elements should you push first? Which key processes will yield the quickest wins allowing you to build momentum for more funding and support?”
• “Principles which might yield quick return in this report at a more conservative culture would include addressing retention/disposition practices, legal holds, information security, and monitoring of key processes.”
• “What implications may result from being a conservative firm? Your organization will likely not benefit from new technologies before some of your competitors. You will need to guard against staying with existing, functional technology past it its optimal usefulness.”

“Progressive” Firms:

• “Progressive firms typically utilize newer technologies, a more open information sharing system and are willing to risk small failures hoping to yield much larger results. They embrace change with all the inherent unpredictable results.
• “They understand there is value to failing, failing quickly and resisiting the pressure of perfection…This firm will have less competing ideas and will likely coalesce around a strategy faster than other firms. The organization can identify, engage and deploy new technologies and processes quickly.”
• “Information governance awareness and education will be paramount to inform, train and monitor users to ensure they are in compliance with stricter controls. A progressive firm will have a variety of projects at various different levels. It’s important to stay in tune with those to find opportunities to infuse good IG practices from the outset.”
• “You will need a strong audit and remediation effort to monitor compliance with and to fix instances of breach of policies… You will need to have a meticulous process to monitor user behavior. The process needs to be flexible to account for different technologies and systems. You will find issues where users have compromised your policies. If you do not find them, you will need to evaluate the effectiveness of your monitoring. How you address these variances of behavior will be a better indicator of strength of your program than the program itself. Users will stray. It is your job to identify the variance, assess and fix the damage.”
• “Progressive firms seemingly enjoy several advantages. The propensity for quick change and early adoption of new tech increases risk as well as the need for vigilance in developing concurrent governance strategies and tools.”

Several updates to share on the IG front. First, wanted to make sure interested parties didn’t miss that in the post-Thanksgiving Black Friday glow, ILTA published it’s latest white paper, which is excellent: “ILTA Information Governance“.

Thought it worth highlight a few interesting contributions, starting with: “ILTA’s 2019 Information Governance Survey Results.” They present a wealth of charts and graphs, calling out several key details —

• “It seems surprising that nearly 54% of the respondents said they did not have a defined IG program, and in most organizations (69%), records and IG are not separate.”
• “The biggest IG challenge with moving IG forward is that the majority of firms (59%) don’t understand the value of IG (they either don’t know what it is, or it’s not a priority.) Only just over 10% are ‘getting it.'”
• “While 72% of respondents indicated that have an active disposition program, 63% still exempt executives/partners from Information Governance requirements. For the 37% who do not permit exceptions, thank you!”
• “Only 52% of firms are actually completing thorough/defensible records destruction by destroying both paper and electronic records.”
• “Most firms have a retention policy (82%), but only 16% of firms have software to manage retention.”
• “Of the 48% of firms that have a Matter Mobility function, only 14% think it’s ‘very mature,’ and only 28% have teams dedicated to support matter mobility functions.”

“Legal Malpractice—Reducing Your Law Firm’s Exposure” —

• “Richard M. Zielinski, director at Goulston & Storrs, offers tips on how law firms can reduce their malpractice exposure… Over the years, legal malpractice claims have significantly evolved and changed—and the risks to your firm have increased correspondingly. We’ve seen changes in the nature of claimants and the quality of plaintiffs’ lawyers bringing these claims, changes in the types of claims being asserted, and changes in the way cases are litigated and defended. The following are tips for reducing your firm’s risk.”
• “Nearly every state now has a mini-FTC consumer protection statute that broadly prohibits “unfair or deceptive” trade practices. Those statutes are very attractive to plaintiffs’ lawyers…. These statutes often come into play when something has gone wrong in the representation—the lawyer missed a patent filing deadline or failed to record a mortgage—and the lawyer attempts to “fix” the problem without promptly informing the client. Then, when the “fix” proves ineffective, the client sues and alleges that the lawyer didn’t simply make a mistake, but also deceived the client.”
• “To the fullest extent possible, try to foster a culture in which lawyers reach out for advice from the firm’s general counsel sooner rather than later if they think they may have made a mistake.”
• “Large law firms are increasingly writing mandatory arbitration clauses into their standard engagement letters… One caveat: when you draft an arbitration clause, make sure to include a warning that the client is giving up the right to have disputes heard by a judge and jury. You should also encourage the client to seek independent counsel before agreeing to submit any disputes to arbitration. That will foreclose any claim that the client did not give informed consent. Be sure to check the law in your jurisdiction for any additional requirements that may apply.”
• “When a lateral lawyer brings a book of business to a new firm, the firm may find itself doing work for clients it would not have accepted in the first place, and those clients may embroil the new firm in malpractice actions arising from work that started at the old firm and carried over.”
• “Lateral partners also sometimes get into trouble because they fail to follow the new firm’s procedures, for example, clearing conflicts, checking new client quality, or getting the firm’s sign-off on engagement letters.”
• “Emails are permanent and almost always must be produced. Your lawyers need to be reminded constantly that email and text messages are no place to ventilate emotions or talk about how difficult or stupid their clients—or colleague—are.”

“Court Permits Insurer To Appoint Counsel At Insurer’s Expense: Temple Insurance Company v Sazwan, 2018 ABQB 156” –

• “In 2018, the Alberta Court of Queen’s Bench (Court) handed down a decision that provided a precedent for an insured to choose its preferred counsel that the insurers will have the onus of financing. This is permitted in certain circumstances only, and requires a reasonable apprehension of conflict of interest.”
• “The Courts directed that the Sazwans could appoint counsel of their choice at the expense of the Insurers. The Court held that under the circumstances of the case, there was a reasonable apprehension of conflict of interest between the Insurers request to take over the defence. The Court found this for three reasons:
  1. The conduct of Sazwans was squarely an issue in the Underlying Actions, and an issue in terms of what claims were entitled to indemnify under the policy.
  2. The advancing claims were grossly in excess of the policy limits, therefore leaving the Sazwans exposed personally to enormous claims.
  3. The relationship between the Insurers and Sazwans was strained and could lead to more conflict in the future, which was not in the best interest of the Insurers, the Sazwans or administration of justice.”

Earlier this week I mentioned my day job. Today I thought readers might get a kick out of seeing yours truly do a bit of that — very risk related, I assure you.

For those who don’t know, BRB is a bit of a side passion project of mine. To pay the bills, I run a small consulting business. One client recently asked me to develop and deliver their five minute main stage “TED Talk” at the recent Net Documents user conference. Challenge accepted.

For those interested, you can see the pitch for FileTrial, provider of information governance and records management software for law firms via this link. It’s obviously commercial in nature. But also education. And there were event some laughs along the way… So if you’re so inclined, and my hook-of-a-title grabs you, please check out: “The most fun you’ve ever had talking about records management and information governance.“

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

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

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

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