Bressler Risk Blog

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.”

Having spent some time swimming in lateral stories, I went beyond recent news and with the help of a friendly search engine found this fascinating report on the matter. While this covers more than lateral risk, it’s definitely in there. Earlier this year, from ALM and a sponsor company which appears to be in the business of background checks and advisory services comes data gathered from 50 Am Law 200 firms in: “Risky Business: Rethinking Lateral Hiring” —

• “Part of the problem is that defining what constitutes a ‘failed’ lateral hire is extremely difficult. No single study is detailed enough to accurately measure the many ways a lateral hire can ‘fail’. Measuring ‘failure rates’ requires understanding the individual components of ‘failure’, which are fragmented across many sources. For instance, one study… found that almost half of all laterals do not even last five years at their new firm. [This present report] found that nearly 70% of hires underperform in bringing their expected book of business. Such low success rates are particularly striking given the sky high costs of hiring laterals. ALM Intelligence estimates hiring a lateral partner in today’s market averages $2.3 million dollars, with the most coveted partners costing well over $5 million. These figures suggest that the return on investment in the lateral markets is low.”

The report includes a section: “Questions All Law Firms Should Be Asking In Their LPQs,” which are excellent:

• 1. Reputational Risks to the Firm. Are you aware of any facts or circumstances that would result in damage or embarrassment to FIRM or to you if you join FIRM as a partner? (If yes, please elaborate).
• 2. Malpractice. Have you ever been involved in a matter that resulted in a malpractice claim or allegation against you (whether or not an action was actually filed and whether or not you were individually named as a defendant)? (If yes, please describe and state the status and outcome of each).
• 3. Sexual Harassment. Have you ever been the subject of a claim of sexual harassment, unlawful discrimination, or other claim or allegation made in the context of the workplace (whether or not any formal action was taken)? (If yes, please describe and state the status and outcome of each).
• 4. Problems with Past Employers. Have you ever been asked (explicitly or implicitly) to leave a legal employer or partnership?
• 5. Crimes and Investigations. Are you now, or have you ever been, a party (plaintiff or defendant) in any pending administrative or employment proceedings, arbitrations, or criminal or civil court actions (exclusive of routine, non-alcohol-related or non-drug-related motor vehicle offences)? Have you ever been charged or convicted of a felony or misdemeanor, the penalty for which could be incarceration? (If yes, please describe and state the status and outcome of each).
• 6. Additional Conflicts. Are you aware of any other matters that may create a conflict with FIRM? (If yes, please describe the matter(s)).
• 7. Professional Standing. Have you ever been disciplined by any Bar or equivalent professional licensing body, or, to your knowledge, have there ever been any complaints lodged against you with any such body (if yes, please describe and state the status and outcome of each).

“Are Law Firm Mandatory Retirement Policies Enforceable? In This Instance – Yes.” — (Von Kaenel v. Armstrong Teasdale, LLP, No. 18-2850 (8th Cir. 2019)) —

• “In Von Kaenel v. Armstrong Teasdale, LLP, No. 18-2850, an equity partner at the firm was forced out at age 70 at the conclusion of 2014. He alleged that but for the firm’s mandatory retirement policy, he would have retired at or around 75. After his departure from the firm, Von Kaenel continued to practice law, rendering him ineligible for a two-year severance benefit available to retiree lawyers pursuant to the firm’s policies. Von Kaenel filed charges with both the Equal Employment Opportunity Commission (EEOC) and the Missouri Commission on Human Rights.
• “The Missouri Commission determined that Von Kaenel fell outside the protected age group, and the EEOC separately terminated its proceedings and issued a Right to Sue. Von Kaenel then filed suit in federal court, where the central issue was whether he was an employee covered under the ADEA.”
• “Essentially, the question before the Eighth Circuit was whether Von Kaenel was an owner in the firm or an employee subject to protections of the ADEA. In 2003, the United States Supreme Court established a six-factor test in Clackamas Gastroenterology Associates, P.C. v. Wells, 538 U.S. 440 (2003), to determine whether an individual is likely an owner or an employee… The Eighth Circuit also cited favorable decisions from the Seventh, Eleventh, and Tenth Circuit involving shareholders in closely held corporations and bona fide partners in professional firms. There were facts Von Kaenel could not argue around.”
• “Law firms should be careful in applying this decision. Not all partners in every firm are created equally, and firms with multitiered partnership levels should tread carefully. Most non-equity partners—and even some equity partners, those with little or no management authority, and few voting rights—potentially could be considered employees under the ADEA.”

“Insurer Ends $6M Suit Against Buckley Over Founder’s Exit” —

• “D.C. financial services firm Buckley LLP and an insurance company that revealed that founder Andy Sandler’s abrupt exit was triggered by an internal misconduct investigation have agreed to end a federal suit over a $6 million insurance claim.”
• “‘The parties have conferred and Buckley LLP consents to this dismissal,’ the notice states.”
  “The withdrawal marks a swift end to a suit that revealed Buckley leaders hired a Latham & Watkins LLP investigator in late 2017 to look into unspecified allegations against Sandler. Within weeks, Sandler had been removed as chairman and then resigned from the firm, a move he characterized internally and publicly as voluntary.”
• “But Oxford alleged that Buckley leaders were aware that the allegations against Sandler were serious enough that they could lead to his termination, and hid that information from Oxford amid underwriting of a $6 million policy covering business losses stemming from the voluntary departure of ‘key partners.'”
• “The company argued that it shouldn’t have to pay because Sandler himself had said during a review of the firm’s policy-limit claim that he’d been forced out, despite having negotiated with managing partner Benjamin Klubes and other partners a separation agreement that couched his departure as a ‘retirement.'”

Apologies to those missing updates these past few weeks. I assure you all is well… Just a combination of my day job and too much Thanksgiving turkey. Definitely thankful for a few prods from readers missing their (“sometimes even fun”) risk fixes. Now, back once again. Starting us up this week, a look at some interesting updates on lateral rules and departure risk:

First, via Professor Alberto Bernabe: “New opinion by the ABA Standing Committee on Ethics addresses obligations related to lawyers changing firms” —

• “The ABA Standing Committee on Ethics and Professional Responsibility has issued ABA Formal Ethics Opinion 489 – Obligations Related to Notice When Lawyers Change Firms. You can read it here. Here is the summary.”
• “Lawyers have the right to leave a firm and practice at another firm. Likewise, clients have the right to switch lawyers or law firms, subject to approval of a tribunal, when applicable (and conflicts of interest).”
• “The ethics rules do not allow non-competition clauses in partnership, member, shareholder, or employment agreements.”
• “Lawyers and law firm management have ethical obligations to assure the orderly transition of client matters when lawyers notify a firm they intend to move to a new firm. Firms may require some period of advance notice of an intended departure. The period of time should be the minimum necessary, under the circumstances, for clients to make decisions about who will represent them, assemble files, adjust staffing at the firm if the firm is to continue as counsel on matters previously handled by the departing attorney, and secure firm property in the departing lawyer’s possession.”
• “Firms also cannot restrict a lawyer’s ability to represent a client competently during such notification periods by restricting the lawyer’s access to firm resources necessary to represent the clients during the notification period. The departing lawyer may be required, pre- or post-departure, to assist the firm in assembling files, transitioning matters that remain with the firm, or in the billings of pre-departure matters.”

“Risk Management Issue: Is e-mail ‘spoofing’ covered under the computer fraud provision in an insurance policy?” —

• “Medidata submitted a claim for the loss under its insurance policy issued by the Defendant Federal Insurance Company (‘Federal’). The policy included a Computer Fraud Coverage provision, which covered ‘direct loss of Money, Securities or Property sustained by an Organization resulting from Computer Fraud committed by a Third Party.’ The policy defined ‘Computer Fraud’ as ‘the unlawful taking or the fraudulently induced transfer of Money, Securities or Property resulting from a Computer Violation.’ In turn, ‘Computer Violation’ included both ‘the fraudulent: (a) entry of Data into . . . a Computer System; [and] (b) change to Data elements or program logic of a Computer System.'”
• “On appeal, the Second Circuit rejected Federal’s argument that the spoofing attack was not covered and affirmed the lower court’s ruling. In particular, the Court held that “the spoofing code enabled the fraudsters to send messages that inaccurately appeared, in all respects, to come from a high-ranking member of Medidata’s organization. Thus the attack represented a fraudulent entry of data into the computer system, as the spoofing code was introduced into the email system. The attack also made a change to a data element, as the email system’s appearance was altered by the spoofing code to misleadingly indicate the sender.” Id. at 118-119. The Court further concluded that spoofing attack “clearly amounted to a violation of the integrity of the computer system through deceitful and dishonest access, since the fraudsters were able to alter the appearance of their emails so as to falsely indicate that the emails were sent by a high-ranking member of the company.” On this basis, the Court concluded that Medidata’s losses were covered by the terms of the computer fraud provision. Id. at 118.”

“How Law Firms Can Preserve In-House Privilege” —

• “arlier this decade, there were several high-profile decisions in states like Georgia and Massachusetts examining the extent to which law firms enjoy the protections of the in-house privilege. The complicating factor, according to courts, was that if a law firm is seeking internal advice about an ongoing client factor, there may be a conflict of interest between the law firm’s interests and the client’s interests. Indeed, some critics maintained, if a lawyer is seeking legal advice internally while a client representation is ongoing, is it possible that the lawyer is thinking about his or her own interests before the client’s? However, most jurisdictions have soundly resolved this issue in favor of law firms to protect their privilege with their in-house general counsel—with some parameters and caveats.”
• “Although general counsel or the risk manager of a firm is often part of the firm’s management or leadership, it is helpful to remember to treat the general counsel or risk manager as counsel to the firm, both in form and in substance. For some firms, this means having a specifically-identified general counsel or deputies. A constant pro hac assignment of GC responsibilities for a revolving door of firm attorneys may cause a third-party to question whether the firm is truly treating their in-house attorney as an attorney to the firm.”
• “Ensuring the effectiveness of in-house counsel typically involves the assignment of responsibilities to that counsel, including the investigation and analysis of matters that might involve attorney exposure and generally advising firm attorneys on risk management. In-house counsel’s role may also include purchasing legal malpractice insurance, identifying and resolving conflicts of interests, advising attorneys on ethical obligations, reporting potential claims and actual claims, and updating the status of the firm’s partnership agreement or corporate structure.”

“Podcast on paralegal ethics” —

• “Because paralegals hold vulnerable information in trust, competence in ethical rules is crucial to protecting their firm, cients, and even themselves. But what exactly are paralegal ethics and why do they matter?”
• “Those are some of the questions that are addressed in this recent podcast of the Paralegal Voice, in which the hosts discuss a broad overview of basic ethics definitions and then zero in on best practices for conscientious adherence to ethics rules.”

“O’Melveny Legal Malpractice Drama Heads Back to Court” —

• U.S. District Judge Christina Snyder is presiding over a long-running case that pits Aletheia Research and Management’s Chapter 7 estate trustee, Jeffrey I. Golden, against the BigLaw firm.
  But Golden likely will face an uphill battle to convince Snyder that arbitrator Gary Feess “disregarded” the law in June when he found that O’Melveny’s joint representation of Aletheia and its founders didn’t violate conflict of interest rules.
  Golden now argues that public policy demands vacating the Feess’s ruling because it ignores state law prohibiting attorneys from jointly representing clients with conflicting interests without informed written consent.
  O’Melveny argues that Golden’s allegations are baseless. Feess found no conflict in the firm’s joint representation and Golden “has not proved that anything O’Melveny did or failed to do caused damage to Aletheia,” it said.

“Firm DQed After Repping Both Sides In Business Sale Dispute” —

• “A New York federal judge has disqualified Tannenbaum Helpern Syracuse & Hirschtritt LLP in a business sale dispute involving a marketing company that was acquired by a rival and the company’s previous owners, finding the law firm had concurrently represented both sides.”
• “As the dispute was ripening in October 2018, Tannenbaum Helpern counseled both the Stephensons and Mission Media, including its then-chief operating officer and general counsel, according to the opinion.”
• “‘It very may well be that there is an innocent explanation for [Tannenbaum Helpern’s] conduct in October 2018 while it represented both Mission Media and the Stephensons, but the Stephensons have not provided it to this court,’ the opinion said.”

“Insys Exec Trial Fair Despite Alleged Weil Conflict, Judge Says” —

• “A convicted former Insys Therapeutics Inc. executive ‘got a fair trial’ despite Weil Gotshal & Manges LLP representing him during his criminal trial while guiding the company through its bankruptcy, a federal judge said following a fiery Thursday afternoon hearing over the alleged conflict.”
• “At one point during the hearing, one of Simon’s new attorneys, William Fick of Fick & Marx LLP, questioned why Weil Gotshal “billed $3 million to ride the coattails” of one of the lawyers for Insys founder John Kapoor.”
• “‘My gut reaction here is, he got a fair trial in this courtroom,’ Judge Burroughs said at the end of a contentious, hourlong sparring match between Simon’s new legal team and federal prosecutors. “He got a fair trial, they all did,” the judge said. ‘I don’t love what Weil did here and I think it could have been handled other ways, but I am not sure whether it rises to the level of a new trial.'”

“Waivable Conflict Not Validly Waived, Leads To Remand for New Trial” —

• “In United States v. Arrington, 17-4092-cr (October 18, 2019) (Lynch, Lohier, Judge Brian M. Cogan of the United States District Court for the Eastern District of New York, sitting by designation), the Second Circuit vacated Defendant-Appellant Roderick Arrington’s convictions for murder in aid of racketeering and related convictions, and remanded for a new trial, holding that he was not provided with adequate information prior to waiving his attorney’s actual conflict of interest.”
• “While defendants should have their counsel of choice, and have the right to waive most conflicts of interest, the defendant needs to have sufficient information and independent advice to make a knowing and intelligent waiver of the right to conflict-free counsel. The Court of Appeals has long policed the boundaries of this issue and Arrington will give courts and counsel further guidance about how to approach these notoriously tricky Sixth Amendment questions.”