Bressler Risk Blog

“The Powerful City Lawyer at The Center of a Private Equity Storm” —

• “Neel Sachdev has a reputation for going above and beyond to ensure his private equity clients get what they want. The power the London lawyer wields over Europe’s $2 trillion buyout market is testament to that, and a reflection of the dominant debt finance practice he has built at US law firm Kirkland & Ellis over the past decade.”
• “Now, however, tactics he has used to his clients’ advantage — such as influencing which law firms he comes up against in deal negotiations and even playing a role in the recruitment of lawyers into rival law firms — are facing scrutiny by market participants as the era of easy money ends.”
• “Originally heralded as a way to make the often-fractious buyout process more efficient, the widely-used designated counsel arrangement is now viewed by many, including some of Wall Street’s biggest names, as a potential conflict of interest. It allows private equity firms, guided by their lawyers, to appoint and pay for the law firms that represent the lenders funding their deals.”
• “The International Organization of Securities Commissions (IOSCO) has begun looking into the designated counsel arrangement as part of a wider probe into leveraged debt markets, a spokesperson for the regulator said. Other regulators such as the Financial Conduct Authority are involved in IOSCO’s work.”
• “Since the early 2010s, market pressures — and access to plentiful cheap money — meant many lenders lacked the negotiating power to push for stronger protections. Sachdev and his buyout clients have used this imbalance to convince lenders, like the credit units of private equity groups and Wall Street’s largest banks, to agree to lesser safeguards around debt levels and dividend payments on deals they help finance.”
• “The gradual erosion of these terms has allowed private equity firms to pile debt onto the companies they own, take out huge dividends and move valuable assets out of the reach of lenders.”
• “That sophisticated lenders — often the credit arms of the same private equity firms pushing for changes in deal terms — accepted such arrangements raises its own questions. But recent moves by creditors to hire their own counsel and actively avoid working with certain law firms suggest this goes beyond simple buyers’ remorse.”
• “Sabrina Fox, CEO of the European Leveraged Finance Association, a trade body representing debt investors, says the industry is scrutinizing the practice. ‘Potential conflicts of interest hinder independence and impartiality where it is necessary,’ she said. ‘Now more than ever, it is critical that these issues are addressed.'”
• “ELFA plans to engage with regulators – likely to include the FCA and the Solicitors Regulation Authority – to explore potential conflicts of interest in the use of designated counsel, Fox said.”
• “Kirkland & Ellis, which declined to comment for this story, is not the only law firm to use this arrangement. But its partners, led by Sachdev, are widely regarded by buyout firms, lenders and other lawyers as the most aggressive in deal negotiations. Being on the wrong side of them can result in law firms being frozen out of future deals, people familiar with how Kirkland operates said. They asked not to be identified as they did not want to jeopardize future relations with the firm.”
• “‘It is very difficult to feel you have independence when the other firm sitting across the table may have played a role in getting you your job,’ said Trevor Clark, a former finance lawyer, turned law lecturer at the University of Leeds. Clark, who specializes in the ethics and professionalism of corporate lawyers, was speaking generally about rival lawyers being involved in the hiring processes of other firms.”
• “Advocates of designated counsel argue that selecting a single law firm to represent all lenders in a deal means negotiations are less likely to get bogged down with multiple teams of lawyers arguing.”
• “But the arrangement encouraged some lawyers to develop close relationships with their counterparts acting on behalf of private equity groups. For some law firms that translated into repeat work and a lucrative stream of business, according to people working at credit funds and law firms, who did not want to speak publicly to avoid damaging institutional relationships.”
• “The extent to which some lawyers became dependent, at least partially, on this designated business has triggered concerns among a number of lenders about potential conflicts of interest.”
• “Early last year, Europe’s largest-ever direct lending deal came to market when two private equity firms wanted to refinance The Access Group, a software company, represented by Kirkland. Shearman worked for a large group of lenders including Arcmont Asset Management, Intermediate Capital Group and HPS Investment Partners, as designated counsel on the Access Group deal. During the negotiations, some of the lenders hired their own lawyers, in addition to Shearman. These so-called shadow lawyers were employed to give additional legal advice after concerns arose over the perceived independence of the sponsor designated counsel, people close to the talks said.””Deals where other law firms were appointed designated counsel have also prompted direct lending arms of groups such as Apollo, Carlyle Group Inc. and KKR & Co. to hire their own shadow lawyers, Bloomberg News reported last year.”
• “Some private lenders are now going one step further than hiring shadow counsels. Direct lending units at firms such as Blackstone – which declined to comment for this story – are said to be drawing up lists of preferred law firms to act as designated counsel and actively pushing back when certain law firms are selected for the role, people familiar with the matter said.”

“Court to Rule on Attorney Disqualification, Judge Recusal in Ritz Carlton Class Action” —

• “A Miami attorney and a federal magistrate judge are under the microscope. In dueling filings, litigators addressed a question a federal court posed: If attorney Peter Valori is disqualified from a case, can his former law firm colleague, U.S. Magistrate Judge Melissa Damian, who has since recused herself from the case, return to rule on future motions, including for class certification?”
• “‘Judge [Melissa] Damian’s rulings have established the legal rubric that will frame the eventual decision on class certification,’ the plaintiff’s counsel, which includes David M. Marco, a partner at Smith Marco in Sarasota, Florida, claimed in a supplemental briefing. Marco did not respond to a call or email requesting comment.”
• “They added: ‘Returning the case to Judge Damian, either by direct reassignment ordered by [U.S. Magistrate] Judge [Lisette] Reid or through a report and recommendation to the district judge that the case be reassigned, ensures the efficient management of judicial resources and avoids the appearance of manipulating the judicial assignment process that Mr. Valori’s appearance caused.'”
• “In response to the judicial question, the Ritz Carlton said, ‘the answer is no,’ and noted in its supplemental briefing that Valori has been ‘substantively involved’ in the case for over four months. Ritz Carlton said that the federal recusal statute, local rules, and internal operating procedures do not authorize the federal district court to ‘effectively overrule another judge’s recusal decision. Rather, they prohibit it.'”
• “‘The fact that Plaintiff is seeking an impossible reassignment (and a pointless disqualification), suggests the motion has an ulterior motive: Attempting to malign Ritz-Carlton and its counsel to distract from the meritlessness of the renewed certification motion,’ the Ritz Carlton asserted in its supplemental briefing.”
• “In the dispute, Fox will have the burden to prove that, based on the U.S. Court of Appeals for the Eleventh Circuit’s seven-factor test on disqualification, he has a compelling reason to override what the Ritz Carlton called its ‘right to counsel of choice.'”
• “Now, U.S. Magistrate Judge Reid will determine in a report and recommendation whether to reject or grant the motion for disqualification and, if the latter, whether Damian will return to preside over the case on future pre-trial motions. However, the ruling will ultimately rest with U.S. District Judge Raag Singhal.”

“A Viper’s Nest of Conflicts and Intrigue” —

• “On December 21, Big Law firm Sullivan & Cromwell filed a conflict disclosure with the U.S. Bankruptcy Court in Delaware, where it was hoping to be officially appointed as lead counsel for the bankruptcy estate of Sam Bankman-Fried’s collapsed crypto house of cards – FTX, Alameda Research and its more than 100 opaque affiliates.”
• “Judge John Dorsey signed the order making Sullivan & Cromwell lead counsel on January 20, despite a mind-numbing list of conflicts of interests, including extensive past legal work for the FTX group and personal legal work for its now indicted kingpin, Sam Bankman-Fried. The disclosure showed that in addition to FTX and Alameda Research, Sullivan & Cromwell had 10 other current crypto clients, including four major crypto competitors to FTX — BlockFi, Coinbase, Gemini, and Kraken.”
• “While this litany of crypto disasters does not paint a pretty picture of what is happening in general with Sullivan & Cromwell’s crypto clients, BlockFi is in a league of its own in terms of a viper’s nest of conflicts inside Sullivan & Cromwell and internecine intrigue.”
• “Under Bankruptcy Code Section 327(a), attorneys hired by the bankruptcy estate cannot hold or represent an interest adverse to the estate and must be ‘disinterested persons.’ The December 21 disclosure filed with the FTX bankruptcy court included a declaration from Sullivan & Cromwell partner, Andrew Dietderich, who told the court the following:
  • ‘Based solely on the conflicts procedures described herein, (i) S&C is not aware of any conflict between its representation of the Debtors and its representations of its Current Clients or Former Clients that would cause S&C not to be a ‘disinterested person,’ (ii) S&C does not represent any person or entity having an interest adverse to the Debtors in connection with these chapter 11 cases…'”
• “On the date of that declaration, December 21, Sullivan & Cromwell was well aware that its client, BlockFi, had an extremely adversarial relationship with the FTX group. On the compensation request submitted by Sullivan & Cromwell to the bankruptcy court last Wednesday, for legal work it performed for the FTX group in the last 19 days of November, the name BlockFi appears 57 times. In 6 of those instances, the billable hours were described as involving the ‘BlockFi adversary proceeding’ or ”BlockFi adversary action.'”
• “For example, on November 30, Sullivan & Cromwell law partner, Brian Glueckstein, billed 3.2 hours for what he described as follows:
  • ‘Analysis and strategy re: BlockFi claims (.80); call with S&C and Haynes Boone teams re: BlockFi claims issues (.50); follow-up correspondence to S&C team re: same (.20); meetings with A. Dietderich re: BlockFi claims (.40); correspondences to S&C team re: BlockFi adversary proceeding (.40); meeting with A. Dietderich and J. Bromley re: BlockFi strategy issues (.40); meeting with M. Porpora re: BlockFi adversary proceeding (.50).'”
• “Sullivan & Cromwell has conceded in a court filing that it represented Bankman-Fried in connection with this Robinshare share purchase. Making that transaction even more fraught for Sullivan & Cromwell is the fact that the Department of Justice believes that Sam Bankman-Fried may have been attempting to hide that half billion dollars he held in the publicly-traded common stock of Robinhood by setting up the offshore vehicle, Emergent Fidelity Technologies Ltd. in Antigua, to hold the shares.”
• “The documentation on how this transaction went down is a window into what was going on under the nose of Sullivan & Cromwell’s former partner, Ryne Miller, who became General Counsel to FTX US in August of 2021.”
• “Although Miller was General Counsel to FTX US, not Alameda Research or Emergent Fidelity Technologies Ltd., he listed himself as the contact person on the Securities and Exchange Commission filing for this Robinhood stock purchase.”

“Big Law Operating Model Threatened in Baker McKenzie Mine Case” —

• “A Swiss structure that lets law firms affiliate to jointly market services is facing a second legal test in less than a year that threatens the viability of the model.”
• “Baker McKenzie, the first major US law firm to adopt the Swiss verein structure, is accused of legal malpractice through an alleged Russian member of its network. London-based Lehram Capital Investments faults the law firm for its loss in ownership of a Siberian coal mine.”
• “Baker contends that the Russian law firm that handled the mine matter, Baker & McKenzie-CIS Ltd., was a separate entity. A failure to prove that could have Baker facing tens of millions of dollars or more in damages.”
• “The case shows that a key selling point of the verein structure—that affiliates are completely separate from one another on matters such as profits, pay and taxes—could be undermined when it comes to the critical matter of legal liability.”
• “The lawsuit, if pressed successfully, would mark the second legal finding in less than a year that works against the model. The Ohio Supreme Court in August declined to review a $32.3 million malpractice award against Dentons that was tied to the work of one of the firm’s verein affiliates.”
• “Baker says on its website that ‘the use of the name Baker McKenzie is for description purposes only and does not imply that the member firms are in a partnership or are part of a LLP.'”

“Judge’s financial conflict does not require reopening case, 10th Circuit finds” —

• “A federal judge did violate the law when he failed to recuse himself from a case, but there is no need to reopen the lawsuit or overturn his rulings, the federal appeals court based in Denver decided on Thursday.”
• “In what appears to be the first ruling of its kind from the U.S. Court of Appeals for the 10th Circuit, a three-judge panel confronted the fallout from a bombshell Wall Street Journal report in September 2021 that found 131 federal judges across the country presided over cases in which they or their family had an undisclosed financial stake in one of the corporate parties to the litigation.”
• “U.S. District Court Senior Judge R. Brooke Jackson was among them, handling approximately 36 lawsuits against companies such as Home Depot and Facebook, even though Jackson and his wife owned stock in those defendants. Failing to recuse himself, even if Jackson was unaware of the conflict, was a violation of federal law.”
• “In the wake of the revelations, a small number of litigants sought a review of their cases, which another judge stepped in to address. Although U.S. District Court Senior Judge John L. Kane agreed Jackson should never have handled the cases, he found the error did not affect Jackson’s rulings.”
• “[U.S. Court of Appeals for the 10th Circuit Senior Judge Mary Beck Briscoe noted] Further exploration of Jackson’s conflict is unnecessary, she added, because Kane acknowledged the conflict existed and still detected no effect on Jackson’s decision-making.”

“ABA House adopts host of new policies, including support for ethics code for U.S. Supreme Court” —

• “In wrapping up its ABA 2023 Midyear Meeting, the American Bar Association’s House of Delegates approved today first-time policies endorsing ‘reasonable and appropriate’ federal government efforts aimed at combating money laundering as well as a code of judicial ethics binding on justices of the U.S. Supreme Court.”
• “Resolution 400, which was a late proposal, urges the Supreme Court to adopt a code of judicial ethics binding on its justices that is comparable to the code of conduct for other U.S. judges adopted by the Judicial Conference of the United States. Advocates of the change say the absence of a clearly articulated, binding code of ethics for members of the highest court in the country imperils the legitimacy of the court as well as the judicial system.”
• “‘It’s high time to set (a code of conduct),’ said Stephen Saltzburg, a law professor and former U.S. Justice Department official. ‘The Supreme Court should have a code of ethics. Exclamation point. The end.'”
• “The new anti-money laundering policy seeks to balance the longstanding attorney-client privilege with the demands of governmental entities seeking access to information on criminal activities, such as money laundering, terrorism financing, human trafficking and other corrupt conduct. It follows a lengthy review by the ABA Working Group on Beneficial Ownership, and recognizes efforts by Congress, which has passed legislation to combat criminal activity. A recent law, for example, requires certain business entities to file, in the absence of an exemption, information on their beneficial owners with the Financial Crimes Enforcement Network of the U.S. Department of Treasury.”
• “A beneficial owner is a person who enjoys the benefits of ownership although an asset’s title is listed in another name. Under federal financial regulations, a beneficial owner is anyone with more than 25% ownership of a legal entity, or anyone who controls the legal entity.”
• “The new policy urges that any governmental disclosure requirements protect constitutional rights and confidentiality interests, and not conflict with the ethical duties, professional conduct requirements and regulations imposed on the legal profession by other governmental entities. It also says these requirements should ‘not undermine the applicable rules of professional conduct to which lawyers are subject.'”

As always, thank you Bill Freivogel:

• Hong v. Hong, 2023 ABCA 33 (CanLII) (Alb. Ct. App. Feb. 1, 2023).
  • “This case is a dispute among family members over ownership and/or possession of certain real estate. Plaintiff moved to disqualify Law Firm for Defendants. Law Firm had earlier represented Plaintiff jointly with certain of Defendants in an appeal to the Tax Court of Canada.”
  • “The trial court held that the issues in the tax appeal were sufficiently related to the issues in this case to justify disqualification. In this opinion the appellate court rejected that finding, noting that whatever of Plaintiff’s confidences were disclosed to Law Firm in the tax appeal would also have been known to certain Defendants due to their family relationship with Plaintiff. However, the appellate court did uphold disqualification of Law Firm because the need for one of its members to testify was ‘highly likely.'”
• Reid v. Samsung SDI Co., Ltd., 2023 WL 1096333 (Ga. App. Jan. 30, 2023).
  • “A Samsung SDI lithium-ion 18650 battery exploded in Plaintiff’s pocket. Plaintiff, represented by Lawyer, is suing Samsung SDI for Plaintiff’s injuries. Samsung moved to disqualify Lawyer because Lawyer had for a number of years worked in-house for the insurance company (“Insco”) that insured Samsung SDI for product liability. (The name Samsung appears in Insco’s name, but the court does not explain that coincidence.)”
  • “In Lawyer’s Insco role Lawyer supervised, or otherwise handled, many cases against Samsung SDI, including cases involving the 18650 battery. The very fact-specific opinion contains way more information about how Lawyer interacted with Samsung SDI lawyers. We will leave it at that. In this opinion the appellate court affirmed the trial court’s order disqualifying Lawyer.”
  • “The opinion does three things. First, the court found that Lawyer’s role at Insco was tantamount to representation of Samsung, thus triggering Rule 1.9. Second, the court found that the earlier work at Insco was substantially related to this case. Last, while not mentioning it by name, the court seemed to be applying the ‘playbook doctrine’ emphasizing Lawyer’s familiarity with 18650 battery litigation and with Samsung SDI’s personnel and procedures.”
• Veloz v. Jiddou, 2023 NY Slip Op 00292 (N.Y. App. Div. 1st Dept. Jan. 24, 2023).
  • “Plaintiff was driving an auto, and her young daughter was a passenger. They were allegedly rear-ended, and both, represented by Lawyer, sued the driver of the other vehicle. The defendant counterclaimed that the accident was the fault of the plaintiff/driver. The trial court disqualified Lawyer from representing both plaintiffs. In this opinion the appellate court noted that the plaintiffs did not appeal the disqualification and said ‘plaintiffs have been advised to retain new and separate counsel.'”

“Lawyer’s Racist Posts Test Conflict of Interest Standards” —

• “Massachusetts’ highest court is being asked to grapple this week with a question that some say could have impact far beyond a single case: Should a court-appointed lawyer’s racist, Islamophobic Facebook posts disqualify him from representing a Black, Muslim client?”
• “The issue is at the heart of an appeal from a defendant who said he deserves a new trial after discovering that his public defender made more than 20 bigoted social media posts while representing him.”
• “A lower court judge ruled that the appellant, Anthony Dew, hadn’t proven how his former defender’s racism amounted to ineffective representation.”
• “Dew told the court he was unaware of Doyle’s racism and Facebook posts until 2021, court records show. He asked to withdraw his guilty plea and get a new trial. Dew has argued that, among other flaws, Doyle failed to file a motion to suppress.”
• “Prosecutors counter that ‘the strength of the Commonwealth’s evidence gave Doyle good reason to recommend a plea, that the plea was not coerced, and that, by accepting the plea, the defendant validly waived his right to pursue any further motions.'”
• “A Suffolk County Superior Court denied the appeal, ruling that Dew couldn’t pinpoint specific ways in which the attorney’s representation impacted his case.”
• “The defendant, backed by Lawyers for Civil Rights, the Muslim Justice League, the Hispanic National Bar Association, and other groups, says he shouldn’t have to.”
• “They [The NAACP Legal Defense & Educational Fund and the New England Innocence Project] want the court to declare that this kind of racism and Islamophobia is an implicit conflict of interest, meaning there was a structural error in the case. Under Massachusetts precedent, once a conflict of interest has been established, the defendant doesn’t need to show specific harm, said Edward Gaffney, Dew’s new court-appointed attorney.”
• “Courts haven’t been previously asked whether a lawyer’s broad, public hatred of people of color disqualifies him or her from representing them.”
• “The closest parallel is a Ninth Circuit case called Ellis v. Harrison. There, a defense attorney made racist comments directed at Black clients, court staff, and lawyers, causing the state itself to concede that the defendant deserved a new trial.”

“Maine Reprimands Veteran New Hampshire Attorney for Conflict of Interest Over Office Space” —

• “A single justice of the Maine Supreme Judicial Court issued a reprimand for reciprocal discipline this month to a New Hampshire attorney accused of engaging in improper conduct due to his personal interest in opening an outfitters store and law office space at a property owned by beneficiaries to which he served as a trustee.”
• “The New Hampshire Supreme Court’s Professional Conduct Committee found in November 2021 that veteran attorney Thomas E. Dewhurst III, who was also admitted to the Maine Bar in 1987, violated rules associated with conflicts of interest and communications with persons represented by counsel while assisting the sisters in a property and trust dispute.”
• “The New Hampshire’s court sanctioned Dewhurst with requiring six additional hours of continuing legal education classes in conflicts of interest in the area of estate and trust work. He also was ordered to have no professional misconduct violations during a one-year period.”
• “The sisters claimed that Dewhurst engaged in improper conduct because of his personal interest in opening an outfitters store and law office space for himself at the trust-owned property, according to the New Hampshire disciplinary documents.”
• “After some discussion, the Cannell sisters agreed that the guns could be sold as part of a business. Dewhurst referred the Cannell sister to another attorney for the purpose of representing the CCT beneficiaries after Dewhurst recognized that it would be a conflict for him and his firm, the New Hampshire filing said.”
• “Dewhurst moved his law office into the plaza property in August 2019 while still being a trustee of the CCT which owned the property. An attorney for the trust prepared Dewhurst’s lease, but he did not provide the completed leases to their attorney and instead sent it to one of the sisters.”
• “Dewhurst’s installment the store’s White Mountain Firearms in October 2019 resulted in the relationship breakdown between Dewhurst and the sisters. The lease Dewhurst presented to Mary Ann Cannell listed the store as ‘Dewhurst Outfitters [doing business as] White Mountain Firearms’ despite the sisters’ insistence that firearms not be sold at the plaza property, the documents said.”

“Why Savvy Law Firms Are Prioritizing Risk-Aware Business Development” —

• “Rainmakers and business development directors will sometimes refer to risk and compliance departments as the place where new business goes to die.”
• “In reality, the opposite is true: Information managed by Risk and Compliance teams can significantly enhance business development. But only if it’s integrated with other enterprise data and accessible during the business development process.”
• “First, let’s start with an essential truth: Risk teams play a critical gate-keeping function, ensuring firms mitigate risk and remain compliant with client commitments when taking on new business. It’s an iron-clad law that new business flows through the new business acceptance process. That will always be the case.”
• “After spending hours developing a relationship to land a new client, how often has the risk department told a lawyer that she needs to obtain a conflict waiver from another client? Or told her about a commitment made to another firm client that prevents her from taking on the new business? Or told her that members of her proposed client team are conflicted from working on the new matter? All these issues could be addressed earlier and more efficiently if Risk and Compliance information were integrated into the early-stage business development process.”
• “Well-organized and tech-savvy law firms have already begun rethinking the relationship between BD and risk and compliance. BD teams and lawyers are starting to see the risk function less as traffic cops and more as BD collaborators. That means enlisting risk teams early in the BD process rather than waiting until the last minute.”
• “These changes can do more than make the BD process smoother. They can make a firm more strategic and cohesive. When more people inside a firm have access to discrete risk-related information, there is a higher likelihood that the firm’s strategy will be carried out consistently. That includes ensuring business acceptance aligns with broader strategic priorities.”
• “The time is ripe for more collaboration between risk and compliance and business development teams, and to adopt the appropriate technology to effectuate it. Law firms are complex organizations that are increasingly difficult to manage. The reputational, financial and legal risks of taking on the wrong kind of new business keep growing. The constant coming and going of lateral partners—who bring new clients, targets and commitments—has multiplied those risks. So has the rise of remote work, which places more importance on the use of technology, information-sharing and transparency.”
• “Risk and compliance professionals have built-in motivation for sharing as much as possible. They often grouse about receiving loads of conflict checks with short deadlines. Many would prefer to move risk decisions and assessments upstream to relieve pressure downstream.”

“Albright Spars With Lawyers Over Recusal in IBM’s Patent Lawsuit” —

• “Judge Alan D. Albright had sharp words Thursday for lawyers for a Swiss tech company who filed a motion to have the West Texas jurist disqualified from a patent infringement case filed by International Business Machines Corp.”
• “LzLabs and co-defendant Texas Wormhole LLC filed their disqualification motion on Jan. 17, saying Albright must relinquish the case because of past work he did as a lawyer in private practice.”
• “Specifically, Albright represented Neon Enterprise Software LLC, which was sued by IBM for IP theft more than a decade ago. Neon executives John Moores and Thilo Rockmann went on to found and run LzLabs, according to the complaint, and the two men ‘picked up where they left off, with LzLabs as the ‘new Neon.””
• “In a hearing on the disqualification motion Thursday, Albright said his past work for Neon would’ve been obvious to LzLabs’ attorneys from the start, given that one of those lawyers, Chris Reynolds, also represented Neon with him.”
• “He questioned why they waited until after he’d rejected their motions to dismiss, a motion seeking a protective order, and a motion to strike before asking him to recuse.”
• “Had LzLabs won on the motion, its lawyers ‘would be singing ‘Kumbaya,” but having lost, they wanted a new judge,” Albright said. ‘I cannot tell you how troubled I am by this, regardless of what I do with this motion.'”
• “Brandon Allen, a partner at Reynolds Frizzell LLP, said the timing was dictated by Albright’s decision to reject LzLabs’ motion to strike, but in the sense that that decision changed the nature of the case. That earlier motion had sought to exclude from the record ‘Neon-related statements’ made by IBM in its pleadings.”
• “Only after its rejection, Allen argued, was it clear that Albright’s past representation of Neon created an issue under a federal disqualification statute. Allen said LzLabs was taking a ‘pragmatic approach’ by waiting to see if there was a disqualification issue or not.”
• “IBM’s lawyer, Justin Wilcox of Desmarais LLP, said the delay was ‘completely inexcusable.'”

“At the Supreme Court, Ethics Questions Over a Spouse’s Business Ties” —

• “After Chief Justice John G. Roberts Jr. joined the Supreme Court, his wife, Jane Sullivan Roberts, gave up her career as a law firm partner to become a high-end legal recruiter in an effort to alleviate potential conflicts of interest. Mrs. Roberts later recalled in an interview that her husband’s job made it ‘awkward to be practicing law in the firm.'”
• “Now, a former colleague of Mrs. Roberts has raised concerns that her recruiting work poses potential ethics issues for the chief justice. Seeking an inquiry, the ex-colleague has provided records to the Justice Department and Congress indicating Mrs. Roberts has been paid millions of dollars in commissions for placing lawyers at firms — some of which have business before the Supreme Court, according to a letter obtained by The New York Times.”
• “In his letter last month, Kendal Price, a 66-year-old Boston lawyer, argued that the justices should be required to disclose more information about their spouses’ work. He did not cite specific Supreme Court decisions, but said he was worried that a financial relationship with law firms arguing before the court could affect justices’ impartiality or at least give the appearance of doing so.”
• “In a statement, a spokeswoman for the Supreme Court, Patricia McCabe, said that all the justices were ‘attentive to ethical constraints’ and complied with financial disclosure laws. The chief justice and his wife had also consulted the code of conduct for federal judges, Ms. McCabe said, including a 2009 advisory opinion that a judge ‘need not recuse merely because’ his or her spouse had worked as a recruiter for a law firm with issues before the court.”
• “Mrs. Roberts previously said that she handled conflicts on a case-by-case basis, avoiding matters with any connection to her husband’s job and refraining from working with lawyers who had active Supreme Court cases.”

“Former Allianz Fund Manager Accuses Firm and Its Lawyers of Double-Crossing Him” —

• “A former Allianz SE fund manager who was blamed for losses the firm suffered during a market meltdown sparked by the Covid-19 pandemic has accused federal prosecutors of committing ethical breaches by turning his own lawyers against him.”
• “Gregoire Tournant, who was a chief investment officer for one of Allianz’s U.S. investing divisions, said prosecutors encouraged lawyers that were acting both for the firm and for him personally to later switch sides and use his privileged communications to help build a false narrative against him.”
• “At the time of Mr. Tournant’s arrest, Allianz agreed to pay about $6 billion in penalties and restitution to investors as part of a deal with the government. The firm admitted to having deficient internal controls but said criminal misconduct was limited to a handful of individuals who no longer worked at the company. “
• “The breach described by Mr. Tournant allegedly arose as a result of an arrangement under which lawyers from the firms Sullivan & Cromwell LLP and Ropes & Gray LLP agreed to represent both Allianz and Mr. Tournant amid the investigations by the Justice Department and the U.S. Securities and Exchange Commission. Mr. Tournant was also represented by a third firm that wasn’t jointly retained by Allianz, according to his motion.”
• “Sullivan & Cromwell and Ropes & Gray said a joint representation would be more efficient, said Mr. Tournant. The arrangement appears to have been made at a time when both parties anticipated that their legal interests would be similar. The firms’ agreements required them to inform Mr. Tournant in the event that a conflict of interest arose, according to his motion.”
• “Allianz’s posture toward Mr. Tournant changed after Mr. Bond-Nelson broke ties with the firm’s defense team and began shifting blame to Mr. Tournant, according to his brief. Company lawyers continued meeting with Mr. Tournant in their capacity as his lawyer, but Sullivan & Cromwell had begun to conduct an investigation that would lead them to suggest to the government that he had committed wrongdoing, he said.”
• “Representatives for Allianz and Sullivan & Cromwell declined to comment. Ropes & Gray didn’t respond to a request for comment.”

And from Diana C. Manning, managing principal at Bressler, Amery & Ros [no relation]: “Serving 2 Masters? Conflicts of Interest in the Representation of Closely Held Entities” —

• “Among those issues are the challenges of representing closely held corporate entities and the conflicts that may arise from actual or perceived representation of the organization’s constituent members. A typical situation involves a lawyer being asked by a client to form an entity, and then at some future point, being asked to represent either the company or the member in a dispute with other equity holders. These situations are fraught with peril that can easily lead to disqualification, disciplinary action or potential malpractice liability. This article examines conflicts of interest in the organizational setting and discusses potential consequences from a failure to spot and adequately address such conflicts.”
• “The lawyer’s primary duty, therefore, is to the corporate entity and not to its directors, officers, employees or other constituents… Depending on the type of business entity and the jurisdiction, the representation of an organization itself may per se constitute representation of the individual constituents. This has increasingly been the case with respect to unincorporated business partnerships.”
• “The best defense in situations that present these potential conflicts is to be clear from the outset about who you do and do not represent, both with the client and others who may mistakenly assume they are a client. If approached by a client to assist in the creation of a business entity, the lawyer should be clear in his engagement agreement about who is the client. Is it the individual who approached the lawyer? Or is it the entity to be created? Clarifying this issue will assist in resolving conflicts down the road.”
• “Being clear about these issues will also help avoid future conflicts in the event you are asked to represent the individual member in a dispute with the company and its members.”
• “Although a lawyer who has represented an individual stakeholder in an entity is not per se precluded from later representing the company in litigation or other business transactions, considerations of actual and potential conflicts must be continuously assessed.”
• “Using the example of an attorney that had prepared operational documents on behalf of an individual client and who is then asked to represent the organization in litigation filed by a third party, the following, among other things, should be kept in mind: Will the representation of the entity implicate a conflict or perceived divided loyalty with the original client? Perhaps it would if the lawsuit arises from the original client’s conduct. But if the lawsuit presents a simple contract dispute with a customer, the risk is substantially less. Does the lawsuit present issues that would place the individual constituents at odds with one another? Under such circumstances, representation of the entity should likely be declined.”
• “Given the stakes, careful consideration of the potential conflicts arising from the representation of a closely held corporation must be taken in all instances. An opinion from ethics counsel can assist in determining the appropriate course of action and identifying potential circumstances that may require later withdrawal, the necessity and form of potential conflict waivers or other disclosures, and appropriately drawn engagement agreements.”

“Biglaw Firm To Dump Kanye West As Client By Publishing Ads About It In Local Newspapers” —

• “What’s a Biglaw firm to do when it wants to part ways with a celebrity client who’s completely MIA? It looks like the answer here is to treat that celebrity like an average joe and take to the local newspapers to dump him.”
• “That’s what’s currently going on between Greenberg Traurig and Ye (fka Kanye West).”
• “‘According to legal docs, obtained by TMZ, Greenberg Traurig, LLP claims there’s been ‘a breakdown in communication’ with Kanye, as they attempt to let him know they’re off of the case. They say Ye apparently deactivated the phone number they previously used to get in touch with him.'”
• “‘As a result, the docs say the company’s looking to use ‘alternative means’ to reach him … which includes putting ads out in 2 L.A.-based newspapers, and publishing the order from the judge, which allows them to withdraw from the case, for all to see.’
• “‘The docs say the goal is to inform the rapper about the order — and seeing as he’s incommunicado, this is the best option left to give him notice. The firm says it’s aware the publication would ‘likely garner significant media attention, resulting in broader publication.””

“Third Discussion Draft of Possible Amendments to Model Rules of Professional Conduct Concerning Lawyers’ Client Due Diligence Obligations” —

• “The Standing Committees on Ethics and Professional Responsibility and Professional Regulation have developed a Third Discussion Draft of possible amendments to the Model Rules of Professional Conduct concerning lawyers’ client due diligence obligations. This Third Discussion Draft addresses Model Rule Conduct 1.16 (Declining or Terminating Representation) and its Comments.”
• “Your comments will assist the Committees in determining whether and how to proceed when asking the House of Delegates to amend the Rules of Professional Conduct in August 2023.”
• [Information via the link on how to join their Feburary 28 zoom roundtable and call for commentary on this topic]

“View the Third Discussion Draft here.” Here are highlights from introductory commentary and context —

• “The impetus for the Committees’ work on this subject related to concerns about lawyers facilitating money laundering and terrorism financing. As noted in the memo accompanying the Standing Committees’ First Discussion Draft, the application of anti-money laundering and counter terrorism financing laws and regulations to lawyers is a complex subject that can generally be divided into three overarching topics:
  • a lawyer’s responsibility to know the client — essentially to conduct client due diligence — to ensure that the lawyer is not being used to assist a client in a crime or fraud;
  • whether, when, and how a lawyer might be required to disclose to the government information about the beneficial ownership of an entity the lawyer forms on behalf of a client or otherwise represents; and
  • whether, when, and how a lawyer might be required to report to the government ‘suspicious activity’ of a client.”
• “For example, the ABA urges lawyers to engage in a risk-based analysis to determine whether to accept a client or a matter as set forth in the ABA Voluntary Good Practices Guidance for Lawyers to Detect and Combat Money Laundering.”
• “Many of the federal anti-money laundering (AML) legislation and regulations have and continue to seek to cover lawyers. However, depending on how the legislation and regulations are written, subjecting lawyers to the AML requirements could conflict with a lawyers’ obligations under Model Rule 1.6, the attorney-client privilege, and the ABA’s longstanding policy supporting state- based regulation of the legal profession. Therefore, the ABA has advocated to ensure that the legal profession is not, generally, subject to such federal legislation, rules, and regulations.”
• “Despite the ABA Good Practices Guidance, the Ethics Opinions, and the current text of the Black Letter and Comments to the Model Rules, some governmental and non-governmental entities, domestically and internationally, continue to urge that the legal profession create an enforceable client due diligence obligation in the Model Rules. The Committees believe that the Model Rules already include such an obligation, but that additional clarity will be helpful.”
• “In deliberating on the best approach to this issue after reviewing and discussing all comments and testimony, the Committees revisited where and when the Model Rules assume that the lawyer will conduct client due diligence5 and where such inquiry implicates and likely conflicts with other Model Rules and Ethics Opinions.6 The Committees evaluated how best to resolve ongoing concerns relating to mens rea and the inter-relationship between the possible changes to Model Rule 1.2 and other Rules.”
• “The result of these deliberations was the development of the attached Third Discussion Draft setting forth possible amendments to the Black Letter and Comments to Model Rule 1.16 (Declining or Terminating Representation). The Third Discussion Draft states specifically what is implicit by providing in Paragraph (a) that a ‘lawyer shall assess the facts and circumstances of each representation to determine whether the lawyer may accept or continue the representation.’ The Committee chose ‘assess’ because inherent in its definition is the weighing or evaluation as opposed to mere fact gathering.”
• “Proposed new language in the Comments to Model Rule 1.16, Declining or Terminating Representation, make clear that the duty to assess the facts and circumstances applies both before accepting a representation and continues throughout the representation. The lawyer’s assessment of the facts and circumstances should be informed by the risk posed by the representation. Exemplary factors to be considered by the lawyer in conducting the risk-based assessment are included in the Comment.”
• “On behalf of the Ethics and Professional Regulation Committees, thank you for your input. It is critical to our work, and to ensure that the ABA continues to provide current and optimal guidance to the profession.”