Bressler Risk Blog

“Potential conflict raised for law firm in botched JEA sale” —

• “In late 2019, a lawyer in the Jacksonville office of Foley & Lardner provided legal guidance to employees at a Florida Power & Light consulting firm who were drafting a strategy to filter campaign contributions through a series of nonprofits, an idea those consultants hoped would to obscure the origins of those donations, according to a cache of secret documents sent to the Orlando Sentinel last month and shared with the Florida Times-Union.”
• “At the same time, Foley attorneys in that Jacksonville office were billing JEA ratepayers hundreds of thousands of dollars in legal fees working on the controversial effort to sell the agency to a private operator. That work included helping former JEA executives craft a bonus plan that could have paid out millions of dollars in compensation if the utility had been sold to a private operator, an issue that appears to be at the heart of an ongoing federal investigation.”
• “Former JEA executives attempted to sell the public utility through a formalized process called an “invitation to negotiate,” which is more secretive than traditional public procurement processes and requires almost every party involved to adhere to a strict ‘cone of silence’ intended to prevent conflicts of interest.”

More on the larger context of this story: “JEA’s billion-dollar bonus scheme caused rift with utility’s private lawyers.”

“Ex-WilmerHale Temp Moves To DQ Judge In Employment Case” —

• “Andrew Delaney, who worked as a Thai language document reviewer for WilmerHale through staffing agency HC2 or Hire Counsel, said in a motion to recuse Judge Liman Monday that his alleged former work as a WilmerHale partner was a conflict of interest.”
• “Judge Liman’s relationships with two current WilmerHale partners, Jay Holtmeier and Jamie Gorelick, contributed to ‘rulings against Delaney without regard to the case law or applicable legal standards,’ and were further evidence of Judge Liman’s bias, according to that motion.”
• “Hire Counsel sued Delaney in April, saying he was threatening to expose proprietary information about WilmerHale’s review of Toyota’s sensitive documents.”
• “But Delaney said in his Monday filing that Judge Liman’s bias as a former WilmerHale partner resulted in the dismissal of his $20 million counterclaim against the agency for whistleblower retaliation and a number of other infractions in response to his assertion that the firm was sidestepping COVID-19 protections and regulations. Judge Liman’s bias had resulted in his dismissal of those claims, Delaney said.”

Professor Alberto Bernabe notes: “ABA Committees solicit comments on discussion draft document on possible amendments to the Model Rules” —

• “The ABA Standing Committees on Ethics and Professional Responsibility and Professional Regulation have developed a Discussion Draft of possible amendments to the Comments of Model Rules of Professional Conduct 1.0 (Terminology), 1.1 (Competence), and 1.2 (Scope of Representation and Allocation of Authority between Client and Lawyer). The amendments contained in the Discussion Draft provide guidance on lawyers’ client due diligence obligations under the ABA Model Rules of Professional Conduct.”

That document: “For Comment: Discussion Draft of Possible Amendments to Model Rules of Professional Conduct Concerning Lawyers’ Client Due Diligence Obligations” —

• “Anti-money laundering and counter terrorism financing regulations applicable to lawyers is a complex subject.3 The primary issues surrounding this subject generally can be divided into three overarching topics: (1) client due diligence; (2) disclosure of beneficial ownership information; and (3) suspicious activity reporting. The requests for comment on this Discussion Draft by the Standing Committee on Ethics and Professional Responsibility and Standing Committee on
  Professional Regulation are focusing on the lawyers’ client due diligence obligations under the ABA Model Rules of Professional Conduct (Model Rules).”
• “Despite the ABA Good Practices Guidance, the Ethics Opinions, and the current text of the black letter and Comments to the Model Rules, the FATF, U.S. Government (including the Department of Treasury), and others continue to urge that the legal profession create an enforceable client due diligence obligation in the Model Rules. They point to the 2016 FATF Report’s recommendations, and events like the Paradise Papers, the Panama Papers, the 60 Minutes -Global Witness exposé, and the Pandora Papers , as necessitating further action by the legal profession. They argue the failure of the profession to act will result in increased federal legislative and regulatory action. To address these concerns about enforceable lawyer client due diligence obligations, the Ethics and ABA Standing Committee on Professional Regulation ( Regulation Committee) developed possible amendments to the Model Rules.”
• “The Ethics and Regulation Committees propose adding a new Comment to Model Rule 1.0. The
  Comment will provide enhanced guidance regarding the statement in the black letter of Rule 1.0(f)
  that a person’s knowledge may be inferred from the circumstances:
  • [11] A lawyer’s knowledge may be derived from the lawyer’s direct observation, credible
    information provided by others, reasonable factual inferences, or other circumstances. For
    purposes of these Rules, a lawyer who ignores or consciously avoids obvious relevant facts may
    be found to have knowledge of those facts.”
• “Specific Questions to Supplement General Comments:
  • 1. Are both “ignores” and “consciously avoids” necessary in the explanation or is
    ‘consciously avoids’ sufficient? Please explain why or why not.
    2. Does the suggested new Comment benefit by the inclusion of the modifier ‘obvious’
    before “relevant facts”? Please explain why or why not.”

“U.S organization sues SEC for Ripple case, claims top officials had conflict of interest” —

• “A U.S government oversight organization has sued the SEC for its handling of the Ripple lawsuit and accused former chair Jay Clayton and director Bill Hinman of having a conflict of interest that biased them for Ethereum and Bitcoin, but against XRP.”
• “EMPOWR wants the SEC to comply with a Freedom of Information Act request in which the organization wants access to records maintained by the watchdog. These records concern potential conflict of interest by some of the top SEC officials relating to cryptocurrencies.”
• “The first target is Hinman, the former director of the division of corporate finance at the SEC. Before joining the regulator, he was a partner at law firm Simpson Thatcher. EMPOWR claims that Hinman continued to receive millions of dollars from the law firm while at the SEC, with one outlet reporting that the money he received from the law firm was seven times his government salary.”
• “Receiving the funds isn’t a crime by itself. However, Simpson Thatcher is a member of the Enterprise Ethereum Alliance which aims to drive the adoption of Ethereum. Of note is that Hinman did declare that Ethereum isn’t a security back in 2018.”

“Pa. Court DQs Firm Over Conflict In Utility Pole Crash Suit” —

• “A small Pennsylvania law firm can’t represent a client suing PPL Electric Utilities Corp. because it failed to build a ‘wall’ around an attorney who used to defend the utility company against personal injury cases, a divided Superior Court panel ruled on Tuesday.”
• “The appellate court’s 2-1 majority found that Munley Law had not clearly established a policy to separate attorney John Mulcahey, who had previously been outside counsel to PPL while at Lenahan & Dempsey PC, from its other attorneys who took over the case representing plaintiff Matthew Darrow, so even though a Lackawanna County court had disqualified Mulcahey, it should’ve barred the rest of his firm from the suit as well.”
• “PPL objected to the rest of the Munley firm representing Darrow or Rudalavage because Mulcahey could have “imputed” his conflict of interest to the rest of his firm under the Pennsylvania Rules of Professional Conduct. But the trial court determined that Munley Law could still handle cases against PPL since the firm had built a “wall” prohibiting Mulcahey from sharing his information with others at the firm — even though it had been established after his disqualification in the Darrow case and it had been years since Mulcahey had represented PPL.”
• “The Superior Court majority said the late-erected barrier wasn’t enough in the Darrow case, weighing disqualification based on factors that the Eastern District of Pennsylvania established in its 1995 decision in Dworkin v. General Motors Corp.: the relationship between the attorney and the former client, the time between the cases, the size of the firm, the nature of the disqualified attorney’s involvement in the case and the timing of the ‘wall.'”

“UK privacy chief denies conflict of interest in new role” —

• “UK information commissioner will join a private law firm that represents technology companies she used to regulate, raising questions about conflicts of interest and drawing ‘revolving door’ criticisms”
• “The UK’s outgoing information commissioner Elizabeth Denham is set to join global law firm Baker McKenzie, which previously defended Facebook against privacy enforcement by her office.”
• “According to a press release from Baker McKenzie, Denham will join the firm’s London office from January 2022 as part of its global data and technology team, where she will work as a consultant to advise its clients on data protection best practice, strategy and wider technology regulation trends.”
• “However, Denham’s exit from her regulatory role straight into a private sector job representing the companies she used to oversee the behaviour of has led some to decry the revolving door between regulators and industry.”
• “Andrew Pakes, deputy general secretary and research director at union Prospect, said: “The revolving door between regulator and business speaks volumes about the lack of transparency in the world of Big Tech. It simply should not be possible for someone to be regulating one day and then potentially advising someone how to avoid that regulation the next.”
• “Estelle Massé, global data protection lead at global human rights organisation Access Now, noted that the announcement of Denham’s new job comes just two days after she formally left the ICO on 30 November 2021. ‘The timeline of the move raises serious questions of independence and possible conflicts of interest. Was the commissioner in talks with Baker McKenzie for a job while investigating some of the companies the law firm represents, including Facebook? Was the ICO staff notified of possible conflicts of interest and what measures were taken to avoid them? The former commissioner and ICO should answer these questions,’ she said. ‘This case shows how crucial ensuring the independence of data protection authorities is. There should be clear rules and processes around positions that commissioners and DPA staff can move to limit conflicts of interest.'”
• “In response to whether she sees a conflict of interest, Denham said: ‘No. I understand why this question is being asked, and it is completely valid. Both I and Baker McKenzie are very conscious of the need to respect my previous regulatory role and responsibilities, as well as all confidentiality and professional obligations that arise from them. All of this has been considered and planned for appropriately.'”

“Conflict Bumps Retired Del. Judge From Scouts’ Ch. 11 Panels” —

• “Retired U.S. Bankruptcy Judge Kevin J. Carey was removed Tuesday as a mediator in the Boy Scouts of America Chapter 11, with a judge in that case citing conflicts created by his also-scuttled proposed appointment as a special reviewer for some post-confirmation settlement trust proceedings.”
• “U.S. Bankruptcy Judge Laurie Selber Silverstein said during a teleconference hearing that Carey’s impartiality as a mediator had been called into question by his selection by the Scouts for a proposed post-confirmation position as initial special reviewer. The job in part involves disputed settlement trust claim proceedings for alleged victims of sexual abuse.”
• “Judge Silverstein said the debtors identified Carey as the initial special reviewer in a recently filed plan supplement, noting that she “had to go and find out what that was” because there had not been any prior court discussion. ‘That is a nonstarter. I will not be approving that selection’ for initial special reviewer, the judge said, adding afterward: ‘To put it simply, Mr. Carey now has a stake in the outcome of the mediation.'”
• “Judge Carey, contacted by email, declined to comment on the development Tuesday afternoon. He became a partner with Hogan Lovells in late 2019, after his retirement, with Judge Silverstein approving him as a mediation panel member in June 2020.”

“Jones Day Bid to Represent Bankrupt J&J Talc Unit Under Fire” —

• “Jones Day LLP’s help creating Johnson & Johnson’s talc liability spinoff should disqualify the firm from serving as the unit’s lead bankruptcy counsel, the Justice Department and thousands of talc injury claimants said.”
• “Jones Day “appears to be the architect” of J&J’s October corporate restructuring, the U.S. Trustee’s office—the DOJ’s bankruptcy watchdog—said in a court filing Wednesday. The move, known colloquially as the Texas Two-Step, allowed the manufacturing giant to isolate its exposure to more than 35,000 baby powder injury lawsuits and address those claims in Chapter 11.”
• “By assisting J&J through the divisional merger and bankruptcy filing, Jones Day appears to lack the independence to be a fiduciary for the debtor, the U.S. Trustee told the U.S. Bankruptcy Court for the District of New Jersey.”
• “‘The prepetition machinations orchestrated by Jones Day are ripe for investigation and challenge in this bankruptcy case,’ Aylstock, Witkin, Kreis & Overholtz PLLC said. “These circumstances make it impossible for Jones Day to meet its burden to show that it is a ‘disinterested person’ and does not ‘hold or represent an interest adverse to the estate.'”

“Morgan Lewis Sued as Ex-Client Alleges Conflict in Deal Work Led to Bankruptcy” —

• “Global megafirm Morgan Lewis & Bockius is facing a lawsuit that alleges the firm and one of its partners betrayed their fiduciary duties to clients by providing legal counsel to both the purchasing and selling parties in an employee stock ownership transaction.”
• “The dispute arises out of Morgan Lewis’ alleged dual representation of bankrupt marketing agency Roni Hicks & Associates and the company’s retiring owners in a sale of their equity shares to employees via an employee stock ownership plan (ESOP).”
• “Stadtmueller said the company’s financial woes came about because of the sellers’ ‘grossly overstated’ business projections, allegedly at the guidance of Morgan Lewis and Chicago-based employment partner Brian D. Hector.”
• “But, the suit alleges, Hector wasn’t only in the sellers’ corner throughout the deal-making process. Court documents show Hector and Morgan Lewis represented Roni Hicks & Associates at the same time as they represented the company’s divesting owners.”
• “The complaint finds fault in Morgan Lewis and Hector’s alleged failure to alert the parties of the conflict of interest that emerged out of their two-sided representation. It further alleges the firm and Hector advised sellers to seek the most lucrative price for their stock and failed to alert the marketing company that the loan necessary to finalize the purchase would likely be too much to pay back.”
• “San Diego-based lawyer William Fennell, who represented Roni Hicks & Associates in claims that arose out of the stock purchase agreements, said the attorneys’ fees paid to Morgan Lewis ‘benefitted the sellers far more than the company.'”
• “The complaint was filed more than one year after the stock sellers filed suit against Morgan Lewis and Hector on similar grounds that they failed to inform parties about the alleged conflict of interest resulting from the representation of both seller and buyer. In addition, seller-plaintiffs claimed Hector drafted into the stock purchase agreement an indemnity provision that was ‘adverse’ to sellers’ interests.”

“An Important Reminder Regarding the Scope of the Attorney-Client Privilege in the Corporate Setting” —

• “Earlier this year, a federal judge in the Northern District of California ordered Elizabeth Holmes (“Holmes”), the founder and former CEO of now-defunct Theranos, Inc. (“Theranos”), to disclose communications between herself and attorneys at Boies Schiller Flexner LLP (“BSF”). Holmes objected to the court’s order, arguing that because BSF had represented her in her individual capacity, the communications were subject to her personal attorney-client privilege. Unpersuaded, the court held that the communications were subject only to Theranos’ corporate privilege, which had already been waived by the Theranos receiver.”
• “The court placed the blame squarely on Holmes’ shoulders for failing to show she “made it clear that she was seeking legal advice in her personal capacity.”1 The issue is a bit more complex, however, as the scope of the relationship with BSF blurred over their years of representing Holmes and Theranos. Holmes’ dispute thus serves as a critical reminder to ensure corporate clients and their employees fully understand and appropriately document the scope of the attorney-client privilege.”
• “However, before retaining a law firm to simultaneously represent a company and its employees, in-house counsel must also consider the risks associated with joint representations. The foremost risk is that the parties’ interests will diverge, potentially giving rise to a conflict of interest between the company and its employees.”
• “In the event a conflict of interest arises, the law firm may be required to withdraw from representing either the company or its employees in the midst of litigation.”
• “If the company wants to enter into a joint representation with an employee, the engagement letter should make clear that the company and its employees are represented by the same counsel. The letter should also document that the company is the primary client, and that in the event the company’s interests diverge from one or more of its jointly represented employees, counsel is entitled withdraw from its representation of the conflicted employees and continue to represent the company. Finally, the employee should be advised, both orally and in the engagement letter, that he or she may wish to obtain independent advice about whether to enter into a joint representation.”

“StarKist to 9th Circuit: Trial judge’s stock ownership dooms class cert rulings” —

• “StarKist counsel Gregory Garre of Latham declined to provide a statement, but there were two important developments after oral argument before the en banc court.”
• “The first was The Wall Street Journal’s bombshell Sept. 28 report that 131 federal judges – including Sammartino – broke disqualification rules and the judicial ethics code by presiding over cases involving companies in which they or family members owned stock. Based on the Journal’s reporting and subsequent online postings of judges’ financial disclosures by Free Law Project, a legal-research non-profit, StarKist identified five MDL plaintiffs in which Sammartino or family members owned shares, in addition to the two companies previously disclosed.”
• “StarKist said in its new brief that four of the companies in which Sammartino or family members owned shares supplied data that assisted plaintiffs experts in creating damages models. Those models, StarKist said, informed the judge’s class certification decisions.”
• “In its new brief to the 9th Circuit, StarKist said the risk to public confidence is even more acute in the tuna antitrust case. Tuna purchasers are alleging hundreds of millions of dollars in damages, StarKist said, and the en banc appeal has been closely watched by the entire class action bar and business lobby.”

The motion argued: “Allowing Judge Sammartino’s class certification decision to stand would deny defendants a fair and impartial resolution on this important threshold issue and create an impermissible and unacceptable risk of undermining the public’s confidence in the integrity of the judicial process… Indeed, the high profile nature of this case and the fact that Judge Sammartino had multiple conflicts of interest in this case only magnify the concerns identified.”

“Party-Appointed Arbitrators On The Precipice” —

• “Concerns about bias and prejudice from multiple repeat appointments have plagued party-appointed arbitrators for years. This is true of international arbitration, commercial arbitration and, of course, insurance and reinsurance arbitration. Recently, there have been several cases in the United States and the United Kingdom addressing implicit bias, repeat players and the need for robust disclosures in commercial and international arbitrations. In the reinsurance world, where most arbitrations still follow the old party-appointed advocate arbitrator formula, these concerns are magnified.”
• “Are Reinsurance Arbitrators Different Than Commercial Arbitrators? Insurance and reinsurance arbitrators are no different than other commercial arbitrators. The common perception among arbitrators and parties is that party-appointed arbitrators are permitted to be predisposed to the positions of the appointing party in a traditional reinsurance arbitration proceeding. While this is generally true, the predisposition concept has been stretched to its breaking point over the last 25 years.”
• “Some reinsurance arbitrators believe that it is their solemn obligation to advocate for their appointing party’s position in deliberations and during the arbitration hearing, including aggressively questioning witnesses from the other side. Others believe that they must rule for their appointing party no matter what the evidence shows. Others have no qualms about being appointed by the same party and/or the same law firm dozens of times. These do not represent a majority view, but enough arbitrators believe in some or all these positions.”
• “Several years ago, I attended a meeting of a local bar association alternative dispute resolution committee where a well-known in-house lawyer for a significant insurance company explained to the gathering of commercial arbitration specialists how reinsurance arbitration works. When the in-house lawyer explained the party-appointed advocacy system in reinsurance arbitrations and mentioned that these arbitrators did not have to be neutral and impartial, there was an audible gasp in the room.”
• “While under old-style traditional reinsurance arbitration provisions a party-appointed arbitrator does not have to be neutral and impartial, that does not mean that a party-appointed arbitrator should be an advocate for the arbitrator’s appointing party.”
• “Problems of potential bias will never go away, but there are several ways to address the situation. First, as stated above, regardless of the form of arbitration, robust, complete, and continuing disclosures by arbitrators must occur… Second, arbitrators should think about whether excessive multiple appointments by a party or by a law firm or lawyer is a good long-term strategy. Being viewed as the ‘house’ arbitrator for a particular party is probably not a title any arbitrator wants to receive.”
• “But neutrality alone does not solve the problem as can be seen from the UK Supreme Court case mentioned above. Under English law, all arbitrators, even if party-appointed, must be neutral. Yet the failure to disclose a subsequent appointment led to a court challenge. While the law in the US does not allow for many, if any, challenges prior to the issuance of the final arbitration award, a failure to disclose a consequential relationship could result in a challenge to the final award and, under the right factual circumstances, to its vacatur.”

Interesting analysis and commentary, as always, from Dentons partners Shari L. Klevens and Alanna Clair: “Risks in Responding to Government Inquiries on Behalf of Clients” —

• “But there can be risks for outside counsel when a governmental agency—particularly those with law enforcement power—makes an informal inquiry regarding a client. In some instances, a government representative could, with or without warning, contact outside counsel to ask questions about the client’s activities, including the client’s business, relationships or financials.”
• “In such cases, the corporate attorney may be called upon to navigate the inherent tension between being forthright with the inquiring government officials (perhaps in an attempt to clear up any perceived misunderstanding and resolve the inquiry swiftly and favorably), with the requirement to abide by counsel’s ethical obligations to guard client confidences, particularly where revealing information could cause the client to face criminal liability or a formal government investigation.”
• “At the moment of first contact with a government agent, the first issue for counsel to determine is what role the attorney will play. Is the attorney simply a “third-party witness” with access to information and documents related to a former client matter? Or does the client want the attorney to represent the client in the investigation?”
• “The answer has the potential to create a conflict between the client and attorney and should be considered carefully. If the attorney is representing the client in connection with work previously performed by the attorney and which could cause the government to focus on the attorney, then representing the client could implicate conflict of interest issues.”
• “Thus, when facing a government inquiry, the lawyer must evaluate whether he or she can take on the new representation and whether the inquiry itself creates a conflict between the lawyer and the client. It may be prudent for the lawyer to decline representation and to advise the client to obtain separate counsel in the inquiry or investigation going forward so the lawyer can respond separately as a witness.”
• “If the lawyer takes on the matter, he or she should continually evaluate conflict issues as the inquiry progresses to insure that the lawyer is taking the appropriate steps to abide by its ethical obligations and ensure that all confidentiality obligations are met.”

“Allen & Overy ‘blacklisted’ by Credit Suisse after associate left briefcase on train” —

• “Allen & Overy has been blacklisted by Credit Suisse’s General Counsel after an A&O associate left a briefcase containing sensitive client documents on a train in Finland. The Allen & Overy banking associate was travelling home for the weekend when he forgot the briefcase, which contained ‘highly confidential Credit Suisse documents’ according to sources.”
• “The briefcase was recovered before any of its contents went astray, but, along with other perceived mistakes by A&O, the incident has been used by Credit Suisse General Counsel Romeo Cerutti as a pretext to freeze out the firm. ‘Cerutti has taken care of this matter personally’ said a source.”
• “Credit Suisse reappointed Allen & Overy to its panel at the start of 2021 and it is a significant client of the firm, with billings understood to be in the region of £25 million a year.”
• “However, the relationship with Cerutti is understood to have soured when Allen & Overy decided to advise Grant Thornton on the administration of failed finance company Greensill Capital. The work brought the firm £3.9 million in fees.”
• “Cerutti and his team are understood to have been unhappy that A&O worked on both sides of the Greensill matter, and began identifying perceived issues with the firm’s work, including alleged data leaks across the Chinese Wall between A&O’s Credit Suisse and Greensill teams, and the Finnish Train Incident.”