Bressler Risk Blog

Hat tip to an extended, longtime reader for sending in the following via electronic pony express: “131 Federal Judges Broke the Law by Hearing Cases Where They Had a Financial Interest” —

• “More than 130 federal judges have violated U.S. law and judicial ethics by overseeing court cases involving companies in which they or their family owned stock. A Wall Street Journal investigation found that judges have improperly failed to disqualify themselves from 685 court cases around the nation since 2010. The jurists were appointed by nearly every president from Lyndon Johnson to Donald Trump.”
• “About two-thirds of federal district judges disclosed holdings of individual stocks, and nearly one of every five who did heard at least one case involving those stocks. Alerted to the violations by the Journal, 56 of the judges have directed court clerks to notify parties in 329 lawsuits that they should have recused themselves. That means new judges might be assigned, potentially upending rulings.”
• “The Journal reviewed financial disclosure forms filed annually for 2010 through 2018 by roughly 700 federal judges who reported holding individual stocks of large companies, and then compared those holdings to tens of thousands of court dockets in civil cases. The same conflict rules apply to criminal cases, but large companies are rarely charged, and the Journal found no instances of judges holding shares of corporate criminal defendants in their courts. It found that 129 federal district judges and two federal appellate judges had at least one case in which a stock they or their family owned was a plaintiff or defendant.”
• “In New York, Judge Edgardo Ramos handled a suit between an Exxon Mobil Corp. unit and TIG Insurance Co. over a pollution claim while owning between $15,001 and $50,000 of Exxon stock, according to his financial disclosure form. He accepted an arbitration panel’s opinion that TIG should pay Exxon $25 million and added $8 million of interest to the tab.”
• “In Colorado, Judge Lewis Babcock oversaw a case involving a Comcast Corp. subsidiary, ruling in its favor, while he or his family held between $15,001 and $50,000 of Comcast stock.”
• “At an Ohio-based appeals court, Judge Julia Smith Gibbons wrote an opinion that favored Ford Motor Co. in a trademark dispute while her husband held stock in the auto maker. After she and the others on the three-judge appellate panel heard arguments but before they ruled, her husband’s financial adviser bought two chunks of Ford stock, each valued at up to $15,000, for his retirement account, according to her disclosure form.”
• “Judge Ramos, who oversaw the Exxon case, was unaware of his violation, said an official of the New York federal court, because his ‘recusal list’—a tally judges keep of parties they shouldn’t have in their courtrooms—listed only parent Exxon Mobil Corp. and not the unit, whose name includes the additional word ‘oil.’ The official said the court conflict-screening software relied on exact matches.”
• “‘I dropped the ball,’ Judge Babcock said when asked about the recusal violation. He blamed flawed internal procedures. ‘Thank you for helping me stay on my toes the way I’m supposed to,’ he said. A Comcast spokeswoman declined to comment.”
• “Judge Gibbons from the Ford trademark case, appointed to the appeals court by former President George W. Bush, said she had mistakenly believed holdings in her husband’s retirement account didn’t require her recusal. She later directed the clerk of the Sixth U.S. Circuit Court of Appeals to notify the parties of the violation and said that her husband has since told his financial adviser not to buy individual stocks. ‘I regret my misunderstanding, but I assure you it was an honest one,’ she said.”
• “In response to the Journal’s findings, the Administrative Office of the U.S. Courts said: ‘The Wall Street Journal’s report on instances where conflicts inadvertently were not identified before a case was resolved or transferred is troubling, and the Administrative Office is carefully reviewing the matter.’
• “It said the federal judiciary ‘takes very seriously its obligations to preclude any financial conflicts of interest’ and has taken steps, such as conflict-screening software and ethics training, to prevent violations. ‘We have in place a number of safeguards and are looking for ways to improve,’ the office said.”
• “In response to the Journal’s findings, the Administrative Office of the U.S. Courts said: ‘The Wall Street Journal’s report on instances where conflicts inadvertently were not identified before a case was resolved or transferred is troubling, and the Administrative Office is carefully reviewing the matter.’
• “It said the federal judiciary ‘takes very seriously its obligations to preclude any financial conflicts of interest’ and has taken steps, such as conflict-screening software and ethics training, to prevent violations. ‘We have in place a number of safeguards and are looking for ways to improve,’ the office said.”

“Judge Rodney Gilstrap Sets an Unwanted Record: Most Cases With Financial Conflicts” —

• “No federal judge in America has heard more patent-infringement lawsuits in the past decade than Rodney Gilstrap, who presides over a small courthouse in Marshall, Texas.”
• “He also holds another record: Judge Gilstrap has taken on 138 cases since 2011 that involved companies in which he or a family member had a financial interest, more than any other federal judge, a Wall Street Journal investigation shows.”
• “The companies included Microsoft Corp. (53 cases), Walmart Inc. (36 cases), Target Corp. (25 cases) and International Business Machines Corp. (9 cases).”
• “A 1974 federal law requires judges to disqualify themselves from cases if they, their spouse or minor children hold a financial interest in a plaintiff or defendant, including the interest of a beneficiary in assets held by a trust.”
• “Judge Gilstrap, the chief judge for the U.S. District Court for the Eastern District of Texas, also disclosed one of the largest holdings in a conflicted company. He oversaw a patent-infringement case against a Walt Disney Co. unit while he or his wife reported holding between $100,001 and $250,000 of Disney stock. The plaintiff later withdrew its claim.”
• “The 64-year-old Judge Gilstrap, one of America’s most prominent district judges, said he believed he didn’t need to recuse himself from some cases because they required little or no action on his part, and in other cases because the stocks were in a trust created for his wife without her stock-picking input. Legal-ethics experts disagree on both counts.”
• “‘Judge Gilstrap declined interview requests. ‘I take my obligations related to potential conflicts/recusals seriously,’ he said in one of seven emails to the Journal. ‘Throughout my judicial career, I have endeavored to comply with all such obligations, and I will continue to do so.'”
• “Beyond violating law and ethics, the judges’ handling of lawsuits filed by and against companies in which they have financial interests threatens the federal courts’ hard-earned and crucial reputation for fairness, impartiality and objectivity.”
• “An unusually large role in patent litigation has made the Eastern District of Texas a lightning rod for criticism from some academics, corporations and think tanks. These critics say its rules encourage patent holders to bring suits there because they are dispatched swiftly, often with quick settlement payouts to the plaintiffs. A 2016 article in the Southern California Law Review described how it said the court engaged in ‘forum selling,’ a pejorative twist on “forum shopping,” the practice of lawyers seeking out friendly legal venues.”

“EU anti-money laundering directive costing UK law firms nearly £1m each” —

• “Implementation of the Fifth Anti-Money Laundering Directive (5MLD) is costing the UK legal sector on average 12% more than for other regulated industries with a majority of compliance professionals unconvinced on the directive’s value in detecting and preventing financial crime, according to new research.
• “The research by LexisNexis Risk Solutions revealed the implementation of 5MLD costs £940,200 per law firm, compared to an average of just over £836,000 across other sectors.”
• “Kerkez added the results foreshadow a ‘difficult future’ for law firms trying to keep up with changing compliance requirements should they not adopt the right technology to streamline compliance checks and create a more flexible, risk-based approach to compliance matters.”
• “Kerkez said the results point to a ‘perennial conflict’ within firms between fee earners who want to onboard clients quickly and compliance teams who try to minimise the firm’s exposure to risk. ‘This is an area that 5MLD and the requirement to demonstrate a risk-based approach to compliance are putting additional pressure on,’ she said. ‘The reality is, firms can have the best of both worlds; fast, frictionless and safe onboarding, alongside robust and ongoing assessment of client risk that protects the firm from exposure to financial crime, and therefore the reputational and financial damage that could come from dealing with the wrong client.'”

The SRA just posted: “Reflections on our September Board” —

• “The SRA Board held a quarterly monitoring meeting this week. Here we explored operational and financial performance, delivery against our business plan and looked at the strategic risk register. Perhaps that doesn’t sound like the most exciting meeting, but I think it is critical that the Board spend time on these matters to assure ourselves that the organisation is delivering as it should be for all our stakeholders.”
• “We noted good performance in most areas and anticipate closing the year in good shape. But we spent some time exploring the data on investigations. We are pleased that we continue to hit the target of concluding at least 93% of investigations within 12 months, but we would like to know more about the 7% of investigations that extend beyond 12 months. More information and further analysis will help us to understand what can be done to reduce delays going forward.”
• “More generally we are awaiting the results of an internal audit of our performance reporting data. This will give the Board assurance that the material we get is robust, but we have also asked the auditors to suggest areas for improvement based on good practice in similar organisations. We will then review the information we receive.”

Which sparked sharp comment on LinkedIn. Risk advisor/solicitor Frank Maher posted:

• “As I commented earlier on a previous posting of this, the delays in progressing even minor conduct issues are a serious problem and need close scrutiny. I cited the example of a minor employment dispute which was dismissed by an adjudicator after 15 months and should never have gone that far But it would have threatened the entire career of my client.”
• “Targets for disposing of investigations can have unintended consequences. I have one case where a response was requested in 14 days, as is usual, the allegations by a third party were nonsense and demonstrated a woeful misunderstanding of money laundering legislation but were nonetheless put to the solicitor by the SRA who should have seen the flaws in it. A 5 page response was provided in 7 days and the SRA say they ‘aim’ to respond in just under 14 weeks. How it can take that long defies belief. But it might just be that the 12 month target for responding to 93% of investigations is in fact perceived as an ‘allowance.'”
• “It is no good publishing sound bites about stress in the profession while simultaneously causing it. Those conducting the investigations appear to have absolutely zero understanding of the way in which they can ruin people’s lives and careers.”

And Jayne Willetts, solicitor advocate, echoed:

• “I echo the comments made by Frank Maher about delay. As an example I have just been instructed on a case where the SRA did not contact my client until over two years after the initial complaint had been made to the SRA. The explanation for the delay was that the SRA had been liaising with the complainant during the intervening two years. Is that a fair and balanced approach?”

It was time to remember to never forget to check in on Bill Freivogel’s latest findings:

In re Bear Communications, LLC, 2021 WL 4256161 (D. Kan. Sept. 17, 2021). Chapter 11.

• “The unsecured creditors’ committee applied to retain Law Firm as counsel to the committee. Various parties objected. One objection is that Law Firm represents an ‘affiliate’ of a major creditor in this case, in lobbying matters. The major creditor is Verizon Sourcing, LLC. The affiliate/client is Verizon Communications.”
• “In this opinion, applying 11 U.S.C. § 1103, the bankruptcy judge approved the retention. The court noted that under 11 U.S.C. § 328(c) the court can deny compensation to a professional who turns out to be not disinterested. Thus, Law Firm will have to employ ‘constant vigilance’ to avoid conflicts because its ‘compensation will be in jeopardy.'”
• “A number of things are not clear from the opinion: (1) the structure of Verizon’s corporate family; (2) the relevance, if any, of Law Firm’s status as a Swiss Verein; and (3) whether Law Firm will be representing Verizon Sourcing in this case. It appears that Verizon Sourcing is asserting a claim against Debtor of some $44 million and that Debtor is claiming that Verizon Sourcing owes Debtor some $12 million.”

Mauck v. Cherry Oil Co., Inc., 21 CVS 343 (N.C. Super. Ct. Sept. 20, 2021).

• “In this derivative action Law Firm appeared for the individual defendants and for the corporation in question. Plaintiffs moved to disqualify Law Firm. In this opinion the trial court denied the motion. North Carolina courts had not addressed the circumstances under which the same law firm could represent the alleged wrong-doers and the entity in question.”
• “The opinion contains a wide-ranging discussion of cases around the U.S. The analysis boiled down to whether the claim against the individual defendants ‘involves serious charges of wrongdoing.’ This is language appearing in Comment 14 to N.C. Rule 1.13 (apparently the same as Model Rule 1.13 and its Comment 14). The court said, in effect, ‘nothing serious here.’ The claim was essentially “a bitter family dispute” about the way the corporation should be run and Plaintiffs’ roles in the corporation.”

Madden v. Elara Caring, LLC, No. CIV-19-1178-G (W.D. Okla. Sept. 21, 2021)

• “Lawyer represents Plaintiff in this employment-related case. Lawyer had, for several years, served as an executive in several corporate predecessors of Defendant. At one point she had the title of ‘general counsel.’ Defendant moved to disqualify Lawyer.”
  “In this opinion the court denied the motion. While Lawyer did sign Plaintiff’s employment agreement for the company, she had not drafted it. In a routine former-client analysis the court found Lawyer’s involvement with the companies would not ‘materially advance’ Plaintiff’s position in this case.”

And, following Freivogel, because I’m a sucker for alliteration (and don’t know anything about soccer, though I’m sure there’s a clever word for a “second attempted shot on goal” that would do nicely here too): “Saxena White Can’t Lead FIFA Suit After Robbins Geller DQ” —

• “U.S. District Judge Louis L. Stanton tossed Robbins Geller off the case in May, finding the firm committed fraud by failing to disclose short positions held by an investor leading a certified class action over bribes Mexican media company Grupo Televisa SAB allegedly paid to soccer’s international governing body.”
• “Saxena White asked on Sept. 16 to take the reins, as the firm’s litigation director Steven B. Singer sought permission to work with Robbins Geller to get up to speed on the 3-year-old case. But the request appeared to perturb Judge Stanton, who cited Saxena White’s reliance on Robbins Geller as basis for denying the firm’s lead counsel bid Thursday.”
• “The Robbins Geller disqualification order ‘was a dishonorable discharge for lack of candor amounting to fraud upon this court,’ Judge Stanton wrote. ‘[Singer’s] presumption that the court would allow the easing of his firm’s burden by recourse to Robbins Geller and the reliance of Saxena White on continued work by Robbins Geller all weigh heavily against the approval of Saxena White as class counsel.'”
• “The case dates back to 2018, when Robbins Geller filed suit on behalf of a group of Grupo Televisa investors who say they were harmed by a drop in stock prices following trial testimony that the company had contributed to a $15 million bribe to secure rights to FIFA broadcasts. Judge Stanton certified the suit as a class action in June 2020. But the judge disqualified Robbins Geller a year later for failing to disclose that its original candidate for lead plaintiff, which claimed to have lost $986,000 in Grupo Televisa’s stock drop, in fact gained $11 million from shares it held in a Canadian hedge fund that had shorted the stock.”

“Judge Raises Conflict Concerns About Kellogg Hansen in Google Advertising Cases” —

• A federal judge has ordered Washington, D.C.’s Kellogg, Hansen, Todd, Figel & Frederick to explain how the firm plans to represent British newspaper Daily Mail in a lawsuit against Google over its digital advertising while also representing Facebook in an antitrust case brought by the Federal Trade Commission.”
• “Kellogg Hansen partner John Thorne filed an April 20 lawsuit against Google on behalf of Daily Mail publishers Associated Newspapers Ltd. and Mail Media Inc. Although his lawsuit is focused only on Google, it is now one of more than 20 lawsuits coordinated in multidistrict litigation. Facebook is named as a defendant in 16 of those lawsuits, which contend the social media company struck a ‘secret agreement’ in 2018 with Google to manipulate online auctions that generate digital advertising revenue.”
• “‘This is a present representation,’ Castel said to a room full of lawyers, who attended the hearing in person. ‘And there may be serious issues on duty of loyalty—duty of loyalty to the Daily Mail or Associated Newspapers, whatever it’s called—that may require you to recommend asserting a claim against Facebook, but you can’t do that because that’s your present client. There may be discovery sought of Facebook. There may be joint defense—not joint defense— joint prosecution meetings, in which strategy is discussed about how do most effectively build a case against Facebook? And I just don’t see how this can happen with the presence of a law firm that, as we speak, represents Facebook. Care to comment?'”
• “Thorne told the judge that Daily Mail had done an ‘extensive’ pre-investigation of its case and that Facebook was a “good partner’ of the Daily Mail. ‘If we ever got to a point where Daily Mail wanted to bring a case against Facebook, I would not be a part of it,’ he replied.”
• “Castel pushed further. ‘Should I bring you into a joint prosecution meeting on how to nail Facebook?’ he asked Thorne. Thorne insisted he could step out of those meetings, but Castel wasn’t convinced. ‘This is what I’m going to require you to do: To brief why there is not, in your view, a present conflict,’ he said. ‘And why it would not be a conflict for you to participate in group meetings?'”
• “‘I’m not accusing anybody of bad faith here, but it’s an odd lineup,’ Castel said at the hearing. ‘It’s a tough situation, and I don’t have a solution or answer as to how you get walled off in meetings.'”
• “The multidistrict litigation over Google’s digital advertising alleges the tech company violated federal and state antitrust laws. Lawsuits were filed on the heels of an Oct. 6, 2020, report by the House Judiciary Committee’s Subcommittee on Antitrust, Commercial and Administrative Law that suggested sweeping overhauls of antitrust law to address growing concerns that Google, Facebook, Amazon and Apple illegally monopolized their markets.”

“Faegre Drinker Facing DQ Bid In Del. Insurance Row” —

• ” Specialty insurance distributor Amwins Group is urging a Delaware federal judge to disqualify Faegre Drinker Biddle and Reath LLP from representing carriers it has sued for breach of contract, saying the firm may have a potential conflict of interest. In a brief filed on Thursday, Amwins Group LLC told U.S. District Judge Leonard P. Stark Faegre Drinker should be disqualified because it is ‘concurrently representing Amwins’ interests in a Texas case and adverse to Amwins in this case.'”
• “In its brief, Amwins contends Faegre Drinker should be disqualified because it represents a former Amwins subsidiary in an insurance case in Texas. ‘As the financially responsible party in the Texas case, Amwins has a vital financial interest in the Texas case,’ the brief said. ‘Amwins has paid $200,000 in legal fees and expenses to FD for its services in the Texas case.'”
• “Faegre Drinker has rejected a request to withdraw from the Delaware case and denied that it ‘owed any ethical duty to Amwins,’ according to the filing. However, Amwins argues that the firm ‘has a concurrent conflict of interest’ and should be barred from continuing to serve in the Delaware case.”

“Dentons’ Life on the Fast Track Has Been a Bumpy Ride for Many Partners” —

• “Dentons’ corporate structure is one of its greatest assets in its bid to build a network of smaller firms across the United States. Swiss vereins allow for flexibility both at the local and the national level. While the new Golden Spike firms become members of the verein, the preexisting Dentons U.S. firm—the 23 offices that existed prior to Golden Spike—exists as a single member firm, parallel to legacy Golden Spike firms, according to Bill Henderson, a professor at Indiana University Maurer School of Law. Henderson wrote on the subject in late 2019 after meeting with Andrew, who is widely credited with formulating the expansion strategy.”
• “Yet vereins can also be the source of conflicts within a law firm. Cassandra Burke Robertson, a professor at Case Western Reserve School of Law, recently noted that one Dentons experience provides the ‘most in-depth discussion’ of the conflicts within a verein structure.”
• “Dentons U.S. had represented a client in a patent enforcement action involving denim manufacture, she wrote in a paper titled ‘Conflicts of Interest and Law Firm Structure.’ The Canadian member of the verein had long represented clothing retailer Gap, the opposing party in the patent enforcement.”
• “In the case, In re Certain Laser Abraded Denim Garments, Gap argued to disqualify Dentons U.S. from representing its client. Because ‘Dentons held itself out to be a single firm,’ wrote Burke Robertson, ‘all of the verein members owed it a duty of loyalty and were therefore barred from accepting conflicting representation.'”
• “Siding with Gap in 2015, the U.S. International Trade Commission agreed—as do several of the firm’s former partners, who say they were sometimes unable to bring clients to the firm because of a conflict somewhere else in the verein.”
• “Burke Robertson says she expects vereins to become an increasingly popular structure for international law firms. ‘Having the verein structure makes it easier to operate worldwide, because you retain local control at the individual member level but have economies of scale and global coordination…It makes it easier to engage in transnational practice—which we need as business becomes ever more international… They need legal counsel that’s experienced operating in more than one country.'”
• “However, Burke Robertson sees growing pains for the structure—particularly in the U.S., where she says conflict-of-interest laws have yet to catch up with innovation in law firms. ‘Our conflict rules already weren’t working, because they came from the time when the U.S. predominantly had small local counsel—firms with only two or three lawyers,’ Burke Robertson says. ‘Those rules already weren’t adapted to modern practice.'”
• “Many Dentons partners who left the firm since the announcement of Golden Spike say they ran into conflict-of-interest issues that they were previously assured would not be problematic. ‘I’ve had times where I couldn’t bring on a client because there was a tiny conflict halfway around the world in another office in a completely different jurisdiction,’ says the first partner mentioned above. ‘When I joined the firm, I was assured this sort of thing wouldn’t happen.’
• “Dentons senior management says their system for dealing with conflicts is sound, and that, statistically, the firm faces fewer conflicts by adding a whole firm than by adding a couple of new partners to an existing office in Manhattan or London, for instance.”

Another allegation of this ilk in the news caught my eye: “Leading Silk Rips Lining From Leading Law Firm FieldFisher” —

• “Leading QC Alison Levitt has excoriated law firm FieldFisher and partner Matthew Lohn in a report over advice the law firm provided to the Royal Institution of Chartered Surveyors, (RICS) saying the firm had either ignored or misjudged potential conflict of interest issues, among other matters.”
• “The report was commissioned to conduct a review over allegations that RICS had attempted to suppress an internal report that had criticised the way the organisation ran its finances and unfairly dealt with non-executive members of the RICS board who wanted to investigate the matter.”
• “The issue arose in 2018 when one of the RICS non-executive directors had queried the extension of the organisation’s overdraft from £4 million to £7 million as a result of ‘inaccurate cashflow forecasting,’ which had been partly explained by a £400,000 discretionary bonus paid to the CEO.”
• “A continued investigation lead to the director continuing to express concerns and the non disclosure of an audit report, which he said should be addressed by RICS, leading to a review which ultimately lead to the conclusion that there was no governance problem, exonerated the Executives and lead to the firing of the whistle-blowing non-executive directors.”
• “However, one of the major issues that concerned Alison Levitt was a ‘clandestine’ and ‘partisan’ approach taken by the law firm that had sided with the Executives against the four non-Executive directors. The firm had taken the view that their priority was not to threaten or ciritise the CEO or the COO, she said.”
• “Levitt’s report said the lawyers here were ‘seriously overused.’ ‘What was needed was not legal advice but judgement, common sense and the courage to stand up to the executive as appropriate.'”
• “FieldFisher said that it was ‘disappointed’ by Levitt’s findings. ‘We are disappointed to note that some of the actions of the firm and the partners who were involved in seeking to help RICS, in what was an exceptionally difficult time for the organisation, have been criticised.'”

For more context, see also : “Fieldfisher’s Matthew Lohn criticised by QC for disastrous advice” —

• “When Hardwick flagged that the audit’s findings were a serious problem and that its suppression by the Executives represented a failure in governance which needed to be addressed, the Executive team commissioned RICS’s General Counsel to produce a review.”
• “Her investigation concluded that there had been no failure of governance and exonerated the Executives, and in November 2019 Hardwick and three other non-Executives who shared his concerns were fired. When they threatened to take legal action, the Executive team came under pressure from the Governing Council and commissioned Levitt, of 2 Hare Court, to investigate.”
• “Levitt had almost finished her 467 page report in June this year when Fieldfisher belatedly disclosed its file on the matter, which Levitt had been requesting for months. ‘Reading it completely changed this report from the one I had been going to write,’ said Levitt. She had been led to believe that Fieldfisher’s involvement in the debacle was minimal, but its file was huge.”
• “RICS’s General Counsel trained under Lohn at Fieldfisher and worked in his team for almost 16 years before taking the RICS role in 2018. It turned out she was still very dependent on her old supervisor. Lohn had, unbenownst to the non-Executives or Levitt, worked extensively with the GC to ghostwrite her review and steer the termination of the non-Executives.”
• “But the GC had not divulged any of that in her interview with Levitt. ‘Knowing what I now know, I am very surprised that she was not candid with me about their involvement,’ said Levitt.”
• “The Governing Council had no idea either, even though it was RICS (not the Executive) which was Fieldfisher’s client, and even though Fieldfisher charged RICS £118,677 in a single three month period for advising solely on the issues surrounding the four non-Executives.”
• “Lohn approved of keeping Fieldfisher’s involvement secret from the majority of RICS, telling the GC, ‘No need to explain external resource.’ Levitt said his attitude was ‘inexplicable.'”
• “She found that Fieldfisher’s approach was not just clandestine, but partisan, and that from the beginning it had sided with the Executives against the four non-Executives ‘without any objective analysis of the true merits of the situation.'”
• “Proof of its bias included a Fieldfisher document setting out the review’s conclusions, which had been drafted before the review’s terms of reference had even been finalised.”
• “Levitt said it was not for her to say whether Lohn’s conduct merited the attention of the regulator. If it does, it will be the second time that perceived conflicts of interest have brought him to the SRA’s attention. Lohn was investigated in 2017 for his dual role as both an adjudicator at British Horseracing Authority tribunals and a paid legal advisor of the BHA, which ended with similarly calamitous results.”

“If you hire a former employee, you should screen them from any participation to prevent any issue of disqualification” —

• “My firm is in the process of hiring a paralegal. I have interviewed someone who worked as a paralegal in a corporation that my firm is presently suing. She is not involved in the suit. She has not worked for that corporation for a period of time. If I hire her, do I have to take steps? Would there be conflict of interest problems?”
• “The question is an interesting one. One would think the answer would be yes, but that is not necessarily so.”
• “The first question to analyze is whether or not the hiring firm can even talk to her. Under Rule of Professional Conduct 4.2, one can’t talk to someone represented by opposing counsel in litigation. The comment to Rule 4.2 makes clear that the rule applies not only to just individuals, but to corporations. For instance, an employee who works for a corporation who could bind the corporation or has significant information cannot be spoken to without permission of the corporate attorney. Comment 7 to Rule 4.2 suggests that would not apply if the person is a former employee of the corporation.”
• “Having dealt with that issue, the question is if one hires the paralegal, is there a conflict, or should there be some kind of screening device? The rule at issue would be Rule 1.10 of the Rules of Professional Conduct, which talks about imputed disqualification… But a careful reading of Rule 1.10 demonstrates the rule does not talk about employees. It only talks about lawyers. That rule does allow for screening, but the way the rule is written shows the rule has nothing to do with when an employee of a firm moves to another firm when the firms were opposing each other.”
• “Therefore, in reviewing this question, although Rule 1.10 in its main body does not talk about employees who are nonlawyers, Comment 4 does. If a firm hires a paralegal, they still should screen them from participation in that particular case. Rule 1.11 is different and involves the imputation of conflict with government officials since the comment specifically refers to employees.”
• “Therefore, to answer the question, if one hires a former employee, depending on their involvement or lack of involvement in the litigation with the prior firm, perhaps the best practice would be to screen them from any participation just to prevent any issue of disqualification.”

The Legal Profession Blog notes this update to a case we noted earlier: “No Duty To Inquire Into Co-Defendant Conflict” —

• “One attorney represented two clients – husband and wife – who were charged in drug offenses after a search of their home. They both pleaded guilty. The husband got jail time; the wife did not. The appeal agues that the failure of the trial judge to inquire into possible conflicts required reversal of the conviction. The court today rejected the argument with a dissent.”
• The opinion: “In this discretionary appeal, we consider whether a trial court has an affirmative duty to inquire into the possible conflict of interest created by an attorney’s dual or multiple representation1 of codefendants in a criminal case. Although making this inquiry is the better practice, we conclude that absent some factor which would alert the trial court about a possible conflict of interest created by such representation, the court has no affirmative duty to do so. We therefore affirm the judgment of the court of appeals.”
• “Justice Brunner dissented: ‘I believe that the majority opinion’s analysis is incomplete. I would address the right to counsel in Article I, Section 10 of the Ohio Constitution and hold that it requires a trial court to make a prompt inquiry into whether a conflict exists any time two or more defendants facing charges arising out of the same matter are represented by the same attorney. Because the trial court in this matter did not conduct such an inquiry, I would remand this matter to the trial court for it to determine whether an actual conflict existed. Further, because the majority opinion indicates that inquiries into multiple representation should be addressed by a rule or a statute, I note several specific matters any such rule or statute must address to sufficiently protect the right to counsel.'”

“When Can Liability Insurers Sue Appointed Underlying Defense Counsel for Malpractice?” —

• “Maybe there was an unusually large verdict that was unanticipated, or the case settled for what is seen as an inflated amount after a critical defense failed. In assessing the situation, the insurer may believe defense counsel mishandled the claim. This scenario raises a related thorny question: when can an insurer assert a legal malpractice claim against the attorney it appointed to defend the insured?”
• “The Florida Supreme Court recently had occasion to address this very issue. In Arch Insurance Company v. Kubicki Draper, LLP, 2021 Fla. LEXIS 898 (Fla. June 3, 2021), an insurer (Arch) hired a law firm to represent its insured (an accounting firm charged with malpractice) in an underlying lawsuit. Arch did so pursuant to the defense provisions of a professional liability policy.”
• “Shortly before trial, the underlying lawsuit settled. Arch then sued defense counsel, alleging that the firm committed malpractice by failing to raise certain defenses…”
• “A Florida trial court and an intermediate appeals court both determined that Arch lacked standing to sue. They reasoned that Arch was not in privity with the firm. The appeals court in turn certified this ‘question of great public importance’ to the Florida Supreme Court.”
• “The Florida Supreme Court agreed that the firm was in privity with the insured as the client rather than Arch. Nevertheless, it found that an insurer that is contractually subrogated to its insured’s rights under a policy has standing to bring a legal malpractice action against retained defense counsel: ‘Where an insurer has a duty to defend and counsel breaches the duty owed to the client insured, contractual subrogation permits the insurer, who—on behalf of the insured—pays the damage, to step into the shoes of its insured and pursue the same claim the insured could have pursued.'”
• “In so holding, the court remarked that it was aware of the public policy concerns that caution against assigning legal malpractice claims to prevent creating an incentive for frivolous suits. It noted, however, that the contractual subrogation provided under the Arch policy actually advances public policy by keeping ‘premium rates down by allowing the insurers to recover indemnification payments from the tortfeasor who caused the injury.'”
• “These theories create a complicated set of considerations for a court to examine when determining whether to permit an insurer’s legal malpractice claim. If an insurer believes that malpractice has occurred, its ability to bring a lawsuit will greatly depend on which state’s law applies, the relationship between the parties and relevant policy language.”

“Extending the Value of Document Management Systems in the Legal Profession, Part II” —

• “Law firms typically have one DMS configured to serve a wide variety of clients. Even if you want them to be, many security issues can’t be ‘die on the hill’ types of concerns, since most legal providers are working to meet the audit and security considerations of many, not one.”
• “Limiting access to the documents legal professionals need to do their job is the most basic of controls. Generally speaking, working groups should be granted access to the documents supporting the clients whom they support… a concept also known as ‘The Principle of Least Privilege.'”
• “It probably won’t shock many to hear the not-so-bold statement that certain complexities tend to arise. For example, how should a DMS handle documents which relate not to a single matter, but to multiple clients or matters? How easy is it to associate a document with two matters, or with twenty, one-hundred or one thousand? Under-the-cover capabilities such as workspaces—and the ability to create and administer them (for example, reacting as matters move in and out of trial clusters or substitutions in settlement groups are made)—are vital to enforcing business rules of this nature.”
• “Another security complexity surrounds legal reference materials or client-related topical groups of documents sets relating to areas like a particular company product line (competitors, facilities, litigation areas, expert witnesses, etc.). Designing control groups for these sets can be challenging, administratively time-consuming functions.”
• “Finally, the extension of access controls beyond the DMS, meaning maintaining controls prohibiting actions like opening or printing a document after the document is shared outside a DMS, is another emerging trend (not unlike the concept of honoring access controls for documents even when accessed within a DMS from an enterprise search emanating from outside the DMS).”
• “Of course, law firms routinely construct ethical walls and other controls to protect against representation conflicts… Again, without drilling down too much, simply asking if controls such as ethical walls/conflicts are at least partially governed within a law firm’s DMS is a good inquiry to make.”
• “Corporate counsel should both confirm their law firms have data loss protection and attempt to ensure the controls are appropriately tuned. I’m not going to lie, it’s not easy, the rules and algorithms are complex. But it’s better to broach the subject with those law firms acting as stewards of your corporate data than to blindly trust that your service providers are doing exactly as you might hope they are doing.”
• “Today, leading DMS providers offer CMEK, which is essentially a decision point as to who controls the encryption keys for a document set (the customer, or the software provider). The main point here for corporate counsel is ‘who should hold the keys to one’s data’ in the event of circumstances such as a legal order or subpoena. Do law departments want their outside firms to control this? Or, alternatively, are they comfortable with a cloud provider maintaining these keys and potentially directly responding to a court order. Or, for a corporate law department perhaps the requirement might be to administer the keys themselves.”

“Litigation funding needs better oversight” —

• “Profiting from others’ lawsuits makes some feel uneasy. Many countries still prohibit third parties from funding litigation in any way. The UK, for some time, has had no such qualms, allowing for a £2bn litigation-funding market to thrive.”
• “Mishcon de Reya, the London law firm known for its pugnacious litigators and big-ticket divorce cases, has taken the concept one step further and set up a £150m joint venture with one of the biggest third-party funders, Harbour, to back cases taken on by the firm. This raises questions about the management of potential conflicts of interest and whether the wider funding industry needs closer oversight.”
• “Litigation funders — who typically provide a claim’s upfront financing and receive a multiple of those costs as a share of any payout — can provide access to a system that is otherwise expensive and loaded against the underdog: a system where the losing side must pay the other side’s legal costs can be a deterrent to those even with solid claims. The sheer expense of civil litigation — typically running from £2m to even get to trial — not to mention tactics that can draw out proceedings, mean the system is stacked in favour of the deep-pocketed.”
• “Even at arm’s length, the interest of a client, the interest of a firm and the interest of a funder may diverge. Lawyers are expected by their watchdog, the Solicitors Regulation Authority, to manage any conflict appropriately.”
• “Tightening the relationship between funder and firm only makes that more difficult, particularly when it comes to setting up a fund that will expressly back the firm’s own cases. Mishcon is also looking to publicly list by the end of the year, adding shareholders to the mix of groups to which it will have to give due regard.”
• “Another London law firm, Rosenblatt, whose listed parent group RBG also owns a litigation funder, Lionfish, has a prohibition on it funding any Rosenblatt case precisely to avoid potential conflicts.”

“Mishcon sets up £150m litigation arm” —

• “MDR Solutions I will fund litigation and arbitration cases for Mishcon de Reya’s clients, including complex fraud cases, intellectual property disputes, group litigation, and asset recoveries. Harbour – which describes itself as the largest privately-owned litigation and arbitration funder in the world – has committed £150m to the venture, while Mishcon has contributed an undisclosed sum which will be drawn down as needed.”
• “The funding unit will be operationally separate to the law firm itself, and will be responsible for assessing and investing in prospective cases originated by Mishcon de Reya. It will use ‘sophisticated data science’ to help decide which cases to invest in, as well as human analysis.”
• “A number of City firms have established litigation funding units in recent months. In August 2020, DLA Piper teamed up with two third-party funders to help clients pursue cases that would otherwise be too expensive, while PGMBM secured a £45m investment in March from North Wall Capital. In its annual report published this week, listed firm Gateley said it is currently in discussions regarding a litigation funding facility of up to £20m.”
• “However, commentators have raised conflict of interest concerns about exclusive partnerships between law firms and third-party funders, arguing that clients do not have the chance to shop around for the best funding deals.”

“New Litigation Funding Rule: Transparency Boost Or Unnecessary ‘Sideshow’ Risk?”

• “The federal District Court for the District Of New Jersey adopted a new local rule on June 21 that requires the parties to a lawsuit to disclose all third-party litigation funding arrangements within 30 days of an initial pleading or transfer, or whenever the information becomes known.”
• “The federal District Court for the District Of New Jersey adopted a new local rule on June 21 that requires the parties to a lawsuit to disclose all third-party litigation funding arrangements within 30 days of an initial pleading or transfer, or whenever the information becomes known.”
• “The new local rule also requires a brief description of the financial interest the funders stand to gain if things go their way, as well as disclosure of whether the funders’ approval is required for litigation decisions or settlement. Parties may seek additional discovery of the terms of such an agreement ‘upon a showing of good cause that the non-party has authority to make material litigation decisions or settlement decisions, the interests of parties or the class (if applicable) are not being promoted or protected, or conflicts of interest exist,’ the order said.”
• “Proponents of the new local rule believe it is necessary because third-party funding agreements can pose ethical problems… The letter also cited the need for parties to know the identity of their litigation adversaries, to know all information relevant to settlement efforts, and to know who may be exercising control or influence over litigation decisions.
• “[Marla] Decker [managing director of Lake Whillans, litigation finance firm] calls the idea that funders are regularly controlling litigation and not disclosing this to the courts a ‘bogeyman, an imagined problem.'”
• “She noted that claimants are usually very reluctant to give up control regarding litigation strategy or settlements. They have a built-in incentive to maintain control, Decker said: fear that the funders will serve their own interests and not the claimholders’ interests.”
• “The new rule states that requests for further discovery into a litigation financing agreement will be granted when there is ‘good cause,’ but it doesn’t provide any guidance as to what that cause might be, she said.”
• “‘This is why we’d prefer it the way it’s been handled so far — courts taking these discovery requests on an individual basis and crafting an individual order as it would for any question or dispute based on the facts and circumstances,’ Decker added. ‘The scope and regularity of disclosure in cases where it has been sought is simply not consistent and normalized enough to warrant a one-size-fits-all rule.'”