Risk Update

Conflicts Considerations — Late Caught Arbitrator Conflict Causes Varian Vacatur, Judge’s Past Relationship Results in New Criminal Trial, Limiting Malpractice Liability, Conflicts & Rule 1.8(b)

Fascinating find and analysis from Baker McKenzie partners Jacob M. Kaplan and David Zaslowsky: “Arbitration. Vacatur of Award. District court vacates arbitration award due to evident partiality because one of the arbitrators failed to disclose that he was a former client of the attorneys for one of the parties to the arbitration” —

  • Equicare Health Inc. v. Varian Med. Sys., Inc., 5:21-mc-80183-EJD, (N.D. Cal. April 19, 2023) [click for opinion]
  • “When sales of Equicare’s software plummeted, Equicare claimed that Varian breached this duty and alleged that Varian instead promoted its own competing product. Equicare therefore initiated arbitration proceedings against Varian through the American Arbitration Association (the ‘AAA’).”
  • “The AAA appointed a three-member panel to adjudicate the dispute, including Mark Dosker. As per its rules, the AAA required each arbitrator to respond to a series of conflict-of-interest questions. Mr. Dosker responded ‘NO’ to all thirty-one conflicts questions, including ‘Do you have, or have you had any attorney-client relationship with a party or lawyer for a party?'”
  • “However, this statement was not true. Counsel for Varian, Ms. Quyen Ta, had served as counsel to Mr. Dosker and his law firm, Squire Sanders, five years prior, in a 2013 legal malpractice suit. Ms. Ta immediately disclosed this potential conflict of interest to the AAA. Despite Ms. Ta’s disclosure, the AAA did not share this information with Equicare or its counsel. Neither party objected to Mr. Dosker’s appointment to the panel.”
  • “The arbitration proceeded to a hearing, after which the panel issued a final award in favor of Varian. The panel found that, while Varian breached the ‘commercial best efforts’ clause in the contract, there was insufficient evidence of damages. In so ruling, the panel chose not to accept an independent auditor’s findings that Varian owed about $1.9 million to Equicare.”
  • “After receiving this decision, Equicare began an investigation into the background of the panel and independently discovered the former attorney-client relationship between Mr. Dosker and Ms. Ta. Equicare therefore filed a petition in the United States District Court for the Northern District of California to vacate or correct the arbitration award based on evident partiality arising out of the former attorney-client relationship.”
  • “The court granted the petition and vacated the arbitration award. The court applied the legal standard found in Section 10(a)(2) of the Federal Arbitration Act (the ‘FAA”), which permits a district court to vacate an arbitration award where, inter alia, “there was evident partiality or corruption in the arbitrators.” 9 U.S.C. § 10(a)(2).”
  • “The court also noted that Mr. Dosker’s failure to conduct an adequate investigation in the first instance breached the independent duty on arbitrators to investigate for potential conflicts, a violation that ‘may result in a failure to disclose that creates a reasonable impression of partiality.'”

Sexual relationship between judge and prosecutor entitles murder defendant to new trial, court rules” —

  • “The top criminal court in Oklahoma has ruled that a defendant convicted of murder in 2021 is entitled to a new trial because the judge and one of the prosecutors had a prior sexual relationship.”
  • “The judge, Judge Timothy R. Henderson, had admitted to consensual ‘sexual conduct’ with the prosecutor that ended before the trial but said the relationship didn’t affect his rulings. The prosecutor was identified only as ‘K.C.’ in the Oklahoma Court of Criminal Appeals’ decision.”
  • “Because of the undisclosed relationship, Hashagen was deprived of the right to a fundamentally fair trial that created a potential for bias, the appeals court said.”
  • “Henderson resigned his judgeship in spring 2021—after the prosecutor and two other lawyers accused him of sexual misconduct, according to Law & Crime.”
  • “Henderson acknowledged a sexual relationship with two prosecutors, but he said it was consensual, according to past coverage by the Associated Press. A special prosecutor declined to bring charges in connection with the allegations.”

Amy G.McClurg, Assistant Counsel at Thomson Hine writes: “Rule 1.8(h): Permissibly limiting your malpractice liability or unwittingly violating ethics rules?” —

  • “Rule 1.8 addresses conflicts that can arise between a lawyer and client (as opposed conflicts between clients). Prior to the adoption of Model Rule 1.8 in 1983, the ABA Model Code flatly prohibited agreements limiting liability.”
  • “This rule was in stark contrast to the rules governing many others, including large accounting firms and lawyers in Europe, who often had agreements limiting their liability to clients for their work on deals alongside American lawyers who could not limit their liability (which raised numerous problems with potential disproportionate liability for deals gone bad).”
  • “In 2002, the ABA again amended Model Rule 1.8(h)… Model Rule 1.8(h)(1) now states that ‘A lawyer shall not make an agreement prospectively limiting the lawyer’s liability to a client for malpractice unless the client is independently represented in making the agreement.'”
  • “Approximately 28 states have adopted the language in Model Rule 1.8(h)(1) entirely. Seven states have similar language to that of the Model Rule but have added the requirement that such agreement must also be “permitted by law”. Nine states still outright prohibit such prospective agreement. The seven remaining states have language that does not squarely fit into any of the aforementioned categories.”
  • “The reasons for wanting to limit your liability in any given situation are likely obvious, but whether or how you should pursue such endeavor is far less clear.”
  • “Choose your language wisely . Attorneys licensed in multiple jurisdictions and law firms spanning across multiple states must be keenly aware of any differences in the applicable rules… Using the wrong language could subject the lawyer to additional rule violations.”
  • “Merely refraining from plugging in prospective agreements into your engagement letters will not ensure Rule 1.8 compliance. Lawyers barred in jurisdictions like DC, where such agreements are forbidden, must still examine less obvious conduct that may constitute a Rule 1.8 violation.”
  • “While New York similarly prohibits lawyers from prospectively limiting malpractice liability, one New York opinion found that 1.8(h) is not violated simply due to a lawyer advising a client to accept a plea deal that includes waiving an ineffective assistance of counsel claim on appeal.”
  • “Prospectively limiting malpractice liability is a conflict of interest and compliance requires satisfaction of the Rule 1.8 conditions. Lawyers must be careful in choosing which words should or shouldn’t be used in the agreement.”