Risk Update

Conflicts Considerations — Walgreens Win in Former Counsel Fiduciary Duty Fight, Australian Firms’ Chinese Clients Cause Concern

Posted Dan Bressler

“Walgreens Fight Against its Former Firm Crowell Gets Early Win” —

  • “Walgreens Boots Alliance Inc. earned a victory with an appeals court advancing its claim that a health insurer improperly helped the retailer’s former law firm, Crowell & Moring, break its fiduciary duty.”
  • “Walgreens in 2022 claimed that Health Care Services Corp. helped Crowell breach its fiduciary duty by retaining the law firm for a case involving a prescription drug program Crowell once advised Walgreens on.”
  • “Health Care Services Corp., represented by lawyers from Crowell, in 2021 sued Walgreens for alleged fraud, claiming that the retailer artificially inflated prices for its members and caused hundreds of millions of dollars in excess reimbursements.”
  • “Walgreens argued in a counterclaim that advice Crowell gave to Walgreens more than a decade prior should have precluded the firm from representing the insurer. Health Care Services willfully aided the ethics breach by continuing to retain the firm, Walgreens argued.”
  • “A trial court last December dismissed the suit, calling it ‘nothing more than a motion to disqualify’ Crowell from representing the insurer. But the appeals court found Walgreens pled ‘sufficient facts’ regarding Crowell’s alleged conflict for the case to proceed. The case now goes back to a Cook County Circuit Court for further proceedings.”

“Beijing-owned businesses using Australian law firms to advise on takeovers of critical projects” —

  • “Chinese state-owned enterprises are using Australian law firms to advise on takeovers of critical local infrastructure and minerals projects according to a new report that exposes potential conflicts with other sensitive work the same companies complete at home.”
  • “The research also warns confidential client files held here could be accessed by authorities in Beijing, and controversially calls for Australia’s Foreign Influence Transparency Scheme (FITS) to be adjusted to remove exemptions for ‘legal advice or representation.'”
  • “‘Law firms operating in Australia acting for PRC [People’s Republic of China] entities simultaneously fulfil engagements for Australian government entities, including those responsible for national security and foreign policy,’ the report stated.”
  • “One of the report’s authors, Canberra-based cyber security expert Robert Potter, said some of the larger law firms they studied are completing sensitive Defence Department work while at the same time advising PRC-controlled companies.”
  • “Mr Potter warned firms were advising on things ‘as sensitive as government platform procurement,’ while using the same email servers to handle Chinese state-owned customers, without ‘any of what we would expect in terms of technical separation of their infrastructure.'”
  • “‘We’ve looked at the law firms in terms of their level of potential risk for exposing government data from Australia externally through what we can see as less than optimal cyber security practices on their systems,’ he said.”
  • “The report also examined risks associated with how quickly Australian law firms were growing their Chinese business and “the degree to which they’re going beyond providing legal services”, including promoting causes such as Beijing’s ‘Belt and Road’ policy and semi-conductor industry.”
  • “One of the Australian legal firms documented in the study is global company Ashurst, which completes Defence Department work while also representing Huawei locally, despite the federal government deeming the Chinese telco a ‘high risk’ vendor.”
  • “An Ashurst spokesperson told the ABC it wasn’t able to comment on individual clients, but ‘takes compliance with law and client requirements seriously, and has stringent systems and controls in place to assess risk, manage conflicts and safeguard client confidentiality.'”
  • “King & Wood Mallesons (KWM) is found to be “the second most represented law firm operating in Australia servicing PRC state-owned enterprises”, with the report highlighting its work with Hong Kong’s ‘Renminbi internationalisation’ and ‘Belt and Road’ initiatives.”
  • “‘Our Swiss Verein structure enables us to operate as an international firm while maintaining separate local partnerships (KWM Australia, KWM China and KWM Hong Kong),’ a KWM Australia spokesperson told the ABC. ‘”We have separation of IT systems between KWM Australia and other parts of the KWM network. We take our legal and fiduciary duties seriously and use robust conflict checking systems and business acceptance protocols.'”
  • “Shadow Home Affairs and Cyber Security Minister James Patterson said it was a shocking report.”