Risk Update

Law Firm Risk Reading — Lateral In-house Counsel Conflicts, Arbitrator Conflicts Standards, Client Acceptance Concerns

Supreme Court to Review Standard for Showing ‘Evident Partiality’ by Arbitrators”

  • “Conflicts of interest are of great interest to law firms, prosecutors and arbitrators. In two major international arbitrations, parties are seeking review by the U.S. Supreme Court of the standard that courts should apply when considering whether to vacate an arbitration award based on an alleged conflict of interest. The cases are important not only because of the large size of the awards at issue, but also because arbitration is the preferred method by which the world’s commercial disputes are being resolved.”
  • “U.S. courts are divided on how they should apply the “evident partiality” standard contained in the Federal Arbitration Act, which must be demonstrated in order to vacate an arbitration award based on an arbitrator’s alleged conflict of interest. Five circuit courts follow the U.S. Court of Appeals for the Second Circuit standard requiring an award to be vacated only if a court would have to conclude an arbitrator was partial. The Ninth Circuit requires only a reasonable impression of possible bias and the Eleventh Circuit articulates the Second Circuit standard, but applies the Ninth Circuit standard. The litigants petitioning for certiorari arise in different procedural postures, but both cases request clarification of the standard.”
  • “In Occidental Exploration and Production Company (OEPC) v. Andes Petroleum Ecuador Limited (Andes), US Supreme Ct No. 23-506, OEPC filed a similar petition for certiorari in connection with an arbitration in which Andes was awarded more than $550 million award. Like Grupo in the Panama Canal case, OEPC contends that the lower courts applied the wrong standard in reviewing OEPC’s claim of arbitrator conflicts of interest. In opposition, Andes argued that OEPC would have lost under any standard. Andes further notes that the Supreme Court has previously denied petitions for certiorari presenting the same general question at least fifteen times in the last 25 years.”
  • “The U.S. District Court for the Southern District of New York denied OEPC’s motion to vacate the arbitration award and the Second Circuit affirmed. The Second Circuit ruled that, “Unlike a judge, who can be disqualified in any proceeding in which his impartiality might reasonably be questioned, an arbitrator is disqualified only when a reasonable person, considering all the circumstances, would have to conclude that an arbitrator was partial to one side.” The circuit court also noted that it had ruled, in an earlier case, that it did not think that “the fact that two arbitrators served together in one arbitration at the same time that they served together in another is, without more, evidence that they were predisposed to favor one party over another in either arbitration.””
  • “In its petition for certiorari, OEPC argued that the Second Circuit applied too strict a standard in assessing the arbitrator’s alleged conflict of interest. It argued that the standard should not be whether a reasonable person “would have to conclude” the arbitrator was actually biased, but rather whether the arbitrator “might reasonably be thought to be biased.” In response, Andes argued that “whatever differences may exist in terminology are academic,” as OEPC would have lost under any standard.”

The State Bar seeks public comment on Proposed Formal Opinion Interim No. 21-0003 (Ethics of In-House Counsel).” —

  • “Comments should be submitted using the online Public Comment Form. The online form allows you to input your comments directly and can also be used to upload your comment letter and/or other attachments.”
  • “Proposed Formal Opinion Interim No. 21-0003 considers:
    • Is there a conflict of interest when an in-house lawyer moves from one company to another?
    • Does a stock option agreement present a lawyer with any conflicts of interest and, if so, how and when should such conflicts of interest be addressed with the employer?”
  • “The opinion digest states: It is common for in-house lawyers to move from one company to another, often within the same industry. And, although conflicts rules apply equally to in-house lawyers as to law firm lawyers, the conflicts analysis must take into account the unique characteristics of the in-house role, which is typically both an attorney-client and employer-employee relationship.”
  • “A former client conflict of interest under Rule of Professional Conduct 1.9 does not arise simply because an in-house lawyer moves between companies that are economic competitors. A conflict of interest will arise if the lawyer was personally involved in representing their former employer on a matter that is factually and legally identical or similar to a matter the lawyer is to handle for their new employer, and in which the companies are materially adverse.”
  • “Alternatively, a conflict of interest will arise if the lawyer was not personally involved in the representation, but they obtained confidential information during their prior employment concerning the same or substantially similar, adverse matter. The conflict may be imputed to the entire legal department of the new employer unless screening measures may be implemented under rule 1.10.”
  • See also the detailed analysis presented in the PDF: “PROPOSED FORMAL OPINION INTERIM NO. 21-0003

SRA can’t tell us whom to represent, says regulatory specialist”

  • “The Solicitors Regulation Authority should be wary of dictating to firms how they conduct litigation and which clients they choose to take on, a leading regulatory lawyer has said.”
  • “Iain Miller, partner with London firm Kingsley Napley, said there was a danger in the SRA referring to a solicitor’s duty as being to ‘uphold the public interest’ when this was such a broad and unqualified term.”
  • “Speaking at the Law Society’s risk and compliance conference today, Miller said the public interest served by lawyers is different to that of healthcare workers or other professionals.”
  • “‘We all support society but in different ways,’ he said. ‘Once this is understood it becomes much easier to understand what we can and cannot do for our clients. For example, it would be wrong to draft a non-disclosure agreement that inhibited the work of the courts or regulators. It would also be wrong to use our skills as lawyers to advance an unmeritorious claim in correspondence in order to achieve what no court would ever order.”
  • “‘However, these issues are very fact dependant,’ he said. ‘This is particularly because we operate in a common law adversarial system. We are entitled to advance claims on behalf of our clients which are arguable, but think they may not succeed.’”
  • “The SRA has come under pressure from lobby groups and academics to do more to address certain types of abusive litigation, particularly those dubbed strategic lawsuits against public participation (SLAPPs).”
  • “Paul Philip, SRA chief executive, has said that solicitors must act with integrity and not abuse the litigation process, but equally they should ‘act fearlessly in their client’s interest when bringing legitimate claims.’”
  • “Miller told the conference that all members of society were entitled to legal advice ‘in any circumstances’, no matter what societal reservations there may be about, for example, a client’s environmental impact.”