Risk Update

(OCG Week) Outside Counsel Guidelines — Firm Focus

Part two of our OCG update focuses on the firm side of the equation, highlighting the theoretical and actual risk and compliance issues presented by the OCG landscape.

First, an update from Hinshaw & Culbertson: “Description of ‘Client’ in Outside Counsel Guidelines Prohibits Representation Adverse to Affiliates of Firm’s Current Client” —

  • “The U.S. Court of Appeals for the Federal Circuit has ruled that a law firm must withdraw from representing a company in patent appeals because the law firm had an ongoing attorney-client relationship with an affiliate of adverse parties in the litigation. The court found that the affiliate’s Outside Counsel Guidelines, incorporated by reference in the engagement letter, created an attorney-client relationship with the adverse parties in the patent appeals, which required disqualification.
  • “This matter came before the U.S. Court of Appeals for the Federal Circuit on motions to disqualify Katten Muchin Rosenman LLP (“Katten”) as counsel for Mylan Pharmaceuticals Inc. (“Mylan”) in three appeals…The attorneys from Katten who represented Mylan were lateral partners of Katten who had commenced the representation while partners at Alston & Bird LLP.”
  • “Katten had signed an engagement letter with Bausch & Lomb that governed ‘the overall relationship between [Katten] and Valeant Pharmaceuticals International, Inc.’ — i.e., Valeant-CA. This engagement letter referenced Valeant’s Outside Counsel Guidelines (‘Guidelines’). The Guidelines stated they ‘govern the relationship between Valeant Pharmaceuticals International [i.e., Valeant DE], its subsidiaries and affiliates … and outside counsel.’ The Guidelines did not define “conflict of interest,” but stated that ‘Valeant expects its firms to adhere to local rules and ethics rules relating to conflict of interest and client representation.'”
  • “Significance of Decision: A broadly worded description of the attorney-client relationship in an engagement letter or Outside Counsel Guidelines may create an unintended attorney-client relationship with entities a firm does not represent. Law firms should use caution when considering engagement agreements which incorporate Outside Counsel Guidelines that may include a client’s affiliates. Firms should also continuously update their conflicts database to reflect changes to corporate families, and vet potential lateral hires for similar issues.”

Next, the DC Bar is seeking input on OCGs, noting the various issues they’re raising in practice: “Rules Review Committee Requests Comment on Client-Generated Engagement Letters and Outside Counsel Guidelines” —

  • “The District of Columbia Bar Rules of Professional Conduct Review Committee is seeking input and comments from D.C. Bar members, representatives of law firms, solo practitioners, corporate legal departments, and nonlawyers about whether issues relating to client-generated engagement letters (ELs) and outside counsel guidelines (OCGs) should be addressed through changes in the D.C. Rules of Professional Conduct and accompanying comments, and if so, how. Comments must be received by June 30, 2019.”
  • “Specifically, the committee is considering whether changes should be recommended to regulate and clarify the extent to which clients may contractually require lawyers to engage or refrain from engaging in certain conduct or practices. Such contractual terms typically appear in client-generated ELs or OCGs. Although clients and lawyers have considerable latitude to contract with one another as they see fit, some have raised concerns as to whether in certain respects client-generated ELs and OCGs may overreach and unduly restrict the public’s access to legal representation and the professional independence of lawyers, or may conflict with the Rules.”
  • Examples of contractual terms that have been identified by some as raising concerns include (but are by no means limited to): Terms that define the “client” as including all subsidiaries, affiliates, or parent companies of the entity… Terms that restrict a lawyer from providing [unrelated] services to competitors of the client… Terms that otherwise expand the definition of a conflict beyond those found in the Rules… Terms that require lawyers to indemnify…” (See the full notice for more detailed breakouts of the issues associated with these areas of concern, and how to provide direct feedback to the Bar.)