Bressler Risk Blog

“Wood-Pellet Maker’s Bankruptcy Lawyers Ousted Over Conflict of Interest” —

• “Law firm Vinson & Elkins can’t represent Enviva because its largest shareholder is also a client, bankruptcy judge says”
• “A bankruptcy judge rejected a law firm’s application to represent wood-pellet maker Enviva while it works for its largest shareholder Riverstone, saying the firm’s work for the private-equity backer amounts to a conflict of interest.”
• “Vinson & Elkins can’t represent Enviva while negotiating against Riverstone, another client of the law firm that accounted for 1.4% of its revenue collections in the last fiscal year, said Judge Brian Kenney of the U.S. Bankruptcy Court in Alexandria, Va. He said the law firm’s relationship with Riverstone violates the core principle of bankruptcy law that companies only employ professionals who are “disinterested” parties.”

“MEMORANDUM OPINION AND ORDER DENYING DEBTORS’ APPLICATION TO EMPLOY VINSON & ELKINS L.L.P.” —

• “On April 3, 2024, the Court entered an Order Continuing the Hearing on the V&E Application, noting that V&E had disclosed: (a) that it represents certain Officers and Directors of the Debtors in shareholder and derivative litigation; and (b) that it represents the Riverstone entities, which are equity security holders in the Debtors (discussed below). Docket No. 224. See also Docket No. 183, Meyer Decl. pp. 9-11. The Court further noted that V&E had not discussed any ethical walls in its Application. Docket No. 224.”
• “Mr. Meyer disclosed in his first Supplemental Declaration that V&E represents certain members of the Ad Hoc Group in unrelated matters… Specifically, V&E represents Ares Management, LLC, Morgan Stanley & Co., LLC, Oaktree Capital Management, LP, and Monarch Alternative Capital LP.”
• “The U.S. Trustee asserts that V&E failed to disclose its connection with Oaktree, and that the U.S. Trustee discovered this connection on its own.”
• “The Monarch representation is notable because it began in April 2024, after V&E filed the Petitions in this case on behalf of the Debtors.”
• “V&E represents several of the Debtors’ Officers and Directors in shareholder and derivative litigation.”
• “The U.S. Trustee argues that V&E’s representation of the Officers and Directors represents a conflict because the Ad Hoc Group RSA provides that the Debtors’ management will receive 3.5% of the equity in the reorganized entities, and additional warrants to purchase equity in the reorganized entities.”
• “The first Meyer Declaration disclosed that Riverstone Investment Group, LLC, and its affiliates (collectively ‘Riverstone’), are current clients of V&E.”
• “Riverstone and its affiliates collectively own 43% of the common equity ofEnviva, Inc.”
• “Two members of Enviva’s 13-member board are affiliated with Riverstone.”
• “V&E currently represents Riverstone in matters unrelated to this case.”
• “There are no ethical walls erected at V&E concerning its simultaneous representation of Enviva and Riverstone… In fact, there are attorneys at V&E who currently represent both Enviva and Riverstone, thereby making any ethical walls impossible.”

“Recycler attorney disqualification stands” —

• “A pair of attorneys who had represented two competing metal recyclers will remain disqualified from representing one in an ongoing dispute between the companies.”
• “Northern Metals last year sued competitor Crow Wing Recycling and the Minnesota Pollution Control Agency (MPCA), claiming violations of the Minnesota Environmental Rights Act and the public-trust doctrine. The complaint alleged that Crow Wing Recycling was releasing pollutants into the environment without proper permitting and pollution controls in place and that the MPCA didn’t take sufficient action.”
• “Crow Wing hired three attorneys from Taft Stettinius & Hollister to represent it in the suit: Jack Y. Perry, Jason R. Asmus and Brayanna J. Smith. Perry and Asmus had previously represented Northern Metals on behalf of a firm that was later acquired by Taft.”
• “Northern Metals notified Crow Wing Recycling that it did not consent to its counsel arrangement and asked its lawyers in the case to withdraw. When they declined to do so, Northern Metals moved to disqualify counsel under Minnesota Rules of Professional Conduct 1.9 and 1.10, which spell out duties owed by attorneys to former clients. After a hearing, Ramsey County District Court granted the motion and disqualified counsel from representing Crow Wing Recycling in the matter. Crow Wing appealed the disqualification order.”
• “Crow Wing’s answer to Northern Metals’ complaint identified the attorneys it was using in the matter. When it later moved to disqualify counsel from representing Crow Wing, Northern Metals asserted that two of its competitors’ attorneys had previously represented Northern Metals ‘on substantially related issues’ from 2012 to 2016, during which time counsel ‘obtained confidential information as part of the prior representation that has neither become public since then nor rendered obsolete over the passage of time.'”
• “Northern Metals further claimed that there was factual and legal overlap between counsel’s former representation of Northern Metals and the later matter. In support of the motion to disqualify, Northern Metals submitted the affidavit of an attorney expert, who opined that counsel was disqualified due to a conflict of interest.”
• “After a hearing on Northern Metals’ motion to disqualify counsel, the district court granted the motion in a written order. The court concluded that there was significant overlap, indicating a substantial relationship, between the two Taft attorneys’ former representation and the facts alleged in two of the three counts in the motion. Crow Wing and its counsel appealed the order.”
• “The Minnesota Court of Appeals affirmed the lower court decision in an unpublished opinion.”
• “Citing a number of disputes with the appellate court’s findings, Perry said Taft is likely to petition the Minnesota Supreme Court to review the case.”
• “‘One thing we’re concerned about is whether the district court has subject-matter jurisdiction on the issue of disqualification,’ Perry said. ‘We take our ethics seriously, and disqualification motions are a very big deal. The district court did not have the authority to rule on that issue.'”

“No Disqualification Under Lawyer As Witness Rule” —

• “The Delaware Court of Chancery has denied a disqualification motion:”
  • “Brex seeks to disqualify Su’s trial counsel under Rule 3.7(a) of the Delaware Lawyers’ Rules of Professional Conduct (the “DLRPC”). That rule states that “[a] lawyer shall not act as advocate at a trial in which the lawyer is likely to be a necessary witness unless . . . disqualification of the lawyer would work substantial hardship on the client.” Because Su’s lawyer is not likely to be a necessary witness, Rule 3.7(a) does not require disqualification.”
  • “Patterson has represented Su in this litigation since it was filed in August 2022. He was admitted pro hac vice on September of 2022. On July 21, 2023, Brex raised its belief that Patterson was ‘a material witness in this case.'”
    “Patterson was undeterred, and continued to serve as Su’s lead counsel. Brex sought to depose Patterson, and Su resisted; addressing Brex’s motion to compel, the special discovery master in this case concluded Patterson’s knowledge about his communications with Su warranted a limited deposition. No party took exception. At his deposition, Patterson testified that he does not remember the May 2022 call with Marsh, and that if he did say he spoke to Su three to four months before the call, he ‘was wrong.'”
  • “Su does not intend to call Patterson in his case-in-chief. Brex intends to call Patterson in its case-in-chief to bolster evidence that Patterson told Marsh that Patterson spoke with Su during the due diligence period, which Brex claims goes to whether Su was terminated for cause. Certainly, the reasons why Brex’s board terminated Su are central to this case. But Patterson’s testimony is cumulative of and peripheral to Marsh’s: Marsh shared his own impression with the board. Patterson’s testimony is further peripheral to the issue of what the board did with Marsh’s impression. And Patterson’s testimony that he does not remember the call, and if he said he spoke to Su during that period he was wrong, does nothing to bolster the conflict between Marsh’s and Su’s testimony.”
  • “Brex also intends to call Patterson to demonstrate that in this litigation, he contradicted his statement to Marsh. Patterson has not done that: he testified he does not remember the call, and that if he said he spoke to Su in that time period he was wrong. And the argument that someone is a necessary witness because they can be impeached presupposes that his testimony is necessary. As explained, it is not.”
  • “Brex also intends to call Patterson to demonstrate the board investigation Su is attacking as inadequate was deficient because Patterson gave Marsh “wrong” information. This is a peripheral rebuttal argument, not a central case-in-chief argument.”
  • “I cannot conclude that Patterson is likely to be a necessary witness under DLRCP 3.7(a) at trial.”

“The Law Firm Disrupted: When Private Equity and Mass Torts Collide in the Same Firm” —

• “Skadden served as deal counsel for an investment giant that’s also funding claims against a firm client. Such tensions may grow even more common as multistrategy investors look for new opportunities.”
• “Last Friday, Skadden product liability partner Allison Brown, representing Johnson & Johnson, penned a letter to a U.S. magistrate judge, seeking a subpoena against plaintiffs firm Beasley Allen, which is representing clients in a mass tort over the company’s baby powder.”
• “All in a week’s work for a global law firm with over 1,600 attorneys, right? But there’s an added wrinkle here. Beasley Allen has a litigation funding arrangement with Fortress, and Brown indicated in a footnote that the investment shop should also be looking out for a subpoena.”
• “In other words, Skadden served as deal counsel for an investment giant that’s also funding claims against a firm client.”
• “There’s no indication that representing an investment shop in a deal involving one of its portfolio companies (or as it’s acquired by a larger player, as in the case of Skadden and Fortress) presents an ethical conflict when other attorneys at the firm are representing a client who’s facing off against an adversary backed by that same investment shop.”
• “As one partner at an Am Law 100 firm who does work on behalf of third-party funders told me, the firm takes the position that this representation is not directly adverse to that on behalf of another firm client, legally.”
• “Other firms, particularly those with strong relationships with the tech industry, can be more unyielding. These tech clients’ position as a frequent target of funders’ claims makes certain firms unwilling to take on any work on behalf of funders.”
• “But there are optics considerations to take into account. When the partner, who sought anonymity to speak about firm policies, does take on one of these representations, they look to see who the defendants are, and then runs it by the firm.”
• “‘If it came out, would it be a problem?’ the partner said. ‘What are the chances of it being disclosed, and what kind of relationship issue would it raise?'”
• “Similarly, Parikh raised concerns about ‘bad optics’ surrounding these overlapping ties, while also recognizing that sophisticated firms like Skadden maintain ‘very particular and focused engagement letters’ with all of their clients to ward off conflict issues.”
• “Indeed, akin to a global law firm home to hundreds of partners pursuing a range of different work on behalf of a diverse client base, investment firms like Fortress are also sprawling, disjointed entities.”
• “‘We consider a lot of large investment firms as a monolith, but they have all these different arms, and they are all operating somewhat independently,’ Parikh said. ‘To the extent there are some tensions here, it’s on both sides of the fence.'”
• “And with mass tort claims presenting a ripe opportunity for private equity investment, expect to see more examples of tension.”

“US law firm Mayer Brown to split from Hong Kong partnership” —

• “U.S. law firm Mayer Brown said on Thursday that it plans to separate from its current Hong Kong operations, as many international law firms rethink or reduce their presence in China.”
• “Mayer Brown has roughly 170 lawyers in Hong Kong, Beijing and Shanghai, with the majority in Hong Kong, according to its website.”
• “Clients of Mayer Brown’s China practice have included Chinese conglomerates CITIC, Fosun and Sinochem, and non-Chinese multinationals ConocoPhillips, Nestlé and Unilever, the firm’s website said.”
• “A growing number of U.S. and international law firms have pulled back from the Chinese market amid growing pressures on foreign businesses and converging economic and geopolitical challenges.”
• “New Chinese government rules on data privacy and cybersecurity were among the reasons cited by law firm Dentons last year when it ended its combination with China’s Dacheng, an 8,000-lawyer firm that accounted for its entire presence in mainland China.”
• “The major U.S. firms with a presence in China are all revisiting their footprint in the market, legal industry consultant Peter Zeughauser said.”

Texas Bar Opinion 700 (February 2024) —

• “A lawyer has departed a law firm for a new practice. Some clients chose to leave the lawyer’s former firm and follow the lawyer to the new practice. The lawyer believes that the prior firm’s legal services agreement forms the basis for a client’s relationship with the lawyer’s new practice. Therefore, the lawyer does not ask these clients to enter into new legal services agreements with the new firm. Further, the lawyer concludes that there is no ethical obligation to advise the clients regarding their potential financial obligations under the prior firm’s legal services agreement before the lawyer begins representing them in the lawyer’s new practice.”
• “With respect to a lawyer who has departed a firm:”
  • “Must the lawyer enter into a new legal services agreement with clients who followed the departed lawyer to a new firm, or may the lawyer rely on the former law firm’s legal services agreement as continuing to serve as the contract with those clients?”
    • “Under the Texas Disciplinary Rules of Professional Conduct, a lawyer who has departed from a law firm must enter into a new legal services agreement with a client who terminates the lawyer’s prior firm and follows the lawyer to a new practice.”
  • What disclosure obligations does that lawyer have in advising clients who propose to follow the lawyer to the new practice regarding the clients’ financial obligations under the prior firm’s legal services agreement?
    • “Before contracting with clients who propose to follow the departed lawyer to a new practice, the lawyer must alert the clients to any continuing financial or other contractual obligations known to the lawyer that the clients may have to the prior law firm.”

Texas Bar Opinion 699 (February 2024) —

• “A lawyer employed by a law firm plans to leave the firm. When the lawyer joined the firm, the firm insisted on a written employment agreement, to which the lawyer agreed. That contract contained provisions (1) requiring that the lawyer give at least 90 days’ notice of departure; (2) prohibiting the lawyer, post-departure, from soliciting the firm’s clients; and (3) prohibiting the lawyer from retaining client information or files upon departure, absent written direction of the client.”
• “When the lawyer informed the firm of the impending departure, the firm did not agree to the lawyer’s proposed departure announcement to clients whom the lawyer currently represents. Further, the firm directed the lawyer not to communicate with the firm’s clients about the lawyer’s departure. The firm refused to provide any written announcement to the lawyer’s clients about the lawyer’s impending departure.”
• “The lawyer has given 30 days’ notice of departure and disagrees with the employment agreement’s 90-day minimum departure notice provision. The lawyer also plans to make copies of client files and retain client information regarding matters on which the lawyer has actively worked, including information relating to schedules and deadlines. Further, the lawyer disagrees that the firm may ethically prohibit the lawyer from soliciting clients of the firm after the lawyer has departed. The firm has invoked its employment agreement with the lawyer to prevent these actions.”
• Through an employment agreement between a law firm and its lawyers:
  • “May the law firm impose a minimum departure notice period for lawyers who wish to depart the law firm?”
    • “Under the Texas Disciplinary Rules of Professional Conduct and notwithstanding any agreement to the contrary, a lawyer may not attempt to impose or enforce an unreasonable minimum departure notice period upon a departing lawyer, reassign a client matter to new attorneys (absent client direction or exigent circumstances required for the protection of the client’s interest) in a way that prevents a departing lawyer from fulfilling ethical obligations owed to the client before departure, or deny a departing lawyer access to firm resources necessary to continue to represent clients competently and efficiently during the pre-departure period. Similarly, with respect to client matters for which a departing lawyer is personally responsible, the lawyer must make reasonable efforts to avoid materially jeopardizing or disadvantaging those client matters by the timing or manner of their voluntary departure.”
  • “May the law firm prohibit a departing lawyer from accessing and copying client information and files?”
    • “A law firm’s employment agreement may not contain a blanket prohibition that prevents a departing lawyer from making and retaining copies of any client files or information on matters in which the lawyer has personally represented the client. A departing lawyer must be allowed to retain sufficient former client information to avoid conflicts of interests involving the lawyer’s new practice (or subsequent practices with future firms or in various co-counsel arrangements) and, therefore, be available to serve clients where no conflict exists.”
  • “May the law firm prohibit a departing lawyer from notifying clients of the impending departure?”
    • “Assuming that a departing lawyer is responsible for a client’s representation or currently plays a principal role in the law firm’s delivery of legal services to that client, the departing lawyer has a duty to ensure that a client is timely informed (a) that the lawyer is leaving the firm, (b) that the client has the ultimate right to decide who will continue the representation, and (c) whether there are any contractual or financial ramifications of the client’s decision. Preferably, the law firm and the lawyer will agree on a joint announcement regarding the lawyer’s departure. When the firm and the lawyer have provided a joint notification, or when the firm has made a timely, accurate, and adequate unilateral announcement regarding the lawyer’s departure, the lawyer is not obligated to provide a redundant announcement. A lawyer must provide notice of departure to a client, notwithstanding contrary instructions from the law firm, if the lawyer knows the law firm has not provided timely, accurate, and adequate notice. There may be instances in which both the firm and the lawyer make separate announcements, consistent with the clients’ best interests and any legal and ethical obligations that the firm and the lawyer may have to the clients and to each other.”
  • “May the law firm prevent a lawyer from soliciting the law firm’s clients after the lawyer has departed from the firm?”
    • “Finally, a lawyer may not participate in offering or making a partnership or employment agreement that restricts the right of a lawyer to solicit clients after termination of the relationship between the lawyer and the law firm, except an agreement concerning benefits upon retirement.”

“U.S. Legal Insurers Report All-time High Claim Costs: Survey” —

• “Legal insurers in the U.S. need to do more to contain the spiraling cost of malpractice claims as unprecedented claim costs reach an all-time high. That’s according to lawyer and liability specialist Eileen Garczynski, an SVP and equity partner at specialty insurance brokerage and risk management consultancy Ames & Gough.”
• “Speaking to P&C Specialist Commercial following the release of Ames & Gough’s 14th annual legal malpractice claims study this week, Garczynski said that the costs of claims were ‘out of control.'”
• “‘Lawyers are charging more, and the underlying deals are bigger. The bigger the deals are, the bigger the clams become,’ Garczynski said, adding that the costs of defending cases have ‘gone way up.'”
• “Ames & Gough’s survey, which canvassed 13 U.S. legal insurers that collectively insure 85% of the country’s largest law firms, found that 11 had paid out on claims totaling more than $100 million during the past two years.”
• “Five insurers had paid out on a legal malpractice claim worth $150 million to $300 million, and four had paid a claim topping $300 million.”
• “Those numbers were up sharply from last year, when seven of 10 survey participants had paid out on a claim of more than $50 million during the previous two years, three had paid out more than $100 million, and two had paid $150 million to $300 million.”
• “The survey found that although the rate at which claims are filed had remained flat, their value had soared amid social inflation – a rise in claims costs exceeding the level of economic inflation – which nine of the 13 insurers identified as contributing to the risk of large claim payouts.”
• “When it came to the types of cases generating the biggest claim payouts, most of the respondent insurers pointed to conflicts, which were their No. 1 source of legal malpractice claims, and drafting errors, which ranked second.”
• “‘Conflicts of interest produce a disquieting number of legal malpractice claims as well as ethics complaints and law firm disqualifications,’ the survey report said, noting that such conflicts had serious consequences as law firms sued for conflicts would also be sued for breaching their fiduciary duty to their clients.”
• “The survey found that the largest number of claims stemmed from the same key practice areas as had been the case during the past several years: trusts and estates, business transactions, and corporate and securities activity.”
• “Nine of the 13 insurers polled said they were seeing an increase in cyber-related legal malpractice claims.”
• “‘They’re very worried about that,’ Garczynski said. ‘Almost all the underwriters said that the cyber risks are hitting their legal malpractice insurance policies, because a lot of law firms don’t have enough cyber coverage in place, or they don’t have IT personnel that have enough expertise in cyber compared to other industries – yet they have a larger duty to protect client information than maybe any other industry.'”

In Texas: “Opinion 701 (May 2024)” —

• “Do the Texas Disciplinary Rules of Professional Conduct permit a lawyer to offer legal services under a subscription service fee model in which the client pays a monthly fee for legal services that the client may or may not utilize?”
• “If the Rules permit such an arrangement, must the lawyer keep the fees paid by the client in the lawyer’s trust account until the end of each month and make an appropriate refund upon termination?”
• “Under the Texas Disciplinary Rules of Professional Conduct, a lawyer may enter into a subscription fee agreement with a client, and charge and collect a subscription fee under that agreement, if the fee is not unconscionable under the circumstances. A lawyer should ordinarily retain subscription legal fees in the lawyer’s trust account until the end of the recurring subscription period.”
• “A contract provision forfeiting the entire amount of a monthly subscription fee if the subscription is cancelled before the end of the month is impermissible.”

“WarnerMedia seeks to disqualify mass arbitration firm, alleges ethics breaches” —

• “WarnerMedia is seeking to disqualify plaintiffs firm Zimmerman Reed from representing claimants in a mass arbitration campaign against the entertainment conglomerate, accusing the law firm’s managing partner of committing serious ethical breaches.”
• “Warner’s petition, opens new tab to disqualify, filed last week in New York State Supreme Court, alleges that Zimmerman Reed managing partner Caleb Marker and two other unnamed Zimmerman Reed professionals engaged in deceit and dishonesty when they signed up as claimants in identical mass arbitration campaigns against the company by two different plaintiffs firms.”
• “Warner contends that Marker and the other two Zimmerman Reed professionals – an associate and a data analyst – were never legitimate claimants but signed up as clients of Keller Postman and Labaton Sucharow in order to ‘surreptitiously gain access to information’ to boost Zimmerman Reed’s own mass arbitration campaign.”
• “The company claimed that as spurious mass arbitration clients, Zimmerman Reed gained ‘improper insight’ into how Warner responded to demands and settlement offers from Keller Postman and Labaton campaigns. Warner asserted that Zimmerman Reed tailored its demands to reflect what it learned from the other firms’ efforts.”
• “The petition alleges that in 2023, Marker contacted Warner and Discovery Digital, both affiliates of Warner Bros Discovery (WBD.O), opens new tab, on behalf of about 70,000 purported clients who alleged that the Discovery video streaming platform illicitly disclosed their viewing history to Facebook parent Meta (META.O), opens new tab. Zimmerman Reed claimed that Discovery’s disclosures violated the Video Privacy Protection Act, which includes statutory damages of $2,500.”
• “Marker did not inform Warner and Discovery, according to the petition, that he and the other Zimmerman Reed professionals, both of whom worked in the firm’s mass arbitration practice, were claimants in ongoing mass arbitration campaigns in which Keller Postman and Labaton Sucharow accused the company’s HBOMax platform of violating the Video Privacy Protection Act.”
• “Warner said in its petition that it uncovered the alleged overlap by reviewing client lists provided by Labaton and Keller Postman when they asserted arbitration demands. According to Warner, Marker’s name first turned up on a list of Labaton claimants who sent a demand letter to the company in December 2022. The following month, Warner received a pre-arbitration notice of dispute in which Keller Postman said it represented Marker.”
• “The petition argued that the only way to block Zimmerman Reed from making use of its allegedly ill-gotten information is to disqualify the firm from representing claimants in mass arbitration against Warner.”
• “The company also alleges that Marker and the other Zimmerman Reed professionals probably breached their retainer agreements with Keller Postman and Labaton by signing up with both firms to pursue identical claims.”
• “The Warner petition is not the first time Zimmerman & Reed has been sued by the target of a mass arbitration campaign. As my Reuters colleague David Thomas reported earlier this year, French skincare company L’Occitane accused the plaintiffs firm in a Los Angeles federal court complaint, opens new tab of conspiring with about 3,100 clients to manufacture frivolous website tracking claims under California’s Invasion of Privacy Act.”
• “The law firm, according to the complaint, continued to encourage prospective clients to visit L’Occitane’s website after the company informed Zimmerman Reed that it was not authorized to access the site.”
• “The judge also, however, dismissed, opens new tab L’Occitane’s case against the law firm and its clients. The Computer Fraud and Abuse Act, Anderson held, does not apply when the operator of a public website allegedly revokes authorization to access the site but does not impose technological barriers to block unwanted visitors.”

“Dilworth Paxson Attys Disciplined Over NJ Eatery Conflict” —

• “Two Dilworth Paxson LLP partners were sanctioned by the New Jersey Supreme Court this week [May 2] for investing in a restaurant on the campus of The College of New Jersey at the same time they were legally representing another investment group on the project.”
• “In separate orders filed Wednesday, the state Supreme Court admonished Michael Gluck, managing partner of the firm’s Freehold office, and reprimanded partner Christopher Walrath over misconduct that occurred when they were at their own firm of GluckWalrath LLP, which was absorbed by Dilworth Paxson last year.”
• “Gluck and Walrath did not give their investor clients written notice about the potential conflict of interest or get the clients’ written consent to the arrangement, thus violating state ethics rules, the Supreme Court’s Disciplinary Review Board wrote in its report to the court on the case.”
• “Gluck and Walrath maintained that they gave verbal notice about the implications of the conflict, though, and the DRB noted other mitigating factors, including that both attorneys have otherwise spotless ethical records, that the attorneys entered into a stipulation with the DRB and that the investment deal happened years ago in 2015.”
• “The case centered on Gluck and Walrath’s investment in a restaurant project at the college called the Brickwall at Campus Town. Gluck and Walrath became involved in the project when they introduced a group of investors they had represented in previous matters to Brickwall’s property manager in May 2015. However, in October 2015, the pair also decided to invest in the project, although their investment group client remained the majority owner with the sole authority to make decisions.”
• “The DRB determined that the pair did not give written notice to the investors that they may want to seek independent counsel after their investment, and they did not get informed, written consent from the investors that they understood the pair’s role in the project.”

Jason Nash, Solicitor at law firm Browne Jacobson and Nicola Anthony, Risk Manager at Lockton write: “Law firms: limiting liability in engagement letters” —

• “Most firms very wisely seek to limit their liability to clients in their engagement letters. It makes sense to do this so the firm and the client both know how much financial compensation might be available if things go wrong.”
• “But while limiting liability is good risk management practice, such clauses must be drafted carefully to be effective. Problems arise where the perceived losses are more than the limit of liability contained in the engagement letter. And if restrictions and exclusions are too onerous, they could be deemed unenforceable, leaving liability unrestricted.”
• “There are several parties who are very interested in the effectiveness of liability clauses – the client, the firm and their professional indemnity insurance (PII) insurers, lenders, litigation funders, or anyone else who is interested in the outcome of a professional negligence claim.”
• “Professional indemnity claims are a significant concern for the profession and their insurers. In recent years, whilst the volume of claims has remained steady, the sums being claimed have risen significantly. As PII is one of the biggest costs to law firms, (together with rent and salaries) this means the higher costs of claims and resulting impact on premiums can have a devastating effect on a firm. “
• “To protect themselves against the burden of claims, many firms seek to include a standard term in their engagement letters excluding liability for breach of contract or negligence or limiting the damages that can be claimed. This is sometimes linked to a clause seeking to reduce the limitation period to a shorter period of time than prescribed by statute.”
• “It’s also useful to consider what might happen if a high value transaction went wrong. When claims arise, a simple mistake can have severe financial consequences.”
• “A limitation of liability clause in an initial engagement letter is not a ‘get out of jail free card’; if it’s decided the clause is ineffective, the full limit of cover will be exposed – trying to use both the limitation of liability twinned with a lower level of cover might not be effective if the clause is found to be unenforceable. The firm itself is then at risk once the full limit of insurance has been eroded, either by one single claim or a number of aggregated claims.”
• “Firms must also consider whether any limitation of liability clauses comply with SRA regulations. In 2021, the Solicitors Disciplinary Tribunal (SDT) imposed a fine on a firm for seeking to improperly limit liability and/or limit the timeframe for when a claim could be made. The SDT found these breached various provisions of the Solicitors’ Code of Conduct 2007 and the SRA’ Code of Conduct 2011.”
• “Below, we’ve offered some key recommendations to keep in mind before and during implementation:
  • Document any challenges and/or negotiations concerning a limitation of liability clause, explain why it is fair and reasonable and does not breach SRA Code of Conduct.
  • Ensure adequate and appropriate insurance cover is in place to avoid a potential regulatory sanction
  • If possible, document the reasons for any attempt to limit liability to a figure below the level of insurance cover
  • Where a formula is used for determining a limitation of liability, make the basis for calculation clear
  • Remember that it is not possible to exclude liability for matters such as fraud or an SRA regulated activity
  • Where caps on liability are introduced, make clear whether the cap is an aggregate limit on liability, or applies separately to each breach or each claim
  • Where possible, the client should be given sufficient time to consider the matter and/or take legal advice”

“‘A Leap of Faith’: Some In-House Leaders Join Fight to Fix Big Law’s Mental Health Crisis” —

• “Not all in-house lawyers watching the recent reckoning over the mental health of law firm lawyers have been passive observers… For instance, Minneapolis-based U.S. Bank in 2021 collaborated with seven of its law firms to develop wellness guidelines for outside counsel, an effort that has since expanded to another 11 firms. And Atlanta-based radio and TV station owner Cox Media Group added similar principles to its outside counsel guidelines after Eric Greenberg became general counsel in 2021.”
• “‘The danger comes from people feeling like their meaning and humanity have become completely divorced from the pure, unadulterated radioactive challenge of what lawyers do,’ Greenberg said. ‘We as in-house counsel have an opportunity to reinject into our outside counsel’s work a sense of accomplishment and meaning that makes someone able to tolerate the challenges of the hard work,’ he said.”
• “Some legal department leaders unnecessarily escalate the stress on outside counsel by treating routine matters as five-alarm fires, thinking outside lawyers’ hefty hourly rates entitle them to be extra-demanding.”
• “While Stephen Mar, general counsel of the supply-chain-software firm Odeko, acknowledges the inconvenience of after-hours work and limits those asks to the most urgent matters, he said that ‘the primary responsibility to own and drive any initiatives related to the mental health of their lawyers lies with law firms and their leadership.'”
• “The lawyers doing the work also need to prioritize their own well-being, ‘as it directly impacts their ability to provide high-quality service,’ said Michael Kraut, a partner at Morgan, Lewis & Bockius, one of the firms that helped create the U.S. Bank guidelines.”

“SRA seeks power to launch ‘spot checks’ of law firms” —

• “The Solicitors Regulation Authority (SRA) has called for the power to launch ‘wide-sweeping inspections’ of law firms without needing the trigger of a specific allegation of misconduct.”
• “Chief executive Paul Philip made the request while revealing that the first two cases involving alleged SLAPPs (strategic lawsuits against public participation) have been referred to the Solicitors Disciplinary Tribunal (SDT).”
• “He said the regulator had two legislative asks: new powers to issue unlimited fines, which has been a request for some years, and to make spot checks.”
• “It came in the context of questions about the SRA’s two thematic reviews on SLAPPs, the second of which was only published last month. These involved visits to multiple law firms but Mr Philip stressed that thematic reviews were ‘an opportunity to highlight good practice and… sharp practice’ – they were not inspections of those firms, although any potential misconduct the SRA came across would be referred for investigation.”
• “‘We don’t have the statutory powers to do a spot check or an inspection other than in anti-money laundering work,’ Mr Philip explained. ‘So in terms of asks, we would very much like to do spot checks or inspections of firms across the board but at the moment we need a very specific trigger in relation to an allegation of misconduct to do that.'”

“Tesla threatened to fire law firm in bid to block Musk pay critic – court document” —

• “A Delaware law professor accused Tesla on Monday of threatening to fire one of its longtime law firms if he proceeded with plans to file a friend-of-the-court brief criticizing the company’s bid to restore CEO Elon Musk’s $56 billion pay package.”
• “Retired professor Charles Elson of the University of Delaware alleged in a legal filing, that Holland & Knight, for which Elson has worked for nearly three decades as a consultant, told him that Tesla said it would end its relationship with the law firm unless Elson abandoned plans to submit his brief.”
• “Tesla’s tactic was ‘extraordinary and appalling,’ Elson said in the filing, which seeks permission from the court to submit the brief.”
• “After he learned of the electric carmaker’s alleged threat to Holland & Knight, Elson said in the filing, he resigned from his consulting arrangement ‘to protect that firm from retaliation while upholding the important principle of academic freedom.'”
• “Tesla did not respond to a query about Elson’s allegations.”
• “Holland & Knight denied in an email statement that it was pressured by Tesla. ‘Holland & Knight determined that Charles Elson’s proposed course of action was inconsistent with the firm’s obligations to its client, Tesla,’ the statement said. ‘This determination was not based on any coercion or threats by anyone, including Tesla.'”
• “Holland & Knight represents Tesla in unrelated employment matters, including a race discrimination suit by a California civil rights agency and a separate race discrimination case by the U.S. Equal Employment Opportunity Commission, according to news reports.”
• “Elson, a corporate governance expert, submitted a previous friend-of-the-court brief that was cited several times in the Delaware Chancery Court opinion that voided Musk’s pay package. The judge called the compensation granted by Tesla’s board “an unfathomable sum” that was unfair to shareholders.”
• “Elson sought to file his second brief after Tesla announced last month that it intends to hold a new shareholder vote to reinstitute Musk’s compensation. Elson’s proposed brief argues that Delaware law does not permit the ‘unprecedented’ maneuver of undoing a Chancery Court judgment through a shareholder vote.”
• “Elson’s lawyer, Joel Fleming from the Equity Litigation Group, sent the proposed new brief to Tesla on Friday morning, according to Elson’s filing. A Tesla lawyer from DLA Piper called Fleming later that day to assert that Elson had a conflict of interest, and that Fleming should wait before filing the proposed brief, Elson’s filing said.”
• “Elson said in his filing that there is no conflict of interest because he is not a lawyer at Holland & Knight but only consults with the firm on corporate governance matters. Elson also said he is acting as a friend of the court, not an advocate, in the Musk case.”
• “‘I am very disappointed with these events,’ said Elson in an interview. He declined to say how much Holland & Knight paid him, but said the monthly payment ‘helped cover my mortgage.'”

“Sullivan Hits Back Against FTX Investors’ ‘Dubious’ Fraud Claims” —

• “FTX law firm Sullivan & Cromwell is slamming the ‘claim by some of the failed crypto exchange’s investors that its lawyers were complicit in a billion-dollar fraud.”
• “A federal lawsuit against the firm by FTX investors is based on ‘innuendo masquerading as facts,’ Sullivan Cromwell said Monday in a court filing. Defrauded FTX customers are set to get all of their money back from the failed exchange in bankruptcy proceedings, according to the firm.”
• “‘Plaintiffs in this action, a handful of alleged FTX customers, purport to bring claims against Sullivan & Cromwell to recover the same damages for which they are already being compensated through the bankruptcy process,”’ the firm said, asking a federal judge in Florida to dismiss the lawsuit.”
• “A proposed class of investors represented by The Moskowitz Law Firm in February sued the firm for allegedly aiding and abetting the fraudulent activity that happened at the exchange. The firm is also facing a court-mandated review into whether it has any conflicts of interest that should have been addressed as it leads FTX through bankruptcy proceedings.”
• “Controversy over the powerful Wall Street firm’s work for FTX ultimately caused it to lose out on a high-profile outside monitor assignment overseeing crypto exchange Binance Holdings Ltd, Bloomberg News reported.”
• “In Monday’s filing in the US District Court for the Southern District of Florida, the firm said FTX investors have still made no accusation that Sullivan & Cromwell had knowledge of any fraud while performing certain legal services. Courts have held that ‘lawful legal services to a fraudster does not impute knowledge of the fraud,’ said the firm’s counsel, lawyers from Hunton Andrews Kurth.”

“High Court: Sanctioned Russians “probably owned” litigation funder” —

• “There is ‘reasonable cause to suspect’ that the funder of the claimant in a $1.3bn action was controlled by sanctioned Russians, the High Court has ruled.”
• “Mrs Justice Cockerill said the sale of A1 LLC for a mere £714 as its founders were sanctioned was of particular concern.”
• “‘The figure given for the sale price is surprising on its face. The financial documentation adduced (in a lengthy and full exchange of evidence) fails to provide a coherent or robust justification for that figure.'”
• “Her ruling was the latest in long-running litigation brought by Vneshprombank LLC (VPB) over an alleged massive fraud carried out by Georgy Bedzhamov.”
• “In the hearing before Cockerill J, Mr Bedzhamov sought a declaration that there was reasonable cause to suspect that A1 – which had to that point funded VPB and the trustee – was owned or controlled by designated persons under the Russia sanctions regulations.”
• “The judge said the application ‘has to some extent been prompted by judicial concerns’ – Mrs Justice Falk said in a ruling last year that it was ‘impossible at this stage to dispel the concern that the March 2022 transaction was not genuine, but instead arranged to give the appearance that A1 is no longer under the control of sanctioned individuals.'”
• “Falk J said A1’s role was ‘an unusual one that appears to go well beyond that of a conventional litigation funder,’ as it was managing the proceedings on the liquidator’s behalf.”
• “A1 is no longer funding the case, having been replaced by Cezar Legal Consulting Agency in March, after the latest hearing.”
• “A1 is part of the Alfa Group, which describes itself as ‘one of the largest privately owned financial-investment conglomerates in Russia.'”
• “Up until March 2022, A1 was owned by a Luxembourg company whose major shareholders were Mikhail Fridman, German Khan and Alexey Kuzmichev. All three were all designated under the sanctions regime on 15 March 2022.”
• “VFB said that, around the date but before Mr Khan and Mr Kuzmichev – who between them held 52% of A1 Investment – were designated, they sold their shares to an Alfa director who was not. A week later, all the shares were sold to another undesignated director of A1, a Mr Fayn, for £714.”

Hinshaw partner Matthew Henderson on: “What Law Firms Should Know Amid Rise In DQ Motions” —

• “Disqualification motions are being filed with more frequency. But that only tells half of the story. Such motions are often filed under seal, either by counsel seeking to avoid publicity or by corporate clients that do not want to air their dirty laundry — such as employment discrimination claims, white collar criminal matters, etc. — in a public forum. Also, law firms may quietly withdraw from representation when initially faced with a well-grounded request before anything has been filed.”
• “Disqualification motions tend to be more prevalent in intellectual property litigation, particularly in the bioscience and chip technology sectors, because of the relatively small number of practitioners in those highly technical areas.”
• “When a lateral partner moves to a competitor, there is a risk of disqualification motions being filed by the partner’s former clients, who may become adverse to the new firm. However, the risk may not be realized unless the new client engages in litigation with the lateral partner’s prior client, possibly months or years later.”
• “To reduce the risk of disqualification motions, law firms are proactively including advance conflict waivers in their engagement letters.”
• “Two recent cases — IBM Corp. v. Micro Focus (US) Inc., decided in May 2023 by the U.S. District Court for the Southern District of New York, and SuperCooler Technologies Inc. v. The Coca-Cola Co., decided in July 2023 by the U.S. District Court for the Middle District of Florida[4] — suggest that such prior consent can be effective in opposing disqualification.””The risk of disqualification motions can be considerable for clients engaged in high-stakes litigation, including losing their counsel of choice who are familiar with the case and having to retain successor attorneys to get up to speed.”
• “Disqualification can likewise lead to a claim for legal malpractice, as illustrated in the April 2022 decision of RevoLaze LLC v. Dentons in the Eighth Appellate District of the Ohio Court of Appeals,[6] or breach of fiduciary duty against a law firm.”
• “Disqualification motions can also have profound financial implications for law firms that earn large fees in complex and protracted litigation, particularly in the intellectual property field. Thus, law firms seeking to preserve attorney-client relationships in high-profile cases may choose to pay outside counsel themselves to oppose disqualification motions. Alternatively, in close cases of disqualification, clients may be willing to pay the attorney fees to retain access to their counsel of choice.”
• “The best risk management practice is to identify and analyze potential conflicts of interest at the onset of the attorney-client relationship. This is a labor-intensive process that involves reviewing attorney time records and interviewing lawyers to determine the scope of the prior representation and what confidential information the law firm may possess.”
• “Careful vetting of lateral attorneys is likewise imperative to reduce the possibility of facing a disqualification motion. Often, law firms want to move quickly in onboarding a new partner. However, it pays to complete thorough conflicts checks going back three, five or even seven years.”
•  Engagement letters should contain (1) a disclaimer of future duties after termination of the attorney-client relationship, and (2) a sunset provision setting forth that if the law firm has not performed any legal work for the client in 12 months, it will be treated as a former client for conflicts purposes.”
• “Given that concurrent and former conflicts of interest are imputed to entire law firms, it is also prudent to have robust screening protocols to ensure that lawyers with potential conflicts are unable to access confidential client information on a law firm’s server. Disqualification may be avoided where a law firm can demonstrate that it had promptly and carefully screened allegedly conflicted counsel.”
• “Once a disqualification motion has been filed, a law firm must promptly consult with its client, evaluate the chances of prevailing and obtain its client’s informed consent to oppose the motion. If the conflict is serious, it is often best to withdraw.”
• “Disqualification motions appear to be proliferating in both public and private forums, including arbitration proceedings. Law firms need to be aware of the types of conflicts that most often lead to disqualification and the types of attorneys who may be affected.”