Bressler Risk Blog

“China’s Regulations Went From Being a Client Problem to a Law Firm Problem, Too” —

• “For months, rising global tensions and toughening cross-border regulations have kept law firms busier than ever advising clients on how to successfully—and legally—operate a multinational organization. Now, law firms could start to feel the pain their clients are experiencing—and one already has.”
• “Dentons’ decision to end its longtime combination with Chinese firm Dacheng came amid regulatory one-upmanship between the U.S. and China that has restricted investment between the nations’ entities. At the same time, new Chinese regulations make certain legal work near impossible to do.”
• “The security risks to client information or the inability to share information, among other difficulties arising from a shifting regulatory landscape, were too great for Dentons to stomach. The firm’s decision to remove itself from the situation is one other firms could soon face.”
• “‘The Chinese regulator tends to be pretty opaque,’ said one Beijing-based partner at a U.S.-headquartered law firm… ‘But I think that’s going to increasingly be a challenge for global law firms to be able to operate in the marketplace. The intrusion of the Chinese government regulator into law firm business will not stop with Dentons.'”
• “Under the broad national security umbrella, Chinese lawyers can be required to divulge explicit client information to the state. Lawyers can also be prohibited from releasing China-related data to their international counterparts, all making basic conflict checks and due diligence on cross-border deals impossible to implement.”
• “The ‘Chinese Wall’—an old term used to describe corporate measures adopted by firms to prevent information leaks internally—is now neither relevant nor adequate.”
• “In 2021, China also started its tech crackdown on companies that have access to and hold data of Chinese users. New cybersecurity laws have also been imposed, making dealmaking onerous and risky. Companies wanting to share data outside of China must now go through a national security review.”
• “Kent Zimmermann, a principal at the Zeughauser Group, told Law.com International that there has been an increasing number of law firm leaders who have been reassessing their China operations in recent months. ‘Dentons is not the first professional services firm practicing law to pull out of China,’ said Zimmermann. ‘It is not going to be the last. Given the conditions, which make it virtually impossible to practice there as a Western firm and comply with the laws and regulations, it wouldn’t be surprising if other firms follow suit.'”

“Arb Seeks Win In Chris Cuomo DQ Bid Amid $125M CNN Row” —

• “The arbitrator overseeing television journalist Chris Cuomo’s $125 million wrongful firing case against CNN has asked a New York state court to shut down Cuomo’s effort to disqualify him over an alleged conflict of interest, saying Cuomo “cannot come close” to meeting the high bar necessary for obtaining that relief.”
• “In a summary judgment motion filed Tuesday, JAMS Inc. arbitrator Stephen P. Sonnenberg said Cuomo’s Hail Mary attempt to disqualify him based on tenuous and decades-old connections between CNN and Paul Hastings LLP — where Sonnenberg worked for 25 years as a labor and employment attorney before becoming an arbitrator — has run its course, and should now be shut down. JAMS itself is also a defendant.”
• “‘This entire proceeding should begin and end with the JAMS rules to which petitioner contractually agreed, and by which he is bound,’ JAMS and Sonnenberg wrote.”
• “Cuomo has already twice failed to disqualify Sonnenberg under those internal JAMS rules, Sonneberg said. To have a New York state court step in,  he needs to show that there are ‘circumstances’ at play or the possibility of ‘injustice.'”
• “Cuomo initiated his arbitration proceeding against CNN in March 2022, seeking $125 million after the network fired him in December 2021 for allegedly violating its journalistic standards by assisting his brother, New York Gov. Andrew Cuomo, during a time of “personal and political crisis” that led to the Democratic politician’s August 2021 resignation.”
• “Both CNN and Cuomo agreed on the choice of Sonnenberg to handle the case, and beforehand Sonnenberg said in a disclosure form that while it’s possible Paul Hastings may have had ties to one or the other party, he didn’t personally recall ever working with either. Sonnenberg left Paul Hastings in 2018.”
• “In the spring of 2023, however, Cuomo claims that some of Sonnenberg’s rulings led him to do a ‘deep dive on Sonnenberg’s background and prior relationships,’ as he put it in a court filing. Cuomo said he was then ‘shocked to learn’ that Paul Hastings had represented CNN in several proceedings before the National Labor Relations Board, the most recent of which wrapped up nine years ago.”
• “Shortly thereafter, CNN disclosed that Sonneberg had ‘personally handled a matter for the CNN parties for approximately three months in 2003,’ and was paid less than $3,000 in fees for that work. Sonneberg claims he still has no memory of that representation.”

“Perkins Can Stay At Defense Table For Intel In Memory IP Suit” —

• “Perkins Coie LLP can continue to defend Intel Corp. in a patent case focused on superconductor memory technology because the firm’s contacts with the plaintiff — including a prior engagement — don’t represent a substantial risk of conflict, an Oregon federal judge has ruled.”
• “In a Friday order denying a disqualification bid by BeSang Inc., the court said there was no dispute that BeSang’s chief executive, Sang-Yun Lee, hired Perkins Coie 14 years ago for a potential manufacturer contract. But that work was limited, the court said. Back in 2009, Lee had only a single, hourlong meeting with Perkins Coie lawyers about the possible deal. They later produced a largely ‘boilerplate’ draft for an agreement that never got off the ground.”
• “Submissions from BeSang and Intel also showed that Lee himself was surprised the firm had produced a draft at that early stage, and that Perkins Coie never got descriptions of BeSang technology or processes, the court concluded.”
• “‘Had the representation proceeded, there might indeed have been a substantial risk that the information [BeSang] outlines … would be shared and would materially advance defendant’s position in this litigation,’ the judge said. ‘But where the record shows only a high-level preliminary conversation, the risk that Perkins Coie obtained such information is not substantial, and the extreme step of disqualification of counsel is not warranted.'”
• “In the Friday decision, U.S. District Judge Marco Hernandez said BeSang had argued that the 2009 representation was related to the current case, and that Perkins likely had information that could aid Intel with ‘claim scope, claim construction, infringement, invalidity, and damages.'”
• “In addition to the 2009 representation, Lee argued that disqualification was also warranted because he’d been in contact in 2020 with Perkins Coie lawyers about a potential IP licensing deal and venture capital fundraising. Separately, he pointed to communications and a meeting in 2021 with another Perkins Coie attorney, Chun Ng, about a potential patent infringement case against a different company.”
• “After a preliminary conflict check and meeting with Lee, Ng said he ‘declined representation early in the conversation’ because many of the patents at issue were about to expire and the potential defendant ‘had no sales in the United States,’ according to the order.”
• “The court concluded that, like the 2009 matter, neither of the more recent contacts resulted in Perkins Coie obtaining information that could be harmful to BeSang in the Intel case.”

“Plaintiffs in Roundup lawsuit drop effort to disqualify prominent St. Louis attorney” —

• “Plaintiffs’ attorneys have withdrawn a motion seeking to disqualify attorney Bob Blitz as a special master in a Roundup lawsuit because of his close legal and business relationship with attorney James Bennett.”
• “Plaintiffs’ attorneys filed the motion to disqualify after learning Aug. 9 that Bennett, a partner with Dowd Bennett, would be the lead trial counsel in the case. Their motion cited Bennett and Blitz serving currently as co-counsel in a federal lawsuit against Ameren Missouri; Bennett representing Blitz and his law firm, Blitz Bardgett & Deutsch LC, in a 2015 lawsuit; and the $276.5 million in fees their firms shared when the lawsuit against the National Football League and the Los Angeles Rams was settled.”
• “Toward the ending of Tuesday’s hearing, May said if he granted the motion to disqualify Blitz, the McCostlin Roundup trial would have to be delayed until Sept. 17, 2025. May stressed to plaintiff attorney Joe Jacobson that he was not telegraphing what his decision would be on the motion to disqualify.”
• “The prospect of a two-year delay in the McCostlin trial is the reason why the motion to disqualify was withdrawn, said Jacobson, a shareholder in Jacobson Press PC. The plaintiffs’ attorneys brought in Jacobson to file the motion to disqualify.”
• “‘Even though we thought it was a good motion – and the judge did not dismiss it out of hand – we felt that it was in the client’s best interests to move forward with the case,’ Jacobson said.”

Brian S. Faughnan writes: “At the intersection of ethics and entrepreneurial acts” —

• “A case written up by Mike Frisch earlier this month caught my eye because it involves a discussion of two still-evolving areas of claims that can get made against law firms.”
• “Most of the case, and most of what Frisch focuses on, is the malpractice claim that was made regarding an alleged lost opportunity to settle a case. Although the Vermont Supreme Court did join a growing list of states to explicitly recognize that lost opportunity to settle can be a variety of actionable legal malpractice, the plaintiff’s loss at the summary judgment stage was affirmed.”
• “The second half of the Vermont case involved overturning a grant of summary judgment in favor of the law firm as to a claim under the Vermont Consumer Protection Act.”
• “The potential application of state consumer protection acts against lawyers and law firms is something I first wrote about back in 2006.”
• “Over the ensuing 17 years, general traction has been obtained for the notion that you cannot sue a lawyer or law firm under such statutes for claims relating to the core things that involve the practice of law such as rendering legal advice but that you can do so for things involving ‘entrepreneurial aspects of the practice of law.'”
• “In the case before the Vermont Supreme Court, the consumer protection act claim turned on the fact that the defendant law firm, in landing the client, had been alleged to have made representations that certain tasks would be delegated to associates and others when appropriate. Now that sounds innocuous out of context, but the allegations were that the entire case was handled primarily by an associate at the firm. While the Court recognized that how a case is staffed is not an entrepreneurial aspect of the practice of law, a promise or representation made about how a case would be staffed to land a case was.”
• “The commercial aspects of the practice of law that many courts will find can be the stuff of a consumer protection act claim are advertising, billing and collection activity, and not only statements made to obtain clients but even methods of keeping or discarding clients.”
• “Those issues are ones that lawyers mostly recognize as bringing ethics and disciplinary risks under rules such as RPC 7.1 and RPC 1.5 or even RPC 1.16 but it is worth keeping in mind that, even though the rules in most jurisdictions set out language in their Preamble or Scope sections to assert that the ethics rules are not designed for the purpose of providing a basis for civil liability, conduct that would violate those rules can also easily become the stuff of civil liability all the same through application of a state’s statutory framework seeking consumer protection or cracking down on deceptive trade practices.”
• “This potential for liability can provide yet another justification for firms to give some scrutiny not only to making sure that their billing practices are reasonable and justifiable but also to reviewing the language their lawyers use in engagement agreements and even in making new client pitches.”

Dentons partners Shari L. Klevens and Alanna Clair always present worthwhile content: “How to Handle Disputes With Sophisticated Clients” —

• “Representing clients who have more familiarity with the law and complex business issues is often a different experience than that of representing a client who is wholly unfamiliar with the law… This difference raises a question—does a lawyer’s duty or the standard of care change in any way when representing a so-called sophisticated client? There are areas where courts will make this inquiry, such as in looking at conflict waivers and other parts of the lawyer-client engagement process. In addition, some courts also take into account a client’s sophistication when addressing disputes between the client and their lawyer.”
• “Another example of courts taking a client’s sophistication into consideration arises in the context of future-conflict waivers, in which, as part of an engagement, a client agrees to waive certain types of conflicts of interest if they arise in the future. In a recent case in Florida, a major national brand filed a motion to disqualify its former law firm (a large national firm) from representing an adverse party.”
• “When the law firm noted that the brand had signed a waiver regarding future conflicts, the court agreed in upholding the waiver. Among other things, the court focused on the sophistication of the client, the size of their in-house legal team, their use of dozens of outside law firms and the fact that the client was represented by independent counsel in executing the waiver. As a “sophisticated consumer of legal services,” the brand’s waiver was enforceable.”
• “A legal-malpractice case sometimes involves an evidentiary review of the client’s understanding of the law or of the selected strategy, especially for more sophisticated clients. Thus, if there is a later dispute over what the client understood or consented to, having evidence in hand showing the client’s understanding, acquiescence or sophistication can go a long way.”
• “Documenting the level of the client’s involvement in close to real time can also be a reminder to the client of the decisions they made and why. Although the absence of such documentation in a subsequent legal malpractice case does not confirm a breach of the standard of care, lacking this evidence could make it harder for the lawyer to explain what really happened.”
• “Even if the evidence does not extinguish liability altogether, it might help to mitigate potential damages. For example, in a recent New York case, the court reviewed a communication by lawyers to their client with a marked-up version of a key lease amendment.”
• “The court concluded that this communication was not sufficient to show that the lawyers adequately advised the client of the significance of their edits, but the court did conclude that the client’s level of sophistication and understanding in reviewing the amendment could be evidence to support mitigation of damages.”

“Ex-Mylan CIO Waives Atty Conflict For Insider Trading Case” —

• “A former Mylan executive told a Pennsylvania federal judge that he could still be defended on charges of insider trading by an attorney who also represented other Mylan higher-ups in a pair of civil lawsuits, waiving any potential conflict of interest in court Tuesday.”
• “Ramkumar Rayapureddy, 55, of Upper St. Clair, Pennsylvania, said he understood that one of his defense attorneys, John A. Schwab, had represented or was actively representing Mylan NV, its successor, Viatris, and several of its current and former executives in a proposed investor class action and in an antitrust lawsuit.”
• “After questioning from U.S. District Judge W. Scott Hardy, Rayapureddy agreed to waive any potential conflict of interest that might arise if some of those executives were called as witnesses in the criminal case against him for allegedly helping a former colleague make millions from stock trades based on insider information he had when he was chief information officer for the company.”
• “After Rayapureddy indicated he was aware of the potential conflict and was still willing to waive it, Judge Hardy had him and his attorneys sign a waiver form at the conclusion of Tuesday’s hearing.”
• “Judge Hardy said that at a hearing in July, he became aware of the potential conflict that Schwab’s representation could raise, and ordered that the defense and the government file sealed briefs on their positions regarding that conflict. Though the briefs remain under seal, Judge Hardy said Tuesday’s hearing on the matter would be public.”
• “Rayapureddy said he had not discussed with Schwab exactly which executives he had previously represented — Schwab said the individual defendants had been dropped from the shareholder suit — but Judge Hardy reminded him that the names were public record and not subject to attorney-client privilege.”
• “After a brief break to review the list — including former CEO Heather Bresch, who left the company when it combined with Upjohn to form Viatris; President and Executive Director Rajiv Malik; Viatris President of Developed Markets Anthony Mauro; and former Chief Financial Officer Kenneth Parks — Rayapureddy again consented to waive that potential conflict.”

“Orrick Herrington Hit with Another Lawsuit from Hacker Attack” —

• “Orrick, Herrington & Sutcliffe LLP was sued Monday for a second time arising from a springtime data breach that allegedly allowed personal information including Social Security numbers of nearly 153,000 individuals to be accessed.”
• “The filing alleges Orrick failed to create and implement reasonable data security practices, including training employees and others who accessed the information. It also alleges that the firm didn’t tell individuals their data had been compromised for four months after the incursion.”
• “Accusing the firm of negligence, breaches of fiduciary duty, confidence, and implied contract, and invasion of privacy, the plaintiff Robert Jensen seeks certification of a class of those who received letters notifying them of the breach.”

“Hacker and His Victim Can Employ Same Lawyer, NJ Court Rules” —

• “In a case testing the bounds of attorney conflicts of interest, a New Jersey court is allowing a lawyer to represent both a hacker who stole online social media account information and the victim he targeted.”
• “The Thursday ruling pits the international World Mission Society, Church of God against a church attendee who alleges a plot in which the church sought to investigate dissenters. The lawsuit claims the hacker—a third party defendant—was coerced by the church into creating web message boards for criticizing the organization and then using posters’ log-in information to access their social media accounts and find out their identities.”
• “The decision is a win for lawyers who seek joint-representation agreements, allowing them to coordinate between diverging, but not adverse, parties in litigation. The unanimous ruling took a narrow view of what could make these seemingly conflicting parties ‘directly adverse,’ which can bolster litigators’ arguments for wide latitude to represent multiple players in a broader dispute.”
• “There’s ‘no ‘significant risk,’’ that the plaintiff or the hacker ‘will be ‘materially limited’’ by the attorney’s responsibility to the other, the court’s unauthored opinion said.”
• “The church argued that if it’s found liable, it will turn around and blame the hacker, and this would make the attorney’s representation of the hacker and plaintiff at odds. The church used the example of a car crash—an attorney can’t represent both an injured passenger plaintiff and the driver of the car she was injured in unless the driver isn’t at fault for the damage.”
• “The court rejected this reasoning: ‘If plaintiff prevails against defendants on liability, it does not automatically follow’ that the hacker ‘will be held liable by a finder of fact if defendants pursue the third-party complaint against him to completion.'”

“McKinsey Must Face Bankruptcy Racketeering Lawsuit” —

• “McKinsey and several of its executives must face a critic’s lawsuit alleging the consulting firm concealed conflicts of interest from bankruptcy courts to win business advising on major corporate restructurings.”
• “Judge Jesse Furman of the U.S. District Court in New York declined on Monday to dismiss the bulk of claims filed against McKinsey by the founder of a competing firm accusing it of submitting false disclosures to bankruptcy courts that omitted potentially disqualifying financial conflicts.”
• “The judge’s ruling allows Jay Alix, the retired founder of turnaround consulting firm AlixPartners, to advance his claims that McKinsey’s disclosures were part of a racketeering conspiracy to boost its restructuring advisory practice at the expense of competing firms.”
• “Judge Furman granted McKinsey’s motion to dismiss one of the four racketeering counts Alix alleged, while finding the other three were plausible enough to proceed against the firm. It has denied the allegations and said Alix wants to use the lawsuit to drive McKinsey out of the lucrative marketplace for restructuring advice.”
• “The firm has also faced years of private lawsuits by Alix and government probes into its restructuring group’s practices, including whether it failed to disclose potential conflicts and guard against insider trading involving clients.”
• “McKinsey paid $18 million in 2021 to resolve a government probe into its policies meant to prevent insider trading, and $15 million in 2019 to settle a separate investigation into the firm’s conflict-of-interest disclosures in bankruptcy court, in each case without admitting wrongdoing. Private litigation has dragged on with Alix, who has brought claims in several courts that the firm profited by misrepresenting its conflicts of interest, which it denied.”
• “The lawyers, bankers and consultants who steer major chapter 11 cases must file declarations in bankruptcy court disclosing any connections to the business, its creditors and any other interested parties when they seek court approval to be retained. Restructuring advisers are required to be disinterested and to disclose connections they have to parties in a chapter 11 case that could give rise to a conflict of interest.”
• “Alix alleged in his lawsuit that as McKinsey sought retentions in 14 bankruptcy cases, it concealed connections that could have disqualified it from the assignment. He claimed that if bankruptcy courts had been aware of McKinsey’s connections, they wouldn’t have approved the firm to serve as a restructuring consultant. McKinsey obtained business that would have otherwise gone to competing firms including AlixPartners, he argued.”
• “Judge Furman said that Alix’s allegations are ‘particularly strong’ with respect to several bankruptcy cases. He noted that in the bankruptcy of metallurgical coal company Alpha Natural Resources, McKinsey allegedly concealed that it also served U.S. Steel, one of Alpha’s major customers. In energy company GenOn’s bankruptcy case, McKinsey allegedly concealed that it also served GenOn’s parent NRG, with whom the company had an adverse interest, the judge wrote.”

“Plaintiffs in Roundup lawsuit seek to disqualify high-profile St. Louis attorney” —

• “Plaintiffs’ attorneys are seeking to disqualify attorney Bob Blitz as a special master in a Roundup lawsuit, arguing that his close legal and business relationship with attorney James Bennett presents an ‘appearance of impropriety.'”
• “In a motion filed Aug. 17, attorney Joe Jacobson, a shareholder in Jacobson Press PC, wrote that attorneys representing 90 plaintiffs in the lawsuit against Monsanto learned Aug. 9 that Bennett will be the company’s lead trial counsel in the case. The plaintiffs’ attorneys brought in Jacobson to file the motion to disqualify.”
• “Special masters are routinely assigned to handle technical, scientific and medical issues in a case and can handle pre-trial motions. They also can rule on matters during a trial, but the judge has the final say.”
• “Jacobson wrote in the motion that Blitz and Bennett are co-counsel representing the city of St. Charles and St. Charles County in a lawsuit against Ameren Missouri. That lawsuit, pending in federal court in St. Louis, seeks millions of dollars in damages from the utility company over well-field contamination.”
• “Bennett represented Blitz personally and his law firm, Blitz, Bardgett & Deutsch LC when they were sued in 2015 by a group of clients, Jacobson wrote. While the claims against Blitz individually were settled, Bennett continued to represent Blitz’s law firm on appeal until at least March 2020, according to Jacobson.”
• “Jacobson also cited Blitz and Bennett’s roles in representing the city of St. Louis, St. Louis County and the St. Louis Regional Convention and Sports Complex Authority in the 2017 lawsuit filed against the National Football League and the Los Angeles Rams.”
• “Jacobson wrote that the relationship between Blitz and Bennett creates a ‘conflict of interest such that Blitz is not qualified to serve as special master in any case in which Bennett is trial counsel.’ The Missouri Code of Judicial Conduct applies to special masters to the same extent as judges and they must avoid ‘even the appearance of impropriety,’ he wrote.”

Mark G. McCreary, co-chair of the Privacy and Data Security Practice at Fox Rothschild LLP, writes this piece, worth reading in full: “Privacy and Data Security Obligations: Law Firms Have an Outside Counsel Guidelines Problem” —

• “Yet, often OCGs contain privacy and data security obligations that do not match the reality of practicing law and servicing a client. These obligations often come from an IT department or compliance professional who goes to extreme lengths to ensure they cannot be blamed if there is a data incident. This attitude and approach have created an OCG problem for law firms.”
• “I am responsible for reviewing and negotiating the privacy and data security obligations of OCGs for my law firm. I enjoy that responsibility because I often get to collaborate with in-house counsel that, in most cases, have never read these requirements.”
• “The things that I hear from in-house counsel most often are ‘they really say that,’ ‘that makes no sense, how could you agree to that,’ and ‘nobody has ever raised these concerns.’ Protecting data is outside most in-house counsel’s job responsibility, so these responses are normal.”
• “My firm takes data security extremely seriously, and we are supported by firm management. When I speak with the employees responsible for ensuring the data security of a client, they leave that conversation knowing that their data is adequately protected. We have never failed to successfully negotiate OCGs so that they accurately reflect our practices and procedures, while at the same time meeting the client’s requirements.”
• “But that does not mean every conversation and negotiation is without its challenges. Clients would benefit greatly from the following suggested approaches. While the list is not exhaustive, it is based on the terms in OCGs that I most commonly encounter that do not match the reality of practicing law and servicing a client.”
• “Deletion of Data. …work product from a previous matter can be immensely helpful and efficient when working on subsequent matters… we also have a Records Retention Policy with data retention schedules. We do not want to be in possession of client data longer than necessary… Lastly, some data simply cannot be deleted. Data that is contained in backups cannot be retrieved, data in databases often cannot be isolated without ‘breaking’ the database, and the process of removing email from disaster recovery solutions is often the equivalent of launching a nuclear weapon, if possible, at all.”
• “Notification of Data Incidents. Often OCGs will say the law firm will ‘immediately’ notify the client of a data incident, or within 24 hours. This is arbitrary and not in line with the accepted international standard of 72 hours”
• “Forbidding Disclosure of a Data Incident. Similar to notification of a data incident, at times client will say that unless required by law we cannot notify any third party of a data incident unless the client approves the notification and its content… we cannot have an outside party dictating the timing, messaging and approach of an incident response when those things can impact potential claims against us.”
• “Audits and Assessments. Firms should agree to complete periodic data security questionnaires and assessments. They should also agree that clients can come on premises and conduct and review those questionnaires and assessments. They should not agree that clients can do a physical audit of their systems. Those systems contain the data of all of clients, and it would be a breach of ethical duties… Similarly, firms should agree to provide an executive summary of a data security audit, an ISO 27001 certification, or a penetration test. Under no circumstance should the firm provide a full copy of an audit, an ISO 27001 certification, or the results of a penetration test to a client – really any third party.”
• “Approval of Third-Party Vendors. My solution has been one of two approaches. I will carve out vendors that have access to the data of many clients, such as Microsoft, Mimecast, Relativity, and reprographic and trial service vendors. I agree that if the vendor is a client-specific solution, the client should be involved in that decision.”
• “No Client Data Outside of US Borders. My solution has been (1) to agree not to store client data outside of the U.S., as long as I can have it processed temporarily outside of the U.S. (excluding regulated data), and (2) create an exception that we can allow individuals to travel with client data as long as it is encrypted (which it would be on our laptops, mobile devices and external media).”

“Pa. Superior Court Denies Bid to DQ Husband’s Counsel From Divorce Case Over Brief Meeting With Wife in 2014” —

• “The Pennsylvania Superior Court has affirmed a lower court’s denial of a wife’s motion to disqualify her husband’s attorney from their divorce proceedings, determining the wife failed to prove her brief meeting with the attorney years prior had created a conflict of interest.”
• “In an Aug. 22 opinion, authored by Judge Judith Ference Olson, the court affirmed the order denying Tracy A. Cunningham’s motion to disqualify counsel for her husband Michael Spinneweber. Cunningham had alleged that her 2014 consultation with the attorney, Jill Sinatra, about potentially divorcing Spinneweber had created a conflict of interest in the current case. But the appeals court said Cunningham failed to show Sinatra acquired any significantly harmful information during that consultation.”
• “Cunningham sought to disqualify Sinatra and her firm, alleging that Sinatra and the firm had a conflict of interest because Spinneweber and Cunningham had allegedly met with Sinatra regarding litigation involving Spinneweber’s business in 2013. Further, Cunningham alleged that, in 2014, when Sinatra was associated with Lisa Marie Vari & Associates, she consulted with Sinatra about potentially divorcing Spinneweber. Cunningham alleged that, during the consultation, she ‘provided detailed and privileged information concerning the parties’ marriage, business assets and income,’ according to the opinion.”
• “But Sinatra said she had no recollection of the meeting and did not retain any documents from the consultation, according to the opinion.”

“High Court Rules That City Law Firm Breached Duties By Acting For Client Despite Conflict Of Interest And By Failing To Provide Adequate Costs Information Under CFA: Forster V Reynolds Porter Chamberlain [2023] EWHC 1150 (Ch)” —

• “In its recent decision in Forster v Reynolds Porter Chamberlain LLP, the High Court found that City law firm, RPC, had breached its duty of care to its client, Ms Forster, after failing to keep her adequately informed of costs incurred under a conditional fee agreement (‘CFA’).”
  “The Court also held that RPC were conflicted in acting for Ms Forster, and that in failing to enforce the settlement agreement in accordance with Ms Forster’s wishes, it caused her to suffer loss.”
• “The decision serves as a useful reminder that whilst a CFA governs the solicitor’s remuneration, it does not alter the duties owed to the client. Insofar as solicitors prioritise their own interests under a CFA, or the interests of one client at the expense of another, they risk incurring liability for negligence and for breach of fiduciary duty (in addition to possible regulatory exposure).”
• “RPC acted for Ms Forster under a CFA with a 100% uplift on their fees, as did the three Counsel who represented her at trial. Ms Forster arranged ‘after the event’ insurance (the “ATE Policy”) which covered limited adverse costs, non-lawyer disbursements payable to RPC and repayment of a loan taken out by Ms Forster at a late stage of the proceedings to fund her expert witness, a forensic accountant from Deloitte (the “Loan Agreement”). Ms Forster had reluctantly agreed to instruct Deloitte, having been persuaded by RPC.”
• “Ms Forster commenced proceedings against RPC for negligence. Her claim was essentially for loss of the opportunity to enforce the Tomlin Order by first converting the Order terms into a judgment debt and then promptly enforcing it and the costs order against the Opponents’ assets in 2010 and 2011. It was Ms Forster’s case that RPC had become conflicted in continuing to act for her given their interest in the Loan Agreement, and that they had preferred their own interests to hers in delaying enforcement action.”
• “In response to Ms Forster’s further claims of breach of duty, the Court concluded that RPC had not adequately advised Ms Forster in relation to the Loan Agreement, and that in failing to enforce the terms of the settlement agreement, it had preferred Mr Deacon’s interests over hers. Fancourt J found that RPC had ‘a clear conflict of interests in advising Ms Forster to borrow money from Mr Deacon and … acting for Mr Deacon in preventing Ms Forster from enforcing [the settlement agreement].'”
• “To properly advise or act for Mr Deacon and Ms Forster, RPC should have obtained both parties’ informed consent. On the matter of RPC’s failure to enforce the settlement agreement, it was irrelevant whether its strategy in delaying was well-intentioned or likely to result in a more substantial recovery, as ‘RPC were not entitled to refuse to act in accordance with [Ms Forster’s] instructions’. In doing so, RPC breached its duty and caused Ms Forster loss of opportunity to recover under the settlement agreement. Fancourt J awarded damages of £192,500, being 55% of the £350,000 settlement amount, on the basis that Ms Forster’s likelihood of full recovery would have been approximately 55% if enforcement action had been taken in 2011 and 2012.”

“Ex-Attorney at Gibson Dunn Charged With Insider Trading” —

• “A Brazilian attorney who was working at Gibson, Dunn & Crutcher has been arrested and charged with insider trading, accused of accessing internal law firm files to trade ahead of a major merger and acquisition.”
• “Federal prosecutors in D.C. said Romero Cabral Da Costa Neto, 33, of Rio de Janeiro, Brazil, was arrested on Tuesday in Washington, D.C., by agents with the FBI’s Washington Field Office. Costa is separately facing an SEC lawsuit over similar allegations.”
• “A spokesperson for Gibson Dunn said they are cooperating with authorities on the matter. ‘We are cooperating with authorities and have terminated our relationship with the individual, who was an international visiting attorney from another law firm,’ the spokesperson said in a statement to the National Law Journal.”
• “According to court documents, Costa is an attorney licensed to practice in Brazil and had been working in the United States for the law firm since September 2022. During that time, Costa has executed multiple stock trades in companies represented by the firm.”
• “During Costa’s one-year employment as a visiting attorney, he allegedly accessed confidential information about the law firm’s work on biopharmaceutical company Swedish Orphan Biovitrum AB’s acquisition of CTI BioPharma Corp (CTIC), according to the SEC complaint. According to a press release, Gibson Dunn served as legal counsel to CTIC in the transaction.”
• “As a non-U.S. Citizen, Costa was hired as a ‘visiting attorney’ from Brazil, and the law firm sponsored his temporary work visa, allowing him to reside and work in the United States during the time period of his employment, according to court documents. His term of employment with the firm was one year.”
• “On May 8 and 9, 2023, the SEC complaint alleges, Costa accessed the firm’s document management system and obtained nonpublic information about the CTIC impending merger with Sobi. Specifically, the SEC claims, Costa accessed and viewed draft SEC filings, board minutes, and other documents relating to the transaction. The law firm’s access logs show that Costa viewed as many as 25 unique documents relating to the Sobi transaction over 100 times in the week leading up to the public announcement.”

Leigh Isaacs, Sr Director Info Governance at DLA Piper US, sends word of this report produced by the Law Firm Information Governance Symposium (LFIGS), which she authored with several colleagues: “Generative AI and Law Firm Information Governance” —

• “This paper covers the use of artificial intelligence (AI), and in particular, Generative AI in law firms. Whereas AI usage is similar across industries, law firms have some unique characteristics because much of the data belongs to the clients and there is an extra obligation to keep it safe and private. This paper covers both unique and non-unique challenges of AI as it pertains to information governance (IG) in the legal community. It begins with a brief definition of AI, followed by benefits to the legal community, information governance-specific considerations, policy considerations, general advice, and guidance.”
• “Another important consideration is balancing privacy rules and regulations with system capabilities. Currently, there is no way to remove data from the system. This has led to concerns about ethical issues, IP usage, bias, and consent. As a result, many firms are taking a conservative approach to using generative AI technologies. Some firms have banned the use of their data, while others have not yet adopted the technology. As the technology evolves, so too will the restrictions and usage guidelines around it… A good  resource that offers insight into the early views on regulation between the EU and the US can be found HERE. In fact, using proprietary data is best done through APIs, as described in section 5.”
• Clients are starting to issue requirements around AI usage guidelines and/or restrictions where their data is involved. Audit and assessment questions will quickly start to include AI usage queries, as will cyber insurance renewal applications.”

“Orrick Hit With Class Action Over Breach Affecting 153,000” —

• “Orrick, Herrington & Sutcliffe LLP failed to protect the personal information of nearly 153,000 people that was exposed in a March data breach, a proposed federal class action said.”
• “Dennis Werley alleged that the international law firm failed to implement reasonable measures to ensure their computer systems were protected, take adequate steps to prevent and stop the breach, or provide timely notice to victims.”
• “Information exposed in the incident included names, addresses, dates of birth, and Social Security numbers, according to a complaint filed Aug. 11 in the US District Court for the Northern District of California.”
• “Orrick declined to comment.”
• “Werley and class members have suffered damages in the form of an increase in spam telephone calls, an increased risk of fraud and identity theft, invasion of privacy, reduced value of personal information, and lost time and out-of-pocket costs incurred mitigating the effects of the breach, the complaint said.”
• “The lawsuit brings claims of negligence, negligence per se, breach of fiduciary duties, breach of confidence, breach of implied contract, invasion of privacy, and declaratory relief.”

Brian Faughnan notes and opines on: “Breaking? BPR Issues Two Formal Ethics Opinions” —

• “The opinion now confirms certain core concepts in Tennessee as to departing lawyers and what the rules of the road are, including:
  • “That a joint notice to the client is preferred and that the departing lawyer and the firm should “attempt to agree” on a joint communication to the clients ‘with whom the departing lawyer has had significant contact.'”
  • “That firms ought to develop policies in advance so that lawyers can know what measures the firm will expect to implement address such situations, including issues of what kind of notice period prior to departure a firm will expect of its lawyers.”
  • “While firms can impose notice period requirements, they cannot then kneecap the departing lawyer’s ability to continue to represent clients during that time period by cutting them off from access to files or access to technology.”
• “In other words, this opinion attempts to establish rules of the road that have as their primary purpose ensuring that clients both have full choice of counsel and are not harmed or burdened by lawyer against lawyer disputes.”
• “Nevertheless, situations where lawyers depart firms for other private practice arrangements will likely always remain plagued by economic pressures and cutthroat instincts. Lawyers or firms that want to push the envelope may find some solace in certain parts of the opinion whether that be arguing over what ‘significant contact’means or playing coy about what constitutes attempting to agree, but this opinion offers much needed guidance.”
• “As a lawyer who represents lawyers making moves as well as firms dealing with departing lawyers, the existence of this opinion will be very helpful in counseling lawyers.”

Hat tip to the reader who sent in this WSJ piece containing additional detail commentary on last week’s update: “American Bar Association Votes to Amend Rule on Client Due Diligence” —

• “Supporters of the change hope the move will help ward off more stringent regulation from lawmakers concerned about the use of lawyers to facilitate financial crimes.”
• “U.S. lawyers on Tuesday voted to adopt a revised rule that imposes a more explicit obligation to vet potential clients, as part of an effort to quell concerns about the use of lawyers to facilitate money laundering and other financial crimes.”
• “In a speech ahead of Tuesday’s vote, Kevin Shepherd, the ABA’s Treasurer, said that the U.S. Treasury Department recently had informed him that a failure to pass the resolution would cause the agency to take immediate regulatory action as well as to lobby for legislation imposing additional obligations on lawyers. ‘It’s simple political reality, and we ignore it at our peril,” Shepherd said.'”
• “The ABA last year lobbied against a bill in the U.S. Congress that would have extended anti-money-laundering regulations for the financial sector to lawyers, accountants and other professional-service providers involved in company formation and money transfer.”
• “Lawyers who aid criminals can be criminally prosecuted, but critics have argued that a lack of enforceable regulation enables some lawyers to continue working for potentially problematic clients while ignoring red flags.”
• “Although the amendments approved Tuesday are only a slight change to the ABA’s existing rules, they proved controversial, with a number of the group’s most prominent members giving speeches both for and against the proposal. The group’s two largest sections, representing business and litigation attorneys, voted before the annual meeting to oppose the resolution. Critics argued that the amendments were vague and exposed lawyers to discipline.”
• “‘The proposed rule opens every lawyer up to potential liability,’ Paul “Chip” Lion, a delegate for the ABA’s Business Law Section, said during a speech before the vote. ‘The presumption will be that the lawyer should have known that the lawyer’s services were being used to commit a crime, had the lawyer just delved a little deeper into the facts and circumstances.'”
• “It isn’t clear how far the new rules will go in convincing the industry’s critics that further regulation is unnecessary. Scott Greytak, the advocacy director for Transparency International U.S., which seeks to fight corruption, called the new rules ‘window dressing,’ saying they would have little effect.”
• “The rules don’t spell out specific steps that lawyers should take in vetting a client, and several observers pointed out that they don’t appear to create a definitive obligation to determine the true identity of a client, such as the beneficial owner of a corporation or limited liability company that seeks a lawyer’s services.”
• “Instead, the amendments add guidance advising lawyers that their due diligence should vary based on the perceived level of risk represented by a client. Under the new guidance, a lawyer’s familiarity with a client might be one factor that gives assurance that less due diligence is needed.”

Same subject, different context, like worth tracking for real estate practices: “US set to unveil long-awaited crackdown on real estate money laundering” —

• “The U.S. Treasury Department will soon propose a rule that would effectively end anonymous luxury-home purchases, closing a loophole that the agency says allows corrupt oligarchs, terrorists and other criminals to hide ill-gotten gains.”
• “The long-awaited rule is expected to require that real estate professionals such as title insurers report the identities of the beneficial owners of companies buying real estate in cash to the Treasury’s Financial Crimes Enforcement Network (FinCEN).”
• “While banks have long been required to understand the source of customer funds and report suspicious transactions, no such rules exist nationwide for the real estate industry.”
• “Instead, FinCEN has operated real estate purchase disclosure rules, known as geographic targeting orders (GTOs), in just a handful of cities including New York, Miami and Los Angeles. The new rule is expected to effectively expand GTOs nationwide.”
• “Transparency advocates pushing for a nationwide rule point to the example of Guo Wengui, an exiled Chinese businessman who, according to prosecutors, used an anonymous shell company to channel illicit profit from a fraud scheme into the $26 million purchase of a 50,000-square-foot New Jersey mansion in December 2021.”
• “Had Guo brought property across the Hudson River in Manhattan, it would have been subject to a GTO and likely flagged immediately to law enforcement.”
• “Guo, a onetime business partner of former Donald Trump adviser Steve Bannon, has pleaded not guilty to fraud charges. His lawyers did not respond to a request for comment.”

Great response to the 2023 Risk Staffing Compensation Survey! 

I always appreciate the notes, questions and thoughts from readers. So with this update, I wanted to not only remind folks to participate (if they want to see and benefit from the eventual output) but also to address a few community questions.

“I have data sensitivity.”

• I feel you. I would too.
• To be clear, this data is confidential and kept private. The eventual report will not identify firms or individuals. Last year we collected 375+ data points from 80 participants and hopefully that experience put people at ease.
• But if you’re itching to participate but have concerns about privacy, please feel free to drop me a direct note. I’ve worked with a few firms on creative approaches here.

“What Kind of Roles?”

• Risk is a broad category, but we’re typically focused on roles associated with the general arena of client due diligence (e.g. intake, conflicts, terms/OCGs, and the operational roles supporting that). Perhaps next year we’ll go broader. I know we have an IG reader contingent out there…
• I’ve gotten a few of these “where do you draw the line on role/seniority” questions. In particular, I’ve had a few “director” level colleagues ask if they get to play (and see industry data) as well. And the answer is: yes!
• I suspect I may have just internalized “if you’re not a partner, you’re staff” in terms of naming this survey. But if you’re a director-level risk leader, please do feel free to submit data. (Depending on the volume collected, we might just see an national average in the final report vs breakouts by geography/firm size. But if every leader reading this blog participated, we’d certainly have a rich data set. The BRB reader squad out there contains multitudes…)
• When you take the survey, as an individual or a manager/director of staff, it will ask you not only for “titles” but also for a general classification of “role type” (to help best consolidate and compare apples-to-apples across roles, as best we can).
• If you’re already taken the survey providing staff details, you can just re-take it again. All the inputs are additive to the consolidated report/export used for analysis.

“Oh Canada?”

• Hat tip to those readers residing outside of US borders. I know we have an international contingent with a respectable set of Canadian, UK and event APAC subscribers.
• In terms of data, this exercise last year collected a slice of Canadian data. And we’ve received some again in 2023. So I want to encourage Canadian readers to participate. We’ll see if we collect enough inputs to generate some valuable output.
• And if there’s demand and interest from other geographies, feel free to get in touch and let’s see if we can be of help there as well.

Please keep those questions and comments coming. (Email readers can do that by just replying to this note — it’ll reach me. Others can use the contact form as well.)

And please do take the survey by clicking here: 2023 Risk Staffing Compensation Survey.

Thanks!

“Court of Appeal: Ethics Rule Didn’t Justify Total Disqualification of Lawyers” —

• “The two members of a father-and-son law firm were properly barred from representing the firm in its fraud/breach-of-contract action against two former clients who failed to pay for services and a lawyer, the Fifth District Court of Appeal held yesterday, but declared that there was no reason to order that they play no role in the trial preparation.”
• “Presiding Justice Brad Hill said in an unpublished opinion: ‘We hold the trial court acted within its discretion in disqualifying the Firm’s attorneys from representing the Firm at trial because they will likely be called as witnesses, carrying a significant risk of juror confusion and prejudice to the defendants. However, the trial court abused its discretion by disqualifying the Firm’s attorneys from representing the Firm in all pretrial phases of the litigation without making any findings as to how their continued behind-the-scenes activities preceding trial would undermine the purposes of the advocate-witness rule.'”
• “It was Stanislaus Superior Court Judge John D. Freeland who barred Michael J. Dyer and Dustin J. Dyer from doing any legal work for their Stockton firm, The Dyer Law Firm, in its action against ex-clients Karla Sam-Sin and Fernando Sam-Sin and Modesto attorney Mark S. Nelson. The Dyer Law Firm was representing the San-Sins in litigation. Nelson was allegedly in complicity with the San-Sins in causing the Dyers to change a portion of their retainer agreement with the Sam-Sins to mirror the arrangement the clients supposedly had with their previous lawyer not to charge for a certain portion of the work, although there was no such arrangement.”
• “In his opinion partially reversing and partially affirming the order, the presiding justice said: ‘[T]his is not a matter of the Dyers representing themselves, as Nelson often puts it; nor is this a matter of the Firm representing itself, as the Dyers sometimes frame it. Despite the Firm being a closely held corporation owned and directed exclusively by the Dyers, this is still a case with a client (the Firm) being represented by counsel (the Dyers). This is not a case of self-representation. The distinction matters because, if the Dyers were truly representing themselves in propria persona, there would be a good argument that the advocate-witness rule would not apply. Various appellate courts around the country—though none in California, to our knowledge—have held that a ‘lawyer-litigant’ has a right to appear pro se and should not be disqualified from doing so under the advocate-witness rule.'”
• “Hill noted that when Nelson represented himself, he did so as a ‘lawyer-litigant.'”
• “Rejecting the contention that Nelson waived a disqualification motion by waiting 21 months before bringing it, the jurist said that ‘[a]bsent a prima facie showing of extreme prejudice caused by the delay, there was no waiver of the right to seek ‘ and no such showing was made. He remarked: ‘This was not an eleventh-hour, eve-of-trial motion (nor a midtrial motion…).New counsel will have plenty of time to get up to speed, and the Firm will not be duplicating any expenses in the process of replacing counsel because the Dyers had been representing the Firm for free.'”
• “He declared that Nelson’s motion ‘clearly has merit with respect to protecting the integrity of the judicial process at the forthcoming trial” because “having the Dyers serve as both attorneys and witnesses at trial carries an unnecessary risk of confusing the jury and biasing the jury.'”

“‘Conflict of interest’: Idaho AG gave officials legal advice, then investigated them” —

• “An Ada County judge ruled Thursday that Idaho Attorney General Raúl Labrador had a “notable conflict of interest” when his office began investigating officials with the Idaho Department of Health and Welfare over how it distributed federal child care grants.”
• “The health officials were the attorney general’s clients. And a lawyer under Labrador had advised them that the grants in question were legally distributed.”
• “‘The attorney general provided an opinion to a client and cannot now seek to investigate whether… the client violated the law on the same issue,’ 4th Judicial District Judge Lynn Norton wrote in Thursday’s ruling.”
• “Labrador’s office demanded that the health officials hand over records related to the program around the same time Idaho lawmakers approved an audit of the grants, amid concerns that the federal funds weren’t distributed properly. Lawmakers dictated that the funding go to programs serving kids 5 to 13. Labrador previously told the Idaho Statesman that he’s investigating whether those directions were followed.”
• “Central to the health officials’ case are two legal opinions, written by former deputy attorney general Daphne Huang, who advised health department officials that the child care grants were distributed legally.”
• “Huang issued one opinion in November, during former Attorney General Lawrence Wasden’s tenure, and a nearly identical opinion in January, after Labrador assumed office and lawmakers questioned Jeppesen about the grants.”
• “But the legal advice created ‘a client relationship’ with health department officials and a “duty to act in protection” of the department’s interests, Norton wrote. Idaho State Bar ethical rules prohibit attorneys from advocating against their clients’ interests.”
• “Norton also wrote that an attempt by Labrador’s aides to seize the work phone of a former attorney assigned to the department shows that the attorney general’s office failed to create a sufficient ethical firewall between investigating attorneys and the lawyers advising the Department of Health and Welfare.”
• “Thursday’s ruling is the first time a judge has publicly analyzed the unique conflict between the executive branch officials and their own attorney. It’s among a handful of clashes between Labrador and state agencies that have marked the Republican’s first term in office.”