Risk Update

Risk News — Confidential Information DQ, EY Audit Adjustment May Remove Conflicts to Legal Growth

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“Firm Properly Barred for Having Confidential Information” —

  • “The Ninth U.S. Circuit Court of Appeals has affirmed an order barring a law firm from continuing to represent the plaintiff based on the firm having received confidential information about the defendants from a disbarred lawyer who gained that information from them while purporting to be their counsel in earlier litigation.”
  • “In a memorandum opinion filed Thursday, a three-judge panel found that District Court Judge Percy Anderson of the Central District of California did not abuse his discretion in disqualifying the Mirch Law Firm of San Diego from acting for Seyed Zia Eddin Ahmadi Abhari and others in an action under the Racketeer Influenced and Corrupt Organizations Act against Elias Nakhleh and others.”
  • “At a business lunch in 2019—before the RICO lawsuit was filed and while cordial relations existed—Abhari told Nakhleh about his lawyer, Martin Reiner, recommending that Nakhleh utilize his services. Nakhleh took the advice, hiring Reiner and providing him with a $10,000 check for Nakhleh which he regarded as an Nakhleh attorney retainer fee.”
  • “Nakhleh eventually developed a suspicion that Reiner was not licensed to practice law and, on March 6, 2020, queried in an email: ‘Is it not true that you have been suspended from practicing law? You have represented being an attorney to me multiple times.'”
  • “[The Ruling Noted:] ‘The Court finds The Mirch Law Firm has committed several ethical violations. Based on the evidence provided, Mr. Reiner has falsely represented to Defendants that he was their attorney. The Mirch Law Firm is using Defendants’ privileged information, obtained by Mr. Reiner, to gain a tactical advantage in this case…'”
  • “The judge noted that The Mirch Law Firm insisted that Reiner merely acted as a witness for it and “that they have cut off contact with Mr. Reiner following this Motion,” but declared that ‘the damage has already been done’ by giving the firm ‘privileged information which has allowed Plaintiffs to wrongfully acquire an unfair advantage in this case.'”

“EY Dumping Audit Business Is Bad News for Law Firms” —

  • “News that Big Four accounting firm EY is considering spinning off its global audit business should sound a warning bell to law firms, as the big consultancies continue to encroach on the legal services business, according to industry observers.”
  • “While the development seems aimed at dodging the increasing regulatory scrutiny that audit businesses appear to be facing, it also solves the conflict of interest barriers that EY faces in providing legal services. And there’s speculation that, if EY succeeds in jumping through the substantial hurdles necessary to separate the units, its Big Four peers will follow.”
  • “James Jones, a senior fellow at the Center for the Study of the Legal Profession at Georgetown University Law Center, said accounting firms with audit businesses currently face a genuine constraint in moving seriously to legal because they cannot provide legal services for corporations that they audit.”
  • “But while law firm managing partners may believe that the Big Four will never go head to head with them on litigation or legal advice, Jankowski [director of the Pacesetter Research team at ALM Intelligence] said they are still an existential threat to law firms. Jankowski explained that the Big Four use their legal service offerings as a way to become stickier with their clients.”
  • “‘They approach clients when the client has a key event, such as M&A restructuring, an IPO, change management, or digital transformation projects,’ said Jankowski. ‘Being able to provide the legal services for these events is central to a law firm, but it’s a value add to an accounting or consulting firm.'”
  • “‘If I were a big global law firm, I would view this with a little bit of alarm. I think it’s removing the last major obstacle to these firms providing legal services,’ said Jones, explaining that the definition of ‘legal services’ introduces a gray area. For instance, in some practice areas, like tax, nonlawyers—CPAs, for example—draft documents all the time, and therefore compete with lawyers already.”