Lucian Pera writes on: “The Madness of the Lawyer Fee-Sharing Ban” —

• “To begin to test that premise, consider with me this question: Does today’s law on what is, and is not, prohibited as fee-sharing with nonlawyers make sense? Does it consistently protect a lawyer’s professional independence?”
• “I submit that no rational person—note I did not say ‘lawyer’—could believe that the law as it stands today is a sensible and good policy, consistently aimed at protecting the independence of lawyer judgment. I invite you to check my work.”
• “Virtually every state follows reasonably closely the core verbal formulation of ABA Model Rule of Professional Conduct 5.4(a): ‘A lawyer or law firm shall not share legal fees with a nonlawyer,” followed by a series of exceptions, about which more later.'”
• “A legal fee is the $1 that Perry Mason occasionally asked a new client to give him to seal the deal to become their lawyer (and prove their innocence within the hour)… Lawyers are not accountants, but every ethics opinion on this subject takes a much more expansive view of a legal fee. We ethics lawyers uniformly tell lawyers that the fee-sharing ban means that not only can Perry not share that $1 before he hands it to Della, he also cannot share his revenue from his firm, or the profits from his firm, with any nonlawyer.”
• “Knowing now that the ban actually covers fees, revenues and profits, Rule 5.4(a) means we cannot “share” them ‘with a nonlawyer.’ Sounds like we cannot give a nonlawyer a portion or percentage of them. Clearly, Perry can, in fact, pay Paul Drake’s expenses or the rent with money that comes from fees. But many authorities blur this line. Sadly, some aim directly at innovative services that would, in fact, aid in the availability of legal services.”
• “Over the decades, a patchwork of exceptions to the ban have been recognized, many ill-defined. Many seem to have little justification when compared to similar situations where the ban remains strong. See if you can find the common policy thread, tied to lawyer independence, that controls.”
• “Profit-sharing bonuses with employees versus consultants. Nonlawyer employees of lawyers can be paid a share of the firm’s profits, so long as they are not paid a share of fees on individual cases or specific groups of cases. But employees certainly cannot be paid a share of the profits from the cases on which they worked. And there’s no exception at all for consultants to lawyers and law firms, as opposed to employees, even if the consultants are doing the same work as an employee—for example, marketing.”
• “Financing. Someone who advances money for a law firm’s expenses—say, to market or pay the expenses of a new line of work—cannot be paid a fee for that financing based on the profits resulting from that line of work. Unless, of course, the financier is a licensed lawyer, in which case, that’s perfectly fine.”
• “Sharing court-awarded fees. In most states, a lawyer may share court-awarded fees with a nonprofit organization that employed, retained or recommended the lawyer’s employment. But not with a for-profit organization that did the same.”
• “So, do you think that lawyers who engage in conduct prohibited above are less independent in their professional judgment for clients than lawyers controlled by these prohibitions?”
• “First, is the professional judgment of a lawyer who does share fees with a nonlawyer impaired, or somehow less than, the professional judgment of a lawyer who does not? I have never understood that logic, especially in the face of so many other sources of a lawyer’s obligation to maintain the independence of her professional judgment for, and her undivided loyalty to, a client.”
• “Second, even assuming an affirmative answer to the first question, does the current patchwork, inconsistent ban on fee-sharing effectively separate problematic fee-sharing from benign fee-sharing? Clearly not. Are we really worried about percentage leases, or fee-sharing with law firm employees leading to lack of professional independence?”

“Delaware Supreme Court Holds MFW Inapplicable Based on Banker Conflict Disclosure Deficiencies” —

• “The Delaware Supreme Court has reversed a Court of Chancery decision dismissing challenges to the acquisition of Inovalon Holdings, Inc. by a consortium led by Swedish private equity firm Nordic Capital in a decision demonstrating the importance of disclosure of financial advisor conflicts in order to obtain the benefit of business judgment rule review under Kahn v. M&F Worldwide Corp. – the MFW decision.”
• “The Supreme Court held that the majority-of-the-minority stockholder vote approving the transaction was not fully informed, based on inadequate disclosure of conflicts of interest on the part of financial advisors to the special committee of Inovalon’s board.”
• “The Court found that the Inovalon proxy statement failed to adequately disclose conflicts of both financial advisors. It found that language stating that the second advisor “may provide” services to Nordic and its co-investors was misleading given that the advisor was in fact providing such services, creating a concurrent conflict.”
• “In the case of the first advisor, the Court held that disclosure that the bank would receive “customary compensation” in connection with disclosed concurrent representations was insufficient because it kept stockholders from “contextualizing and evaluating” the conflicts. It also found that the proxy statement failed to disclose the first advisor’s fees for prior work for members of Nordic’s equity consortium, which amounted to nearly $400 million in the relevant two-year period.”
• “The Court stated that while ‘there is no hard and fast rule that requires financial advisors to always disclose the specific amount of their fees from a counterparty in a transaction,’ the question is subject to a materiality standard. The Court found that in this case that materiality standard was met, noting that the undisclosed compensation was roughly 25 times the disclosed fees that the first advisor received from Nordic and 10 times the fees that it received in the transaction, thus creating a misleading picture.”
• “Finally, the Court addressed disclosure about the second advisor’s role in the bidder outreach process, which the plaintiffs claimed had been overstated in the proxy. The Court observed that the disclosures about the second advisor’s role ‘do not sit comfortably’ with corresponding accounts in the minutes, and it cautioned boards, committees and their advisors to take care in accurately describing events and roles played by board and committee members and their advisors – but the Court declined to “pile on” another basis for reversal.”

“Research Finds Companies Where Chief Legal Officer is Also Corporate Secretary Experience Fewer Incidents of Shareholder Litigation, Regulatory Violations, and Regulatory Penalties” —

• “The Association of Corporate Counsel (ACC) today announced its selection for the inaugural winner of the Carl Liggio Memorial Paper Competition. The winning submission examines the legal risk implications at companies where the Chief Legal Officer (CLO) is also the Corporate Secretary, showing that the upside impact is significant, especially when combined with an independent board of directors. These companies experience fewer incidents of shareholder litigation, regulatory violations, and regulatory penalties.”

The paper itself: “Independent or Informed? How Combining the Roles of Corporate Secretary and Chief Legal Officer Impacts Legal Risk” —

• “On the other hand, serving in a dual capacity as a corporate secretary and CLO may exacerbate conflicts of interest. This conflict arises because the board is responsible for overseeing the CLO (and the rest of the executive team) but does so based on the information and advice received by the CLO.”
• “This provides the opportunity for the CLO to “gloss over” legal issues (for which she is responsible) and avoid accountability for failing to minimize legal risks.”
• “Furthermore, both roles are demanding. One person who fulfills both capacities will necessarily have less time and attention to devote to any singular role, leading to less effective management of legal risks. We refer to this as the ‘impaired independence’ explanation.”

“Judge should be censured for street brawl, conflict of interest, New York judicial conduct commission says” —

• “A New York judge should be censured for engaging in a street brawl with his neighbors and for participating in matters involving an attorney who was buying the judge’s law practice, according to the New York State Commission on Judicial Conduct.”
• “Grisanti is a judge on the court of claims and is an acting justice for the trial-level supreme court in Erie County, New York.”
• “The street brawl happened in Buffalo, New York, in June 2020, according to findings of fact by the judicial conduct commission. It involved neighbors said to have a history of conflict with others. The confrontation began after the neighbors parked their cars near Grisanti’s driveway. Grisanti called 911 to request that the cars be ticketed or towed if they weren’t moved.”
• “One of the neighbors ripped off Grisanti’s shirt… When Grisanti’s wife resisted handcuffing, an officer brought the 110-pound woman to the ground. Grisanti shoved the officer. A second officer restrained Grisanti with a bear hug. Grisanti warned officers that they should not arrest his wife. He said his son and daughter are police officers, and he was good friends with the mayor of Buffalo. Prosecutors did not file charges against the Grisantis.”

For the conflict issue: “STATE OF NEW YORK COMMISSION ON JUDICIAL CONDUCT” —

• “Charge III alleged that in or about 2016, respondent filed a Financial Disclosure Statement (“FDS”) with the Ethics Commission for the New York State Unified Court System in which he inaccurately reported the income he received from the sale of his law practice in 2015.”
• “On or about May 18, 2015, respondent entered into an agreement to sell his law practice to attorneys Peter J. Pecoraro and Matthew A. Lazroe. The agreement provided for the sale of the “goodwill” of respondent’s law practice for $50,000, with $15,000 down and monthly payments of $730 beginning on July 1, 2015 and extending until the balance was fully paid.”
• “Upon becoming a judge, respondent placed Mr. Pecoraro on his recusal list, but did not include Mr. Lazroe on the list.”
• “From in or about May 2015 through in or about June 2019, in connection with the agreement for the sale of his law practice, respondent received approximately $27,530 from Mr. Lazroe which included monthly installments during that period. The final installment of $365 was paid in June 2019.”
• “Respondent took judicial action in five cases involving Mr. Lazroe while Mr. Lazroe and respondent were engaged in an ongoing financial relationship.”