Risk Update

Risk Reading — Cuomo/CNN Arbitrator DQ Hail Mary, Chinese Legal Market Risk and Concern

Posted Dan Bressler

“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.”