Risk Update

Risk Report — Vereins Back on the Brain, Judicial Financial Conflict Affirmed But Case Kept Closed

Big Law Operating Model Threatened in Baker McKenzie Mine Case” —

  • “A Swiss structure that lets law firms affiliate to jointly market services is facing a second legal test in less than a year that threatens the viability of the model.”
  • “Baker McKenzie, the first major US law firm to adopt the Swiss verein structure, is accused of legal malpractice through an alleged Russian member of its network. London-based Lehram Capital Investments faults the law firm for its loss in ownership of a Siberian coal mine.”
  • “Baker contends that the Russian law firm that handled the mine matter, Baker & McKenzie-CIS Ltd., was a separate entity. A failure to prove that could have Baker facing tens of millions of dollars or more in damages.”
  • “The case shows that a key selling point of the verein structure—that affiliates are completely separate from one another on matters such as profits, pay and taxes—could be undermined when it comes to the critical matter of legal liability.”
  • “The lawsuit, if pressed successfully, would mark the second legal finding in less than a year that works against the model. The Ohio Supreme Court in August declined to review a $32.3 million malpractice award against Dentons that was tied to the work of one of the firm’s verein affiliates.”
  • “Baker says on its website that ‘the use of the name Baker McKenzie is for description purposes only and does not imply that the member firms are in a partnership or are part of a LLP.'”

Judge’s financial conflict does not require reopening case, 10th Circuit finds” —

  • “A federal judge did violate the law when he failed to recuse himself from a case, but there is no need to reopen the lawsuit or overturn his rulings, the federal appeals court based in Denver decided on Thursday.”
  • “In what appears to be the first ruling of its kind from the U.S. Court of Appeals for the 10th Circuit, a three-judge panel confronted the fallout from a bombshell Wall Street Journal report in September 2021 that found 131 federal judges across the country presided over cases in which they or their family had an undisclosed financial stake in one of the corporate parties to the litigation.”
  • “U.S. District Court Senior Judge R. Brooke Jackson was among them, handling approximately 36 lawsuits against companies such as Home Depot and Facebook, even though Jackson and his wife owned stock in those defendants. Failing to recuse himself, even if Jackson was unaware of the conflict, was a violation of federal law.”
  • “In the wake of the revelations, a small number of litigants sought a review of their cases, which another judge stepped in to address. Although U.S. District Court Senior Judge John L. Kane agreed Jackson should never have handled the cases, he found the error did not affect Jackson’s rulings.”
  • “[U.S. Court of Appeals for the 10th Circuit Senior Judge Mary Beck Briscoe noted] Further exploration of Jackson’s conflict is unnecessary, she added, because Kane acknowledged the conflict existed and still detected no effect on Jackson’s decision-making.”