Risk Update

Risk Rules & Reading — Ex-Client Breach-of-Duty Conflict Appeal, Mediator Conflicts Modifications, Australian AML Advances

Posted Dan Bressler

“New rules for court-appointed and certified mediators” —

  • “The Supreme Court [of Florida], acting September 12 on the recommendations of its Committee on Alternative Dispute Resolution Rules & Policy, has approved a series of revisions to rules that govern court-appointed and certified mediators.”
  • “Amendments to Rule 10.340 (Conflicts of Interest) add a provision to subdivision (b) (Burden of Disclosure) that ‘requires potential conflicts of interest to be disclosed in a way that lets parties exercise their self-determination rights.'”
  • “A new subdivision (d)(Conflict of Interest) is added to explain circumstances that constitute clear conflicts of interest, and language clarifying restrictions is added to relettered subdivision (e) (Conflict During Mediation). A new subdivision (g) (Social Networking) is added ‘to explain how social media and social networks can impact conflict of interest determinations. Finally, a new committee note is added to explain changes to rule 10.340,’ the ruling states.”
  • “‘Notably, in the proposal we published for comment, subdivision (b)(7) included the phrase ‘clear conflict of interest,’ but the Committee revised its proposal to delete the word ‘clear’ in consideration of the comments received by the Court,’ the order states. ‘The amendment that we adopt omits the word ‘clear’ from the language of subdivision (b)(7).'”

“Foley & Lardner Must Face Ex-Clients’ Breach-Of-Duty Action” —

  • “A Texas appellate court has reversed a decision that let Foley & Lardner LLP escape a suit filed by two partners in an oil and gas venture who allege that the firm failed to disclose conflicts of interest and misused their confidential information after representing them in several matters.”
  • “In a memorandum opinion Tuesday, a three-judge panel of the First Court of Appeals ruled that a lower court erred when it dismissed Stephen Dernick and David Dernick’s suit, which had alleged breaches of fiduciary duty against Foley & Lardner, formerly Gardere Wynne Sewell LLP, and three attorneys. The Dernicks, who are brothers, are former Gardere clients, according to court filings.”
  • “In their action, the Dernicks allege breach of fiduciary duty and other claims against Foley & Lardner and three attorneys who represented them in several matters, accusing the firm of failing to disclose conflicts of interest, placing the interests of other clients over their interests, and ‘improperly using the Dernicks’ confidences and confidential information,’ according to the decision.”
  • “Among conflicts of interest asserted was the firm’s representation of Dernick Encore LLC, an oil and gas company that was formed by the Dernicks in 2010, in a Chapter 11 petition filed by the Dernicks after a dispute with a lender, the opinion said.”
  • “The Dernicks contend that Foley & Lardner had a conflict because it engaged in actions adverse to their interests in the bankruptcy petition, including filing an adversary proceeding against its former clients that accused them of fraud and other claims, according to the opinion.”
  • “Although the adversary proceeding and other disputes between the parties were resolved under a global settlement, the Dernicks filed their action against Foley & Lardner asserting breach of fiduciary duties they say they were owed because of the firm’s previous representation of them, according to the appellate panel’s ruling.”
  • “Foley ‘represented Encore and other clients in claims that were substantially related to [Foley’s] representation of the Dernicks,’ the opinion said of allegations in the Dernicks’ 2021 suit. The firm ‘did so without adequately disclosing the conflict of interest to the Dernicks or obtaining their consent to engage in the joint representation.'”
  • “‘We agree with the Dernicks that the TCPA is not implicated because their legal action is not based on or in response to appellees’ communications in the adverse proceedings, but rather their alleged actions and conduct in representing Encore adverse to the Dernicks — Foley’s alleged former clients — without disclosing such representation or seeking their prior consent, and also based on appellees’ alleged improper use of the Dernicks’ confidential information,’ Justice Veronica Rivas-Molloy wrote for the panel.”

“AML/CTF Amendment Bill: Implications for new and existing reporting entities” —

  • “This has been one of the most impactful periods for legal and regulatory change in Australia for some time. Yesterday a bill was introduced to Parliament amending Australia’s anti-money laundering and counter-terrorism financing (hashtag#AML/CTF) laws to include lawyers, accountants and real estate professionals, among other sectors. Additionally, today changes to Australia’s hashtag#Privacy Act have been introduced. Such changes will have significant impact on many regulated entities.”
  • “Oversight and Governance: Governing bodies (e.g. Boards and senior management) will be required to take reasonable steps to ensure the business is appropriately identifying, assessing, managing and mitigating money laundering and terrorism financing (ML/TF) risks.”
  • “Risk Assessment: The existing requirement will be clarified to expressly require reporting to undertake and update ML/TF risk assessments.”
  • “Customer Due Diligence (hashtag#CDD): There will be substantially redesigned obligations for initial customer due diligence (before designated services are provided) as well as for ongoing due diligence during the course of a business relationship.”
  • “Reporting Group: The current concept of a ‘designated business group’ will be replaced with a ‘reporting group’ concept, imposing obligations and expanded liability on the ‘lead entity’ of a reporting group.”