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Wasted on the Way

“[Crosby and I]  were in love with each other and in possession of something magical.”  Graham Nash, 1990.

“I don’t want anything to do with Crosby at all . . .  I’m done.  F**k you.”   Graham Nash, March 2016.

I could tolerate last year’s war of words between David Crosby and Neil Young.  And sure, there has always been tension with that hothead (but genius) Stills.  But for Crosby Stills & Nash fans, a  Crosby/Nash rift is a surprising and devastating turn of events.   After 47 years together, having weathered drug addictions, prison stints and liver transplants, I, for one, was unprepared for the split.  So much for “Love the One You’re With.”

Lawyers can’t afford to be caught off guard when their clients break with one another.  Whether it’s a husband and wife,  business partners, or a corporation and its employee, we are often asked to represent multiple clients in a single matter.  At the outset of the representation, everyone is seemingly on the same page and happy.  As the matter evolves though, interests can diverge and once agreeable clients can descend into the darkness while the seemingly helpless lawyer watches.

So what do you do when one client wants copies of your communications with the other?  Or when one client stops paying?  Or when one wants you to fire the other and continue to represent him or her?   You don’t have to cry; these questions can be really easy to answer — if you have a fully executed engagement letter with appropriate disclosures and consents.  Specifically:

Everybody I Love You: Have the clients confirm that their interests are aligned.

50/50: Be clear on the responsibility for payment of fees.  Are they split evenly or is one paying for all?

Yours and Mine: Explain the disadvantages of joint representation, including that there is no privilege as between or among joint clients.  In other words, if we learn something from one client that we think the other needs to know, we will disclose the information to the other.

See The Changes: Be clear on what happens if a conflict develops.  Are we going to withdraw from the representation?  Or will we withdraw from representing one (e.g., a corporate officer), but continue representing the other (e.g., the company)?

Turn Back the Pages: Make sure the letter is executed by each of the clients.

This way, if and when your clients go CSN on you, you’ll be able to carry on.

And, for what it’s worth, anytime CSN are ready to get back together,  they can count me in.

crosby

5000% More

MSThere is one thing that unites Democratic and Republic presidential candidates these days:  a dislike of Martin Shkreli.

Shkreli is the “Pharma Bro” CEO whose company increased the price of one of its products from $13.50 to $750, a 5000% increase that caused the kind of internet outrage previously reserved for American dentists who kill large game in Africa without a license.  Hillary Clinton tweeted that Shkreli’s “price gouging … is outrageous.”  Donald Trump called him a “spoiled brat” who “ought to be ashamed of himself.”

Shkreli engendered another round of internet ire last week after it was revealed he paid $2 million for the only copy of an album by the Wu-Tang Clan, then told media that he had no plans to listen to it.

Yesterday, Shkreli was arrested on securities fraud charges.  One internet commenter pointed out a valuable Risk Tip:  “This investigation must have been going for a while and Shkreli must have known about it. So at some point he decided the best way to help his image before trial was … alienating every single human being in the country.”

But, Shkreli was not indicted alone.  Criminal charges also were brought against a well respected corporate lawyer.

The indictment asserts that Shkreli and the lawyer schemed to engineer a series of fraudulent transactions to disguise the financial health of Shkreli’s enterprises.  Among other things, the indictment alleges that they, in an effort to deceive company auditors, concocted several phony “consulting agreements” with individuals who had asserted claims asserted against Shkreli and his hedge fund, which were funded by assets of a company not responsible for those claims.

The indictment uses the email exchange between lawyer and client to paint an unflattering picture:

When SHKRELI suggested that the old agreements should be annulled, [the lawyer] responded that the auditor “didn’t like that idea.” When SHKRELI then admitted that “there were serious faults with the [settlement] agreements including lack of board approval” and that redoing the settlement agreements may be a good idea, [the lawyer] responded:  “That will open up some very big issues. The current thinking is let rtrx pay, get a note from the fund[,] and if the fund cant [sic] fulfill the note[,] rtrx will write it off as a bad debt. It would be easier than the road you are referring to. Also, [the auditor] would get very spooked with what you are talking about (which could also spook your investors and counter parties).” In response, SHKRELI stated, “[o]n current thinking: that works for me.”

Later, the indictment alleges:

Initially, [the lawyer] sent an email to SHKRELI informing him that Investor 1 wanted 100,000 RTRX shares as part of his settlement and did not want to enter into a consulting agreement. When SHKRELI indicated that the proposal was acceptable to him, [the lawyer] stated, “Where will the 100k come from? If it’s from the company it would need to be in a consulting agreement.” SHKRELI questioned [the lawyer’s] approach and stated, “Why would it need to be a consulting agreement???! Have you heard of the term settlement?” In response, [the lawyer] explained, “We can call it a settlement agreement, but given [the auditor’s] recent behavior they may require it to be disclosed in the financials. I was trying to prevent that issue.”

Of course, these are only allegations, and the defendants are presumed innocent unless and until proven guilty.

The arrest of Martin Shkreli will likely find its place on anyone’s year-end top-10 internet-villain schadenfreude list, and it may be one of those rare times where there is more sympathy for the attorney.  If there’s truth to the indictment, it serves to further underscore the principle that the Risk Tip has been talking about for years:  the greatest risk of claims against lawyers arise in matters where the lawyer represents a bad client.

Lastly, we will end with an ethical take-home test:  Model Rule 1.5 prohibits a lawyer from charging an “unreasonable” fee.  Would it be ethical for a lawyer to increase his or her rates by 5000% before agreeing to defend Shkreli?

Scriveners

I remember being unimpressed when I read Herman Melville’s Bartleby, the Scrivener as a high school sophomore.  I didn’t particularly care whether Bartleby was supposed to be the personification of free will or whether the book represented Melville’s critique of lawyers.  As far as I was concerned, it was a boring story of a lazy guy who “would prefer not to” do any work (not unlike my teenage self).  Even the 2001 movie adaptation (which I don’t think anyone actually saw) is annoying.

That said, I do find this respected commenter’s take on the scrivener’s story to be quite compelling:

A New Jersey appellate court recently added its own view of a scrivener’s role in a malpractice case against the Fox Rothschild law firm.  The central issue was whether the lawyer was negligent for failing to advise his client on the impact of an unambiguous contract provision.  The lawyer contended that his role was that of a “scrivener” and that he was responsible only to ensure that the agreement reflected the terms negotiated by his sophisticated client.   The appellate court reversed the grant of summary judgment in favor of the lawyer, finding that the lawyer owed a duty of care to his client — scrivener or not — and that it was up to a jury to decide whether that duty was breached.  The court cited a number of factual issues raised by the parties and noted, in particular, the absence of an engagement letter or other writing delineating the lawyer’s role.

Clients sometimes come to lawyers already having negotiated deal terms and ask that the lawyers just paper the deal.  Litigators likewise are sometimes asked to play a limited role or defer to co-counsel.  That’s all well and good, but the Fox Rothschild case teaches us to be clear at the outset, in writing, as to the limits of your role.  So if your role as a lawyer is circumscribed, then scriven that confirmatory email or letter to the client so that everyone is clear on the limited scope of the representation.  I think I speak for everyone, scriveners included, when I state that that I would prefer not to face a legal malpractice claim for a role that I did not undertake.

Doubling Down

I’m not much of a gambler.  Sure, I enjoy a game or two at the blackjack table, but beyond hitting or sticking, I don’t really know when I should split or when I should double down.

I do know that doubling down can be a risky move for lawyers.  Although we are obligated to zealously advocate for our clients, the ethics rules don’t allow us to assert claims or arguments without a good faith basis in fact or law.  Lawyers can sometimes lose sight of this, particularly if they learn after the fact that a position they have asserted lacks a good faith basis.

A number of firms recently learned the hard way that doubling down can have serious consequences.   An appellate court reinstated a $39 million malicious prosecution case against Latham & Watkins stemming from a trade secrets case it brought against two former employees of its client.  After the employees purportedly  demonstrated that they had created the business plan at issue prior to joining Latham’s client, instead of withdrawing the claims, Latham double downed and created new claims against the former employees.  The case was dismissed, with the court finding that the new claims lacked a good faith basis, setting the stage for the malicious prosecution claim.

Sure, we all want to win; but where the facts or law provide no good faith basis for asserting (or continuing to assert) a claim, don’t double down.   Otherwise, you may lose a lot more than your case.

When should you double down?  I’m tellin’ you, baby, you always double down on eleven.

 

 

Oh, Canada!

While much of the country has been stricken with FIFA fever, those of us not following the World Cup — or Luis Suarez’s eating habits — may be more interested in Lebron James’s decision to opt out of his contract with the Miami Heat in advance of the July 1 deadline. While that does not necessarily mean he will be leaving Miami, there is plenty of speculation and lobbying about where he might end up next season. Certainly, Don Draper makes a compelling pitch for King James to return to Cleveland.

Lawyers may want to turn their attention to another important deadline on July 1. Starting on that date, all commercial electronic messages (CEMs) sent from a computer in Canada or to an electronic address in Canada are regulated by legislation commonly known as Canada’s Anti-Spam Legislation (CASL). Unless an exception applies, the CASL provides that anyone — including a US-based lawyer — who sends a CEM to a recipient in Canada must have the recipient’s express, verifiable consent before sending the message and the message must comply with form and content requirements.

So what is a CEM? Any electronic communication that promotes, offers or advertises services; solicits business; refers business or investment opportunities; and any other similar message that encourages participation in commercial activity, is subject to the CASL. Wht is not a CEM? Emails sent to current clients about their business; a firm’s internal communications about it business; legally required notices; or responses to requests, inquiries or complaints.

Those doing business, or wanting to do business, with friends up north, would be well advised to comply with the CASL. But to be clear, unlike Lebron, the CASL requires an affirmative opt-in. So before you email anyone in Canada after July 1, make sure they have consented.

And for those of you who still prefer World Cup, I am told that the US lost … and advanced. I think I’ll stick with basketball.

Win Some, Lose Some

It’s been a roller coaster week for Washington Redskins owner Daniel Snyder. The US PTO disallowed the Washington Redskins trademark as offensive, threatening millions of dollars the team makes from merchandise and sponsorships.

On the upside, an appellate court upheld a $17 million legal malpractice judgment in favor of Red Zone LLC, another one of Snyder’s companies, against a New York law firm. While the court found that the firm was negligent in drafting an agreement, what interested me most was that the malpractice had occurred outside of the statute of limitations. Because the firm continued to advise Red Zone, however, the court concluded that “the continuous representation doctrine applies to toll the statute of limitations on plaintiff’s legal malpractice claim.”

Avoiding a malpractice claim is certainly one reason to formally disengage once a matter is concluded. As we enumerated in an other recent Risk Tip, there are numerous other reasons to consciously uncouple.

As to Red Zone, I have no idea what it does, but it sure sounds cool on the guitar.

Getting Engaged

For couples, the path to getting engaged is pretty clear.  After the traditional courting period, the question is popped, the answer is (hopefully) yes… and usually a ring is given.  There’s not a lot of confusion about whether the happy couple is or is not engaged (unless, of course, you happen to have seen the season finale of The Big Bang Theory). 

For lawyers and clients, the path is equally clear, albeit with less jewelry.  After the traditional courting period, the question is popped, the answer is (hopefully) yes … and the lawyer sends out an engagement letter.  That’s right, an engagement letter.  Because unlike our newlyweds to be, there CAN be confusion — about the identity of the client, the scope of the representation, the financial terms, and whether any waiver is needed (among many others). 

By ensuring at the outset that you have an engagement letter that accurately reflects the terms of the representation, you ensure that your and your client’s expectations are aligned.  And you also avoid the possible consequences that can arise in the absence of such a letter, including billing disputes, forfeiture of fees, and disqualification (among many others).    

Trust us, the first step to a long and fruitful relationship is having a clear engagement letter.  That and not inviting Sheldon Cooper to the bachelor party.

Foreign Courts and Foreign Cars

I just returned from an overseas family vacation where I boldly decided to tour the countryside in a rental car.  I confess to having been a bit unprepared for the challenges of driving in a foreign country.  For example, I was embarrassed to discover that the sign that read “60” was a reference to the speed limit, not Route 60, the road on which I was supposed to have been driving.  That set me back a good half-hour.  And while I tend to rely on Siri for directions, she doesn’t do foreign languages well (her “turn left on Rehov Mendele Mocher Sefarim” was not helpful).  Perhaps most jarring, who knew that the protocol for informing a driver that he is in the wrong lane is to get out of one’s car, scream bloody murder, bang on the offender’s (my) window with both fists, and repeatedly kick the side of the car?  My driving experience bore greater resemblance to the chase scene from Bullitt than a relaxing ride in the Family Truckster.

As hard as it is to drive in a foreign country, protecting client confidences when dealing with someone in a foreign country can be an even greater challenge.  Varying legal cultures (most countries don’t have broad discovery mechanisms like we do) and different regulatory regimes (many countries have different categories of “legal professionals”) lead to a hodgepodge of rules around the globe.  (In China, for example, while there is a duty of confidentiality for “private information,” that duty may be trumped by a lawyer’s oath “to be faithful to the motherland and the people [and] to uphold the leadership of the Chinese Communist Party and the socialist system.”) 

Although we in the US take for granted that a communication between an attorney and his or her client will be protected from disclosure, a communication that might be recognized as privileged in a US court, might not enjoy the same protection in a foreign tribunal.   By the same token, where alleged privileged communications took place in a foreign country or involved foreign attorneys or proceedings, US courts won’t necessarily recognize a privilege; they may defer to the law of the country that has the “predominant” or “most direct and compelling interest.”  Astra Aktiebolag v. Andrx Pharmaceuticals, Inc., 208 F.R.D. 92, 98 (S.D.N.Y. 2002).

Akzo Nobel Chemicals Ltd v. European Commission, Case C-550/07-P (September 14, 2010), is required reading for anyone advising a client in the EU.  In that case, the European Court of Justice determined that a company is entitled to confidentiality protection only with respect to communications emanating from “independent lawyers.”  The court further found that in-house counsel did not qualify as “independent lawyers”; thus, in-house counsel’s communications with employees were not subject to protection.  Akzo (and other EU decisions) can have serious consequences for US lawyers.  Since US attorney-client privilege is based on assumption that client has a reasonable expectation of confidentiality, litigants may argue that US companies have no reasonable expectation of confidentiality in communications to and from in-house counsel shared with company personnel in Europe.   Akzo also left open the question of whether communications with non-EU regulated attorneys (i.e., US admitted attorneys) would be protected in EU proceedings. 

Cross-border representations, like driving, can be fraught with peril.  Before doing either, make sure you familiarize yourself with local laws and procedures.

“There’s nothing more thrilling than nailing an insurance company” . . .

. . . is a line from John Grisham’s “The Rainmaker.”  We at The Risk Tip love non-movie-villian insurance companies, so this is not a view we could possibly endorse in real life. 

But, we were reminded of the quote when we read that well known, high quality law firm has been sued for $500,000 by a former client alleging that the firm failed to nail (or at least mail) the client’s own insurance company.  Specifically, the malpractice claim arises out of an underlying case in which the firm’s client was sued by a competitor for defamation, illegal competition, and contractual interference.  The firm appears to have defended the case well enough, but it allegedly failed to advise the client to check for insurance coverage or notify its insurers.  The client ultimately did notify its insurers mid-way through the litigation, and the insurers agreed to pay some defense costs, but not those of the firm prior to the notice.  The client then sued their lawyers for the unreimbursed costs.

Who knows how the case will come out, but the firm would be well served if it had addressed the insurance issues in its engagement letter.  For example, the firm might have expressly carved out insurance coverage advice from the scope of its representation.  Alternatively, the firm would be in a good position if it had in its form of engagement agreement a statement providing:

You should carefully check for any insurance policies that might relate to the work we do for you, and notify your insurers promptly to protect your rights. Unless you tell us about these policies and provide us with copies, we cannot be responsible for advising you about the existence or applicability of insurance coverage.

If it did so, the malpractice case should lack the twists and turns of a Grisham novel.

Returning to John Grisham’s “The Rainmaker” (or is it “John Grisham’s The Rainmaker”?), the film earned mixed, some less than admirable, reviews.  Further, one could hold an ethics seminar on the more egregious violations of the rules of professional conduct by many of the attorneys in the movie.  That said, there’s some quality scenery chewing by Mickey Rourke and Jon Voight, and we would watch the late, great Roy Scheider in anything (well, most anything).  Lastly, for those who are wondering what Mr. Grisham’s next novel may bring, you might enjoy this short story from a recent collection by B.J. Novak.

Olympics 2014

Like all Olympics, Sochi has had its share of memorable, and controversial, moments:  the yogurt flap;  Russia’s disallowed goal leading to a US hockey victory;  Adelina Sotnikova’s upset figure skating win; the fact that it’s warmer in Sochi than in Florida.  Even the sports themselves are controversial; according to my 11 year-old son, if sledding is an Olympic sport, why not award medals for best snowman?  And my eighth-grader has figured out how to make varsity in her freshman year of high school — start a curling team.

Even if you haven’t been following the Olympics, you likely are aware of the controversy surrounding NBC reporter Christin Cooper’s interview of US medal winner Bode Miller.  Cooper was criticized for pushing things a bit too far in her questions about the death last year of Miller’s brother.  Even after Miller teared up, Cooper kept going; by the end, Miller was sobbing, crouched in a ball.

While Cooper was under no obligation to stop her questioning, she might have been well-advised to withdraw sooner (though Miller apparently has no hard feelings).  It’s an issue that lawyers face as well.  While lawyers of course owe a duty of loyalty to their clients, there are some circumstances where withdrawing from a matter is the wisest, or even only, course.

Failing to withdraw can have some pretty serious consequences — a claim against the lawyer and the firm; unpaid fees; even discipline.  So when should you be thinking about withdrawing from a representation? Here are some red flags to look for:

*Client’s A/R is growing and, despite promises to pay, nothing has come in.
*Client ignores your advice and insists on pursuing a course that you believe is unwise.
*Client is repeatedly complaining about the bills, your work, and everything else.
*Joint clients disagree on a course of action or have otherwise are otherwise in dispute.
*Client is engaging in activity that we think may be questionable.

While no one wants to let a client go, in the long run, you may be very happy you did.  And while those reporting on the Olympics don’t face quite the same issues, they may be well-advised to follow the example of Patrick Warburton in his interview of luge hopeful James Gilbert.