and Vereins: Navigating Fee-Splitting, Referral, Conflicts and Other - - PowerPoint PPT Presentation

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Presenting a live 90-minute webinar with interactive Q&A

Legal Ethics in the Era of Law Firm Mergers and Vereins: Navigating Fee-Splitting, Referral, Conflicts and Other Ethical Issues

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific THURSDAY, DECEMBER 3, 2015

Peter R. Jarvis, Partner, Holland & Knight, Portland, Ore. Janis M. Meyer, Partner, Hinshaw & Culbertson, New York

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Legal Ethics in the Era of Law Firm Mergers and Vereins: Navigating Fee-Splitting, Referral, Conflicts and Other Ethical Issues

By: Peter R. Jarvis, Peter.Jarvis@hklaw.com Janis M. Meyer, jmeyer@hinshawlaw.com

We will discuss . . .

• Swiss vereins and other multinational law firm structures.
• Advertising and solicitation issues.
• Referral fee and fee split issues.
• Jurisdictional and liability issues.
• Conflict of interest issues.
• Within reason, whatever else you ask us about.

CAVEATS: We will focus on ABA Model Rules and

• pinions.

Jurisdictional rules and opinions may vary. Much is unknown.

6

Background

• Last ten years have seen a frenzy of law firm

merger activity

• Many of these mergers/combinations result in one
• r more mega-partnerships.
• Increased use of a vehicle called a "verein."

7

According to Wikipedia . . .

A Swiss association ("Verein" in German, "association" in French, "associazione" in Italian) is a legal structure in Swiss law, defined in the civil code ***. It must be registered if it "conducts a commercial operation". *** As the establishment of an association involves only little paperwork and no registration or fees, it is an important legal form in Switzerland and often used by groups such as sport and social clubs. ***

8

Wikipedia (cont'd)

• The association can also be used as a legal form for

a business organization consisting of a number of independent offices, each of which has limited liability vis-à-vis the others. The form is often used by multinational professional firms to limit their global accountability. One advantage to the Verein structure is that because control of the firm is decentralized, offices are only bound by regulators in their country. For instance, non-US offices of accounting firms in a Verein structure are not bound by Securities and Exchange Commission subpoenas from the United States

9

Also According to Wikipedia . . .

*** Since 2009, Swiss vereins have been used in several mergers of large multinational law

firms, as they allow regional profit pools and their related tax, accounting and partner compensation systems to remain separate while allowing strategy, branding, information technology and other core functions to be shared between the constituent partnerships.[4] The main disadvantage of the verein structure is that profits cannot be shared between constituent partnerships, which removes incentives for partners to share clients and work between the member partnerships. Most law firms as vereins overcome this problem by sharing costs in return for work referrals, which allows for the indirect sharing of profits. Vereins are usually consolidated as single firms in law firm revenue and headcount rankings such as The American Lawyer's "AmLaw 100," while international referral networks such as Lex Mundi and informal "best friends" alliances are usually not consolidated for this purpose. However, some law firm vereins such as DLA Piper have minimal financial integration and primarily serve as referral relationships.

10

Also According to Wikipedia..

• Vereins in the legal industry also face peculiar ethical issues. The

cost-sharing between verein members often has the economic effect of splitting fees between member firms in cases where work is referred between them, even though revenue-sharing between such member firms is often prohibited (this restriction being one of the major considerations underlying the verein structure). The details of cost sharing are not always clearly disclosed to clients and may result in higher fees than what would be charged outside of the verein relationship.[6] Vereins can also give rise to conflicts of interest: for example, the US arm of Dentons advised a plaintiff suing Gap Inc., a longstanding client of the Canadian arm, which a US administrative court found created a conflict despite the fact that the two arms were operationally separate.

11

And Finally, . . .

As of 2014, there are seven major law firms structured as Swiss vereins, each averaging 3,100 attorneys and 46 offices in 33 countries *** : Baker & McKenzie (numerous national partnerships) Dentons (Canadian, Chinese, European, UK and US partnerships) DLA Piper (US and international partnerships) Hogan Lovells (US and international partnerships) King & Wood Mallesons (Australian, Chinese, Hong Kong and European partnerships) Norton Rose Fulbright (US and international partnerships) Squire Patton Boggs (US, UK and Australian partnerships) (https://en.Wikipedia.org/wiki/Swiss_Verein (footnotes omitted; last accessed November 11, 2015.) Note: Littler Mendelson is also a Verein (US and Latin American partnerships) (www.littler.com)

12

Alternatives to Swiss Vereins

• Affiliations (e.g., Lex Mundi).
• Single entity megafirm.
• Parent-subsidiary or brother-sister with or without

total common ownership.

13

Threshold Question

• Is a Verein one firm?
• For advertising?
• For fee-splitting?
• For referrals?
• For conflicts?

14

Some Descriptions

• "Norton Rose Fulbright is a global law firm. … more than 3800 lawyers

and other legal staff based in more than 50 cities across Europe, the United States, Canada, Latin American, Asia, Australia, Africa, the Middle East and Central Asia." (www.nortonrosefulbright.com/aboutus; last accessed November 27, 2015)

• "… we have the depth and breadth of lawyers you need through our

more than 60 U.S. and global offices and our strong relationships with lawyers worldwide." (www.littler.com/about; last accessed November 27, 2015)

• "DLA Piper is a global law firm with lawyers in the Americas, Asia Pacific,

Europe, Africa and the Middle East, positioning us to help companies with their legal needs throughout the world." (www.dlapiper.com/aboutus; last accessed November 27, 2015)

15

Advertising and Solicitation Issues

• ABA Model Rule 7.1:

A lawyer shall not make a false or misleading communication about the lawyer or the lawyer's

• services. A communication is false or misleading if it

contains a material misrepresentation of fact or law,

• r omits a fact necessary to make the statement

considered as a whole not materially misleading.

• ABA Model Rule 7.3(a):

A lawyer shall not by in-person, live telephone or real- time electronic contact solicit professional employment when a significant motive for the lawyer's doing so is the lawyer's pecuniary gain, unless: ***.

16

Questions

• In the large multinational firm context and with a

multinational firm’s client base what is or might be misleading to either multinational or local clients of a firm?

For example, is it misleading to say that the "firm" can

• ffer services in multiple jurisdictions when in reality it is

multiple firms? Is it misleading to refer to partners of other firms in the Verein as one's "partners"? Whose client is it?

17

Questions – cont'd

• If US rules prohibit solicitation but foreign rules

allow it, how should or might the line be drawn and are there any lawyer regulators who would draw the line in such a way?

• Note: This may be more of an issue on the back

end when a firm tries to argue for limited liability or exposure to subpoenas

18

Fee Splits

• ABA Model Rule 1.0(c) provides:

"Firm" or "law firm" denotes a lawyer or lawyers in a law partnership, professional corporation, sole proprietorship or other association authorized to practice law ***.

• ABA Model Rule 1.5(e) provides:

A division of a fee between lawyers who are not in the same firm may be made only if: (1) the division is in proportion to the services performed by each lawyer or each lawyer assumes joint responsibility for the representation; (2) the client agrees to the arrangement, including the share each lawyer will receive, and the agreement is confirmed in writing; and (3) the total fee is reasonable.

19

Questions

• Is a Swiss Verein, or other alternative, a single

“firm” for US fee-split purposes?

• If not, to what do the clients need to agree?
• If Swiss Vereins cannot legally share profits, can

they share either revenues or costs?

• If not, what can they do?
• If they follow Rule 1.5 (e), are they defeating one of

the purposes of the Verein structure, i.e, avoiding joint liability?

20

Jurisdictional and Liability Issues

• Most claims are presumably less than policy limits,

but . . . .

• Some may not be.
• Some (especially foreign) jurisdictions allow

limitation of liability provisions.

• Veil-piercing theories are possible.
• Who has jurisdiction and for what?

21

Concurrent Client Conflicts: ABA Model Rule 1.7

(a) Except as provided in paragraph (b), a lawyer shall not represent a client if the representation involves a concurrent conflict of interest. A concurrent conflict

• f interest exists if:

(1) the representation of one client will be directly adverse to another client; or (2) there is a significant risk that the representation

• f one or more clients will be materially limited by

the lawyer's responsibilities to another client, a former client or a third person or by a personal interest of the lawyer.

22

Model Rule 1.7 (cont'd)

(b) Notwithstanding the existence of a concurrent conflict of interest under paragraph (a), a lawyer may represent a client if: (1) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client; *** (3) the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal; and (4) each affected client gives informed consent, confirmed in writing

23

Former Client Conflicts: ABA Model Rule 1.9

(a) A lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or a substantially related matter in which that person's interests are materially adverse to the interests of the former client unless the former client gives informed consent, confirmed in writing. (b) A lawyer shall not knowingly represent a person in the same or a substantially related matter in which a firm with which the lawyer formerly was associated had previously represented a client (1) whose interests are materially adverse to that person; and (2) about whom the lawyer had acquired information protected by Rules 1.6 and 1.9(c) that is material to the matter; unless the former client gives informed consent, confirmed in writing.

24

Model Rule 1.9 (cont'd)

c) A lawyer who has formerly represented a client in a matter or whose present or former firm has formerly represented a client in a matter shall not thereafter: (1) use information relating to the representation to the disadvantage of the former client except as these Rules would permit or require with respect to a client,

• r when the information has become generally known;
• r

(2) reveal information relating to the representation except as these Rules would permit or require with respect to a client.

25

Informed Consent

• ABA Model Rule 1.0(e):

"Informed consent" denotes the agreement by a person to a proposed course of conduct after the lawyer has communicated adequate information and explanation about the material risks of and reasonably available alternatives to the proposed course of conduct.

• ABA Model Rule 1.0(n):

"Writing" or "written" denotes a tangible or electronic record of a communication or representation, including *** electronic communications. A "signed" writing includes an electronic sound, symbol or process attached to or logically associated with a writing and executed or adopted by a person with the intent to sign the writing.

26

Firm-Wide Attribution and Screening: ABA Model Rule 1.10(a)

While lawyers are associated in a firm, none of them shall knowingly represent a client when any one of them practicing alone would be prohibited from doing so by Rules 1.7 or 1.9, unless: (1) the prohibition is based on a personal interest

• f the disqualified lawyer and does not present a

significant risk

• f

materially limiting the representation of the client by the remaining lawyers in the firm; or

27

Model Rule 1.10 (cont'd)

(2) the prohibition is based upon Rule 1.9(a) or (b) and arises out of the disqualified lawyer’s association with a prior firm, and (i) the disqualified lawyer is timely screened from any participation in the matter and is apportioned no part of the fee therefrom; (ii) written notice is promptly given to any affected former client to enable the former client to ascertain compliance with the provisions

• f this Rule, which shall include a description of the screening

procedures employed; a statement of the firm's and of the screened lawyer's compliance with these Rules; a statement that review may be available before a tribunal; and an agreement by the firm to respond promptly to any written inquiries or objections by the former client about the screening procedures; and (iii) certifications of compliance with these Rules and with the screening procedures are provided to the former client by the screened lawyer and by a partner of the firm, at reasonable intervals upon the former client's written request and upon termination of the screening procedures.

28

Choice of Ethics Law: ABA Model Rule 8.5

(a) Disciplinary Authority. A lawyer admitted to practice in this jurisdiction is subject to the disciplinary authority of this jurisdiction, regardless

• f where the lawyer's conduct occurs. A lawyer not

admitted in this jurisdiction is also subject to the disciplinary authority of this jurisdiction if the lawyer provides or offers to provide any legal services in this

• jurisdiction. A lawyer may be subject to the

disciplinary authority of both this jurisdiction and another jurisdiction for the same conduct.

29

Model Rule 8.5 (cont'd)

(b) Choice of Law. In any exercise of the disciplinary authority

• f this jurisdiction, the rules of professional conduct to be

applied shall be as follows: (1) for conduct in connection with a matter pending before a tribunal, the rules of the jurisdiction in which the tribunal sits, unless the rules of the tribunal provide otherwise; and (2) for any other conduct, the rules of the jurisdiction in which the lawyer’s conduct occurred, or, if the predominant effect of the conduct is in a different jurisdiction, the rules

• f that jurisdiction shall be applied to the conduct. A lawyer

shall not be subject to discipline if the lawyer’s conduct conforms to the rules of a jurisdiction in which the lawyer reasonably believes the predominant effect of the lawyer’s conduct will occur.

30

A Few Others

• ABA Model Rule 1.0(c): "Firm" or ""law firm" denotes a

lawyer or lawyers in a law partnership, professional corporation, sole proprietorship or other association authorized to practice law.

• Comment 2: If [two practitioners] present themselves to

the public in a way that suggests that they are a firm or conduct themselves as a firm, they should be regarded as a firm for purposes of the Rules.

31

A Few Others (cont'd)

• ABA Comm. on Ethics & Prof'l Responsibility,

Formal Op. 94-388

• Analyzing how close relationship between/among

network of firms must be for conflict rules to be implicated

• Continuum: no relationship to full partnership.

32

In In re Proje ject Orange, 431 BR 363 (SDNY 2010)

• Debtor sought to retain DLA Piper LLP(US) ("DLA

Piper") as counsel in ch. 11 proceeding pursuant to section 327(a) of bankruptcy code.

• US Trustee objected on ground that DLA Piper

represented the debtor's largest creditor GE

• DLA Piper said "No. We represent GE entities but

the relevant one here is GE International and it is represented by a DLA Piper International member in Norway."

33

Project Orange (cont'd)

• The court considered the argument but said that, in

this case, DLA Piper's position was completely undermined by their actions: DLA Piper US sought the waiver from GE International even though it was a client of the partnership in Norway and sent the request care of the GE entity it represented.

• Court: it does not need to consider "whether

different conflicts rules might apply in some circumstances where international law firms share a relationship through a Swiss verein." But

34

Project Orange (cont'd)

• "DLA Piper holds itself out to the world as one firm,

although it now tries to separate itself into separate firms for certain conflicts purposes. Followed to its logical conclusion, this would lead to the anomalous result that DLA Piper, on behalf of one client, could be adverse to DLA Piper International,

• n behalf of one of its clients, without violating

ethical standards."

• Bottom line: Need to have a coherent message

internally and externally concerning relationships.

35

In In re Cert rtain in Lase Laser Abraded De Denim Gar Garments, In

• Inv. No.
• . 33

337-TA TA- 93 930, 0, Order No.

• . 43

43 (U (US S IT ITC 20 2015 15)

• Dentons US LLP represented Complainants in a

trade dispute with The Gap.

• Gap moved to disqualify on ground that "Dentons",

the verein, represents The Gap in numerous matters through Dentons Canada LLP

• Dentons US argues
• Separate practices
• No access to each other's information
• No sharing of confidential information
• No sharing of profits
• Financially and operationally separate

36

In In re Cert rtain in Lase Laser Abraded De Denim Gar Garments (c (cont'd)

• Dentons also argued no way to access each other's

client information. So effectively an ethical screen.

• The Gap argued:
• Dentons holds itself out as one law firm.
• Dentons US had advised the litigation funding company

funding the case that it had an "existing conflict", but didn't tell the Gap.

37

Decision and Analysis

• Definition of "law firm" or "firm" in Rule 1.0 is

broad enough to include a verein. Also "other association authorized to practice law" or made up

• f

lawyers "employed in a legal services

• rganization or legal department of corporation or
• ther organization," citing 1.0(c) and Comment 2.
• After

analyzing whether proceedings were "tainted", concluded that Dentons US must be disqualified.

38

Question

• Decision is on appeal and The Gap is arguing that

the fact that Dentons could run a worldwide conflicts check shows it is one firm.

• Should these megafirms be restricting their

conflicts checks to the entities taking on the new assignment?

• Again, case shows need for consistent approach at

the outset.

39

Western Su Sugar Coo

• op v

v Arch cher-Danie iels ls-Mid idland, 98 98 FSu Supp3d 10 1074 74 (C (CD Cal.

• al. 20

2015 15

• Case arose out of merger of Squire Sanders &

Dempsey and Patton Boggs in 2014

• Squire Sanders represented plaintiffs in an industry

suit against two Patton Boggs clients. Missed in conflicts check. Two PB clients moved to disqualify firm.

• SPB argued, among other things, that there was a

"de facto" ethical wall because the two firm's computer systems had not been combined (sound familiar?).

40

Western Su Sugar Co Coop (c (cont' t'd)

• Court did not accept this argument (in part because

there had been a post-merger meeting between the plaintiffs' expert and the lawyer who had represented the moving defendants. Assumed there was real chance that confidences had been shared)

• So not clear whether "separate computer systems"

is a useful argument.

41

Questions

• What if a multinational firm were to tell its non-US

clients that they will only get the benefits of the conflict of interest rules for the country(ies) in which they hire the firm?

• What if a multinational firm were to tell its US

clients that the US conflicts rules only apply to US matters?

• What if the above were combined with bells and

whistles such as internal screens, different personnel, etc.?

42

Any Additional Audience Questions?

Thank you Peter R. Jarvis Peter.Jarvis@hklaw.com Janis M. Meyer jmeyer@hinshawlaw.com

43