Risk Management Seminar Bar Association of Erie County April 15, 2016

NY Rules of Professional Conduct Replaced the old Code of Professional Responsibility Divided into “8 Articles” Emphasis on Conflicts – Rules Conflicts of Interest

Some conflicts are obvious, some are not. Some conflicts are waivable, some are not. This is so regardless of the fact that both clients agreed to waive the conflict because, simply put, the explanation provided to the lawyer about the conflict waiver was either non-existent or inadequate as a matter of law.

Conflicts of Interest Being the subject of a reported decision with the following language is something that no law firm wants to see, let alone have it be seen by its clients and the rest of the legal community. Don’t be like Boise Schiller

Conflicts of Interest BSF “undertook a representation that inevitably would attack its own work for Host,” creating a conflict that “a first year law student on day one of an ethics course should be able to spot..... BSF withdrew after Host’s new lawyers “prepared a motion to disqualify that spelled out the situation in words of one syllable.”

Conflicts of Interest Was this embarrassing? Yes. Was this costly? Yes. See Boise, Schiller & Flexner LLP v. Host Hotels & Resorts, Inc., 2015 U.S. App. LEXIS 3750 (2d Cir. Mar. 11, 2015) (affirming sanctions award of $271,063 against law firm for unreasonably refusing to withdraw in the face of a clear conflict of interest).

Increasing source of exposure –Milbank Case Consent not always enough Subjective analysis Hindsight is 20/20 Conflicts of Interest Conflicts of Interest

Milbank, Tweed, Hadley & McCloy v. Chan Cher Boon Law firm hired by Chan, the agent for Mrs. Leo in purchase of FOCO stock Two stage deal worth $52,000,000 Swiss franc against dollar increases first stage to $56.6 million Potential re-negotiations – Chan and Leo’s fall out and he fired Conflicts of Interest

Milbank, Tweed, Hadley & McCloy v. Chan Cher Boon Milbank advises it will not represent either Chan or Leo Leo wants to proceed, but needs valuation Milbank announces it is representing Chan Leo’s lawyer warns Milbank Conflicts of Interest

Milbank, Tweed, Hadley & McCloy v. Chan Cher Boon Milbank represents Chan anyway Chan, with Milbank’s help, blocks Leo from closing second stage After maneuvering, Chan buys assets for himself Milbank sues Chan for legal fees Chan impleads Leo Conflicts of Interest

Milbank, Tweed, Hadley & McCloy v. Chan Cher Boon Leo counterclaims against Leo and Milbank Jury awards Leo $2,000,000 to Mrs. Leo So much for the attorneys fees Conflicts of Interest

Milbank, Tweed, Hadley & McCloy v. Chan Cher Boon The Court applies the “prophylactic” rule. Damages can be speculative. No basis needed. We just don’t like what you did! Conflicts of Interest

Conflicts Procedure Conflicts Analysis Conflicts of Interest

Conflicts Procedure identify possible conflicts rules require a system current engagements past relationships current and future members of firm related entities all new engagements analysis by someone else Conflicts of Interest

Conflicts Analysis A.who is the client? entity not individuals Corporations Partnerships Decedent estates/ beneficiaries? Trusts communicate clearly when entity and individuals involved Conflicts of Interest

Conflicts Analysis affect lawyer judgment if conflict, need consent with full disclosure Conflicts of Interest

Conflicts Analysis Changes in parties Update file information Conflicts of Interest

Conflicts Analysis Transaction with clients e.g., –investment in start-up –fair and reasonable –full disclosure –recommend separate counsel –written consent Conflicts of Interest

Conflicts Analysis Clients with adverse interests –able to represent both –consent of both –full disclosure Conflicts of Interest

Conflicts Analysis present and former client –confidential information –laterals with confidential knowledge Conflicts of Interest

Conflicts Analysis when is a client “former?” Conflicts of Interest

Lateral hires Imputed conflicts Chinese walls They are not great

QUESTIONS? Dennis R. McCoy Barclay Damon, LLP (716)