The cost of conflicts is making news again. This time the industry is abuzz with news of a $4M waiver case that’s been making waves. And those waves may indicate a perfect storm — highlighting the risks of broad use of advance waivers in client engagement letters without clear and adequate disclosure.
But this tempest doesn’t suggest a permanent deluge across the risky seas — at least not for firms that are investing in proper navigation, training and technology. To stay safe, organizations must continue to innovate: adopting centralized clearance models, implementing up to date technology, and thoroughly training lawyers and conflicts/new business staff.
Centralized Clearance Model
Many law firms are moving away from the traditional model that allows attorneys to evaluate and vet potential conflicts for their own matters. Under this model there is the unfortunate possibility that some lawyers may not divulge potential issues for fear of their potential matter not proceeding. Alternatively, a centralized clearance model employs a system for conflicts clearance wherein analysis is performed by highly-trained specialists (often, but not always non-practicing attorneys) who evaluate the facts of the proposed representation. A new business request is vetted by specialized analysts who have no competing interests and can escalate a situation for greater scrutiny when needed.
Utilizing a centralized clearance model has many benefits. Conflicts experts are given the heavy lifting; they are responsible for review of relevant documents, such as conflict waivers and engagement letters. These conflicts attorneys handle any potential issues upfront, thereby saving billing attorneys copious hours poring through conflicts reports. Detailed summaries and/or explanations are then provided to the requesting attorney in accordance with the new business request, decreasing risk for possible ramifications at a later time. Allowing multiple sets of eyes on potential conflicts issues ensures that the new business request is thoroughly scrutinized, and safe to proceed.
How to Prepare
Employing highly trained professionals is key when avoiding conflicts of interest. InOutsource’s Conflicts Essentials program is geared towards conflicts education, regardless of vendor product. The program is led established industry experts. Hailing from large law firms and with decades of combined experience, our Conflicts Essentials facilitators will help your team strengthen their understanding of professional responsibility rules and their application in the real world. Our program can be tailored to bolster the analytical skills needed by both lawyers and administrative staff. Enhanced training for your new business and conflict professionals leads to improved work product and lowers risk.
Firms must examine whether their software applications are capable of supporting a robust conflict of interest searching operation. The right software is a vital tool for virtually any size law firm. Advances in the state of the art allow firms to track complex relationships as well as categorizing the engagement terms that have been agreed on with existing clients. Presenting this information, including reminding matter teams of the business terms that were previously established, works to help demystify the sometimes-complicated process of navigating conflicts clearance.
Risk Factors
In the Sheppard Mullin waiver case, there were a number of risk factors that contributed to the firm’s potential loss of $4 million in fees. Law firms cannot concurrently represent two clients who are adverse to one another without informed consent. Justices involved in such cases determine if the firm needs to tell the client about a certain conflict or if the firm can rely on a boilerplate advance conflict waiver detailed in the client engagement letter. Boilerplate conflict waivers are attractive to large law firms because it allows clients flexibility in obtaining and retaining counsel, but according to UC Davis law professor Robert Hillman, “boilerplate disclosures not customized to the circumstances of each situation will not cut it.” Another large conflict of interest overlooked by Sheppard Mullin’s conflict team was a lateral hire who represented South Tahoe Public Utlity District (STPUD), early on in his career, and brought them to Sheppard Mullin. STPUD is now one of the public entities suing Sheppard Mullin’s client, J-M Manufacturing. Not only did the Sheppard Mullin fail to inform both J-M or STPUD of the discovered conflict of interest, but after the firm had been representing J-M for three weeks, the firm billed 12 hours of work to STPUD.
Don’t get caught in the storm
Employing a centralized clearance model with highly trained and empowered conflicts professionals that use innovative software to track multifaceted relationships might have helped Sheppard Mullin avoid the large fee disgorgement that is currently being argued in California. A specialized team could have recognized the recently billed time to STPUD and the conflict involving J-M. A centralized clearance model could have facilitated a conversation between two counsels while using software to review the clients’ engagement letters and waivers to provide informed consent to both parties.
There is no way to eliminate all risks related to conflicts of interest, but the firms that continue to apply scrutiny to the conflicts of interest and new business intake processes can expect to find areas for improvement. Through process updates, additional training, and up to date systems, your firm can make meaningful strides to reducing risk and opening matters more quickly. Contact InOutsource for more information about how we can help.
