January 22, 2020 Feature

Law Firm General Counsel Tell How They Handle Outside Counsel Guidelines, Mistakes, and COIs

By Helen W. Gunnarsson

This is an expanded version of “Mistakes Are Everywhere—You Just Need to Recognize Them,” which appeared in the ABA/Bloomberg Law Lawyers’ Manual on Professional Conduct in October 2019.

Outside counsel guidelines, conflicts of interest, joint representations, and mistakes are all weekly, if not daily concerns for lawyers acting as their firms’ general counsel, moderator Henry S. Bryans told an audience at the Law Firm General Counsel Forum at the Aon Law Firm Symposium on October 17 in Chicago. Bryans is a senior consultant at Aon Professional Services in New York.

The Bane of GCs’ Existence

“Outside counsel guidelines are the bane of our existence,” said panelist Stacy L. Brainin, who is a partner and general counsel at Hanes and Boone, LLP in Dallas. “We send a terrific engagement letter that covers everything” to our client, she said, and “if we’re lucky, by return mail we get a set of outside counsel guidelines containing a number of provisions that are inconsistent with our engagement letter.”

Common problems found in outside counsel guidelines, Brainin said, are provisions regarding conflicts of interest. Many guidelines, she said, contain provisions that say “if you represent one company, you represent the entire corporate family.”

Is the responsibility with the law firm to determine who the affiliates are, Bryans asked? “We ask” the client for a list, Brainin responded, but even if the client provides one, “it’s typically out of date.” She noted that some guidelines also require the firm not to represent any competitors without the client’s consent—but neither list nor provide the firm with any easy way to identify them.

Brainin encouraged lawyers to “push back” and try to negotiate those provisions with the client, but if that proves unavailing and “if you decide the business is worth it,” to take care to put all of the affiliates into the firm’s conflicts database.

Panelist Douglas S. Laird, who is a partner and general counsel of Polsinelli PC in Kansas City, warned that clients frequently include provisions that were originally drafted for business partners in other industries in their outside counsel guidelines. Provisions regarding security and data privacy are common examples, Brainin agreed.

Panelist Stuart N. Senator, a partner and general counsel of Munger, Tolles & Olson LLP in Los Angeles, said his firm has successfully dealt with difficult data security guidelines by having his firm’s IT personnel deal directly with the client’s counterparts on those issues. “Find out what they want and why they want it.” He also said those provisions often include “good ideas” that can help a law firm make sure it’s “on the cutting edge” of data security.

Watch out for security agreements from clients with security breach notification requirements that are “very short, like 24 hours,” Brainin warned. Key provisions, Senator said, are “what is the triggering event and how short is the notification period.” He advised thinking through in advance what’s reasonable and what’s not.

Audit access provisions should also be scrutinized, Brainin said. Although client audits, like client data security requirements, may sometimes be helpful to a law firm because they test how easy it is for an outsider to penetrate the firm’s electronic defenses, “sometimes they want to come in and audit in a way that would let them access other clients’ data.” In such cases, she said, her firm will ask the client “how would they feel about another firm accessing their data.”

The panelists agreed that provisions requiring outside counsel to indemnify their clients under various circumstances must also be examined and, whenever possible, negotiated. Critical questions include what’s covered by the indemnification requirement and when it becomes effective, Senator said. Although many guidelines provide for indemnification upon a final determination of liability, others state that the triggering event will be a claim or even, Bryans said, a mere threat of litigation over something that may be the result of someone else’s work.

“We have successfully pushed back against indemnification clauses that would make us responsible for anything,” panelist Maura L. Hughes, who is partner and general counsel of Calfee, Halter & Griswold LLP in Cleveland, said. Brainin commented that her firm has often successfully objected to those provisions by pointing out that indemnification is unlikely to be covered by the firm’s LPL policy. Senator suggested asking for parallel indemnification clauses so that the client also agrees to indemnify the law firm if the client is at fault, or a rider providing that the firm’s liability will not exceed its insurance coverage. He also recommended probing to find out the client’s real concerns before drawing a line in the sand on indemnification.

The District of Columbia Bar, Brainin told the audience, is considering whether to amend its rules of professional conduct to address some common concerns with outside counsel guidelines. More information is on the bar’s website at https://www.dcbar.org/about-the-bar/news/Rules-Review-Committee-Requests-Comment-on-Client-Generated-Engagement-Letters-and-Outside-Counsel-Guidelines.cfm.

Conflict Waivers

Laird said successful navigation of the ethics rules to obtain valid waivers of conflicts of interest—or, sometimes, a determination that a conflict may not be waived—is an “art” that benefits both clients and law firms. He pointed the audience to Rule 1.8 for examples of nonwaivable conflicts, including a representation that would provide a lawyer with a substantial gift, acquiring a proprietary interest in the subject of the litigation, or the advent of a sexual relationship that did not predate the representation. He emphasized that a firm may not request a waiver unless it reasonably believes it can provide competent and diligent representation for all affected parties. “If the answer is no, that’s it, and you have to reject the representation.”

Brainin said once she starts discussing a conflict with a lawyer she finds “they are actually looking for a ‘no,’ because there is something in their gut that they are not comfortable with. I tell my partners they can always use me for a ‘no,’ but they have to talk with me to get a ‘yes.’” Laird advised firm GCs to “arm [your partners] with the information they need to explain to the client why the answer is ‘no.’”

If the firm does determine that the conflict is waivable, Laird said, general counsel should discuss with the partner “who should contact the client, which client representative should be approached, and which client should be contacted first.” He noted “if you can say the other side has already agreed to the waiver, this can be very helpful.”

But determining which client to approach first without breaching confidentiality can be “very tricky,” Senator commented. He said the determination involves a “multistep process” beginning with very general communications to the affected clients and, little by little, disclosing more and more information. “You can’t make full disclosure to either at first.” Laird agreed. “The client may say ‘I’m not comfortable’” with disclosure of the existence or nature of the matter.

The panelists agreed that the style and presentation of the waiver request is crucial. Brainin said “don’t ask” for the waiver if the firm isn’t going to take no for an answer: tell the client that a waiver is essential for the firm to accept or continue the representation. Laird said that when a firm lawyer expresses reluctance to ask for a waiver, or when he’s concerned that the lawyer might suggest to the client that a waiver is an option and not a necessity, he wants to be on the call or in the lawyer’s office when the call is placed.

Inadvertent Joint Representations

Hughes reviewed how not to end up with an unwanted joint representation and its attendant problems. Long-time representations of family-owned and operated businesses in which disagreements arise among the owners and officers, she said, are ripe for inadvertent joint representations to occur because individuals may believe the company lawyer represents them in addition to the company.

Lawyers must be very clear in their communications, she said, on who is and isn’t a client. “There’s nothing wrong with that separate ‘I’m not your lawyer’ letter, say, after a phone conversation where you answer some questions” from a corporate officer or shareholder, she said. And if the lawyer does accept a joint representation, make sure the engagement letter documents and informs the clients what information will be shared and what will happen if a conflict arises. “Lay out the consequences ahead of time,” she said. Then, if an issue is raised during the representation, “you can lay out your engagement letter and say ‘as you know, this is how it is.’”

Hughes recommended lawyers considering accepting a joint representation ask themselves whether it’s a good idea. Are there any signs of antagonism between the potential clients or possible claims they might file against each other, perhaps in an unrelated matter that might “bleed into” this one? Instead of representing both clients, lawyers should consider finding a “friendly counsel” for one, she said.

Probe the clients’ respective goals and attitudes toward the representation as well as toward each other, Hughes advised. “One client may want the bare minimum of protecting their interests” while the other may want the lawyer “to file every motion possible,” for example. Attitudes toward settlement may also differ, she noted. If the potential clients disagree, “that’s a pretty clear warning sign of conflicts that may develop later,” she said.

Bryans remarked that signs of future tension at the outset of a joint representation may suggest that the lawyer will be placed in an impossible situation, in which case the best course of action is to tell the potential clients “thanks, but no thanks.”

Mistakes, Mistakes

Showing a slide listing common causes of mistakes made by lawyers and their firms, Senator told the audience “If you have not seen these mistakes, or people coming close to making them, it does not mean you don’t have a problem: it means you do not have a system for recognizing them.”

Principal causes of lawyer error include:

  • Improper calendaring. Failing to calculate a deadline correctly or failing to calendar an event. “Then it’s missed or recognized at the very last minute.”
  • Last minute work. “Scrambling to get something done and either it doesn’t get done at all or it gets done poorly. I guarantee you have had close calls at your firm.”
  • Dabbling outside of your specialty. This, Senator said, frequently occurs with respect to matters in litigation that are settled at the last minute. “Any settlement that involves more than just a release of claims may need a transactional attorney with experience in that area,” he said. Common transactions that must be addressed in litigation settlement agreements include ERISA, real estate, and tax matters, the panelists said. “Your colleagues are dying to help out,” Senator said. And enlisting their assistance will not increase the client’s bill “because it takes them less time to find the solution than it would the litigator.”
  • Giving off-the-cuff advice. A client who calls and says “I don’t want you to spend any time on this, I just want your gut reaction” is asking for bad advice.
  • Overreliance on prior documents. Using forms from prior matters in the firm’s files without thinking about whether they are appropriate for the client’s situation. Senator said he’s even seen lawyers paste conflicting clauses from two similar prior forms into one for a current client because they couldn’t decide which they liked better.
  • Multitasking and distractions. It will surprise no one that email and social media can interfere with the practice of law. The lawyer trying to think about multiple issues and do multiple tasks simultaneously is likely to make mistakes.
  • Failure to document discussions and decisions with the client. Verifying that no misunderstandings exist requires documentation.

In addition to avoiding these traps, Senator emphasized that lawyers should include limitations on the scope of their representation in their engagement letters, send letters at the conclusion of every matter informing the client that the engagement is closed, and having a second lawyer review any last-minute document revisions for correctness and a determination of whether other documents require conforming changes. He also recommended timely disclosure of mistakes to clients. But, he warned, “Don’t be overly apologetic and confess error on something that wasn’t.”

Most mistakes, Senator said, “can be fixed, or at least minimized.” He told the audience to remember how their reactions to learning of their lawyers’ mistakes will affect how future errors are handled or disclosed. “Lawyers need to know a mistake will not end their career.”

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By Helen W. Gunnarsson

Helen Gunnarson is Associate Counsel at the American Bar Association, Chicago.