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April 13, 2012

Refco Firms Can't Avoid Claims Stemming from Bankruptcy

On April 9, 2012, the special master, Daniel J. Capra, in In Re: Refco Securities Litigation (Case No. 1:07-md-1902) recommended that most of the allegations supporting a single claim of malpractice against Shulte Roth, who acted as legal counsel to the Sphinx Funds, should proceed in the litigation. The liquidators for the Sphinx Ltd. Funds alleged that Schulte Roth may have drafted conflicting provisions in the hedge funds’ government documents, and that the firm didn’t properly advise them about bankruptcy-law provisions that had an impact on their decision making when deciding whether to let investors cash out as the Refco fraud was unraveling. Among other things, the special master found that the Sphinx Funds had raised a fact question about whether Schulte Roth’s failure to inform them about the bankruptcy-law provisions was legal malpractice, and that it did not matter that Schulte Roth had withdrawn from representing the funds before the redemption took place. He also rejected Schulte Roth’s argument that the fact that Gibson Dunn & Crutcher LLP continued to represent the Sphinx Funds after Schulte Roth withdrew cut off the chain of causation.

Only two weeks earlier, on March 24, 2012, Judge Jed S. Rakoff ruled that Mayer Brown LLP, primary counsel for Refco Inc. until Refco’s October 2005 collapse, must face claims that it reviewed and prepared public documents for shady Refco transactions that were designed to conceal its terrible financial condition. The special master recommended dismissing a claim for aiding and abetting fraud that sought to recover assets placed with Refco before Mayer Brown’s alleged wrongdoing, as well as claims for interference with contract and aiding breach of fiduciary duty and conversion. But, he also found that assets placed with Refco after Mayer Brown’s alleged wrongdoing could give rise to a claim for assisting the fraud because the Sphinx Funds would not have continued to make deposits if it knew the truth about Refco. In a one-page ruling on March 24, Judge Rakoff adopted all of those findings in full.

Full coverage can be found on Law 360.

Keywords: litigation, professional liability, malpractice, fraud, breach of fiduciary duty, Mayer Brown, Refco, Shulte Roth, bankruptcy

— Amy June, Bingham McCutchen LLP, Palo Alto, CA

April 4, 2012

Prosecutorial Misconduct Revealed in Sen. Stevens Corruption Scandal

On March 15, 2012, special prosecutor Henry “Hank” Schuelke III released a 525-page report, revealing that two Justice Department prosecutors intentionally hid evidence that may have exculpated the late Sen. Ted Stevens. Stevens died in a plane crash in Alaska in 2010.

A jury convicted Stevens on public-corruption charges in 2008; but, before Stevens was sentenced, Attorney General Eric Holder requested to dismiss the indictment on allegations of prosecutorial misconduct.

U.S. District Judge Emmet Sullivan tasked Schuelke with the investigation, which ultimately concluded that “[t]he investigation and prosecution of [Stevens] were permeated by the systematic concealment of significant exculpatory evidence which would have independently corroborated [Stevens’] defense and his testimony, and seriously damaged the testimony and credibility of the government’s key witness.” Specifically, the undisclosed information involved (1) witness Rocky Williams, whose testimony would have supported Stevens’s position that services were paid for and (2) the credibility of the government’s main witness, who was involved in an unrelated prostitution case.

The investigated prosecutors—William Welch II, Brenda Morris, Edward Sullivan, Joseph Bottini, and James Goeke—were cooperative. A sixth prosecutor, Nicholas Marsh, committed suicide in 2010. The report was finalized in November, but kept under seal to provide the prosecutors with an opportunity to respond.

According to the report, prosecutors Bottini and Goeke bore most of the blame for withholding important information. In their lengthy responses, Bottini and Goeke admitted that mistakes may have been made, but that no misconduct was intentional. Counsel for Bottini and Goeke claim that the evidence tends to prove that Bottini and Goeke were actually pushing to disclose the information. Goeke’s lead counsel stated that “the idea that [Goeke] is being held intentionally responsible for discovery violations is in itself a miscarriage of justice.”

Stevens’s defense lawyers claim the report reveals “the worst misconduct we’ve seen in a generation by prosecutors at the Department of Justice.” Cleared prosecutors have also expressed support for the report’s findings. Schuelke notably states that the evidence does not support criminal contempt charges against any prosecutors.

Soon after the report was released, Sen. Lisa Murkowski (R-Alaska) announced new legislation aimed at preventing this type of prosecutorial misconduct. This new legislation, the Fairness in Disclosure Act of 2012, would require prosecutors to timely disclose any favorable information or face sanctions. Sen. Patrick Leahy (D-Vt.), chairman of the Judiciary Committee, has announced plans to hold a hearing with Schuelke prior to April recess. The Justice Department is expected to release an internal ethics investigation by the Office of Professional Management.

Consequence for evidence suppression is not limited to public lawyers. In the private-law context, litigators must be mindful of their professional responsibilities. In California, “[a lawyer] shall not suppress any evidence that the [lawyer] or the [lawyer's] client has a legal obligation to reveal or to produce.” CRPC 5-220. ABA Model Rule 1.6 similarly prohibits lawyers from suppressing evidence, with one caveat: Absent appropriate discovery/subpoena, lawyers are under no obligation to volunteer evidence harmful to their client's position. Lawyers must defer to the specificity of the subpoena/discovery request to determine whether there is a clear obligation to produce harmful evidence.

ABA Model Rule 3.4(a) also prohibits lawyers from unlawfully obstructing another party's access to evidence (or potential evidence) or counseling/assisting another party to do so. In many federal courts, both parties must disclose information "relevant to disputed facts alleged with particularity in the pleadings." FRCP 26(a)(1).

The Stevens investigation reminds us that both public and private lawyers have disclosure obligations under the professional-responsibility rules.

Related coverage:

http://www.bloomberg.com/news/2012-03-15/ted-stevens-prosecution-report-filed-with-washington-court-1-.html

http://www.npr.org/2012/03/15/148687717/report-prosecutors-hid-evidence-in-ted-stevens-case

Keywords: litigation, professional liability, prosecutorial misconduct, department of justice, mismanagement, misconduct, corruption, scandal, disclosure, senator, senate, legislation, investigation

— Taneen Jafarkhani, Bingham McCutchen LLP, San Francisco, CA

April 3, 2012

Grant Thornton Faces Aiding-and-Abetting Allegations

On March 26, 2012, U.S. District Judge Jed S. Rakoff backed Special Master Daniel J. Capra’s December 16, 2011, report recommending that the motion to dismiss brought by defendants Grant Thornton LLP and Mark Ramler be granted in part and denied in part. The case at issue is Krys et al. v. Sugrue et al., No. 08-CV-3065, in the U.S. District Court for the Southern District of New York, and the multi-district litigation is In re Refco Securities Litigation, No. 07-MDL-1902, in the same court.

The plaintiffs, the liquidators for the SPhinX Ltd. funds, brought actions against Grant Thornton, Refco's outside auditor, for aiding and abetting fraud, aiding and abetting breach of fiduciary duty, and aiding and abetting conversion. The plaintiffs allege that Grant Thornton aided and abetted Refco's improper co-mingling of SPhinX funds assets in unprotected, non-regulated accounts at Refco Capital Markets, Ltd. (RCM). These assets were upstreamed to fund Refco operations of its affiliates and then ultimately lost when Refco’s precarious financial position was made public. The plaintiffs claim they lost $263 million when Refco collapsed in 2005.

The plaintiffs allege that Grant Thornton knew about Refco’s scheme to defraud its customers because it knew that Refco needed to use the funds at RCM to prop itself up, it knew that RCM was unregulated, and it knew that after the 2004 leveraged buyout it would be impossible for RCM to pay back the money it had upstreamed. The plaintiffs allege that Grant Thornton aided and abetted the scheme by issuing unqualified, clean audit opinions in connection with RCM's stand-alone statements, and improperly reported the RCM upstreaming as loans to customers. Relying on Grant Thornton’s audits, the plaintiffs kept their assets with Refco and continued to deposit more cash.

The special master found that the plaintiffs adequately pled knowledge on Grant Thornton’s part because it knew that RCM was an unregulated entity and its own reports indicate that it knew that RCM was making substantial transfers to affiliates, which were far greater than its profits. The plaintiffs also adequately pled that Grant Thornton, by issuing unqualified, clean audit opinions of RCM, substantially assisted a primary wrong. Further, the special master found that the plaintiffs did not adequately allege that Grant Thornton proximately caused them to retain assets at Refco because if Refco’s true financial state had been known, the excess cash would still have been lost due to RCM’s inability to pay its customers back. However, the special master found that the plaintiffs adequately alleged that if they had known of Refco’s true financial condition, they would not have continued to deposit excess cash with Refco. Accordingly, the special master recommended that the motion to dismiss the aiding-and-abetting claim against Grant Thornton should be denied with respect to those assets the plaintiffs deposited with Refco after Grant Thornton’s issuance of its first clean auditing opinion, but that the motion be granted for the deposits made before this wrongdoing. The special master also recommended granting the motion to dismiss the aiding-and-abetting-breach-of-fiduciary-duty and aiding-and-abetting-conversion claims with prejudice because the plaintiffs did not adequately allege scienter.

Keywords: litigation, professional liability, Grant Thornton, Refco, aided and abetted, co-mingling, unqualified audit opinions

— Monica A. Hernandez, Bingham McCutchen LLP, Palo Alto, CA

April 3, 2012

Debate over Auditor Independence and Audit Firm Rotation Heats Up

There has been a lot of discussion and debate lately about issues of auditor independence and, particularly, the possibility of mandatory auditor rotation.

The Public Company Accounting Oversight Board  (PCAOB) issued a concept release on enhancing auditor independence on August 16, 2011. Following this, on March 21 and 22, 2012, the PCAOB recently hosted a public meeting of over 40 panelists to discuss ways to enhance auditor independence, objectivity, and professional skepticism, including mandatory audit firm rotation. Many of the panelists were among the more than 600 people who submitted comment letters on the concept release (more than 90 percent of the letters opposed mandatory audit firm rotation). They explored a range of topics, including the perceived benefits and costs of mandatory audit firm rotation and audit firm concentration. While the discussion focused on mandatory firm rotation, some board members sought input from panelists on alternatives that might improve audit quality. The comment period for the concept release was recently extended through April 22, 2012.

The archived webcast and panelists’ written testimonies are available on the PCAOB’s website.  

Meanwhile, Congress entered into the debate with a draft bill that would block the PCAOB’s mandatory auditor rotation requirement. Members of Congress then asked questions of PCAOB Chairman James Doty on March 28, 2012, as the topic of mandatory audit firm rotation was debated during a discussion of accounting and auditing issues in front of the House Subcommittee on Capital Markets and Government Sponsored Enterprises. Representative Scot Garrett, R-N.J., the chairman of the subcommittee, opened the hearing by stating his concern that the PCAOB was overstepping its mandate by considering the issue of mandatory audit firm rotation. PCAOB Chairman James Doty made the case that Sarbanes-Oxley gives the board authority of auditor independence issues, subject to SEC approval. But he also told the congressional panel that the agency has not decided whether to require companies to rotate their auditors, but he promised to do an appropriate cost-benefit analysis if the rule moves forward.

Keywords: litigation, professional liability, auditor rotation, pcaob, congress, auditor independence

— Amy June, Bingham McCutchen LLP, Palo Alto, CA

April 3, 2012

2nd Cir.: Part of NY Conduct Rule Violates First Amendment

On March 5, 2012, the U.S. Court of Appeals for the Second Circuit held in Hayes v. State of New York Attorney Grievance Committee of the Eighth Judicial District, 10-1587-cv, that part of Rule 7.4 of the New York Rules of Professional Conduct violates the First Amendment and is unconstitutionally vague as applied to Mr. Hayes, the plaintiff-appellant. Rule 7.4 requires attorneys who state they are certified as a specialist in a particular area of the law to make a prescribed disclaimer statement. The statement must identify the certifying ABA-approved organization and prominently make the following disclosure: “[1] The [name of the private certifying organization] is not affiliated with any governmental authority[,] [2] Certification is not a requirement for the practice of law in the State of New York and [3] does not necessarily indicate greater competence than other attorneys experienced in this field of law.”

Read the full case note.

Keywords: litigation, professional liability, NY Rules of Professional Conduct, Second Circuit, Grievance Committee, attorney advertisement, certification

— Monica A. Hernandez, Bingham McCutchen LLP, Palo Alto, CA

February 27, 2012

The Reemergence of the Virginia Bankshares Alleged Misstatement

Recently, in Fait v. Regions Financial Corp., 655 F.3d 105 (2d Cir. 2011), the Second Circuit considered whether statements about goodwill and loan-loss reserves in a registration statement and prospectus can give rise to liability under sections 11 and 12 of the Securities Act of 1933. The court’s conclusion—(i) that the statements in question were statements of opinion and (ii) that a statement of opinion is actionable under sections 11 and 12 only if the complaint alleges that the speaker did not truly hold the opinion at the time it was issued—could have a far-reaching impact on the way courts evaluate securities claims predicated on alleged misrepresentations in a company’s financial statements.

In April 2008, the plaintiffs acquired securities in a subsidiary of Regions Financial Corp. pursuant to a registration statement and prospectus that incorporated by reference Regions’s 2007 Form 10-K. The Form 10-K reported $11.5 billion in goodwill ($6.6 billion of which was attributed to a recent acquisition) and loan-loss reserves of $555 million. The 10-K also included an audit opinion in which Ernst & Young, Regions’s independent public accountant, certified that Regions’s 2007 financial results were presented in accordance with generally accepted accounting principles (GAAP). Less than a year later, with the housing and residential real-estate markets collapsing around it, Regions announced a $6 billion charge for impairment of goodwill and doubled its loan-loss reserves to $1.15 billion. Following the announcement, Regions’s stock price fell and the plaintiffs brought suit.

The complaint, which asserted claims under sections 11 and 12 of the Securities Act against Regions and Ernst & Young, among others, alleged that the offering documents pursuant to which plaintiffs acquired securities were false and misleading because they overstated Regions’s goodwill and underestimated its loan-loss reserves. The defendants moved to dismiss on the ground that the challenged statements were matters of opinion, which were not actionable because the complaint failed to allege that the speaker did not truly hold the opinions at the time they were issued. The district court granted the motion and the plaintiffs appealed.

The Second Circuit began its analysis by recognizing that, under Virginia Bankshares, Inc. v. Sandberg, 501 U.S. 1083 (1991) and the cases applying it, an alleged misstatement of opinion (as distinguished from an alleged misstatement of fact) can give rise to a claim under sections 11 and 12 of the Securities Act only if the complaint alleges both objective falsity (i.e., that the opinion was empirically false with respect to the underlying subject matter) and subjective falsity (i.e., that the speaker disbelieved the opinion at the time it was offered).

The court then considered whether the misstatements alleged in the complaint were misstatements of fact or misstatements of opinion. It observed that, under GAAP, goodwill is the amount by which the “purchase price” of an acquired asset exceeds the “fair value” of that asset and the liabilities assumed. While “purchase price” can be measured objectively, the “fair value” of an asset depends upon the particular valuation methodology and assumptions employed, making it an inherently subjective figure. According to the court, the same is true of loan-loss reserves, which represent management’s judgment about what portions of amounts due on loans might not be collectible. Estimating loan-loss reserves, like estimating goodwill, “is inherently subjective” and will vary “depending on a variety of predictable and unpredictable circumstances.” Id.at 113. In light of these observations, the court concluded that the statements alleged in the complaint about goodwill and loan-loss reserves were statements of opinion. Because the plaintiffs failed to allege that the statements were not only objectively false but also subjectively false, the Second Circuit, applying Virginia Bankshares, affirmed the district court’s judgment dismissing the complaint.

Regions could have significant implications for the way courts analyze securities cases in which the misstatements giving rise to suit appear in a company’s financial statements. Viewed through the Regions lens, many components of financial statements qualify as “opinions” because they consist of estimates, have estimates embedded within them, or otherwise reflect management’s judgment. For example, statements about contingent legal liabilities, tax and litigation reserves, sales returns and allowances, and allowances for doubtful accounts are in essence opinions about future events, making them subject to the same analysis applied to goodwill and loan-loss reserves in Regions.

The Second Circuit’s searching analysis in Regions shines a spotlight on the importance of examining the nature of the alleged misstatement. After Regions, courts may be more inclined to parse misstatement claims, especially those arising out of financial statements or an auditor’s report on financial statements, by first breaking the alleged misstatement into its constituent parts and determining whether it is actually an opinion. At its core, Regions discredits the notion that a securities claim—even one brought under “strict liability” statutes like sections 11 and 12 of the Securities Act that do not require a showing of scienter—lies whenever a figure in a financial statement turns out to be incorrect. In addition, a proper Regions-type exegesis of alleged misstatements may lead to a more fine-tuned analysis of whether alleged market losses were caused by those misstatements. An alleged corrective disclosure that does not speak to the subjective falsity of an opinion statement should, under the logic of Regions, be suspect.

Keywords: professional liability litigation, securities litigation, goodwill, loan loss reserves, financial statement, auditor

—Michael S. Flynn and Seth Caffrey, Davis Polk and Wardwell LLP, New York, NY

February 27, 2012

NJ Supreme Court Limits Third-Party Liability of Professionals

Construing its version of the Uniform Accountancy Act, the New Jersey Supreme Court rejected a $38 million judgment against KPMG LLP. Cast Art Industries, LLC v. KPMG LLP, 2012 WL 489229 (N.J. Feb. 16, 2012). The court held that an auditor could not be held liable to a third party who claims to rely on audited financial statements unless the auditor had knowledge—at the time the auditor-client relationship began—that the third party would rely on its reports. “An auditor is entitled to know at the outset the scope of the work it is being requested to perform and the concomitant risk it is being asked to assume.” Id. at *11.

The case arose out of a merger in which the acquiring company alleged negligence in the audit report on the acquired company’s financial statements. The plaintiff complained that the auditor was aware of the merger, participated in a conference call with the acquirer, and agreed to make its audit report and work papers available to the acquirer’s auditor for limited agreed-upon purposes.

Noting the paucity of relevant decisional law construing the model act, the New Jersey law applied traditional statutory construction analysis, concluding that the legislature intended to limit the expansive foreseeability theory of third-party professional liability previously adopted by the New Jersey Supreme Court in Rosenblum v. Adler, 93 N.J. 324 (1983), and “to restrict the potential scope of an accountant’s liability.” Cast Art, 2012 WL 489229, *9. In so doing, the justices overturned the Appellate Division's holding that, under the Accountant Liability Act, an auditor’s knowledge that a third party is relying on the audited financial statements at any time during its engagement with the client exposes it to liability. To be held accountable to a third party, the auditor must know at the outset of the engagement that a third party will rely on the work.

—Patricia A. Gorham, Sutherland, Asbill & Brennan, LLP, Atlanta, GA

February 24, 2012

Penn. Pro Se Helpers Not Ethically Compelled to Disclose Involvement

The Pennsylvania Bar Association Committee on Legal Ethics and Professional Responsibility along with the Philadelphia Bar Association Professional Guidance Committee recently issued advisory Joint Formal Opinion 2011-100 on “Representing Clients in Limited Scope Engagements.”

Given the recent economy, it is not uncommon for lawyers to extend services for part of a transaction or proceeding on a pro bono or reduced-fee basis. This is often referred to as “discrete task representation,” “limited scope engagement,” or “unbundling” of legal services. “Ghostwriting” is when such representation involves drafting or revising pleadings for submission to a tribunal.

In response to the increasing number of limited representation, the opinion addresses whether in connection with a limited-scope engagement, a lawyer who is assisting a litigant in a court proceeding is obliged under the Pennsylvania Rules of Professional Conduct to disclose to the tribunal his or her engagement in the matter. In short, the answer in Pennsylvania is no.

The committees found that despite Rule 3.3 on candor toward the tribunal and Rule 8.4 barring “dishonesty, fraud, deceit or misrepresentation,” or Rule 11 of the Federal Rules of Civil Procedure requiring signed pleadings, these rules did not impose a requirement of disclosure. Rules regarding truthfulness in statements or fairness in dealing with unrepresented parties generally applied to specific situations outside of a limited-scope engagement.

Rather, the opinion found that requiring a lawyer to always disclose his or her involvement would frustrate and practically negate the purpose of Rule 1.2, which explicitly allowed limited-scope engagements. The committees did, however, advise that under Rule 1.2(c), reasonableness of the limitation and informed consent by the client were imperative.

The opinion also emphasizes that lawyers entering a limited engagement must still remember that he or she is engaged in a full attorney-client relationship, therefore triggering all of the obligations that are inherent in such complete representation. Under the Pennsylvania Rules of Professional Conduct, these include, but are not limited to, duties of:

• competent representation (Rule 1.1)

• diligence (Rule 1.2)

• communication (Rule 1.4)

• representation agreements (Rule 1.5)

• confidentiality (Rules 1.6 and 1.9)

• avoidance of conflicts of interest (Rules 1.7, 1.8, 1.9, 1.10, 1.11, 1.12)

Amongst the committees’ findings, the opinion reports the following totals from other jurisdictions:

• Eleven, including the American Bar Association, concluded that disclosure to a tribunal is not required.

• Eighteen concluded that at least some disclosure is required.

• Thirteen have found that disclosure is required where the aid provided to a litigant is “substantial” or “extensive.”

• Three have held that disclosure of assistance is always mandatory.

• Two require disclosure of the fact of legal assistance but not the identity of the provider.

These findings and the applicable ethical rules from those jurisdictions are listed in Appendix A to the opinion. Pertinent court rules regarding unbundled services and court-annexed limited-service programs from other jurisdictions are included in Appendix B.

Appendix A of Opinion 2011-100.

Appendix B of Opinion 2011-100.

—Karen Lu, Bingham McCutchen LLP, Palo Alto, CA

February 24, 2012

$2.6 Million Award Against Former Toyota In-House Counsel Upheld

The Ninth Circuit recently upheld a $2.6 million arbitration award against former in-house counsel, Dimitrios P. Biller, of Toyota Motor Sales (TMS), who allegedly leaked confidential documents that he claimed showed the company covering up evidence in rollover-accident litigation.

In 2007, Biller, who worked on products-liability matters for TMS, presented his former employer with various claims related to TMS’s alleged unethical discovery practices. Upon settling these claims, Biller signed a severance agreement to which he agreed to (1) give a broad release of his claims relating to his employment with and separation from TMS, (2) protect and not disclose Toyota’s confidential information as defined by the agreement, (3) return all of Toyota’s confidential information, and (4) not copy Toyota’s confidential information.

After leaving TMS, Biller started Litigation, Discovery & Trial Consulting, a business that provided seminars on various legal topics. On the company website, Biller used information about his work on TMS’s products-liability litigation. TMS believed this to be confidential information and in violation of attorney-client privilege. As required by the severance agreement, the parties went to arbitration where TMS submitted claims for breach of contract, conversion, and statutory computer fraud. Biller claimed and cross-claimed various intentional tort and RICO violations against TMS.

After several rounds of briefing and hearings, the JAMS arbitrator concluded that Biller was liable to TMS on all of its claims, and that under the severance agreement, TMS was entitled to injunctive relief, $100,000 in punitive damages, and $2.5 million in liquidated damages. Biller was injunctively prohibited from disclosing TMS’s confidential information, and was required to destroy and return to TMS all confidential information in his possession.

In confirming the final arbitration award, the Ninth Circuit rejected Biller’s claim that the district court improperly denied his motion for contempt. Biller had argued that TMS improperly collected and retained five documents in violation of the permanent injunction when TMS reviewed and deleted certain documents from Biller’s computer files after obtaining the award.

The three-judge panel also rejected Biller’s claim that the arbitrator failed to address his affirmative defenses of unclean hands and equitable estoppel. Under California law, the unclean hands defense applies when there is equity of relationship between the parties, and specifically if unclean hands affected the transaction at issue. The Ninth Circuit found that the arbitrator implicitly addressed Biller’s unclean-hands defense by pointing out that in light of the lack of justification for Biller’s unprecedented ethical violations, the equities of the parties’ relationship precluded assertion of the defense.

As for his equitable-estoppel defense, Biller claimed that TMS falsely represented to him that he had to remove TMS’s confidential information from his company website under Rule 1.6(a) of the ABA Model Rules. Rule 1.6(a) provides that

Rule 1.6(b)(5) contains an exception that permits the lawyer

The panel expressed its confusion as to how Biller thought ABA Model Rule 1.6 was relevant to the issues at hand, but nonetheless found that the arbitrator implicitly rejected Biller’s equitable-estoppel defense by concluding that his disclosures were beyond what TMS permitted. The Ninth Circuit found Biller’s reliance on Rule 1.6(a) was misplaced, and that Biller was well aware of his ethical duty to TMS and that nothing justified breach of that duty.

—Karen Lu, Bingham McCutchen LLP, Palo Alto, CA

July 28, 2011

Commission on Ethics Seeks Comments on Online Client Development Tools

On June 29, 2011, the ABA Commission on Ethics 20/20 released for public comment its initial proposals relating to lawyers’ use of technology-based client development tools, recommending amendments to the rules regarding attorney advertising (Model Rule 7.2), duties to prospective clients (Model Rule 1.18), and direct contact with prospective clients (Model Rule 7.3). 

The Commission concluded that “no new restrictions are necessary in this area, but that lawyers would benefit from more guidance on how to use new client-development tools in a manner that is consistent with the profession’s core values.” 

For example, the proposed rules would clarify when electronic communication gives rise to a prospective client-lawyer relationship and would amend Model Rule 1.18(a) to read, “A person who communicates with a lawyer about the possibility of forming a client-lawyer relationship and has a reasonable expectation that the lawyer is willing to consider forming a client-lawyer relationship with respect to a matter is a prospective client.” 

A proposed added comment would emphasize the fact-sensitive nature of the creation of a prospective client relationship:

Model Rule 1.18, Proposed Comment 3.

The Commission also proposed amendments to the comments to Model Rule 7.2 to clarify what kinds of Internet-based client development tools attorneys may use without violating the ethical prohibition against paying others for a recommendation: “[A] lawyer may pay others for generating client leads, such as Internet-based client leads, as long as the person does not recommend the lawyer and any payment is consistent with Rule 1.5(e) (division of fees) and Rule 5.4 (professional independents of the lawyer).” Model Rule 7.2, Proposed Comment 5.  The Commission’s intent is to make clear that lawyers can take advantage of such Internet services as “pay-per-click” and “pay-per-lead,” so long as the marketing method does not violate the lawyer’s professional obligations. ABA Commission Report at 5.

The proposed amendments would add a comment to Model Rule 7.3 to clarify what constitutes a “solicitation.”

Model Rule 7.3, Proposed Comment 1.

The complete text of the proposed amendments and the Commission’s Report may be found on the ABA’s website. The Commission will submit its proposals to the ABA House of Delegates in May 2012 for deliberation at the ABA Annual Meeting in August 2012. In the meantime, comments to these initial proposals are due August 31, 2011.

—Amelia Toy Rudolph, Sutherland Asbill & Brennan LLP, Atlanta, GA

July 28, 2011

PCAOB Issues Concept Release on Alternatives for Auditor’s Reporting Model

On June 21, 2011, the Public Company Accounting Oversight Board (PCAOB) issued a concept release discussing alternatives for changing the auditor’s reporting model to increase the transparency of financial reporting and its usefulness to the investing public.  

The current auditor’s reporting model requires a description of the nature of the audit and an opinion on whether or not the company’s financial statements fairly present the financial position, results of operations, and cash flows of the company in accordance with the applicable financial reporting requirements. The current model “has been commonly described as a pass/fail model because the auditor opines on whether the financial statements are fairly presented (pass) or not (fail).” PCAOB Release No. 2011-003, June 21, 2011.

The current model, however, fails to require auditor disclosure of other relevant and significant information about the audit and the company’s financial condition. The PCAOB concept release proposes possible enhancements in the auditor’s reporting model to give the investing public more insight into the company’s financial statements or other relevant information outside the financial statements. These alternatives include:

According to PCAOB, the proposed changes are not designed to change the fundamental role of the auditor but rather “are focused primarily on enhancing communication to investors through improving the content of the auditor’s report.” Id. However, “depending on the nature and extent of additional information to be communicated by the auditor . . . new auditing requirements and coordination with the Securities and Exchange Commission . . . would likely be necessary.” Id. Additionally, the scope of current audit procedures might be increased, thereby requiring new auditing standards.

PCAOB chairman James R. Doty states that “[t]he concept release . . . represents a significant step for investor protection in response to the financial crisis, and a first step toward a holistic consideration of reforms designed to foster the relevance, transparency and reliability of the audit process.”

PCAOB requests comments on the concept release by September 30, 2011. Comments may be submitted by email or through the board’s website. Comments may be submitted by mail to the Office of the Secretary, PCAOB, 1666 K Street, N.W., Washington, DC 20006-2803. All comments should refer to PCAOB Rulemaking Docket Matter No. 34 in the subject or reference line. PCAOB will convene a public roundtable to discuss the proposals in the third quarter of 2011.  

—James A. Brown, Liskow & Lewis, PLC, New Orleans, LA

May 20, 2011

Extending the Statute of Limitations on Professional Malpractice Claims in Georgia

In the recent case of Newell Recycling of Atlanta, Inc. v. Jordan Jones & Goulding, the Supreme Court of Georgia held that a claim of professional malpractice arising out of a written agreement with an engineering firm was subject to a six-year statute of limitations instead of the four-year limitations period historically applied to professional malpractice claims. The plaintiff had engaged the defendant, a professional engineering firm, to design a specialized building. Their agreement was evidenced by a “Draft Scope of Work,” certain letters, and an agreement to prepare a concrete platform. The platform failed in May of 2000, and the plaintiff sued the engineering firm for breach of contract and professional malpractice in August of 2004—more than four years later. At issue in this appeal was whether the plaintiff’s claims were time-barred pursuant to O.C.G.A. § 9-3-25, which provides a four-year limitations period for all actions upon oral or implied contracts, or whether the claims were timely pursuant O.C.G.A. § 9-3-24, which provides a six-year limitations period for actions upon written contracts.

The plaintiff argued that the six-year statute of limitations applied, citing the Draft Scope of Work, letters, and agreement to build a platform as the written contract that gave rise to its claims. The defendant argued that the plaintiff’s claims arose from an implied contract, were subject to the four-year limitations period, and were therefore time-barred. The Georgia Court of Appeals agreed, but for different reasons, apparently applying what it interpreted as a hard and fast rule that the four-year limitations period always governs professional malpractice claims—even those premised on the breach of a written contract.

The Georgia Supreme Court reversed, holding that the six-year limitations period applied and that the claims were timely. The court reasoned that by its terms, the four-year limitations period applied only to breach actions based solely on an implied promise or an express oral promise.

—Scott F. Bertschi and Theresa Y. Kananen, Arnall Golden Gregory, LLP

May 20, 2011

Ohio Federal Court Upholds "Loss Prevention Privilege" to Prevent Discovery in Legal Malpractice Action

In Tattletale, the magistrate refused to compel a law firm to produce certain documents in a legal malpractice action, holding that internal “loss prevention” communications among attorneys at the defendant law firm were protected by the attorney-client privilege.

Specifically, Tattletale Alarm Systems sued the law firm of Calfee, Halter & Griswold alleging that the firm failed to timely pay the maintenance fee for a patent held by Tattletale. Tattletale moved to compel the production of approximately 300 documents withheld by the defendant firm on the basis of the attorney-client privilege. The defendant contended that these documents were privileged because they reflected loss prevention communications, which occurred after the defendant became aware that Tattletale might assert a malpractice claim. Tattletale argued that some of these communications occurred prior to the firm’s termination of its representation of Tattletale and, therefore, could not be privileged.

The court rejected Tattletale’s argument, starting with the proposition that one attorney in a firm can seek legal advice from another attorney in that same firm and, thus, form an attorney-client relationship under which the privilege would normally attach. Accordingly, the court addressed whether an exception to the attorney-client privilege applied when the advice sought regarded an existing client of the firm. The court noted that, under Ohio law, exceptions to the attorney-client privilege generally fall into one of three broad categories: (1) communications not worthy of protection, such as those involved in the crime-fraud exception; (2) communications not necessary to support the policy rationale underlying the privilege, namely the need for lawyers to have full and complete information before rendering advice; and (3) communications that are necessary for a party to prove her case. Ultimately, the court rejected the proposition that loss prevention communications fell within any of these categories.

—Scott F. Bertschi, Arnall Golden Gregory, LLP, Atlanta, GA

May 20, 2011

Third Circuit Rejects Fraud-Created-the-Market Theory

In an August 2010 opinion, the Third Circuit, in the process of affirming the district court’s denial of class certification in a securities fraud class action, rejected the fraud-created-the-market theory. See Malack v. BDO Seidman, LLP, 617 F.3d 743 (3d Cir. 2010). The fraud-created-the-market theory enables a plaintiff in a § 10(b) private damages action to establish that he or she presumptively relied upon the misstatements at issue because a fraudulent scheme resulted in securities being brought to market that were otherwise unmarketable. The securities could be unmarketable because they were not legally or economically viable, or because the securities would not have been on the market at the price and interest rate at which they were issued in the absence of fraud.

The Third Circuit held that the fraud-created-the-market theory lacked a basis in any of the traditionally accepted grounds for triggering an evidentiary presumption. The court therefore declined to recognize a presumption of reliance based upon the theory.

First, the theory was not grounded in common sense because none of the entities involved in the issuance of a security could be reasonably relied upon to prevent fraud. The court noted that such an approach would require the issuers of a security to make decisions “that are at least burdensome and at most economically irrational.” Moreover, the SEC could not be reasonably relied upon to prevent fraud, because the SEC merely confirms that the issuer adequately disclosed information pertaining to the security as opposed to evaluating the merit of a particular security. As a result, disclosure of adverse information may have lowered the price of a security, but it would not have prevented that security from going to market.

—Nilofer Umar, Sidley Austin LLP, Chicago, IL

May 20, 2011

Sixth Circuit Applies Imputation Rule to Dismiss Professional Negligence Claim

The Sixth Circuit Court of Appeals affirmed the dismissal of a professional negligence claim brought by the Trustee in bankruptcy for a group of companies collectively known as Venture, an automotive-parts supplier that had filed for Chapter 11 bankruptcy, against Deloitte & Touche LLP, Venture’s former independent auditor. Venture’s CEO, Larry Winget, had entered Venture into a series of improper transactions with companies that were wholly owned or controlled by Winget, and the Sixth Circuit held that under Michigan’s “sole-actor” rule, Winget’s knowledge of those transactions could be imputed to Venture, preventing Venture from relying on Deloitte’s audits. The Sixth Circuit also held that the Trustee’s claim that Deloitte aided and abetted the Winget’s breach of his fiduciary duty was barred by Michigan’s residual three-year statute of limitations for tort claims.

The Trustee’s complaint alleged that Deloitte, in conducting audits of Venture beginning in 1987, had become aware of Winget’s impropriety and knew that Venture’s financial statements were materially misleading in their failure to disclose the nature of Winget’s related-party transactions. As a result, the Trustee claimed, Deloitte’s audits were not in accordance with Generally Accepted Auditing Standards, and were the proximate cause of Venture’s financial situation and eventual bankruptcy. The Trustee alleged that if Deloitte had properly performed its audits, then someone at Venture, or Venture’s creditors, would have learned about the related-party transactions and stopped Winget from engaging in the transactions.

Deloitte moved to dismiss the Trustee’s complaint. Deloitte argued the Trustee could not state a claim for professional negligence because the complaint did not properly allege that Venture relied on Deloitte’s audits and that the Trustee’s aiding-and-abetting claim was barred by the statute of limitations. The bankruptcy judge issued a recommendation to the federal district court that the Trustee’s professional negligence and aiding and abetting claims be dismissed. The district court accepted the bankruptcy judge’s recommendation, and the Trustee appealed.

—Ian M. Ross, Sidley Austin LLP, Chicago, IL

October 21, 2010

New York High Court Reaffirms In Pari Delicto Doctrine

The New York Court of Appeals has reaffirmed that principles of in pari delicto and imputation bar a corporation from shifting responsibility for the fraudulent acts of its own insiders to third parties, including auditors and other third party professionals. Kirschner v. KPMG LLP, et al., ___ N.E.3d ___, 2010 WL 4116609 (N.Y. Oct. 21, 2010) [PDF]. Kirschner v. KPMG was brought by the litigation trustee for Refco, Inc., seeking to recover from Refco’s outside accounting firms and other third parties that allegedly participated in or failed to detect fraud perpetrated by Refco insiders. Teachers’ Retirement System of Louisiana v. PricewaterhouseCoopers LLP was brought as a derivative suit by AIG shareholders seeking to recover from PwC for its allegedly negligent failure to detect fraud perpetrated by AIG insiders. The United States Court of Appeals for the Second Circuit (in Kirschner) and the Delaware Supreme Court (in AIG) certified questions concerning the adverse interest exception to imputation and the scope and application of the in pari delicto doctrine.

In a 4-3 opinion authored by Judge Read, the Court of Appeals first confirmed that existing principles of in pari delicto and imputation apply. The court explained that in pari delicto "mandates that the courts will not intercede to resolve a dispute between two wrongdoers," and reaffirmed that this doctrine operates to bar the claims of willful wrongdoers without regard to whether the other party’s wrongdoing was negligent or willful. Turning to imputation, the court reiterated that agency law requires imputation "even where the agent . . . commits fraud," explaining that "[t]he crucial distinction is between conduct that defrauds the corporation and conduct that defrauds others for the corporation’s benefit." The court rejected plaintiffs’ argument that, under the Second Circuit’s decision in In re CBI Holding Co., 529 F.3d 432 (2d Cir. 2008), the adverse interest exception turns primarily on the intent of the agent. Accordingly, the court affirmed the narrow scope of the adverse insider exception, noting that it is typically reserved for instances only of "outright theft or looting or embezzlement."

The court also declined to follow the approach of the New Jersey and Pennsylvania Supreme Courts, which have carved out exceptions to in pari delicto when outside auditors or other professionals are alleged to share some blame for an insider’s fraud. The court questioned the soundness of the public policy arguments underlying those decisions and noted that any potential benefits that might result from those exceptions were only "speculative." Accordingly, the court concluded that the interests identified by those courts and urged by the plaintiffs in the two cases are insufficient to "outweigh the important public policies that undergird" the court’s tradition of robust and predictable application of in pari delicto and imputation.

—Erin Murphy, King & Spalding, Washington, D.C.

 

Keywords: auditor liability, in pari delicto, AIG, Refco

Texas Supreme Court Reaffirms Limits on Auditors' Liability to Third Parties

 

In a unanimous opinion issued July 2, 2010, the Texas Supreme Court issued its most definitive statement in two decades regarding the limited scope of professional liability to non-clients and, in an issue of first impression, rejected a “holder claim.” Grant Thornton LLP v. Prospect High Income Fund, No. 06-0975 (Tex. July 2, 2010). The lawsuit was brought against accounting firm Grant Thornton by four investment funds managed by Highland Capital Management. The Court articulated the limited scope of professional liability to non-clients for negligent misrepresentation and fraud under Texas law.

The lawsuit was brought by hedge funds that bought high-yield junk bonds issued by Epic Resorts, a vacation timeshare operator. After timely paying interest for two years, Epic chose not to make an interest payment after its principal lender withdrew critical financing. The plaintiff funds subsequently drove Epic into bankruptcy in 2001. In 2002, the funds sued Grant Thornton, which had issued audit reports on Epic’s financial statements for the periods ending December 31, 1999 and December 31, 2000. The funds alleged that Grant Thornton had misrepresented the status of an escrow account that Epic maintained at U.S. Trust, the trustee under the indenture that defined Epic’s obligations to bondholders.

Embracing the Restatement approach, the Court reaffirmed that Texas law limits liability for negligent misrepresentation to “situations in which the professional who provides the information is aware of the nonclient and intends that the nonclient rely on the information. Unless a plaintiff falls within this scope of liability, a defendant cannot be found liable for negligent misrepresentation.” Liability for fraud is also limited, requiring evidence that the auditor had “reason to expect” that a non-client would rely, that the claimant’s reliance is “especially likely and justifiable,” and that the transaction sued upon is the type the defendant contemplated. The Court held that liability could not be premised on Grant Thornton’s “general knowledge that investors might purchase Epic bonds.” 

The Court also rejected “holder claims”—not claims that the funds bought or sold securities based on the audit reports, but instead that they refrained from selling bonds that they had previously purchased. The Texas Supreme Court had never considered whether holder claims were viable under Texas law. The Court concluded that “to the extent they are viable, [holder claims] must involve a direct communication between the plaintiff and defendant.” Because it was undisputed that there had been no direct communication between the funds and Grant Thornton, the Court rejected the asserted holder claims.

The Court’s opinion also addresses two important issues regarding reliance. Most of the funds’ bond purchases occurred after March 2001, when its investment manager learned that Epic had lost the financing critical to its operations. The Court held that if the funds relied on the 1999 or 2000 audits reports in making these purchases, that reliance would not have been justifiable in light of the funds’ knowledge. As the Court concluded, the funds “could not have justifiably relied on the audit report as to purchases made after they knew the corporation was at risk of financial ruin.”

The Court also rejected the funds’ vicarious reliance theory. The funds admitted that they never saw or relied upon a negative assurance statement that Grant Thornton provided to Epic in 2000. The funds argued that U.S. Trust relied on that statement and that they could substitute U.S. Trust’s reliance for their own because U.S. Trust was the bondholders’ agent. Rejecting this argument, the Court held that if that were true, U.S. Trust’s knowledge (that the escrow account was not in place) also must be imputed to bondholders. The Court held that the bondholders “may not substitute their escrow agent’s reliance for their own without also being bound by its knowledge.”

 

—Samara Kline, Baker Botts L.L.P., Dallas.

 

Keywords: auditor liability, negligent misrepresentation, holder claims

Top SEC Officials Speak at Los Angeles Securities Regulation Seminar

 

On October 30, 2009, the Los Angeles County Bar Association sponsored the forty-second annual Securities Regulation Seminar to address recent trends and developments in securities laws. The seminar included several panels of scholars, leading private practitioners, and senior officials from the Securities and Exchange Commission (SEC), the United States Attorney’s Office, and the California Department of Corporations. Michael C. Kelley of the Los Angeles office of Sidley Austin LLP moderated a panel on the Changing Face of Securities Litigation.

ABA Urges FASB Not to Adopt Exposure Draft

On August 5, 2008, the ABA presented its formal comments to the Financial Accounting Standards Board (FASB) exposure draft entitled, "Disclosure of Certain Loss Contingencies: An Amendment of FASB Statements 5 and 141(R)." The Exposure Draft has the potential to affect significantly lawyers' responses to audit inquiry letters, which are auditors' requests for information on loss contingencies regarding pending or threatened litigation. The Exposure Draft would change both the basic disclosure threshold and the content of the required disclosures, protocols for which have been in place since the mid-1970s. In its comment letter, the ABA expresses a number of serious concerns regarding the Exposure Draft, including that it further erodes the protections of the attorney-client privilege and work product doctrine during the audit process, and urges FASB not to adopt the proposed amendment.

U.S. Supreme Court Curbs Securities Lawsuits Against Secondary Actors

On January 15, 2008, the United States Supreme Court held that investors suing business partners of an issuer must plead and ultimately prove actual reliance to state a claim under Section 10(b) of the Securities Exchange Act of 1934, rejecting so-called “scheme liability.” Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc., et al., – U.S. –, No. 06-43 (Jan. 15, 2008). In a 5-3 decision authored by Justice Kennedy, the Court held that the secondary actors’ alleged conduct in Stoneridge was not actionable because the investors could not have relied on the secondary actors’ allegedly deceptive conduct because it was not disclosed to the market.

Supreme Court Hears Argument on Expanding Professional Liability in Securities Fraud Case

While reading the tea leaves in any oral argument can be perilous, the Supreme Court appears likely to reject a major expansion of professional liability in private securities fraud cases. Eight members of the U.S. Supreme Court recently heard oral argument in Stoneridge Investment Partners, LLC v. Scientific Atlanta, Inc., et al. (No. 06-43). (Justice Breyer recused himself.) The question before the Court is whether Section 10(b) of the Securities Exchange Act, and the SEC’s implementing regulation, Rule 10b-5, provide a private cause of action against cable-box equipment vendors that (1) did not make any misrepresentations to the market and (2) did not have any duty to disclose. The petitioner’s attorney advanced the theory that the vendors were liable under the applicable securities laws for using a “deceptive device” in connection with the purchase or sale of a security. Specifically, the petitioner’s attorney alleged that the vendors had participated in a fraudulent scheme to create “fictitious advertising revenue” for another company, Charter Communications, to report to that company’s investors.

UPDATE—Oral Argument: October 9, 2007

Stoneridge Investment Partners, LLC, brought a securities fraud class action against Charter Communications' vendors Scientific Atlanta and Motorola, alleging a scheme in which Charter contracted with the vendors to purchase set-top cable boxes at higher-than-normal prices and sell advertising at higher-than-normal rates. These transactions served to artificially inflate Charter's stock price. The United States District Court for the Eastern District of Missouri held that Stoneridge's claim was foreclosed by the Supreme Court's decision in Central Bank, N.A. v. First Interstate Bank, N.A., 511 U.S. 164 (1994), in which the Court determined that mere "aiders and abettors" of fraud cannot be held liable. The Eighth Circuit affirmed. Thus, the issue before the Supreme Court is whether a party may be held liable for fraud where it made no misleading public statements (or omissions), and had no duty to do make disclosures, but engaged in transactions with a public corporation designed to artificially enhance the public corporation's financial statements. How the Supreme Court decides this case may set a new standard for determining whether third parties can be held liable for investor- related fraud.

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Here we have a rare US Supreme Court case addressing professional liability issues (and general securities issues). It concerns whether shareholders of companies that commit securities fraud should be able to sue investment banks, lawyers, and others that allegedly aided and abetted in the fraud under Central Bank. The case is Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc. The key available briefing is below. The Stonebridge case is set for oral argument in early October 2007.

Court Rules Two Patent-Related Legal Malpractice Actions Must Be Litigated in Federal Court

Two recent decisions of the United States Court of Appeals for the Federal Circuit hold that the federal courts have exclusive jurisdiction under 28 U.S.C. § 1338 over state legal malpractice actions involving patent infringement and patent scope. See Air Measurement Technologies, Inc. v. Akin Gump, 2007 U.S. App. LEXIS 24098(Fed Cir. Oct. 15, 2007); Immunocept, LLC v. Fulbright & Jaworski, LLP, 2007 U.S. App. LEXIS 24095 (Fed Cir. Oct. 15, 2007).

In Akin Gump, Air Measurement Technologies (“AMT”), a patent holder, filed suit against Akin Gump, its attorneys, for legal malpractice and other various state law claims. AMT alleged the attorneys’ errors in litigating the underlying patent infringement suits forced them to settle the prior litigation for merely $10 million, far below the market value of the patents. The Federal Circuit Court found that Section 1338, providing exclusive federal court jurisdiction over actions arising under Acts of Congress relating to patents, applies because determination of patent infringement is the necessary “suit within a suit” proximate cause element of the malpractice claim. The court found, therefore, removal appropriate because it was based on a contested question of patent law intended for resolution in federal court.

In the sister Fulbright & Jaworski case, Immunocept, the patent holder, sued Fulbright, the attorneys hired to secure patent protection, in federal court for legal malpractice. Immunocept alleged the attorneys’ drafted a patent claim too narrowly, providing inadequate patent protection and resulting in lost profits for the patent holder. The Federal Circuit Court found that Section 1338 applies because determination of claim scope, as the first step of a patent infringement analysis, is a substantial question of patent law. After finding jurisdiction, the court then found the claim barred by the statute of limitations.

These two cases add to the Federal Circuit’s Section 1338 jurisprudence concerning cases involving state legal malpractice cases. Now, malpractice claims involving patent infringement and patent scope, in addition to patent validity, enforceability, and interpretation of patent applications, require federal determination of a substantial question of patent law.

Effects of the Federal Circuit Court rulings were soon felt in California. On October 17, 2007, merely two days after the Akin Gump and Fulbright & Jaworski cases were decided, a patent infringement case pending in a California state court was removed to the United States District Court for the Northern District of California. Berger v. Seyfarth Shaw, 5:07-cv-05279-PVT.

– Submitted by John Hong, associate attorney awaiting bar results, Long & Levit, LLP, San Francisco, CA

Tennessee Case Raises Questions Concerning Solicitation of Potential Clients

On October 26, 2004, Simpson Strong-Tie Company, Inc. (“Simpson”) disclosed the following in a filing with the SEC:

The Company was recently informed of a consumer alert issued on October 21, 2004, by the fraud division of the office of Contra Costa County, California, District Attorney, regarding the corrosion of some types of connectors and fasteners when used with some types of pressure treated wood. A local television news program reported on this matter the same day. The Company sujects its products to extensive testing, including their use with pressure treated wood. The Company publishes its conclusions and guidance in its catalogues and on its website (see www.strongtie.com/info). Based on its test results to date, the Company believes that if its products are appropriately selected and properly installed in accordance with the Company’s guidance, they may be reliably used in appropriate applicationa with pressure treated wood.

In January of 2006, Simpson became aware of the following advertisement which Stewart Estes and Donnell (the “law firm”) had placed in The Nashville Tennessean:

ATTENTION: WOOD DECK OWNERS
If your deck was built after January 1, 2004 with galvanized screws manufactured by Phillips Fastener Products, Simpson Strong-Tie or Grip-Rite, you may have certain legal rights and be entitled to monetary compensation, and repair or replacement of your deck. Please call if you would like an attorney to investigate whether you have a potential claim.

Joyce Cope
424 Church Street, Suite 1401
Nashville, Tennessee 37219-2392
Phone: (615) 244-6538

Simpson subsequently filed suit against the law firm in the United States District Court for the Middle District of Tennessee [Docket # 3-06-CV-00094].

The complaint asserted a claim for defamation and other claims. The law firm filed a motion for judgment on the pleadings, asserting that its advertisement was protected by the litigation privilege. The District Court then certified the following question to the Supreme Court of Tennessee: Does the litigation privilege apply to communication made preliminary to a proposed judicial proceeding, where such communications are directed a recipients unconnected with the proceeding in hopes of soliciting them to become parties to it?

Briefs have been submitted, and copies of the briefs are available from this website.

Oral argument was held in the Tennessee Supreme Court in June 2007.

Texas Ethics Committee Rules That Law Firms May Not Mark Up Fees of “Non-firm Lawyers,” Including Temporary Lawyers

In a move that may have significant consequences for the temporary legal staffing industry, the Professional Ethics Committee for the State Bar of Texas (the “Committee”) has set new guidelines for law firms to follow when billing clients for legal services performed by a lawyer who is not an associate, partner, or shareholder of the law firm. Opinion No. 577 explains that the proper billing treatment depends on whether the lawyer is considered to be “in” the law firm for purposes of the Texas Disciplinary Rules of Professional Conduct (the “Rules”). The categories recognized by the Committee are: (1) “other firm lawyers,” such as of counsel attorneys or other part-time lawyers, who are considered to be “in” the law firm for purposes of billing disclosures and (2) “non-firm lawyers,” such as local counsel or lawyers hired on a temporary basis, who are not considered to be “in” the law firm.

Deep East Texas Self-Insurance Fund v. Cunningham Lindsay Claims Management, Inc. et al.

Cause 51,556-A, County Court at Law No. 2, Smith County, Texas

Prevailing plaintiff who sought to satisfy judgment pursuant to a high-low agreement challenges the attorneys’ fees and expenses incurred by defense counsel because those fees and expenses were deducted from the amount paid by defendants’ insurer under an “eroding” policy, thus reducing the plaintiff’s recovery. Plaintiffs alleged that to the extent that the law firm obtained money from the insurance company by submitting unreasonable, excessive and/or fraudulent bills for fees, then such funds should be paid to the Plaintiffs.