November 9, 2017 / 7:57 PM / a year ago

Boies firing by NYT spotlights advance conflict waivers, common but controversial

(Reuters) - David Boies of Boies Schiller Flexner was fired by the New York Times Tuesday night, a few days after the New Yorker reported that Boies had signed a contract directing private investigators working for Harvey Weinstein to attempt to uncover information about the Times’ reporting on Weinstein’s alleged sexual abuses.

The Times reported on Oct. 5 that Weinstein reached eight previously undisclosed settlements with women who made allegations of sexual harassment and unwanted physical contact. Weinstein has denied having nonconsensual sex with anyone. Reuters has been unable to independently confirm any of the allegations.

According to the New Yorker, Weinstein brought in private investigators to shadow Times journalists as they reported the story. Boies did not hire or supervise the private investigators but was aware of their work. At the time, Boies Schiller also represented The New York Times in unrelated matters.

The Times said Tuesday that it was “reprehensible” and “a grave betrayal of trust” for Boies to involve himself in a secret operation against the newspaper while it was a client of his firm.

Boies told his firm in a statement Tuesday that he no longer represents Weinstein, but that he was not conflicted when he executed the Weinstein contract with private investigators. Boies emphasized that he did not hire or supervise the investigators but merely signed their contract. At the time, he said, that seemed like “a reasonable accommodation for a longtime client,” but was, in retrospect, “a mistake.” Boies also suggested that he believed Weinstein’s investigators were not hired to bully Times reporters but to find out the truth of the allegations they were checking out.

Moreover, according to Boies, the Times knew from the moment it hired Boies Schiller that the firm has some clients whose interests diverge from those of the newspaper. According to Boies’ statement, the firm specifically said at the time of its engagement that it “needed to be able to continue to represent clients adverse to the Times on matters unrelated to the work we were doing for the Times.” In fact, Boies said, Boies Schiller’s engagement letter with the Times included a clause acknowledging the conflicts issue.

He quoted the agreement: “We have explained and you have agreed that as a result of the types of clients the firm advises and the types of engagements in which we are involved, we may be requested to act for other persons on matters which are not substantially related to the engagement, where the interests of the other persons, and the firm’s representation of them, may be against the client’s, including adversity in litigation.”

If you work at a big firm, you know how common this sort of “advance conflict waiver” has become as law firms have sprawled into giant, far-flung operations. The Third Restatement of the Law Governing Lawyers permits lawyers to ask clients for open-ended consent to conflicts. The American Bar Association’s Model Rules of Professional Conduct similarly allow lawyers to request advance waivers from clients.

Both the ABA and the Restatement caution, however, that advance waivers may not amount to informed consent. “If the consent is general and open-ended, then the consent ordinarily will be ineffective, because it is not reasonably likely that the client will have understood the material risks involved,” the ABA said in a note to its conflicts rule. “On the other hand, if the client is an experienced user of the legal services involved and is reasonably informed regarding the risk that a conflict may arise, such consent is more likely to be effective, particularly if, e.g., the client is independently represented by other counsel in giving consent and the consent is limited to future conflicts unrelated to the subject of the representation.”

Broadly speaking, there are two different ways to think about advance conflict waivers, depending on what you think of the balance of power between clients and outside lawyers. In one view, advance waivers reflect the modern marketplace for legal services, in which sophisticated clients shop for different law firms to handle different sorts of cases. From that perspective, the waivers benefit clients because law firms will accept discrete assignments without having to worry they’re ceding future opportunities to work for rival clients.

But you could conversely argue that law firms take advantage of clients by getting them to sign open-ended waivers that don’t specifically anticipate all of the ways outside counsel can end up across the table from them. That seems to be the Times’ point in firing Boies.

Oddly, considering their wide use, advance conflict waivers rarely flare up in public controversies. Before the Boies episode, the most notable case involving an advance waiver was probably Mylan’s bid for a preliminary injunction barring Kirkland & Ellis from representing a competitor, Teva, in a hostile bid for the generic drugmaker. Kirkland had obtained an advance conflict waiver from Mylan, which it represented in a handful of regulatory cases, in large part because of the law firm’s longtime client relationship with Teva. But when Teva launched a takeover offer for Mylan, Mylan said the conflict waiver didn’t encompass a hostile takeover. It moved to disqualify Kirkland from advising Teva, arguing that the firm had had access to confidential Mylan product information. After a federal magistrate sided with Mylan, Kirkland stepped aside.

U.S. District Judge Ed Kinkeade of Dallas had a more permissive view of advance conflict waivers in 2013’s Galderma Laboratories v. Actavis (927 F.Supp.2d 390). The judge denied Galderma’s motion to bounce Vinson & Elkins from defending Actavis in a patent case, holding that Galderma gave informed consent to V&E when it signed an open-ended conflicts waiver that said, in part, “You agree that our representing you in this matter will not prevent or disqualify us from representing clients adverse to you in other matters and that you consent in advance to our undertaking such adverse representations.”

Advance waivers are soon to receive their most thorough and definitive analysis from the California Supreme Court, in a case pitting Sheppard Mullin Richter & Hampton against a former client, the PVC pipe maker J-M Manufacturing. The dispute centers on a $4 million fee Sheppard Mullin says it’s owed for defending J-M in a qui tam case. J-M says it owes Sheppard Mullin nothing because the law firm didn’t disclose a prior client relationship with one of the whistleblowers. (This is a drastic oversimplification, of course.)

An arbitration panel awarded Sheppard Mullin its fees. Los Angeles Superior Court Judge Stuart Rice upheld the award, but an intermediate state appellate court reversed him, holding that the client contract between Sheppard Mullin and J-M was illegal under California’s Rules of Professional Conduct because the law firm did not obtain consent to represent clients with adverse interests. Sheppard Mullin, represented by Gibson Dunn & Crutcher, contends that it did obtain consent – through an advance conflicts waiver. It petitioned the Supreme Court to take the case. The state justices granted the petition in April 2016. It’s now fully briefed, with copious amicus filings on both sides, and waiting for the Supreme Court to schedule oral arguments.

Sheppard Mullin’s lead argument in its opening brief is that the appeals court did not have jurisdiction to decide the legality of the firm’s engagement with J-M. The law firm and its client agreed to arbitrate any disputes. Supposed violations of the rules of professional conduct do not override California’s strict limitations on judicial review of arbitration awards, Sheppard Mullin argued, so the arbitration panel’s ruling should stand.

But if the California Supreme Court decides it has authority to opine on the enforceability of advance conflict waivers, Sheppard Mullin said, it should keep in mind that J-M is a billion-dollar company whose in-house lawyers scrutinized the law firm engagement before they signed it.

“This case exemplifies the reasons why sophisticated clients represented by independent counsel - like J-M - frequently give informed written consent to comprehensive waivers of conflicts, and should be bound by such waivers when they do,” the Sheppard brief said. “These clients have decided - with full understanding and advice of their independent counsel - that their interests are best-served by executing such waivers and securing counsel of their choice. The law should not, in the name of protecting sophisticated clients, preclude such decisions.”

J-M, represented by Greines Martin Stein & Richland, said in its answering brief (2016 WL 4798836) that regardless of the rules in other states, California’s code of professional conduct “forecloses the use of generalized, open-ended advance waivers.” State ethics rules, J-M said, mandate written disclosures of all relevant circumstances. Sheppard Mullin, according to its former client, manifestly fell short of the rules when it did not specifically inform J-M that the firm had previously done work for one of the qui tam plaintiffs. (The law firm says the work was an unrelated matter handled by a different office.)

“Sheppard urges the court to place its imprimatur on broad, non-specific open-ended waivers because sophisticated clients should not be ‘prevented’ from waiving conflicts,” Greines Martin wrote. “A rule requiring disclosure of a particular existing or impending conflict does not ‘prevent’ the client from waiving the conflict. Informing the client is the necessary first step to informed consent.”

Otherwise, J-M said, law firms could routinely abuse their clients’ dependence. “Sheppard’s approach would reduce a fiduciary relationship of dependence and trust into an arm’s length commercial transaction between two businesses, where one business can use information disparity against the other,” it said. “That isn’t legal ethics. It’s caveat emptor.… Attorneys are fiduciaries - and they must act like fiduciaries, regardless of their client’s level of sophistication.”

In the end, a client can always terminate its relationship with outside counsel, like the Times did with Boies Schiller this week, if it’s angry about a conflicting engagement. Advance conflict waivers don’t compel clients to stick with law firms they don’t like. The waivers are only supposed to prevent clients from disqualifying the firms from representing adversaries.

That’s obviously not an issue in the Boies Schiller episode since Boies no longer represents Weinstein. But keep an eye on the Sheppard Mullin case. It may change the way you do business.

The views expressed in this article are not those of Reuters News.

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