A few weeks ago reports surfaced about a motion seeking to compel Norton Rose Fulbright to withdraw from representation of its client Duke University in a case brought against the university by the estate of John Wayne, which wants the right to market alcoholic beverages branded with Wayne’s “Duke” nickname—a textbook trademark dispute.
The Wayne estate sought to disqualify Norton Rose Fulbright on the straightforward grounds of a conflict, namely that legacy Fulbright & Jaworski had long represented Duke University and Norton Rose Fulbright Canada was a longstanding advisor to a minority shareholder of the distillery producing what would be Duke whiskey.
The response of Norton Rose Fulbright US LLP to the purported conflict? I’m afraid I must quote from coverage of the dustup in some detail:
In the course of the dispute, the firm said that the June 2013 tie-up has been “mischaracterised” as a merger – a claim that is likely to prompt questions over the level of integration at Norton Rose Fulbright and other Swiss verein firms. […] The motion, which cites press releases issued by Norton Rose Fulbright at the time of the go-live date of the tie-up, said: “The Fulbright firm promised it would provide ‘seamless’ legal services flowing from each of their member firms to the others.
“In a later release, the managing partner of Norton Rose Fulbright Canada stated, ‘[…] Our Canadian clients now have new north/south access to the Americas seamlessly with lawyers who are based in each country’s key markets’.”
It said Fulbright seemed to want “all the benefits of combining its member firms” and to market itself as a legal services “behemoth”, but is “unwilling to accept the accompanying burdens of the merger”.
However, Fulbright argues that the estate’s claim shows a misunderstanding of how Swiss verein arrangements function, pointing out that the firms operate as separate legal entities that do not share confidential information with each other. […] The filing continued: “In short, while Mr. Woodbridge may be a client of [Norton Rose Fulbright Canada], he is not a client of Fulbright & Jaworski and never has been.” […] It adds that the estate’s case “improperly relies on hearsay ‘news accounts’ mischaracterising the combination as a ‘merger’”.
A Norton Rose Fulbright spokesperson said the union between the firms has “always been seen and referred to as a ‘combination'”, adding that “any misrepresentation has probably been made by the media”.
And from coverage in Law360 (metered paywall), we have this:
“Despite plaintiff’s bald assertions to the contrary, Fulbright & Jaworski LLP did not merge with [Norton Rose Fulbright Canada LLP] or any other firm when it became a part of the verein,” the motion to deny DQ said. “Importantly, member firms do not share privileged information with other member firms unless they are retained by and working together for a client on the same matter.” […] The structure of the Norton Rose Fulbright verein and the ethical rules that bind the attorneys at issue assure that there will be no disclosure of confidential information to Duke’s counsel,” the defense motion argued.
Now, the law of conflicts is not my thing. But this does set one thinking.
If the Norton Rose Fulbright “combination” wasn’t a “merger,” and if “the structure of the Norton Rose Fulbright verein and the ethical rules that bind the attorneys” is something they pay attention to and abide by, then what about other ethical rules about sharing across the boundaries of two or more law firms? Specifically, ABA Rule of Professional Conduct §1.5(e) reads as follows (emphasis mine):
(e) A division of a fee between lawyers who are not in the same firm may be made only if:
(1) the division is in proportion to the services performed by each lawyer or each lawyer assumes joint responsibility for the representation; (and)
(2) the client agrees to the arrangement, including the share each lawyer will receive, and the agreement is confirmed in writing; and
(3) the total fee is reasonable
We can question—and on another day and in a different context I certainly would—whether this type of presumptive prohibition on fee-splitting actually does anything to advance efficiency and/or client utility one iota, but it is currently in effect and binding on members of the bar, like it or not.
We also don’t know the inner workings of Norton Rose Fulbright, and the degree to or circumstances under which money moves between firms, but assuming one of the primary purposes of the verein is to enhance depth in client relations and build revenue through a common brand and a larger “seamless” global platform, it would seem to be Management 101 that incentives ought to be in place to encourage people to refer work across the platform.
On their face, such incentives would seem to constitute:
- a division of fees
- between lawyers not in the same firm
- without regard to proportionality of services performed
- and without client consent as to amount and pro rata share, much less memorializing such consent in writing.
The question seems simple to me: If a compensation structure rewards lawyers for cross-firm referrals and if funds to pay those rewards cross firm boundaries, I don’t see how §1.5(e) doesn’t come into play.
Could it be that Norton Rose Fulbright disclaims to clients, perhaps in fine print on their website or in their engagement letters, that they are not a single firm, legally speaking, despite their talk about seamless, one-firm service?
I hope for their sake that’s precisely what they say. Lord knows if lawyers excel at anything, it’s generating legal fine print and burying Talmudic distinctions in a virtual hairball of prose. Let’s assume for purposes of discussion that Norton Rose Fulbright has done just that—I’ll even spot them doing it with effective and binding language.
This doesn’t really address the core problem, does it?
In fact, if you look at what’s going on here from a client (read: human) perspective and not a legalistic-hairsplitting perspective, this strikes me as precisely the kind of “trying to have it both ways” behavior that the disqualification motion accuses the verein of:
Both “having all the benefits of combining its member firms” and marketing itself as a legal services “behemoth”, but “unwilling to accept the accompanying burdens of the merger.”
Lawyers get enough of a bad rap in the public imagination for this very kind of behavior: Saying one thing for widespread public dissemination and standing on contradictory legalistic distinctions invisible to anyone who’s not a lawyer, and implausible to many who are, when that tactic suits their self-interest. Taking off my “thinking like a lawyer” hat and putting on my common-sense economic/management 101 hat, it’s not much of a stretch to imagine some people would actually find this behavior off-putting at best and insulting at worst. Either way, I won’t be planning to nominate this for the profession’s most shining hour.
Audience participation time: What am I missing here?
Bruce:
This is a very fine effort on your part, bringing some much needed illumination to a complex interaction of competing interests. Permit me to add a couple of observations.
First, I think that most vereins make a very strong effort at attempting to identify potential conflicts of interest and to develop with best new matter intake procedures that they can to screen and discover actual and potential legal conflicts of interest.
Second, not all members of the verein operate with a knowledge or sensitivity to the US rules of professional conduct because ….. they aren’t the US member. Indeed our rules are often considerably more restrictive on client conflict matters, and in any event at variance with those of other members.
Third, though not privy to the details of the procedures used by NR in Canada and the US, the nature of the relationships of the parties in interest appears to be such that I could easily envision a situation where a purely domestic but large multi-office operation in the US could stumble in the same way, unless their due diligence on new matter intake ‘drilled down’ a couple of levels so that the party conflict would be discovered. There could be a lot of law firm GC and other partners wiping their brows upon reading the story of this dispute and whispering “there but for the grace of God go we!”
Fourth, I don’t think that this challenge is much different, if at all, than the ‘One Firm’ operations face. While some foreign offices might be licensed branches, it is known that some foreign offices of so called ‘One Firm’ operations are in fact stand alone legal entities with the same name, and some alliance/other agreements. As they are technically separate law firms, they run into many of the same problems that you have identified. And the client confidentiality issues are particularly sensitive.
Fifth, putting aside whatever arguments somebody wants to make about whether it is an actual or potential conflict of interest and whether technically the two operations are permitted or not to wage war against each other for their respective clients…..and drive income for both upwards….what about the next level of ‘business conflict’. Maybe the disciplinary committee of a state bar won’t drop the anvil on your foot, but won’t the client(s) drop it on their lawyer’s head? Isn’t this one of the most critical and common sense aspects of this problem? Are lawyers incentivized to push this because of their dependence on originations and hours and the pressure to be loyal to their clients? There is a real squeeze on people here.
Finally, there is the issue of fee splitting and compensation for referrals that has been the elephant in the room, for all international firms. They just have to be wary of those rules and do it right. So far, however, not one has to my knowledge shown specifically how it is possible and how technically they comply with the ABA model rules. So, the issue is open. It would be great to see somebody take advantage of this situation to show how they do it, so everybody can get it right.
Of course, that is just my opinion. I might be wrong.
http://www.jdsupra.com/legalnews/are-verein-style-law-firms-ignoring-ethi-50859/
Interesting. Law firms looking for wriggle room in conflicts rules, of course, should not surprise us. London HQed firms are used to more generous rules than US counterparts and as prior research has shown (http://www.hartpub.co.uk/books/details.asp?isbn=9781841132297) firms were quite, ahem, relaxed in their interpretation of the rules whilst also lobbying for the formal relaxation of the rules which they were already adopting sotto vocce.
Their claim that clients did not want such restrictive rules came unstuck when it became clear that plenty of clients did want restrictive rules, and some stricter ones. Banks are always the ones fingered for this (and the recent Tomlinson report on banks raised the prospect of banks deliberately conflicting out their pals in Big Law (who may not feel so much like pals as a result). It may be one reason behind the emergence niche litigation outfits.
Unless someone puts me right, Chinese walls are almost impossible to police in practice. I’ve heard mixed things about how well they actually work. That said, the rules on conflicts are somewhat absurd, at least this side of the pond: barristers have much more freedom than solicitors; and yet big firms much more than small. Perhaps conflicts will be the first area where we get serious cross-professional harmonisation??
If I read this post correctly (and I stress I have not read and do not know the particulars of the underlying litigation and disqualification motion), the underlying conflict of interest claim appears to be that Norton Rose Fulbright has a conflict of interest and its lawyers should be disqualified by imputation because a now allegedly combined Canadian LLP represents a minority shareholder in the adverse party. The entire discourse on whether the NRF verein structure results in a combined firm or something less for purposes of ABA Model Rule 1.10 on imputation of conflicts among all lawyers practicing in the same firm seems to jump the gun and assume there is a conflict here. Model Rule 1.13 stands for the proposition that a lawyer retained by a corporation represents the corporation and not the corporation’s constituents (shareholders, officers, employees, etc.). Conversely, as considered by the District of Columbia Bar in Formal Ethics Opinion 328, representation of a corporate constituent, like a minority shareholder, does not necessarily disqualify or conflict a lawyer from taking on matters adverse to the corporation, which as we know is a legally separate entity from its shareholders. See also ABA Formal Opinion No. 95-390. I won’t go into a further analysis of Model Rules 1.7 on conflicts of interest and 1.6 on client confidentiality, but it jumps out at me that there may not be a conflict of interest here at all –regardless of Norton Rose Fulbright’s structure or the implications of that structure for purposes of Rule 1.10 imputation analysis.