The life of the law has not been logic; it has been experience.
Oliver Wendell Holmes, Jr., The Common Law at p. 1 (1881)
Of all the pithy and enduring observations that have been made about our profession (and, yes, our industry), this may be my all-time favorite. It is, if nothing else, King of the Hill until something else comes along that I find more insightful and of broader applicability.
What brings this text for the day to mind is an article in today’s WSJ, “Conflicts Force Big Law Firms to Lose Clients.” The thrust is straightforward, and well-trod ground to anyone with a scintilla of sophistication about our industry:
Big blue-chip law firms are losing potentially lucrative assignments to smaller firms even as the industry sees a spike in lawsuits against banks stemming from the financial crisis.
The reason for the change: ethics rules that govern conflicts of interest for lawyers and their firms.
Law firms usually can’t sue or investigate banks that they have represented, unless the clients take the unusual step of waiving the conflict. Thus, many small to midsize firms, which count fewer banks as defense clients, are filling a growing demand for conflict-free lawyers able to file lawsuits against banks.
The article goes on to recount a few tales of partners at name-brand firms (Shearman & Sterling, notably) decamping to smaller firms (Houston-based McKool Smith, New York’s MoloLamken LLP) in order to be able to pursue claims against large banks and other financial institutions in today’s target-rich environment. This phenomenon, of course, has been widely reported, as has the allied phenomenon of BigLaw partners moving to smaller, boutique, or regional firms in order to be able to offer their clients more modest rates. I have no doubt whatsoever that both are genuine trends–exacerbated by the Great Reset and unprecedented client pressure on rates–but I would also counsel you not to take every single such reported story 100% at face value. ‘Nuff said.
The conflicts issue, however, ranks so large in the context of pursuing claims against financial institutions that Michael Carlinsky, a partner at Quinn Emanuel, is quoted by the Journal as saying that the freedom to sue financial firms “is one the single biggest ingredients to the success of our firm.” Mr. Carlinsky deserves a commendation for candor, if nothing else. I always worry about business models predicated on regulatory arbitrage, but I would be the last to gainsay that firm’s astonishing ascendance over the past several years.
But this isn’t about Quinn Emanuel. It’s about our conflicts rules.
What about them? I have long believed them to be–and the Journal piece confirms them as:
- Provincial;
- Of an antique era;
- Utterly at odds with the common sense of “expertise markets” at work everywhere else in the economy; and
- Long since overtaken by events.
May I elaborate?
The conflicts rules are of course creatures of the ABA and the state bar associations which, by and large, are creatures of and responsive to solo and very small firms, and which have no interest in, or representation in their ranks by, BigLaw or global firms. Thus my charge of “provincial.”
And “antique” because the notion that you can’t represent Client A at one point and Client B, a competitor of A, at another, is simply quaint.
Which brings me to the third and most important economic point, which is that, when the going gets tough, corporations and individuals seek out experts. And how do you define “expertise”? Without being technical, I would say it’s a function primarily of having great skill or knowledge in a particular area or domain by virtue of having practiced there at a high level for a significant period of time. In other words–and here’s where the conflicts rules proclaim themselves profoundly at odds with economic common sense–experts are most likely to be found at firms that specialize in representing the industry you’re interested in.
We saw this, famously, of course, during the height of the financial crisis (say, from the 3rd quarter of 2008 through early 2009) when the indomitable Rog Cohen of Sullivan & Cromwell represented nearly every major player in sight, and not only every player, but often two players at the same time who were nominally on different sides of a single issue or transaction.
Why?
Because, in extremis, we go to experts, and conflicts rules go out the window. In other words, they have been overtaken by events.
Finally (and this may be the most powerful objection to them), aren’t the rules just flat-out irrelevant?
My point is not the technical and persnickety one that clients can always waive conflicts, or law firms can seek waivers-in-advance. My point is that commercial and business reality is always going to carry infinitely more weight than Model Rules of Professional Responsibility.
If every Wall Street bank thinks Rog Cohen is their guy, why shouldn’t he be?
Conversely–and this has even more force–conflicts have always and everywhere been in the eye of the beholder. And the beholder is invariably the client, not the law firm and not the ABA or the New York State Bar Association.
If you doubt me, I leave you with this now-legendary tale of conflicts drawn from the annals of the advertising industry. In AdLand, it’s long been widely recognized that no agency can represent, say, Coke and Pepsi at the same time. That may be simple enough, but the legendary tale dates to the days before smoking was banned on airplanes. An ad agency happened to represent Northwest Airlines and Philip Morris. Northwest stole a march on the industry (or perhaps simply saw the handwriting on the wall) by being the first major carrier to voluntarily ban smoking on all its flights. Philip Morris’s response? They fired the ad agency for a “conflict.”
Perhaps the life of the advertising industry has not been logic, either.
