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August 31, 2005

Compliance and Legal Ethics

Interesting compliance question for lawyers.  Today’s Wall Street Journal has a story (available
only to online subscribers) that describes how David Boies’ law firm has had to resign from
several recent engagements due to a conflict of interest:

Qwest Communications International Inc. and Tyco International Ltd., two major clients of the law firm of Boies, Schiller & Flexner LLP, paid millions of dollars to a
legal-document-management company that was partially owned by members of the family of star lawyer David Boies.

About half a dozen other Boies Schiller clients have used, or are using, the
document-management company, Amici LLC, to store and manage legal documents since the company's founding in 2002. One of Amici's founders was William F. Duker in Albany, N.Y. Mr. Duker, a lawyer and former associate of Mr. Boies, pleaded guilty to four felony counts and was sentenced to 33 months in prison in 1997 for falsely inflating legal bills to the federal government.

As reported, Adelphia Communications Corp. disclosed this week that Boies Schiller resigned as special counsel to the company at Adelphia's request after the cable company discovered business ties between Mr. Boies's family and Amici, which Adelphia also used. Adelphia asked Boies Schiller to resign about two weeks ago, after Adelphia discovered what it considered a conflict. Adelphia didn't know of any Boies family ties at the time it hired Amici.

Mr. Boies in an interview said yesterday he should have fully disclosed his children's' ownership interest in Amici. "I should have made certain that everyone knew about it," he said. He added that "a half dozen, or maybe eight Boies Schiller clients also use Amici."

Mr. Boies . . .  Said that Amici was only one of several companies that Boies Schiller
recommended to Tyco and that Tyco made its own independent decision. He added that Boies Schiller wasn't involved in Qwest's decision to retain Amici. Boies Schiller was counsel for both companies at the time they used Amici.

. . . .

Legal experts say that clients paying hefty fees to Boies Schiller for legal work might balk at the knowledge that partners and relatives of people in the law firm are reaping additional financial benefits form associated work, without the companies even knowing about it. There is, says Stanford University law school ethics expert Deborah Rhode, "an appearance of impropriety." It's really up to the client to select a document production firm, not the lawyers.

This situation might have raised a conflict of interest under Model Rule 1.7(a)(2), which states
that a conflict exists with a current client when “there is a significant risk that the representation
of one or more clients will be materially limited . . . by a personal interest of the lawyer.”  (I have
not looked at the NY ethics rules to find the parallel provision.)  And the comments to the Model
specifically mention other business interests of the lawyer: “a lawyer may not allow related
business interests to affect representation, for example, by referring clients to an enterprise in
which the lawyer has an undisclosed financial interest.”  Here, it would be the financial interests of
family members providing legal support services that might exert the influence, affecting Mr.
Boies’ representation, as he might have an incentive to conduct the representation in a manner
that increases the work (and fees) paid to the family members.  Of course, this temptation may be
small, so the Model Rules allow a lawyer to still undertake representation if (among other things)
“each affected client gives informed consent, confirmed in writing.”  (Model Rule 1.7(b)(4)) So,
Mr. Boies is right that it would be prudent in cases like this to disclose the relationship to clients.

Note that there is yet another Model Rule provision that is relevant, this one more compliance-
related – Model Rule 5.1(a):

A partner in a law firm, and a lawyer who individually or together with other lawyers possesses comparable managerial authority in a law firm, shall make reasonable efforts to ensure that the firm has in effect measures giving reasonable assurance that all lawyers in the firm conform to the Rules of Professional Conduct.

I read this rule to require managing lawyers to implement legal ethics compliance programs within
their firms or departments, and that the failure to do so is a freestanding ethics violation,
regardless of whether another ethics violation occurs.  In a Boies-type situation, a managing
lawyer should put in place a system to identify financial interests of its lawyers and their
immediate gamily members that might cause a conflict with the lawyers’ personal interests under
Model Rule 1.7(a)(2).

August 31, 2005 in Compliance in the News | Permalink


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The Wall Street Journal reports (here) that a document-management company, Amici LLC,that did work on behalf of Tyco and Qwest Communications is owned in part by members of the family of lawyer David Boies, whose firm (Boies, Schiller Flexner) is [Read More]

Tracked on Sep 1, 2005 2:52:46 AM