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Emerging and Expanding Lawyers Professional Risks….. Are We Prepared?

This panel discussion explores the increasing risks faced by lawyers in an evolving legal landscape, including the challenges of lateral hiring, merger and acquisition activity, changing client demands, and the threats posed by technology. Learn how to effectively mitigate these risks and stay prepared.

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Emerging and Expanding Lawyers Professional Risks….. Are We Prepared?

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  1. Emerging and Expanding Lawyers Professional Risks…..Are We Prepared? Jody Harris, ARM, RPLU - Arthur J. Gallagher & Co. Donald Patrick Eckler, Esq. – Pretzel & Stouffer, Chartered Dan E. West, Esq. – McGlinchey Stafford Thursday, October 4, 2018

  2. The Disclaimer Please note that the viewpoints and statements made today are those of the individuals on the panel and not the organizations they represent.

  3. October 4, 2018 Agenda • Lateral Hiring Expanding Risks • Merger and Acquisition Activity & Risks • Evolving Practice Changes to Meet Client Demands = Evolving Legal Malpractice Risks • Future Threats - Expanding Technology, The Big Four

  4. Lateral Hiring • Due diligence is more than just the revenue and client conflicts….for example, sexual harassment allegations? Criminal offenses? • Background Checks? Verification from state bar? - Commonwealth of Pennsylvania v. Kimberly Marie Kitchen, Case No CR-74-15, Court of Common Pleas of Huntington County, Pennsylvania – Acted as a “lawyer” for over nine years.

  5. Lateral Hiring • Claims from Lateral Hiring – Will conflicts make the lateral worth the investment? • Employment Contracts – Partnership and Employment Agreements with notice provisions delaying start dates – holds as long as 6 months give firms time to retain clients. Is this an Employment Law risk in some states?

  6. Vetting Lateral Hires • Names of lateral’s clients • Are lateral’s clients adverse in firm’s conflict database? • Lateral’s opposing/adverse parties • Are the lateral’s opposing/adverse parties a client of the firm? • Case open or closed? • Will the client come with the lateral?

  7. Additional Vetting of Laterals • Board memberships? • Client equity? • Roles as expert witness, arbitrator, mediator? • Client pitches? • Malpractice claims? • Firm culture a fit? • Client service approach a fit? • Marketing approach a fit? • Associate development a fit?

  8. Lateral Hire Claims • Insurers continue to see claims increase from lateral hires - 15 to 20% • Claims resulting from laterals not being trained or supervised • Claims from continuing to work for client of old firm that does not become client of new firm.

  9. Law Firm Mergers & Acquisitions • 2015 – 91 Mergers 2016 – 85 Mergers 2017 - 102 Mergers 2018 – 51 Mergers mid-year • Vetting clients, conflicts and contentious client relationships • Insurance Prior Acts – Who’s covering whom? • Cultural fit?

  10. Law Firm Mergers & Acquisitions • ABA Op. 96-400 (1996) says that the lawyers must disclose a potential merger to their clients when the lawyers’ interest in combining becomes "concrete, communicated and mutual."  • Victorinox AG v. The BF System Inc., 13 Civ. 4534 (S.D.N.Y. 2016) • Stanley v. Richmond, 41 Cal. Rptr. 2d 768 (Cal. App. 1995) • McCafferty v. Musat, 817 P.2d 1039 (Colo. App. 1990)

  11. On Line Legal Services – Risk Management • Avvo Legal Services shut down flat fee services, with lawyer paying marketing fee to Avvo – July 2018 Bar Association Challenges – fee splitting. • How will law firm client services, self-service evolve? Is client self service good risk management?

  12. On Line Legal Services - The Rules May Apply • RPC 5.4 (a) – Prohibits sharing fees with non-lawyers. • RPC 1.15 (i) – Legal fees paid in advance must be deposited in lawyer’s trust account • RPC 7.7 (a) – Prohibits a lawyer from accepting referrals from a referral service engaged in communication with the public which would violate the rules if the communication is made by the lawyer.

  13. Technology – The Risks • Apps to Provide Legal Advice – Clients want quick access to legal advice – legal networks, legal forms, commonly asked questions, pre-meeting questionnaires. Is template driven advice always accurate? • Cloud Storage and Applications – Does it breach record retention requirements if solely reliant on cloud storage? Are docs encrypted before being uploaded?

  14. Technology – The Risks • Do your lawyers have virtual assistants in their offices? Are Alexa and Siri recording client confidences? • AI Risks – Happy Birthday Siri! Dialing in Legal Ethics for Artifcial Intelligence, Smart Phones and Real Time Lawyers – by Jan Jacobowitz and Justin Ortiz

  15. Technology & Lawyers Professional • Law Firm Subscription Services – Is the insurance industry underwriting to them? How do you control user error? • Reed Smith “Innovation Hours” – Billable hours credit for developing new ways of working as technology innovators–Ex. – Breach Response App. • Reed Smith Gravity Stack – subsidiary technology group to create and license the firms’ technology products.

  16. Preferred Provider Lists • Preferred Legal Networks and Corporate Panels - Not just insurance companies…. Corporate General Counsels want: • Greater Efficiency • Innovation • Alternative Fee Arrangements • New Technology

  17. Preferred Provider Lists – The Risks • Larger client relationships = greater financial dependence on less clients. • Larger client relationships – Does attorney/client independence? • How will the significance of these relationships be underwritten?

  18. Is this the future of fixed fee, process driven work? The Big Four • Ernst & Young buys Riverview Law - Now EY Riverview Law – fixed fee, process-driven work – based in UK • Ernst & Young – 2,200 Legal Practitioners. Largest law firm by attorney count – Kirkland & Ellis – 1,854 attorneys • Deloitte – Forms alliance with immigration firm Berry Appleman & Leiden – Acquires firm non-US operations in eight countries. • Price Waterhouse Coopers opens Law Firm – ILC, Legal- assists U.S. Clients on International issues, not U.S. legal advice.

  19. Less Law Firm Lawyers Means…. The Big Four – The Risks • Impact on Lawyers Professional Insurance Marketplace – Will it make a scratch or a dent? • Impact on Legal Malpractice Exposure – Greater risk per lawyer for underwriters, if routine work is outsourced? • Law Firm Financial Impact on Client Intake

  20. Summary Will growth through acquisitions continue at the rapid pace we’ve seen? Is bigger better? Will laterals movement continue at the current pace? Is Innovation a threat or an opportunity? How will the commoditization of law practices affect future generations of lawyers?

  21. Questions?

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