“Paul Weiss Provided ‘Irreconcilably Conflicted’ Advice While Also Advising Tisch Family, Suit Alleges” —

• “A real estate company’s legal malpractice suit against Paul, Weiss, Rifkind, Wharton & Garrison alleges that the law firm’s advice was so ‘irreconcilably conflicted and flawed’ as a result of the firm’s connections to the Tisch family, that its former client was ordered to pay damages in underlying litigation.”
• “The malpractice lawsuit, filed in Manhattan Supreme Court late Thursday, was brought by Fairstead Capital Management and its two co-founders, Jeffrey Goldberg and Stuart Feldman. Marc Kasowitz of Kasowitz LLC represents the plaintiffs.”
• “The crux of the suit alleges egregious conflicts of interests, breach of fiduciary duty and deficient legal advice.”
• “In a statement, a Paul Weiss representative said: ‘Fairstead’s claims, asserted nearly four years after our representation ended, misrepresent basic facts, ignore binding court rulings and are baseless. We will vigorously contest them.’”
• “The suit alleges that in 2020, two Fairstead executives, William Blodgett and John Tatum, allegedly orchestrated a hostile scheme to either seize control of Fairstead or launch a rival enterprise using stolen, proprietary data.”
• “Fairstead retained Paul Weiss to facilitate the termination of the two executives and to protect the company’s assets, with senior Paul Weiss litigator Andrew Gordon handling the matter.”
• “According to the malpractice suit, Fairstead, in its initial forays to Paul Weiss, had referenced that the two executives they were trying to fire were being funded and assisted by the Tisch family office, a prominent New York legacy family with deep pockets. Blodgett was married into the Tisch/Sussman family.”
• “The complaint states that Paul Weiss failed to disclose that the Tisch family was a long-time and valued client of the firm, even after Fairstead stated that the Tisch family office was funding the executives in question. Gordon in particular handled issues for the Tisch family, the suit alleges.”
• “‘The same law firm that Fairstead hired to terminate Blodgett and Tatum and defend itself against the two employees (and their co-conspirators) who stole confidential computer files and were plotting to take over the company, was representing the billionaire family that was financing those employees’ scheme, receiving stolen computer files, advising the employees on strategy, and bankrolling the new competing venture,’ the lawsuit claims.”
• “Paul Weiss advised Fairstead to accept Tatum’s resignation instead of firing him for cause, according to the suit. Seven months later, Paul Weiss tried to retroactively terminate him for cause, which a Delaware court flagged as a bad-faith waiver of rights.”
• “In addition, the suit says that Paul Weiss advised that Blodgett be fired for cause but also put an economic incentive on the table. An arbiter later ruled that the dual-pronged approach was an improper pressure tactic, stopping Fairstead from clawing back equity that Blodgett had in Fairstead. The suit also states that Paul Weiss allegedly refused to seek court intervention to seize Blodgett’s tech containing stolen data. The firm instead sent letters, which allowed Blodgett to erase the company data from his phone at an Apple Store, the suit claims.”
• “In July 2022, after representing Fairstead for 10 months, the suit alleges that Paul Weiss abruptly ended its representation just prior to filing a lawsuit against Blodgett.”
• “The reason it withdrew, the lawsuit alleges, was that James Tisch told Brad Karp, then Paul Weiss’s chairman, that he ‘can’t have Paul Weiss suing the [Tisch] family,’ as the law firm was representing the Tisch family.”
• “‘The damage caused by that conflict was incalculable—for months, Fairstead had reposited its trust and confidence in an elite law firm that, unbeknownst to it, owed its primary loyalty to the family financing and supporting Fairstead’s adversaries. Indeed, Blodgett was a member of the very family that Paul Weiss represented,’ the suit claims.”

Perspectives from the client side: “Sub Agreements Do Not Override the OCG” —

• “There is a misconception that surfaces with enough regularity in legal spend advisory work to warrant addressing directly: the belief that a sub-agreement executed between a private equity firm and an offshore counsel — covering board support services, direct trustee services, or similar fiduciary mandates — operates as a standalone commercial arrangement, insulated from the expense governance standards set out in the firm’s outside counsel guidelines.”
• “It does not.”
• “Where a private equity or asset management institution has executed outside counsel guidelines with a law firm, those guidelines do not cease to apply at the jurisdictional boundary, nor are they suspended by the existence of a sub-agreement.
• “The OCG is the umbrella. Everything beneath it remains subject to its terms.”
• “Sub-agreements entered into with offshore counsel — whether in the Cayman Islands, the British Virgin Islands, Luxembourg, or elsewhere — typically govern the scope of specific mandated services. In the fiduciary context, this most commonly encompasses board support services and direct trustee services: the provision of independent directors, the administration of board governance, and related fund-level fiduciary functions.”
• “These arrangements are not entered into at arm’s length with a new, unconflicted counterparty. They are, in the overwhelming majority of cases, executed with a firm that has already signed the institution’s outside counsel guidelines.
• “Any sub-agreement executed by a firm that has signed the outside counsel guidelines is bound by those guidelines as a matter of contract. A subsequent, narrower agreement between the same parties does not displace the controlling terms of the OCG unless the OCG itself expressly permits such carve-outs — and properly drafted outside counsel guidelines do not.”
• “The problem, in our experience, is not typically wilful non-compliance. It is structural drift. Sub-agreements for fiduciary services are often negotiated by a different internal team — fund management, operations, or the fiduciary oversight function — rather than the legal operations or outside counsel management team that owns the OCG programme. The result is that the sub-agreement goes to signature without any cross-reference to the governing OCG, and the offshore firm begins invoicing under its standard billing practices rather than under the institutional guidelines it has already agreed to follow.”
  “By the time the discrepancy surfaces — if it surfaces at all — there is an established billing pattern, a relationship dynamic that makes correction feel disproportionate, and sometimes a position from the firm that its fiduciary services were never intended to be in scope of the OCG.”
• “It is worth stating, finally, that this issue carries particular weight on the fiduciary side of the business. Institutions operating as fiduciaries — or engaging service providers to discharge fiduciary functions — are held to a standard of cost consciousness that is not merely contractual but duties-based. Permitting offshore counsel engaged on fiduciary mandates to bill outside the terms of the governing OCG is not a minor administrative oversight. It is an expense governance failure that touches directly on the institution’s own fiduciary obligations to its fund investors.”
• “The OCG exists for this reason. It should be enforced accordingly — without exception, and without deference to the structural convenience of how a particular engagement was documented.”

“Big Law Insider Trading Scheme Shows Document Security Flaws” —

• “M&A lawyers’ use of confidential client data for alleged insider trading shows how Big Law document management systems can be a vulnerability for those intent on exploiting them.”
• “The spotlight on unauthorized access to confidential data is a result of criminal cases involving three attorneys accused of improperly accessing internal documents at seven different law firms. One of the three, Nicolo Nourafchan, pleaded not guilty Monday to charges that he led a massive ring that made tens of millions of dollars in illegal profits.”
• “According to US Securities and Exchange Commission charging documents, in 2018 Nourafchan described to one of his attorney co-defendants, Gabriel Gershowitz, how he obtained confidential information about mergers and acquisitions from his law firm’s document management system. Nourafchan searched the system using keywords and viewed documents in preview or read-only mode to minimize any electronic trail of his access to the files, the complaint said.”
• “In the wake of the high-profile case, legal experts are expecting firms to beef up security around their internal documents. ‘You can’t just have data there but then not secure it,’ said Christopher Ehrman, former director of the whistleblower office at the Commodity Futures Trading Commission.”
• “The scheme, which has resulted in securities fraud, money laundering and other charges against 30 people, shows the emphasis many law firms place on creating document systems that make it easy for attorneys to collaborate rather than erect safeguards that strictly limit access. Nourafchan, who worked at three Big Law firms between 2013 and 2023, illicitly accessed information on transactions, including about a dozen he wasn’t assigned to work on, prosecutors claim.”
• “‘For a multibillion-dollar M&A deal, there could be several people looking at that file,’ Pacifici said. Restricting access with so many lawyers who need to see a file could get ‘onerous,’ which explains firms’ hesitation to create strict barriers, he said.”
• “Firms do employ some safeguards. The SEC complaint revealed that law firms put code names on pending client transactions, such as ‘Project Mars,’ ‘Flying Cloud,’ and ‘Project Integrator.’”
• “To obtain sensitive deal information about other clients in a firm’s document management system, an associate would need to know what to look for after receiving a tip, Pacifici said, citing his experience at three Big Law firms. It’s rare in his past experience for firms to proactively put up a security fence blocking lawyers from accessing information about their colleagues’ clients, he said.”
• “‘Big Law and technology are dogs and cats,’ Pacifici said. ‘The people who are controlling these firms are very set in their ways.’”
• “Ehrman said firms should strengthen electronic boundaries on their data to ensure that attorneys aren’t able to view files for matters they aren’t working on. ‘A failure to prohibit the ability of people to lock down a file is to me highly irresponsible,’ he said.”
• “Law firm document systems should ‘identify who has access, and limit that access, and then monitor for anomalous and suspicious behavior,’ said David D’Agostino, vice president of managed cybersecurity services at Integris, an IT company that works with law firms. Behavior such as logging in after hours, or accessing or moving certain files, should ‘potentially trigger a notification and alert that would require investigation,’ he said.”