The Power of Perspectives

The Canadian Bar Association

CBA/ABC National

No hiding behind the Swiss Verein

July 31 2015 31 July 2015

Recently, a U.S. International Trade Commission judge disqualified Dentons US LLP from representing Cleveland-based RevoLaze LLC, in a patent suit against Gap Inc. Gap had filed the motion to disqualify arguing that it had long been a client of Dentons Canada, which placed the firm in a conflict of interest. Citing ABA Model Rule 1.0 in his ruling, Judge Charles Bullock rejected Dentons’ argument that the Swiss Verein structure under which the global firm is organized – with no sharing of revenues or pooling of profits among legally independent member firms – essentially established an “ethical screen” between Canadian and U.S. entities. His conclusion:

Dentons holds itself out to the public as a unified global law firm in order to attract business, and Dentons’ continued representation in the face of a direct conflict would both contradict this public image and negatively impact the law profession as a whole.

Collette Corser calls the decision “alarming” for other Swiss Verein law firms:

The fact that Judge Bullock relied on the marketing perception rather than the independently run legal entities of the various Dentons branches may give other verein structured law firms pause in how they continue their operations. As Dentons recently issued a statement that it has an “acute” interest in undoing this disqualification order, we can expect to see more of this issue in the near future.

So will the popularity of Swiss Vereins be short lived?  Not necessarily, writes Mark Cohen, and they may be suitable for some firms. But it makes the burden of managing conflicts more difficult:

Conflicts are a challenge for all law firms, especially as they get larger and more geographically dispersed. But those same conflicts are especially challenging to vereins because: (1) each “member” firm in the verein has its own P&L and, so, has a more entrenched, vested financial interest in representing its own clients since “firm clients” are really member clients for economic purposes; (2) differences exist between conflict rules of members operating in different countries (requiring the global brand to create and enforce a single standard for conflict resolution); (3) cultural differences exist between and among member firms, especially when they have become absorbed by the global brand and have little if any prior contact with other (potentially conflicting) verein members; (4) legacy technologies and the absence of a centralized technology for clearing conflicts makes the process cumbersome and subject to mishaps; (5) the “global firm” often lacks a shared approach to legal practice among its member firms as well as an identifiable and uniform firm ethos;  and (6) conflict resolution becomes more unwieldy unless there is a centralized decision maker whose rulings — given their direct financial impact on members — are particularly challenging and further strain brand cohesion. Bottom line: there are inherent risks of conflicts and proprietary data disclosures endemic to the verein structure, risks which Judge Bullock’s decision makes clear cannot be avoided by asserting the legal separateness of member firms.

Photo licensed under Creative Commons by Pranavian.


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