The loss in the U.S. of a $32 million jury award against Dentons has raised questions over its use of the Swiss verein structure, a popular, growth-inducing business model many global law firms use to structure their operations. And while experts say the problem is less with the actual model and more with the firm’s conflict management, law firms similarly structured should take note, they say.
In RevoLaze v. Dentons US, the law firm faced malpractice claims that it should not have represented the plaintiff, RevoLaze, in a patent infringement case because Dentons’ Canadian firm represented RevoLaze’s adversary—Gap Inc.—in other matters. In February 2020, a Cuyahoga County, Ohio, jury sided with RevoLaze and awarded $32.3 million in damages against the firm.
On appeal, a three-judge panel in Ohio’s Eighth District Court of Appeals upheld the jury verdict on Thursday, going to lengths to discuss the verein model.
Dentons had argued that because of the way it is structured—using a network of Swiss vereins—operations in different markets did not need to run conflict checks with operations in other markets.
But according to appellate Judge Emanuella Groves, “Dentons US’ protestations to the contrary, the overwhelming evidence suggests Dentons verein operated as a single firm,” she wrote, further noting that conflict checks should have happened across the whole network.
Cassandra Burke Robertson, a professor at Case Western Reserve School of Law and an expert on verein models, said it was particularly poignant that the court opinion specifically noted that Dentons, in spite of the verein structure, does have a common conflict-checking system, and that the firm does share confidential information between members of the verein.
“This is where a potential conflict of interest should be imputed to the larger structure,” said Robertson. “But I don’t think that all vereins operate like this. Some do not share confidential client information among their members and don’t have a common conflict space. In those, the conflict shouldn’t be imputed to the larger entity.”
Robertson noted that when conflicts are shared across the whole organization, they need to be appropriately managed and communicated, she said.
“Because of the common information sharing, there was no reason to treat the verein as any different from any other type of law firm structure,” she said, adding that nonetheless, firms using the structure would do well to take a look at their own operations.
The issue with vereins, Robertson noted, is not so much the use of the structure, but how conflicts are considered and communicated.
“It’s not the verein, it’s the conflicts management and communication,” she said. ”But lawyers at verein law firms should be concerned nonetheless.”
Broader Implications for Global Firms
“It might make some other firms a little nervous, in part because this is one of the first big, complex cases in the verein field, and it involved an entity that had information sharing and a common conflict space,” said Robertson, adding that attorneys at firms that have used the verein structure “are going to be worried” about this case being “overly influential.”
“They may also be concerned about clients potentially taking an aggressive position that conflict should be imputed to the larger entity and all vereins in a group,” she continued.
Several global law firms, including Baker McKenzie, DLA Piper, Littler Mendelson, Norton Rose Fulbright and Squire Patton Boggs, also use the Swiss structure.
A spokesperson for Squire Patton Boggs said: “The Dentons decision has no bearing on us because we have always employed a conflicts check system using a ‘one-firm’ approach.”
That “one-firm” approach, said the spokesperson, means conflict checks are run through one global conflicts checking system that adapts to the most stringent conflicts and ethics laws.
Spokespeople for Baker McKenzie, DLA Piper, Littler Mendelson, and Norton Rose Fulbright did not immediately reply to requests for comment.
Other global law firms, however, have chosen to eschew the model, including Hogan Lovells.
While it set up a verein structure in 2010, “we never found it necessary to use it,” said a Hogan Lovells spokesperson, who responded on the condition of anonymity.
“It wasn’t needed for the combination and has always been dormant and does not cover any part of our operations either now or in the past,” said the spokesperson.
Instead, the firm operates “exactly the same as any other major international law firm,” most of which operate through multiple entities to accommodate various local tax and regulatory considerations, the spokesperson said, adding that Hogan Lovells partners vote globally on key matters, such as the appointment of lateral hires and on major business issues such as the appointment of a new chief executive.
Theo Liebmann, executive director of the Monroe H. Freedman Institute for the Study of Legal Ethics, said law firms, no matter the structure, need to make efforts to ensure there is consent to the arrangement with the client.
“And it looks like Dentons has done so,” said Liebmann. “But to prove there is no conflict, you would need to do much more. You’d have to show that things like different case management systems, that people at the other firm, or on conflicting clients aren’t allowed access to case files. You’d also have to show a difference in management and strategy, and different ways of making determinations of cases.”
But at the end of the day, said Liebmann, even if a verein law firm can show there is no conflict, they may still have a problem.
“Even if it doesn’t rise to the technical level of an ethical problem because of a conflict of interest, you’ve got a practical problem,” Liebmann said. “Lawyers at the firm do not want these high-paying, long-term clients to decide that they don’t want to share their business with a firm that represents their archrivals. And that would be a very understandable reaction.”
According to Robertson, there is a relatively easy fix for law firms concerned about finding themselves in the same position as Dentons in the current case.
“The biggest thing is being aware of their structure and what that means for complex matters,” she said. “Giving your clients more information and a better ability to make a decision is really important. This case would have come out differently if Dentons had warned their client about the possibility of a conflict.”
A spokesperson for Dentons said the “essential issue” in the case was whether a law firm can rely on one client’s written consent regarding a future conflict of interest.
“We acted properly, ethically and consistently both with our duties to our clients and with our firmwide conflicts policy in relying on such a consent,” a Dentons spokesperson said in a statement. “This is an important issue as lawyers should be allowed to rely on their clients’ consent; it can arise in any law firm, and does not depend on a firm’s structure, size, or international reach.”
The spokesperson said Dentons intends to appeal to the Ohio Supreme Court.
