This article was originally published by The Lawyer’s Daily (www.thelawyersdaily.ca) a division of LexisNexis Canada.
In recent years, large law firms organized as Swiss vereins (such as Dentons and DLA Piper) have continued to expand around the globe. A significant portion of this expansion has been through the integration of single-location, mid-sized independent law firms. Prior to becoming part of a verein, or association, these firms often were members of legal networks made up of other similar independent firms throughout the world.
Membership in a network gives the firm and its clients access to local knowledge and specific topical expertise through the other member firms throughout the specific network. The vereins often “sell” the firm in a location they are seeking to expand into by asserting that the firm can maintain its true independence but have the name, resources and marketing ability of a much larger firm. See Dentons’ website: “[l]eading law firms do not join Dentons. They join with Dentons to enhance their offerings to clients.” A recent decision in the state of Ohio should cause all independent firms to reexamine the true value of a Swiss verein structured entity (RevoLaze, L.L.C. v. Dentons US, L.L.P. 2022 Ohio LEXIS 2261).
Background
In 2016, Revolaze sued Dentons US LLP for malpractice in the Cuyahoga County (Ohio) Court of Common Pleas. Dentons had represented Revolaze in claims it brought in federal court in Ohio and in the International Trade Commission (ITC) on behalf of Revolaze. Before filing the numerous matters, Dentons told Revolaze that it had no conflict in the matters, despite the fact that a Dentons office in another country – Canada – represented one of the defendants being sued by Dentons in the United States. The company that was being sued by Dentons US – yet was represented by Dentons Canada – was The Gap.
The Gap eventually objected in the ITC matter and moved to disqualify Dentons. Dentons argued that the “Dentons” entities were legally separate organizations and therefore no conflict could exist. The ITC chief administrative law judge disagreed, finding that for conflict purposes, Dentons was a single law firm disqualified under ABA Model Rule 1.7. (See ABA Model Rule 1.7(a)(1 and 2)): (there is an active conflict of interest if “the representation of one client will be directly adverse to another client or there is a significant risk that the representation of one or more clients will be materially limited by the lawyer’s representation to another client …”).
Dentons sought reconsideration which was denied, but the original ruling was vacated as moot. The ruling, however, did force Revolaze to get new counsel which, due to financing considerations and the legal consequences resulting from this financing change, formed the basis for the malpractice action.
In that action, after a 10-day trial where Dentons argued that its offices in different countries were distinct firms, the jury disagreed and found Dentons liable for malpractice. Dentons was ordered to pay damages in the amount of $32.3 million.
After losing a motion for judgment notwithstanding the verdict, Dentons appealed the jury verdict of malpractice. On appeal, Dentons challenged the jury verdict and lost again Revolaze LLC v. Dentons US, LLP 2022-Ohio-1392 (8th Dist., April 28, 2022) at 488, para. 48 (“[h]ere we find Dentons US membership in a verein with a common conflicts base, that shares client confidential information throughout the organization, is unconscionable with Dentons US’ contention that it was separate from Dentons Canada.”). Dentons then sought review from the Ohio Supreme Court, which was denied. After a last-ditch attempt asking the Ohio Supreme Court to reconsider its denial of review, the malpractice verdict is final.
Swiss vereins: Tread carefully
What does this ruling mean for independent mid-sized firms approached by one of the large international Swiss vereins? It means that the firm should tread carefully when considering joining a verein. It means that the promise of continued true independence – a reason many lawyers likely join, and many clients work with, these strong stand-alone firms – is illusory.
Legal networks vs. Swiss vereins
For many of these independent firms, international reach and global experience is gained through admission to, and membership in, one of the legal networks. See Andrew Dick, Legal Networks Meets Changing Demands, (Sept. 5, 2017) (“[l]egal networks are a common way for law firms to expand their client service capabilities to new markets while retaining their independence.”) Some networks offer a large international or national reach with jurisdictional exclusivity to firms that are reviewed for quality service. This gives a firm and its clients access to legal expertise throughout the world while allowing the firm to maintain its independence.
However, to place the name of a verein on your front door means you are now part of a large international conglomerate with its rules, structures and conflict-limiting obligations. As the Revolaze case identifies, a verein’s promise of continued “independence” is likely limited simply by joining the global conglomerate. Your clients are the verein’s clients, and its clients, for conflict and perhaps other purposes, are now yours. So, while the verein may broaden your ability to perform legal services and generate revenue in some ways, it also clearly limits these same abilities in ways that the verein always asserted didn’t exist. If a firm truly values its independence but seeks international reach and expertise, this ruling emphasizes one of the inherent benefits of network membership versus being part of a Swiss verein.
While the Revolaze ruling standing alone does not likely foretell the death knoll for the Swiss vereins, it certainly creates a Swiss-cheese-sized hole that should lead some current offices, and will lead some potential future offices, to re-evaluate the true advantage of becoming part of the verein structured law firm.
Brett Krantz is chairperson of Meritas, the global alliance of independent business law firms, and an equity partner at Kohrman Jackson & Krantz (KJK) law firm in Cleveland, Ohio, where he is a member of the firm’s executive committee and chair of its litigation department. Krantz has counseled a diverse client base including individuals, owners of regulated and non-regulated companies, small entrepreneurial entities, and large public corporations.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the author’s firm, its clients, The Lawyer’s Daily, LexisNexis Canada, or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.