As the ABA Journal reports, today, the ABA’s House of Delegates adopted Resolution 105C, which amends the comments to ABA Model Rules 1.1, 5.3 and 5.5 to clarify lawyers’ obligations when outsourcing work, whether domestically or internationally.

The resolution’s adoption caps a process that began in November 2010, when the ABA’s Commission on Ethics 20/20 issued a discussion draft of proposed changes to the Model Rules of Professional Conduct (or, more accurately, the comments to the Model Rules) as they relate to domestic and international outsourcing. As I explained in my analysis of the discussion draft, the proposed changes didn’t introduce anything new or surprising; rather, they primarily elevate many of the points made in ABA Formal Op. 08-451 to the level of Model Rule comments.

Selected Highlights of the New Model Rules Comments Concerning Outsourcing

The House of Delegates adopted the following new comment to Model Rule 1.1 (competence):

[6] Before a lawyer retains or contracts with other lawyers outside the lawyer’s own firm to provide or assist in the provision of legal services to a client, the lawyer should ordinarily obtain informed consent from the client and must reasonably believe that the other lawyers’ services will contribute to the competent and ethical representation of the client. See also Rules 1.2 (allocation of authority), 1.4 (communication with client), 1.5(e) (fee sharing), 1.6 (confidentiality), and 5.5(a) (unauthorized practice of law). The reasonableness of the decision to retain or contract with other lawyers outside the lawyer’s own firm will depend upon the circumstances, including: the education, experience and reputation of the nonfirm lawyers; the nature of the services assigned to the nonfirm lawyers; and the legal protections, professional conduct rules, and ethical environments of the jurisdictions in which the services will be performed, particularly relating to confidential information.

wwwDisclosure and Client Consent

In its report to the House of Delegates, the Commission explained that “consent will typically be required, and will almost always be advisable” when outsourcing, although it “may not be necessary when a nonfirm lawyer is hired to perform a discrete and limited task, especially if the task does not require the disclosure of confidential information.” The requirement to obtain the client’s informed consent to outsourcing in most cases is stronger than that imposed by ABA Formal Op. 08-451, which required disclosure of the use of a freelance lawyer only if the freelance lawyer was to perform independent work for the outsourcing lawyer without the “close supervision” of the outsourcing lawyer or another lawyer associated with the outsourcing lawyer’s firm.

wwwSupervision of nonfirm lawyers and nonlawyers outside the firm

The most recent draft resolution concerning outsourcing (issued in February 2012) contained the following sentence at the end of comment [6]: “When using the services of nonfirm lawyers in providing legal services to a client, a lawyer also should also reasonably believe that such services meet the standard of competence under this Rule.” This sentence was omitted from the version submitted to, and adopted by, the House of Delegates, no doubt in response to a few comments the Commission received in response to the February 2012 draft resolution objecting to it.¹

The omission of the last sentence from comment [6] is significant because the Commission previously explained that the last sentence required outsourcing lawyers to “conclude that the services that the nonlawyer [sic; should read “nonfirm lawyer”] actually performed after being retained were performed competently.” Although the new comment [3] to Rule 5.3 now explicitly requires a lawyer who uses nonlawyers outside a firm to assist the lawyer in rendering legal services to “make reasonable effort to ensure that the services are provided in a manner that is compatible with the lawyer’s professional obligations” (which, of course, include the duty to provide competent representation), that comment does not impose on the outsourcing lawyer an obligation to conclude that a nonfirm lawyer’s work meets the standard of competence required under Rule 1.1.

To put this distinction into context with a real-life example, I am admitted in New York, EDNY, SDNY, the Second Circuit and the U.S. Supreme Court. When a New York lawyer retains me to provide legal research and/or writing services, under comment [6] to Rule 1.1 (as adopted), the lawyer does not have a continuing obligation to conclude that any services I actually perform after being retained are performed competently. This means that, if (for the sake of argument only) I ever perform services for a New York lawyer in an incompetent manner, any failure of the hiring attorney to discover that my work does not meet the standard of competence under Rule 1.1 will not constitute an ethics violation.

The result is different when an outsourcing lawyer hires a freelance lawyer who is not admitted in the same jurisdiction as the outsourcing lawyer. For example, a Utah lawyer recently retained me to conduct research for, and draft, a brief to the Utah Supreme Court. Because I am not admitted in Utah, I am considered a “nonlawyer” in that state. Under the new comment [3] to Rule 5.3, if (again, for the sake of argument only) I do not perform the work competently, any failure by the outsourcing lawyer to make reasonable efforts to ensure that I have performed in a manner consistent with the lawyer’s obligation to provide competent representation may constitute an ethics violation.

None of this should discourage lawyers from outsourcing to out-of-state freelance lawyers. Remember, adequate supervision over a non-lawyer is judged on a reasonableness standard. As the new comment [3] to Rule 5.3 explains, the extent of supervision required “depend[s] on the circumstances, including the education, experience and reputation of the nonlawyer [and] the nature of the services involved….” This means an out-of-state junior lawyer with little or no experience in the substantive practice area and no track record to speak of will require more supervision than a seasoned attorney with extensive substantive experience in the relevant practice area and an extensive track record. It also means that, while—as comment [6] to Rule 1.1 makes clear—a hiring attorney should do diligence when hiring any freelance lawyer, sufficient due diligence is particularly important when hiring an out-of-state freelance lawyer.

The Commission’s Report to the House of Delegates Supports Domestic Outsourcing

As I noted in my analysis of the discussion draft, although, in the introduction to its Draft Report, the Commission disclaimed any intent to either endorse or reject the practice of outsourcing by solos and small firms, the Draft Report went on to discuss the benefits of outsourcing. The Commission maintained that position throughout the revision process. In the report it submitted to the House of Delegates, the Commission observed:

Lawyers have found that the same technology-driven efficiencies that have led to an increase in outsourcing throughout the global economy are also making outsourcing an appealing option within the legal profession for certain work. In particular, lawyers have found that, if they exercise proper care in the selection of a provider, work can be completed with greater speed and lower costs without sacrificing quality. These efficiencies offer opportunities for solo practitioners and small and medium-sized U.S. law firms, allowing them to better compete for large matters without fear that they will lack adequate resources to perform the legal work involved. Also, by reducing the cost of legal services, outsourcing can improve access to justice by making legal services more affordable.

….The Commission’s research indicates that lawyers still tend to outsource legal and law-related work domestically more often than they outsource work internationally. In fact, information reviewed by the Commission indicates that, more recently, the outsourcing industry is responding to client demand for greater availability of on-shore operations.

Conclusion

Although the additional comments to the Model Rules aren’t, in and of themselves, revolutionary, by amending the Model Rules comments to discuss lawyers’ obligations when outsourcing, side-by-side with their obligations when working with lawyers and other personnel inside a firm, the ABA has acknowledged the importance of outsourcing to the practice of law, both today and in the future. That is revolutionary.

¹Not surprisingly, the Attorneys’ Liability Assurance Society objected on the ground that, in its view, the sentence effectively requires lawyers to guarantee the quality of outsourced work.

The objection of Prof. Andrew Perlman, the Ethics 20/20 Reporter, focused on the sentence’s impact on lawyers or firms that “refer” work to non-firm lawyers for a variety of reasons, including to obtain an opinion from local or specialized counsel on a matter in which the “referring” lawyer lacks expertise. The objection’s use of the word “referring” demonstrates Perlman’s fundamental misunderstanding of the term “outsourcing,” the hallmark of which is the hiring lawyer’s ability to competently supervise the work performed by the nonfirm lawyer. Where a matter requires specialized or local expertise, it would be more appropriate to enter into a co-counsel relationship (with each firm having a direct attorney/client relationship with, and ethical obligations to, the client) than an outsourcing relationship.

For the past year or so, the ABA’s Ethics 20/20 Commission has been considering changes to the Model Rules of Professional Conduct as they relate to domestic and international outsourcing. The revision process has included soliciting input from stakeholders—including lawyers, law firms, clients and providers of outsourced services—and issuing both a November 2010 discussion draft and a May 2011 initial draft of proposed changes.

Yesterday, the Commission released its revised initial proposal concerning changes to the Model Rules of Professional Conduct as they relate to domestic and international outsourcing. The revised initial proposal is substantially similar to the initial proposal the Commission issued in May. In turn, the language of the initial proposal was substantially identical to the language of the discussion draft the Commission issued in November. Finally, the discussion draft didn’t introduce anything new or surprising; rather, it merely elevated many of the points made in ABA Formal Op. 08-451 to the level of Model Rule comments.

I’ve previously highlighted the handful of significant differences between the discussion draft and the initial draft. Below, I highlight the few significant differences between the initial draft and the revised initial draft. (Insertions are in red; deletions are struck through.)

The Commission’s report explains a comment to Model Rule 1.1 that was added in the initial draft

The Commission added Comment 6 in the discussion draft, and revised it in the initial draft. The revised initial draft contains additional minor changes:

Before a lawyer retains or contracts with other lawyers outside the lawyer’s own firm to provide or assist in the provision of legal services to a client, the lawyer should ordinarily obtain informed consent from the client and must reasonably conclude believe that the other lawyers’ services will contribute to the competent and ethical representation of the client. See also Rules 1.2 (allocation of authority), 1.4 (communication with client), 1.5(e) (fee sharing), 1.6 (confidentiality), and 5.5(a) (unauthorized practice of law). The reasonableness of the decision to retain or contract with other lawyers outside the lawyer’s own firm will depend upon the circumstances, including: the education, experience and reputation of the nonfirm lawyers; the nature of the services assigned to the nonfirm lawyers; and the legal protections, professional conduct rules, and ethical environments of the jurisdictions in which the services will be performed, particularly relating to confidential information. When using the services of nonfirm lawyers in providing legal services to a client, a lawyer also must also reasonably conclude believe that such services meet the standard of competence under this Rule.

More importantly, the report accompanying the revised initial draft now explains:

The third sentence provides guidance regarding the lawyer’s assessment of the work that the nonfirm lawyer performs. In particular, the lawyer must ensure that the nonfirm lawyer’s work is performed in a manner that is consistent with the lawyer’s own duty of competence. This sentence differs from the first sentence in the Comment in that the first sentence requires the lawyer to conclude that, before retaining the nonlawyer, the nonlawyer will contribute to the competent representation of the client. The last sentence suggests that the lawyer should conclude that the services that the nonlawyer actually performed after being retained were performed competently.

This is significant because the Commission has clarified that, even when the hiring attorney has retained a qualified nonfirm attorney, the hiring attorney cannot abdicate responsibility to evaluate the nonfirm attorney’s work product during the course of the representation. The Commission may have added this explanation in response to J-M Manufacturing v. McDermott Will & Emery, in which the plaintiff alleged that the defendant law firm’s failure to thoroughly review the work of contract attorneys at e-discovery vendor Stratify Inc. resulted in the production of 3,900 privileged documents in an underlying action.

Further revisions to the comments to Model Rule 1.1 address the allocation of responsibility for monitoring and supervising nonfirm lawyers

Model Rule 1.1 provides that “[a] lawyer shall provide competent representation to a client. Competent representation requires the legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation.” The hiring attorney’s ethical duty to appropriately supervise the work of a nonfirm lawyer is a hallmark of an outsourcing relationship, and is one factor that distinguishes that type of relationship from other relationships between attorneys in different firms (such as co-counsel relationships). Accordingly, in the discussion draft, the Commission proposed adding a comment to Model Rule 1.1 that directly addresses the retention of outside lawyers to provide, or assist in the provision of, legal services to a client. In the initial draft, the Commission tweaked that comment.

The revised initial draft adds the following:

[7] Where the client has chosen or suggested lawyers from other law firms to assist in the provision of legal services to the client on a particular matter, the law firms who will be assisting the client on that matter should consult with each other and the client about the allocation or scope of representation and responsibility, including the allocation of responsibility for monitoring and supervision of any nonfirm nonlawyers who will be working on the client’s matter. See Rules 1.2 and 5.3. When making allocations of responsibility in a matter pending before a tribunal, lawyers and parties may have additional obligations that are a matter of law beyond the scope of these Rules.

The report accompanying the revised initial draft now explains:

Proposed Comment [7] is intended to describe a lawyer’s obligations when a client requests multiple firms to perform discrete legal tasks concerning the same legal matter. In such situations, the law firms that will be assisting the client on that matter should consult with each other and the client about the allocation or scope of representation and responsibility, including the allocation of responsibility for monitoring and supervision of any nonfirm lawyers who will be working on the client’s matter. (The word “monitoring” is drawn from new proposed language in Rule 5.3 and is described in Part V of this Report.) When making any allocations of responsibility, the proposed Comment reminds lawyers that they (and their clients) might have additional obligations that are a matter of law beyond the scope of these Rules, particularly in the context of discovery.

Because only relatively sophisticated businesses (often with their own in-house counsel) are in a position to choose, or suggest that their lawyers hire, particular outsourcing providers, this new comment will have little impact on solos and small firms that hire freelance attorneys to assist in matters involving individuals and most small businesses.

The revised initial draft recognizes the contributions made by freelance paralegals

The final significant addition to the revised initial draft is the addition of a reference to freelance paralegals in Comment 3 to Model Rule 5.3: “A Llawyers often may use nonlawyers outside the firm to assist the lawyer in rendering legal services to the client. Examples include the retention of an investigative or paraprofessional service….” The Commission also added a reference to “freelancing paralegals outside the firm” to its report. These additions give freelance paralegals long-overdue recognition for the valuable services they provide.

The Commission’s report continues to support outsourcing

As I observed in May, in the introduction to its November 2010 draft report, the Commission disclaimed any intent to either endorse or reject the practice of outsourcing, but it discussed the benefits of outsourcing. The report accompanying the initial draft proposal added even more laudatory language. This language remains in the revised draft report, reflecting the Commission’s view that outsourcing can benefit both clients and lawyers (especially solos and small- and mid-sized firms).

The Commission notes that, because the revised initial proposal and report have not been approved by the ABA’s House of Delegates or Board of Governors, they should not be construed as representing ABA policy. Since I’m not involved in ABA governance, I don’t know whether those entities are likely to accept the Commission’s recommendations without major changes. If you have any insight into this issue, please share it in the comments.

The Commission seeks further comments in response to the initial draft proposal. Comments should be submitted by November 30, 2011, to Senior Research Paralegal Natalia Vera at natalia.vera@americanbar.org.