For the past year and a half, 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. Yesterday, the Commission issued its Revised Draft Resolution on the subject for comment. The Revised Draft Resolution is the fourth version of proposed changes to the ABA Model Rules (and the comments to those rules) since the Commission first took up this issue; previous drafts were issued in September 2011, May 2011 and November 2010.

As the Commission explains in its cover memo,

The only substantive change to the Commission’s outsourcing proposals appears in Comment [6] to Rule 1.1 (Competence). That Comment addresses a lawyer’s ethical duties when a portion of a client’s legal work is outsourced to a lawyer in another firm. The last sentence of the prior draft said that, “[w]hen using the services of nonfirm lawyers in providing legal services to a client, a lawyer also must reasonably believe that such services meet the standard of competence under this Rule.” The Commission heard concerns that the sentence as written might be read to impose on lawyers an unnecessary ethical obligation to ensure that the work of a lawyer in another firm was performed competently. The Commission agrees that, in many circumstances, it will be reasonable to rely on the work performed by nonfirm lawyers without independently confirming that that [sic] work was performed competently. The Commission does not believe that the prior draft should be read to impose such a duty, but the Commission nevertheless decided to soften the language by replacing the word “must” with the word “should.”

In the context of the Model Rules comments, I don’t see any practical distinction between the duty imposed on an outsourcing lawyer by merely replacing “must” with “should.” Since the Commission doesn’t intend that Comment [6] be construed to impose a duty to independently confirm that outsourced work was performed competently, it should have included that clarification in the comment itself, rather than relegating it to the cover memo.

All of this goes back to the hiring lawyer’s duty to appropriately supervise work performed by a nonfirm lawyer. As I explained in my analysis of ABA Formal Op. 08-451, under the current Model Rules, an outsourcing lawyer’s duty to make reasonable efforts to ensure that a nonfirm lawyer conforms to the Rules of Professional Conduct (which impose a duty of competence) is no different from the responsibility of a lawyer supervising the work of another attorney who is employed by the lawyer’s firm. However, the statements in the Commission’s cover memo are inconsistent with Op. 08-451, since they can be read as imposing a lesser duty on a lawyer supervising a non-firm lawyer than on a lawyer supervising another lawyer in the same firm. To ensure competent representation, the extent of a supervising lawyer’s obligation to ensure that all supervised work has been performed competently must not depend on whether an associate or a freelance lawyer has performed that work.

This shouldn’t discourage anyone from outsourcing. Remember, adequate supervision—whether over an associate or a nonfirm lawyer—is judged on a reasonableness standard. The level of supervision required depends on factors such as the background of the supervised lawyer (a junior lawyer with no experience in the substantive practice area will require more supervision than a seasoned attorney with extensive substantive experience in the relevant practice area) and the length of the relationship between the supervising and supervised lawyers (a new relationship calls for greater supervision than an established one). Thus, to comply with ethics rules without losing the efficiency benefit of outsourcing, a solo or small firm lawyer should develop a relationship with an experienced freelance attorney.

The Commission seeks further comments in response to the Revised Draft Resolution. Comments should be submitted by April 2, 2012 to Senior Research Paralegal Natalia Vera at natalia.vera@americanbar.org.

In an article in the July 27 Connecticut Law Tribune, Mark Dubois, Connecticut’s former chief disciplinary counsel, reveals a troubling misunderstanding of the national consensus concerning the ethics of legal outsourcing. Dubois—who, according to his firm’s website, “is recognized as an authority on lawyer discipline matters and the unauthorized practice of law”—was Connecticut’s chief disciplinary counsel until some time this spring. (This article describes him as the chief disciplinary counsel; this one describes him as the former chief; and his firm’s website doesn’t specify exactly when he joined the firm.)

If the title of Dubois’ article (Outsourcing Trend Gains Momentum, Raises Questions) wasn’t enough of a tip-off, the very first sentence—in which Dubois describes outsourcing and offshoring as “nefarious processes”—reveals Dubois’ deep-seated animosity towards outsourcing. If this animus was presented as personal opinion, I would have no problem with it. Unfortunately, it’s communicated in a more insidious manner: through misinformation disguised as fact.

Dubois inaccurately claims that the issue of whether hiring attorneys can make a profit on work performed by freelance attorneys or LPO companies is unsettled

Most egregious is Dubois’ claim that he has “seen informal opinions both ways from [his] former colleagues in bar regulation as to whether outsourced work can be ‘upcharged’ or must be passed along on a dollar-for-dollar basis.” Unless Mr. Dubois is privy to a trove of unreleased ethics opinions, this is simply inaccurate.

As I’ve previously explained, in ABA Op. 08-451, Lawyer’s Obligations When Outsourcing Legal and Nonlegal Support Services, the ABA’s Standing Committee on Ethics and Professional Responsibility explained that

…the fees charged by the outsourcing lawyer must be reasonable and otherwise comply with the requirements of Rule 1.5. In Formal Opinion No. 00-420, we concluded that a law firm that engaged a contract lawyer could add a surcharge to the cost paid by the billing lawyer provided the total charge represented a reasonable fee for the services provided to the client. This is not substantively different from the manner in which a conventional firm bills for the services of its lawyers. The firm pays a lawyer a salary, provides him with employment benefits, incurs office space and other overhead costs to support him, and also earns a profit from his services; the client generally is not informed of the details of the financial relationship between the law firm and the lawyer. Likewise, the lawyer is not obligated to inform the client how much the firm is paying a contract lawyer; the restraint is the overarching requirement that the fee charged for the services not be unreasonable.

In its November 2010 Draft Report on outsourcing, the ABA 20/20 Commission did not recommend any changes to either the Model Rules or their comments with respect to the issue of billing for outsourced services. Indeed, the Draft Report explicitly stated that the “extensive commentary” accompanying “Model Rule 1.5 (“Fees”) and the wealth of ethics opinions available treating myriad specific questions relating to the reasonableness of fees for both legal and non-legal services” “reveals that no special language needs to be added to [Model Rule 1.5] to remind lawyers . . . that [the Rule is] applicable to outsourcing practices.” Thus, the discussion of fees in Op. 08-451 remains applicable.

Additionally, my extensive research reveals that Op. 08-451 is consistent on this issue with all other ethics opinions that have addressed the question, save Texas. Thus, contrary to Mr. Dubois’ contention, it is well-settled that it’s perfectly ethical for outsourcing attorneys to earn a profit on services provided by freelance lawyers or LPO companies.

Dubois inaccurately contends that other issues implicated by outsourcing remain unsettled

Dubois’ contention that “[t]he ABA Ethics 2020 Committee is wrestling with” issues such as protecting client confidences, avoiding conflicts of interest and disclosing the use of outsourcing to clients is also (albeit slightly) inaccurate. Last month, after more than a year of work, the Ethics 20/20 Commission released its initial proposal concerning 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. Although the Commission seeks comments in response to its initial proposal before submitting a final version of its proposal to the House of Delegates in May 2012, it’s noteworthy that the initial proposal differed very little from the “draft proposal” that the Commission released in November 2010. Moreover, both proposals are consistent with ABA Op. 08-451.

Of further note, Dubois’ prose veritably drips with disdain. He refers to Pangea3, a leader in overseas outsourcing that Thomson Reuters purchased late last year for $35-$40 million as “something called Pangea3,” and describes it as “a domestic portal where U.S. firms can manage legal process outsourcing to India,” despite the widely-reported opening of a Pangea3 office in Dallas that (among other things) handles work that cannot be sent abroad. His assertion that “[a]nywhere that you can find English-speaking folks with access to electricity, you can set up a back office and practice law” paints countries like India as barely-civilized backwaters.

I’ve written to Mr. Dubois and invited him to share with me any ethics opinions that support his position that the issue of whether hiring attorneys can make a profit on work performed by freelance attorneys or LPO companies is unsettled. I also provided him with a complete list of the ethics opinions I uncovered in the research mentioned above. I’ll post an update if he provides me with any additional information.

I’m not surprised to see this coming out of Connecticut: after all, it’s the same state in which, earlier this year, a state legislator introduced a bill designed to prevent companies from offshoring the drafting, reviewing or analyzing of legal documents to unlicensed workers overseas.

UPDATE

Here is Mr. Dubois’ response to my inquiry concerning the basis for his position that the issue of whether hiring attorneys can make a profit on work performed by freelance attorneys or LPO companies is unsettled:

This was from an exchange on the National Organization of Bar Counsel list serv some time ago wherein opinions both ways were offered.

I followed up, asking:

Can you share that exchange with me (or with the public in general)? If not, as compared to the many opinions I’ve listed, the exchange is far from precedential.

His response:

I have left my prosecurtorial job so I do not have access to the threads archived on the list serv. As to whether the informal opinions of my former colleagues are “precedential”, nothing you sent me is precedent. At best, it is persuasive, but certainly not binding unless adopted by a court.

I’m troubled by Dubois’ response, for two reasons. First, it reveals that the statements in his article are based, not on publicly-available ethics opinions, but on an informal exchange between bar regulators. Second, he doesn’t specify when the exchange occurred, other than to describe it as “some time ago.” Hardly a reasonable basis for an article intended to provide ethics guidance to Connecticut attorneys.

I’ve brought the inaccuracy of Mr. Dubois’ article to the Connecticut Law Tribune’s attention. We’ll see whether they have the cajones to contradict Mr. Dubois in print and correct the record for the benefit of Connecticut lawyers.

Update 7/2/16: The article that is the subject of this post is no longer available on the Connecticut Law Tribune website.

The Connecticut Law Tribune reports today that Connecticut state Rep. Patricia Dillon has introduced a bill designed to prevent companies from offshoring the drafting, reviewing or analyzing of legal documents to unlicensed workers overseas.

The bill (HB 5083) amends Connecticut Gen. Stat. §51-88 “to provide that the practice of law includes (1) drafting, reviewing or analyzing legal documents for clients in this state, and (2) researching and analyzing the law of this state and advising clients in this state of the status of such law, and that any person who has not been admitted as an attorney in this state who performs such activities commits the offense of the unauthorized practice of law.” The statement of purpose contained in the bill itself explains that the bill is intended “[t]o provide that outsourcing of legal document review to non-attorneys constitutes the unauthorized practice of law.” (Emphasis supplied). This sloppily-drafted bill (“legal document review” is a completely different animal than drafting legal documents or conducting legal research, which are also encompassed by the bill’s language) ignores the substantial body of principled analysis of the issues surrounding legal outsourcing in favor of facile protectionism that won’t cure the legal profession’s real ills.

HB 5083 is Inconsistent with the Unanimous Acceptance of Outsourcing by Ethics Authorities Outside Connecticut

Although the Connecticut Bar Association hasn’t issued any ethics opinions directly addressing outsourcing, many other jurisdictions have. None of these jurisdictions have found that an independent contractor’s performance of legal work, under the supervision of a hiring attorney, constitutes the practice of law. Because the sections of Connecticut’s Rules of Professional Conduct (pdf) that are relevant to outsourcing (Rules 1.1, 1.2(a), 1.4, 5.1, 5.3, 5.5 and 7.5(d)) are substantially identical to the corresponding sections of the ABA’s Model Rules of Professional Conduct, there is no reason to believe that an opinion by the Connecticut Bar Association’s Professional Ethics Committee would deviate in any substantial respect from ABA Formal Op. 08-451 (pdf) (and the numerous ethics opinions from other jurisdictions that address outsourcing).

Dillon’s ignorance of the ethics of legal outsourcing is painfully obvious. For example, she claims that “…some legal work is being done abroad with no quality oversight.” While I have warned (here, here and here) that hiring attorneys need to be particularly attentive to the danger of receiving poor-quality work product from foreign LPOs, that is a danger to the hiring attorney, as it is the hiring attorney’s ultimate ethical responsibility to provide “quality oversight.”

Additionally, according to her website, “Rep. Dillon is also considering adding a provision to the bill that would require disclosure of who provided the legal work and where it was done.” This is already required under Conn. R. Prof. Resp. 1.2(a), 1.4 and 7.5(d). See ABA Op. 08-451 (discussing disclosure requirements in light of corresponding sections of Model Rules).

HB 5083 Doesn’t Address the Real Issues Faced by Unemployed Connecticut Lawyers

Rep. Dillon says that HB 5083 is intended to protect Connecticut legal jobs. However, the vast majority of U.S. legal jobs that have disappeared in the last few years were lost due to the poor economy, not because the firms that aren’t hiring (or that eliminated positions) sent legal work offshore. Protectionism won’t bring those jobs back, nor will it reverse the trend in all segments of the domestic economy to a more contingent workforce (another development often bemoaned by the same people who support protectionism). It’s not going to stem the rising tide of law school applications, or the rising number of law schools (including a potential new one in Rep. Dillon’s own New Haven backyard) churning out more and more JDs. And it’s not going to rein in ever-increasing law school tuition, or law students’ ever-increasing debt burden.

Last week, the ABA’s Commission on Ethics 20/20 issued a discussion draft of proposed changes to the Model Rules of Professional Conduct as they relate to domestic and international outsourcing, along with a number of related documents, including (among other things) a compilation of the the comments it received. The commenters fall into a few main categories:

• large legal process outsourcing companies (LPOs) that operate partially or entirely offshore (primarily in India);
• solos or small firm lawyers who have hired freelance lawyers;
• in-house counsel who have outsourced, either domestically or abroad;
• individual lawyers or law students (i.e., those who didn’t identify themselves as affiliated with any company or firm)

Additionally, there was one comment from a “traditional” (document review) contract lawyer who complained about abysmal working conditions before bemoaning ” . . . and now you want to take even this miserable existence away from me? By allowing outsourcing?” The comment that I submitted in conjunction with the National Association of Freelance Legal Professionals is the only one that addressed the interests of freelance lawyers.

Solo and Small Firm Lawyers and In-House Counsel: Outsourcing’s Fine, But keep it Close to Home

All of the solo or small firm lawyers who have outsourced have hired freelance lawyers: none have outsourced internationally. All expressed a strong preference for hiring locally.

David Wells has been a solo or small firm lawyer for eight years. His experience with outsourcing to other local attorneys or firms (who he has hired based exclusively on personal relationships and reputation) has been mixed: he received a generic and unhelpful answer on one research project, but has been extremely satisfied with the work product he’s received on other projects. The idea of outsourcing overseas “horrifies” him.

Sally Scherer is a North Carolina lawyer and “State Bar Councillor.” She had a negative experience with a Virginia legal research company she hired to research a family law issue, but was very satisfied with research performed by law students at several North Carolina law schools. She expressed her view that “[r]elying on anyone who is not known and is not a member of one’s firm or local bar is . . . asking for trouble” because “[t]here is no way any lawyer can oversee—directly or indirectly— a person is doing in another state, much less in India or some other country.”

Jill Fox was an associate at a three-lawyer firm that worked with a local freelance lawyer, who it found through word of mouth. Her experience working with the freelance lawyer was positive, as he did not take any interesting work away from her.

James Lai, in-house counsel at Cision US, Inc., stated that, based on news disclosing the failure of data privacy and security policies by major Indian business process outsourcing companies, he has “grave doubts” about the ability of any overseas provider to comply with contractual and legal rules governing privacy and data protection. His company will outsource only to a company that performs services in the U.S. and employs staff who are subject to U.S. ethics laws and enforcement.

Gabe Miller, in-house counsel for Sokolove Law, LLC, stated that his firm “reluctantly” outsourced abroad and that, “all things being equal” the firm would always prefer to deal with a local, or at least US-based company. His firm found that it had to perform a greater degree of due diligence when hiring an overseas LPO provider than it does when hiring any local vendor, and that the due diligence is harder to accomplish.

The substance and tenor of the comments from solo/small firm lawyers and in-house counsel are consistent with my anecdotal observations about outsourcing patterns among solos and small firms, which I wrote about earlier this year.

Individual Ranters, uh, Commenters: The ABA is Evil

Very little information was provided about the background of the individual commenters; for example, we don’t know where they are located, how many years they have been practicing, or the areas of law in which they practice. Most of these commenters focused exclusively on foreign outsourcing. Not surprisingly, they were against it. Their comments were fairly short (averaging about one paragraph) and contained little, if any, actual analysis. I’d say they’re on par with the comments—or should I say rants—that appear on sites like Above the Law whenever outsourcing is discussed. Like the ATL commenters, the individual Ethics 20/20 commenters generally argued that:

• LPO companies are practicing law
• the ABA should be sticking up for American lawyers
• the ABA should be doing more to reduce the oversupply of new law school graduates

Comments from this group include these gems:

“By allowing law firms to ship attorney jobs overseas, the ABA has essentially destroyed the legal industry.”

“Your organization has ruined my life…I pray for the collapse of the ABA.”

“Outsourcing centers have zero quality control and the ‘lawyers’ working there are retarded.”

Of course, these commenters ignore the fact that the same principles that allow firms to send legal work overseas also allow law students and law grads awaiting admission to do actual legal work when they’re working at firms, and allow U.S. lawyers to work as freelance or contract attorneys in jurisdictions in which they are not admitted.

By the way, you can find my response to whiny Above The Law—and Ethics 20/20— here.

Two Unique Perspectives: Foreign Outsourcing is Risky

I found two comments particularly interesting. Sameep Vijayvergia is licensed both in the United States and in India. In his view, Indian lawyer are sufficiently competent to provide quality work and address security, confidentiality and UPL concerns. However, he believes that Indian entrepreneurs don’t understand the significance of these concerns and “would even engage non competent lawyers and/or unqualified paralegals etc: [sic] to save a few bucks . . . .” He suggests that outsourcing be allowed only if the outsourced services are provided by firms or organizations managed by lawyers.

Another fascinating comment is by Michael Simkus. In the course of developing an outsourcing company to provide document review services, Mr Simkus investigated outsourcing firms located in India, the Phillipines, Singapore and China. His observations include:

• few LPO companies carry errors and omissions insurance that is equivalent to the malpractice insurance carried by U.S. law firms. Most of the LPOs that claim to have E&O insurance have siginficant “holes” in their coverage blanket or a complete misunderstanding of what E&O insurance is. Some companies have policies underwritten by foreign insurers that will not respond to U.S. lawsuits.
• few LPO companies comply with the existing ethics opinions and guidelines addressing data security
• several employment candidates his company interviewed stated that none of the other LPO companies where they had worked conducted a pre-hiring conflict of interest inventory

These actual, observed shortcomings of foreign LPOs are consistent with the potential risks of foreign outsourcing identified in the ABA’s Formal Op. 08-451.

The Ethics 20/20 Commission is seeking comments on the discussion draft by January 31, 2011. You can email comments to Senior Research Paralegal, Natalia Vera, at veran@staff.abanet.org.