Yesterday, 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. The proposed changes don’t introduce anything new or surprising; rather, they merely elevate many of the points made in ABA Formal Op. 08-451 to the level of Model Rule comments.

The Draft Report Proposes Amendments to the Comments to Rules 1.1, 5.3 and 5.5

Rule 1.1 Competence states 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 Discussion Draft proposes the following additional comment to this rule:

Retention of Other Lawyers

[7] A lawyer may retain other lawyers outside the lawyer’s own firm to provide or assist in the provision of legal services to a client provided the lawyer reasonably concludes that the other lawyers’ services will contribute to the competent and ethical representation of the client. The reasonableness of the conclusion 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 and ethical environment in which the services will be performed. When retaining lawyers and others outside the lawyer’s own firm, the requirements of Rule 5.5(a) must be observed. When using the work of nonfirm lawyers in providing legal services to a client, a lawyer must also reasonably conclude that such work meets the standard of competence under this Rule. If information protected by Rule 1.6 will be disclosed to the nonfirm lawyers, informed client consent to such disclosure may be required. For example, if the rules, laws or practices of a foreign jurisdiction provide substantially less protection for confidential client information than that provided in this jurisdiction, the lawyer should obtain the client’s informed consent to such disclosure

Many of these factors are identical to those already noted in Comment 1 to Rule 1.1 (“[1] In determining whether a lawyer employs the requisite knowledge and skill in a particular matter, relevant factors include the relative complexity and specialized nature of the matter, the lawyer’s general experience, the lawyer’s training and experience in the field in question . . . .”). Additionally, Op 08-451 contained similar warnings, and recommended similar disclosures, for firms outsourcing abroad; those warnings and disclosure requirements are discussed in my August 2008 analysis of Op 08-451.

Rule 5.3 Responsibilities Regarding Nonlawyer Assistants provides:

With respect to a nonlawyer employed or retained by or associated with a lawyer:

(a) a partner, and a lawyer who individually or together with other lawyers possesses comparable managerial authority in a law firm shall make reasonable efforts to ensure that the firm has in effect measures giving reasonable assurance that the person’s conduct is compatible with the professional obligations of the lawyer;

(b) a lawyer having direct supervisory authority over the nonlawyer shall make reasonable efforts to ensure that the person’s conduct is compatible with the professional obligations of the lawyer; and

(c) a lawyer shall be responsible for conduct of such a person that would be a violation of the Rules of Professional Conduct if engaged in by a lawyer if:

(1) the lawyer orders or, with the knowledge of the specific conduct, ratifies the conduct involved; or

(2) the lawyer is a partner or has comparable managerial authority in the law firm in which the person is employed, or has direct supervisory authority over the person, and knows of the conduct at a time when its consequences can be avoided or mitigated but fails to take reasonable remedial action.

The Discussion Draft proposes the following additional comment to this rule:

[3] The responsibilities stated in this Rule also apply when a lawyer or law firm utilizes nonlawyer service providers outside the lawyer’s or law firm’s office to assist in rendering legal services to clients. The lawyer or law firm must make reasonable efforts to ensure that the activities of any nonlawyer service providers are compatible with the lawyer’s professional obligations. The extent of this obligation will depend upon the circumstances, including: the education, experience and reputation of the nonlawyer service providers; the nature of the services involved; the requirement to protect client information; and the legal and ethical environment in which the services will be performed. Where the client has chosen or suggested a particular nonlawyer service provider, the lawyer or law firm ordinarily should consult with the client concerning the allocation of responsibility for monitoring as between the client and the lawyer or law firm. If information protected by Rule 1.6 will be disclosed to nonlawyer service providers outside the lawyer’s or law firm’s office, informed client consent to such disclosure may be required. For example, if the rules, laws or practices of a foreign jurisdiction provide substantially less protection for confidential client information than that provided in this jurisdiction, the lawyer should obtain the client’s informed consent to such disclosure.

As noted in the Draft Report, the factors listed in this proposed new comment essentially parallel the factors recited in the proposed new comment to Rule 1.1. The factors are consistent with the discussion in Op. 08-451 concerning a lawyer’s supervisory responsibilities when outsourcing.

Finally, Rule 5.5 Unauthorized Practice Of Law; Multijurisdictional Practice Of Law provides, in relevant part, that

(a) A lawyer shall not practice law in a jurisdiction in violation of the regulation of the legal profession in that jurisdiction, or assist another in doing so.

(b) A lawyer who is not admitted to practice in this jurisdiction shall not:

(1) except as authorized by these Rules or other law, establish an office or other systematic and continuous presence in this jurisdiction for the practice of law; or

(2) hold out to the public or otherwise represent that the lawyer is admitted to practice law in this jurisdiction.

* * *(d) A lawyer admitted in another United States jurisdiction, and not disbarred or suspended from practice in any jurisdiction, may provide legal services in this jurisdiction that:

(1) are provided to the lawyer’s employer or its organizational affiliates and are not services for which the forum requires pro hac vice admission; or

(2) are services that the lawyer is authorized to provide by federal law or other law of this jurisdiction.

The Draft Report recommends this brief addition to Comment 1 (new text is underlined):

[1] A lawyer may practice law only in a jurisdiction in which the lawyer is authorized to practice. A lawyer may be admitted to practice law in a jurisdiction on a regular basis or may be authorized by court rule or order or by law to practice for a limited purpose or on a restricted basis. Paragraph (a) applies to unauthorized practice of law by a lawyer, whether through the lawyer’s direct action or by the lawyer assisting another person. For example, a lawyer may not assist a person in practicing law in violation of the rules governing professional conduct in that person’s jurisdiction.

Significantly, the Draft Report does 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 states 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 (among others) remains applicable:

. . . 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 other words, under Op. 08-451 (which is consistent on this issue with all other ethics opinions that have addressed the question, save Texas), it remains perfectly ethical for outsourcing attorneys to earn a profit on services provided by freelance lawyers.

The Draft Report and Proposed Amendments Support Domestic Outsourcing

Although, in the introduction to the Draft Report, the Commission disclaims any intent to either endorse or reject the practice of outsourcing by solos and small firms the Draft Report, like Op. 08-451, discusses the benefits of outsourcing:

For several reasons, outsourcing may appeal to the clients of U.S. lawyers and law firms as well as to the lawyers and law firms themselves. The work may be better done outside the firm because of efficiencies developed and utilized by providers of outsourced services. There are potential and possibly substantial cost-savings, whether the work is outsourced to providers in the U.S. or elsewhere. This cost differential may be of particular benefit to solo practitioners and small and medium-sized U.S. law firms, allowing them to compete more aggressively for large matters without fear that if they secure employment by the client they may lack adequate resources to perform the legal work.

The Commission notes that domestic outsourcing remains more common than international outsourcing. Since the Commission has not undertaken to conduct a survey of outsourcing by firms of any size, it’s not surprising that this observation isn’t supported by statistics. However, it’s consistent with my own observations (and those of the National Association of Freelance Legal Professionals) about outsourcing patterns among solos and small firms. The preference for domestic outsourcing among solos and small firms is, of course, beneficial for freelance lawyers.

Finally, in addition to the discussion draft, the Commission also released a number of related documents, including a bibliography; a compilation of the the comments it received (including the comment I submitted in conjunction with the National Association of Freelance Legal Professionals); a transcript of the public hearing; and written submissions from the public hearing. In my next post, I’ll summarize the comments, submissions and transcript as they relate to outsourcing by solos and small firms.

The 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.

As Virginia Lawyers Weekly reported last Friday, the Virginia State Bar recently released a draft of its Legal Ethics Opinion 1850, entitled Outsourcing of Legal Services. The opinion doesn’t break any new ground; instead, it’s merely the most recent ethics opinion to support outsourcing.

Although bar association ethics opinions relevant to outsourcing in general—and contract lawyering in particular—have been around since as far back as 1976, the two most influential recent opinions are The Association of the Bar of the City of New York Commission on Professional & Judicial Ethics, Formal Opinion 2006-3 (2006) and ABA Formal Op. 08-451. Interestingly, LEO 1850 cites the New York City Bar opinion, but doesn’t mention Op. 08-451. (In fact, the draft opinion quotes both the New York City Bar opinion and Op. 08-451, without attribution; let’s hope that the VSB’s Standing Committee on Legal Ethics corrects that omission in the opinion’s final version.) LEO 1850 also relies on two earlier Virginia ethics opinions, LEO 1712 (Temporary Lawyers Working Through a Temporary Placement Service) and LEO 1735 (Attorney Rendering Professional Services for Clients of a Law Firm When Attorney is an Independent Contractor Rather than an Employee or Partner of the Law Firm).

A Clear Endorsement of Outsourcing

LEO 1850, like Ops. 08-451 and 2006-3, begins with a recognition that legal outsourcing can be salutary for both the lawyer and the client:

Law firms have always and will always engage other lawyers and nonlawyers¹ in the provision of various legal and non-legal support services. Legal outsourcing can be highly beneficial to the lawyer and the client, since it gives the lawyer the opportunity to seek the services of outside lawyers and staff in complex matters.

After setting forth three fact patterns involving outsourcing, as well as the relevant ethics rules, LEO 1850 (quoting Op. 08-451 without attribution) states:

There is nothing unethical about a lawyer outsourcing legal…services, provided the outsourcing lawyer renders legal services to the client with the ‘legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation,’ as required by [Model] Rule 1.1. Comment [1] further counsels:

In determining whether a lawyer employs the requisite knowledge and skill in the particular matter, relevant factors include the relative complexity and specialized nature of the matter, the lawyer’s general experience, the lawyer’s training and experience in the field in question, the preparation and study the lawyer is able to give the matter and whether it is feasible to refer the matter to, or associate or consult with, a lawyer of established competence in the field in question.

The opinion’s analysis is divided into sections addressing the supervision of nonlawyers, duty of competence and avoiding the unauthorized practice of law; the duty to exercise independent professional judgment; client communication and consent; confidentiality and conflicts; and billing and fees.

Supervision of Nonlawyers, Duty of Competence, Avoiding the Unauthorized Practice of Law and Exercising Independent Professional Judgment

LEO 1850, NYC Bar Op. 2006-3 and ABA Op. 08-451 all recognize that the outsourcing lawyer has a duty to exercise due diligence in choosing an outsourcing partner, and all stress the importance of adequately supervising the outsourcing partner’s work. According to LEO 1850 and NYC Bar Op. 2006-3, this supervision is also the key to avoiding aiding the unauthorized practice of law (the ABA considered the UPL issue to be beyond the scope of its authority).

LEO 1850 further recognizes that, “just as with any other supervisory matter,” a Virginia lawyer must ensure that any nonlawyer to whom work is outsourced understands and will comply with the ethical rules governing the Virginia lawyer’s conduct, and will act in a manner compatible with the Virginia lawyer’s professional obligations. This recognition is similar to the ABA’s concession that the ethical responsibility of an outsourcing lawyer to make reasonable efforts to ensure that a contract lawyer conforms to the Rules of Professional Conduct is no different from the responsibility of a lawyer supervising the work of another attorney who is employed by the supervising lawyer’s firm.

Like the NYC Bar opinion, LEO 1850 notes that an outsourcing lawyer must maintain independent legal judgment regarding the client’s matters, and must feel assured that any outsourcing arrangement would not jeopardize this responsibility.

Although LEO 1850 doesn’t discuss the additional due diligence obligations imposed on attorneys outsourcing to a foreign country, there is no reason to believe that Virginia ethics authorities would impose any lesser obligations on foreign outsourcers than Op. 08-451 imposes.

Client Communications and Consent

LEO 1850 directs that an outsourcing lawyer must obtain client consent to outsource any “substantive client work that involves legal analysis and work product related to confidential client information.” On the other hand, an outsourcing lawyer need not inform the client every time the lawyer outsources legal support services that are truly tangential, clerical or administrative in nature. This position is consistent with that taken in both NYC Op. 2006-3 and ABA Op. 08-0451.

I’m a bit surprised that, under LEO 1850, a client need not be informed “when basic legal research or writing is outsourced without any client confidences being revealed.” This is surprising because, in my view, legal research and writing, by their very nature, involve the exercise of discretion.

Confidentiality and Conflicts

LEO 1850, ABA Op. 08-451 and NYC Bar Op. 2006-3 all recommend including a confidentiality provision in any outsourcing agreement.

LEO 1850 sides with NYC Bar Op. 2006-3 on the issue of conflicts. Whereas the ABA calls for disqualification if the outsourcing partner works for adversaries of the outsourcing lawyer’s clients on the same or substantially related matters, LEO 1850 and Op. 2006-3 require only that the outsourcing lawyer “remind” the nonlawyer (as well as any intermediary that may be involved in the outsourcing relationship), in writing, of the need to safeguard the confidences and secrets of the lawyer’s other current and former clients.

Show Me the Money

LEO 1850 provides that, if payment to a non-lawyer is billed to the client as a disbursement, the outsourcing attorney must disclose the actual amount of the disbursement, as well as any markup or surcharge on the amount disbursed to the non-lawyer.

However, like ABA Op. 08-451, LEO 1850 (incorporating by reference the position taken in LEO 1735), allows an outsourcing attorney to bill for work done by a contract lawyer as a professional fee, with the amount billed based on the non-lawyer’s experience and background, in the same manner it would bill the client for an associate’s work on the client’s case. If the non-lawyer’s work is billed as a professional fee, the outsourcing lawyer need not disclose to the client the details of the payment arrangements with the nonlawyer (in other words, the outsourcing lawyer need not disclose how much profit he or she is making on the work done by the nonlawyer). LEO 08-451 additionally notes that it is improper for a lawyer working on a contingency basis to charge separately for a contract lawyer’s performance of work that is usually done by a client’s own lawyer.

Conclusion: LEO 1850 is Consistent with Earlier Influential Outsourcing Opinions

As noted numerous times above, LEO 1850 quotes (albeit without attribution) large portions of NYC Bar Formal Op. 2006-3 and ABA Op. 08-451. Indeed, not only does LEO 1850 reach the same conclusions as those earlier opinions, its closing paragraph is substantially identical to the one contained in the New York City Bar opinion:

A lawyer may ethically outsource legal support services to a nonlawyer if the lawyer: (1) rigorously supervises the nonlawyer so as to avoid aiding the nonlawyer in the practice of law and ensuring that the nonlawyer’s work meets the lawyer’s requirements of competency [sic], (2) preserves the client’s confidences, (3) bills for the services appropriately, and (4) obtains the client’s advance consent to outsourcing the work.

Finally, LEO 1850 makes explicit a point that the commenters (or should I say complainers) at sites such as Above the Law would rather ignore: ethics opinions concerning outsourcing apply “regardless of whether legal services are outsourced locally or overseas.” Thus, while LEO 1850 may represent a threat to Virgina contract lawyers who do document review through staffing agencies, it’s helpful for independent Virginia contract lawyers (a/k/a freelance lawyers) because it explains the benefits of using contract lawyers; affirms that it is ethical to earn a profit on the work performed by contract lawyers; and explicitly addresses issues such as conflicts and confidentiality, all of which are no doubt on the minds of many Virginia attorneys who could benefit from outsourcing.

¹LEO 1850 uses the term nonlawyer to refer to both outsourced lawyers and nonlawyers.

Last fall, I wrote about the risks that lawyers take when they outsource work to foreign legal process outsourcing companies. The primary risk I focused on wasn’t the possibility that the foreign provider might violate confidentiality or conflict of interest rules: it was the risk that the LPO company would produce substandard work.

My last post on this subject was prompted, in part, by the abysmally poor grammar used in a particular LPO company’s marketing piece. As I explained in comments to that post, I think the quality of a company’s marketing materials is a good predictor of the quality of its work product. Last Friday, I came across The Legal Outsourcing Handbook from LegalEase Solutions. Ever curious, I downloaded the Handbook and started to read.

I was immediately struck by the “quality” of the writing. From the first paragraph (and, as I was to find out) to the last, the Handbook is rife with grammatical and usage errors; a few typos are thrown in for good measure. These errors alone would be sufficient to disqualify LegalEase from consideration by any sole practitioner or small firm looking to outsource: the last thing that a busy solo or small firm lawyer wants to deal with when outsourcing substantive legal work is having to practically rewrite a brief to get it signature-ready.* But more serious still are the Handbook’s substantive errors.

The Handbook describes ABA Formal Op. 08-451 (Lawyer’s Obligations When Outsourcing Legal and Nonlegal Support Services) as “the first opinion issued by the ABA regarding legal outsourcing.” However, while Op. 08-451 is the first ABA ethics opinion that discusses offshore legal outsourcing, it isn’t the ABA’s first opinion concerning outsourcing.

In fact, Op. 08-451 itself discusses the ABA’s two earlier opinions concerning outsourcing: Formal Op. 00-420 (Surcharge to Client for Use of a Contract Lawyer) and Formal Op. 88-356 (Temporary Lawyers [the ABA acknowledges in Op. 08-451 that engaging the services of a temporary lawyer is “a form of outsourcing”]). Although the ABA’s ethics opinions are not binding in any state, they are widely cited in relevant opinions issued by state ethics authorities and some influential local bar associations (such as the New York City Bar Association). One would expect an LPO company like LegalEase to have a better understanding of these opinions, upon which the very viability of its business model rests.

There’s more. As every 1L knows, if you’re going to cite a case or statute in a brief, it’s important to make sure that the case or statute is still good law. In its discussion of its conflict checking systems, LegalEase quotes N.Y. Code of Professional Responsibility DR 5-105(e) (actually, it mis-cites the section as “DR 5 – 105(E), New York Lawyers Code of Ethical Responsibility”). New York abandoned the Code in favor of a modified version of the Model Rules 13 months ago.

If you’re intent on squeezing every last penny of profit out of the outsourcing equation, you may be willing to spend the time to re-write poorly-written briefs, or to submit lightly-edited versions of those same briefs to the courts, in the hope that the judges before whom you practice aren’t sticklers for good writing. But are you willing to re-do the research, too, or run the risk that the brief you submit overlooks significant cases or statutes, or cites bad law? At what point does the extra work you have to do, or the extra risk you have to take, as a result of sending legal work offshore outweigh the benefit you obtain by maximizing the spread between what you pay to outsource the work and what you bill your client for that work?

There’s no question that you’ll most likely make less profit if you work with a freelance lawyer who lives, is admitted to practice in, and works in the United States than if you hire a foreign LPO company. But there’s more to outsourcing than dollars and cents: foreign LPOs may offer a better price, but onshore freelance lawyers offer solos and small firms better value.

*Update 7/2/16: It appears that LegalEase has revised the handbook, as the grammar, while not perfect, is much improved.

THR, Esq., The Hollywood Reporter’s legal blog (“the intersection of hollywood [sic] and law”) reported today on Sacha Baron Cohen’s appellate victory in a defamation and intentional infliction of emotional distress action brought by a former girlfriend. Ordinarily, I wouldn’t pay much attention to a story like that (though I adored Cohen in Talledega Nights: The Ballad of Ricky Bobby). However, THR, Esq. put an unusual spin on the story:

What’s funnier than Sacha Baron Cohen poking fun at the U.S. Constitution by comparing it to the way his ex-girlfriend was always “trying to amend herself” with tattoos?

How about when Cohen’s ex-girlfriend sues the comedian and “Da Ali G Show” distributor Channel Four Television for defamation and infliction of emotional distress?

Or maybe Channel Four relying on a team of outsourced lawyers from India rather than U.S. attorneys?

Those Indian lawyers have found success in the case, first at a California District Court and then on Tuesday at the California Court of Appeal. The decision is being hailed as the first appellate ruling of its kind — a victory for the free speech rights of comedians who wish to make fun of ex-girlfriends in the midst of calling Gore Vidal a world-famous hairstylist and questioning whether Denzel Washington lives in George Washington’s former Mount Vernon home.

What won’t be funny is the look on the faces of American lawyers as studios decide to give more legal work to lawyers from India.

“Or maybe Channel Four relying on a team of outsourced lawyers from India rather than U.S. attorneys?”

This question misleadingly implies that Channel Four was represented directly by lawyers who are admitted to practice only in, and/or live in, India. This is not the case.

The decision reveals that Channel Four was represented by Russell Smith of SmithDehn LLP and Theodore F. Monroe of the Law Offices of Theodore F. Monroe—both American lawyers. SmithDehn LLP operates SDD Global Solutions Pvt, Ltd., a legal process outsourcing (LPO) company.

While I’m not personally familiar with either SmithDehn or SDD Global Solutions, I have no doubt that they comply with the ethical restrictions governing legal outsourcing (whether domestic or foreign). Most importantly, as I explained in my analysis of ABA Formal Op. 08-451, the outsourcing lawyer remains responsible for rendering legal services to the client with the legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation. Moreover, the outsourcing lawyer must make reasonable efforts to ensure that the outsourced lawyer (also known in the legal industry as a “contract lawyer”) conforms to the Rules of Professional Conduct. This is no different from the responsibility of a lawyer supervising the work of another attorney who is employed by the supervising lawyer’s firm.

Additionally, American lawyers who are outsourcing work to lawyers in a foreign country must investigate whether the system of legal education under which the lawyers were trained is comparable to that in the United States; whether the foreign lawyers are subject to a professional regulatory system that inculcates core values similar to those in the United States; the “legal landscape” of the nation to which the services are being outsourced (and, specifically, whether personal property, including documents, may be susceptible to seizure in judicial or administrative proceedings notwithstanding claims of client confidentiality); and whether the judicial system of the target country will provide prompt and effective remedies to avert prejudice to the client in the event of a dispute between the service provider and the outsourcing lawyer.

Ethics opinions in New York (where SmithDehn’s U.S. office is located) and California (where the Law Offices of Theodore F. Monroe is located) are consistent with Op. 08-451.

As an independent U.S.-based contract lawyer, I’m not thrilled that some U.S. legal work is being sent offshore. Nevertheless, I recognize that the same principles that allow firms to send legal work overseas also allow law students and law graduates awaiting admission to do actual legal work when they’re working at firms, rather than making copies and getting coffee for the partners. These principles also allow U.S. lawyers to work as contract attorneys in jurisdictions in which they are not admitted.

It’s up to U.S.-based contract lawyers to let studios—and all businesses looking to cut their litigation costs—know that they can achieve cost savings by working with firms that outsource to contract lawyers in the U.S., rather than sending the work offshore. Moreover, any company with in-house counsel qualified to supervise litigation and willing to appear on the company’s behalf as counsel of record can outsource directly to contract lawyers. There is a growing cadre of independent U.S.-based contract attorneys—some who work as solo practitioners, others who work for American companies that provide legal services (including research and writing) to other lawyers—to choose from.