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 Rsolution. Comments should be submitted by April 2, 2012 to Senior Research Paralegal Natalia Vera at natalia.vera@americanbar.org.

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 privvy 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.

*You can find a complete compilation of all ethics opinions from around the country that are relevant to working with contract (freelance) lawyers in my e-book, Contract Lawyering Success. The e-book is available exclusively through LRWP.

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.

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.

• 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—what a person is doing in another state, much less in India or some other country.” (You can find guidelines and suggestions about how hiring attorneys can adequately supervise freelance attorneys in my free guide, Associates? I Don’t Need No Stinkin’ Associates! Why Solos and Small Law Firms Should Work With Contract Lawyers and How to do It)

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—commenters 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.

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.

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.

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, another marketing piece, by another foreign LPO company, brought this issue to the forefront once again:

This tweet promoted 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.

When I tweeted about my initial response to the Handbook a few days ago, Russell Smith, the Chairman and President of the self-described “high-end” LPO company SDD Global Solutions Pvt. Ltd. quickly came to the defense of the foreign LPO industry:

With friends like this, the foreign LPO industry hardly needs enemies, does it? After all, wouldn’t it be fair to assume that LegalEase—which uses onshore (i.e., U.S.-based) lawyers to “manage and oversee every project, while the offshore staff performs the bulk of the work”—is also a “high-end” LPO company?

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.

Yesterday, I saw a post in a LinkedIn group to which I belong, called Legal Research & Writing. Here’s the post, by Jagriti Mishra, the head of business development at an Indian LPO company called Draft N Craft:

Bursting the 7 Myths behind Legal Process Outsourcing.

This article attempts to address 7 common myths associated with the LPO industry

1> Whether outsourcing is synonym to compromise in quality?
2> Outsourcing is a compromise with confidentiality
3> It is unethical to outsource
4> By outsourcing, the vendor takes away outsourcer country’s jobs.
5> Indian LPO vendors compete with foreign law firms.
6> LPO vendors need malpractice insurance
7> Legal outsourcing starts instant savings and has no obligations

Please refer the link below:-

http://lpowatch.blogspot.com/

Curious, I clicked through to the post, where I was immediately struck by Mishra’s discussion of the first “myth” behind legal process outsourcing:

Myth 1> LPO stands for PLPO (Para-Legal Process Outsourcing) and/or there is a compromise in quality.

The legal process outsourcing industry is at nascent state but is growing both monetarily and intellectually. Although it is true that High cost, more routine, lower risk legal works are easy to outsource, it in no way circumscribes the potentials of legal process outsourcing. The PLPO perception is a backlog, as the Legal outsourcing industry begun with routine work. Suffice it is to mention that various important player like (SDD and Lexadigm) have prepared Briefs and Motions to be filed in US courts. Our attorneys are trained for Multi jurisdictional research and assist:-

• US debt collection attorneys prepare Consumer Complaints, Briefs, and Motions for FDCPA, FCRA, FCBA and TILA violations.
• Social security attorneys in filing FIT, research on GRIDS, De novo appeal before ALJ.
• Bankruptcy attorney in intake form fill up and entering the information on Bankruptcy software.
• Foreclosure attorney in preparing complaints, motion and briefs to help the homeless.
• Contract review and management attorneys in contract Review including red lining and blue lining.
• Merger and Acquisition attorney for due diligence.
• For e-discovery solutions with cost advantage.

Quality is a term that takes new face with new situations. Clear guidelines, good teamwork and 100% quality check are the factors that coordinate in determining standards. It requires involvements from both the ends, keep a track of milestones and guidelines and the Outsourced service provider will ensure quality. We however, from our end add extra input to provide best quality deliverables. Had all vendors failed in providing quality this industry would have collapsed by now, the continuous growth reflects value.

Ironic, no?

Before other LPO companies get up in arms, I’ll concede that no doubt many of them have much better quality control than Draft N Craft (which I’d never heard of before reading Mr. Mishra’s post) appears to have. Nevertheless, the trainwreck of grammar and usage errors in Mr. Mishra’s post is a red flag. If the reading comprehension abilities of the foreign lawyers who work for a company like Draft N Craft is on par with the writing ability demonstrated in this post, any US lawyer who hires a company like this will have to do quite a bit of due diligence to ensure that the work product meets the standards set forth by the disciplinary authorities (to say nothing of the courts).

The other red flag in Mishra’s post is his claim that foreign LPO companies don’t have to carry malpractice insurance. Since at least 2003, experts have recommended that companies providing contract lawyering services carry malpractice (or errors and omissions) insurance. While it’s true that most malpractice policies should cover you for work performed on your behalf by a qualified contract lawyer, I’m unaware of any cases in which this has been challenged in the context of foreign legal outsourcing. I’d hate to be the test case.

Since I have never personally worked with a foreign LPO firm, I can’t comment on Mishra’s claims concerning security and confidentiality issues. And since I’m not an economist (heck, I didn’t even take Econ 101 in college), I won’t comment on Mishra’s analysis of the question of whether foreign outsourcing results in a net loss of jobs in the outsourcing country.

I agree with only two of Mishra’s arguments. An ethical foreign LPO company, like any ethical US-based contract lawyer, will not compete with you for your clients. The foreign LPO company (or a US-based contract lawyer who is not admitted in your jurisdiction) simply can’t represent your clients directly. And even a US-based contract lawyer who is providing services in a jurisdiction in which he or she is admitted to practice law won’t compete with you for your clients: simply put, we don’t want your clients—we want to work only for other lawyers.

I agree only to a point with Mishra’s analysis of the ethics decisions. Not a single bar association has determined that foreign legal outsourcing is per se unethical. However, Mishra gives short shrift to the caveats included in many of the opinions. You can find a more detailed discussion of the caveats in ABA Formal Op. 08-451 here.

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. Sure, it costs more to outsource to a qualified, US-based independent contract lawyer than to send work overseas. But remember: you get what you pay for.