A couple of weeks ago, Jason Wilson’s rethinc.k blog featured a two-part series of posts entitled On WestlawNext, WestSearch, and Haters: A Brief Interview with Mike Dahn of Thomson Reuters. Although Wilson’s interview focused on questions concerning the WestlawNext search algorithm, Dahn made a few comments that touched on pricing, prompting me to write a responsive post addressing: (1) the cost of retrieving secondary source materials by citation on WestlawNext; and (2) the non-availability of subscripton pricing for many of those secondary sources (particularly the ones included as part of the ResultsPlus plan on Westlaw).

Dahn has “responded” to the first issue raised in my post in a follow-up post at rethinc.k:

To understand actual pricing differences, it’s necessary to examine the totality of transactions rather than individual transactions, and the cost of out-of-contract charges will be especially important . . . . Lisa says that it’s much more expensive to retrieve an ALR article in WestlawNext than in Westlaw Classic, but it depends how you retrieve it. When we look at our server logs, it is extremely rare for researchers to type in a citation to retrieve an ALR—much more likely that they’ll search for one. If ALR is outside of your subscription plan and you’re paying retail, the cost of an ALR citation retrieval for something specific, like an ALR on sex-plus discrimination claims, will be almost twice in WestlawNext what it costs in Westlaw Classic—however, the more common scenario of searching for an ALR on sex-plus discrimination would cost a firm three times more in Westlaw Classic than it would in WestlawNext.

With that example, am I claiming that WestlawNext is three times less expensive than Westlaw Classic? No, of course not. It’s not very useful to look at individual transactions in isolation. I could easily list a dozen research scenarios where the retail pricing is dramatically less in WestlawNext and another dozen where the retail pricing is dramatically more. For customers who care about retail pricing differences at all (only matters when going outside your subscription plan or when using our retail pricing structure as a basis for determining costs for client charges—in other words, not relevant to most Westlaw users most of the time), I’d encourage them to look at the totality of hourly and/or transactional charges within and across research sessions.

We’ve recently had the managing partner of an Am Law 200 firm tell us that, since subscribing to WestlawNext, they’re now turning research projects around in one tenth the time. Undoubtedly, if you were to take selected pieces of that firm’s WestlawNext research sessions and compare them with selected pieces of their prior research sessions in Westlaw Classic, you could find instances where the retail charges were higher in WestlawNext, but it’s the totality of the transactions that matter more. We now have 52% of Am Law 100 firms subscribing to WestlawNext, and the way they have tended to analyze these issues prior to subscribing is by running a trial with a subset of attorneys and then asking two questions: (1) are our out-of-contract costs up or down significantly when comparing this group’s usage to previous projects or control groups? And (2) are the in-contract price allocations for client cost recovery up or down significantly when comparing this group’s usage to previous projects or control groups using historical discount rates?

The first question is the more important one. . . .using a trial group of attorneys and looking at the totality of costs and charges over many research sessions is the right way to approach this, as opposed to homing in on specific transaction cost differences and then guessing how it will play out.

Dahn’s response falls short in a number of respects.

First, Dahn simply ignored the fact that the content that is part of the ResultsPlus Westlaw plan subscription is simply unavailable in a comparable plan on WestlawNext.

Second, I did not say that it’s more expensive to “retrieve an ALR article in WestlawNext than in Westlaw Classic.” This makes it sound like my criticism applies only to a specific type of secondary source. In fact, I noted that it costs 75% more to retrieve any “Premium State and Speciality” secondary source document, and 91% more to retrieve any “Premium National” secondary source document, by citation on WestlawNext than on Westlaw.

Third, Dahn’s response actually contradicts the position he espoused in the original rethinc.k interviews. There, Dahn said:

Since WestlawNext aggregates multiple content sets under a single low search price, researchers should be more likely to browse content beyond cases and statutes—which is exactly what we see in our usage logs. In WestlawNext, secondary source usage as a percentage of total usage is up 50% over the ratios we see in Westlaw Classic. We think that’s a very good thing for researchers.

As a librarian, I always encouraged both students and associates to leverage secondary sources in their research—the right secondary source can literally save hours of time, and that time savings is a cost savings to clients. When I first came to West, I tried to promote the use of secondary sources within Westlaw, and our first project to accomplish that in a big way was ResultsPlus. With it, we saw a significant boost in secondary source usage, but WestlawNext takes it to a whole new level, making sure that relevant secondary sources are not just suggested on the side, but made an integral part of the main search result.

Now, however, Dahn contends that “[w]hen we look at our server logs, it is extremely rare for researchers to type in a citation to retrieve an ALR—much more likely that they’ll search for one.” Notice that Dahn did not say that it’s rare for a researcher to retrieve a secondary source by linking to it from the WestlawNext search results. Indeed, we can assume that it’s common to retrieve a secondary source by linking to it from the WestlawNext search results because secondary source usage is much higher in WestlawNext than in Westlaw.

If a secondary source is not within a user’s subscription plan, when the user retrieves a section from that source by linking to it from a WestlawNext search result, the user is charged a per-document fee, which (as noted above) is significantly higher for many of the secondary sources that are most valuable to practitioners. As I noted in my last post, while it makes sense for Thomson Reuters to achieve its goal of recouping its R&D costs to develop WestSearch (the WestlawNext search algorithm) by increasing the cost of subscription plans, it makes no sense to increase the cost of retrieving a document by citation.

Dahn’s response to that point shows where Thomson Reuters’ real sympathies lie. He says: “For customers who care about retail pricing differences at all (only matters when going outside your subscription plan. . . .—in other words, not relevant to most Westlaw users most of the time).” He also references the fact that 52% of Am Law 100 firms now subscribe to WestlawNext. Of course, it makes sense that large firms—the only customers who really matter to Thomson Reuters—would generally have broad subscription plans that include many secondary sources. But for solos and small firms—in other words, the vast majority of lawyers in this country*—who (I strongly suspect) generally have much more limited subscription plans, retail pricing does matter. ResultsPlus (in which the first click on any materials outside a user’s subscription plan that display to the right of the regular search results is “free”) helped even the playing field for Westlaw subscribers, but it’s not available in WestlawNext. WestlawNext’s pricing structure for document retrieval by citation is as regressive a burden on those firms as Herman Cain’s 9-9-9 tax plan is on the poor.

*As of 2000 (the most recent year for which the ABA has published statistics), 70% of private practitioners were either in solo practice or employed in firms of 10 attorneys or fewer.

This week, Jason Wilson’s excellent rethinc.k blog features a two-part series of posts entitled On WestlawNext, WestSearch, and Haters: A Brief Interview with Mike Dahn of Thomson Reuters. Wilson’s interview focused on questions concerning the WestlawNext search algorithm.

I’ve always conceded that, for the most part, WestlawNext is superior to Westlaw. However, I’ve been outspoken in my criticism of WestlawNext’s pricing (does that make me a “hater”?). One of Dahn’s comments in this new interview has led me to revisit this issue.

Dahn says:

As a librarian, I always encouraged both students and associates to leverage secondary sources in their research – the right secondary source can literally save hours of time, and that time savings is a cost savings to clients. When I first came to West, I tried to promote the use of secondary sources within Westlaw, and our first project to accomplish that in a big way was ResultsPlus. With it, we saw a significant boost in secondary source usage, but WestlawNext takes it to a whole new level, making sure that relevant secondary sources are not just suggested on the side, but made an integral part of the main search result.

In addition, if you want to browse content like ALR or jury verdicts in Westlaw Classic, and they’re not included in your subscription plan, you must pay an out-of-plan cost to search them before you can browse anything—and you’ll have to try this with database after database. In WestlawNext, ALL searching is included within subscription plans (even if the underlying content is not), and we show more of a document preview in WestlawNext than we do in Westlaw Classic, so customers can browse previews of content outside their subscription plan all day long without incurring extra charges. This not only encourages browsing, but it tends to reduce out-of-plan costs . . . . [W]ith WestlawNext you can search repeatedly and browse content previews all you want, and you only pay for the out-of-plan document you click on. This will almost always cost much less than what it would have cost to search and browse in Westlaw Classic. And in WestlawNext, any search that turns up nothing costs you nothing (in terms of incremental charges), but in Westlaw Classic, if your search results in no relevant documents, you still pay an out-of-contract cost for the search.

These comments fail to address two critical aspects of the Westlaw Classic v. WestlawNext analysis: (1) the true cost of using out-of-plan secondary sources on WestlawNext; and (2) pricing for the valuable content that is included in ResultsPlus.

The true cost of accessing out-of-plan secondary sources on WestlawNext

To be fair, I omitted from the above quote Dahn’s statement that “I heard from a large law firm librarian the other day who said her out-of-plan costs were down 67% in WestlawNext compared with Westlaw Classic.” However, a comment from one large-firm librarian is not an accurate reflection of the true costs of accessing out-of-plan resources (including secondary sources) on WestlawNext. Because, after all, while it’s great to be able to browse document previews, we all know that—just as you would never cite a case after reading a headnote instead of the case itself—the important thing is the document, not the document preview. In this regard,

[o]f course, WN search results may alert legal researchers to issues they would otherwise overlook. But they need not start with a WN search to remedy this deficiency. Secondary sources in a law library appear more likely than WN searches to save legal researchers time, and their clients unnecessary search costs, as long as researchers have ready access to a law library, and know how to effectively use the sources or receive instruction. At “retail,” transactional rates, a WN search costs $60, and then $42 to view a section of a “premium state [or] speciality title.” (TR Legal, WestlawNext Pricing Guide for Commercial Plans (Feb. 2010)) WN search results may include a larger collection of relevant secondary sources. But you may incur unnecessary cost to run even one search on WN, and view several documents, at least if you can gain the needed context from a treatise or legal encyclopedia in your institution’s law library. Moreover, it will cost almost twice as much in WN than in WC to view “speciality title” sections. (TR Legal, Westlaw Pricing Guide For Private Price Plans (Apr. 2010)).

* * *

Suppose you are a California attorney. Anticipating criminal law as the likely context, you could start with Witkin & Epstein, Cal. Criminal Law (3d ed. 2000). Using WN or WC, you could browse the table of contents to find the relevant discussion:

Chapter XIV. Criminal Trial – X. RIGHT TO AND SELECTION OF JURY – A. Right to Jury Trial – 4. Waiver of Right. – h. [§ 459] Effect of Waiver on Retrial.

WN users can still access the table of contents of Cal. Criminal Law and other secondary sources. But it will cost them more to do so. Under a private plan’s “retail,” transactional rate, it costs $24 to retrieve Cal. Criminal Law § 459 from WC; however, it costs $42, or almost twice as much, to retrieve this section from WN. This difference in cost has significant consequences for charges to clients and cost recovery, because the difference will have iterations every time WN users rely on WN’s print-based features. Thus Cal. Criminal Law § 459 cites to People v Solis, 66 Cal.App.4th 62, 77 Cal.Rptr.2d 570 (1998). The case would lead you to another helpful secondary source:

Although there are no published opinions in California specifically addressing whether a jury trial waiver remains in effect for a subsequent retrial of the same case, the contention has been considered and rejected in many other state and federal courts. (United States v. Groth (6th Cir.1982) 682 F.2d 578; United States v. Lee, supra, 539 F.2d 606, 610; People v. Mixon (1994) 271, 111. App.3d 999, 208 Ill.Dec. 385, 387, 649 N.E.2d 441, 443; People v. Hamm (1980) 100 Mich. App. 429, 298 N.W.2d 896, 898; State v. Di Frisco (1990) 118 N.J. 253, 571 A.2d 914, 930; see also Annot., Waiver of Right to Trial by Jury as Affecting Right to Trial by Jury on 573-573 Subsequent Trial of Same Case in Federal Court (1984) 66 A.L.R.Fed 859, 869, § 7 and cases cited.)” (77 Cal.Rptr.2d 570, 572-73).

(Links omitted)

It costs $24 to retrieve the ALR document from WC, but $46 to retrieve it from WN. And if the ALR led to other secondary sources, the cost difference repeats itself.

The WestSearch Straitjacket For Legal Research—Thinking Beyond The Keyword: Part I. Although Dahn criticizes the fact that the author of this post is anonymous, the facts contained in the paragraphs quoted above are undeniable.

While I continue to believe that Thomson Reuters should have absorbed the cost of developing WestSearch (the WestlawNext algorithm) as part of its R&D budget, since the company is as intent on cost-recovery as it urges its customers to be, it makes sense to reflect those costs in increased rates for subscription plans (which encourage searching within one’s plan). However, WestSearch has no impact on what it takes to retrieve a document by citation. Why, then, does it cost 75% more to retrieve a “Premium State and Speciality” secondary source document, and 91% more to retrieve a “Premium National” secondary source document, by citation on WestlawNext than on Westlaw?

There is also plenty of anecdotal information to counter Dahn’s single positive anecdote about out-of-plan savings with WestlawNext. For example, from WestlawNext: Pros and Cons and General Comments from Law Librarians (summary of comments posted to the American Association of Law Librarians listserv):

• Way too expensive.
   
  * * *

• When we research an issue, it isn’t unusual for an attorney to scan 40 or 50 cases at a time to get the total picture – the WLN pricing structure penalizes this kind of exhaustive research by charging for each result viewed, while the WL Classic model supports it.
   
  * * *

• Dislike. It is very expensive and our ability to bill back suffered as an overall percentage of recovery because with two systems, usage stayed the same but the bill got bigger.

From How widespread is WestlawNext? (summarizing comments about WestlawNext posted on Northern California Association of Law Libraries (NOCALL) listserv):

Though honestly we haven’t embraced it completely and probably won’t until West tells us they are pulling the plug on classic. I think it is a good product. I like the $60.00 search and the left-hand screen that guides you to your hits. The biggest issue is the pricing per document. Those clicks just add up.

The Non-Availability of Subscripton Pricing for ResultsPlus Content

Since I find ResultsPlus to be an important part of my Westlaw subscription, my previous posts about WestlawNext included painstaking analysis of the availability of a comparable plan on WestlawNext. To cut to the chase, there isn’t one that even comes close. (Rather than re-post my earlier analyses, I refer you to My WestlawNext Upgrade Negotiations: Proof that West Isn’t Interested in the Solo Market and Westlaw Reps Don’t Know their A$$es From their Elbows When it Comes to WestlawNext Packages and Pricing.)

Combining my analysis with Dahn’s recent comments reveals is that, while WestlawNext may have achieved the (laudatory) goal of increasing the use of secondary sources, it is also achieving the (laudatory only from the perspective of TR and its shareholders) goal of increasing out-of-plan charges for the use of those sources.

One final point: Mike notes that there has been a lot of “positive Twitter commentary” about WestlawNext. I suspect that the vast majority of that commentary is from law students—in other words, people who (1) have little or no real-world research experience with Westlaw or WestlawNext; and (2) do not pay to use WestlawNext, and therefore have no idea of the charges they would incur for their research in the real world.

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

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

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

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

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

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

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

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

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

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

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

The revised initial draft adds the following:

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

The report accompanying the revised initial draft now explains:

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

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

The revised initial draft recognizes the contributions made by freelance paralegals

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

The Commission’s report continues to support outsourcing

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

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

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

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 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.

Yesterday, the ABA’s 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. The “initial draft proposal” shouldn’t be confused with the “discussion draft” of proposed changes, which was released last November.

The language of the initial draft is substantially identical to the language of the discussion draft. In turn, as I explained in November, the discussion draft didn’t introduce anything new or surprising; rather, it merely elevated many of the points made in ABA Formal Op. 08-451 to the level of Model Rule comments. I’ve highlighted below the handful of significant differences between the discussion draft and the initial draft.

The revised comment to Model Rule 1.1 stresses the importance of obtaining the client’s informed consent to outsourcing

Model Rule 1.1 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.” Here’s a redlined version of the proposed new Comment 6 to Model Rule 1.1 (insertions are in red; deletions are struck through):

Retention ofetaining or Contracting With Other Lawyers

[76] ABefore a lawyer may retainretains or contracts with other lawyers outside the lawyer’s own firm to provide or assist in the provision of legal services to a client provided, the lawyer should ordinarily obtain informed consent from the client and must reasonably concludes that the other lawyers’ services will contribute to the competent and ethical representation of the client. See also Rules 1.2 (allocation of authority), 1.4 (communication with client), 1.5(e) (fee sharing), 1.6 (confidentiality), and 5.5(a) (unauthorized practice of law). The reasonableness of the conclusiondecision to retain or contract with other lawyers outside the lawyer’s own firm will depend upon the circumstances, including: the education, experience and reputation of the nonfirm lawyers; the nature of the services assigned to the nonfirm lawyers; and the legal protections, professional conduct rules, and ethical environmentenvironments of the jurisdictions 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, particularly relating to confidential information. When using the workservices of nonfirm lawyers in providing legal services to a client, a lawyer also must also reasonably conclude that such workservices 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.

Thus, the initial draft contains a presumption that the hiring attorney is required to obtain the client’s informed consent to outsourcing; by contrast, the discussion draft said only that informed consent may be required. Additionally, the issue of informed consent has been moved from the end of the comment to the beginning, better reflecting the requirement’s significance. Finally, in the initial draft, informed consent is couched as a fundamental requirement (in most circumstances), whereas the discussion draft treated the possibility that informed consent might be required as a byproduct of the sharing of confidential information.

The revised comments to Model Rule 5.3 make explicit the rule’s applicability to freelance (contract) lawyers and place more responsibility on the hiring attorney to provide non-lawyers with adequate guidance

Model Rule 5.3 governs a lawyer’s responsibilities regarding non-lawyer assistants. The discussion draft didn’t suggest any changes to the already-existing Comments [1] and [2]. The initial draft revises Comment [2] (and renumbers it as comment [1]) to explicitly expand the rule’s coverage to nonlawyers outside a firm (in addition to nonlawyers employed by a firm).

Additionally, the discussion draft included an entirely new comment [3] to Rule 5.3. The hiring attorney’s obligations under this rule are further refined in the initial draft:

[3] The responsibilities stated in this Rule also apply when a lawyer or law firm utilizes nonlawyer service providers

Nonlawyers Outside the Firm

[3] Lawyers often use nonlawyers outside the lawyer’s or law firm’s officefirm to assist in rendering legal services to clients. The lawyer or law firm clients. Examples include the retention of an investigative service, hiring a document management company to create and maintain a database for complex litigation, sending client documents to a third party for printing or scanning, and using an Internet-based service to store client information. When using such services outside the firm, a lawyer must make reasonable efforts to ensure that the activities of any nonlawyer service providers areservices are provided in a manner that is 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 requirementterms of any arrangements concerning to protectthe protection of client information; and the legal and ethical environments of the jurisdictions in which the services will be performed., particularly with regard to confidentiality. See also Rules 1.1 (competence), 1.2 (allocation of authority), 1.4 (communication with client), 1.6 (confidentiality), 5.4(a) (professional independence of the lawyer), and 5.5(a) (unauthorized practice of law). When retaining or directing a nonlawyer outside the firm, a lawyer should communicate directions appropriate under the circumstances to give reasonable assurance that the nonlawyer’s conduct is compatible with the professional obligations of the lawyer.

* * *

In the discussion draft, Comment [3] vaguely directed the hiring attorney to “make reasonable efforts” to ensure that nonlawyers act in a manner compatible with the hiring attorney’s professional obligations. The initial draft clarifies that those “reasonable efforts” include the communication of appropriate directions to the nonlawyer, thus arguably requiring the hiring attorney to take a more active role in assuring an acceptable level of performance by an outside-the-firm nonlawyer.

The Commission’s report continues to support outsourcing while disclaiming an intent to do so

In the introduction to its November 2010 draft report, the Commission disclaimed any intent to either endorse or reject the practice of outsourcing, but, like Op. 08-451, it discussed the benefits of outsourcing. The report accompanying the initial draft proposal adds even more laudatory language, noting that “[b]y reducing the cost of legal services, outsourcing can improve access to justice by making legal services more affordable. Additionally, the report (like the draft report) recognizes that the ability of solo practitioners and small- and mid-sized firms to retain outside high-quality outside providers, who can complete work at greater speed and lower cost than firm employees allows those firms to better compete for large matters without fear that they will lack adequate resources to perform the legal work involved.

The Commission Seeks Further Comment

The Commission seeks further comments in response to the initial draft proposal. Comments should be submitted by July 15, 2011, to Senior Research Paralegal Natalia Vera at natalia.vera@americanbar.org or by fax at 312-988-5280. [Ed. note: By fax? Anyone who's still using fax over e-mail is highly unlikely to be interested in outsourcing....]. The Commission will submit to the ABA House of Delegates final versions of its proposals in May 2012 for House deliberation at the August 2012 ABA Annual Meeting.

Check back here in a few days for my summary and analysis of the comments the Commission received in response to the discussion draft.

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—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.

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.

Powerful Writing Techniques to Help You Persuade Judges and Win Clients

On Thursday, October 7 from 1:00-2:00 p.m. Eastern, I’ll be presenting my popular program, Powerful Writing Techniques to Help You Persuade Judges and Win Clients, as a complimentary webinar.

The ability to write forcefully and effectively is critical to your success as a lawyer. In this webinar, lawyers will learn to write more persuasively by using the same powerful techniques that copywriters have relied on for years. Discover what these techniques are and how to apply them in both briefs and client-focused writing.

Attorneys who attend this webinar will learn about:

• The greatest challenge your writing must overcome to persuade readers to take a desired action
• Basic concepts underlying all effective persuasive writing—ignore these and you’re sunk
• How to write a compelling brief that the judge just can’t put down
• The role of emotion in jurisprudence and how to trigger the reader’s emotions
• The things readers absolutely hate—and how to avoid them
• How to deal with objections to your position
• Closing the deal: conclusions and calls to action

This webinar is part of a series of complimentary webinars from Avvo, a website that offers ratings and profiles for 90% of U.S. lawyers, as well as client reviews, peer reviews and attorney disciplinary records. The website currently covers all 50 states and the District of Columbia.

Once again, that’s Thursday, October 7 at 1 p.m. (EDT). To register, click here.

If you’re in the New York City area and would like to get CLE credit for attending this program, I’ll be presenting it live at the New York County Lawyer’s Association (downtown at 14 Vesey Street) on Monday, October 4 from 7:45-9:00 p.m. The program (part of a four-credit Bridge the Gap session) is suitable for both new and experienced lawyers. To register, click here.

Two more Opportunities to Learn About the Benefits Solos and Small Firm Lawyers Can Reap by Working With Contract Lawyers

If you missed last week’s How to Work With Contract Lawyers to Save Your Firm Money, Increase Profits and Get Your Life Back webinar, you haven’t missed the boat: in the next few weeks, I’ll be talking about contract lawyering both live in New York City and online.

On Tuesday, October 5 from 6:30-8:30 p.m., I’ll be co-presenting Minimize Growing Pains—Expand Your Small Firm Practice with the Help of Contract Attorneys at the New York City Bar Association, 42 W. 44th St. in Manhattan.

Attend this program to learn how contract lawyers can help you achieve work/life balance by providing a safety valve when you’re swamped with work, increase professional satisfaction by enabling you to focus on those legal tasks you find most rewarding and increase profits without adding to your firm’s overhead.

The program will be moderated by Alla Roytberg, Director of the NYC Bar’s Small Law Firm Center. I’ll be joined on the panel by Edgar De Leon of De Leon & Associates, PLLC, who will discuss his experience working with contract lawyers.

A wine and cheese reception from 6:30-7:15 will be followed by the program from 7:15-8:30.

Once again, that’s Tuesday October 5 from 6:30-8:30 p.m. To register, click here.

Not in the New York City area? Listen to Law Firm Staffing Alternatives: Contract Lawyers on Total Expert Radio, on Friday, October 15 from 1:00-2:00 p.m. (Eastern). Outsourcing is the wave of the future. But it doesn’t necessarily mean sending work overseas, and it’s not just for big firms. Solos and small firms can garner many benefits by outsourcing substantive legal work to independent, US-based contract (a/k/a freelance) lawyers. Join us to learn how to use contract lawyers in your law firm to fill both long-term and temporary staffing needs.

The live, Q & A format show is part of a series of shows about the hottest topics in law practice management from Total Attorneys, a technology-enabled service provider dedicated to assisting with every aspect of small and solo law firm practice management, growth and development. Although pre-registration is not required, you may want to bookmark the show page so you can quickly return to it on October 15.