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  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.