As the ABA Journal reports, today, the ABA’s House of Delegates adopted Resolution 105C, which amends the comments to ABA Model Rules 1.1, 5.3 and 5.5 to clarify lawyers’ obligations when outsourcing work, whether domestically or internationally.
The resolution’s adoption caps a process that began in November 2010, when 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. As I explained in my analysis of the discussion draft, the proposed changes didn’t introduce anything new or surprising; rather, they primarily elevate many of the points made in ABA Formal Op. 08-451 to the level of Model Rule comments.
Selected Highlights of the New Model Rules Comments Concerning Outsourcing
The House of Delegates adopted the following new comment to Model Rule 1.1 (competence):
 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 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.
wwwDisclosure and Client Consent
In its report to the House of Delegates, the Commission explained that “consent will typically be required, and will almost always be advisable” when outsourcing, although it “may not be necessary when a nonfirm lawyer is hired to perform a discrete and limited task, especially if the task does not require the disclosure of confidential information.” The requirement to obtain the client’s informed consent to outsourcing in most cases is stronger than that imposed by ABA Formal Op. 08-451, which required disclosure of the use of a freelance lawyer only if the freelance lawyer was to perform independent work for the outsourcing lawyer without the “close supervision” of the outsourcing lawyer or another lawyer associated with the outsourcing lawyer’s firm.
wwwSupervision of nonfirm lawyers and nonlawyers outside the firm
The most recent draft resolution concerning outsourcing (issued in February 2012) contained the following sentence at the end of comment : “When using the services of nonfirm lawyers in providing legal services to a client, a lawyer also should also reasonably believe that such services meet the standard of competence under this Rule.” This sentence was omitted from the version submitted to, and adopted by, the House of Delegates, no doubt in response to a few comments the Commission received in response to the February 2012 draft resolution objecting to it.1
The omission of the last sentence from comment  is significant because the Commission previously explained that the last sentence required outsourcing lawyers to “conclude that the services that the nonlawyer [sic; should read “nonfirm lawyer”] actually performed after being retained were performed competently.” Although the new comment  to Rule 5.3 now explicitly requires a lawyer who uses nonlawyers outside a firm to assist the lawyer in rendering legal services to “make reasonable effort to ensure that the services are provided in a manner that is compatible with the lawyer’s professional obligations” (which, of course, include the duty to provide competent representation), that comment does not impose on the outsourcing lawyer an obligation to conclude that a nonfirm lawyer’s work meets the standard of competence required under Rule 1.1.
To put this distinction into context with a real-life example, I am admitted in New York, EDNY, SDNY, the Second Circuit and the U.S. Supreme Court. When a New York lawyer retains me to provide legal research and/or writing services, under comment  to Rule 1.1 (as adopted), the lawyer does not have a continuing obligation to conclude that any services I actually perform after being retained are performed competently. This means that, if (for the sake of argument only) I ever perform services for a New York lawyer in an incompetent manner, any failure of the hiring attorney to discover that my work does not meet the standard of competence under Rule 1.1 will not constitute an ethics violation.
The result is different when an outsourcing lawyer hires a freelance lawyer who is not admitted in the same jurisdiction as the outsourcing lawyer. For example, a Utah lawyer recently retained me to conduct research for, and draft, a brief to the Utah Supreme Court. Because I am not admitted in Utah, I am considered a “nonlawyer” in that state. Under the new comment  to Rule 5.3, if (again, for the sake of argument only) I do not perform the work competently, any failure by the outsourcing lawyer to make reasonable efforts to ensure that I have performed in a manner consistent with the lawyer’s obligation to provide competent representation may constitute an ethics violation.
None of this should discourage lawyers from outsourcing to out-of-state freelance lawyers. Remember, adequate supervision over a non-lawyer is judged on a reasonableness standard. As the new comment  to Rule 5.3 explains, the extent of supervision required “depend[s] on the circumstances, including the education, experience and reputation of the nonlawyer [and] the nature of the services involved….” This means an out-of-state junior lawyer with little or no experience in the substantive practice area and no track record to speak of will require more supervision than a seasoned attorney with extensive substantive experience in the relevant practice area and an extensive track record. It also means that, while—as comment  to Rule 1.1 makes clear—a hiring attorney should do diligence when hiring any freelance lawyer, sufficient due diligence is particularly important when hiring an out-of-state freelance lawyer.
The Commission’s Report to the House of Delegates Supports Domestic Outsourcing
As I noted in my analysis of the discussion draft, although, in the introduction to its Draft Report, the Commission disclaimed any intent to either endorse or reject the practice of outsourcing by solos and small firms, the Draft Report went on to discuss the benefits of outsourcing. The Commission maintained that position throughout the revision process. In the report it submitted to the House of Delegates, the Commission observed:
Lawyers have found that the same technology-driven efficiencies that have led to an increase in outsourcing throughout the global economy are also making outsourcing an appealing option within the legal profession for certain work. In particular, lawyers have found that, if they exercise proper care in the selection of a provider, work can be completed with greater speed and lower costs without sacrificing quality. These efficiencies offer opportunities for solo practitioners and small and medium-sized U.S. law firms, allowing them to better compete for large matters without fear that they will lack adequate resources to perform the legal work involved. Also, by reducing the cost of legal services, outsourcing can improve access to justice by making legal services more affordable.
….The Commission’s research indicates that lawyers still tend to outsource legal and law-related work domestically more often than they outsource work internationally. In fact, information reviewed by the Commission indicates that, more recently, the outsourcing industry is responding to client demand for greater availability of on-shore operations.
Although the additional comments to the Model Rules aren’t, in and of themselves, revolutionary, by amending the Model Rules comments to discuss lawyers’ obligations when outsourcing, side-by-side with their obligations when working with lawyers and other personnel inside a firm, the ABA has acknowledged the importance of outsourcing to the practice of law, both today and in the future. That is revolutionary.
The objection of Prof. Andrew Perlman, the Ethics 20/20 Reporter, focused on the sentence’s impact on lawyers or firms that “refer” work to non-firm lawyers for a variety of reasons, including to obtain an opinion from local or specialized counsel on a matter in which the “referring” lawyer lacks expertise. The objection’s use of the word “referring” demonstrates Perlman’s fundamental misunderstanding of the term “outsourcing,” the hallmark of which is the hiring lawyer’s ability to competently supervise the work performed by the nonfirm lawyer. Where a matter requires specialized or local expertise, it would be more appropriate to enter into a co-counsel relationship (with each firm having a direct attorney/client relationship with, and ethical obligations to, the client) than an outsourcing relationship.