Practical and Ethical Issues of Legal Outsourcing

Presented by:

Overview• Evolution of offshore legal outsourcing

– What is it, who’s doing it, why

• General Considerations When Outsourcing– Types of work, which vendor, which country

• Ethical Obligations In Outsourcing– Unauthorized practice of law– Competence and Supervision– Conflicts of Interest– Privilege and Confidentiality

• Confidentiality• Data privacy and security• Attorney-Client Privilege

– Client Notice– Fee and Billing Issues

History of Outsourcing

The Progression of Sourcing– Near Shoring– Outsourcing Domestically– Off-shoring (captive)– Offshore Outsourcing

U.S. Companies Offshore

• General Electric was the first foreign conglomerate to offshore to India.

• GE Plastics unit hired a lawyer to work in Gurgaon (near Delhi) to write and review contracts with vendors

• GE executives say the India team saved the company $500,000 in 2001 and $700,000 in 2002.

http://www.bmacewen.com/blog/pdf/AsiaLawJulyAugust2005LegalOutsourcingToIndia.pdf

Other U.S. Companies Off-shoring To India

• Microsoft• American Express• Morgan Stanley• Cisco• Oracle

• DuPont• Intel• IBM• Texas Instruments

What Legal Services Are Outsourced?

– Document review and abstraction– Contract drafting and management– Patent searching, analysis, drafting and

prosecution support– Legal research and drafting– Litigation support, going as far as brief and motion

writing– Business information and competitive intelligence

research

Are U.S. Law Firms Off-shoring Legal Work?

• Jones Day and Kirkland & Ellis both offshore work to India– Sophisticated clients demand that the firms offshore work

to get work done more cost effectively.

• Only 1 out of the top 10 highest grossing U.S. law firms denies that it outsources.– The firms that are having success view it as a competitive

advantage

http://www.bloomberg.com/apps/news?pid=20601103&refer=news&sid=aBo8DnfekWZQ

Trends in Legal Off-shoring

• Indian legal services industry will more than quadruple to $640 million by 2010 from $146 million in 2006.

• U.S. legal outsourcing to exceed $4 billion by 2015.

http://www.bloomberg.com/apps/news?pid=20601103&refer=news&sid=aBo8DnfekWZQ

The Professional Lawyer, Publication of the American Bar Association Center for Professional Responsibility

Benefits of Offshore Outsourcing

• Improved quality – Indian professionals cost less so they can spend more time

• US attorneys move up the value chain

• Overflow work management• More than 50% of lawyers are at firms with 2 or fewer

lawyers

• Increases adaptability to supply and demand cycles

• Better Associate Retention at U.S. firms

• And of course….significant cost savings

Practical and General Considerations When Outsourcing

• Choosing an offshore destination

• Selecting types of work to offshore

• Precautions when outsourcing

Choosing the Right Destination: Why India?

• Similar legal system and training– British common law system– Three to five years of post-secondary legal

education based on common law– India’s official language is English, so Indian

lawyers speak and write in English– India, like the U.S., is a constitutional democracy

with similar political system

India’s Differences are a Positive

• Wage disparity and adequate supply of skilled workforce– Junior Indian lawyers $10,000-$30,000/year compared

with $160,000/year average for associates in major U.S. cities

– 80,000 new lawyers produced every year and growing

• Time difference– Night time in the U.S. is day time in India so U.S. lawyers

can virtually work while they sleep.

India’s Ultra Modern Facilities

The ABA on the Indian Lawyer

“High on the list of why a general counsel or partner should consider outsourcing his or her work to India. . .is the concept of the: Indian Lawyer: qualified lawyers in their own right, English-speaking and educated in a common law system.”

The Indian Lawyer: Legal Education in India and Protecting the Duty of Confidentiality while Outsourcing, The Professional Lawyer, Vol. 18, Issue 3 2007.

Outsourcing the Right Types of Work

• Projects most suitable to outsource:– Legal research

– Due diligence document review and abstraction

– Litigation document review and abstraction

– Contract/lease review and management

– Intellectual property services including:– Patent and trademark searching, patent drafting, patent research and

mapping, IDS preparation and prior art summarization, etc.

• Focus on qualitative, highly skill-intensive legal services

Work Not Suitable for Off-shoring

• Matters which focus on the utilization of facts not just the harnessing of them

• Matters requiring active negotiations

• Matters involving local connections (political, etc)

• Matters requiring decision-making (i.e. don’t substitute your decision-making role with the overseas attorney’s)

• Work that does not pass export control test

Precautions When Outsourcing

• Malpractice and Ethical Issues• Attrition and Resulting Potential Conflicts of

Interest• Cultural Gaps• Quality of Work Product• Export Control Issues• Uninterrupted Delivery of Legal Support

Services

4 Main Authorities on Offshore Outsourcing

• New York City Bar Opinion 2006-3

• San Diego County Bar Opinion 2007-1

• Florida Bar Opinion 07-02

• ABA Formal Opinion No. 08-451

The Ethical Rules Still Apply

• “Outsourcing does not alter the attorney’s obligations to the client, even though outsourcing may help the attorney discharge those obligations at a lower cost.”

San Diego Bar Opinion 2007-1

How The Advantages of Offshoring Translate to Ethical Rules

• Better Quality– Rule 1.1 (Competency)

• Reduced Response Time– Rule 3.4 (expediting litigation)– Rule 1.3 (diligence)

• Work Overflow Management– Rule 1.3 (diligence)

Unauthorized Practice of Law

Model Rule 5.5

“(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.”

Lawyer-Supervised Legal Work Generally Not A Violation

• Paralegals may perform legal work under lawyer supervision– Prepare legal memoranda– Draft contracts or pleadings

• Paralegal may not appear in court, take depositions, give independent legal advice, etc.

Duty to Supervise Non-Attorney Subordinates

Model Rule 5.3

• Requires that “measures giving reasonable assurance that the person’s [non-attorney subordinate’s] conduct is compatible with the professional obligations of the lawyer.”

Applying the Duty to Supervise• Ascertain prof. skills and experience level through

background information on vendor’s personnel to be deployed on your matter

• Inquire whether provider has done similar projects in the past, and demand writing samples and/or references

• Review vendor’s internal work flow processes to determine level of internal review and oversight at the service provider’s end

• Clearly set the scope of service provider’s work early in the engagement

• Take adequate measures to inspect non-lawyer’s work to ensure quality

• Start slow and test the service provider’s capabilities by giving controlled projects early on

How Legal Offshore Outsourcing Works for a U.S. Based Provider

Duty to Maintain ConfidentialityABA Model Rule 1.6

• “(a) a lawyer shall not reveal information relating to the representation of a client unless the client gives informed consent, the disclosure is impliedly authorized in order to carry out the representation or the disclosure is permitted by paragraph (b).”

Exceptions to the Rule of Confidentiality

• Client informed consent

• Prevent death or bodily harm

• Crime/fraud

• Seeking Ethics Advice

• Dispute over fees / services

• Other law or court order

Applying the Duty to Maintain Confidentiality

• Ethics obligations in other countries can be different from those in the U.S.

• Ensure legal outsourcing provider has strong U.S. presence, preferably a U.S. based company.

• Ensure legal outsourcing provider operates according to U.S. confidentiality obligations

• Ensure service provider employs managers who are U.S.-based attorneys who oversee the work product

• Work product quality • Ethical obligations of managers

Applying the Duty to Maintain Confidences

(continued)• Explicit provision in retainer agreement with service

provider creating obligation to preserve confidences and take adequate measures

• Strictly limit service provider’s access to confidential information

• Inquire in advance measures taken by the vendor to maintain security and confidentiality

• Reiterate throughout the process that attorney-client privilege and attorney work-product doctrine apply

• Obtain client’s informed consent in advance

Data Security

• Most information at issue in outsourced work will be transmitted electronically to the legal service provider

• The sending attorney must ensure that the provider has the appropriate safeguards in place.

Data Security Safeguards

• Ensure all employees understand that confidentiality extends to ALL information

• Utilize screening processes whereby confidential information is excised from what the employee has access to.

• Vendor should have measures in place to prevent physical and/or electronic theft of information

• Third party secure servers to host data

• Secure facilities (locked doors, key cards, and ID badges)

• Surveillance cameras

• Recycling policies

Attorney-Client Privilege

• The attorney-client privilege protects communications between attorney or representative and client or representative

• “Made for the purpose of facilitating the rendition of professional legal services”

Revised Uniform Rule of Evidence 205

Privilege Not Waived By Outsourcing

• The attorney-client privilege is not lost where a law firm shares privileged information with its associates, legal assistants, and secretaries. . . .nor, in this Court’s judgment, would the attorney-client privilege be lost if the law firm used an outside document copy service or hired an independent document copy service to copy privileged communications.

Compulit v. Banctec, Inc., 177 F.R.D. 410 (W.D. Mich. 1997)(discussing use of litigation services company)

Applying the Duty to Avoid Conflict of Interest

• Inquire into service provider’s conflict checking procedures and how it tracks work performed for other clients

• Maintain accurate records of clients and matters on which the foreign attorneys have worked

• Limit the foreign attorneys’ exposure to only those confidential materials necessary for the vendor to complete the actual assignment

• To avoid the risk of imputed disqualification based on any conflicting work that the vendor may have undertaken, avoid any appearance of foreign attorneys “associated with” or “associated in” your firm

Duty to Reasonably Bill for Legal Support Services

• Billing legal support services as a direct expense: – Charge actual cost plus law firm’s reasonable overhead involved with

managing the outsourcing relationship– With outsourcing, this may mean charging only for time spent by the

firm in delegating, reviewing, and supervising work

• Attorney can charge premium if billed as attorneys’ fees: – Attorney vouches for overseas attorney’s work as his or her own and – Total fees charged are reasonable. Attorney applies the additional

“value-added” service of analyzing such work product and drawing legal conclusions, i.e. rendering legal advice.

Duty to ObtainInformed Consent from Client

• Local bars and state agencies conflict

• ABA and most local and state bars follow the approach that a lawyer has a duty to obtain advance client consent before outsourcing legal work where:– non-lawyer will play a significant role in the matter;

– client confidences and secrets must be shared with non-lawyer;

– client expects that only personnel employed by the law firm will handle the matter; or

– where non-lawyers are to be directly billed to the client.

What’s the Verdict?

• “In sum, a lawyer is not prohibited from engaging the services of an overseas provider, as long as the lawyer adequately addresses the ethical obligations.”FL Bar Opinion 07-02

• “The outsourcing trend is a salutory one for our global economy.”ABA Bar Opinion 08-451

Embracing The Future – Practicing Law in a Global Environment

– Over 200 corporate counsels surveyed from Fortune 1000 companies across 15 sectors

– 70% of companies dissatisfied with their primary outside counsel

– Key factors causing dissatisfaction were law firms’ failure to:

• keep up with client’s changing needs

• articulate the value they deliver

• communicate well with the clients2005 BTI Consulting Group Survey (Massachusetts research and management consulting firm)

Thank You

Puneet Mohey, Esq.pmohey@lexadigm.com

248.203.9777 x150

Mark Grobbel, Esq.mgrobbel@lexadigm.com

248.203.9777 x230

30200 Telegraph Road, Suite 245Bingham Farms, MI 48025

www.lexadigm.com