On April 29, 2009 the law firm of Smith, Dehn & Dunbar filed a motion for summary disposition that the firm touted as both historic and groundbreaking. The case itself was nothing new – it was libel action seeking damages for statements made by a television character. What was exceptional about the motion is that it is the first high profile U.S. case in which a motion was researched and drafted by foreign attorneys at an offshore legal outsourcing company.
Legal outsourcing occurs when a lawyer contracts with someone living abroad to perform legal services. The legal services outsourced can range from document management, to preparing motions, or even developing legal strategy for litigation.
There are several ways in which firms can outsource their legal work. Under one model, known as captive-direct off shoring a firm or a corporation will create an organization in a foreign nation that performs its legal services. Direct-third party is another model of outsourcing under which a corporation or law firm contracts with a third party provider located a foreign nation to provide legal services. Finally there is Indirect Third Party Outsourcing – under this model, an outsourcer enters into a contract with a domestic service provider who subcontracts all or most of the work to an offshore company.
Today, law-firms outsource legal work to offshore locations like India, South Korea and Australia. Currently, India is poised to become the leader for legal outsourcing. The Indian legal system is based on the British common law system that England and the US are. Further, the Indian bar counsel reports that, as of 2007, there were almost one million lawyers enrolled with various state bar counsels.  This gives an enormous pool of talent to draw from.
The obvious advantage of legal outsourcing is cost. The reduced costs of outsourced legal services can provide clients with more than just saved money. Frank Dehn, one of the founding members of SDD global noted that outsourcing legal work has allowed them to help their clients fight frivolous lawsuits. He says that often, it is cheaper to settle frivolous lawsuits than it is to fight them. However, outsourcing to cheaper foreign lawyers allows his clients to economically litigate against frivolous lawsuits.
Outsourcing can also allow clients overcome the expenses of discovery. This can lead to a leveling of the playing field between opposing parties with vast financial disparity. David Thickett, founder of the outsourcing firm, Tusker explains that “one of the strategies in David and Goliath cases is, if you are the Goliath, you want to demand tremendous amounts of information from the much smaller David. Then, in turn, you snow them with documents, which is financially crippling to a small company.”  With foreign lawyers to economically review documents, a smaller company can effectively deal with otherwise burdensome discovery requests.
Today outsourcing is a growing business. Ten of England’s top 30 law firms have outsourced back office functions or legal work to India. Companies that outsource their legal work include General motors , DuPont,and Oracle. The American Bar Association reports that outsourcing grew by 60% between 2005 and 2008. Another study by Forrester Research suggests that by 2015 there will be 4 billion dolloars worth of legal work going in India and that  79 thousand legal jobs will have moved offshore.
Ethics of Outsourcing
The growing use of legal outsourcing has prompted ethics opinions from the ABA as well as the New York, San Diego, Los Angles and Florida bar associations. All of these ethics opinions have maintained that the key is supervision. However, the opinions differed on the supervision required.
The San Diego held that outsourcing legal work is acceptable so long as the lawyer retains full professional control over the work. The Los Angeles bar association also required the lawyer to retain full control went further to say that an outsourcing lawyer should have an understanding of the legal training and business practices where the work will be performed.
The New York and American Bar Association Opinion adopted the similar rules, the attorney of record bears responsibility for the results of the legal team, including the work product of outsourcing partners. Therefore, if an outsourcing firm makes an error in the document, releases confidential information it is the attorney that will be liable.
The Florida Opinion is narrower in the type of work that can be outsourced. The opinion states that if an activity requires the independent judgment and participation of the lawyer, it cannot be properly delegated to a non-lawyer employee. This is a turn from the other opinions which allowed for a broad range of work to be outsourced.
Although the opinions were unanimous in requiring supervision, supervising outsourced work may not be an easy task. Robert R. Simpson, a Co-chair of the ABA’s Corporate Counsel Committee points out that it’s hard enough to supervise people in your own office. There are certainly legitimate questions about how well a lawyer will be able to supervise work being done an Ocean away.
Another concern about legal outsourcing is the ability of foreign firms to protect confidential information. On the issue of confidentiality, the San Diego and Los Angles opinions maintained that an attorney that outsources work has the duty to maintain the clients confidential information. The Florida, New York and American Bar Association opinions took a stronger position holding confidential information may not be revealed to a Third party outsourcer without the clients informed consent.
It was the issue of confidential information that led to the biggest challenges to legal outsourcing. In May of 2008 Newman McIntosh & Hennessy filed suit against Indian legal outsourcer Acumen. The suit alleged that since foreign individuals did not have 4th amendment protection, and foreign transmissions are being monitored by government systems, companies that outsource their work are waiving their clients fourth amendment rights.
The suit was lost in a motion to dismiss – however, Joseph Hennessy, a former partner at Newman McIntosh & Hennessy maintains that any lawyer who outsources work to foreign nations has waived a client’s attorney client privilege. He argues that in America, federal law prohibits communications from being intentionally intercepted by the government. However, this law does not protect against interception of overseas communications because foreign citizens who do not reside in the United States have no Fourth Amedment rights. Because of this, international communications can be freely intercepted by the government, and often are intercepted by the government.
Currently, there have been no reported incidents of government intercepting and using confidential information transmitted overseas. However, the fact that confidential information sent overseas is being freely exposed to government interception is a troubling ethical issue.
Another concern when outsourcing legal work is the possibility of foreign companies breaching a client’s confidentiality. Although the legal profession has not yet experienced any reported breaches of confidentiality as a result of this, the medical profession has. In 2003, Lubna Baloch, who resides in Pakistan sent an e-mail to the University of California medical center in San Francisco threatening to post its confidential patient records on the internet unless she received money she was owed for transcribing their medical records. With the e-mail, she included the confidential discharge summaries of two UCSF patients.
The surprised workers at UCSF contacted Transcription Stat, a California based firm that had been doing their medical transcription work for over 20 years. Neither the University medical center nor Transcription Stat had any knowledge that the work had been sent to Pakistan. Transcription Stat had outsourced the work to a Californian transcriber who in turn outsourced to Lubna Baloch in Pakistan.
The problem this brings to light is the fact that outsourcing loses control. Chris Hoofnagle, associate director of the Electronic Privacy Information Center in Washington says “The problem is not that they’re in India, the problem is that American laws are not going to be enforced in India.”
Protection of client confidential information is an important part of the legal profession. Outsourcing legal services raises new challenges for protection of client confidentiality. Challenges that the legal profession must adequately address if client confidential information is to be adequately protected when sent overseas.
One of the most shocking aspects of the USFC transcription case is that the client had no idea that their information had been sent overseas. The bar opinions each addressed the requirements of Client consent when outsourcing legal work. The opinions all held that when the client reasonably excepts that all the work will be handled by the lawyer, the lawyer has a duty to inform the client if the client’s work will be outsourced.
Conflicts of Interest
Another difficult area in the outsourcing of work is the protection of confidential information. Some outsourcing firms provide legal services for more than one domestic law firm. This creates the possibility that an outsourcing firm will be providing services for clients who have conflicting interests.
This is particularly a problem considering how some overseas outsourcers obtain clients. In it’s complaint, Newman, McIntosh and Hennessey stated that Acumen had solicited them to provide legal services informed them that they already perform services to other attorneys in the area. If legal outsourcing firms serve several law firms in a single area, there is a strong possibility that they will serve some clients whose interests conflicts.
The American Bar Association and the New York opinion held that, in order to prevent conflicts of interest a lawyer should ask the outsourcing company about their outsourcing procedures. The Florida opinion also held that the attorney should take care to ensure that no conflicts exist. The San Diego opinion did not directly address the issue of conflicts of interest. Instead, they merely held that the lawyer should make sure that anyone who assists on the case will not expose the assigning attorney to a possible violation of the rules of professional responsibility.
It is a good idea to check to ensure that there are no conflicts with outsourcers – however the extent to which a lawyer can do this is limited. Outsourcing firms have admitted that they are often required to be secretive about their client lists. If outsourcing firms cannot disclose their clients – how will a lawyer be able to adequately ensure that none of the outsourcing firm’s client’s have interests that conflict with the lawyer’s client? When outsourcing legal work, the extent to which a lawyer can ensure there are no conflicts of interests are limited.
Another important ethical question raised by legal outsourcing is the legal fees. The opinions all talked the issue of what fee is reasonable for the outsourcing lawyer to charge.
The New York opinion holds that lawyers may not profit from outsourcing their work. The outsourcing New York lawyer should only charge for the direct cost of outsourcing and associated overhead costs. The Florida Ethics Opinion also maintained that an attorney may charge the actual costs, except that in contingency fee case, the outsourcing attorney may not charge separately for work they normally perform.
The two California opinions were slightly more lax in allowing lawyers to bill for work that has been outsourced. The Los Angeles Opinion maintained that an outsourcing lawyer must disclose all aspects of the bill to the client, including the parts that had been outsourced. The San Diego opinion did not address proper billing methods.
The ABA opinion took the stance that no markup are permitted if the firm decides to pass the cost of hiring a contract lawyer through to the client as a disbursement. However, the opinion leaves the door open to a lawyer realizing a profit on outsourced work so long as the lawyer bills that work as a legal fee.
Outsourcing does provide benefits, however, with these benefits also comes risks. With the opportunities that outsourcing provides, there are also new challenges that the legal profession must meet in protecting the rights and interests of clients.
Bruce A. Green, member of the ABA litigation notes that the New York opinion addressed the new challenges of outsourcing by relying on rules and rulings already in place. The ABA, San Diego, Los Angeles and Florida Bar opinions too rely on rules and opinions in dealing with outsourcing legal work. However, these rules did not contemplate work being sent to overseas locations.
Sending legal work overseas raises new ethical challenges. Challenges like of supervision of a non-lawyer who in some instances is half way around the World. Challenges like protecting client confidential information in a foreign setting where American laws do not apply. Challenges like adequately ensuring there are no conflicting interests when sending to work an outsourcer who is secretive about it’s client lists. If outsourcing is here to stay, then new rules are required to meet the new challenges it poses for legal ethics.
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