MCLE Self Study

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August 2012  |  Earn one hour of MCLE Credit in Legal Ethics

Outsource, ethically

By Wendy Wen Yun Chang

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MCLE Self-Assessment Test

August 2012



1. An attorney may take on a legal engagement even though large parts of the case involve issues that she is unfamiliar with.

2. A lack of familiarity with e-discovery and technology is always excusable if an attorney makes mistakes when dealing with known e-discovery issues in a case.

3. An attorney who lacks necessary competence to handle non-legal issues triggered in a case may not consult with a non-attorney expert to remedy that lack.

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Midfirm is a law firm of 20 attorneys. Each attorney carries a healthy case load, and is working at full capacity. Midfirm is retained to defend Farmco, a Fortune50 company, in a multimillion dollar “bet the company” dispute over corn crops, brought by Agrimart. Midfirm is chosen because Midfirm’s partner, 65-year-old Ella Expert, with the assistance of her experienced and well-trained team of assisting attorneys, is one of only a handful of experts in this particular area of the law. Ella is a traditional practitioner, and works best with a yellow pad, a ballpoint pen, and a Dictaphone. While Ella has a computer, her familiarity and comfort level with it is very basic. She has a cell phone, but uses no other technology in her practice. The other members of her team have somewhat of a higher facility with computers and technology, but nothing beyond a basic consumer level understanding.

Farmco has been “paperless” for some time and the vast majority of the evidentiary information relevant to the Agrimart case is in the form of a very large amount of electronic data. There are also numerous issues relating to the alleged integrity of some of the data at issue.

As the litigation gets going, Ella quickly realizes that she must bring in some help. Opposing counsel is Monolith Law, which is making its best efforts to bury Midfirm in paper. The nature of the e-discovery involved is making the case larger than Midfirm can handle on its own. It is also quickly overwhelming the Midfirm attorneys, whose slowness in handling the e-discovery is preventing them from turning to the other substantive legal issues in the case. Midfirm uses old technology, and its attorneys are not certain their searches of the electronic data are calling up all the relevant information. In some instances, Midfirm’s software cannot even read the data at issue. Midfirm doesn’t have inhouse IT staff. Midfirm also does not know how to handle the data integrity questions. At the same time, Ella’s expertise, and that of her team, is highly specialized, and both she and Farmco believe Ella, and her team, are crucial to Farmco’s ability to succeed in its defense on the merits. Farmco does not want to terminate Midfirm, and bring in another, nor does it wish to associate in another law firm due to the cost. Can Ella ethically continue this engagement by outsourcing some of the areas wherein she needs help?

The Duty of Competence

California Rule of Professional Conduct Rule 3-110 [1] states:

(A) A member shall not intentionally, recklessly, or repeatedly fail to perform legal services with competence.

(B) For purposes of this rule, "competence" in any legal service shall mean to apply the 1) diligence, 2) learning and skill, and 3) mental, emotional, and physical ability reasonably necessary for the performance of such service.

(C) If a member does not have sufficient learning and skill when the legal service is undertaken, the member may nonetheless perform such services competently by 1) associating with or, where appropriate, professionally consulting another attorney reasonably believed to be competent, or 2) by acquiring sufficient learning and skill before performance is required.

Rule 3-110(C) makes clear that an attorney may comply with her duty of competence, if she herself is lacking in a specific area, either by associating with, or consulting with, an attorney who has such skill, or by acquiring sufficient learning and skill before performance is required. This rule has been interpreted to permit an attorney to comply with it through consulting with a non-attorney expert, and where the non-attorney expert can remedy the attorney’s lack in knowledge, and where the lack is in a non-legal area, such as certain technology issues. See e.g., Cal. State Bar Formal Opinion No. 2010-179, and 2010-184.

The duty of competence under Rule 3-110 includes the duty to supervise the work of subordinate attorneys and non-attorney employee or agents. See Rule 3-110, discussion. This duty would include a duty to supervise those providing the outsourced services. See, e.g. California State Bar Formal Opinion No. 1992-126 (contract temporary attorneys), California State Bar Formal Opinion No. 2004-165 (limited appearance counsel). “There is no unique blueprint for the provision of competent legal service… The rule requires only that the attorney who is responsible to the client satisfies her obligation to render legal services competently.” ABA Form. Op. 08-451. [2]

An attorney has a duty to provide independent professional judgment on behalf of a client at all times. This duty requires that the attorney remain ultimately responsible for any work product generated for the client by the outsource entity, and the attorney may not delegate to the outsource entity responsibility for, or authority over, legal strategy, questions of judgment or the final product created by the outsource entity for the client. LACBA Form. Opn. 518.

Further, a lawyer has a duty to “maintain inviolate the confidence, and at every peril to himself or herself, preserve the secrets of his or her client.” California Business & Professions Code, § 6068(e)(1). Confidential information, for the purpose of Business & Professions Code § 6068(e) includes any information gained in the engagement which the client does not want disclosed or the disclosure of which is likely to be embarrassing or detrimental to the client. California State Bar Formal Opinion No. 2004-165. This duty applies even where the facts may already be a part of public record, or where there are other sources of information. Ibid. (citing LACBA Formal Opinion Nos. 267, 386).

Thus, with certain limited exceptions, a client’s confidential information may not be revealed absent the informed written consent of the client. Rule 3-100(A). Compliance with an attorney’s duty of confidentiality is considered to be an element of the duty of competence. California State Bar Formal Opinion No. 2010-179. In an outsourcing situation, complying with an attorney’s duty of competence may require the revelation of some confidential information to the outsource entity service provider. Such disclosure is permissible so long as the attorney takes reasonable steps to ensure that the contractors agree to confidentiality, and can and will act to maintain it, prior to the disclosure. California State Bar Formal Opinion No. 2004-165 (citing LACBA Formal Opinion 374 and 423 (finding lawyers may use outside contractor data processors for client billings and the like so long as contractors are informed of and agree to keep client information confidential.) Attorney must consider that some information may be so sensitive that it may NOT make this outside disclosure. Ibid; see also generally California State Bar Formal Opinion No. 2010-179. Such analysis must be made as circumstantially warranted.

Here, the hypothetical raises two potential issues: legal assistance due to understaffing and lack of knowledge, and non-legal assistance related to non-legal technology services. Ella and Midfirm are lacking in both technical knowledge about the specialized technology issues on the ediscovery, as well as the data integrity issues. Midfirm also faces legal staffing issues that are taking them away from being able to address the substantive legal issues relating to the litigation, an area of their specific expertise.

Under Rule 3-110, Ella and Midfirm should, at the very least, consult with an expert to educate themselves about the technical issues they are unfamiliar with, especially as Midfirm formulates recommendations to Farmco relating to the litigation. Given the lack of in-house expertise on the technology issues, the outdated software issues, and given how that lack of expertise is overwhelming Midfirm attorneys and also distracting them from being able to focus on the substantive legal issues, Midfirm could, beyond simple consultation, outsource the day-to-day handling of parts of the technology services, such as parts of the e-discovery document review, so long as at least one Midfirm attorney educated herself sufficiently in consultation either with the outsource entity, or with a retained expert consultant, so that such attorney could competently supervise the outsource entity and the service being provided. Such outsourcing would be permissible only after Midfirm had taken sufficient steps to assure itself that the vendor, and those who will be staffing the case, are competent to perform the work adequately, appropriately, and securely. ABA Formal Opinion 08-451. This conclusion is supported by the American Bar Association, which has approved outsourcing, under certain circumstances, of both legal and non-legal support services. ABA Formal Opinion No. 08-451. What outside vendor would be appropriate for the case, legal or non-legal, is a factual and situational analysis, which requires a careful case-by-case review by the decision makers involved.

The Duty to Communicate

California Rules of Professional Conduct Rule 3-500 states:

A member shall keep a client reasonably informed about significant developments relating to the employment or representation, including promptly complying with reasonable requests for information and copies of significant documents when necessary to keep the client so informed.

Business & Professions Code §6068(m) states:

It is a duty of an attorney to “… keep clients reasonably informed of significant developments in matters with regarding to which the attorney has agreed to provide legal services.”

In an outsource scenario, the attorney must disclose the use of an outside attorney or vendor to the client if that outsourcing is a “significant development.” Factors to consider what constitutes a “significant development” are (a) whether responsibility for overseeing the client’s matter be changed; (b) will the new attorney be performing a significant portion or aspect of the work; or (c) whether staffing of the matter has been changed from what was specifically represented to or agreed to with the client. See California Formal Opinion No. 1994-138 (citing LACBA Formal Opinion No. 473). Further, if attorney knows or reasonably should know the client expects only a specific attorney or specific group of attorneys to work on its matter, the proposed use of other attorneys requires disclosure under Rule 3-500. Ibid.

Here, Farmco retained Midfirm specifically for its expertise in the area of law at issue in the Agrimart litigation. If that understanding arguably extended to the entirety of the engagement, then Midfirm’s outsourcing of services under the engagement could constitute a “significant development” requiring disclosure to Farmco, a duty of disclosure that should be made in the initial engagement if possible, or if that is not possible (as happened here because the realization did not occur until after the engagement had already commenced), as soon thereafter as the decision to hire an outsource entity is made. California State Bar Formal Opinion No. 2004-165.

Payment of the Outsource Entity’s Fees

California Rule of Professional Conduct Rule 2-200 states:

(A) A member shall not divide a fee for legal services with a lawyer who is not a partner of, associate of, or shareholder with the member unless:

(1) The client has consented in writing thereto after a full disclosure has been made in writing that a division of fees will be made and the terms of such division; and

(2) The total fee charged by all lawyers is not increased solely by reason of the provision for division of fees and is not unconscionable as that term is defined in rule 4-200.

California Rule of Professional Conduct Rule 1-320 states, with limited exceptions that do not apply in this setting, that:

Neither a member nor a law firm shall directly or indirectly share legal fees with a person who is not a lawyer… .

Payment to an outsource entity would not be considered an improper fee split if (1) the amount paid to outside attorney is compensation for work performed and is paid whether or not law firm is paid by client, 2) the amount paid by attorney to outside attorney is not negotiated or based on fees paid to attorney by client, and 3) the outside attorney has no expectation of receiving percentage of fees. California Formal Opinion No. 1994-138.

If Midfirm’s arrangement with the outsource entity meets the foregoing criteria, such arrangement does not constitute an improper fee split. California State Bar Formal Opinion Nos. 1994-138 and 2004-165. Billing the entity’s fee as a cost, or as a separate identified entry, on Midfirm’s bill to Farmco, would also not constitute an improper fee split. Ibid. Finally, there would be no improper fee split if the outsource entity bills Farmco, and is paid by Farmco, directly. Ibid. In these instances, the outsource entity is not participating in the division of legal fees paid by the client. LACBA Formal Opinion 518. These types of services are indistinguishable from other types of services that an attorney might purchase, such as paralegal assistance, research clerk assistance, computer research, graphics illustrations or other services. Thus, even if the attorney passes the cost directly to the client, the arrangement does not violate Rule 2-200. Ibid.

If Midfirm contracts for service at an hourly rate from the outsource entity, it would also not constitute a violation of Rule 1-320(A). LACBA Formal Opinion No. 518.

If Midfirm’s contemplated services constitute a “significant development” as discussed above, necessitating disclosure, full disclosure of the nature and extent of the relationship between Midfirm and the outsource entity, as well as Midfirm’s intent to charge the outsource entity’s fees and costs as a disbursement, should be made to Farmco as early as is possible in the engagement. See, e.g. California State Bar Formal Opinion No. 2004-165 and LACBA Formal Opinion No. 473).


Finally, California Rules of Professional Conduct Rule 3-310(C) states:

(C) A member shall not, without the informed written consent of each client:

(1) Accept representation of more than one client in a matter in which the interests of the clients potentially conflict; or

(2) Accept or continue representation of more than one client in a matter in which the interests of the clients actually conflict; or

(3) Represent a client in a matter and at the same time in a separate matter accept as a client a person or entity whose interest in the first matter is adverse to the client in the first matter.

The duty to supervise includes the duty to give assistants appropriate instructions and supervision concerning the ethical aspects of their employment. LACBA Formal Opinion No. 518 (citing Hu v. Fang (2002) 104 Cal. App. 4th 61, 64).

Here, this duty would require Midfirm to take reasonable steps to satisfy itself that no conflicts exist at outsource entity that would preclude the representation, prior to the commencement of any services by outsource entity.


Midfirm may outsource certain services implicated by the Farmco engagement, subject to the limitations set forth above, and provided that Midfirm supervises all tasks being undertaken, and takes all reasonable steps to retain the ultimate responsibility for the decisions being made, and the services being provided.

Disclaimer: the information in this column is intended to be information and educational only, and does not constitute legal advice. Please cite check all authorities before using.

* Wendy Wen Yun Chang is a partner in the Los Angeles office of Hinshaw & Culbertson, LLP. She is a certified specialist in legal malpractice law by the State Bar of California’s Board of Legal Specialization. She is the incoming vice-chair of the State Bar of California’s Standing Committee on Professional Responsibility and Conduct. She is also a member of the Los Angeles County Bar Association’s Professional Responsibility and Ethics Committee.

[1] All references to “Rule” hereafter, unless otherwise identified, shall refer to the California Rules of Professional Conduct.

[2] While California has not adopted the ABA Model Rules, they may nevertheless serve as guidelines absent on-point California authority or a conflicting state public policy. City & County of San Francisco v. Cobra Solutions, Inc. (2006) 38 Cal. 4th 839, 852. In the absence of related California authority, we may look to the Model Rules, and the ABA Formal Opinions interpreting them, as well as the ethics opinions of other jurisdictions or bar associations for guidance. Rules Prof. Conduct, rule 1-100(A) (Ethics opinions and rules and standards promulgated by other jurisdictions and bar associations may also be considered); State Compensation Ins. Fund v. WPS, Inc. (1999) 70 Cal.App.4th 644, 656.

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