Student Research examining the Legal Process Outsourcing

What began as an email (excerpted below) resulted in a very well written research report on LPO. Without further ado, presenting Maya Karwande (Thanks for the tip-off, Mark!)

Hello! My name is Maya Karwande, I am a third- year student at Tufts University in Boston, MA. I am doing a research paper for a class about legal process outsourcing. The paper will focus on the legal and ethical regulations/ implications of LPO, but will also examine the driving business factors behind the growth of the industry.

Legal Process Outsourcing:
Can Offshoring of Legal Services to India be both Efficient and Ethical? By Maya Karwande

In early 2005 a company called Lexadigm was hired by an American law firm to draft a brief for a U.S. Supreme Court case. The case was complex and resource intensive and centered on applying the Fifth Amendment’s due process clause to a tax dispute. The brief will ultimately be filed by the American law firm, which will be able to review and use part, some, or none of Lexadigm’s work in the final product. The outcome is the same as if one of the firm’s associates had drafted the brief; except in this case the lawyers were operating out of India.

Lexadigm’s work on a Supreme Court case is an example of the latest development in offshoring: legal process outsourcing. “Legal Process Outsourcing” is not a phrase commonly heard in public discourse. The concept of outsourcing aspects of legal process, ranging from simple tasks like legal coding to more complex projects such as legal research, is provocative. Initially the idea is often met with the question: “Is that even legal?” This almost intuitive reaction is reflective of the overwhelming public unawareness of the role non-lawyers play in our legal system. In the last ten to fifteen years this role has been increasing. Law firms and large corporations have been contracting or in other terms, “outsourcing domestically” different aspects of the legal process to legal consulting firms and other specialized vendors. In 2005 the phase “legal process outsourcing” (LPO) was coined to refer to the specific phenomenon of offshore contracting of services related to the legal process to foreign lawyers, predominantly in India. Since 2005 this budding industry has grown, with over 100 LPO companies working for large law-firms, in-house legal departments, and corporations. According to a 2007 report by Valuenotes, a research company specializing in offshoring, the industry generated revenue of $146 million in 2006. Driven by the increasing cost of legal services and demands for efficiency and cost savings, LPO conceptualizes the legal services industry using business terms.

The benefits of legal process outsourcing come hand in hand with complex ethical issues that demand discussion. However, to this point there has been relatively little comprehensive analysis of the ethical issues inherent in the utilization of foreign lawyers for domestic legal work. My goal in this paper is to identify the ethical dilemmas of LPO, the current situation regarding guidelines and regulation, and discuss solutions to ensure LPO is not only efficient, but ethical as well.

Part I will provide a brief history and background of LPO, including a summary of the types of processes being outsourced, structural models of the industry, and potential benefits and drawbacks. Part II will outline the challenges of LPO in regard to quality assurance, supervision and the specific legal ethical considerations of conflict of interest, confidentiality, disclosure and client consent, and billing. Part III will discuss current mechanisms in place to address the concerns surrounding LPO. This part will be divided into two sections, the first addressing initiatives of self-regulation within the LPO industry and the second addressing regulations from the American legal community. Part IV will identify the weaknesses and potential of the mechanisms in place and propose a comprehensive and integrative solution that brings together formal guidelines from the American Bar Association with standards for self-regulated accreditation within the LPO industry. Part V concludes with a brief discussion of the potential normative implications offshoring may have for the legal industry.

I. HISTORICAL CONTEXT AND BACKGROUND

From BPO to KPO to LPO
Outsourcing is not a new phenomenon. Driven by a global market and the temptation of cheaper labor, the industry took off in the late 1980’s with the rise of outsourcing manufacturing jobs abroad. Momentum built, and off-shoring practices expanded to include the industrial sector. Eventually, with the rapid increase in telecommunication, Internet and information technology, the road was paved for the “second wave” of outsourcing of “white-collar jobs.” Typically termed Business Process Outsourcing (BPO) this second wave refers to the contracting of specific business tasks to a third-party service. The tasks usually serve a supporting role and are not crucial for the company to maintain its position in the market place. In this context there is often a demarcation between “back-office” outsourcing, which generally refers to internal functions such as billing or purchasing, and “front-office” which refers to more customer related services such as marketing and technology support. The “front office” category of BPO is often associated with call and other communication centers. BPO is most commonly done from U.S. and U.K. markets to countries such as India, South Africa, and the Philippines.

Within Business Process Outsourcing is the specialized subset of Knowledge Process Outsourcing (KPO). KPO broadly refers to “legal and financially complex business process outsourcing.” The idea of “process” in relation to KPO cannot be defined in terms of normal associations of a process being standardized, commoditized, or easy to replicate. Instead, KPO refers to a value-added form of outsourcing that involves low-level decisions that require a certain level of expertise, including language skills, higher education, and often specific credentials. Sometimes referred to as “judgment based BPO,” KPO includes processes within information technology, businesses intelligence, clinical research, and the rapidly growing sector of legal services.

Legal Process Outsourcing refers to the offshoring of different elements in the legal process by law-firms, corporations, and “in-house legal departments” (mainly in the U.S. and U.K.) to offshore centers (mainly in India). A recent report issued in December 2005 and updated in July 2007 by the research company ValueNotes, estimated revenue from LPO at $146 million in 2006 and projects they will grow to $640 million by 2010. According to ValueNotes, LPO firms in India employed around 7,500 people; a figure they predict will increase to 32,000 by the end of 2010.

On the more conservative side, a report released in January 2006 by Evalueserve, a research and outsourcing company, estimated lower statistics and projected more moderate growth. Evalueserve estimates the current number of employees providing legal services to the U.S. from India at only 1,300, and projects it will grow by 5,200 in December 2010, and 16,000 by December 2015. Evaluserve estimates revenue of approximately $56 million from 2005, and projects it will increase to $300 million 2010, and $960 million from 2015. Evalueserve correlates this growth with the expected growth of the legal services industry in the United States. When grounded with the increases in the U.S. market, Evalueserve concludes that by 2015 only 1.2% of jobs will be off-shored and constitute only .2% of the total revenue of the U.S. legal services industry.

The range of statistics indicates the difficulty in measuring the emerging industry accurately and leaves the truth most likely located somewhere in the middle. Despite the disparity in numbers, the overarching trend of projected growth demonstrates legal process outsourcing has become a legitimate sector and will continue to grow in the future.

What is being outsourced?

“Short of anything where you have to physically be there or sign on the dotted line, we can do it”
- Sanjay Kamlani, Co- chief executive officer of Pangea3

A key question in discussing the ethics of LPO is: “What is being outsourced?” The answer ranges from simple legal coding to highly technical patent applications. The wide range of activities has implications for LPO in terms of the level of training required, efficiency and value of the processes, liability and security concerns, and may raise issues regarding specific legal restrictions.

Legally, anyone who is not a registered lawyer in the U.S. cannot give legal advice nor do anything that would constitute “practicing law.” This has typically restricted LPO firms from supplying “core” functions such as legal opinions, judgments, or crucial communications with clients. LPO firms, however, do perform a variety a non-core, manpower intensive functions such as legal transcription, document conversion, legal data entry, legal coding and indexing.

Within “non-core” functions, there still exists a great range of processes LPO firms may offer. As a starting point, these basic LPO services can be categorized as “low-value” work. Evalueserve categorizes this work as “Electronic Document Management” and estimates a majority of Indian researchers are engaged in this type of LPO. Increasingly there has been a demand for legal research, contract drafting, and work related to intellectual property rights, which is categorized as “high-value.” The “high-value” category is distinct from “low-value” aspects of LPO and BPO because the services require substantial domain knowledge, a deep understanding of the law, and have a certain qualitative nature. These categories can be divided into six types of services:

Research Services: Services include statutory and case law research, much of which can now be done via electronic databases.

Due Diligence Services: Due-diligence refers to the large amount of data lawyers must examine to verify legal and financial status of companies for mergers or acquisitions. This work involves sifting though data, confirming supplier agreements and checking company books, board resolutions and other documents to ensure there are no “surprises.”

Contract Drafting and Proof Reading of Contracts: Drafting includes employee contracts, non-disclosure agreements, licensing agreements, supplier agreements, lease agreements, vendor agreements, and distributor agreements. Many of these agreements follow a standard template, enabling foreign lawyers to produce a draft that can later be reviewed and modified by a U.S. attorney. Foreign lawyers can also proofread and double check documents to make sure they comply with the guidelines of the client.

Document Discovery in Litigation: Foreign lawyers can assist in “document discovery,” a process in which lawyers must review large amounts of data in preparation for a case, often under pressure to meet a deadline. In this period, outsourcing can help firms negotiate the problem of having to either work overtime or hire temporary staff.

Intellectual Property Services: This category represents one of the riskiest and fastest growing sectors in LPO. A patent application usually includes the following: prior art searching, drafting background, drafting specifications, drafting claims, drafting summary, preparing drawings, final review and modifications for filing. Only the final review must legally be performed by an attorney registered with the United States Patent and Trademark Office (USPTO). Depending on clients’ preference, LPO firms can have varying degrees of responsibility for preparing drafts of patent applications. The patent industry is in such high demand because it requires time-consuming repetitive research. Many law firms cannot process the growing number of applications at prices their clients are willing to pay and are forced to change their strategy.

In addition, an LPO company is able to employ not only lawyers, but also engineers to work on drafts. Increased specialization and a broader range of expertise offers yet another advantage with LPO.

Creative Innovations
In addition to the typical tasks associated with the legal service industry, several LPO companies are carving out their own niche in the market. By combining superb information technology (IT) with legal process outsourcing, companies like Pangea3 are creating a new products they call “legal solutions” or “Contract management and analytics applications.” For example, Pangea3 had a client whose general counsel was being flooded by calls regarding difficult legal questions related to the company’s different software and procurement contracts. As a solution, Pangea3 reviewed the contracts and produced a database containing a set of answers to recurrent questions.

Models of Outsourcing: The Indian Appeal

There is a smattering of countries around the globe involved in LPO, however, the industry’s offshoring destination originated and remains concentrated in India. This holds true for a number of reasons. India maintains a large and highly skilled work force with strong English language capabilities. In addition, Indian lawyers have the built in advantage of a similar legal system based on British common law and many have additional training in U.S. law. LPO also holds appeal for professionals in India. Approximately 80,000 Indian lawyers graduate each year. For many of these lawyers, legal process outsourcing is a promising, profitable, and challenging alternative to the Indian legal market. Similar to the American system, the Indian legal market is dominated by competitive law firms where advancement can be a tedious process over a period of years.

Although LPO remains concentrated in India, the structure and onshore/offshore relationship between client, legal firms, and LPO firms varies. There are four main models LPO firms typically develop and operate under. Each model, as outlined by Evalueserve, has specific implications and ethical concerns that must be considered in regard to the level of supervision between the U.S. attorney and foreign lawyer.

Captive Centers: This model is formed when a large corporation starts its own center in foreign country responsible for its legal and business processing issues. In early 2005 General Electric became one of the first companies to set up a captive center. They did so by to employing Indian lawyers at its center in Guragon, India. Now there are almost 30 lawyers at the center responsible for supporting the majority of legal work of the company. In this model, the ethical responsibility falls mainly on the company that is hiring the foreign lawyers, and the American lawyers responsible for supervising their work. Some issues may arise in regard to disclosure, as many companies may not want to reveal they are offshoring.

Captive Centers formed by U.S./ U.K. firms and their subsidiaries: Indian laws currently do not allow foreign law firms to practice in India. As a result, some law firms in the U.S./ U.K are working with firms to India to set up subsidiaries to provide legal and paralegal services for export purposes only. For example, Fox & Mandal and ALMT Legal, two Indian based law firms, are teaming up with Patent Metrix, an Irvine-California based law firm. Ethical responsibility in this model is similar to the Captive Center in that the U.S./ U.K. law firm is substituted in replace of the company.

Joint Ventures by U.S./ U.K. based firms: In this model a U.S./ U.K. law firm will enter into a venture with a LPO firm in India. An example of this new model is the announcement by Clifford Chance in 2006 that it would be setting up the world’s largest offshoring initiative by a global law firm in conjunction with Integreon Managed Solutions. Again, the ethical responsibility falls on the U.S./ U.K law firm to supervise and maintain the security of all information shared. In addition, there are issues of disclosure and passing on cost saving to clients.

Third Party Vendors Providing Services to Law-Firms and In-house Corporate Attorneys: This is the model that typically comes to mind when legal process outsourcing is discussed. In this model, a law firm or in-house legal department for a company will hire a third party provider (i.e. a LPO company) with trained lawyers and non-lawyers to complete a task. Examples of the top LPO companies of 2008, according to the Black Book of Outsourcing, include LawScribe. Clutch Group, CPA Global, Integreon, and Mindcrest. This model raises ethical responsibility issues for the law firm that is using the LPO company, but also for the LPO companies itself. Complicated and new ethical issues surround the LPO firms in regard to conflict of interest and the ethical/legal responsibility of U.S./ U.K, lawyers working for the LPO firm.

Benefits and Drawbacks
“Why have a $300-per-hour lawyer do due-diligence when it can be done [more cheaply] by someone else?”
- Ajay Raju, Reed Smith L.L.P

In 1995 Bickel & Brewer became the first American law firm to open an office in Hyderabad, India. Co-founder and managing partner, Bill Brewer, recalls going out to lunch with an Indian relative:

“We were looking for new ways to be more efficient in handling the millions of pieces of information that confront us in each case. I’m not sure how it came out the conversation, but somewhere a light went off. I asked, ‘You can have a lawyer for how much an hour in India?’ He said, ‘Two dollars an hour.’ We didn’t make it to dinner before we were setting up the subsidiary in India.”

Currently, Indian lawyers will generally charge $40-$60 an hour for work their American counterparts would normally bill at $120-$300. This produces an average savings of 30-70%, according to the Associated Chambers of Commerce and Industry of India (ASSOCHAM). The savings increases with the complexity of the job, leading to huge cost savings in patent research, intellectual property and other information technology sectors. A thankful CEO wrote to the LPO Company SDD Global, “Your group saved us 90% and completed the work in less than half the time. For clarification, the research you did in less than one month saved us over $200,000.” Efficiency is also increased by the “time-zone” advantage, which allows Indian lawyers to begin working as their U.S. employers are going to bed. In the morning, U.S. employers can review documents produced while they were sleeping. This reduces the response time and has huge advantages for tasks operating under a strict deadline, like legal research and document discovery. Offshoring also presents a cost-efficient alternative to the “fast or famine” situation many law firms face. In this situation law firms are faced with the dilemma of having either too much work or not enough. With LPO, firms are able to hire additional support when needed instead of either keeping unnecessary staff on their payroll or working overtime. This practice has been common domestically with the hiring of temporary lawyers or paralegals for large projects that need to be completed in a short time, but offshoring introduces increased savings.

In addition to pure efficiency there are other benefits to offshoring. Lawyers are able devote more time to larger and more complex cases since they are not bogged down in tedious paper work. “It gives me more time to do other things,” says Rishi Varma, general counsel for Trico Marine Services, a company that has used the LPO Company Pangea3. Offshoring can also lead to higher quality in the final product, as Indian lawyers are able to spend more time drafting a document, which is ultimately reviewed by an experienced U.S. attorney. This also allows for U.S. lawyers and paralegals to move up the value chain, spend more time face- to -face time with clients, and provide a broader range of services.

Despite the benefits, there are some complicating factors that arise with LPO. Training differences between Indian and American law schools and styles of English can be present complications and at times an awkward learning curve. There are the also increased difficulties in managing and supervising foreign attorneys that may detract from the overall time saved. Furthermore, outsourcing is a highly sensitive and risky political issue that many law firms and corporations are concerned may led to negative publicity. Of the many Fortune 500 companies such as Bayer, General Electric, Oracle, Cisco and Microsoft who do utilize offshoring, few are willing to speak candidly about the fact.. Finally, the overwhelming reasons cited for resistance to offshoring are ethical considerations and liability concerns.

II. ETHICAL CONSIDERATIONS AND CHALLENGES

“I do have concern about confidence, confidentiality, privacy, conflict of interest, ethical values, and those are issues that are a real concern.”
- Jerome Shestack, former President of the American Bar Association.

The overarching ethical issue of legal process outsourcing is the problem of the unauthorized practice of law (UPL). American Bar Association Model Rule of Professional Conduct 5.5 (a) states: “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.”. Section 5.5 (b) further elaborates that a lawyer that is not admitted to practice in this jurisdiction shall not:

(1) Establish an office or other systematic and continuous presence in this jurisdiction for the practice of law.
(2) Hold out to the public or otherwise represent that the lawyer is admitted to practice law in this jurisdiction.

The reasoning behind UPL is that “limiting the practice of law to members of the bar protects the public against rendition of legal services by unqualified persons.” Although the definition and terms of ABA Model Rule 5.5 may seem to explicitly outlaw offshoring, the nuance is in the phrase “practice of law.” What exactly does “practicing law” mean and how is it different from provision of law-related supporting services by non-lawyers such as paralegals and law students?

In this regard there is one point of consensus that has emerged through multiple opinions from different State Bar Associations: under no circumstance may a foreign lawyer be contracted, in relation to LPO firms or in any context, to represent a client in Court. However, using this point of agreement as a jumping off point, there remains a great deal of confusion and complex issues to work through. The best domestic analogy to offshoring is temporary contracting. Law firms have been contracting legal services to domestic companies, firms, specialized lawyers and non-lawyers increasingly over the past fifteen years. In response to growing concern over the practice, in 1988 the American Bar Association (ABA) issued Formal Ethics Opinion 88-356 to address the use of temporary lawyers and in 1995 the ABA Commission on Non-lawyer Practice produced a report and recommendations. The concerns raised in relation to domestic contracting of quality assurance and supervision, conflicts of interest, attorney-client privilege and confidentiality, disclosure and client consent are comparable to the dilemmas of offshoring. Based on the proclamations made on domestic outsourcing, it is fair to extrapolate that offshoring is legal in theory, but also dependent on the nature of the services being outsourced and the structure and degree of supervision in the relationship. The burden is on the U.S. attorney engaged to ensure offshoring meets these standards and that he/she does not participate in aiding unauthorized and therefore illegal practice of the law.

Quality Assurance and Supervision

“Ensure that the outsourcing company assists a California Attorney in practicing law, NOT the other way around.”

-Offshore Legal Outsourcing: The Ethical Implications Handout,
Distributed as part of a seminar organized by LawScribe, Inc.

In 2006 the New York Bar Association opined that foreign lawyers who are not certified to practice law in the United States are legally “non-lawyers.” In this regard, Rule 5.3 of the ABA Model Rules requires lawyers have a “direct supervisory authority” over a non-lawyer employed and the lawyer must make reasonable efforts to ensure that the non-lawyer’s conduct is “compatible” with the professional obligations of the lawyer. In taking these two opinions together, it would be logical to extrapolate that a U.S. attorney assumes supervisory responsibilities. However, it is still not completely clear how these rules apply to foreign lawyers who have been hired directly, or through a separate business. According to Mark Tuft, a legal ethics scholar:

“The difficulty lies in instituting measures that give reasonable assurance that foreign lawyers will conform to the rules of professional conduct applicable to the domestic law firm and that the conduct of foreign non-lawyer assistants will be compatible with the U.S. lawyer’s professional obligations.”

Foreign lawyers technically have no legal obligation to American laws. The ethical standards they are bound by may differ from U.S. standards at crucial points; for example, client confidentiality. Furthermore, there is a practical difficulty in providing adequate supervision over an employee working in another country.

The 2006 New York Bar Association Opinion did not state that a U.S. attorney working with foreign lawyers or non-lawyers was responsible to ensure compliance with the Disciplinary Rules of New York, but it did imply obligations of supervision. These include the responsibility for the U.S. lawyer to ensure non-lawyers are competent to perform the tasks, uphold standards of confidentiality, and take reasonable measures to ensure they do not violate New York code.

Confidentiality

“At SDD Global, secured, hack-proof IBM servers and the latest Cisco ASA firewall are used to protect data and systems from internet vulnerabilities. Even more protection is provided by a Linux environment throughout the offices. Electronic access control is provided for all areas of the building, such that no one is able to enter any floor or project area without being specifically authorized to do so, and without a custom-made electronic access card. The offices are virtually paperless, and passwords are required for all data access.”
- Russell Smith, Chairman of SDD Global Solutions

Confidentiality is a fundamental principle of a client-lawyer relationship. ABA Model Rule 1.6 addresses the issue, and a further comment on the rule explicitly states that a lawyer must act to safeguard unauthorized information from lawyers or other people under the lawyer’s supervision that may be working on the case. Offshoring presents specific challenges to confidentiality in terms of security of connection and legality of transferring information. For some back office or “vanilla tasks,” like document review, it is possible for companies to upload documents on a secure Intranet site, have foreign lawyers work on it, and then return it to the client. In this case the foreign lawyers only need limited information and do not need to know the larger context of the case. However, with the trend toward complex patent drafting and legal research, it is necessary for foreign lawyers to be privy to more information. Patent applications can be especially tricky because there exist laws that regulate what technology can be shipped abroad without a license. One way to deal with these issues is to not share any confidential information when outsourcing and instead include hypothetical anecdotes to steer the researcher. Despite these measures (which can be limiting to quality and are by no means foolproof) there remain real concerns of the security of any transaction over the Internet. Security concerns will continue to be a limiting factor to the complexity of work that is offshored.

Disclosure and Client Consent

The sensitivity of information involved in much of the work being outsourced is a natural transition to the ethical issue of disclosure and client consent. ABA Model Rule 7.5(d) “articulates the underlying policy that a client is entitled to know who/what entity is representing the client” Although this suggests full disclosure would be necessary, it is not clear how the duty to inform should actually work in application. To explore the application further, it is helpful to delve into a hypothetical scenario that was recently analyzed in an opinion by the San Diego County Bar Association.

In the scenario two lawyers in California were contracted by a business to defend a complex intellectual property dispute. Both attorneys had limited experience in the field, but they took the case and assured the client they would be able to handle it. Without informing the client, the attorneys contracted on an hourly basis with Legalworks, an LPO firm in India. The attorneys reviewed the work, signed all documents, and proceeded as counsel in court. They billed the client for the work done by Legalworks under the broad category of “legal research” and “preparation of pleadings.” The client won the case and inquired as to how the attorneys developed the case and were able to do it so inexpensively. The attorneys informed the client that virtually all work had been done by Legalworks.

The analysis of this hypothetical situation by the San Diego Bar Association aligns with opinions by other bar associations in concluding that if the work which is to be performed by the outside service is within the client's "reasonable expectation under the circumstances" that it will be performed by the attorney, the client must be informed when the service is "outsourced." The inclusion of a “reasonable expectation,” threshold is helpful, but also leaves room for a great deal of interpretation. “Reasonable expectation” is not a concept that can be permanently defined and instead takes on a fluid movement dependent on changing circumstance and norms. At this time, the decision has been interpreted to mean that for all services, with the exception of “back office” processes, the client should be consulted and consent to an offshoring agreement. This requirement is further colored by the nature of the work being offshored and the level of supervision between the lawyer and offshoring company. In practice, LPO and law firms operate under a working guideline that relates disclosure to the level of supervision and type of work being offshored

Fee Sharing

The ethics of disclosure become even more pronounced when discussing fee sharing. Although the law firm is most likely saving significantly from offshoring, they are under no strict legal obligation to pass these savings onto the client. The guiding principle for all fee sharing, regardless of offshoring, is in ABA Model Rule 1.5. It states: “the fee should be reasonable under the circumstances.” Offering little in terms of specifics, the Rule is somewhat difficult to apply to LPO fee sharing. In practice there have emerged two ways a lawyer can bill for offshored legal services. First, the offshored costs can be billed to the client as “fees.” In this scenario the law firm may add a surcharge outside the services, pass the savings onto the client, or charge a flat fee. The “mark-up” scenario may make sense if the lawyer is billing the client for the supervised work he did. In regard to this scenario, a 2006 Los Angeles Bar Association opinion stated that the lawyer has an obligation to accurately disclose the reason for those fees. The second method of billing is to list offshoring as an expense incurred by the law firm. In this case the bill should represent the actual amount spent on the legal services with no mark up. In this scenario the cost saving is passed onto the client.

The issue of fee sharing is an important ethical issue to discuss as it gets to the heart of what some think will be the LPO revolution of the legal industry. Many cite the profitable pyramid structure based on billable hours of western law firms as the driving force behind LPO. Mark Chandler, the General Counsel of Cisco Systems, describes the traditional law firm model as “the last vestige of the medieval guild system.” People like Mr. Chandler are looking for a more efficient legal industry to combat the growing costs of legal service for big corporations. In this regard LPO presents a solution, but the degree to which it translates into savings can depend on how the change is represented in billing procedures.

Conflicts of Interest

Lawyers have an important duty to identify and resolve conflicts of interest in their legal work. A situation of “concurrent conflict of interest” is defined by ABA Model Rule 1.7 as a time when the representation of one client will be directly adverse to another client or there is risk the representation of one client will be materially limited by lawyer’s responsibilities to another client, former client, third person, or personal interest of the lawyers. ABA Model Rule 1.7 calls on lawyers to develop “reasonable procedures” and suggests in the case of temporary contracting, the responsibility falls primarily on the hiring firm and the actual lawyer performing the work to monitor for conflicts of interest. In a comment on the law, the responsibility of the middleman, or the firm that may be coordinating the temporary contracting, is minimized.

Offshoring complicates the issues of conflicts of interest in several ways. First in many common structures of outsourcing the role of the middleman, or LPO company, is often taking an active role in distributing work assignments and monitoring lawyers performing outsourced work. In this scenario it seems logical the LPO company would need to have a working knowledge and information regarding clients served and their corresponding lawyers. Second, it is hard to determine whether an LPO company or “middleman” working with a firm is thus “associated” with the firm, and precluded from representing a client with which any lawyer in the firm may have a conflict of interest. Third, it is difficult for LPO companies to assess obligations between former and current clients because their contracts are for discrete projects. Fourth, the growing trend for LPO companies to specialize in specific areas of the law, for example patent applications, presents an additional complication. Although it is a desirable trend in regard to expertise, it presents some questions when a firm’s clients may be on opposite sides of disputes. Finally, even if it was possible to interpret ABA Model Rule 1.7 as it has been for temporary lawyers and focus on the responsibility of the foreign lawyer performing the work and the hiring firm, the application does not work. Foreign lawyers cannot be held accountable under U.S. law as temporary lawyers are. This underlying complication brings us to the next issue of discipline.

Discipline

The question of discipline is key to insure protection if there is a problem with offshoring, but it is still not clear what ethical standards an outsourced lawyer will be held accountable to. Darya Pollack aptly phrases the issue regarding discipline writing:

“Are outsourced lawyers bound only by 1) the ethical rules of their home bar; 2) the ethical rules of each state for which they perform services; 3) the ABA Model Rules of Professional Conduct; or 4) some combination of the above?”

There are problems with applying each of the standards listed above. Using the standards of a lawyer’s home bar is not viable because it is possible there may be differences in ethical rules between countries regarding important issues. It would be similarly impractical to regulate on a state by state basis within the U.S., because outsourced lawyers are likely to practice in more than one state. The best option would be to have all outsourced lawyers bound by the ABA Model Rules of Professional Conduct, or something of its equivalent. Even this situation is a hypothetical as the Model Rules are currently only advisory and if they were to become the standard, it would require State Bar Associations to secede some of their power.

Moving beyond the problem of an ethical standard, there is the question of enforcement. Who would have the right to bring enforcement actions, and where would they be brought? Furthermore, who would they be brought against- the U.S. law firm, the LPO firm/business, or the individual lawyer performing outsourced work? Finally, what would be the consequence of an ethical violation, and how would violations be documented to prevent another outsourcing company from hiring the same lawyer?

The questions regarding enforcement are reflective of the great degree of uncertainty that surrounds the industry. Thus far, these issues have been handled within contracts between LPO companies and clients. As of yet, there has not been a major incident or security breech prompting widespread public outcry, but the first mishandling of information is sure to lead to concerns over disciplinary regulation.

III. CURRENT MECHANISMS

Mechanisms to regulate legal process outsourcing and address the ethical dilemmas discussed have evolved on a variety of levels in recent years. From the legal community there has been slow movement to apply existing regulation to the new industry and tease out the level of compatibility. In this respect, there have also been a few opinions on the specifics of legal offshoring by State Bar Associations in New York, California, and Florida. The business world, quick to seize the opportunity, has been quietly experimenting with different models while punching the numbers in efforts to reduce the bottom line. Leading the way, however, is the LPO industry itself. Recognizing the novelty of their service and the need to legitimize their field, leaders of LPO both in India and the U.S. have pushed forward with training, certification tests, other forms of quality insurance, and guidelines to the ethical implications. The underlying drive is, of course, competition. LPO companies want a peaceful coexistence with the American legal system because it is profitable.

Legal Regulations

“We have not either endorsed it or opposed it”
- Nancy Slonim, American Bar Association
Deputy Director for Policy Communications

The American legal community has yet to take a definitive stance on LPO. This could be reflective of the size and diversity of the legal community: some lawyers are leading the march to India, others are protesting the threat to legal profession, and the majority are uninvolved, or in doubtful disbelief of LPO’s sustainability. Discussion of ethics have revolved around current ABA Model Rules and Formal Ethic Opinions, however, there remain issues regarding ambiguity in the rules and the applicability of these guidelines to offshoring

Model Rules for Professional Conduct and ABA Formal Ethics Opinion 88-356

The Model Rules for Professional Conduct are useful in providing a starting point for analysis, but they fail to address the key ethical issues underlying legal process outsourcing. The first issue is the failure to provide a national definition of “the practice of law.” Although Model Rule 5.5 does address the Unauthorized Practice of Law (UPL) in fairly broad terms, it fails to define clearly what exactly it means, “to practice the law” as opposed to provision of “legal services.” The rule notes instead, “The definition of the practice of law is established by law and varied from one jurisdiction to another.” This makes the Rules extremely ambiguous, as there is extreme diversity between states. Arizona, for example, has no UPL code.
The second issue of the Model Rules is application. It is not clear how they apply to foreign lawyers, or the degree to which they are binding. The rules are currently only adopted by states on a voluntary basis.

Finally, although non-lawyers and domestic contractors are the best analogy to offshoring, they are simply just an analogy. The language of the rules is explicitly and repeatedly limited to the domestic sphere. For example, in discussion of multi-jurisdiction considerations, it is limited to “a lawyer admitted in another United State Jurisdiction.” Although similarities may exist, under the law foreign lawyers are categorized as non-lawyers. However, even existing regulation that addresses non-lawyers was still developed with an intended application to domestic non-lawyers, such as paralegals and law students. In addition to difference in legal status, foreign lawyers introduce variations in geography, time, English language skills, logistics, accountability, and training that raise specific issues and require specific codes.

Formal Ethics Opinion 88-356 was issued in 1988 as a response to the growing number of contracted lawyers. Although it is useful in highlighting the ethical issues shared between domestic contracting and international offshoring, like the ABA Model Rules, it is explicitly limited to domestic temporary lawyers and does not address several of the specific issues that are raised by offshoring.

State Bar Association Ethics Opinions

There have been three formal State Bar Association opinions addressing the specific issue of legal offshoring: New York (August 2006), San Diego (2007), and Florida (September 2007). In June 2006 the Los Angeles Bar Association considered the issue of fee sharing in relation to domestic contracting and issued an opinion that has relevance to offshoring. The opinions are useful in that they contribute to a growing consensus as to how offshoring should proceed. For example, each ruling affirmed that a lawyer “may ethically outsource legal support services to a non-lawyer.” However, issues arise because the opinions left two important definitions ambiguous. Firstly, the opinions compare foreign lawyers at times to domestic contractors and other times non-lawyers, without acknowledging that in reality foreign lawyers fit neither of these descriptions. This lack of acknowledgement manifests itself in a lack of specific regulations. Secondly, although throughout the opinions and a growing body of literature there is a growing consensus that “supervision” is the mitigating factor in offshoring, there are no specific regulations as to what “supervision” entails. The opinions have not recognized the practical reality offshoring presents in terms of time difference, distance, language, and training.
While the opinions are positive steps in that they acknowledge special consideration needs to be made for offshoring, and in some specific ethical considerations the opinions go into great detail, they still are lacking concreteness. Furthermore, they are based on the laws of the individual state and are purely advisory and not binding either in state or national jurisdiction.

LPO Industry Self-Regulation

The LPO industry has grown extremely rapidly in the last two years. Proving itself through high quality work at a low cost, LPO has dispelled many of the myths of legal offshoring throughout the business world. Now people are starting to catch on. Wary of the “dot-com bubble,” the industry is rallying together in attempts to set standards to weed out the “get rich quick” types and act preemptively against negative publicity. Moves are being made both in India, the U.S./U.K, in a growing library of literature and in the on-line community of blogging LPO professionals/customers to push for standards. Through informal dialogue and guidelines, the design of the Global Legal Professional Certification Test, rise of training companies, and push for accreditation and ethics training in the U.S., the LPO industry seeks to push itself without sacrificing quality.

Global Legal Professional Certification Test

In April 2007 Rainmaker, recruitment and training firm that focuses on the LPO industry, introduced the Global Legal Professional (GLP) certification test. Designed in conjunction with three LPO companies: JuriMatrix, Bodhi Global, and Quislex, the GLP is aimed at testing candidates on skills needed in LPO: English fluency, technology and professional skills, personal effectiveness and legal knowledge. The first GLP was administered on September 16th, 2007 in the Indian cities of New Delhi, Bombay, Pune, Bangalore and Hyderabad. The GLP website is explicit: “The purpose of the GLP is clear and simple - to put in place a mechanism that enables the industry to identify the talent required to fuel the L.P.O revolution.” The website invites “players” in the LPO industry to support and participate in the program by indicating their ‘acceptance’ of the GLP as a valid mechanism to certify industry talent. With participation, members of the LPO industry gain access to the talent pool, lower recruitment and training costs, and an “auto-application process” that enables test takers to fast track their scores to preferred employers. This test may open up opportunities for the 80,000 lawyers that graduate from Indian law schools each year, and is pushing towards a standard of evaluation. However, although the GLP may present an interesting concept in regard to the idea of a certification test for the LPO industry, it is important to note who is behind the program. Although reputable companies aided in the design of the test, the top companies of the industry were not involved. In order for a certification test have real relevance; a broader network of consultation and input from LPO companies will be necessary. In addition, it may be beneficial to involve the American Bar Association as a way to form a link between a business and legal solution.

Training

“The training period includes weekly tests, in which attorneys must score 85% on every test; the number of tests depends on the complexity of the assignment. On the final test at the end of training, attorneys must score 90% or more to be placed in an actual assignment. An attorney who scores lower can take only one retest. A trainee who does not succeed in the retest is fired. The test performance and scores of each attorney are recorded and a report of results is prepared and kept with that individual’s personnel record; this record is used to evaluate that attorney for higher positions in True Legal and assignments with greater responsibility.”
- Rupali Shah, director of True Legal Partners

The rigorous training regime described by Rupali Shah of the LPO company True Legal Partners, is not standardized procedure throughout the industry. It is, however, indicative of the high standards self-imposed on the industry. To some degree, LPO is self-selecting. The market is very competitive and limited to extremely qualified Indian lawyers. For example, a prominent LPO company, SDD Global, hires 1 out of every 900 applications. The competitive market and rigorous training programs within LPO companies have created a qualified group of employees who are looking to make a career out of LPO. In response, the industry is starting to develop and mature. For example, Pangea3, named the top LPO company of 2007 by Brown and Wilson’s Black Book of Outsourcing, emphasizes building relationships with clients. Their website describes their organizational structure as one where, “Generally, each client has a dedicated team of two or more professionals, who learn the client’s approach to legal and business issues, its risk profile, and its ‘playbook.’” Pangea3’s approach is indicative of an attitude within the industry that aims to go beyond a stereotypical outsourcing relationship. The industry has recognized it is important to invest in long-term capacity building and quality assurance in order to keep out a potential flood of inexperienced, poorly trained, and possible harmful get-rich-quick start-up companies.

Accreditation

The GLP and internal training processes of LPO are both components of the movement towards accreditation. Mark Ross, Director of Development for LawScribe, a LPO company, recently outlined several specific industry regulatory standards he would like to see implemented. The standards cover issues ranging from structure to training. Several address the issue of supervision by suggested standards regarding models of outsourcing that regulate the relationship between U.S./ U.K lawyers and their foreign counterparts. Particularly, Ross would mandate an LPO be required to have a staffed physical presence in the U.S. or UK, would be required to employ at least one qualified U.S. attorney. In regard to training, Ross suggests a requirement to develop a written training program and in-state independent verification of employees. Ross says these measures are nothing more than what is already happening in contracts between LPO companies and clients, but it will be beneficial both economically and in legitimizing the industry to formally implement these standards.
In the absence of formal regulation, many professionals within LPO have developed informal guidelines or checklists for clients interested offshoring. These guidelines are often published on blogs, industry specific on-line journals or news-sites, and contribute to a dialogue that addresses questions of accreditation and standards. Within this dialogue much of the same issues and standards discussed by Mark Ross above are echoed. For example, in January 2008, Tariq Hafeez, President and General Council of LegalEase Solutions, published a post on Rahul Jindal’s Legal Process Outsourcing Blog that included a “Checklist to evaluate an LPO’s LR&R [Legal Research and Writing] Services.” Points covered included whether the LPO is based in the U.S., if it has U.S. trained and licensed attorneys, if the LPO has a training curriculum for its offshore attorneys, and who the curriculum was designed by.

Contracts

The way LPO has been “regulated” thus far is based on contracts. It is through individual contracts between offshoring companies and their clients that many forms of self- regulation and testing have developed. Often contracts will require submissions of a test work sample product, condition payment on correct background check of the company, or even offer a complete refund if the client is not satisfied. Out of necessity the contract must spell out the specific ethical standards of the relationship, as the applicable standards for LPO are not clear. Other provisions in the contracts may include non-disclosure or similar provisions safeguarding the identity of the company in association with LPO.
Even if strictly formal or self-regulatory methods were in place, the contract would remain the legally binding agreement between firms. However, both parties would benefit from having uniform standards across the LPO industry that were simply implemented via contract, rather than rewritten for each new client and varied among LPO companies.

IV. RECOMMENDATIONS

The Legal Process Outsourcing industry is taking steps toward proving its legitimacy as a cost-efficient and high quality answer to the rising cost of legal services. Although many of the benefits are clear, there are still significant ethical issues that must be addressed if the industry is to continue to move forward. The next step on this path must involve movement from both the American legal community and the LPO industry itself to agree on rules guiding both the foreign and American lawyers involved in the industry.

In this regard, I recommend a two-prong approach to move towards comprehensive solution. It should be composed of increased formal ethical regulation and education within the American legal community; as well as accreditation and standardization within the LPO industry.

ABA Formal Ethics Opinion on the Offshoring of Legal Services:

It would be very useful for the American Bar Association to address the ethical issues of offshoring on a national level. Although State Bar rulings are crucial in working towards a consensus, given the jurisdictional issues that arise between states it is necessary for a decision to be made at the national level. Furthermore there are three key issues that should be clarified in an Ethics Opinion:

1) Define of “the practice of law,” and thus unauthorized practice.
2) Specify criteria necessary for adequate “supervision,” in acknowledgement of the special situation of foreign lawyers.
3) Clarify how the ABA Model Rules apply to foreign non-lawyers.
Although in application the value of the opinion will be purely normative, it will be an important first step in moving toward the recognition and acceptance of standards for LPO. The opinion should be complemented with educational seminars made available through State Bar Associations. A model for the program could be the LawScribe Seminar, Legal Process Outsourcing (LPO) Ethical Considerations which has been approved for Minimum Continuing Legal Education (MCLE) by the State Bar of California.

Accreditation Standards within the LPO Industry:

LPO should formalize the informal mechanisms of self-regulation already present within the industry. I strongly support the standards outlined by Mark Ross. In this regard, increased interaction and dialogue between LPO companies will become important tools in standardization of the industry for constructive competition. Informal networks, such as blogs and on-line newsletters have already been developed and should continue. In addition, formal interaction is occurring in the form of industry conferences like the upcoming, “India LPO Summit 2008” in New York. Furthermore there should be a standard certification process for individual foreign lawyers engaged in LPO. The Global Legal Professional Certification test may provide a model to work with, however a much broader range of consultation between both Indian and U.S. training organizations, LPO companies, clients and legal communities will be necessary. In this regard, it makes the most sense for development of the certification test to be facilitated by a U.S. based training organization familiar with the U.S. standards, laws, and the nature of the work being outsourced.

V. CONCLUSION

The idea of Legal Process Outsourcing is provocative. For it to be a sustainable industry it will require not only regulation of ethical considerations, but also a change in legal culture. In the legal industry, it will force lawyers to look not only at quality of justice, but the speed with which it is produced. It will challenge and reinvent the standard ethical culture that often develops largely based on face-to-face interaction between lawyers. The commodization of the legal industry is not something easily reconciled in pubic opinion, although it has existed and been developing undetected for sometime. On the other side of the Atlantic, the U.K. has recently passed the Legal Service Bill, which allows the creation of Alternative Business Structures. These structures, according to a summary of the Bill, “will enable lawyers and non-lawyers to work together on an equal footing to deliver legal and other services.” The ramifications of this bill will be a further commodization of the British legal industry.

The United States is likely to follow the United Kingdom’s lead in regard to the commodization of the legal industry and coupled with the issue of outsourcing, a hot political topic; the result it could be inflammatory. Usual associations conceive of law as a solution or regulation to outsourcing rather than a part of the trend. If LPO is to win over the support of American legal community and eventually the general public, it is crucial for a comprehensive solution to be developed that will bring together both the American lawyers and the legal offshoring industry. In this way Legal Process Outsourcing can not only coexist, but improve the American legal services industry.