At the Legal Malpractice & Risk Management Conference last February the presentation “Outside Counsel Guidelines” examined the increasing use of client imposed guidelines that law firms must accept to receive the client’s business. These guidelines are reminiscent of the efforts of insurance companies in the 1980s and ‘90s to control the costs of defense counsel by unrealistically limiting costs and requiring advance approval before hiring expert witnesses, scheduling depositions, or performing certain legal research. The ethics problem these guidelines created for defense lawyers was resolved in KBA Ethics Formal Opinions E-331 and E-368. Those opinions made it clear that while insurance companies have an interest in limiting defense costs, this cannot be accomplished by compromising a lawyer’s ethical duty to an insured client.
The difference today is that the guidelines are coming from the client – not an insurance company providing a defense to an insured. One commentator described the situation as a duel between a law firm’s letter of engagement and the client’s outside counsel guidelines. Another difference is that many of the guidelines do not invoke ethics issues for the lawyer, but may impose intrusive requirements that may be expensive and unnecessary for the practice of the matter. While these guidelines are especially significant for large law firms, they are a growing business practice in controlling legal service. Lawyers in any size firm must be aware of their potential for ethics violations, malpractice claims, and unwarranted interference with a firm’s
Client guidelines are typically divided into three categories – those that may reasonably be required of all outside counsel; those that a major client could reasonably apply to a large law firm; and those that overreach by resulting in unethical practice or are too intrusive in law firm management. The following examples of each category are from “When Intervention Goes Too Far,” by Rees W. Morrison, New York Law Journal (2/21/2008):
Reasonably acceptable guidelines:
OK for big client/big firm:
MANAGING THE RISK
At the Risk Management & Legal Malpractice Conference, five risk management considerations for client-imposed guidelines were outlined:
Client-imposed guidelines are expected to become more prevalent in the future as more clients attempt to control legal service expenses and firm business practices. Now is the time to establish a policy on how your firm will risk manage the issues they present.