by Wilton H. Strickland

Legal outsourcing has been around in one form or another for a long time; however, its growing popularity in recent years has drawn more people’s attention to it, giving rise to a host of new questions. What are a law firm’s duties when selecting and supervising outside assistance? How should client confidences be protected? Do the outside personnel need to have a law license in order to provide assistance? When is client consent necessary? When, and how, can a law firm profit from an outsourcing arrangement?

I address these sorts of questions in other posts on this blog (see here and here). For now, I’d like to address something else that frequently gives cause for concern, and that is the question of when outsourcing becomes fee splitting and therefore subject to the requirements of Model Rule of Professional Conduct 1.5 (or the state equivalent). These requirements are substantial, for the attorney must obtain the client’s written consent; ensure that the total fee is reasonable; and divide the fee in proportion to the services rendered or, alternatively, make all the participating attorneys jointly responsible for the representation.

To conduct an ethical analysis of outsourcing, it’s best to go to the three main sources of authority on the subject, as follows:

• ABA Formal Opinion 08-451
• ABA Resolution 105C
• Ethics opinions from state and local bar associations

These sources are important because the ethics rules do not typically discuss outsourcing, at least not directly.

ABA Formal Opinion 08-451 approves of outsourcing and sketches out many of the ethical requirements, yet it does not shed light on when outsourcing might implicate fee splitting under Rule 1.5.

ABA Resolution 105C applies new commentary regarding outsourcing to three of the Model Rules of Professional Conduct – 1.1, 5.3, and 5.5 – but also has nothing to say about fee splitting under Rule 1.5.

What ABA Resolution 105C does offer, though, is an accompanying Report that in Footnote 2 lists a host of state and local ethics opinions, and it is here that we find an answer to the fee-splitting quandary. Specifically, in 2008 the Colorado Bar Association Ethics Committee issued Formal Opinion No. 121 to flesh out a number of questions related to outsourcing, including fee splitting. According to the opinion, outsourcing will not constitute fee splitting so long as 1) the fee is paid to the outside personnel regardless of the amount charged by the outsourcing attorney to his or client; and 2) the fee is paid to the outside personnel regardless of whether the outsourcing attorney is paid by his or her client. The moment there is a link between the amount or the payment of one fee and another, fee splitting is occurring and requires adherence to Rule 1.5.

Formal Opinion 121 goes on to clarify that even though attorneys have the option to split fees with outside attorneys, they may not split fees with outside non-attorneys, for this violates Rule 5.4 (of both the Model and Colorado Rules). Since outsourcing is a broad industry that features attorneys as well as non-attorneys, it is critical to bear Rule 5.4 in mind when establishing an outsourcing fee arrangement.

Finally, the fact that the ABA has treated Formal Opinion 121as authoritative is enough to make the Colorado approach applicable across the board, unless of course your particular jurisdiction has done something different. So be cautious out there – if you’re outsourcing be sure to ascertain whether you are engaging in fee splitting and, more important, whether you are ethically permitted to do so.