Law Firm Growth During an Uncertain Legal Climate – Part 1: Of Counsel Relationships

By Erin Giglia & Laurie Rowen

The legal climate is changing by the day, and law firms everywhere are trying to position themselves strategically to thrive. Many firms want to form connections with outside attorneys in order to strengthen the services they can offer to their clients. The California State Bar Solo and Small firm Section reached out to Montage Legal Group to help guide practitioners on relationships with freelance attorneys, Of Counsel attorneys, and the ethical issues that accompany these connections. Part 1 of our article is published in the California Lawyers Association’s The Practitioner for Solo and Small Firms: “Law Firm Growth During an Uncertain Legal Climate, Part I: How To Ethically Use Of Counsel Relationships.” (Summer 2020, Volume 26, Issue 3).  Part 1 of the two-part article focuses on what law firms should know when engaging outside lawyers to assist with a firm’s legal work, and whether the outside lawyer can be deemed an “of counsel” lawyer under California’s ethical rules.  The article outlines the applicable ABA and California ethical rules (updated in 2018), pitfalls to avoid, and best practices in utilizing of counsel relationships. Part 2, which will run in the next issue of The Practitioner, will outline hiring freelance attorneys and the implications of referral fees between attorneys.

To read the full article, view it here: Law Firm Growth During an Uncertain Legal Climate, Part I: How To Ethically Use Of Counsel Relationships.

Law firm lawyers nationwide face the same daunting issue—time, and the lack of it. Time is how lawyers earn a living, but time is our most finite resource. Billing hours, developing business, and growing a practice can be difficult (or impossible) to do simultaneously. Lawyers, like all people, also need time for life, family, and health. How can a law firm lawyer squeeze it all in when there are only so many hours in a day?

The “Great Recession” of 2008-2010, combined with improving technology, shaped the options available to lawyers who want to grow their practices. An uncertain economy resulted in law firm downsizing, and gave rise to excellent boutique firms hoping to create value for corporate clients with limited legal spending. Rapidly improving technology has allowed these small shops to thrive, but many continue to struggle with lack of time, a persistent foe. An uncertain economy is upon us once again. Law firms may need to pivot, and will need to seek creative solutions to meet client needs, grow, and thrive. With luck, a law firm will have enough work to go from comfortably busy to feeling too busy to get everything done.

Once a firm has crossed into “too busy,” law firms have several options that can offer immediate relief: (1) bring in an outside lawyer to become “of counsel” to the firm; (2) hire a contract/freelance attorney periodically on an hourly or flat fee basis; or (3) refer matters to lawyers outside the firm, possibly in exchange for a referral fee. Each of these arrangements is permissible, but different ethical rules apply to each situation.

In this article, Part 1 of a two-part series on creative ways to grow your practice, we discuss applicable ABA and California ethical rules, pitfalls to avoid, and best practices in utilizing of counsel relationships. Part 2, to run in the next issue of The Practitioner, will outline hiring freelance attorneys and the implications of referral fees between attorneys.

I. OF COUNSEL RELATIONSHIPS

Law firms often form relationships with attorneys outside their firms to assist with legal projects when a firm is too busy or needs additional expertise. Outside attorneys may assist law firms with single projects or multiple matters, and may develop a continuous relationship with a firm. Firms often select the title “of counsel” to define a relationship with an outside attorney in an effort to appease their clients or make their firm appear to have additional resources. However, firms should be aware of the requirements and ethical implications of an “of counsel” title before making the designation. A firm should not call a temporary or contract attorney “of counsel” unless the relationship meets the applicable definition.

A. DEFINITION OF “OF COUNSEL”

American Bar Association Formal Opinion 90-357² defines the term “of counsel” as a “close, personal, continuous, and regular relationship” between the law firm and an “of counsel” lawyer, and states that it is a relationship which is neither that of a partner nor an associate of a firm. The ABA is clear that the relationship cannot involve “only occasional collaborative efforts among otherwise unrelated lawyers or firms.” The California Supreme Court adopted the ABA’s definition, and further states that “the essence of the relationship between a firm and an attorney ‘of counsel’ to the firm is the closeness of the ‘counsel’ they share on client matters.”³

The ABA and California rules allow an attorney to hold one or more “of counsel” designations while maintaining a separate source of work, so long as the firms involved appropriately monitor and clear conflicts and adhere to all applicable ethical rules. Specifically, State Bar of California Standing Committee On Professional Responsibility And Conduct Formal Opinion (“COPRAC”) 1993-129⁴ states that “the number of ‘of counsel” relationships in which a member or law firm may serve is limited not by any strict numerical standard … in theory, law firm ‘O’ may serve as ‘of counsel’ to law firms ‘A’, ‘B’ and ‘C.’”

The ABA and California rules are clear that holding multiple “of counsel” positions simultaneously is permissible. As discussed below, however, the number of firms with which a lawyer can have an “of counsel” relationship may be limited from a practical standpoint due to conflict of interest rules.

B. OF COUNSEL LAWYERS HAVE AUTOMATIC, DE FACTO, IMPUTED CONFLICTS OF INTEREST

Any attorney or law firm contemplating an “of counsel” relationship must also understand the conflicts of interest rules that an “of counsel” designation creates in their respective state. California Rule of Professional Conduct 1.7 governs attorney conflicts regardless of whether a lawyer is a partner, associate, of counsel, or a temporary contract attorney, and prohibits an attorney from accepting or continuing client representation if there is an actual or potential conflict affecting the member’s representation.

Pursuant to ABA rules and California rules, law firm conflicts are automatically deemed imputed to an “of counsel” lawyer, and vice versa. Under this single de facto analysis, current and former clients of every firm lawyer and the “of counsel” lawyer become relevant to all the lawyers’ respective ethical obligations and potential disqualifications.⁵

An “of counsel” title can exponentially increase conflicts, and can preclude “of counsel” attorneys from representing clients adverse to the firm in their outside practices without providing written disclosure to and/or receiving informed written consent from clients pursuant to California Rules of Professional Conduct, rule 1.7. A lawyer who purports to be “of counsel” to multiple law firms at the same time has imputed conflicts with each and every firm, even if that lawyer is working on only one matter. Firms can be conflicted out of matters simply by designating a contract lawyer as “of counsel.”

Thus, while ethically there is no numerical limit on the number “of counsel” positions a lawyer may hold, from a practical standpoint, all the firms in effect become one firm for the purposes of conflicts of interest. For this reason, unless the “of counsel” title is necessary because the lawyer is truly a member of the law firm, the best practice is to avoid using the title. Without an “of counsel” title, firms can take precautions to limit their temporary lawyer’s access to confidential client information, and therefore, can prevent an outside attorney from being “deemed associated” to the firm for conflict purposes.⁶

As long as an attorney complies with the “of counsel” relationship requirements, the association with an established law firm can prove beneficial. But such benefits do not come freely, and before accepting the “of counsel” designation, attorneys must carefully consider the added burden of disclosure and consent requirements, and potential conflict disqualifications.

Law firms may decide to retain matters internally and consistently work with an attorney who will act as “of counsel” to their firm, so long as the attorneys involved properly clear conflicts of interest, and adhere to the duties of disclosure. Relationships among lawyers of different firms can benefit lawyers and clients alike, both financially as well as in the quality of representation.

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Notes:

1. A similar version of this article originally appeared in the ABA Law Practice Today, Stay Ethical While Growing Your Firm, by Laurie Rowen and Erin Giglia, July 14, 2017. This article has been updated, and reflects the California Rules of Professional Conduct, effective November 1, 2018.
2. ABA Comm. on Ethics & Prof’l Responsibility, Formal Op. 90-357 (1990) (Use of Designation “Of Counsel”).
3. People ex rel. Dep’t of Corr. v. Speedee Oil Change Systems, Inc., 20 Cal. 4th 1135, 1153 (1999).
4. Cal. Bar Comm. On Prof’l Responsibility and Conduct, Formal Op. 1993-129 (1993), http://www.calbar.ca.gov/Portals/0/documents/ethics/Opinions/1993-129.htm.
5. See Speedee Oil, 20 Cal. 4th 1135 (stating that for purposes of conflicts of interest and disqualification, an “of counsel” attorney and the principal firm must be considered “a single, de facto firm” so that if one of them is precluded from a representation because of a conflict of interest, the other is presumptively precluded from the representation as well); see also Cal. Bar, supra note 4.
6. See ABA Comm. on Ethics & Prof’l Responsibility, Formal Op. 88-356 (stating that firm conflicts are imputed to the temporary attorney only if the temporary attorney is “deemed associated” with the firm such that knowledge of and access to the firm’s clients’ confidential information is presumed).