Document Sample
					                                   CONTRACT LAWYERING
                                  BEGUILING OPPORTUNITIES

                                        David C. Little
                                Montgomery Little & McGrew, P.C.

          Consider the following situations:

          1.     A lawyer negotiates a settlement of a minor’s personal injury claim that requires a

special needs trust. The lawyer is not comfortable in creating a special needs trust and seeks

assistance from another lawyer (a specialist experienced in the intricacies of such arrangements)

to create the trust. The principal lawyer does not advise the minor’s guardian (the client) about

asking another lawyer to draft the documentation. In composing the special needs trust, the

specialist makes a mistake and the minor loses the benefits the trust would have provided.

          2.     The general counsel of a business corporation undertakes to defend the

corporation in an environmental damage claim. The general counsel has been advising the client

for a number of years as to hazardous waste disposal. During the preparation of the case, the

general counsel and the corporation decide to hire a contract law firm that specializes in the

defense of environmental damage claims. The environmental lawyer begins an analysis of the

claim and eventually concludes that the general counsel has been giving incorrect advice to the

client and may have compromised the corporation’s defense to the environmental damage


          3.     A lawyer in one state is engaged to prepare and prosecute a lawsuit in another

state. The lawyer is not admitted to practice in the other state and must retain local counsel in

order to participate pro hac vice in the other state. During the progression of the case, the local

lawyer tells the originating lawyer about some local rules that must be observed or the claims can
be severely compromised. The originating lawyer fails to follow the local counsel’s advice and

the client is damaged.

       4.      A firm lawyer in charge of the management of complex litigation with massive

document production needs help. The firm lawyer asks a temporary lawyer service agency

without the knowledge of the firm’s client to provide a contract lawyer to organize the client’s

documents for discovery production. The contract lawyer fails to recognize the proprietary

nature of many of the client’s scientific documents and several of the client’s scientific secrets

are disclosed without a protective order resulting in damage to the client.

       These circumstances are not figments of an imagination. Each one is an actual case,

some of which have been reported and some of which have been resolved without judicial

process. The issues in these circumstances are intricate and in some cases expose the parties to

serious consequences.

                          CONTRACT LAWYERING IN GENERAL

       Contract lawyering, in whatever form or by whatever definition, is a growing part of the

practice of law. It allows, among other things, flexibility and specialization, selectivity of work,

freedom from administration, and perhaps reduction in administrative and overhead costs. The

contract lawyer can offer his or her services to any number of potential users and enjoy a variety

of work situations and client matters without the strictures of law firm administration.

       Contract lawyering has even attracted the practice of foreign outsourcing. In an

intriguing paper delivered to the September 2004 meeting of the ABA Standing Committee of

Lawyers Professional Liability in San Francisco, Mark Tuff described the availability of

outsourced contract lawyering available in Dallas, Texas. The discussion involved securing

specific legal services to be performed by employees or associates of a legal contracting service.

The actual legal services included research, pleading preparation, and motion and brief writing,

among other things. It was performed principally by lawyers trained and working in India.

        There are not a lot of court decisions addressing contract lawyering. The legal treatises,

including the fine work by Messrs. Mallen and Smith,1 give a general discussion of some of the

cases, but may only scratch the surface of the many ramifications of this type of practice. Even

the Restatement2 does not deal in depth with the obligations inherent in this type of practice that

can have serious consequences.

         Mallen and Smith describe several categories of legal service arrangements:

consultation, delegation, association, and referral. 3 Of these four concepts, true contract

lawyering is practiced in consultation, association and referral. Delegation for the most part does

not precisely fit the concept of the independent contract lawyer. Delegation occurs far more

often within a firm or office setting, and, as Mallen and Smith point out, engagement of a

principal attorney within a firm in a general sense includes all of the firm’s attorneys.

        One particular form of contract lawyering is characterized by both delegation within the

firm structure and the trappings of the independent ad hac temporary service provider. A

number of firms employ contract lawyers to work within the firm itself performing various tasks

on more than one client matter. A discussion of all the ramifications of this type of arrangement

is too widespread for this presentation, but some of these issues are discussed in an interesting

2004 article in the New York Law Journal4. In addition to the problems described in this article,

certainly one of the concerns inherent in this arrangement has to be the conflict baggage the

  Legal Malpractice, §5.9, Mallen and Smith 5th Edition, 2000.
  Restatement of the Law (Third), The Law Governing Lawyers.
  Mallen and Smith, Id.
  “Contract Lawyers Struggle With Their Identity”, by Anthony Lin, New York Law Journal, October 19, 2004.

contract lawyer carries as he or she goes about from place to place working on a variety of

matters. Can the contract lawyer’s conflicts disqualify the firm? Probably.

        We are concentrating here on the assignment of a specific task or segment of a particular

matter to an independent lawyer on an ad hac basis. Within the law firm itself, the full array of

professional and fiduciary obligations applies to the lawyer doing the work as well as all other

lawyers in the firm. The full panoply of these obligations also applies with equal force to the full

spectrum of contract lawyers. 5 Within the law firm, the lawyer principally engaged to handle

the matter is free to discuss the matter with others in the firm, including contract lawyers,

without violating the client’s confidences or otherwise breaching any general obligation to the

client. But, when a lawyer not a regular employee or member of the firm is introduced into the

client matter, particular attention must be given to the arrangement.

        The association of outside counsel in any matter immediately invokes questions about the

disclosure of confidential information. For this reason, a lawyer does not necessarily have

inherent authority to bring in a contract lawyer, or any outside counsel, to participate in the

client’s representation.6 This limitation of authority is one of the root sources of the civil

obligations and expectations that can arise from a relationship of this type.

        A lawyer’s authority is derived entirely from the empowerment the lawyer receives from

the client. The lawyer’s authority is the application of the laws of agency in every sense. The

lawyer/client relationship invokes consideration of all of the components of the principal/agency


  Restatement of the Law (Third), The Law Governing Lawyers, §60 com. g. 2000.
  Cohen v. Lipzig, 459 NY. Supp. 2d 98 (1983).
  Restatement of the Law (Third) of the Law Governing Lawyers, Topic 4, A Lawyer’s Authority to Act for a Client,
Introductory Note, 2000.

        The lawyer’s empowerment therefore to delegate or utilize subagents is present only to

the extent the underlying relationship contemplates or authorizes it. Absent either expressed or

implied authority from the client, there is no inherent authority for the lawyer to engage

additional or outside counsel, such as a contract lawyer might be.8 Even the engagement of

technical assistance in the representation might not be authorized other than from the authority

implied in the type of engagement and the objectives to be accomplished.9

        By and large, it is safe to say that except in those special cases where the performance of

the legal service necessarily implies some authority, a lawyer is not at liberty to engage

temporary legal service from a contract lawyer without the client’s direct authority or implied

consent. If nothing else, this is a good rule of thumb to follow. The presence or absence of the

authority, either implied or actual, can certainly affect the client’s obligation to pay for the

services of a contract lawyer. A lawyer can certainly be liable to pay for the costs of technical

assistance, such as engineers or accountants, and is probably primarily liable for the cost of such

services as court reporters, process servers, and the like.10 This same exposure can easily extend

to compensation for the services of a contracting lawyer as discussed later herein.

        Where there is authorization, however, the firm lawyer is empowered to secure the

services of temporary contracting lawyers for any number of designated services. Indeed in

some circumstances, a firm may have a duty to associate with a specialist where the matter is

beyond the firm’s competence.11

  Cohen v. Lipsig, supra.
  Succession of Zatarain, 138 S.2d 163 (La. App. 1962).
   Schafer v. Fraser, 290 P.2d 190 (Ore. 1955).
   Horne v. Peckham, 97 Cal. App. 3d 404 (1979).

                              GENERAL ETHICAL CONSIDERATIONS

           The use of contract lawyer services seems to have widespread acceptance in most

jurisdictions. The various agencies and the courts that have commented on the subject have

recognized the widespread use of temporary or contract lawyers.12 A 1989 Advisory Opinion

issued by the Supreme Court of Kentucky discussed at some length the practice of contract

lawyers being provided by a contract lawyer referral agency.13 The Court recognized that a

number of states and the American Bar Association Standing Committee on Ethics and

Professional Responsibilities had addressed the notion of contract attorney services and

uniformly approved of the concept. The particular issue involved in the Oliver case deals with

the involvement of an independent agency supplying temporary legal assistance. This notion

will be considered later in this paper. Suffice it to say, that the practice of contract lawyering is a

widely accepted and approved method of providing legal service.

                                   CIVIL CONSEQUENCES OF THE
                                    TEMPORARY RELATIONSHIP

           Apart from the ethical considerations, the practice of contract lawyering presents

exposure to civil liabilities and duties. In the typical situation where no placement agency is

involved, there are three primary participants: the client for whom the service is performed, the

firm that hires a contract lawyer to perform a particular service, and the contracted lawyer who

provides that service. We will refer to these as the client, the firm, and the contract lawyer.

           With respect to the client expectations and obligations there are several items to consider,

some of which may not be immediately apparent. There may be questions about the client’s

obligation directly to the contract lawyer to pay costs and fees. There may be civil liabilities

     ABA Formal Opinion 88-356. See, also, Restatement, Sec. 9. com. g.
     Oliver v. Board of Governors Kentucky Bar Association, 779 SW.2d 212 (1989).

caused by the actions of either or both the firm and the contract lawyer. There are issues of

indemnification, conflict, and concerns for scope of work and assignments. Many of these are

discussed below.

                                       THE FIRM’S LIABILITY

        The law firm is in the middle of this relationship. It may have civil liability in contract

and tort to both the contract lawyer and the client arising out of the relationship and the contract

lawyer’s work. The type and extent of this exposure depends upon the terms and conditions of

the relationship when it is first formed.

        The firm’s duties in the relationship include responsibility for selecting a qualified

contract attorney just as it does with an associate attorney.14 The firm also has the same

continuing obligation to supervise the work of the contract lawyer just as it has for any associate

working within the firm itself.15

        The relationship between the firm and the client is in every sense of the word a personal,

highly fiduciary relationship. As such, the firm cannot delegate to a contract lawyer to avoid

responsibility for any part of the service the firm has agreed to provide to the client. The firm

ultimately remains responsible for all of the work provided to the client in the matter irrespective

of how that work is furnished and whether the work is performed by a contract lawyer or by the

firm lawyer.16 The association of a contract lawyer to provide part of the work does not

terminate or change the attorney/client relationship with the client. The firm continues to owe its

client a duty to provide careful standard representation. Each lawyer, firm and contract, has an

independent obligation to the client for which each may be liable in an action in malpractice.17

   Tormo v. Yormark, 398 F.Supp. 1159 (DCNJ 1975).
   Cohen v. Lipsig, supra.
   McKernan v. DuPont, 968 P.2d 623 (Az. 1998).
   Duggins v. Guardianship of Washington, 632 So.2d 420 (Miss. 1993).

        The contract lawyer can also be the source of disqualification that may require the firm to

withdraw from representation of a client. The firm’s disqualification and withdrawal from the

representation of a particular client can expose the firm to liability should the client incur either

additional expenses or damage to its claim or transaction. When this happens, the relative

liabilities of the contract lawyer and the firm become extremely complicated. Issues such as

these turn to the law of partnerships and joint ventures for initial resolution.18 The joint venture

characteristic of the relationship applies even though one of the parties may be entirely innocent

of any conduct that might cause liability to the client.19 Under certain conditions, it may apply to

local counsel acting in a multi-jurisdictional situation.20

        There are two interesting distinctions courts have drawn to interpret the application of the

liability of joint venturers. Where fees are shared or divided in some fashion indicating

participation of more than just a nominal amount, the division of fees creates a strong

presumption of a joint venture and thus the joint liability of the contract attorney and the firm.21

In Ortiz,22 however, the joint venturer liability was not applied where the local attorney acted

only in a limited function and there was no fee sharing.

        In general, the firm attorney will probably be responsible for the negligence of the

contract lawyer.23 But the law firm’s liability for the contract lawyer’s substandard conduct has

been, under certain circumstances, qualified.24 In Foster, the court pointed out how active the

client had been in the division of authority between the law firm and the contract lawyer. The

client had been intimately involved in discussions about the division of authority between the

   Duggins v. Guardianship of Washington, Id.
   Waterman v. Rabinovitz, 779 P.2d 826 (Az. App. 1989).
   Ortiz v. Barrett 278 SE.2d 833 (1981).
   Norris v. Silver, 1996 WL 460716 (Fl. App. 1996).
   McKernan v. DuPont, 968 P.2d 623 (AZ 1998)
   Foster v. McLain, 198 So.2d 463 (La. 1967).

attorneys, and there was no expectation of supervision by one over the other. Under these

circumstances, the joint liability normally imposed under the principles of partnership law should

not apply.

        A firm can be liable for failure to question or verify the quality of a contract attorney to

be associated with the firm. In a situation where the contract attorney had purloined part of a

settlement without any participation by the firm, the liability of the firm was dependent upon the

degree of care used by the firm in selecting the attorney associated with the matter. This

evaluation was held to be a question of fact.25

        One seldom recognized exposure is the firm’s potential liability to the contract lawyer.

Several cases deal with the contract lawyer’s liability to the firm where the contract lawyer

causes the firm to incur vicarious liability to the client or where the firm loses fees because of the

contract lawyer’s misfeasance.26 The same philosophy should apply to the firm’s potential

liability to the contract lawyer should the contract lawyer incur liability to the client predicated

upon the firm’s negligence. Under the general principles of partnership law, it would seem that

the firm could be liable to the contract lawyer where the firm exposed the contract lawyer to

liability or loss of fees.

        In an interesting 1992 Oregon decision,27 local counsel was retained by an out-of-state

attorney. The out-of-state firm attorney was mistaken about the limitation statute applicable to a

claim and ultimately the underlying claim was time barred. The original plaintiff sued both

attorneys for malpractice and, after the case was settled, the contract lawyer sought

indemnification from the firm. In reversing a directed verdict for the firm, the Supreme Court of

Oregon held that the contract lawyer could justifiably rely on the firm’s misrepresentation and

   Tormo v. Yormark, supra.
   Hansen v. Brognano, 425 NY.Supp. 2d 862 (AD 1988).
   Scott v. Francis, 838 P.2d 596 (OR. 1992).

such reliance would support a claim for indemnification. The firm can be exposed to liability to

the contract lawyer if the circumstances warrant.

                            THE CONTRACT LAWYER’S EXPOSURES

        The contract lawyer’s liability begins with a premise that the legal service is provided for

the benefit of the client. The service is performed for the client’s use and benefit. The contract

lawyer is acting as the lawyer for the client and, as such, owes the client all of the common law

duties and responsibilities inherent in the traditional lawyer/client relationship.28

        A contract lawyer’s engagement will most likely begin when the firm lawyer engages the

contract lawyer to provide some special or discreet service to assist the firm in managing the

client’s legal matter. Under the law of agency, the firm lawyer would be acting as the client’s

agent and, in effect, be hiring a subagent. Where an agent for the client principal retains another

lawyer to provide legal service for the benefit of the client and the second lawyer consents or

acquiesces in the arrangement, a lawyer/client relationship is established between the contract

lawyer and the client.29 In virtually every event, the existence of the lawyer/client relationship

between the contract lawyer and the ultimate client will be a question of fact.30

        In general, the contract lawyer has the same duties and obligations to the client as the

firm lawyer has. Both the firm and the contract lawyer owe concurrent and equal duties to the

client and the involvement of one in a particular legal service does not relieve the other of this


        Whether or not the client has consented to or approved the involvement of a contract

lawyer is not controlling on this issue. It is likely that the client can hold the contract lawyer

   Restatement, Sec. 9, com. g.
   Randolph v. Resolution Trust Corp., 995 F.2d 611 (5th Cir. 1993).
   See, e.g., Dixon Ticonderoga Co. v. Estate of O’Connor, 248 F.3d 151 (3rd Cir. 2001).
   McKernan v. Dupont, supra.

liable for professional acts even though the client did not consent to the arrangement.32 This is

certainly true where the contract lawyer is considered to be an associate attorney in handling the


        There is, however, an interesting twist to this relationship. Where the client does not

authorize the association of a contract lawyer, there may not be a contractual relationship

between the contract lawyer and the client. This is especially true when the contract lawyer

anticipates being paid by the firm lawyer. The absence of a contractual relationship does not

excuse the contract lawyer from liability to the client for negligence or breach of the standard of

care.34 The contract lawyer may be liable to the client for the quality of work, but not able to

hold the client liable to pay the legal fees.

        Another interesting part of this relationship and the exposures the contract lawyer

assumes is the contract lawyer’s obligations to provide competent service and to exercise care in

ascertaining whether the contract lawyer’s own services are within the standard of care. In an

interesting Connecticut case in 1998, the Court commented on the associate lawyer’s duty to

seek guidance to make sure that the associate’s work was being done properly and

professionally.35 The Court held that if the associate did substandard work and did not seek

guidance from the supervising lawyer, the associate may be liable directly to the client based

upon a breach of the duty of competence.36

        Another variation on the relative responsibilities inherent in this relationship is the

contract lawyer’s responsibility to the client to advise the client concerning the quality of the

hiring firm’s legal representation of the client. Where the contract lawyer discovers a problem

   Hirsch v. Weisman, 643 NYS.2d 592 (1993).
   Lenches – Marrero v. Law Firm of Averna & Gardner, 741 A.2d 605 (NJ Super. 1999).
   McGann v. Wilson, 701 A.2d 873, (Maryland App. 1997).
   Beverly Hills Concepts, Inc. v. Schatz & Schatz, 717 A.2d 724 (Conn. 1998).
   Beverly Hills Concepts, Inc. v. Schatz & Schatz, Id.

with the quality of the hiring firm’s legal service to the client, does the contract lawyer have an

obligation to address this situation? There seem to be two parts to this issue.

        The first of these is whether the contract lawyer has an obligation to advise the hiring

firm itself about the contract lawyer’s concerns. If the associate lawyer has a duty to confer with

the supervising lawyer in the firm as was held in the Beverly Hills Concepts case, then it would

follow that the contract lawyer has a duty to confer with the hiring firm concerning the quality of

the work being done by the hiring firm.

        The second issue involves the contract lawyer’s duty to go directly to the client to inform

the client about the hiring lawyer’s mistake. Certainly the Rules of Conduct would suggest some

duty on the part of the contract lawyer to communicate directly with the client.37 A rule such as

this was found in a 2000 Federal case in Louisiana involving local counsel.38 Quoting from a

Fifth Circuit slip opinion at 203 F.3d 828, the District Court ruled that local counsel has “an

inherent and non-delegable duty of care that requires local counsel to inform its client of any

known malfeasance or misfeasance on the part of lead counsel.” This strongly suggests that a

contract lawyer should communicate such problems both to the hiring lawyer and to the client

directly, if necessary.

                                  THE CLIENT’S OBLIGATIONS

        In the typical lawyer/client relationship, the client has limited duties to the lawyer. The

client is responsible for compensation, perhaps certain indemnification, and performance of valid

contractual duties. 39 The client may have other responsibilities, but most of these

   ABA Model Rules of Professional Conduct, Rule 1.4
   Curb Records, Inc. v. Adams and Reese, LLP, 2000 U.S.Dist. Lexis 10463 (2000)
   Restatement, Sec. 17.

responsibilities are not available for enforceable claims. These duties serve to form the basis for

defensive reaction to claims against the lawyer. 40

           In the contract lawyer area, as well as virtually every other lawyer/client relationship, the

client’s principal obligation is to pay the lawyer’s fees and costs. Practically speaking, this is the

only obligation for which the client has any enforceable exposure. There are a few interesting

twists on this obligation to pay fees where a contract lawyer arrangement is involved. In general

the client is responsible to pay the fees agreed to be paid. Where the agreement contemplates the

involvement of the contract lawyer, the client, in all probability, will be required to pay all the

fees contemplated.

           The client’s obligations are largely dependent upon the formulative transaction between

the firm and the client. The client obviously assumes a responsibility to pay the contract

lawyer’s fees where the client has authorized the contract lawyer’s involvement and especially

where the client has agreed with the firm to be responsible for the contract lawyer’s fees. Where

the client has not impliedly or specifically authorized the contract lawyer’s work, there may not

be a sufficient contractual relationship for the contract lawyer to be able to recover fees directly

from the client. Kaiser v. Bailey, 400 NYS.2d 312 (1977). Nonetheless, the absence of client

consent or the client’s specific authorization may not insulate the contract lawyer from liability

to the client for negligent or otherwise substandard work.


           From this discussion, several directions become apparent. The following may be some

helpful suggestions when considering a contract lawyer relationship.

     McLister v. Epstein & Lawrence, P.C., 934 p.2d 844 (Colo. App. 1996)

   Remember both the firm and the contract lawyer have the full range of professional

    duties to the client.

   Chose situations carefully and understand the duties and responsibilities.

   Identify the client.

   Maintain a current conflicts list.

   Involve the client in the arrangement from the beginning, if possible.

   Utilize a standard fee and engagement agreement.

   Assume throughout that the contract lawyer is fully licensed and that neither multi-

    jurisdictional practice or unauthorized practice of law is involved.

   Resolve the following items:

                   Fee arrangement – who pays?

                   Division of work;

                   Pass through/mark up fees and costs;

                   Channels of communication with client;

                   Screening procedures as necessary; and,

                   Insurance coverage.