BACKGROUND APPENDIX D MATERIALS. Filing # Electronically Filed 10/28/ :40:55 AM

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1 Filing # Electronically Filed 10/28/ :40:55 AM RECEIVED, 10/28/ :45:00, John A. Tomasino, Clerk, Supreme Court BACKGROUND MATERIALS

2 PROFESSIONAL ETHICS OF THE FLORIDA BAR OPINION 87-4 May 1, 1987 A lawyer may offer personal injury clients a choice between two contingent fee contracts with differing percentage fees depending on whether the client or the lawyer assumes responsibility for submitting the client's medical bills for payment. Neither percentage may exceed the ceilings imposed by the Florida Supreme Court. RPC: 4-1.5(D) Prior to the Florida Supreme Court's adoption of the rules and fee schedule set forth in Rule 4-1.5(D), Rules Regulating The Florida Bar, concerning contingency fee contracts, the inquiring attorney routinely used two different contingency fee employment contracts in his practice. His standard contingency fee contract provided that he would receive a certain percentage of any recovery if a recovery was obtained. Apparently this contract did not provide that the firm would handle the submission of the client's medical bills to the insurance carrier for payment. The attorney's alternative contingency fee contract did provide that he would handle submission of the client's medical bills to the appropriate insurance carrier for payment. This alternative contract also provided that the attorney's percentage of the recovery, if any, would be higher than the percentage charged in the standard contract. The inquiring attorney states that the differing contingency fee amounts charged in the two contracts were offered to clients in an attempt to persuade clients to handle their own submission of medical bills. The attorney asks whether this practice is permissible under Rule 4-1.5(D). It appears that the practice of offering to clients two different contingency fee contracts, in which the percentage of recovery charged by the attorney differs according to whether the attorney agrees to handle submission of the client's medical bills for payment, is not impermissible if each contract complies with the rules and fee schedule governing contingency fee contracts set forth in Rule 4-1.5(D). In other words, an attorney may charge a higher contingency fee if he agrees to handle submission of a client's medical bills to an insurer for payment than if he does not so agree; however, this higher contingency fee must still comply with the provisions of Rule 4-1.5(D). Page 2

3 PROFESSIONAL ETHICS OF THE FLORIDA BAR OPINION 07-2 January 18, 2008 A lawyer is not prohibited from engaging the services of an overseas provider to provide paralegal assistance as long as the lawyer adequately addresses ethical obligations relating to assisting the unlicensed practice of law, supervision of nonlawyers, conflicts of interest, confidentiality, and billing. The lawyer should be mindful of any obligations under law regarding disclosure of sensitive information of opposing parties and third parties. Note: This opinion was approved by The Florida Bar Board of Governors on July 25, RPC: 4-1.6, 4-5.3, 4-5.5, OPINIONS: 68-49, 73-41, 76-33, 76-38, 88-6, 88-12, 89-5; Los Angeles County Bar Association 518, City of New York Bar Association CASES: Florida Bar v. Moses, 380 So. 2d 412 (Fla. 1980); Florida Bar v. Sperry, 140 So. 2d 587 (Fla. 1962) A member of the Florida Bar has inquired whether a law firm may ethically outsource legal work to overseas attorneys or paralegals. The overseas attorneys, who are not admitted to the Florida Bar, would do work including document preparation, for the creation of business entities, business closings and immigration forms and letters. Paralegals, who are not foreign attorneys, would transcribe dictation tapes. The foreign attorneys and paralegals would have remote access to the firm s computer files and may contact the clients to obtain information needed to complete a form. In addition to the facts presented in the written inquiry, the Committee was advised that the outsourcing company employs lawyers admitted to practice in India who are capable of providing much broader assistance to law firms in the U.S. besides outsourcing merely paralegal work, including contract drafting, litigation support, legal research, and forms preparation. The details of the proposed activity are complex, and a number of issues are potentially involved. The inquiry raises ethical concerns regarding the unauthorized practice of law, supervision of nonlawyers, conflicts of interest, confidentiality, and billing. Law firms frequently hire contract paralegals to perform services such as legal research and document preparation. It is the committee s opinion that there is no ethical distinction when hiring an overseas provider of such services versus a local provider, and that contracting for such services does not constitute aiding the unlicensed practice of law, provided that there is adequate supervision by the law firm. Rule 4-5.5, Rules Regulating The Florida Bar, prohibits an attorney from assisting in the unlicensed practice of law. In Florida Bar v. Sperry, 140 So. 2d 587, 591 (Fla. 1962), judg. vacated on other grounds, 373 U.S. 379 (1963) the Court found that setting forth a broad definition of the practice of law was "nigh onto impossible" and instead developed the following test to determine whether an activity is the practice of law: Page 3

4 ...if the giving of [the] advice and performance of [the] services affect important rights of a person under the law, and if the reasonable protection of the rights and property of those advised and served requires that the persons giving such advice possess legal skill and a knowledge of the law greater than that possessed by the average citizen, then the giving of such advice and the performance of such services by one for another as a course of conduct constitute the practice of law. When applying this test it should be kept in mind that the single most important concern in the Court's defining and regulating the practice of law is the protection of the public from incompetent, unethical, or irresponsible representation. Florida Bar v. Moses, 380 So. 2d 412, 417 (Fla. 1980). The Committee is not authorized to make the determination whether or not the proposed activities constitute the unlicensed practice of law. It is the obligation of the attorney to determine whether activities (legal work) being undertaken or assigned to others might violate Rule and any applicable rule of law. Rule 4-5.3, Rules Regulating The Florida Bar, requires an attorney to directly supervise nonlawyers who are employed or retained by the attorney. The rule also requires that the attorney make reasonable efforts to ensure that the nonlawyers conduct is consistent with the ethics rules. This is required regardless of whether the overseas provider is an attorney or a lay paralegal. The comment to the rule states: A lawyer must give such assistants appropriate instruction and supervision concerning the ethical aspects of their employment, particularly regarding the obligation not to disclose information relating to representation of the client. The measures employed in supervising nonlawyers should take account of the level of their legal training and the fact that they are not subject to professional discipline. If an activity requires the independent judgment and participation of the lawyer, it cannot be properly delegated to a nonlawyer employee. Additionally, Florida Ethics Opinions 88-6 and 89-5 provide that nonlawyers (defined as persons who are not members of The Florida Bar) may accomplish certain activities but only under the "supervision" of a Florida lawyer. In Florida Opinion 88-6, which discusses initial interviews that are conducted by nonlawyers, this committee advised that: the lawyer is responsible for careful, direct supervision of nonlawyer employees and must make certain that (1) they clearly identify their nonlawyer status to prospective clients, (2) they are used for the purpose of obtaining only factual information from prospective clients, and (3) they give no legal advice concerning the case itself or the representation agreement. Any questions concerning an assessment of the case, the applicable law or the representation agreement would have to be answered by the lawyer. Page 4

5 Florida Ethics Opinion 89-5 provides that a law firm may permit a paralegal or other trained employee to handle a real estate closing at which no lawyer in the firm is present if the following conditions are met: 1. A lawyer supervises and reviews all work done up to the closing; 2. The supervising lawyer determines that handling or attending the closing will be no more than a ministerial act. Handling the closing will constitute a ministerial act only if the supervising lawyer determines that the client understands the closing documents in advance of the closing; 3. The clients consent to the closing being handled by a nonlawyer employee of the firm. This requires that written disclosure be made to the clients that the person who will handle or attend the closing is a nonlawyer and will not be able to give legal advice at the closing; 4. The supervising lawyer is readily available, in person or by telephone, to provide legal advice or answer legal questions should the need arise; 5. The nonlawyer employee will not give legal advice at the closing or make impromptu decisions that should be made by the supervising lawyer. The committee has specifically addressed the employment of law school graduates who are admitted in other jurisdictions in Florida Opinions and These opinions state that a law firm may employ attorneys who are not admitted to the Florida Bar only for work that does not constitute the practice of law. Attorneys who use overseas legal outsourcing companies should recognize that providing adequate supervision may be difficult when dealing with employees who are in a different country. Ethics opinions from other states indicate that an attorney may need to take extra steps to ensure that the foreign employees are familiar with Florida s ethics rules governing conflicts of interest and confidentiality. See Los Angeles County Bar Association Professional Responsibility and Ethics Committee Opinion 518 and Association of the Bar of the City of New York Committee on Professional and Judicial Ethics Formal Opinion This committee agrees with the conclusion of Los Angeles County Bar Association Professional Responsibility and Ethics Committee Opinion 518, which states that a lawyer's obligation regarding conflicts of interest is as follows: [T]he attorney should satisfy himself that no conflicts exist that would preclude the representation. [Cite omitted.] The attorney must also recognize that he or she could be held responsible for any conflict of interest that may be created by the hiring of Company and which could arise from relationships that Company develops with others during the attorney's relationship with Company. Of particular concern is the ethical obligation of confidentiality. The inquirer states that the foreign attorneys will have remote access to the firm s computer files. The committee believes that the law firm should instead limit the overseas provider's access to only the information necessary to complete the work for the particular client. The law firm should provide no access to information about other clients of the firm. The law firm should take steps Page 5

6 such as those recommended by The Association of the Bar of the City of New York Committee on Professional and Judicial Ethics Opinion to include contractual provisions addressing confidentiality and remedies in the event of breach, and periodic reminders regarding confidentiality. The requirement for informed consent from a client should be generally commensurate with the degree of risk involved in the contemplated activity for which such consent is sought. It is assumed that most information outsourced will be transmitted electronically to the legal service provider. If so, an attorney must be mindful of, and receive appropriate and sufficient assurances relative to, the risks inherent to transmittal of information containing confidential information. For example, assurances by the foreign provider that policies and processes are employed to protect the data while in transit, at rest, in use, and post-provision of services should be set forth in sufficient detail for the requesting attorney. Moreover, foreign data-breach and identity protection laws and remedies, where such exist at all, may differ substantially in both scope and coverage from U.S. Federal and State laws and regulations. In light of such differing rules and regulations, an attorney should require sufficient and specific assurances (together with an outline of relevant policies and processes) that the data, once used for the service requested, will be irretrievably destroyed, and not sold, used, or otherwise be capable of access after the provision of the contracted-for service. While the foregoing issues are likewise applicable to domestic service providers, they present a heightened supervisory and auditability concern in foreign (i.e., non-u.s.) jurisdictions, and should be accorded heightened scrutiny by the attorney seeking to use such services. 1 The committee believes that the law firm should obtain prior client consent to disclose information that the firm reasonably believes is necessary to serve the client s interests. Rule (c)(1), Rules Regulating The Florida Bar. In determining whether a client should be informed of the participation of the overseas provider an attorney should bear in mind factors such as whether a client would reasonably expect the lawyer or law firm to personally handle the matter and whether the non-lawyers will have more than a limited role in the provision of the services. For example, in Opinion 88-12, we stated that a law firm s use of a temporary lawyer may need to be disclosed to a client if the client would likely consider the information to be material. 1 See, Indian data breach hits HSBC - 28 Jun IT Week UK banks escape punishment over India data breach, Indian call center under suspicion of ID breach, Cnet.com _ html, Florida State Data Breach Result of Inappropriate Offshoring to India, About.com , Outsourcing to India: Dealing with Data Theft and Misuse, Morrison & Foerster White Paper November 2006, U.S. Firm Says Outsourcer Holding Its Data Hostage, Paul McDougall, Information Week, August 7, 2007: Page 6

7 In addition to concerns regarding the confidentiality of client information, there are concerns about disclosure of sensitive information of others, such as an opposing party or third party. In outsourcing, there is the possibility that information of others will be disclosed in addition to the disclosure of client information. Lawyers should be mindful of any obligations under law regarding disclosure of sensitive information of opposing parties and third parties, particularly where the information concerns medical records or financial information. Additionally, in Consolidated Opinion and 76-38, regarding billing for nonlawyer personnel, the committee stated: [T]he lawyer should not in fact or effect duplicate charges for services of nonlawyer personnel, and if those charges are separately itemized, the salaries of such personnel employed by the lawyer should in some reasonable fashion be excluded from consideration as an overhead element in fixing the lawyer's own fee. If that exclusion cannot, as a practical matter, be accomplished in some rational and reasonably accurate fashion, then the charges for nonlawyer time should be credited against the lawyer's own fee. As to whether knowledge and specific advance consent of the client as to such uses of nonlawyer personnel, and charges therefor, are necessary, the Committee majority feels that it is in some instances and is not in others. For example, it would not seem appropriate for a lawyer to always have to seek the consent of the client as to use of a law clerk in conducting legal research. And under EC 3-6 and DR the work delegated to nonlawyer personnel should be so much under the lawyer's supervision and ultimately merged into the lawyer's own product that the work will be, in effect, that of the lawyer himself, who presumably has entered into a "clear agreement with his client as to the basis of the fee charges to be made." EC However, we feel that such "clear agreement" could not exist in many situations where the lawyer intends to make substantial use of nonlawyer personnel, and to bill directly or indirectly therefor, unless the client is informed of that intention at the time the fee agreement is entered into. Therefore, if there is a potentiality of dispute with, or of lack of clear agreement with and understanding by, the client as to the basis of the lawyer's charges, including the foregoing elements of nonlawyer time, whether or not the nonlawyer personnel time is to be separately itemized, the lawyer's intention to so use nonlawyer personnel and charge directly or indirectly therefor should be discussed in advance with, and approved by, the client. This would seem especially the case where substantial use is to be made of any kind of such nonlawyer services. See also EC 2-19 as to explaining to clients the reasons for particular fee arrangements proposed. The Committee suggests that the potentiality of such dispute or lack of clear agreement and understanding referred to in the foregoing paragraph may exist in the case of work to be done by nonlawyer personnel who are employed by the lawyer and who perform services of a type known by the lay public to be Page 7

8 regularly available through independent contractors, e.g., investigators. The Committee feels that such potentiality especially may exist where the lawyer enters into a contingent fee arrangement with the client and then separately itemizes charges to the client for the time of nonlawyer personnel who are fulltime employees of the lawyer; the arrangement may be susceptible of interpretation as involving charging the client for such nonlawyer services and at the same time, in fact or effect, duplicating the charges by including the salaries of such personnel as overhead and an element of the lawyer's own fee, as proscribed hereinabove. The law firm may charge a client the actual cost of the overseas provider, unless the charge would normally be covered as overhead. However, in a contingent fee case, it would be improper to charge separately for work that is usually otherwise accomplished by a client s own attorney and incorporated into the standard fee paid to the attorney, even if that cost is paid to a third party provider. In sum, a lawyer is not prohibited from engaging the services of an overseas provider, as long as the lawyer adequately addresses the above ethical obligations. Page 8

9 AMERICAN BAR ASSOCIATION STANDING COMMITTEE ON ETHICS AND PROFESSIONAL RESPONSIBILITY Formal Opinion August 5, 2008 Lawyer s Obligations When Outsourcing Legal and Nonlegal Support Services A lawyer may outsource legal or nonlegal support services provided the lawyer remains ultimately responsible for rendering competent legal services to the client under Model Rule 1.1. In complying with her Rule 1.1 obligations, a lawyer who engages lawyers or nonlawyers to provide outsourced legal or nonlegal services is required to comply with Rules 5.1 and 5.3. She should make reasonable efforts to ensure that the conduct of the lawyers or nonlawyers to whom tasks are outsourced is compatible with her own professional obligations as a lawyer with direct supervisory authority over them. In addition, appropriate disclosures should be made to the client regarding the use of lawyers or nonlawyers outside of the lawyer s firm, and client consent should be obtained if those lawyers or nonlawyers will be receiving information protected by Rule 1.6. The fees charged must be reasonable and otherwise in compliance with Rule 1.5, and the outsourcing lawyer must avoid assisting the unauthorized practice of law under Rule Many lawyers engage other lawyers or nonlawyers, as independent contractors, directly or through intermediaries, on a temporary or an ongoing basis, to provide various legal and nonlegal support services. Outsourced tasks range from the use of a local photocopy shop for the reproduction of documents, to the retention of a document management company for the creation and maintenance of a database for complex litigation, to the use of a third-party vendor to provide and maintain a law firm s computer system, to the hiring of a legal research service to prepare a 50-state survey of the law on an issue of importance to a client, or even to the engagement of a group of foreign lawyers to draft patent applications or develop legal strategies and 1. This opinion is based on the Model Rules of Professional Conduct as amended by the ABA House of Delegates through February The laws, court rules, regulations, rules of professional conduct, and opinions promulgated in individual jurisdictions are controlling. AMERICAN BAR ASSOCIATION STANDING COMMITTEE ON ETHICS AND PROFESSIONAL RESPONSIBILITY 321 N. Clark Street, Chicago, Illinois Telephone (312) CHAIR: Steven C. Krane, New York, NY T. Maxfield Bahner, Chattanooga, TN Amie L. Clifford, Columbia, SC Edwin L. Felter, Jr., Denver, CO Terrence M. Franklin, Los Angeles, CA Susan R. Martyn, Toledo, OH Robert H. Mundheim, New York, NY Arden J. Olson, Eugene, OR Mary Robinson, Downers Grove, IL Sylvia E. Stevens, Lake Oswego, OR CENTER FOR PROFESSIONAL RESPONSIBILITY: George A. Kuhlman, Ethics Counsel; Eileen B. Libby, Associate Ethics Counsel Petition 2008 by to the Amend American RRTFB Bar Association All rights reserved. Page 9

10 Formal Opinion 2 prepare motion papers in U.S. litigation. The outsourcing trend is a salutary one for our globalized economy. Labor costs vary greatly across the United States and throughout the rest of the world. Outsourcing affords lawyers the ability to reduce their costs and often the cost to the client to the extent that the individuals or entities providing the outsourced services can do so at lower rates than the lawyer s own staff. In addition, the availability of lawyers and nonlawyers to perform discrete tasks may, in some circumstances, allow for the provision of labor-intensive legal services by lawyers who do not otherwise maintain the needed human resources on an ongoing basis. A small firm might not regularly employ the lawyers and legal assistants required to handle a large, discovery-intensive litigation effectively. Outsourcing, however, can enable that firm to represent a client in such a matter effectively and efficiently, by engaging additional lawyers to conduct depositions or to review and analyze documents, together with a temporary staff of legal assistants to provide infrastructural support. There is nothing unethical about a lawyer outsourcing legal and nonlegal services, provided the outsourcing lawyer renders legal services to the client with the legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation, as required by Rule 1.1. Comment [1] to Rule 1.1 further counsels: In determining whether a lawyer employs the requisite knowledge and skill in a particular matter, relevant factors include the relative complexity and specialized nature of the matter, the lawyer s general experience, the lawyer s training and experience in the field in question, the preparation and study the lawyer is able to give the matter and whether it is feasible to refer the matter to, or associate or consult with, a lawyer of established competence in the field in question. There is no unique blueprint for the provision of competent legal services. Different lawyers may perform the same tasks through different means, all with the necessary legal knowledge, skill, thoroughness and preparation. One lawyer may choose to do all of the work herself. Another may delegate tasks to a team of subordinate lawyers and nonlegal staff. Others may decide to outsource tasks to independent service providers that are not within their direct control. Rule 1.1 does not require that tasks be accomplished in any special way. The rule requires only that the lawyer who is responsible to the client satisfies her obligation to render legal services competently. However, Rules 5.1 and 5.3 impose additional obligations on lawyers who have direct supervisory authority over other lawyers and nonlawyers. Rule 5.1(b) states that [a] lawyer having direct supervisory authority over another lawyer shall make reasonable efforts to ensure that the other lawyer conforms to the Rules of Professional Conduct. Correlatively, Rule 5.3(b) requires lawyers who employ, retain, or associate with nonlawyers to make reasonable efforts to ensure that the person s conduct is compatible with the professional obligations of the lawyer. These provisions apply regardless of Page 10

11 3 Committee on Ethics and Professional Responsibility whether the other lawyer or the nonlawyer is directly affiliated with the supervising lawyer s firm. 2 The challenge for an outsourcing lawyer is, therefore, to ensure that tasks are delegated to individuals who are competent to perform them, and then to oversee the execution of the project adequately and appropriately. When delegating tasks to lawyers in remote locations, the physical separation between the outsourcing lawyer and those performing the work can be thousands of miles, with a time difference of several hours further complicating direct contact. Electronic communication can close this gap somewhat, but may not be sufficient to allow the lawyer to monitor the work of the lawyers and nonlawyers working for her in an effective manner. At a minimum, a lawyer outsourcing services for ultimate provision to a client should consider conducting reference checks and investigating the background of the lawyer or nonlawyer providing the services as well as any nonlawyer intermediary involved, such as a placement agency or service provider. The lawyer also might consider interviewing the principal lawyers, if any, involved in the project, among other things assessing their educational background. When dealing with an intermediary, the lawyer may wish to inquire into its hiring practices to evaluate the quality and character of the employees likely to have access to client information. Depending on the sensitivity of the information being provided to the service provider, the lawyer should consider investigating the security of the provider s premises, computer network, and perhaps even its recycling and refuse disposal procedures. In some instances, it may be prudent to pay a personal visit to the intermediary s facility, regardless of its location or the difficulty of travel, to get a firsthand sense of its operation and the professionalism of the lawyers and nonlawyers it is procuring. When engaging lawyers trained in a foreign country, the outsourcing lawyer first should assess whether the system of legal education under which the lawyers were trained is comparable to that in the United States. In some nations, people can call themselves lawyers with only a minimal level of training. Also, the professional regulatory system should be evaluated to determine whether members of the nation s legal profession have been inculcated with core ethical principles similar to those in the United States, and whether the nation s disciplinary enforcement system is effective in policing 2. Although Comment [1] to Rule 5.1 states that [p]aragraph (b) applies to lawyers who have supervisory authority over the work of other lawyers in a firm (emphasis supplied), we do not believe that the drafters of the Model Rules intended to restrict the application of Rule 5.1(b) to the supervision of lawyers within firms as defined in Rule 1.0(c). A contrary interpretation would lead to the anomalous result that lawyers who outsource have a lower standard of care when supervising outsourced lawyers than they have with respect to lawyers within their own firm. As discussed below, the contrary is true in many respects. Page 11

12 Formal Opinion 4 its lawyers. The lack of rigorous training or effective lawyer discipline does not mean that individuals from that nation cannot be engaged to work on a particular project. What it does mean is that, in such circumstances, it will be more important than ever for the outsourcing lawyer to scrutinize the work done by the foreign lawyers perhaps viewing them as nonlawyers before relying upon their work in rendering legal services to the client. Consideration also should be given to the legal landscape of the nation to which the services are being outsourced, particularly the extent that personal property, including documents, may be susceptible to seizure in judicial or administrative proceedings notwithstanding claims of client confidentiality. Similarly, the judicial system of the country in question should be evaluated to assess the risk of loss of client information or disruption of the project in the event that a dispute arises between the service provider and the lawyer and the courts do not provide prompt and effective remedies to avert prejudice to the client. There are several additional considerations that must be taken into account under the Model Rules. First, at the outset, it may be necessary for the lawyer to provide information concerning the outsourcing relationship to the client, and perhaps to obtain the client s informed consent to the engagement of lawyers or nonlawyers who are not directly associated with the lawyer or law firm that the client retained. In Formal Opinion , 3 we opined that when a lawyer engaged the services of a temporary lawyer, a form of outsourcing, an obligation to advise the client of that fact and to seek the client s consent would arise if the temporary lawyer was to perform independent work for the client without the close supervision of the hiring lawyer or another lawyer associated with her firm. Relying on Rule 1.2(a), requiring lawyers to consult with clients as to the means by which the clients objectives are to be pursued, Rule 1.4, relating to client communication, and Rule 7.5(d), prohibiting lawyers from implying that they practice in a partnership or other organization when that is not the fact, we concluded that clients are entitled to know who or what entity is representing them, and thus could veto the lawyer s use of a temporary lawyer. Relatedly, the lawyer may not make affirmative misrepresentations to the client regarding the status of lawyers and nonlawyers who are not in the lawyer s employ under Rule 7.1, requiring truthfulness in communications regarding lawyer services, and Rule 8.4(c), prohibiting dishonesty, fraud, deceit, or misrepresentation. We recognize that Formal Opinion held that the client ordinarily is not entitled to notice that its legal work is being performed by a temporary lawyer. We stated that [c]lient consent to the involvement of firm personnel and the disclosure to those personnel of confidential information necessary to 3. ABA Comm. on Ethics and Prof l Responsibility Formal Op (Dec. 16, 1988) (Temporary Lawyers). Page 12

13 5 Committee on Ethics and Professional Responsibility the representation is inherent in the act of retaining the firm. However, that statement was predicated on the assumption that the relationship between the firm and the temporary lawyer involved a high degree of supervision and control, so that the temporary lawyer would be tantamount to an employee, subject to discipline or even firing for misconduct. That ordinarily will not be the case in an outsourcing relationship, particularly in a relationship involving outsourcing through an intermediary that itself has the employment relationship with the lawyers or nonlawyers in question. Thus, where the relationship between the firm and the individuals performing the services is attenuated, as in a typical outsourcing relationship, no information protected by Rule 1.6 may be revealed without the client s informed consent. The implied authorization of Rule 1.6(a) and its Comment [5] thereto to share confidential information within a firm does not extend to outside entities or to individuals over whom the firm lacks effective supervision and control. Also, the outsourcing lawyer should be mindful of the obligation to act competently to safeguard information relating to the representation of a client against inadvertent or unauthorized disclosure by the lawyer or other persons who are participating in the representation of the client or who are subject to the lawyer s supervision. 4 This requires the lawyer to recognize and minimize the risk that any outside service provider may inadvertently or perhaps even advertently reveal client confidential information to adverse parties or to others who are not entitled to access. 5 Written confidentiality agreements are, therefore, strongly advisable in outsourcing relationships. Likewise, to minimize the risk of potentially wrongful disclosure, the outsourcing lawyer should verify that the outside service provider does not also do work for adversaries of their clients on the same or substantially related matters; in such an instance, the outsourcing lawyer could choose another provider. Second, the fees charged by the outsourcing lawyer must be reasonable and otherwise comply with the requirements of Rule 1.5. In Formal Opinion No , 6 we concluded that a law firm that engaged a contract lawyer could add a surcharge to the cost paid by the billing lawyer provided the total charge represented a reasonable fee for the services provided to the client. This is not substantively different from the manner in which a conventional law firm bills for the services of its lawyers. The firm pays a lawyer a salary, provides him with employment benefits, incurs office space and other overhead costs to support him, and also earns a profit from his services; the client generally is not informed of the details of the financial relationship between 4. Rule 1.6, cmt Cf. ABA Comm. on Ethics and Prof l Responsibility Formal Op (Oct. 27, 1995) (Access of Nonlawyers to a Lawyer s Data Base). 6. ABA Comm. on Ethics and Prof l Responsibility Formal Op (Nov. 29, 2000) (Surcharge to Client for Use of a Contract Lawyer). Page 13

14 Formal Opinion 6 the law firm and the lawyer. Likewise, the lawyer is not obligated to inform the client how much the firm is paying a contract lawyer; the restraint is the overarching requirement that the fee charged for the services not be unreasonable. If the firm decides to pass those costs through to the client as a disbursement, however, no markup is permitted. In the absence of an agreement with the client authorizing a greater charge, the lawyer may bill the client only its actual cost plus a reasonable allocation of associated overhead, such as the amount the lawyer spent on any office space, support staff, equipment, and supplies for the individuals under contract. 7 The analysis is no different for other outsourced legal services, except that the overhead costs associated with the provision of such services may be minimal or nonexistent if and to the extent that the outsourced work is performed off-site without the need for infrastructural support. If that is true, the outsourced services should be billed at cost, plus a reasonable allocation of the cost of supervising those services if not otherwise covered by the fees being charged for legal services. Finally, the outsourcing lawyer must be mindful of the admonition of Rule 5.5(a) to avoid assisting others to practice law in a jurisdiction in violation of the regulation of the legal profession in that jurisdiction... This Committee lacks the authority to express an opinion as to whether the provision of legal services by any particular lawyer, nonlawyer, or intermediary constitutes the unauthorized practice of law. Ordinarily, an individual who is not admitted to practice law in a particular jurisdiction may work for a lawyer who is so admitted, provided that the lawyer remains responsible for the work being performed and that the individual is not held out as being a duly admitted lawyer. We note only that if the activities of a lawyer, nonlawyer, or intermediary employed in an outsourcing capacity are held to be the unauthorized practice of law, and the outsourcing lawyer facilitated that violation of law by action or inaction, the outsourcing lawyer will have violated Rule 5.5(a). 7. See ABA Comm. on Ethics and Prof l Responsibility Formal Op (Dec. 6, 1993) (Billing for Professional Fees, Disbursements and Other Expenses). Page 14

15 ILLINOIS STATE BAR ASSOCIATION ISBA Advisory Opinion on Professional Conduct ISBA Advisory Opinions on Professional Conduct are prepared as an educational service to members of the ISBA. While the opinions express the ISBA interpretation of the Illinois Rules of Professional conduct and other relevant materials in response to a specific hypothesized fact situation, they do not have the weight of law and should not be relied upon as a substitute for individual legal advice. Opinion No March, 1998 TOPIC: DIGEST: REF: Contingency Fees A lawyer cannot take an additional amount in legal fees for reducing a lien payment which is above and beyond the percentage of the lawyer' s fees agreed to by the client in the contingency fee agreement with the lawyer. Illinois Rules of Professional Conduct, Rules 1.5(c) and 1.8(a), ABA Model Rule 1.5 Baier v. State Farm Insurance Company, 66 Ill.2d 119, 361 N.E.2d 1100 (1977) Durr v. Beatty, 491 N.E.2d 902 (Ill.App.Ct. 1986) In re Pagano, 154 Ill.2d 174, 607 N.E.2d 1242 (1992) Lossman v. Lossman, 274 Ill.App.3d 1, 653 N.E.2d 1280 (Ill.App Dist. 1995) FACTS Lawyer represents Client as plaintiff in a personal injury matter. Under the terms of the contingency fee agreement, Lawyer is to receive legal fees equal to 33% of any recovery. Lawyer settles the matter with defendant for $9,000. Client's automobile insurance company ("Carrier") has asserted a subrogation lien of $3,000 against any recovery based upon medical expenses paid out by Carrier on Client's behalf. The lien is "adjudicatedn to $2,000 pursuant to the common fund doctrine. 1 Page 15

16 QUESTION Can Lawyer take an additional fee from Client for reducing the lien? OPINION Contingency fee agreements are governed by Rule 1.5(c) of the Professional Rules of Conduct. Pursuant to Rule 1.5(c): A fee may be contingent on the outcome of the matter for which the service is rendered, except in a matter in which a contingent fee is prohibited by paragraph (d) or other law. A contingent fee agreement shall be in writing and shall state the method by which the fee is to be determined, including the percentage or percentages that shall accrue to the lawyer in the event of settlement, trial or appeal, litigation and other expenses to be deducted from the recovery, and whether such expenses are to be deducted before or after the contingent fee is calculated. Upon conclusion of a contingent fee matter, the lawyer shall provide the client with a written statement stating the outcome of the matter, and if there is a recovery, showing the remittance to the client and the method of its determination. For the purpose of this opinion, it is assumed that the contingency fee agreement between Client and Lawyer (the "Fee Agreement" ) provided that the lawyer' s fees should be calculated before any expenses or other amounts such as liens were deducted from the recovery. In short, we assume that Lawyer's fees were to be calculated based upon the gross amount of the recovery as opposed to the net amount after expenses and liens. According to Rule 1.5 (c), the contingent fee agreement must "state the method by which the fee is to be determined, including the percentage...that shall accrue to the lawyer in the event of settlement...and other expenses to be deducted from the recovery, and whether such expenses are to be deducted before or after the contingent fee is calculated." In this case, Lawyer agreed in writing with Client that Lawyer's fees would be fixed and calculated at 33% of the recovery amount before deduction of litigation expenses and other amounts. The gross recovery Lawyer negotiated for Client was $9,000. Therefore, pursuant to the Fee Agreement, Lawyer was entitled to $3,000 or 33% of $9,000. Lawyer is not entitled to any additional amounts. Furthermore, Lawyer could not later modify the existing Fee Agreement or enter into a second fee agreement with Client in order to obtain a fee for reducing Client's lien. A fee 2 Page 16

17 agreement entered into after the lawyer has been retained requires a showing of clear and convincing evidence to rebut the presumption of undue influence. In re Pagano, 154 Ill.2d 174, 607 N.E.2d 1242 (1992) (presumption that increase in lawyer's fee is product of undue influence can sometimes be rebutted without client obtaining advice of independent counsel); Lessman v. Lessman, 274 Ill.App.3d 1, 653 N.E.2d 1280 (Ill.App. 2~ Dist. 1995) (lawyer rebutted presumption of undue influence as to bonus that was part of the original fee agreement but failed to rebut presumption as to mortgage used to secure fees and 12% interest which were not part of original fee agreement); Comments, ABA Model Rule 1.5 ( modification of a fee agreement to a lawyer's benefit during a representation is presumptively fraudulent and unenforceable, unless the lawyer demonstrates full disclosure of all relevant information, client consent based on adequate consideration, and client opportunity to seek independent legal advice before agreeing to the modification. Durr v. Beatty, 491 N.E. 2d 902 (Ill.App.Ct. 1986"). We assume for purposes of this opinion that Client did not agree to modify the terms of the Fee Agreement based upon the above standards. The concept of undue influence in modifying a preexisting fee agreement is similar to the concept discussed in Rule 1.8(a) with respect to business transactions between a client and his or her lawyer. Our opinion that Lawyer cannot take a fee from Client greater than that agreed to in the Fee Agreement is consistent with the fund doctrine; the common fund doctrine is not intended to alter the fee arrangement between a lawyer and his or her client, but rather addresses the lawyer' s rights to a fee from a subrogee who benefits from the lawyer's work. In Baier v. State Farm Insurance Company, 66 Ill.2d 119, 361 N.E.2d 1100 (1977), the Supreme Court of Illinois agreed "that where a fund has been created as the result of legal services performed by an attorney for his client, and a subrogee of the client, who has done nothing to aid in creating the fund, seeks to benefit therefrom, the attorney is entitled to a fee from the subrogee in proportion to the benefit received by the subrogee." Finally, unlike Lawyer in the present inquiry, Baier calculated the fee owed to him by his client net of the subrogation lien and then sued State Farm to recover a portion of the lien paid to State Farm as a result of Baier's efforts. * * * 3 Page 17

18 The North Carolina state Bar RPC 231 October 18, 1996 Editor's Note: This opinion was originally adopted as RPC 231 {Revised). Collecting a Contingent Fee on the Gross Recovery and on the Medical Insurance Provider's Claim Opinion rules that a lawyer may not collect a contingent fee on the reimbursement paid to the client's medical insurance provider in addition to a contingent fee on the gross recovery ifthe total fee received by the lawyer is clearly excessive. lnquiry#1: Attorney A's contingent fee agreement with Client for representation in a personal injury case will pay Attorney A a fee of one-third of the gross recovery from the defendant plus whatever contingent legal fee may be provided by law for recovering and paying the claim for reimbursement of an insurance carrier or medical insurance program that paid some or all of the client's medical expenses. Is it ethical for a lawyer to collect a contingent fee on the gross recovery and an additional contingent fee for recovering and paying the claim of the medical insurance carrier or program? Opinion#1: No opinion is expressed as to whether a legal fee for collecting a medical insurance provider's claim for reimbursement is permitted by law. If such a fee is permitted by law, the collection of this fee in addition to the collection of a contingent fee on the gross recovery may render the lawyer's total fee for the representation of the client "clearly excessive" in violation of Rule 2.6{a) of the Rules of Professional Conduct. Whether the total fee is "clearly excessive" depends upon the facts and circumstances of the particular representation. "Contingent fees, like all legal fees, must be reasonable." RPC 35. Further, a lawyer may not charge a clearly excessive fee even though the fee may be recovered from an opposing party. RPC 196 Rule 2.6{b) provides that "[a] fee is clearly excessive when, after a review of the facts, a lawyer of ordinary prudence experienced in the area of law involved would be left with a definite and firm conviction that the fee is in excess of a reasonable fee." The rule then lists a number of factors to be taken into consideration in determining the reasonableness of a fee including the following: {1) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly; {4) the amount involved and the results obtained; {5) the time limitations imposed by the client or by the circumstances; {7) the experience, reputation, and ability of the lawyer or lawyers performing the services; and {8) whether the fee is fixed or contingent. A lawyer may not know at the beginning of the representation whether collecting the additional fee will render the lawyer's total fee clearly excessive in violation of the rule. However, at the conclusion of the representation, the lawyer should examine the factors listed in Rule 2.6{b) to determine the reasonableness of the total fee. If the collection of the additional fee renders the total fee paid to the lawyer clearly excessive in light of these factors, the lawyer should reduce the fee paid by the client in htlp11waw.ncbar.com/elhics/prinklpinion.asp?id=231 Page 18 1/2

19 The Ncrth Carolina stale Bar an amount equivalent to the fee permitted by law for collecting and paying the claim of the medical insurance provider. lnquiry#2: At the beginning of the representation, should the lawyer disclose to the client the lawyer's intention to seek the fee from the medical insurance provider in addition to the contingent fee payable by the client on the gross amount of the recovery? Opinion#2: Yes, the fee arrangement should be fully explained to the client and the client should agree to the fee arrangement. See Rule 2.6 and comment. THE NORTH CAROLINA STATE BAR 217 E. Edenton Street PO Box Raleigh, NC Copyright North Carolina State Bar. An rights reserved. ht!p:llw.yn.ncbar.c:om'ethicslprintopinian.asp?id=231 Page 19

20 NYCLA Professional Ethics Committee Ethics Opinion 739 July 7, 2008 Topic: Fees for specialized counsel retained to negotiate a plaintiffs complex Medicare, Medicaid or private health insurance lien may be charged to the settlement as a disbursement under certain conditions. Code: DR 6-101,2-106,5-104 Digest: It is ethically permissible for a plaintiffs personal injury attorney to retain a specialty firm to handle the resolution ofa Medicare, Medicaid or private healthcare lien on a settled lawsuit. Under the following conditions, the fee for said outside service may be charged as a disbursement against the total proceeds of the settlement: (a) at the outset ofthe representation, the Retainer Agreement with the client provides that the attorney may do so, and the client has given informed consent thereto; (b) the actual charges are passed on to the client at cost (without any overage or surcharge) and must be reasonable; (c) the transaction results in a net benefit to the client on each lien negotiated; (d) the transaction complies with all principles of substantive law, including the fee limitations on contingent fees in the New York Judiciary Law and Appellate Division rules; and (e) the referring attorney remains responsible for the overall work product. If counsel cannot comply with all of the above conditions, the fee for said services should be charged against the attorney contingency fee. Discussion: A cottage industry of specialty law firms has evolved in the last few years that specialize in negotiating Medicare, Medicaid and private healthcare liens on behalf of personal injury plaintiffs. Said services are marketed to attorneys representing personal injury clients. Resolving liens is a complex area of law with many traps for the inexperienced and unwary. These specialty law firms charge fees for their work and describe their services as being akin to other I Page 20

21 legal areas that often effect personal injury settlements. Customarily, ancillary legal services involved with personal injury settlement such as bankruptcy, probate and disability planning do result in a separate fee chargeable to the client. However, negotiating liens has historically been done by the plaintiffs attorney at no extra charge (and included in the contingency fee). By posturing Medicare, Medicaid and private healthcare lien resolution as an ancillary area, the specialty law firms are suggesting that fees for their service may be considered a legal disbursement chargeable to the total proceeds ofthe settlement. The alternative would be for the personal injury attorney to pay such fees out ofthe attorney's contingency fee, as may be done with legal services provided by trial counsel or appellate counsel. Increasingly Complicated Lien Resolution In every personal injury case, plaintiffs counsel has to worry about possible liens charged to the client's claim. This is a developing area oflaw, where the policies governing recovery of Medicare, Medicaid and private insurance liens have become much more aggressive over the past few years. The attorney must ferret out and track the liens that are asserted against the claim, and under the new federal rules, has to actively investigate any possible lien held by Medicare ( 42 CFR ). When there is a recovery, before any funds are disbursed, a determination has to be made as to whether the asserted liens have merit, and if so, which portions ofthose liens are valid. Repeated contact with the lienholder may be needed, often through a third party collection agency, and extensive negotiations, or even litigation, may ensue before an agreement can be reached. Lien issues are made more difficult to handle because ofconstantly changing regulations and protocols. There are four major entities likely to have a lien on a personal injury claim: Medicare, Medicaid, employee health plans, and private health insurance. Each is governed by a different body oflaw (federal Medicare code, state Medicaid code, ERISA, and state insurance law, respectively). The rules governing each, and the opinions interpreting them, are often subject to change. Further complicating matters, some clients may have multiple healthcare liens associated with their recovery. A client, for instance, who is initially covered under her employer's healthcare plan may, due to a permanent disability, cycle off ofthe private plan and onto Medicare during the time between the date of injury and the date of settlement. Furthermore, many clients who are entitled to Medicare are actually''dual beneficiaries,' having Medicaid pay the coinsurance and deductible applicable to their Medicare coverage. Finally, a client who is only a Medicare beneficiary may have to deal with three separate healthcare reimbursement claims in the end (a Medicare plan outsourcing to multiple administrators -- Medicare Part A, Part B, Part D & MCO's --all with unique rights of recovery, tort recovery departments and associated protocols to develop, offset, compromise and perfect claims). 2 Page 21

22 Traditional Handling of Liens in Personal Injury Cases Historically, the resolution of liens on recoveries was considered a routine part of case management. The increasingly complex development ofthe law, rules, and regulations oflien resolution, however, has made proper lien resolution far more difficult and involved than it was in the past. Many plaintiffs' attorneys view themselves as skilled in proving tort liability and damages, and plaintiffs' personal injury lawyers often develop expertise in the substantive litigation and tort law relevant to establishing the plaintiffs personal injury claim, but have no special skills in the field.of lien law and lien resolution. The law and legal processes associated with personal injury claims are distinct from the law and legal processes associated with resolving reimbursement claims and health insurance liens. Therefore, it is increasingly more difficult for a personal injury lawyer also to be expert in the law of Medicaid liens, ERISA subrogation, and the like. While personal injury lawyers could develop further expertise through study, experience, and consultation, there are advantages to retaining specialized professionals who perform this work on a constant basis, whose work enables them to be up to date on changes in the law and procedures, and who can take advantage of established and ongoing relationships with various carriers and of economies of scale. The complexity ofthese lien-related issues may make the retention of such outside assistance desirable. The plaintiffs attorney faces the risks of liability associated with lien resolution. When an attorney undertakes a personal injury lawsuit, she impliedly represents that she has the legal knowledge, skill, and preparation necessary to represent the client's interests competently in that area ofthe law. See, DR If the attorney unwittingly declines to pay a valid lien, he may expose his client to future litigation and possible loss ofhealthcare coverage. Ifan attorney overpays the lien, or pays an invalid lien, he may be liable for legal malpractice; if the attorney fails to discover or pay an outstanding Medicare lien, he can be held personally liable for twice the amount ofthe original lien, plus interest. (See, 42 U.S.C. 1395y (b) (2) (A) (ii-iii)). Lien resolution may take months or even years after a case is resolved and can delay disbursement ofthe case proceeds to the client and payment of the attorney's fee. From the plaintiffs' attorney's perspective, lien resolution is often viewed as a troublesome distraction that saps resources from the prosecution ofthe case and diminishes the recovery to the client. From the client's perspective, said liens delay distribution of proceeds, may affect the continuing entitlement to certain benefits and can even make obtaining representation more difficult. In the last several years, the option to "outsource" lien resolution has become available to the plaintiffs' bar through the emergence of specialized law firms that focus on lien resolution and settlement disbursement. Typically, such firms hire case workers who do nothing but handle liens on a large scale. Faced with the stark realities outlined above, plaintiffs' attorneys have begun to take advantage ofthese new services. This option alleviates the time consumption and frustration of handling lien resolution in-house and may generate a better outcome for the client (i.e. a net benefit) than could be obtained through in-house lien resolution. 3 Page 22

23 Fees for Lien Resolution Addressed below are some ofthe factors to be considered in determining whether the fees for such lien resolution attorneys are a disbursement to be shared by the client and the attorney, rather than included in the contingency fee, i.e. absorbed solely by the attorney. Assessing the costs of outsourced lien resolution as a disbursement apportions those costs to the client and the attorney in the same manner and proportion that the client and attorney share in the net recovery; i.e. neither one is saddled with the entire cost or burden to the exclusion ofthe other.' The client benefits from the lien resolution, while the plaintiffs attorney benefits by being relieved of having to represent the client in an area of law with which she may be unskilled or unfamiliar. The end result benefits both the attorney and the client. The attorney is not burdened with the difficulties oflien resolution and can focus on the areas in which she has true expertise, and the client's lien-related interests are represented by those with specialized knowledge and expertise in such claims, thereby optimizing recovery. The accepted practice in personal injury matters when the client's case requires ancillary legal services related to other specialized fields oflaw, such as bankruptcy, the calculation of Medicare Set Aside accounts, and disability planning (e.g., special needs trusts), is to charge the fee for said services as a disbursement against the entire proceeds of the settlement. Fees incurred in the resolution of complex Medicare, Medicaid, and private healthcare liens may be charged in the same manner provided certain conditions and safeguards are met: (A) At the outset ofthe representation, the retainer agreement with the client provides that the attorney may engage an outside law firm for lien resolution and that the fee for said service will be charged as a disbursement. Counsel seeking to charge a lien resolution fee as a disbursement must consider the timing and notification given to the client. A client will likely object to bearing a cost that has only been brought to her attention late in the course ofher case. As a result, courts, ethics boards, and committees have taken a dim view of costs or fees that are sprung upon the client after the 'When any disbursement (such as the cost of lien resolution) is charged to a case, the net recovery is reduced by the amount ofthe disbursement. Because the attorney's fee is based on the net recovery, the attorney's fee is likewise reduced by the added amount ofthe disbursement. Thus, the additional disbursement is shared by the client and the attorney in the same proportion that the fee is taken. For example, if a $ disbursement is charged to a file on a 33.3 percent contingency fee case, the net recovery is reduced by $ , and the attorney's fee is reduced by $ Thus, the attorney absorbs $ of the disbursement in the form of reduction of the fee and the client's net share is reduced by $ Page 23

24 parties have signed a fee agreement. Epstein Reiss & Goodman v. Greenfield, 102 A.D.2d 749, 476 N.Y.S.2d 885 (I'' Dept.1984); Morrison Cohen Singer & Weinstein, LLP v. Brophy, 19 A.D.3d 161,798 N.Y.S.2d 379 (!'' Dept. 2005); ABA Opinion No ; Maryland State Bar Assoc., Committee on Ethics, Op. No The burden of establishing the existence of a retainer contract, with full knowledge by the client of all material circumstances, is on the attorney. (Matter of Howell, 215 N.Y. 466, 109 N.E. 572 (1915); Kiser v. Bailey, 92 Misc.2d 435,400 N.Y.S.2d 312 (1977); see also Whitehead v. Kennedy, 69 N.Y. 462 (1877)). For this reason, it is necessary that the original fee agreement incorporate and that the client understand that the attorney may, at his discretion, obtain outside expertise on the matter oflien resolution and that the cost may be charged as a disbursement. Specialized lien counsel often insures their services against future lien claims for which the attorney may be held liable. Relieving counsel of responsibility for future lien claims is a benefit to the attorney and not an assurance to the client and should be disclosed in the retainer agreement as well. (B) The actual charges are passed on to the client at cost and said charges must be reasonable. In assigning these costs to the client as a disbursement, the arrangement must comply with substantive law, as well as the Code. First and foremost, the cost ofoutsourcing lien resolution on any claim must be "reasonable" under DR 2-106, which proscribes "excessive" fees. Some may question whether any such assignment of this cost could be ethical, as lien resolution has traditionally been included as a part of the overall contingency fee. ABA Op. No offers some concise guidance: the client may only be assigned the actual cost ofthe services provided, without any surcharge added by the attorney. ABA provides that no surcharge can be added by the lawyers absent informed consent by the client. The court has inherent authority to review such a fee for reasonableness, Gair v. Peck, 6 N.Y.2d 97, 188 N.Y.S.2d 491 (1959), cert. denied, 361 U.S. 374, 80S. Ct. 401 (1960). (C) The transaction results in a net benefit to the client on each lien negotiated. The reasonableness of the fee depends on the net benefit to the client. A lawyer who outsources a complex lien problem to another attorney who, in tum, resolves it for a fraction ofthe lien amount, gains a net benefit to her client. As such the additional fee is justified. The overall outsourcing of lien resolution must benefit the client. It would not be reasonable for a client to be asked to pay an additional fee for lien resolution in excess ofthe benefit to the client. For example, it would not be reasonable for a lawyer to post a disbursement in an additional amount of, say, $10,000, in order to negotiate a lien of $5,000. Any risk of miscalculation should fall upon the lawyer, as fiduciary, and not the client. 5 Page 24

25 It should be noted that some ofthese law firms require prepayment for their services. Ifthe result of the lien resolution is less than the entire fee, the attorney may not charge this fee as a disbursement. Before initiating use ofsuch a service, the referring counsel is expected to evaluate the size and complexity of the lien to determine if said service will be of real value to the client. Ultimately, the attorney who outsources negotiation of a lien for a pre-determined fee should be solely responsible for said fee. Ifthe service fails to reduce the lien by an amount that exceeds its fee the attorney bears the risk. (This restriction serves to prevent the automatic reflexive referral ofliens issues to outside counsel, where the case does not merit it.) (D) The transaction complies with all principles of substantive law, including the fee limitations on contingent fees in the New York Judiciary Law and Appellate Division rules. Whether Medicare, Medicaid and Healthcare lien resolution is included in the scope of the usual personal injury contingency fee retainer agreement is a mixed question of law and of ethics. This Committee only has jurisdiction to interpret the Lawyer's Code ofprofessional Responsibility. To the extent that fees charged for lien resolution present a question of law, this committee does not have jurisdiction to resolve legal issues. The New York Judiciary Law (principally, Sees. 474 and 474-a) and the rules of the Appellate Divisions set maximum fees in contingency fee cases for personal injury plaintiffs. (See, 22 N.Y.C.R.R ; 22 N.Y.C.R.R ; 22 N.Y.C.R.R ;22 N.Y.C.R.R ; and 22 NYCRR et seq.). Federal law and rules impose limits on contingency fees in claims against the United States and its subdivisions. This Committee does not have jurisdiction to interpret the Judiciary Law, Appellate Division rules, or federal law and rules, but does note that a lawyer who charges a fee in excess of the fees permitted, will have acted both unethically and illegally. (E) The referring attorney remains responsible for the overall work product. DR 6-10 I of the Lawyers Code ofprofessional Responsibility requires an attorney to act competently. If a lawyer "knows or should know that he or she is not competent to handle [a matter, he or she should... ] associate with a lawyer who is competent to handle it." This Rule encourages attorneys to associate with more knowledgeable peers when confronted with issues beyond their abilities, and appears to facially encourage bringing in lien resolution specialists if the attorney thinks it would be necessary or beneficial to the client's interests. As a matter of common sense, if an outside lien resolution firm is utilized, the attorney should properly investigate the firm he chooses. It is important that the lien resolution firm be familiar with the various aspects of the relevant law, with the professionals being employed of particular importance. Lien resolution outsourcing may be more appropriately classified as an expense if the firm employs experts who are familiar with the lien resolution process, such as former case workers from the Medicare and Medicaid system, healthcare data processing 6 Page 25

26 professionals, and billing and coding experts. The firm retained must be capable ofcomplying with the appropriate standard of care. Failure to secure the services ofa competent firm will not relieve an attorney ofany liability for lien resolution, and may actually increase it. Similar Decisions Our research suggests that this is an inquiry of first impression in New York. However, some guidance is furnished by New York State Ethics Opinion 769 (Nov. 4, 2003), in which the New York State Bar Association opined that an attorney may represent a personal injury contingency fee client in securing financing for the costs of their case. Based on the assumption that the original contingency fee agreement only contemplated representation in the underlying personal injury matter, and did not contemplate the proposed transaction with the financing company, the attorney's work in connection with the financing transaction "would be a new and different matter for which the attorney may appropriately charge a separate fee," provided that the fee is not excessive and does not exceed the maximum contingency fee under the appellate division rules (22 NYCRR 603.7(e)). Thus, the State Bar opined that while the attorney could charge an additional fee, the fees must not exceed the maximum fees set by the Appellate Division. Moreover, the lawyer must guard against conflicts between the interests ofthe client and the attorney herself. Here, some ofthe logic of NY State 769 is instructive, although not controlling. The client's lien can often be distinct from the subject matter of the tort which the plaintiffs' attorney is retained to prosecute. The client's obligation to satisfy any existing liens does not directly arise out ofthe client's claim against a tortfeasor. Rather, these obligations arise out of a preexisting contract (private health insurance) between the client and the health plan, or by a statutory 'assignment of rights' that occurs when a recipient ofgovernment-paid (Medicaid or Medicare) healthcare receives medical services. Thus, the two representations are distinct. Conclusion: The fee for a specialty firm to handle the resolution of a complex Medicare, Medicaid or private healthcare lien on a settled lawsuit may be charged as a client disbursement provided: (a) that at the outset of the representation, the Retainer Agreement with the client provides that the attorney may do so, and that the client has given informed consent thereto; (b) the actual charges are passed on to the client at cost (without any overage or surcharge) and the actual charges are reasonable; (c) the transaction results is a net benefit to the client; (d) the transaction complies with all principles of substantive law, including the fee limitations on contingent fees in the New York Judiciary Law and Appellate Division rules; and (e) the referring attorney remains responsible for the overall work product. 7 Page 26

27 \lr{j e ~uprem e <!Court of {Ji.o BOARD OF COMMISSIONERS ON GRIEVANCES AND DISCIPLINE 65 SotJfH FRONTSTREET, s"" FLOOR, COLUMBUS, OH (614) (888) FAX' (614) OFFICE OF SECRETARY OPINION Issued December 4, 2009 SYLLABUS: If a plaintiffs personal injury lawyer retains an outside law firm to provide health care lien resolution services in a settled matter, the plaintiffs. lawyer may use professional judgment as to whether to charge the client for the service as part of the contingent fee or as an expense of litigation. Either way, the client's consent to the outsourcing and the fee arrangement must be obtained prior to outsourcing the service. Either way, the fees and expenses must be reasonable, not excessive. Either way, the nature and basis of the fee arrangement must be communicated to the client and pursuant to Rule 1.5( c) a contingency fee agreement must be in writing. If the outsourced legal fee is included as part of a contingency fee, there is a division of fee among lawyers not in the same firm and that triggers the requirements ofrule I.S(e). Ifthe outsourced service is charged to the client as a litigation expense, the contingency fee rate must be appropriately set to not result in a duplicative and excessive legal fee charged to a client for a service that is billed separately as an expense. OPINION: This opinion addresses the proper way for a plaintiff's personal mjury lawyer to bill a client when health care lien resolution services in ~ettled matter are outsourced to another Jaw firm. If a plaintiffs personal injury lav..yer retains an outside law firm to provide health care lien resolution services in a settled matter, is it proper for the plaintiffs la.,vyer to charge the client for the outsourced services as an expense of litigation? For years, plaintiffs personal injury lawyers have been resolving Medicare, Medicaid, employee health insurance, and private health insurance liens on settled lawsuits. Customarily, health care lien resolution has been included in the legal services performed by a personal injury attorney and covered by the contingent fee. Now, some lawyers are limiting their law practices to or concentrating in health care lien resolution services. And, some personal injury attorneys in some personal injury matters may be interested in outsourcing to these lawyers who concentrate in health care lien resolution services. Page 27

28 Op Reasons for choosing to or not to outsource health care lien resolution services may vary among personal injury lawyers. But, factors may include the time involved in resolving liens, as well as the complexity of Medicare laws, Medicaid laws, Employee Retirement Income Security Act (ERISA), and state insurance Jaws. ln New York, there is an advisory opinion addressing the issue of whether fees for counsel retained to negotiate a plaintiffs complex Medicare, Medicaid or private health insurance lien may be charged to the settlement as a disbursement. In Op. 739, the Professional Ethics Committee of the New York County Lawyers' Association advised: "It is ethically permissible for a plaintiff's personal injury attorney to retain a specialty firm to handle the resolution of a Medicare, Medicaid or private healthcare lien on a settled lawsuit. Under the following conditions, the fee for said outside service may be charged as a disbursement against the total proceeds ofthe settlement: (a) at the outset of the representation, the Retainer Agreement with the client provides that the attorney may do so, and the client has given informed consent thereto; (b) the actual charges are passed on to the client at cost (without an overage or surcharge) and must be reasonable; (c) the transaction results in a net benefit to the client on each lien negotiated; (d) the transition complies with all the principles of substantive law, including the fee limitations on contingent fees in the New York Judiciary Law and Appellate Division rules; and (e) the referring attorney remains responsible for the overall work product." 1 In Ohio, the exact issue presented has not been addressed, but the issue of outsourcing legal services has been addressed. In Op , the Board advised that "[t]he Ohio Rules of Professional Conduct do not prohibit an Ohio lawyer or law firm from outsourcing legal or support services domestically or abroad, either directly to lawyers or nonla vyers or indirectly through an inde~endent service provider, but applicable rules do impose significant ethical requirements." Opinion should be read in its entirety, but a recap of the significant ethical requirements is provided herein. First, "[p)ursuant to Prof. Cond. Rules 1.4(a)(2), l.2(a), and 1.6(a), a lawyer is required to disclose and consult with a client and obtain informed consent before outsourcing legal or support services to lawyers or nonlawyers." Second, "[p]ursuant to Prof. Cond. Rules S.l(c)(l), 5.3(a), and 5.3(c)(l), a lawyer who outsources legal or support services has responsibility for another lawyer's violation ofprofessional obligations if the outsourcing lawyer orders, or witl1 specific knowledge of the conduct, ratifies the conduct involved; has responsibility to make reasonable efforts to ensure that a nonlawyer's conduct is compatible with the professional obligations of the lawyer; and is responsible for a nonlawyer's conduct if the outsourcing lawyer orders or, with knowledge of the specific conduct, ratifies the conduct involved." Third, "[p]ursuant to Prof. Cond. Rules I.S(a) and I.S(b), a lawyer is required to establish fees and expenses that are reasonable, not excessive, and to communicate to the client the basis or rate of the fee and expenses." 1 New York Lawyers' Assn., Op. 739 (2008). 2 Ohio SupCt, Bd Comm'rs on Grievances & Discipline, Op (2009). Page 28

29 Op The advice offered in Op helps guide the Board's advice as to whether it is proper for a plaintiff's la>vyer to charge a client for outsourced health care lien resolution services as an expense of litigation or as part of the contingency fee. In Op , the Board concluded that "neither the mles nor the comments to the mles direct that billing be one way or the other" and advised that "[t]he decision as to whether to bill a client for outsourced services as part of the legal fee or as an expense is left to a lawyer' s exercise of professional judgment, but in either instance, if any amount beyond cost is added, it must be reasonable, such as a reasonable amount to cover a lawyer's supervision of the outsourced services. The decision must be communicated to the client preferably in writing, before or within a reasonable time after commencing the representation, unless the lav.'yer will charge a client whom the lawyer has regularly represented on the same basis as previously charged." 3 Thus, either way, whether charging the cost ofoutsourced lien resolution services as part of the contingency fee or as an expense of litigation, the fees and expenses must be reasonable, not excessive; the basis and rate must be disclosed to the client; and pursuant to Prof. Cond. Rule 1.5(c) a contingency fee agreement must be in writing. Further, if the outsourced service is charged to the client as part of a lawyer's contingency fee, there is a division of fees with attorneys not in the same firm triggering the requirements of Prof. Cond. RuJe 1.5(e). If the outsourced service is charged to the client as a litigation expense, the contingency fee rate must be appropriately set to not result in a duplicative and excessive legal fee charged to a client for a service that is billed separately as an expense. In conclusion, the Board advises as follows. Ifa plaintiff's personal injury lawyer retains an outside law firm to provide health care lien resolution services in a settled matter, the plaintiff's lawyer may use professional judgment as to whether to charge the client for the service as part of the contingent fee or as an expense of litigation. Either way, the client's consent to the outsourcing and the fee arrangement must be obtained prior to outsourcing the service. Either way, the fees and expenses must be reasonable, not excessive. Either way, the nature and basis of the fee arrangement must be communicated to the client and pursuant to RuJe 1.5(c) a contingency fee agreement must be in writing. If the outsourced legal fee is included as part ofa contingency fee, there is a division offee among lawyers not in the same firm and that triggers the requirements of Rule 1.5(e). If the outsourced service is charged to the client as a litigation expense, the contingency fee rate must be appropriately set to not result in a duplicative and excessive legal fee charged to a client for a service that is billed separately as an expense. Advisory Opinions of the Board ofcommissioners on Grievances and Discipline are infonnal, nonbinding opinions in response to prospective or hypothetical questions regarding the application of the Supreme Court Rules for the Government of the Bar of Ohio, the Supreme Court Rules for the Government of the Judiciary, the Ohio Rules of Professional Conduct, the Ohio Code of Judicial Conduct, and the Attorney's Oath ofoffice. 3 Id. Page 29

30 The Supreme Court of Ohio BOARD OF COMMISSIONERS ON GRIEVANCES AND DISCIPLINE 65 SOUTH FRONT STREET, 5 TH FLOOR, COLUMBUS, OH (614) (888) FAX: (614) OFFICE OF SECRETARY OPINION Issued August 14, 2009 SYLLABUS: The Ohio Rules of Professional Conduct do not prohibit an Ohio lawyer or law firm from outsourcing legal or support services domestically or abroad, either directly to lawyers or nonlawyers or indirectly through an independent service provider, but applicable rules do impose significant ethical requirements. Pursuant to Prof. Cond. Rules 1.4(a)(2), 1.2(a), and 1.6(a), a lawyer is required to disclose and consult with a client and obtain informed consent before outsourcing legal or support services to lawyers or nonlawyers. Disclosure, consultation, and informed consent is not necessary in the narrow circumstance where a lawyer or law firm temporarily engages the services of a nonlawyer to work inside the law firm on a legal matter under the close supervision and control of a lawyer in the firm, such as when a sudden illness of an employee requires a temporary replacement who functions as an employee of the law firm. Outside this narrow circumstance, disclosure, consultation, and consent are the required ethical practice. Pursuant to Prof. Cond. Rules 5.1(c)(1), 5.3(a), and 5.3(c)(1), a lawyer who outsources legal or support services has responsibility for another lawyer s violation of professional obligations if the outsourcing lawyer orders, or with specific knowledge of the conduct, ratifies the conduct involved; has responsibility to make reasonable efforts to ensure that a nonlawyer s conduct is compatible with the professional obligations of the lawyer; and is responsible for a nonlawyer s conduct if the outsourcing lawyer orders or, with knowledge of the specific conduct, ratifies the conduct involved. The extent of supervision for outsourced services is a matter of professional judgment for an Ohio lawyer, but requires due diligence as to the qualifications and reputation of those to whom services are outsourced and as to whether the requested outsourced services will be provided with competence and diligence as required by Prof. Cond. Rules 1.1 and 1.3, confidences will be protected as required by Prof. Cond. Rule 1.6, and conflicts of interest will be avoided as required by Prof. Cond. Rules 1.7, 1.9, and Page 30

31 Op Pursuant to Prof. Cond. Rules 1.5(a) and 1.5(b), a lawyer is required to establish fees and expenses that are reasonable, not excessive, and to communicate to the client the basis or rate of the fee and expenses; these requirements apply to legal and support services outsourced domestically or abroad. The decision as to whether to bill a client for outsourced services as part of the legal fee or as an expense is left to a lawyer s exercise of professional judgment, but in either instance, if any amount beyond cost is added, it must be reasonable, such as a reasonable amount to cover a lawyer s supervision of the outsourced services. The decision must be communicated to the client preferably in writing, before or within a reasonable time after commencing the representation, unless the lawyer will charge a client whom the lawyer has regularly represented on the same basis as previously charged. OPINION: This opinion addresses a question regarding the ethical propriety of outsourcing legal and support services. Is it proper for an Ohio lawyer or law firm to outsource legal or support services domestically or abroad, either directly to lawyers or nonlawyers or indirectly through an independent service provider? The outsourcing of legal and support services by lawyers and law firms is not an entirely new phenomenon. In 1990, the Board considered the ethical propriety of a proposed business venture that would provide lawyers, law firms, sole practitioners, and corporate legal departments with the placement and use of temporary lawyers, advising that it is ethical so long as the business venture operates within certain narrow, ethical guidelines. 1 In 2009, the Board now considers the ethical propriety of a lawyer or law firm outsourcing legal and support services abroad as well as domestically. The providers of legal outsourcing services attractively market to lawyers and law firms the availability of a large variety of services. Preparation of trial or appellate briefs, drafting of pleadings or motions, document review, legal research, and deposition or trial summaries are examples of services offered. The Ohio Rules of Professional Conduct do not address economic or public policy implications of outsourcing legal services, neither does this advisory opinion. The pros and cons of outsourcing are subject to discussion by the bar and others 2 1 Ohio SupCt, Bd Comm rs on Grievances & Discipline, Op (1990). 2 See e.g. Bruce A. Campbell, Harold and Kumar PLUNGE Into Legal Waters, Columbus Bar Lawyers Quarterly 6 (Spring 2009); K. William Gibson, Outsourcing Legal Services Abroad, 34 No. 5 Law Prac. 47 (2008); Nira J. Sheth & Nathan Koppel, With Times Tight, Even Lawyers Get Outsourced, Wall St. J. (Nov. 26, 2008); Suzanne Barlyn, Call My Lawyer... in India, Time, Apr. 3, 2008; Laura D Allaird, The Indian Lawyer : Legal Education in India and Protecting the Duty of Confidentiality While Outsourcing, 18 No. 3 Prof.Law. 1 (2007); Keith Woffinden, Surfing the Next Wave of Outsourcing: The Ethics of Sending Domestic Legal Work to Foreign Countries Under New York City Opinion , BYU L. Rev. 483 (2007); Vijay V. Page 31

32 Op but are not under consideration in this advisory opinion. Discussion as to whether a particular outsourcing service involves the unauthorized practice of law is also not under consideration in this opinion. For purposes of this opinion, legal services include but are not limited to document review, legal research and writing, and preparation of briefs, pleadings, legal documents. Support services include, but are not limited to ministerial services such as transcribing, compiling, collating, and copying. Applicable rules The Ohio Rules of Professional Conduct do not prohibit a lawyer or law firm from obtaining legal and support services from lawyers or nonlawyers outside the law firm, but applicable rules do place significant ethical requirements upon outsourcing services, whether domestically or abroad. Disclosure of an outsourcing relationship is subject to Prof. Cond. Rules 1.4(a)(2) and 1.2(a). Protection of client confidences is governed by Prof. Cond. Rule 1.6. Supervision of outsourced services is governed by Prof. Cond. Rules 5.1 and 5.3. Fees for outsourced legal and nonlegal support services are governed by Prof. Cond. Rule 1.5. The implication of these rules is discussed below. Disclosure, consultation, and informed consent Prof. Cond. Rules 1.4(a)(2) and 1.2(a) provide the ethical basis for requiring disclosure to a client before outsourcing legal services to lawyers outside the law firm. Prof. Cond. Rule 1.4(a)(2) requires a lawyer to reasonably consult with the client about the means by which the client s objectives are to be accomplished. Prof. Cond. Rule 1.0(i) states [r]easonable or reasonably when used in relation to conduct by a lawyer denotes the conduct of a reasonably prudent and competent lawyer. Prof. Cond. Rule 1.2(a) requires, with exceptions not applicable herein, that a lawyer shall abide by a client s decisions concerning the objectives of representation and, as required by Rule 1.4, shall consult with the client as to the means by which they are to be pursued. Prof. Cond. Rule 1.6 provides the ethical basis for requiring a client s informed consent to be obtained before revealing information relating to the representation by outsourcing services. Prof. Cond. Rule 1.6(a) requires: A lawyer shall not reveal information relating to the representation of a client, including information protected by the attorney-client privilege under applicable law, unless the client gives informed consent, the disclosure is impliedly authorized in order to carry out the representation, or the disclosure is permitted by division (b) or required by division (c) of this rule. [Neither the disclosure Bondada & Ram Vasudevan, Erasing the Hurdles: Offshore Outsourcing of Litigation Services, Mealey s Litigation Report: Discovery, Vol. 3, #6 (Mar. 2006). Page 32

33 Op permitted by division (b) nor required by division (c) of this rule are at issue in this opinion and are not addressed further herein.] By application of these rules, disclosure and consultation with a client and informed consent by a client is required before outsourcing legal and support services. Pursuant to Prof. Cond. Rules 1.4(a)(2) and 1.2(a), the means by which a client s objectives are to be accomplished encompass a lawyer s or law firm s decision to use the assistance of lawyers and nonlawyers outside the law firm to provide legal and support services in a representation. For some clients, a lawyer s or law firm s decision to outsource legal or nonlegal support services may be a deciding factor in whether or not to engage the services of the lawyer or the law firm. In consultation with a client regarding whether legal and support services will be outsourced to lawyers or nonlawyers, the lawyer or law firm must be clear to the client about the arrangement, including providing disclosure as to whether the outsourcing will be direct to a lawyer or nonlawyer or through an independent service provider. Upon consulting with the client, a client s decision as to outsourcing should be respected by the lawyer or law firm. Further, consultation should include discussion of the measures a law firm has taken or will take to inform those providing the outsourced support services of the necessary requirements of confidentiality. Pursuant to Prof. Cond. Rule 1.6(a), a client s consent is required before revealing information relating to a representation. Whenever Ohio lawyers or law firms outsource legal or support services domestically or abroad, either directly to lawyers or nonlawyers or indirectly through an independent service provider, information is revealed. Exposure of information relating to a representation may be more likely when legal services, rather than support services, are outsourced; but, like the outsourcing of legal services, the outsourcing of support services, such as photocopying, poses a risk of revealing information relating to a client s representation. Although one might contend that revelation of information through outsourcing of services is impliedly authorized to carry out a representation, such contention fails to pass ethical muster. Client confidentiality is a hallmark of the attorney client relationship. When a client engages the services of a law firm there is justifiable expectation that confidences remain within the law firm. The client has selected the law firm to be the protector of the information related to the representation. Thus, a client s informed consent is required before information related to the representation is revealed by outsourcing to lawyers and nonlawyers outside the law firm. As a practical matter, the ethical requirement of disclosure, consultation, and informed consent is not necessary when a lawyer or law firm temporarily engages the services of a nonlawyer to work on a legal matter within the law firm under Page 33

34 Op the close supervision and control of a lawyer in the firm. For example, when a nonlawyer employee of the law firm is ill and must be replaced suddenly on a temporary basis within the firm. Under such circumstances, the nonlawyer functions as an employee within the law firm under the same conditions of supervision as an employee. Outside this narrow circumstance, disclosure, and informed consent is the required ethical practice. As advised by the American Bar Association, Standing Committee on Ethics and Professional Responsibility appropriate disclosures should be made to the client regarding the use of lawyers or nonlawyers outside of the lawyer s firm, and client consent should be obtained if those lawyers or nonlawyers will be receiving information protected by Rule Ethic committees in several states have advised on the ethical obligation of disclosing outsourcing. A North Carolina State Bar ethics committee advised that the lawyer has an ethical obligation to disclose the use of foreign, or other, assistants and to obtain the client s written informed consent to the outsourcing. In the absence of a specific understanding between the lawyer and client to the contrary, the reasonable expectation of the client is that the lawyer retained by the client, using the resources with the lawyer s firm, will perform the requested legal services. 4 A Los Angeles County Bar Association ethics committee, addressing whether an attorney in a civil case may contract with an out-of-state legal research and brief drafting company to draft a brief, advised that an attorney may be required to inform the client of the nature and scope of the contract between attorney and out-of-state company if the brief provided is a significant development in the representation or if the work is a cost which must be disclosed to the client under California law. 5 A San Diego County Bar Association ethics committee stated its belief that in the absence of a specific understanding between the attorney and client to the contrary, the reasonable expectation of the client is that the attorney retained by the client, using the resources within the attorney s firm, will perform the work required to develop the legal theories and arguments to be presented to the trial court, and that the attorney will have a significant role in preparing correspondence and court filings. (Footnote omitted). 6 A Florida Bar ethics committee, in addressing the propriety of a lawyer engaging the services of an overseas provider to provide paralegal assistance advised that the law firm should obtain prior client consent to disclose information that the firm reasonably believes is necessary to serve the client s interests. 7 3 ABA, Formal Op (2008). 4 North Carolina State Bar, Formal Op. 12 (2007). 5 Los Angeles County Bar Assn., Op. 518 (2006). 6 San Diego Cty Bar Assn. Op (undated). 7 Florida Bar, Op (2008). Page 34

35 Op An ethics committee of the Association of the Bar of the City of New York, addressing a question regarding outsourcing of legal support services overseas to a foreign lawyer or a lay person, stated that [n]on-lawyers often play more limited roles in matters than contract or temporary lawyers do. Thus, there is little purpose in requiring a lawyer to reflexively inform a client every time that the lawyer intends to outsource legal support services overseas to a non-lawyer. But the presence of one or more additional considerations may alter the analysis: for example, if (a) non-lawyers will play a significant role in the matter, e.g., several non-lawyers are being hired to do an important document review; (b) client confidences and secrets must be shared with the non-lawyer, in which case informed advance consent should be secured from the client; (c) the client expects that only personnel employed by the law firm will handle the matter; or (d) non-lawyers are to be billed to the client on a basis other than cost, in which case the client s informed advance consent is needed. 8 In 1990, when this Board considered the use of temporary lawyers, the Board viewed disclosure as an ethical requirement under DR 5-107(A)(1), a rule stating that [e]xcept with the consent of his client after full disclosure, a lawyer shall not: [a]ccept compensation for his legal services from one other than his client. 9 DR 5-107(A)(1) is now superseded by Prof. Cond. Rule 1.8(f) which states in pertinent part [a] lawyer shall not accept compensation for representing a client from someone other than the client unless divisions (f)(1) to (3) and, if applicable division (f)(4) apply: (1) the client gives informed consent; (2) there is no interference with the lawyer s independence of professional judgment or with the client-lawyer relationship; (3) information relating to representation of a client is protected as required by Rule 1.6; (4) (omitted). Prof. Cond. Rule. 1.8(f), like DR 5-107(A)(1), addresses an ethical duty of a lawyer who receives compensation from one other than his or her client. Now, this Board s advice is that pursuant to Prof. Cond. Rules 1.4(a)(2), 1.2(a), and 1.6(a), a lawyer is required to disclose and consult with a client and obtain informed consent before outsourcing legal or support services to lawyers or nonlawyers. Disclosure, consultation, and informed consent is not necessary in the narrow circumstance where a lawyer or law firm temporarily engages the services of a nonlawyer to work inside the law firm on a legal matter under the close supervision and control of a lawyer in the firm, such as when a sudden illness of an employee requires a temporary replacement who functions as an employee of the law firm. Outside this narrow circumstance, disclosure, consultation, and consent are the required ethical practice. Responsibility for the conduct of persons providing outsourced services 8 Assn. Bar of City of New York, Formal Op (2006). 9 Ohio SupCt, Bd Comm rs on Grievances & Discipline, Op (1990). Page 35

36 Op Prof. Cond. Rules 5.1 and 5.3 place responsibilities upon Ohio lawyers as to the professional conduct of other lawyers and as to the conduct of nonlawyers. In pertinent part, Prof. Cond. Rule 5.1(c)(1) requires that [a] lawyer shall be responsible for another lawyer s violation of the Ohio Rules of Professional Conduct if... the lawyer orders or, with knowledge of the specific conduct, ratifies the conduct involved. In pertinent part, Prof. Cond. Rule 5.3(a) requires with respect to a nonlawyer employed by, retained by, or associated with a lawyer,... a lawyer who individually or together with other lawyers possesses managerial authority in a law firm... shall make reasonable efforts to ensure that the firm... has in effect measures giving reasonable assurance that the person s conduct is compatible with the professional obligations of the lawyer. In pertinent part, Prof. Cond. Rule 5.3(c)(1) requires that [w]ith respect to a nonlawyer employed by, retained by, or associated with a lawyer,... a lawyer shall be responsible for conduct of such a person that would be a violation of the Ohio Rules of Professional Conduct if engaged in by a lawyer if... the lawyer orders or, with the knowledge of the specific conduct, ratifies the conduct involved. Thus, pursuant to Prof. Cond. Rules 5.1(c)(1), 5.3(a), and 5.3(c)(1), a lawyer who outsources legal or support services has responsibility for another lawyer s violation of professional obligations if the outsourcing lawyer orders, or with knowledge of the specific conduct, ratifies the conduct involved; has responsibility to make reasonable efforts to ensure that a nonlawyer s conduct is compatible with the professional obligations of the lawyer; and is responsible for a nonlawyer s conduct if the outsourcing lawyer orders or, with knowledge of the specific conduct, ratifies the conduct involved. The ABA, Standing Committee on Ethics and Professional Responsibility, acknowledged that an outsourcing lawyer has a responsibility of supervision. The ABA committee advised: A lawyer may outsource legal or nonlegal support services provided the lawyer remains ultimately responsible for rendering competent legal services to the client under Model Rule 1.1. In complying with her Rule 1.1 obligations, a lawyer who engages lawyers or nonlawyers to provide outsourced legal or nonlegal services is required to comply with Rules 5.1 and 5.3. She should make reasonable efforts to ensure that the conduct of the lawyers or nonlawyers to whom tasks are outsourced is compatible with her own professional obligations as a lawyer with direct supervisory authority over them. 10 The ABA opinion provided rigorous, if not onerous, suggestions for lawyers to meet the challenges of ensuring tasks are delegated to competent individuals and 10 ABA, Formal Op (2008). Page 36

37 Op overseeing appropriately the execution of the projects. Examples include: conducting reference checks; investigating the background of a lawyer or nonlawyer and any nonlawyer intermediary; investigating the security of the provider s premises, the computer network, the recycling and refuse disposal procedures, and in some instances visiting the premises; assessing the system of legal education under which the lawyers were trained; evaluating the professional regulatory system; giving consideration to the legal landscape of the nation; and evaluating the judicial system of the county in question. 11 It is the Board s view that pursuant to Prof. Cond. Rules 5.1(c)(1), 5.3(a) and 5.3(c)(1), a lawyer who outsources legal or support services has responsibility for another lawyer s violation of professional obligations if the outsourcing lawyer orders, or with specific knowledge of the conduct, ratifies the conduct involved; has responsibility to make reasonable efforts to ensure that a nonlawyer s conduct is compatible with the professional obligations of the lawyer; and is responsible for a nonlawyer s conduct if the outsourcing lawyer orders or, with knowledge of the specific conduct, ratifies the conduct involved. The extent of supervision for outsourced services is a matter of professional judgment for an Ohio lawyer, but requires due diligence as to the qualifications and reputation of those to whom services are outsourced and as to whether the requested outsourced services will be provided with competence and diligence as required by Prof. Cond. Rules 1.1 and 1.3, confidences will be protected as required by Prof. Cond. Rule 1.6, and conflicts of interest will be avoided as required by Prof. Cond. Rules 1.7, 1.9, and Fees for outsourced legal and nonlegal support services Prof. Cond. Rule 1.5 governs fees and expenses. Prof. Cond. Rule 1.5(a) requires, in pertinent part, [a] lawyer shall not make an agreement for, charge, or collect an illegal or clearly excessive fee. A fee is clearly excessive when, after a review of the facts, a lawyer of ordinary prudence would be left with a definite and firm conviction that the fee is in excess of a reasonable fee. Prof. Cond. Rule 1.5(b) requires that [t]he nature and scope of the representation and the basis or rate of the fee and expenses for which the client will be responsible shall be communicated to the client, preferably in writing, before or within a reasonable time after commencing the representation, unless the lawyer will charge a client whom the lawyer has regularly represented on the same basis as previously charged. Any change in the basis or rate of the fee or expenses is subject to division (a) of this rule and shall promptly be communicated to the client, preferably in writing. 11 ABA, Formal Op (2008) at 3-4. Page 37

38 Op Comment [2] to Prof. Cond. Rule 1.5 explains: Unless the situation involves a regularly represented client, the lawyer should furnish the client with at least a simple memorandum or copy of the lawyer s customary fee arrangements that states the general nature of the legal services to be provided, the basis, rate, or total amount of the fee, and whether and to what extent the client will be responsible for any costs, expenses, or disbursements in the course of the representation. So long as the client agrees in advance, a lawyer may seek reimbursement for the reasonable costs of services performed in house, such as copying. In short, Rule 1.5 requires that a fee be reasonable, not excessive, and that the basis or rate of the fee and expenses be communicated to a client, preferably in writing. The rules and commentary do not specifically answer whether an outsourced legal or support service should be billed to the client as a legal fee or as an expense and whether the addition of an amount beyond the cost of the outsourced services is appropriate in either instance. In Formal Op , the ABA Standing Committee on Ethics and Professional Responsibility advised that in outsourcing legal or nonlegal support services [t]he fees charged must be reasonable and otherwise in compliance with Rule 1.5 but, left to a lawyer s professional judgment the decision as to whether to bill for outsourced legal or support services as a legal fee or an expense. 12 In Formal Op , the ABA Standing Committee on Ethics and Professional Responsibility also addressed the issue of adding a surcharge to the actual costs of the outsourced services. The committee applied to outsourcing, the advice it offered in Formal Op as to temporary lawyers as well as the advice offered in Formal Op as to billing for professional fees, disbursements and other expenses. [A] law firm that engaged a contract lawyer could add a surcharge to the cost paid by the billing lawyer provided the total charge represented a reasonable fee for the services provided to the client.... If the firm decides to pass those costs through to the client as a disbursement, however, no mark-up is permitted. In the absence of an agreement with the client authorizing a greater charge, the lawyer may bill the client only its actual cost plus a reasonable allocation of associated overhead, such as the amount the lawyer spent on any office space, support staff, equipment, and supplies for the individuals under contract. (Footnote omitted). The analysis is no different for other outsourced legal services, except that the overhead costs associated with the provision of such services may be minimal or nonexistent if and to the extent that the outsourced work is performed off-site without the need for infrastructural support. If that is true, the outsourced services should be billed at cost, plus a 12 ABA, Formal Op (2008). Page 38

39 Op reasonable allocation of the cost of supervising those services if not otherwise covered by the fees being charged for legal services. 13 A Florida ethics committee, addressing paralegal assistance through an overseas provider, relied on its previous advice offered in Consolidated Opinions and as to billing for nonlawyer personnel. The Florida ethics committee stated: [T]he lawyer should not in fact or effect duplicate charges for services of nonlawyer personnel, and if those charges are separately itemized, the salaries of such personnel employed by the lawyer should in some reasonable fashion be excluded from consideration as an overhead element in fixing the lawyer s own fee. If that exclusion cannot, as a practical matter, be accomplished in some rational and reasonably accurate fashion, then the charges for nonlawyer time should be credited against the lawyer s own fee. 14 A New York ethics committee expressed the view that [b]y definition, the nonlawyer performing legal support services overseas is not performing legal services. It is thus inappropriate for the New York lawyer to include the cost of outsourcing in his or her legal fees. See DR Absent a specific agreement with the client to the contrary, the lawyer should charge the client no more than the direct cost associated with outsourcing, plus a reasonable allocation of overhead expenses directly associated with providing that service. ABA Formal Opinion (1993). 15 In 1990, this Board, addressed ethical issues regarding the use of a temporary placement service, but did not address whether it was proper to bill a client for the services as an expense or as part of the fee. 16 In Op , the Board noted that the placement agency intended to receive compensation directly from the law firm as a fee based upon a percentage of the lawyer s compensation. The Board s view in Op , citing Formal Op of the Association of the Bar of the City of New York, was that because the agency provides services in locating, recruiting, screening, and placing lawyers those services are not a legal fee and that such a fee agreement to an agency does not constitute impermissible sharing of fees with nonlawyers. However, the issue of a placement agency receiving a percentage of a lawyer s legal fee is not before the Board now and the Board does not address that issue herein. Now, the Board s focus is on the appropriate way for a lawyer or law firm to bill a client when legal or nonlegal work is outsourced. The most straightforward approach, particularly when nonlegal support services as opposed to legal services are outsourced, may be for a lawyer or law firm to bill the client for the outsourced services as an expense based upon the actual cost of 13 Id. 14 Florida Bar, Op (2008). 15 Assn. Bar of City of New York (2006). 16 Ohio SupCt., Bd Comm rs on Grievances & Discipline, Op (1990). Page 39

40 Op the service to the law firm, with an adjustment if necessary to cover a lawyer or law firm s costs of supervision of the outsourced services. But, the Board concludes that neither the rules nor the comments to the rules direct that the billing be one way or the other; thus, the decision as to whether to bill a client for outsourced services as part of the legal fee or as an expense is left to a lawyer s exercise of professional judgment. Either method of billing must be in keeping with the general requirements of Rule 1.5(a) that the fee be reasonable and not excessive and Rule 1.5(b) that the basis or rate of the fee and expenses for which the client will be responsible shall be communicated to the client, preferably in writing, before or within a reasonable time after commencing the representation, unless the lawyer will charge a client whom the lawyer has regularly represented on the same basis as previously charged. To meet the requirement of Rule 1.5(a) that the fee not be excessive, a lawyer must not duplicate charges as both a fee and an expense. To meet the requirement of Rule 1.5(a) that the basis or rate of the fee and expense be communicated to the client, a lawyer will need to address with the client in the fee agreement how he or she will be charged for the outsourced service. Two disciplinary cases involving billing for nonlawyer employees of a law firm are reminders to lawyers that excessive billing is unethical. In Columbus Bar Assn. v. Mills, the Supreme Court of Ohio found, among other misconduct that Mills conduct of excessive billing and collection practices which included aggressively billing for secretarial, clerical, and other administrative activities violated DR 1-102(A)(6) (prohibiting a lawyer from engaging in conduct that adversely reflects on the lawyer s fitness to practice law) and DR 2-106(A) (prohibiting a lawyer from agreeing to charge or collecting an illegal or clearly excessive fee). 17 In Columbus Bar Assn. v. Brooks, the court found, among other misconduct, that by collecting for secretarial and law clerk expenses in addition to filing fees, deposition fees, and his thirty three percent of a settlement, Brooks did not adhere to his fee contract and thereby charged an excessive fee violating DR 2-106(A). 18 The court noted that [c]osts of litigation generally do not include secretarial charges or fees of paraprofessionals. Those costs are considered to be normal overhead subsumed in the percentage fee. In cases where legal services are contracted for at an hourly rate, an attorney s secretarial costs, except in unusual circumstances and then only when clearly agreed to, are part of overhead and should be reflected in the hourly rate. If an attorney charges separately for a legal assistant, the legal assistant s hourly charges should be stated and agreed to in writing Columbus Bar Assn. v. Mills, 109 Ohio St.3d 245, 249, 2006-Ohio Columbus Bar Assn. v. Brooks (1999), 87 Ohio St.3d 344, Id. at Page 40

41 Op Thus, it is the Board s view that pursuant to Prof. Cond. Rules 1.5(a) and 1.5(b), a lawyer is required to establish fees and expenses that are reasonable, not excessive, and to communicate to the client the basis or rate of the fee and expenses; these requirements apply to legal and support services outsourced domestically or abroad. The decision as to whether to bill a client for outsourced services as part of the legal fee or as an expense is left to a lawyer s exercise of professional judgment, but in either instance, if any amount beyond cost is added, it must be reasonable, such as a reasonable amount to cover a lawyer s supervision of the outsourced services. The decision must be communicated to the client preferably in writing, before or within a reasonable time after commencing the representation, unless the lawyer will charge a client whom the lawyer has regularly represented on the same basis as previously charged. Advisory Opinions of the Board of Commissioners on Grievances and Discipline are informal, nonbinding opinions in response to prospective or hypothetical questions regarding the application of the Supreme Court Rules for the Government of the Bar of Ohio, the Supreme Court Rules for the Government of the Judiciary, the Ohio Rules of Professional Conduct, the Ohio Code of Judicial Conduct, and the Attorney s Oath of Office. Page 41

42 "Tate G. Johnson" on 01/25/ :38:37 PM Please respond to "Tate G. Johnson" To: cc: Subject: Ethics matter - outsourcing healthcare lien resolution - Ethics Inquiry No Staff: Elizabeth Tarbert/The Florida Bar Hello Elizabeth, I am contacting you regarding the matter previously addressed by the Florida Bar in a Staff Opinion on the topic of healthcare lien resolution. I understand you likely have a very good feel for the issues, but I wanted to offer a few thoughts and some information that may be useful as the Bar continues to deliberate on this matter. I have been working with many of your members to clarify the issues involved. Most recently, we are working with David Prather and his firm on the matter, and he suggested I reach out to you and provide some of the materials I have previously given to him. In addition to Mr. Prather, we have talked extensively with Howard Coker, Ted Leopold, and several folks at Morgan (John Morgan and Scott Weinstein to name two) and provided them with some materials that may be of interest to the BOG. I have attached several of those documents to this I apologize for the volume, but I though it would be easier if you had all of these in one place. 1. Florida Ethics Staff Opinion this staff opinion was rendered in response to a request submitted by Attorney Barry Rigby. 2. Green Letter to Florida Bar Our firm retained Professor Bruce Green (well respected Ethics Professor at Fordham University School of Law) to draft a response to the Staff Opinion. We have worked with Professor Green on previous occasions where this issue has come up, and he was successful in getting a favorable ethics opinion in NY on the same topic. I was under the impression Howard Coker provided this to the Bar last year. 3. NY Professional Ethics Committee Opinion NY opinion exactly on point that establishes the ground rules for outsourcing lien resolution. 4. ABA Ethics Opinion ABA opinion that discusses outsourcing of legal services. 5. Lien Resolution Client Expense Memo this is our firm s white paper on the idea of charging the cost of lien resolution to the client file. This paper refers to the ABA and NY opinions as they establish the framework for outsourcing and passing the expense on to the client file. 6. Ohio Ethics Opinions on Point the first one is an opinion from Aug 2009 regarding outsourcing in general. The second one is a very recent opinion on the topic of outsourcing lien resolution and charging the expense to the client. These are both very supportive of outsourcing lien resolution and charging fee to client, with certain reasonable considerations. After you have a chance to review these documents, I would enjoy speaking with you to discuss any outstanding questions or concerns. Finally, I know there has been heavy discussion regarding the way in which any potential lien resolution fee is charged to the client. I want to make sure the Bar is absolutely clear that we are not suggesting any type of reverse contingency fees for lien resolution work. For obvious reasons, we charge flat fees and do not take an interest in the matter. We are a NEUTRAL, third party who is retained to satisfy the reimbursement obligation under the appropriate statute or contract. We understand our fees must be reasonable, ultimately benefit the client, and the client must give consent to our involvement. Page 42

43 Thanks very much and please let me know if we can be of any assistance as the Bar considers this matter. My best, Tate G. Johnson, Esq. Director, Business Development Garretson Firm Resolution Group, Inc Cooper Road Cincinnati, OH ph fx Page 43

44 BRUCE A. GREEN 140 West 62od Street New York, N.Y (212) June 24, 2009 Elizabeth Clark Tarbert Ethics Counsel The Florida Bar 651 E. Jefferson Street Tallahassee, Florida Re: Florida Bar Staff Opinion (Jan. 14, 2009) Dear Ms. Tarbert: I have been retained by The Garretson Firm to provide objective opinions regarding legal ethics issues relevant to Florida Bar Staff Opinion (Jan. 14, 2009) ("Staff Opinion"). The Staff Opinion addresses whether a lawyer who represents personal injury plaintiffil on a contingent~fee basis may retain an ancillary business to resolve health care liens on the plaintiffs' personal injury claims and charge for the business's services as an expense ofthe litigation. In my judgment, the Staff Opinion reasonably concluded that a personal injury law firm could not refer the resolution ofhealth care liens to an ancillary business in which the law firm had a financial interest and bill the work as a separate expense. However, the Staff Opinion ntight be read (or ntisread) to imply that it would also be improper for a personal injury lawyer to bill this work as an expense when it is performed by a lien resolution lirm in which the lawyer has no financial interest under circumstances where the lawyer is not equally qualified to perform this work. As discussed below, my opinion is that it would ordinarily be proper, as a New York bar opinion recently found, for a typical personal injury law firm to out-source lien resolution work to an unrelated firm. My suggestion is that the Staff Opinion be clarified to recognize this distinction. Professional credentials For purposes of providing opinions on relevant questions of legal ethics, I have Wldertaken specitic research and also drawn on my general background and experience, which are reflected in the enclosed curriculum vitae. I have familiarized myself with relevant ethics opinions of The Florida Bar, but my conclusions are based primarily on my understanding ofthe ABA Model Rules of Professional Conduct ("ABA Model Rules") and of generally applicable national understandings. My hope is that these views may be useful to The Florida Bar in interpreting provisions of the Florida Rules of Professional Conduct that derive from and parallel Page 44

45 the ABA Model Rules.' My professional credentials are, in summary, as follows. I am the Louis Stein Professor of Law at Fordham University School of Law, where I direct the Louis Stein Center for Law aod Ethics. Prior to joining Fordham's full-time faculty in 1987, I served as a law clerk to Judge James L. Oakes of the United States Court of Appeals for the Second Circuit~ as a law clerk to Justice Thurgood Marshall ofthe Supreme Court ofthe Uuited States, aod as ao Assistant United States Attorney for the Southern District ofnew York. I am admitted to practice law in New York, the United States District Courts for the Southern aod Eastern Districts ofnew York, the United States of Appeals for the Second Circuit, aod the Supreme Court of the United States. I have regularly taught courses in legal ethics at Fordham aod elsewhere since I speak frequently at CLE programs on legal ethics, aod I have written extensively on legal ethics. Additionally, I have engaged in various other professional work relating to legal ethics. Nationally, I serve on the ABA Standing Committee on Ethics and Professional Responsibility, on the Multistate Professional Responsibility Examination drafting committee, as co-chair ofthe ABA Criminal Justice Section's Committee on Ethics~ Gideon and Professionalism, and as Reporter to the ABA Task Force on Attorney-Client Privilege. I have previously served as chafr ofthe ABA Litigation Section's Committee on Ethics and Professionalism, as a member of the ABA Litigation Section 1 s Task Force on Settlement Ethics, as reporter to the ABA Commission on Multijurisdictional Practice, and as chair ofthe Section on Professional Responsibility ofthe Association ofamericao Law Schools. On the state and local level, I currently serve as a member and past chair of the New York State Bar Association's Committee on Professional Ethics, as a member ofthe New York State Bar Association's Committee on Standards of Attorney Conduct, aod on the board of advisors ofthe Ethics Institute ofthe New York County Lawyers' Association. I previously served on the Department Disciplinary Committee ofthe New York State Supreme Court, Appellate Division, First Department, and on the Committee on Professional and Judicial Ethics of the New York City Bar Association? Relevant facts I have not personally engaged in the work ofresolving health care liens in personal injury lawsuits or engaged in personal injury practice generally. My understanding of the nature ofthis work derives from facts provided to me by The Garretson Firm, to which I have previously 1 This is so particularly because, as noted in the Staff Opinion at p. 1, "there is no Florida precedent that directly answers the questions posed," and the opinion relies as its starting point on ABA Formal Opinion for "general conceptual backgronnd information regarding what attorneys are permitted to charge for.~' 2 I render this opinion in my individual capacity and do not speak on behalf of any of these or other entities. 2 Page 45

46 rendered an opinion regarding the issues addressed in this letter. The facts provided to me are considerably more extensive than those set forth in the Staff Opinion, and the difference between my conclusions and those in the Staff Letter may be attributable in part to our different factual assumptions. The relevant factual understandings on which I have been asked to rely are as follows. Traditionally, personal injury lawyers have looked to outside legal and non-legal specialists in order to effectively and competently address a myriad of complex issues that arise upon settlement or judgment. Such outside consultation hns generally occurred when issues related to bankruptcy, probate, tax, accounting, and disability planning atise as part ofthe settlement and disbursement process. Because litigating lawyers focus their time and efforts on establishing tort liability and damages, it is foreseeable that they may require outside assistance in the above-mentioned areas. The costs associated with such outside consultation have generally been charged to the client as an expense, and not absorbed by the lawyer. Much like the foregoing specialized areas, the body of law surrounding health care lien resolution has become increasingly complex, requiring extensive knowledge and expertise not typically found in plaintiffs' law firms. Medicare, Medicaid, and ERJSA present a complex web of federal and state laws and regulations requiring significant compliance efforts by personal injury lawyers. Additionally, in May 2006 alone, the U.S. Supreme Court issued two opinions which drastically impacted the rules regarding lien resolution. Liability falls on the lawyer to ensure that all healthcare liens are reimbursed in accordance with the law, placing additional risk on the lawyer that does not exist in the absence of healthcare liens. The tbur major entities likely to have a lien on a personal injury claim (Medicare, Medicaid, employee health plan, and private health insurance) are each governed by a different body oflaw (federal Medicare code, state Medicaid code, ERJSA, and state insurance law, respectively). Further, the rules governing each, and the opinions interpreting them, are constantly in flux. Without a proper, running knowledge ofthese laws and without the in-house knowledge to evaluate the plan correctly, a lawyer may represcot a client inadequately and is exposed to significant professional risk. Ifthe lawyer unwittingly declines to pay a valid lien, he will expose his client to future litigation and loss of health care coverage; ifhe overpays or pays an invalid lien, he is liable for malpractice; ifthe lawyer fails to discover or pay ao out tanding Medicare lien, he can be held personally liable for twice the amount ofthe original lien, plus interest, under 42 U.S.C. 1395y(b)(2)(B)(ii-iii). Under applicable ethics rules, the lawyer may have a duty to hold disputed funds (e.g., the lien amount) in the lawyer's trust account and to notify the relevant lien holder of settlement. Complicating matters, many clients have multiple health care liens associated with their recoveries. For instance, a client who is initially covered under her employer's health care plan may, due to a permanent disability, cycle off the private plan and onto Medicare during the time between the date of injury and the date of settlement. Furthermore, many clients who are entitled 3 Page 46

47 to Medicare are actually dual beneficiaries, having Medicaid pay the coinsurance and deductible applicable to their Medicare coverage. Finally, a client who is "only" a Medicare beneficiary may have to deal with three separate health care reimbursement clairus in the end (a Medicare plan out-sourcing to multiple administrators- Medicare Part A, Part B, Part D & MCO's- all with unique rights ofrecoveries. tort recovery departments and associated protocols to develop, offset, compromise and perfect claims). Other complexities arise from the inter-relationship between proper government agency lien satisfaction and an ERISA health care plao's life-time coverage limit. Proper issue spotting and negotiation can ensure that the end result (net lien, no denial of future care, adjustment of life time policy cap) is in the client~s best interest. In order to ensure compliaoce with the complex aod constantly evolving requirements imposed by Medicare, Medicaid, and ERISA, specialized fmns have been established around the country lo provide lien resolution services to persoual injury lawyers and their clients. These firms provide services in both individual cases and mass tort I cla..;;s action matters. To accomplish both, these firms have hired skilled case workers formerly from the Medicare and Medicaid system, as well as healthcare/medical claims specialists with in-depth billing and coding experience that is critical to dissecting a lien to determine each expense item's causal relationship ro the injury being settled. These employees have unique skills and abilities that would not ordinarily be found within a plaintiffi;' law fum. In the individual case context, case workers interface with the entities responsible for the collection of (a) Medicaid liens, (b) private health insurance liens, and (c) Medicare reimbursement clairus. All ofthese entities (Medicaid, Medicare and Private Health carriers) out~source their recovery eftbrts to a myriad ofthird party, private companies who specialize in capturing reimbursement for their respective client. In this regard, a lawyer may need to deal with dozens of different private entities in the course ofher or his practice. So, in essence, the lien resolution firms provide an "out~source" option (with experience, knowledge and perhaps superior technological/claim management capabilities) to interface with these several dozen third-party companies handling collection for Medicaid, Medicare and Private Health Carriers. By aggregating thousands of liens and reimbursement claims, the lien resolution firms are able to leverage significant efficiencies (largely through access to skill sets, systems, processes and procedures that would be too difficult or costly for the typical personal injury firm to develop inhouse) in dealing with the collection firms, often speeding up the time in which these liens I reimbursement claims can be resolved (and, accordingly, speeding up the time in which the net proceeds may be distributed to the plaintiff). In the mass tort context, the lien resolution firms have created a process which achieves an efficient, cost-effective means of satisfying liens and reimbursement claims. This approach to resolving reimbursement claims en masse involves settling claims in sub groups of similar "claim profiles" as opposed to settling each clairu indhidually. This approach allows substantial cost savings while completely satisfying the lien I reimbursement interest. 4 Page 47

48 Analysis As discussed below~ my opinion is that, subject to some limitations and restrictions, it is ordinarily permissible onder the ABA Model Ru1es and onder generally applicable professional standards for a personal irtjury lawyer to out~source lien resolution services to a separate finn and to cbarge the other finn's fee as an expense ofthe litigation. I begin by discussing an opinion ofthe New York County Lawyers' Association (''NYCLA") that so concludes, theo discuss how its conclusion is consistent with the ABA Model Ru1es and general professional understandings. Finally, I address the concerns raised in the Staff Opinion and why, in my view, they are not applicable outside the context of an ancillary business in which the personal injury law firm in question holds an interest. The NYCLA Ethics Opinion NYCLA's Professional Ethics Comminee recently addressed whether a personal injury lawyer may retain an outside (i.e., non-ancillary) lien resolution law firm and charge its fee as an expense ofthe litigation. See NYCLA, Ethics Op. 739 (July 7, 2008) (copy enclosed).' The opinion drew on essentially the same facts as those described above, which The Garretson Firm has now asked me to assume. One difference between the NYCLA opinion and the Staff Opinion is that the NYCLA opinion addressed out~sourcing lien resolution services to a law flnn specializing in this work, whereas the Staff Qpinion addressed out-sourcing to a non-lawyer company. As discussed below, I do not believe this distinction ultimately calls for a different resu1t, although the personal injnry lawyer out-sourcing lien resolution work to a non-lawyer company must assume a heightened duty of supervision. Based on the facts provided to it, the NYCLA ethics committee concluded that, subject to some restrictions and limitations, it is generally permissible in a personal injury case to outsource the resolution of health care liens to a law finn different from that ofthe plaintiffs law fmn. The opinion found that with the client's infonned consent. a personal injury lawyer could retain a lien resolution finn and assign its actual fee as a disbuxsement in a contingency fee representation as long as the fee was reasonable. which depended on whether the client gained a net benefit from the service.' The opinion recognized that the personal injnry lawyer had a responsibility to ensure that the outside lien resolution finn was competent to perform this work 3 Although, as noted above, I am a member ofnycla's Ethics Institute, I am not a member ofthe conunittee that drafted NYCLA, Ethics Op. 739 and had no role in, or prior kuowledge of, its adoption. 4 The opinion explained: "A lawyer who outsources a complex lien problem to another attorney who, in turn. resolves it for a fraction of the lien amount~ gains a net benefit to her client. As such the additional fee is justified. The overall outsourcing oflien resolution must benefit the client. It wou1d not be reasonable for a client to be asked to pay an additional fee for a lawyer to post a disbursement in an additional amount of, say, $10,000, in order to negotiate a Hen of$5,000. Any risk of miscalcu1ation should fall upon the lawyer, as fiduciary, and not the client." NYCLA, Ethics Op. 739 at p Page 48

49 and "capable of complying with the appropriate standard of care." It further found that: "Lien resolution outsourcing may be more appropriately classified as an expense ifthe ftrm employs experts who are familiar with the lien resolution process~ such as former case workers from the Medicare and Medicaid system, healthcare data processing professionals, and billing and coding experts." The NYCLA opinion is consistent with the ABA Model Rules and other professional lmderstaodings. As discussed below, the NYCLA opinion is generally consistent with the ABA Model Rules and the weight of professional opinion nationally. Further, the result would not be different where the lien resolution work is referred to a non~lawyer company rather than to a law finn. As the NYCLA opinion and the Staff Opinion reflect, the out-sourcing oflien resolution work raises several questions. The first, and most basic) is whether a lawyer may out-source work that must be performed in order to provide competent representation in a matter and that would otherwise be performed in-house by the lawyer or his fmn. By now, it is well recognized that a lawyer may generally out~source law-related work that, in the course of a representation, would otherwise be performed by the law firm, as long as the fmn supervises the work and reroains ultimately responsible for it. For example, ABA Formal Op (Aug. 5, 2008) recognized that lav.ryers 11 may decide to outsource tasks to independent service providers that are not within their direct control," providing "that the lawyer who is responsible to the client satisfies her obligation to render legal services competently," and that the lawyer choose competent providers and oversee the work appropriately. Both the Florida Bar and the New York City Bar have reached essentially the same conclusion, which no authority now questions. See Florida Bar Ethics Op (Sept. 7, 2007) (lawyer may out-source legal work to overseas attorneys and paralegals); N.Y. City Bar, Ethics Op (Aug. 2006) (same).' Additional questions (not addressed in the NYCLA opinion) are raised when the lien resolution work is outsourced to a non-lawyer or to a non-lawyer entity rather than to a lawyer who is admitted to practice law in the jurisdiction: Is the non-lawyer or the entity engaged in the unauthorized practice of law, and is the lawyer who refers the work therefore assisting in the unauthorized practice of law? Again, the answer seems plain. Ethics opinions authorize lawyers to out-source a variety of law-related work, such as document review and legal research, to nonlawyer entities, non-lawyers and lawyers outside the jurisdiction (e.g., to an overseas service provider). As the above-cited New York City Bar opinion recognized: "Ordinarily, an individnal who is not admitted to practice law in a particular jurisdiction may work for a lawyer who is so 5 The out-sourcing of law-related work does not entail a limitation on the scope of a representation for purposes of Rule l.2( c) of the ABA Model Rules, which requires that a limitation on the scope of a legal representation be reasonable and that the client give informed consent. For example, when a lawyer out-sources work to an outside lien-resolution firm, the lawyer is ultimately responsible to ensure that the work is competently perfonned. 6 Page 49

50 admitted, provided that the lawyer remains responsible for the work being performed and that the individual is not held out as being a duly admitted lawyer." There are exceptions, such as that a non~lawyer generally may not speak for a client in court, even under a lawyer's supervision. But there is no reason to conclude that a non-lawyer entity's resolution of personal injury plaintiffs' liens comprises the unauthorized practice of law when performed under the supervision ofthe client's personal injury lawyer. Moreover, my understanding is that many ofthe efficiencies and benefits to the claimant associated with out-sourcing are derived from the fact that such lien resolution firms (a) have hired skilled, "non-lawyer" case workers formerly from the Medicare and Medicaid system, WJ well as healthcare/mcdical claims specialists with in-depth billing and coding experience; and/or (b) have built skill sets, systems, processes and procedures that would be too difficult or costly for the typical personal injury firm to develop in-house. Another question suggested by the Staff Opinion is whether the personal injury lawyer who refers this work to a lien resolution firm is rendering competent representation. Assuming the facts described above, this question is easily answered. In the ordinary case, as the NYCLA opinion found, clients will be served better when personal injury lawyers refer this work to "'specia1ized professionals who perfonn this work on a constant basis, whose work enables them to be up to date on changes in the law and procedures, and who can take advantage of established and ongoing relationships with various carriers and economies of scale." If anything, more serious questions of lawyer competence would be raised when certain personal injury lawyers fail to refer this work to experienced professionals. Lawyers are required to employ "the legal knowledge, sld.il, thoroughness and preparation reasonably necessary for the representation," ABA Model Rules, Rule I. I, and where they lack the necessary expertise, they must ensure the provision of competent representati<m through other means, such as by retaining an experienced lawyer or other expert. See, e.g., id, Rule 1.1, Cmt. [2]. The resolution ofhealth care liens in personal injury cases is legally and procedurally complex- far more complex than in the past. 6 A personal injury lawyer who lacks the knowledge and experience to resolve the client's health care liens advantageously jeopardizes: the client's interests and incurs a risk ofprofessional liability 7 The last question is whether the work of an outside entity providing lien resolution services to a client comprises a billable expense, or whether the cost must be absorbed by the 6 Consequently, even though personal injury lawyers in the past usually resolved clients' health care liens on their own, under the current legal and procedural regime which is far more complex, many personal injury lawyers cannot perform this work as effectively and efficiently as an entity with specialized expertise and experience. 7 As the NYCLA opinion found, and as discussed above in the summary of facts, the lawyer and client each have an interest in drawing on the services of a lien resolution firm: the lawyer avoids the risk professional liability for work that he is not most qnalified to perform, while the client obtains the benefit of a firm tbat is better qualified to perform this work. However, the lawyer's interest in avoiding professional liability for substandard work by obtaining specialized professional assistance for the client is not the kind of lawyer self-interest that implicates conflict-of-interest rules. 7 Page 50

51 personal injury lawyer in a contingent-fee representation. The NYCLA opinion acknowledged that "lien resolution has traditionally been included as part ofthe overall contingency fee," but nevertheless concluded that the outside finn's actual charges may be passed on to the client at cost as long as they are reasonable. This conclusion is consistent with ABA Formal Op , the ABA's ethics opinion on out-sourcing law-related work, which similarly found that lawyers may pass on the a<>toal, reasonable fees of entities to which law-related work is out-sourced. It is also consistent with ABA Formal Op , which found that lawyers ordinarily may bill, as an expense, work performed by contract lawyers in a contingent-fee representation ifthe overall fee is not unreasonable. I.Titimately, Rule 1.5(a), which requires legal fees and expeoses to be reasonable, calls for consideration of multiple factors. 'This being so, one cannot conclude categorically that the fees of a lien resolution firm are not a reasonable expense in a personal injury case. Rather, as in situations where it has already become customary for personal injury lavvyers to retain specialists, this expense should be deemed reasonable at least when, in the circumstances of a particular representation, the resolution ofhealth care liens will be complex and call for specialized knowledge, and the client can therefore be expected to benefit from having the work performed by professionals who specialize in it. Personal injury lawyers traditionally develop expertise in litigation and tort law relevant to establishing the plaintiff's personal injury claim. The law and legal processes relevant to vindicating personal injury claims are distinct from the developing law and processes (many of which, I understand, are unique to the work-flow, billing, revenue and medical coding) relevant to resolving Medicare reimbursement claims, Medicaid liens and private health insurance liens. It is not reasonable to expect every personal injury lawyer to be an expert in Medicare and Medicaid preservation. Presumably, personal injury lawyers can become qualified to undertake the necessary work through legal study and consultation, but even then, there would be advantages to retaining professionals who perform this work on a large~scale basis and who can thereby take advantage of ongoing relationships and of economies of scale. Under these circumstances, in my view, the NYCLA opinion is correct in concluding that the actoal fee of an entity that is better qnalified than the personal injury lawyer to resolve health care liens is ordinarily a reasonable expense. Out-sourcing to an ancillary business There is much in the Staff Opinion to suggest that it was meant to apply exclusively to the particular circumstances ofthe inquiring personal injury lawyer, who sought to refer lien resolution work to an ancillary business in which he and/or his law firm had a financial interest, and that the Staff Opinion takes no view on the separate aod distinct question of whether a personal injury lawyer may out-source this work to an unrelated entity. For example, the questions posed in the opinion (i.e., "can the firm use that ancillary business...")and the opinionls conclusions (i.e., "the firm should not use an ancillary business to resolve finn clients' third party and estate liens...") expressly refer to the fact that the work would be sent to an "ancillary business" (i.e., one in which the law finn has an interest). Moreover, several ofthe 8 Page 51

52 Staff Opinion's conclusions depend on the fact that the outside business is ao ancillary one.' Most significaot!y, the analysis of whether a personal injury lawyer may out-source lien resolution work to an entity and bill the entity's fee as an expense is significantly different when the entity is an ancillary business. To begin with, it seems obvious that a lawyer representing a client on a contingent-fee basis cannot carve out ordinary aspects ofthe representation, perform the work "carved out" himself, and then charge the client for the work as a legal fee or expense separate from the agreed-on contingent fee. For example, a Maryland bar ethlcs opinion (Maryland State Bar Association, Committee on Ethlcs, Op ) concluded that a lawyer representing a personal injury plaintiff on a contingent fee basis may not charge a separate 50% contiogent fee for negotiating to reduce the amount of the client's medical bills. The opinion reasoned that it is a customary aspect of representing the personal injury plaintiff for the lawyer. where necessary to maximize the client's recovery, to negotiate with the health care provider or an insurer having subrogation relations with the client. Therefore, doing so "is necessary to delivering competent legal service for the case for which the lawyer already has an agreement for fees." Cj Florida Bar Ethics Op ("The law firm may charge a client the aetna! cost of the overseas provider, unless the charge would normally be covered as overhead. However, in a contingent fee case, it would be improper to charge separately for work that is usually accomplished by a client's own attorney and incorporated into the standard fee paid to the attorney, even if that cost is paid to a thlrd party provider."). Likewise, the Staff Opinion reasonably concluded that a personal injury law fum that is fully capable of conducting lien resolution work (as evidenced by the law firm's ownership of an ancillary business that performs precisely this work) may not outwsource this work to its own ancillary business and separately charge for it. Doing so raises the same problem as the one addressed in the Maryland opinion- namely, that the law firm is essentially double billing the client. The situation addressed by the NYCLA opinion (and that I have been asked to address) is meaningfully distinguishable, because the personal injury lawyers or law firms in question have no fmancial interest in the outside lienmresolution entity and regard themselves as generally Jess capable than the outside entity of resolving clients' health care liens. This explains the NYCLA opinion's key factual premise that the use of a lien resolution service is mutually beneficial to the personal injury lawyer and the client: The client benefits from the lien resolution, while the plaintiff's attorney benefits by being relieved of having to represent the client in an area of law with which she may be unfamiliar.... The attorney is not burdened with the difficulties of ' This is true ofthe conclusion that the personal injury lawyer has a conflict of interest (arising out of his ownership interest in the ancillary business) that would influence the decision to out-source the lien resolution work. See Staff Opinion at 4-5. It is equally true of the conclusion that by out~sourcing the resolution of health care liens, the personal injury lawyer is unreasonably limiting the scope ofhis representation. See id at Page 52

53 lien resolution and can focus on the areas with which she has true expertise, and the client's lien related interests are represented by those with specialized knowledge and expertise in such claims, thereby optimizing recovery. NYCLA, Ethics Op. 739 at p. 4 (emphasis added). In contrast, when a personal injury law firm proposes to out-source the lien resolution fimction essentially to itself (in the form of its ancillary business), tire Staff Opinion would be justified in its conclusion that "while it may be fioancially advantageous for an attorney to delegate lien resolution to a third party, it certainly would not be in the client's bestinterest." Staff Opinion at p. 5 (emphasis added). For these reasons, I do not take issue with the Staff Opinion's conclusion, which I understand to be that a personal if1jury law firm may not refer the resolution of health care liens to an ancillary business owned by the lawyer and/or his law firm and bill this work separately as an expense of the litigation. However, I regard the NYCLA opinion as correct in concluding that a personal injury lawyer who is not equally capable ofresolving health liens in a given case may, with client consent, refer this work to a qualified outside entity in which the personal injury lawyer has no interest, supervise the entity's work, and charge its actual fee as an expense. In my view, Staff Opinion's reasoning is not to the contrary, but its opinion may be read (or misread) as reaching a different view from the NYCLA opinion. My modest suggestion is that the Staff Opinion be revised to avoid this implication. Very rruly yours, Bruce A. Green 10 Page 53

54 Lien Resolution Abstract Healthcare liens disrupt personal injury settlements. Resolving liens can take anywhere from several months to over a year, consuming a firm s valuable resources. Moreover, ensuring that these reimbursement claims are resolved in the client s best interest and consistent with the attorney s obligation requires knowledge of several deep and varied bodies of law and processes. Further complicating matters, the Federal, State and private healthcare providers have become much more aggressive and are outsourcing their recovery efforts to professionals. The question of exactly what duties are imposed upon clients and counsel often lacks a clear and consistent answer. The Medicare Prescription Drug Improvement & Modernization Act as well as the U.S. Supreme Court s recent decisions in Ahlborn and Sereboff changed the landscape considerably. In every case, the following questions must be answered: Do any of the laws in my local jurisdiction affect the application of the above-mentioned law to my client s case? Given the nature of the client s recovery, is full reimbursement appropriate? What defenses, compromises, waivers or offsets are available to your client? Does the health plan have a reimbursement interest for past as well as future injury related care? What portion of the award may be considered for allocation to past and/or future medicals? Does the healthcare plan offset for cost of procurement? If so, to what extent? If my client was covered under a private health plan, is that plan governed by ERISA, FEHBA, state law, or a combination thereof? What are my obligations as plaintiff s counsel? Am I liable? Who is the plan administrator? Who performs tort recovery on behalf of the plan? Does the plan pay for actual expenditures or outsource to HMO s or MCO s? What right of recovery does the HMO or MCO properly assert? Certainly the public and private healthcare agencies often ignore these questions and count on plaintiffs counsel not knowing either when to ask or how to answer them. The Costs and Risks of Lien Resolution From the start of every new case, plaintiff s counsel has to worry about possible liens on the claim. Someone must keep track of the liens that are asserted against the claim, and under the new federal rules, actively investigate any possible lien held by Medicare (42 CFR ). Someone must then determine which liens have merit, and which portions of those liens are valid. Repeated contact with the lien holder is needed (often through a third party collection agency who may or may not be familiar with the claim or the law), and extensive negotiations may ensue before an agreement can be reached. If this is attempted before settlement, it often distracts the attorney and his staff from the case itself; if it is left until afterwards, it will delay disbursement to the client. Plaintiffs attorneys are keenly aware that they struggle to keep up with the changing regulations, protocols and contractors associated with the liens competing for a share of the client s recovery Many believe their client s interests are best served if the attorney s time and efforts are spent on proving damages and liability. However, these costs in time and inconvenience pale in comparison to the ever-increasing risk of liability associated with lien resolution. Under the ABA Model Rules of Professional Conduct, when an attorney undertakes the resolution of a lien, he implicates that he has the legal knowledge, skill, and preparation necessary to competently represent the client s interests in that area of the law (Model Rule 1.1.). Such a representation is fraught with peril, as of the four major entities likely to have a lien on a personal injury claim (Medicare, Medicaid, employee health plan, and private health insurance), each is governed by a phone fax 7775 Cooper Road ~ Cincinnati, OH Page 54

55 different body of law (federal Medicare code, state Medicaid code, ERISA, and state insurance law, respectively). To make matters worse, the rules governing each, and the opinions interpreting them, are constantly in flux. Without a proper, running knowledge of these laws and without the in-house knowledge to evaluate the plan correctly, the attorney is exposed to enormous risks. If the attorney unwittingly declines to pay a valid lien, he will expose his client to future litigation and loss of healthcare coverage; if he overpays or pays an invalid lien, he is liable for malpractice; if the attorney fails to discover or pay an outstanding Medicare lien, he can be held personally liable for twice the amount of the original lien, plus interest (42 U.S.C. 1395y (b) (2) (A) (ii-iii). To make matters worse, many states ethical opinions and professional rules of conduct, which either mirror Model Rule 1.15, or have very similar language, can now be read to impose a duty to hold disputed funds (e.g., the lien amount) in the attorney s trust account and even to notify the ERISA lien holder of settlement. Severely complicating matters, many clients will have multiple healthcare liens associated with their recovery. A client, for instance, who is initially covered under her employer s healthcare plan may, due to a permanent disability, cycle off the private plan and onto Medicare during the time between the dates of injury to the date of settlement. Furthermore, many clients who are entitled to Medicare are actually dual beneficiaries, having Medicaid pay the coinsurance and deductible applicable to their Medicare coverage. Finally, a client who is only a Medicare beneficiary may have to deal with three separate healthcare reimbursement claims in the end (a Medicare plan outsourcing to multiple administrators - Medicare Part A, Part B, Part D & MCO s - all with unique rights of recoveries, tort recovery departments and associated protocols to develop, offset, compromise and perfect claims). Other impacts exist due to the inter-relationship of proper lien satisfaction and an ERISA healthcare plan s lifetime coverage limit. Proper issue spotting and negotiation can ensure the end result (net lien, no denial of future care, adjustment of lifetime policy cap) is in the client s best interest. Further, in an era of inclining healthcare costs, the client s ultimate ability to recover is limited by caps on damages or policy limits. In this respect, the allocation of damages (associated with Medicaid lien resolution post Ahlborn) as well as the ultimate success of the lien resolution strategy may arguably be as important a factor in the client s final net (in pocket) recovery as any other aspect of proving and litigating the case. Because of these myriad complexities, lien holders have had the option for years of outsourcing the collection of their liens to various recovery agencies. Collectively, these recovery agencies employ over 15,000 people. However, only recently has this option been made available to the plaintiffs bar, through the emergence of a specialized firm that focuses on plaintiff-oriented lien resolution and settlement disbursement with experienced attorneys (to chart the appropriate lien resolution strategy) and experienced case workers (with specialized billing, coding and work flow knowledge) to handle liens on a large scale. Faced with the stark realities outlined above, plaintiffs attorneys have begun to take advantage of this new service. The majority of those firms have thus far still retained the cost of hiring that outside assistance. However, counsel may consider obtaining an ethics opinion advocates passing this cost on to the client as an expense of litigation. Indeed, such opinions have been obtained by various attorney firms, however, counsel should rely on an opinion from a qualified expert in his/her state. A Harbinger of Things to Come In its Formal Ethics Opinion No , the American Bar Association s Standing Committee on Ethics and Professional Responsibility expressed the view that the hiring of outside assistance (including legal assistance) by counsel may be categorized as an expense of litigation and therefore a cost which may be allocated to the client i. This places responsibility for those costs with the party which will ultimately benefit, while removing pressure from plaintiff s counsel to represent the client in an area of law with which he may not be familiar. The end result of such an arrangement brings benefits to both attorney and client: the attorney is not burdened with the costs or frustrations of lien resolution and can focus on the litigation, he is not saddled with increased liability, and the client s lien-related interests are looked after by individuals with specialized knowledge and expertise in subrogation claims, thereby optimizing 2 Page 55

56 recovery. Certainly this is the accepted practice in personal injury matters when the client s case requires attention related to probate, bankruptcy, the calculation of Medicare Set Aside accounts and disability planning (e.g. special needs trusts). One should consider that these lien related issues do not arise out of the client hiring a personal injury attorney and filing a claim against a third party Rather, these obligations arise out of a pre-existing contract (private health insurance) between the client and the health plan or by an assignment of rights that occurs as soon as a recipient of government (state or federal) healthcare receives the first dollar of coverage. Important Considerations In assigning these costs to the client, however, it is important that the arrangement comply with all ethics decisions and opinions, as well as the Model Rules of Professional Conduct. First and foremost, the cost of outsourcing lien resolution on any claim must be reasonable under Rule 1.5(a) of the Model Rules. Some may question whether any such assignment of this cost could be reasonable, as it has traditionally been absorbed by counsel as a part of the contingency fee. While this change would certainly be new to most fee agreements, that alone would not render it unreasonable. Plaintiffs lawyers traditionally develop expertise in litigation and tort law relevant to establishing the plaintiff s personal injury claim. The law and legal processes associated with personal injury claims are distinct from the developing law and legal processes associated with resolving reimbursement claims and health insurance liens. Therefore, it is not reasonable to expect a personal injury lawyer to be an expert in Medicaid liens, ERISA subrogation, and the like. Presumably, personal-injury lawyers could become qualified to undertake the necessary work through legal study and consultation, but even then, there would be advantages to retaining professionals who perform this work on a large-scale basis, who can thereby take advantage of established relationships with various carriers and of economies of scale. As mentioned above, such is already commonplace in other legal realms, such as retaining a disability lawyer to draft a special needs trust, a probate attorney for probate matters, or a tax attorney to evaluate a settlement s tax-related consequences. The complexity (and potential impact on future healthcare coverage) of these lien-related issues renders outside assistance more than reasonable. As for the reasonableness of the cost itself, ABA Opinion No offers some very concise guidance: the client may only be assigned the actual cost of the services provided, without any surcharge added by the attorney. Not only does this satisfy the reasonableness requirement, but also makes for easy bookkeeping. Another matter to consider is the timing and notification of the assigned cost. A client will likely object to bearing a cost that has only been brought to her attention late in the course of her case. Model Rule 1.5(b) was intended to protect against such a surprise. As a result, ethics boards and committees have taken a dim view of costs or fees which are sprung upon the client after the parties have signed a fee agreement ii. (ABA Opinion No ; Maryland State Bar Assoc., Committee on Ethics, Opinion No ) For this reason, it is necessary that the original fee agreement incorporate the contingency that the attorney may, at his discretion, obtain outside expertise on the matter of lien resolution, and that the client will shoulder the cost from her recovery proceeds. The following is a basic example: We understand that current law and regulations regarding Medicare, Medicaid or private health insurance plans (Healthcare Providers) may require all parties involved in this matter (client, law firm defendant, and any insurance companies) to compromise, settle, or execute a release of Healthcare Providers separate claim for reimbursement/lien for past and future payments prior to distributing any verdict or settlement proceeds. We agree that the law firm may take all steps in this matter deemed advisable for the handling of our claim, including hiring separate experts / case workers who assist with resolving any Healthcare Providers reimbursement claims or liens for past and/or future injury-related medical care. The expense of any such service shall be treated as a case expense and deducted from our net recovery and shall not be paid out of the law firm s contingent fee in this matter. 3 Page 56

57 Finally, as a matter of common sense, if an outside lien resolution firm is utilized, the attorney should properly investigate the firm he chooses. It is important that the lien resolution firm be familiar with the various aspects of the relevant law, with the professionals that are employed of particular importance. Lien resolution outsourcing may be more appropriately classified as an expense if the firm employs focused attorneys (to chart strategy consistent with the current rules) as well as experts who are familiar with the lien resolution process, such as former case workers from the Medicare and Medicaid system, healthcare data processing professionals, and billing and coding experts. Most importantly, the firm retained must be capable of complying with the appropriate standard of care. Failure to secure the services of a competent firm will not relieve an attorney of any liability for lien resolution, and may actually increase it. Conclusion The benefits of the ability to outsource lien resolution and pass that cost on to the client are far-reaching. The client s interests will ultimately be better-served when the attorney can focus on litigating her claim, while contracting others to focus on matters that tend to distract from the case itself. In the meantime, the attorney is not laden with the costs or frustrations of lien resolution, and may minimize his professional liability in this ever more complex area of law. i ABA Op , which addresses the reasonableness of fees of outside lawyers (i.e. from different), concluded that outside firms services could be legal fees or expenses. The opinion noted that an earlier opinion, ABA Op , regarding expenses, was made in the context of goods or services of non-lawyers: expert witnesses, court stenographers, airfare, taxicabs, hotel rooms, and internal expenses allocable to a client s matter for such things as photocopy paper, computer time, and messenger services. In the case of outside lawyers fees, the opinion concluded, these services could be billed either as legal services or as an expense. In the latter case, the costs billed to the client could be no greater than the actual cost incurred, absent an agreement with the client otherwise. (ABA Op , identified charges for in-house services such as photocopying, computer research, on-site meals, deliveries and similar items, as among those that a lawyer may charge as expenses, whereas the lawyer s cost in maintaining a library, securing malpractice insurance, renting of office space, purchasing utilities and the like are ordinarily overhead costs that would not be billed to the client but would be subsumed within the charges the lawyer is making for professional services. As to the former, the opinion concluded, a lawyer must bill the actual expense and not mark it up.) ii The ABA s center for Professional Responsibility has commented on modifications of fee agreements with the client. The comments do not directly address expenses which are not specifically listed in the fee agreements. Yet, in the annotations to Model Rule 1.5, it states: modifications of fee agreements are generally unenforceable unless the lawyer demonstrates full disclosure of all relevant information, the client consents based upon adequate consideration, and the client has an opportunity to seek independent legal advice before agreeing to the modification (Annotated Model Rules of Professional Conduct, 5th Edition, pg ). Depending upon the existing wording of an attorney s current fee agreement, however, utilization of the services of an outside lien resolution service conceivably may not require a modification of the fee agreement. The terms of most plaintiff attorneys fee agreements make clear that the client will be responsible for all costs and expenses incurred in handling of the client s case, not just the exemplar costs and expenses specifically identified in the fee agreement (in other words, the fee agreement only provides a non-exclusive list of possible costs and expenses). With respect to all fees and costs, disclosure and transparency are key A firm could conceivably clarify (via disbursement statement and through appearance of local counsel for settlement approval) that costs and expenses include lien resolution services. 4 Page 57

58 GARRETSON FIRM,it ll S 0 L U T I 0 N G R 0 U P Outsourcing Healthcare Lien Resolution: Eliminating the "hassle factor" and complying with new rules and regulations Matthew L. Garretson 1 The word "outsourcing" oftentimes carries a negative connotation, rendering images of jobs shipping overseas and workers lining up for unemployment. However, with the American Bar Association's recent acknowledgement of the value of "legal outsourcing", attorneys have reason to consider what outsourcing can mean to their firm and its clients. For law firms, outsourcing may involve a different set of considerations than solely the "cost reduction" motivation that initiated the trend to outsourcing certain legal or legal support functions offshore Specifically, outsourcing for law firms is not necessarily all about reducing costs, it's about reducing hassles as well as achieving outcomes for clients that exceed what law firms can accomplish on their own. As this article explores, outsourcing has a host of benefits attached to it that enable law firms to become more efficient, effective, nimble and valuable to clients. Outsourcing to a specialist may help - among other things - enable core competency "focus" on the part of a law firm's internal staff, ensure compliance with applicable rules and regulations, as well as speed up the completion of certain aspects of a case. While there are many benefits to outsourcing, it is not as simple as making a handshake and handoff to a service provider - There are many considerations and commitments a law firm must make if an outsourcing arrangement is going to benefit the firm's ultimate "consumer". Understanding the Lexicon "Outsourcing" entered the vocabulary of manufacturing business in the 1980s, as then bloated organizations sought to become more agile competitors in global markets by focusing on their core business. 11 It has been defined as "the use of outside resources to perform activities traditionally handled by internal staff and resources". 111 Over the last 30 years, business segments typically outsourced include information technology, human resources, facilities, and accounting. Many companies also outsource customer support and call center functions like telemarketing, customer service, research, designing, web development, and engineering. iv But, for law firms, the concept is relatively new.v When the concept of outsourcing first emerged in the legal industry, it often involved a law firrn obtaining legal support services from an offshore law firm or legal support services company. But offshoring wherein a company outsources services to a third party in another country with lower labor costs - is only a small subset on the spectrum of outsourcing arrangements. The rationale for outsourcing ranges from accessing a lower cost pool of resources to perform commodity-like, less business-sensitive functions to strategically tapping specialized knowledge bases that are not feasible to maintain in-house. Legal outsourcing companies, primarily from India, had early successv 1 by providing services on the costsavings end of the outsource ratiqnal spectrum, such as document review, legal research and writing, drafting of pleadings and briefs.v' 1 In these economic times, there is a strong public opinion that outsourcing (especially when combined with offshoring) damages a local labor market.viii While offshore outsourcing in the legal industry has gained ground in the past few years, the debate extends beyond the displacement of local labor. According to one commentator, a major concern with legal outsourcing is the potential for breach of client's confidentiality. Another concern is that the people performing legal work in different countries are not bound by the same ethical standards attorneys are subject to at home. 1 x Others question whether American attorneys can perform their due diligence and adequately evaluate and supervise the service provider when separated by an ocean from the people performing the work.x phone fax 7775 Cooper Road- Cincinnati, Page 58

59 The buzz created by these concerns led to opinions from various state Bar Associationsxi and recently, the American Bar Associationx 11 that lay down the framework for ethical legal outsourcing. Much of the discourse around legal outsourcing has centered on the cost-benefit analysis of tapping into lower cost, offshore labor pools to perform less sensitive, more administrative functions. The more strategic set of considerations at the opposite end of the spectrum (that is, accessing unique, domestic knowledge bases or skill sets that are not feasible to maintain in house) are often overlooked in the dialogue. These strategic purposes for legal outsourcing not only have been given the "green light" by the ABA and other ethics bodies: they may very well enhance your firm's value to clients. Strategic outsourcing is the organizing arrangement that emerges when f!_~ms rely on third parties to provide specialized capabilities that supplement their existing capabilities."" According to outsourcing experts, such an arrangement produces value beyond those benefits achieved through cost savings"v and cost restructuring (between fixed and more predictable variable costs) to accomplish more strategic objectives: Improve quality - Measurements may include factors such as shortening lead times and ensuring compliance with applicable rules I regulations Focus on core competencies -The ability to focus on core competencies by ridding yourself of the ancillary or peripheral ones. Knowledge -Access to innovation, subject matter expertise and wider experience. " Operational expertise -Access to processes and procedures that would be too difficult or costly to develop in-house. Access to talent- Access to a larger, sustainable talent pool. '" Risk sharing or management - Sharing or transferring risk to a partner who is better able to provide the mitigation of such risks (and thereby help alleviate the "fear of loss"). Strategic outsourcing often is characterized as pure business process outsourcing - or BPO - and knowledge process outsourcing - or KPO. BPO is the outsourcing of a specific business process task, such as payroll, to a third-party service provider. It's often divided into two categories: back office outsourcing, which includes internal business functions such as human resources or finance and accounting, and front office outsourcing, which includes customer-related services such as call-center marketing or tech support.xv While most business process outsourcing involves executing standardized processes for a company, knowledge process outsourcing-or KPO-involves processes that demand advanced research and analytical, technical and decision-making skills.xv' This is where KPO differs from traditional BPO (business process outsourcing). As stated above, BPO is very focused on specific back office or front office transactions or tasks. As one commentary notes, "KPO, simply put, is BPO but at a higher level in the intellectual value chain." xv" While there are many functions within a law firm that may be candidates for strategic outsourcing, the balance of this article explores one area - health care lien resolution - that appears to be on the leading edge of the trend. With respect to health care lien resolution, intermediate "providers" of service have emerged that provide specialized capabilities as ever-changing rules and regulations make the transaction both critical to cash flow (an important back office concept) as well as increasingly complex (requiring a deep knowledge base). As such, lien resolution is a hybrid of both business process outsourcing (BPO) and knowledge process outsource (KPO). Accordingly, it is a prime example of outsourcing for purposes at the more strategic end of the rationale spectrum. All that said, the fundamental notion behind strategic outsourcing for the personal injury practitioner isn't all that avant-garde. For years, personal injury attorneys have been looking to other professionals to 2 Page 59