Proposed Amendment to the Model Rules of Professional Conduct

Proposed Amendment Aims to change the way law firms and entities do business

By: Charles S. Coffey, Senior Claims Counsel

This article first appeared in the ABA Young Lawyers Division, Ethics & Professionalism Committee Newsletter Reposted with permission.

ABA Model Rule of Professional Conduct 5.6(b) prohibits “…an agreement in which a restriction on the lawyer’s right to practice is part of the settlement of a client controversy.”¹ This has been interpreted to mean that an agreement by an attorney to not represent other clients against a settling defendant, in future actions, is prohibited.²   Attorneys Anthony E. Davis and Noah Fiedler of Hinshaw Culbertson, LLP believe, however, that this rule needs to be expanded to protect attorneys and law firms from unfair burdens placed on them by their corporate clients, especially in the area of conflicts of interest.³   Davis and Fiedler’s primary focus is on outside counsel guidelines (hereinafter, “OCGs”)4, which contain processes and procedures, requirements, and policies that “in-house” corporate legal departments expect outside counsel to follow.5   Davis and Fielder argue that, due to the increased bargaining power corporate clients gained following the 2008 economic downturn, lawyers have been forced to give up some of their autonomy when it comes to the lawyer/client relationship; in fact, they view the current market for corporate legal work as a battle, and state that:

The most destructive weapons in this battle are OCGs that redefine conflicts of   interest  so  broadly that they  significantly impair lawyers’ ability to make decisions (both legal and business- related) as to what clients they may represent and matters they may work on, and to act as trusted and independent counselors on behalf of those self-same clients.6

Davis and Fielder argue that OCGs redefine what creates a conflict of interest in three ways: (1) they expand the definition of who is the client; (2) they limit the universe of other clients from whom law firms are permitted to accept work; and (3) they redefine conflicts.  First, the definition of who the client is expands when entities mandate that, for conflicts  purposes,  the “client” is  both  a  parent  entity  and  all  of its  subsidiaries. Therefore, it is argued, what should be an objective, fact-specific inquiry, based on upon a specific situation, is replaced by a homogenous definition of “client.” Davis and Fielder believe that this “…enormously narrows the universe of other possible clients whom the lawyer could represent.”

Second, OCGs often prevent entire law firms from representing more than one entity in a given field. This differs from the past, where law firms often represented several corporations who provided the same product or service because that law firm was seen as “specializing” in that area. Davis and Fielder argue that, by including such provisions in OCGs,  corporate  clients  are  only  hurting themselves  because  such  a  provision “…limits the ability of lawyers to understand industry-wide issues from multiple perspectives, and ultimately makes it more difficult for lawyers to provide the best possible, and most informed, service to the client.”

Third, OCGs often redefine conflicts by requiring that a law firm not represent a client or in any way take a position that could be contrary to a position a corporate client is taking or may take in the future. If a law firm takes such a position, it is often required to withdraw from representing that other client on whose behalf it took said position. Davis and Fielder note that, “[w]hen retained under these terms, lawyers must decide whether to breach the engagement agreement with the client imposing the guidelines, or breach their ethical and fiduciary duties to other clients.”7

Davis presented his proposal this past summer at the 43rd ABA National Conference on Professional Responsibility in St. Louis, Missouri.8 He implored conference attendees to “collectively push back” against the burden of OCGs by urging regulatory organizations to adopt his proposed change to the model rule (the change is underlined below), which he believes addresses the aforementioned issues stemming from OCGs:

Rule 5.6 Restrictions On Right To Practice
A lawyer shall not participate in offering or making:
(a) a partnership, shareholders, operating, employment,or other similar type of agreement that restricts the right of a lawyer to practice after termination of the   relationship, except an agreement concerning benefits upon retirement; or
(b) an agreement in which a restriction on the lawyer’s right to practice is part of the terms of  engagement of a lawyer by a client or of the settlement of a client controversy.

However, not everyone agrees with Davis and Fielder. Amar Sarwal, Vice President and Chief Legal Strategist for the Association of Corporate Counsel, noted businesses would not be pleased to see the law firms they use pushing for, what he believes is, a restraint on trade by restricting a business’ freedom of contract. He further noted that OCGs are the result of “arms length” transactions between sophisticated consumers (usually between corporate legal departments and the attorneys they are looking to hire). Sarwal believes that regulators should be focusing on the tremendous need for legal services for individuals, not focusing on protecting law firms from their own clients. He says, “[i]t makes no sense…You should target your regulatory dollars and resources towards those who most need the protection.”

Davis and Fielder are not the only ones to recognize the potential issues with OCGs. In 2014, information management Company Iron Mountain  put together  an Emerging Trends Task Force to explore OCGs and make recommendations for how firms can negotiate  and manage  such  agreements.   It  notes that many firms  have  or  are considering implementing their own internal audit departments to ensure compliance with provisions in various OCGs. This often requires increased staffing and technology, which can come at quite a high price. In a 2014 survey done by the aforementioned task force, only 18% of firms surveyed had such internal audit procedures in place; however, 41% of the firms surveyed were developing such procedures.9

At the time this article was written, this author was not able to find that a formal proposal had been made for the adoption of the above-mentioned amendment to Model Rule of Professional Conduct 5.6. Given the competition in today’s legal market, however, this author does not see OCGs disappearing any time soon, nor is it likely, without some intervention by regulatory authorities, that the bargaining power of law firms will increase enough to eliminate the potential issues that Davis and Fielder have identified. Thus, for right of for wrong, it appears that law firms and attorneys must take whatever steps are necessary to protect themselves, perhaps at the cost of a potential client.


¹MODEL RULES OF PROF’L CONDUCT R. 5.6 (AM. BAR ASS’N 2017).

²Samson Habte, Law Firms Take Aim at Outside Counsel Guidelines, Irking Clients, AM. BAR ASS’N MANUAL ON PROF. CONDUCT (June 14, 2017), https://www.bna.com/law-firms-aim-n73014453461/

³Davis & Fiedler, The New Battle Over Conflicts of Interest: Should Professional Regulators – or Clients –    Decide    What    is    a    Conflict?,    24    PROF’L    LAWYER     2    ((last    visited    Oct.    13,    2017), https://www.americanbar.org/publications/professional_lawyer/2016/volume-24-number-2/the_new_battle_over_conflicts_interest_should.html

4Carla Del Bove, Practical Tips for Using Outside Counsel Guidelines, LEXISNEXIS BUS. OF L. BLOG (Feb. 11, 2016), http://businessoflawblog.com/2016/02/outside-counsel-guidelines/

5These agreements address items like rates, invoicing guidelines, staffing and status reporting.

6Davis & Fiedler, supra note 3

7Id.

8Habte, supra note 2

9LAW FIRM INFO. GOVERNANCE SYMPOSIUM, EMERGING TRENDS TASK FORCE REPORT (IRON MOUNTAIN ed., July 2014), http://www.ironmountain.com/resources/whitepapers/e/emerging-trends-task-force-report-a-profile-of-the-law-firm-information-governance-professional.aspx