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Part 2: Of Counsel Risk Management Series

By Whittney Dunn, Risk Manager, The Bar Plan Foundation

Whether or not entering into an “Of Counsel” relationship is right for you or your firm should be analyzed on a situation-by-situation basis to ensure the relationship is properly defined and the relevant risk management considerations are addressed by the firm and attorney’s office procedures. If, after conducting that analysis, you or your firm determine such a designation is still desirable, it is important to ensure that all clients understand the nature of the relationship that exists between them, the firm, and the “Of Counsel” attorney.

This second article in our “Of Counsel” Risk Management Series addresses many of the risk management considerations present in “Of Counsel” relationships and offers practical tips and alternative solutions. For additional information regarding what is and what is not a proper “Of Counsel” relationship, see our first article in this series, “Defining ‘Of Counsel’ Relationships.”

Division of fees

There is a disagreement between jurisdictions as to whether or not the “Of Counsel” lawyer is considered to be a member of the affiliated firm for the purpose of applying rules regarding the division of fees among lawyers in different firms. Many states (including Missouri, Kansas, Indiana, Tennessee, and New Mexico) have not addressed the question. Therefore, lawyers should assume the “Of Counsel” relationship will not remove the requirements for fee sharing under the rules of professional conduct.

The Model Rules of Professional Conduct (MRPC) “Fees” rule states that “a division of a fee between lawyers who are not in the same firm may be made only if: (1) the division is in proportion to the services performed by each lawyer or each lawyer assumes joint responsibility for the representation; (2) the client agrees to the arrangement, and the agreement is confirmed in writing; and (3) the total fee is reasonable.”

Any fee sharing which will occur as a result of the “Of Counsel” relationship should take this rule and its requirements into account. The arrangement should be fully explained to the client, and the client’s agreement to the arrangement should be confirmed in writing. The firm and the “Of Counsel” attorney should also note that the “Fees” rules differ from state-to-state, and everyone involved should review the rules in all states where any attorney is licensed, where any client is located and where any legal work may be performed.

Conflict checking

An “Of Counsel” attorney is necessarily “associated” with the firm, and therefore, should be considered a member of the firm for conflict checking and disqualification purposes. Likewise, a firm’s conflict of interest may be imputed to a lawyer who is “Of Counsel” to the firm in that lawyer’s own separate practice. Therefore, all the disqualifications of all firms with which the lawyer is associated (by employment, partnership, or “Of Counsel” status) are attributed to the lawyer and to each firm with which the lawyer is associated. Conflict checking procedures on all sides should take this into consideration.

Vicarious liability and malpractice coverage

Both the firm and the “Of Counsel” lawyer should be cautious to avoid any vicarious liability wherever possible. Many malpractice insurance carriers will require the firm to add the “Of Counsel” attorney to their legal professional liability insurance policy but will then exclude any work done by the “Of Counsel” attorney outside of the firm. Under a worst case scenario, the firm could be hit with a lawsuit for work done by the “Of Counsel” attorney that is excluded from coverage because the firm was not involved in representing the client.

Additionally, the firm may be held vicariously liable for outside work done by the “Of Counsel” attorney where the attorney is deemed to actually be an employee of the firm. The terms of the “Of Counsel” relationship and the extent to which the lawyer’s affiliation with the firm is apparent to the lawyers’ clients are factors which may be considered in making this determination.

The firm and the “Of Counsel” attorney should attempt to avoid these problems with appropriate engagement letters or fee agreements which properly reflect the role of each attorney and/or their respective firms in the legal representation of the client. Even if a law firm performs no work on the case, the act of holding out an attorney as “Of Counsel” to the firm may result in the “Of Counsel” attorney’s personal clients believing the firm is involved in the representation. It is important for the client to understand exactly who is and who is not representing them, and for that understanding to be documented in a clear, concise writing in language the client can fully comprehend (i.e., not “legalese”).

Office-sharing vs. “Of Counsel”

While attorneys who share office space and/or other resources may be in an “Of Counsel” relationship, the fact of office sharing does not, by itself, create such a relationship. Lawyers who engage in office sharing and use the “Of Counsel” label without that relationship actually existing between the lawyers are engaging in misleading communications.  See MRPC 7.1 and Comments [5] and [7] and MRPC 7.2. See also Oregon Ethics Op. 2005-12.

Office sharing can also bring with it a number of ethics and risk management concerns. Attorneys who plan to enter into such an arrangement should seek additional risk management guidance before doing so.

Advertising “Of Counsel” status

An “Of Counsel” relationship may be advertised on a firm’s letterhead, website or other communications so long as the relationship in fact exists and the communication is not misleading. It may be considered misleading to include an “Of Counsel” attorney’s name on the affiliated firm’s letterhead without indicating the “Of Counsel” status. “The essence of the ethical requirement under both the Model Rules and Model Code is avoidance of misrepresentation as to the lawyer’s status, and the relationship between lawyer and firm.” ABA Formal Ethics Op. 90-357 (1990). See also ABA Formal Ethics Op. 94-388 (1994).

Relationships with attorneys in other states

There are also numerous risk management considerations to be addressed when an attorney in one state is approached to become “Of Counsel” to a firm in another state – particularly where the firm attorneys are not licensed in the state where the “Of Counsel” attorney practices and vice versa. Our third article in this series discusses: “‘Of Counsel’ Across State Lines‘.”

If you or your firm have any questions about whether or not an “Of Counsel” relationship would create ethics or liability issues, you should contact the appropriate ethics authority in your state or reach out to The Bar Plan Risk Management Department at Foundation@TheBarPlan.com.

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