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Published Tuesday, December 13, 2016
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Do Law Firms Need Their Own Legal Counsel?

While the idea of law firms needing lawyers for their lawyers may sound redundant, many solo practitioners and small law firms are so busy working to protect their clients that they may overlook the need to protect themselves. As the saying goes, "The cobbler's children have no shoes.” Why would a lawyer or firm need counsel? Examples include:

  • Reviewing vendor contracts
     
  • Advising on the management of client funds
     
  • Resolving billing/collecting issues
     
  • Advising on conflicts of interest issues
     
  • Counseling in general commercial disputes
     
  • Identifying risk trends
     
  • Developing internal risk control policies and procedures
     

Hiring legal counsel represents an important risk management tool for those practicing law. Below are the benefits of hiring in-house versus outside counsel, what American Bar Association Resolution 103 means for law firms and how firm can responsibly employ legal counsel.

To Hire In-house or Outside Counsel?
In today's legal market, firms may resist hiring counsel for general business needs. One reason for this reluctance is that some firms believe they cannot afford to spend funds on staff members that do not generate income. But both internal and external legal counsel provide a great value to law firms, especially in helping to develop risk management strategies to avoid or mitigate potential liabilities.

In-house counsel provides a centralized point of contact for communications between various firm staff as well as third parties such as vendors or opposing counsel. Moreover, firms that staff a general counsel role typically incur $1 million less on defense costs and indemnity payments, with respect to malpractice claims, than firms without a general counsel.1

A collateral benefit of proactively managing law firm risks through the use of outside counsel includes better client relationship management. For example, outside counsel may provide objective views on matters such as billing disputes. Outside counsel also may help clarify internal law firm staff duties in such areas as the creation of reporting hierarchies for internal disputes, client intake procedures and conflict resolution practices.

Especially for solo practitioners or a small law firms, identifying an external lawyer as outside counsel makes economic sense. However, as law firms grow, it may be advantageous to appoint a full- or part-time, in-house counsel.

What Does Resolution 103 Mean for Law Firms?
Recently, courts have held that the attorney-client privilege applies to communication between a law firm and its general counsel regarding a potential malpractice claim by a current client, provided that certain conditions are met. In view of these court decisions, the American Bar Association adopted Resolution 103, which declares that the attorney-client privilege shields a lawyer's consultation with an in-house counsel, even if the discussion creates a conflict.2
Law firms that have considered hiring legal counsel should be encouraged to develop that role in today's competitive marketplace, while also taking appropriate precautions in the hiring process.

How Can Law Firms Responsibly Employ Legal Counsel?
Law firms always should review their state-specific laws, regulations and ethical guidance regarding any limitations to the general counsel's function. In addition, the following recommendations should be considered:

  • Formally appoint one or more lawyers to serve as the firm's general counsel or part-time general counsel, or hire an objective, experienced counsel either to fill this role or as an independently contracted position.
     
  • When discussing firm-specific matters with the general counsel:
     
    • Ensure that no conflict of interest exists.
       
    • Create a separate internal file on the matter.
       
    • Do not bill any client file for "in-house” consultation.
       
    • Treat communications between firm and counsel as confidential and privileged.
       
    • Keep written documentation to a minimum.
       
  • Inform clients that attorneys may be required to seek confidential, internal legal advice.
     
  • Educate firm staff about the role of the general counsel.
     
  • Create a firm culture and utilize the services of a general counsel within firm guidelines.
     

In CNA's PROfessional Counsel: An Overlooked Asset in Law Practice Risk Management: Legal Counsel, I further describe the above recommendations as well as expand upon the prior topics discussed.

Any law firm that is still hesitant to hire general counsel should know ABA Model Rule 1.6(b)(4) authorizes lawyers to seek confidential advice from other lawyers about their ethical duties. Additionally, ABA Model Rule 1.6(b)(5) provides an exception to the lawyer's duty of confidentiality "to establish a claim or defense on behalf of the lawyer in a controversy between the lawyer and the client.”

Utilizing the benefits of counsel will increase a firm's competitive advantage in the market. By utilizing an expert in law practice management, lawyers can focus on their own areas of practice and – ultimately – optimal client servicing. Commercial businesses embrace the value of legal services as vital to their continued success. Why would law firms carry out their business practices any differently?

1 Rotunda, Ronald D. Law Firms Creating In-House Ethics Counsel, VERDICT, Legal Analysis and Commentary From Justina, Nov. 3, 2014, citing The Professional Lawyer, v.20 no.2, 2010 Summer, p.1
2 American Bar Association Resolution (2013)

One or more of the CNA companies provide the products and/or services described. The information is intended to present a general overview for illustrative purposes only. Read CNA’s General Disclaimer.
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One or more of the CNA companies provide the products and/or services described. The information is intended to present a general overview for illustrative purposes only. Read CNA’s General Disclaimer.
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