A recent American Lawyer story by Miriam Rozen, “Some Lawyers Chafe as Clients Expand Outside Counsel Guidelines,” reports that Corporate clients are getting more aggressive about broadening and expanding their outside counsel guidelines, according to a number of industry consultants and lawyers who represent law firms. And some attorneys are pushing back.
“Some of the demands clients are making of their outside counsel are so over-broad that they are objectively outrageous,” said New York-based Anthony Davis, who represents lawyers and law firms as a partner in the professional practice group at Hinshaw & Culbertson. ”I talk to general counsel of large and midsized firms all the time, and they are repeatedly being confronted with demands that are so extreme that they are or ought to be unpalatable.”
Outside counsel guidelines, which govern the relationship between a company and its law firms, can include requirements on topics ranging from billing and expenses to IT and cybersecurity to the scope of what’s considered a conflict of interest.
“Clients will try to put in their outside counsel guidelines that the firm won’t work for any other company that the business thinks is adverse,” said Bruce MacEwen, a consultant at Adam Smith Esq.
For Davis and other critics, such restrictive guidelines—especially those that define conflicts more broadly than established norms of legal ethics—can go so far as to contradict the Model Rules of Professional Conduct.
Last year, at an American Bar Association conference on professional responsibility, Davis and his partner Noah Fiedler presented a paper that included examples of such guidelines that they collected from law firm general counsel. The pair proposed a change to Rule 5.6—which governs the right to practice—that would explicitly prohibit law firms from agreeing to client guidelines that exceed the Model Rules.
Not all companies have beefed up their requirements, said Rebecca Lamberth, an Atlanta-based trial practice leader at Duane Morris who also serves in the firm’s general counsel office.
“I think it is fair to say that a few corporate clients have expanded their outside counsel guidelines,” Lamberth said. But for some, the changes have been voluminous, she said.
A lawyer she knows quantified the shift by tallying pages, she said. When he started a job in a senior in-house legal department role five years ago, the company’s standard outside counsel guidelines ran just a few pages. When he left this year, they consumed about 25 pages, Lamberth said.
Kevin Rosen, a partner in the Los Angeles office of Gibson Dunn and chairman of its law firm defense practice group, said it was mainly clients with large books of litigation that are adding to their guidelines.
“I would not say that the expansion is universal among all clients. I do think though that clients with experience negotiating with law firms, and in particular those conducting RFPs and/or retaining panel counsel, tend to have more expansive approaches to defining what they perceive to be conflicts,” Rosen said.
One factor emboldening clients to be more restrictive in their outside counsel guidelines may be lackluster demand for outside legal work.
“The relationship of law firms and their clients is unstable. Where once it was a seller’s market, today the leverage is entirely on the client side,” Davis said. The result, he suggested, is a threat to a core value of the legal profession—namely, lawyers’ independence.
Among the issues Davis cites: Some guidelines broaden the definition of what constitutes a client to include all of a company’s affiliates or “everything we own,” he said. Some insist, “if you represent us, you may not represent any of our competitors.” Some seek to prevent firms from taking opposing positions on issues in ways that could force the firms to violate their own ethical and fiduciary obligations to other clients in unrelated matters.
Corporate clients often update their outside counsel guidelines more frequently and regularly than law firms update their initial retention agreements. If a contractual dispute between the law firm and the client lands in court, judges may then rule that the revised outside counsel guidelines trump language in a preceding retention agreement, according to Davis.
Still, some think the problem is overstated.
Requests that an outside lawyer not advance an opposing position for another client can be perfectly valid on “an issue-by-issue basis,” said Duane Morris’ Lamberth. And often clients are willing to work with law firms to revise sections of outside counsel guidelines that a firm deems objectionable, she said.
“Certainly companies want to work more closely with laws and have law firms that they feel are going to be reliable partners,” said Nick Rumin of Rumin Search Consulting.
Altman Weil consultant Tom Clay said it’s true that clients have more leverage than they used to, but he doesn’t view that as leading to a plague of onerous outside counsel guidelines.
In his experience, Clay said, clients are “always thoughtful” about what they put in their guidelines. And in the end, he added, “A client can say anything they want. They don’t have to have a reason.”