Buying, selling contract lawyer services can mean a malpractice suit in the bargain

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Published on 12/19/05

Many firms, both large and small, use "contract lawyers" to provide legal counsel at reduced cost. Court decisions and rules of professional conduct alike hold that a contract arrangement may be billed at an "attorney's rate," a standard flat rate, or any rate that is established in the engagement agreement and is acceptable to the client.

In fact, Model Rule 1.5 declares that fee-splitting is acceptable in a contract arrangement if each lawyer contributes something of value. In a contract lawyer situation, the outsourcing attorney should contribute oversight of the outsourced legal work and interface with the client on how the work is applied.

There can be a real problem with such an arrangement when a contract attorney makes a special court appearance on behalf of another lawyer. This generally occurs in smaller communities, but quite a few attorneys in major metropolitan areas routinely make appearances for other lawyers as a professional courtesy and source of income to help out with a schedule conflict or to handle a routine matter.

The lawyer who engages the contract "pinch hitter" becomes responsible -- in a malpractice sense -- for any errors committed even in a seemingly simple case. This may seem obvious. But, consider the reverse, where the attorney making the special appearance becomes liable for the errors of the primary lawyer or even of other lawyers who made previous special appearances.

Consider the 2000 case of Streit v. Covington & Crowe, in which the California Court of Appeals held that an associated attorney cannot escape liability from the duty of an attorney-client relationship by claiming he made a "special appearance" only.

In this decision, plaintiff Streit named Covington & Crowe in a malpractice action against her attorney, Diggs, even though the firm's only contact with the plaintiff was making an appearance at a hearing on a motion for summary judgment as a professional courtesy to Diggs.

The Appeals Court held that, in this instance, an attorney-client relationship was created by implication, and that the division of effort by the attorneys was a distinction in degree, not a distinction in kind.

In the context of family law matters, at least, California may have addressed this issue by creating new forms in 2003. These are the most important ones:

  • The "Notice of Limited Scope Representation" clearly delineates the purpose and duration of the special appearance and must be signed by the client who acknowledges the limitation of the special appearance;

  • The "Application to be Relieved as Counsel Upon Completion of Limited Scope Representation" (served on all parties of record) makes a request to be relieved as counsel of record.

But, just serving the form doesn't mean the lawyer is done yet! A party to the action can object by filing an "Objection to Application to be Relieved as Counsel Upon Completion of Limited Scope Representation." After a hearing on the matter, the court will make a ruling after which an "Order on Application to be Relieved as Counsel Upon Completion of Limited Scope Representation" will be filed.

Sounds like a lot of work to do just for a favor to a colleague, or for a relatively small amount of money, especially since the court is unlikely to order payment of legal fees for this process beyond what the client agreed to pay for the initial appearance or work!

You might think all this is just another example of "Left Coast" courts at work, but fast forward to 2005 and the decidedly more conservative Florida Supreme Court. Earlier this year, in Cowan Liebowitz & Latman, P.C., et al. v. Kaplan, the court ruled that legal-malpractice can be alleged against an attorney or law firm by a third party who had not retained the lawyer's or law firm's services.

A third party who relied on the lawyer's professional services -- even if rendered on behalf of another -- can sue if the lawyer failed to exercise due diligence and proper care and thereby damaged the third party.

The court decision permitted creditors of an insolvent corporation to sue the lawyers who represented the corporation, accusing them of failing to disclose material information in private placement memoranda for the sale of shares.

Legal outsourcing can contribute to work and cost efficiencies if used correctly as a transparent resource.

However, that transparency must still include proper oversight and quality control. These two decisions make clear in different contexts that the provision of outside legal help should never be undertaken cavalierly. The financial incentives of cost-saving or fee-splitting may be offset by a big malpractice judgment.

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