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Request to Rescind MSBA Ethics Op. 1992-19

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request to rescind MD ethics opinion re: markups of contract attorneys

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Request to Rescind MSBA Ethics Op. 1992-19

  1. 1. 1440 G Street NW, 8​th​  Floor,  Washington D.C. 20005  info@poweruplegal.com  November 6, 2018 Theresa Michael Executive Assistant and Governance Maryland State Bar Association Committee on Ethics BY EMAIL Re: Request for Rescission of Ethics Opinion No. 1992-19: Prohibition on Markup for Outside Legal Research Dear Ms. Michael, My name is Carolyn Elefant. I am an attorney in good standing with the bars of New York, Washington D.C. and Maryland. I own the Law Offices of Carolyn Elefant, a boutique, national energy law practice and PowerUp Legal, an online marketplace for on-demand energy counsel. I am also creator of the blog MyShingle.com, the longest running blog on solo and small law firm practice. As both an attorney who regularly relies on freelance lawyer services in my practice and the owner of a company that matches freelance energy counsel to law firms and in-house counsel, I write to urge the Committee to rescind Ethics Opinion No. 1992-19 which prohibits Maryland lawyers from marking up the cost of contract lawyers. The quarter of a century old MSBA Opinion 1992-19 (“Maryland Opinion”) is outdated and runs counter to the rise of the gig economy. By prohibiting attorneys from making up the cost of contract attorneys, the Maryland Opinion removes any financial incentive for attorneys to outsource legal work to freelance attorneys to the detriment of cost conscious clients and mom-attorneys who often seek out contract work as a way to achieve work-life balance. The Maryland Opinion is also out of step with ABA Formal Opinion 93-379 and 16 other state ethics rulings that allow attorneys to mark up the cost of freelance attorneys so long as the overall fee to the client is reasonable. Up until a few months ago, the MSBA ethics opinions remained shrouded in practical obscurity because they were inaccessible online and available only to MSBA members. As a result, many Maryland attorneys, unaware of the prohibitions in Ethics Opinion 1992-19 may have assumed that the ABA Formal Opinion governed and unknowingly run afoul of
  2. 2. 1440 G Street NW, 8​th​  Floor,  Washington D.C. 20005  info@poweruplegal.com  Maryland’s ethics requirements. Now that the MSBA Ethics Committee opinions are readily available online, lawyers who may have inadvertently violated this rule and marked up freelance contractor charges may now find themselves the subject of ethics complaints by former clients or colleagues who may now access this opinion. Therefore, it is imperative for the MBSA Ethics Committee to formally rescind this opinion and remove any uncertainty regarding lawyers’ ability to mark up the cost of freelance attorneys. I. Summary of MSBA Opinion 1992-19: Billing for Outside Research Services MSBA Opinion 1992-19 arose out of an inquiry made by a “professional legal research organization that contracts with law firms” to provide research and writing support services to lawyers only. The company described its services as “those of an in-house law clerk or associate,” but are “contractual in nature” and performed offsite. As relevant here, the legal research organization asked: Is there any Rule of Professional Conduct that prohibits the law firm from billing its client for the contract associate’s time at the same hourly rate that it would charge if the attorney was a permanent associate in the firm? In response, the MSBA Ethics Committee rotely recited Rule 1 of the Maryland Rules of Professional Conduct which obligates lawyers to charge reasonable fees. The Committee then opined, with little discussion or analysis that: The law firm must determine that its overall fee, including additional cost of the contractual services, is reasonable. The Committee feels that the law firm may not bill the client for any amount greater than that which it actually paid for the contractual services. However,the Committee allowed that “the attorney may bill for his or her services that are required in reviewing or using the contract services.” The Maryland Committee offered little justification for its ruling except a vague “feeling” that a law firm should not markup contractual services. A closer reading of the Maryland Opinion suggests that the Committee may have been suspicious of contract services which it characterized as “an additional cost to which the client might not have consented” rather than as a lower-cost alternative to a permanent associate.
  3. 3. 1440 G Street NW, 8​th​  Floor,  Washington D.C. 20005  info@poweruplegal.com  As described below, the legal landscape has changed significantly since Maryland issued its ethics opinion. Today, freelance lawyering arrangements are practically the rule rather than the exception and are welcomed by most clients. But without the ability to markup freelance services, attorneys have no incentive to use them. What follows is a brief history of the rise of freelance lawyering along with an explanation of the economics of this practice. II. Background on Freelance Lawyers and the Rise of the Gig Economy A contract or freelance lawyer is essentially a sub-contractor to the principal attorney or law firm that has been retained by the client. Freelance attorneys do not have a contractual relationship with the client. Instead, they provide services such as document review, legal research and writing or court appearances to a principal attorney or firm in furtherance of their representation of the client.1 The practice of using attorneys on a contract or temporary basis is not a new phenomenon. Large law firms employed large teams of document review attorneys dating back to the early 1990s if not earlier. But with the advent of the Internet, contract and freelance services could be performed remotely. As a result, contract services grew accessible to solo and small firm lawyers who previously may have lacked the ability to accommodate a contract lawyer working onsite. Indeed, the agency that solicited the Maryland Opinion was likely an early provider of remote contract lawyer services. Economic and social trends also hastened the rise of freelance attorneys. As2 biglaw rates skyrocketed upwards, cost-conscious clients sought out more budget-friendly alternatives - which many solo and small firms were able to handle through remote freelance attorneys who cost less than permanent employees. Meanwhile, Gen-Y attorneys entering the workplace sought more balance and were willing to trade 80-hour weeks at3 1 ​See generally​, D. Little, ​Contract Lawyering: Benefits & Obstacles​, 37 Colo. Lawyer 61 (Jan. 2008). 2 ​ See generally K. Ciano, ​Loving the F-Word: Freelancing is Part of the New Normal​, (January - February 2016)(describing history of the growth of freelance lawyering). 3 L. Gordon, Midcareer Malaise (September 2008) online at http://www.abajournal.com/magazine/article/midcareer_malaise​ (describing GenY’s prioritorization of worklife balance).
  4. 4. 1440 G Street NW, 8​th​  Floor,  Washington D.C. 20005  info@poweruplegal.com  biglaw for flexible freelance opportunities. These developments coincided with the rise of the gig economy and birthed companies like Montage Legal, Hire an Esquire, Law Clerk and more that match freelance lawyers with law firms in need of assistance. In short, a4 thriving ecosystem with benefits for cost-conscious clients and parents who practice has emerged across the country. But Maryland’s ethics opinion prohibiting markups prevents Maryland lawyers and clients from availing themselves of these promising developments. II. The Economics of Freelance Lawyering To fully comprehend the deleterious impact of the Maryland Opinion on the legal gig economy, it is necessary to understand the economics of small firm law practice and freelancing. Traditionally, law firms have been permitted to mark-up associate salaries to recover the cost of overhead (salary, benefit, office space, malpractice) and generate profit for the firm. Thus, we think nothing of a law firm paying a first year associate a salary of $100,000/ year (or the equivalent of $46/hour based on a 45-hour work week 48 hours/year) and billing clients $200/hour for the associates time (which amounts to $280,000 for the firm based on a 1400 hour billing requirement). By contrast, freelance attorneys hired on an as-needed basis do not require the same amount of overhead. But even so, freelance attorneys do not come without cost. For starters, a firm relying on freelancers must secure additional malpractice insurance to cover the work performed by the freelancer. The hiring firm also bears the risk of non-payment because it remains obligated to compensate the freelancer for services rendered even if the client disputes the firm’s bill or refuses to pay. Finally, the reason that most solo and small firms have overflow work to begin with is because of considerable investment of time and resources in marketing. Without the ability to markup contract fees, an attorney could effectively invest money in marketing and come away without any profit. Consider the table below: 4 ​See C. Elefant, Pros & Cons of Using Freelance Attorneys, Above the Law, (Jaunary 2018), online at https://abovethelaw.com/2018/01/the-pros-and-cons-of-using-freelance-attorneys-persp ectives-from-a-hands-on-user/?rf=1​ (listing freelance companies).
  5. 5. 1440 G Street NW, 8​th​  Floor,  Washington D.C. 20005  info@poweruplegal.com  Table 1.1 Comparison of Return on $2500 Attorney Investment in Conference Under Different Freelance Scenarios: Scenario Attorney Client Comment Attorney handles appeal resulting from conference. $300/hr * 66 hours = $20,000 fee Pays $20,000 Attorney recovers $20k for $2500 investment. Traditional solo biz model. Attorney unavailable for appeal until 5 days before deadline but does not hire freelancer. $300/hr * 66 hours = “20,000 fee Pays $20,000 but receives substandard product & no opportunity to review. Attorney recovers $20k for $2500 investment but client leaves bad review and loses appeal. UNSUSTAINABLE. Attorney unavailable for appeal until 5 days before deadline. Hires freelancer w/10 yrs biglaw experience. NO MARKUP. Attorney pays freelancer $75/hr * 66 hours = $4950. Billed $4950 Attorney effectively spent $2500 and gained zero. Good deal for client UNSUSTAINABLE for lawyer. Freelancer benefits from project.. Attorney unavailable to handle appeal until 5 days before deadline. Hires freelancer w/10 yrs. Biglaw experience. ​MARKUP OK. Attorney pays freelancer $4950; bills client $200/hr * 66 hours = $13,200 Client pays $13,200 for excellent product. Attorney recovers $8250 from markup but is also freed up to take another matter once original matter is complete. Client pays less. Freelancer benefits from project​. WIN WIN!! The scenarios depicted in the table above show that mark-ups are a win-win for small firm lawyers (by rewarding them for marketing investment), clients (by yielding lower rates) and freelance attorneys (by providing them with work). These outcomes are corroborated by my own experience. By relying on freelance lawyers, I have been able to operate a sustainable practice for almost 25 years while representing clients involved in complex energy regulatory and constitutional matters at rates that are 30-40 percent less than the large firms that I often face. Meanwhile, my freelance placement service, PowerUp Legal has helped find work for older lawyers downsized from their law firms and female attorneys seeking to return to the workforce after taking time off to have children. Yet few of the firms that have hired these PowerUp Legal attorneys would do so absent the ability to mark-up their fees.
  6. 6. 1440 G Street NW, 8​th​  Floor,  Washington D.C. 20005  info@poweruplegal.com  III. The Maryland Opinion Is A Minority Position Not only is Maryland’s prohibition on markup of contract attorneys out of step with today’s economy and detrimental to both clients and female attorneys who disproportionately comprise the ranks of freelancers, but it is also a minority view. The ABA blessed the use of markups on freelance fees in ABA Formal Opinion 00-420 so long as the overall charges to clients were reasonable. The ABA reaffirmed Formal Opinion 00-420 in a later decision, Formal Opinion 08-451 which required lawyers to disclose to clients the use of contract attorneys though not the amount of the surcharge. Formal Opinion 08-451 explained: In Formal Opinion No. 00-420, we concluded that a law firm that engaged a contract lawyer could add a surcharge to the cost paid by the billing lawyer provided the total charge represented a reasonable fee for the services provided to the client. This is not substantively different from the manner in which a conventional law firm bills for the services of its lawyers. The firm pays a lawyer a salary, provides him with employment benefits, incurs office space and other overhead costs to support him, and also earns a profit from his services; the client generally is not informed of the details of the financial relationship between the law firm and the lawyer. Likewise, the lawyer is not obligated to inform the client how much the firm is paying a contract lawyer; the restraint is the overarching requirement that the fee charged for the services not be unreasonable. Of the jurisdictions that have addressed markups of freelancer fees, all permit this practice with the exception of Texas.5 5 ​See ​Va. Legal Ethics Op. 1712 (July 22, 1998); Va. Legal Ethics Op. 1735 (Oct. 20, 1999); Va. Legal Ethics Op. 1850 (Dec. 28, 2010); 2007 N.C. Formal Ethics Op. 12 (Apr. 25, 2008); Fla. Ethics Op. 07-2 (Jan. 18, 2008); Fla. Consol. Ethics Ops. 76-33, 76-38 (Mar. 15, 1977); Ala. Ethics Op. RO-2007-03 (May 18, 2007); Alaska Ethics Op. 96-1 (Jan. 13, 1996);Cal. Formal Ethics Op. 1994-138; Colo. Formal Ethics Op. 105 (May 22, 1999); D.C. Ethics Op. 284 (Sept. 15, 1990); Ga. Formal Advisory Op. 05-9 (Ga. Sup. Ct. Apr. 13, 2006); Ill. Advisory Op. on Prof'l Conduct 92-07 (Jan. 22, 1993); N.H. Formal Op. 1995-96/3 (Nov. 8, 1995); N.Y. City Formal Op. 1989-2 (May 10, 1989); N.Y. State Ethics Op. 721 (Sept. 27, 1999); Ohio Advisory Op. 2009-6 (Aug. 14, 2009); Pa. Informal Op. 97-20 (Sept. 19, 1997); Phila. Ethics Op. 2010-4 (May 2010); S.C. Ethics Advisory Op. 91-09 (July 1991); S.C. Ethics Advisory Op. 96-13 (1996)​.
  7. 7. 1440 G Street NW, 8​th​  Floor,  Washington D.C. 20005  info@poweruplegal.com  IV. Conclusion When the MSBA Ethics Committee issued Opinion 1992-19 over a quarter of a century ago, the legal profession was a very different place than it is today. With the advent of the Internet and cloud-based law firm technology along with the rise of the gig economy, lawyers offer clients superior legal service at lower cost while providing meaningful and lucrative professional opportunities for talented female lawyers who years ago had no option but to leave the law entirely to spend time with family. I urge the MSBA Ethics Committee to rescind the now outdated Ethics Opinion 1992-19 and bless the practice of allowing lawyers to mark up freelance attorney fees as permitted by the ABA and 16 other states. Thank you for your consideration of this matter. Respectfully submitted,      Carolyn Elefant   

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