ABA Gives Thumbs Up to Legal Outsourcing

Anthony Lin
08-27-2008

The American Bar Association has waded into the debate over legal outsourcing with an ethics opinion blessing the outsourcing trend as "a salutary one for our globalized economy."

A growing number of legal process outsourcing (LPO) companies have sprouted up in recent years to offer the services of lawyers abroad to handle the most labor-intensive aspects of U.S. legal matters, especially document review in large-scale litigation. India has been the most popular destination for legal outsourcing because it has a common-law system and English is widely spoken.

Companies operating there have hailed the advisory by the ABA's ethics committee as a major step forward for their nascent industry.

"Several of us were waiting for this," said Ram Vasudevan, the chief executive officer of New York-based Quislex, which has 170 lawyers in Hyderabad, India. "This lays out the framework for how to do this."

Ethics Opinion 08-451, dated Aug. 5 but announced by the ABA Tuesday, states that sending legal work overseas is ethically permissible as long as the lawyer doing the outsourcing takes steps to ensure the protection of client confidences and preservation of attorney-client privilege. The advisory also states that attorneys should check to make sure that foreign lawyers are suitably trained and competent and that bills for outsourced work be reasonable.

Vasudevan said the major LPO companies already took all of the precautions outlined by the ABA but said the advisory would help set industry standards for newcomers and also comfort potential clients still wary of outsourcing legal work.

David Perla, the co-founder and co-CEO of New York-based Pangea3, one of the largest LPOs with 300 lawyers in Mumbai, India, said the positive language of the ABA's opinion was particularly heartening. A handful of state bar groups, including the New York City Bar Association, have already signed off on overseas outsourcing, but none has been as enthusiastic as the ABA, he said.

The advisory noted that outsourcing "affords the lawyers the ability to reduce their costs and often the cost to the client to the extent that the individuals or entities providing outsourced services can do so at lower rates than the lawyers' own staff." The ABA also said outsourcing created new opportunities for smaller firms to handle larger matters.

Such language would "lessen the fear and uncertainty that opponents of this are spreading," said Perla.

The most visible opponents to overseas outsourcing of legal services are U.S. lawyers performing document review work on a contract basis. Many temporary lawyers, who generally earn a fraction of the pay of full-time associates at large firms, fear that outsourcing to India will drive their wages down even further.

Though lawyers, they are as vociferous in their opposition to outsourcing as union members. After Perla compared the skills of U.S. contract lawyers unfavorably with those of Pangea3 lawyers in an interview with the Law Journal earlier this year, he was vilified in online message boards and blogs frequented by contract lawyers. The blog "Temporary Attorney: the Sweatshop Edition" called Perla an "anti-American traitor."

Scott Bullock, a contract lawyer who has blogged about the woeful economics of non-big-firm practice, said, "It's just preposterous that we have to go to an American law school and pass a bar exam and then see our jobs shipped overseas. Why even require people to go to law school?"

But Bullock said he was not surprised to see the ABA back outsourcing. He said the bar group is widely perceived among contract lawyers as representing the interests of wealthy partners at large law firms.

Vasudevan said the perception of job loss in the legal profession due to outsourcing is exaggerated.

"I don't think we have taken any legal jobs away," he said. "We've made the process more efficient, but there is still plenty of work."

LPOs face some potential obstacles to continued growth. The number of new entrants in the industry has made recruiting of well-qualified Indian lawyers more competitive. The expansion of the Indian profession and a possible opening of the now-closed market to international law firms may rob LPOs of their best staff down the road.

But the trends so far are positive, said Pangea3's nonexecutive chairman, Lawrence G. Graev, the former law firm head whose private equity fund is now a major backer of the LPO. He said Pangea3 had its best month ever in July and that the company was benefiting from a critical mass of a strong and seasoned staff in India, and greater acceptance among U.S.-based clients. He said the ABA's ethics opinion would only increase client interest.

"It's like a perfect storm," he said, "for us."