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WASHINGTON – Two recent developments in American legal circles have given a major boost to the nation’s fast-growing legal process outsourcing industry. Most significant is the American Bar Association’s decision in August to endorse the outsourcing of legal work to foreign attorneys by American law firms.

The ruling by the organization’s Standing Committee on Ethics and Professional Responsibility, titled “Ethics Opinion – 8-451,” effectively blesses the practice as one that is beneficial to the American and global economies.

“U.S. lawyers are free to outsource legal work, including to lawyers and nonlawyers outside the country, if they adhere to ethics rules requiring competence, supervision, protection of confidential information, reasonable fees and not assisting unauthorized practice of law,” the ABA said in an Aug. 25 statement.

The ruling is likely to have a profound impact on the American legal-services sector, which includes traditional law firms, corporate legal teams and a growing number of specialty companies that offer the services of attorneys and paralegals in foreign countries who handle the most labor-intensive aspects of U.S. legal matters, particularly document review.

The second development to impact the U.S. legal process outsourcing-services sector occurred Aug. 15, when Bethesda, Md.-based law firm Newman McIntosh & Hennessey LLP dropped a lawsuit that it had filed just four months earlier against Acumen Legal Services India Pvt. Ltd., after the Hyderabad-based company challenged the validity of the lawsuit in a U.S. federal court.

SDD Global Solutions Pvt. Ltd., the Mysore, India-based subsidiary of Smith Dornan & Dehn PC, a New York City-based law firm with an office in London, prepared Acumen’s response and a supporting legal brief. SDD Global Solutions managing director Russell Smith called the Newman McIntosh & Hennessey complaint “baseless” and said it “lacked any merit.”

 “I talked to a journalist with a big legal publication about the case, and he said it looked like something straight from the X-Files,” Smith said. “It was a remarkably poorly drafted complaint – in fact, it was one of the most poorly drafted complaints that I have ever seen – and it appears that [Joseph Hennessey, who filed the complaint] never really believed the case had any merit.”

Around the same time that Hennessey withdrew  his complaint, Newman McIntosh & Hennessey announced that it was shutting down.

A Closer Look The American Bar Association has ruled that the practice of outsourcing legal work to foreign attorneys is beneficial to the American and global economies. ABA statement: “U.S. lawyers are free to outsource legal work, including to lawyers and nonlawyers outside the country, if they adhere to ethics rules requiring competence, supervision, protection of confidential information, reasonable fees and not assisting unauthorized practice of law.” The ruling is expected to have a large impact on the American legal-services industry, particularly companies that offer legal document review services.

India, with its low cost of doing business, common-law legal system and a vast population of highly educated, English-speaking workers, has for some time been the center of the legal process outsourcing industry. Not surprisingly, dozens of Indian firms hailed the ABA ethics committee’s ruling as the right decision and a huge step forward for their fledgling industry.

“I don't think the ABA said anything new or unexpected in its opinion – state bars in New York, Louisiana, Florida and New Jersey have already come out with similar positions – but it’s huge nonetheless,” Ram Vasudevan, chief executive officer at QuisLex Inc., said. “The significance here is that the ABA is an organization with a broader acceptance because it’s not limited to one particular state, so in effect, this shows the pulse of the legal community.”

QuisLex, which translates loosely from Latin to mean “anything legal,” provides high-quality, low-cost outsourced legal services to Fortune 500 corporate law departments and law firms worldwide. The company is based in Manhattan but has an office in Hyderabad, India.

Ethics Opinion 08-451, which the ABA ethics committee approved Aug. 5, states that the offshoring of legal work is ethically acceptable so long as the outsourcing attorney and the lawyer who is doing the work take steps to protect client secrets and attorney-client privilege.

“Depending on the level of supervision contemplated by the outsourcing lawyer, it might be necessary to obtain informed client consent before engaging outside assistance,” the ABA states in its explanation of the opinion. “Informed consent also may be required to reveal confidential information, and the outsourcing lawyer should recognize and minimize the risk that a service provider might breach confidentiality.

The opinion also instructs U.S.-based attorneys to make sure that foreign lawyers they choose to handle their work are knowledgeable about the American legal system, that they abide by ethics rules equivalent to those in place in this country and that they bill a reasonable fee.

 “If the provider is in a foreign country, the outsourcing lawyer should determine whether the legal education system in that country is similar to that of the [United States], and whether professional regulatory systems incorporate equivalent core ethics principles and effective disciplinary enforcement systems.

“Regarding fees, outsourcing lawyers may pass along to the client the costs of using the service provider, including reasonable allocation of associated overhead expenses, but no markup is permitted,” the ABA concludes.

Headquartered in Washington, D.C., the American Bar Association is the largest voluntary professional membership organization in the world, with more than 413,000 members. It serves as the voice of the American legal industry, and works to improve the administration of justice, promotes programs that assist lawyers and their work, accredits law schools and works build public understanding worldwide about the importance of the rule of law.

Opponents of Legal Process Outsourcing Small in Number

Despite the ABA’s decision to endorse overseas outsourcing of legal services, there is a small but vocal sector of the American legal community that staunchly opposes the practice. The group, which has no real leader, consists mainly of American attorneys who perform document review and legal research – the very services that Indian firms offer to do for much less money.

The most visible opponent of legal process outsourcing thus far has been Joseph Hennessey, a partner at Newman McIntosh & Hennessey until the firm announced that it was disbanding. Hennessey has since joined John Beins and Seth Goldberg to form Beins Goldberg & Hennessey in Chevy Chase, Md.

In his original lawsuit against Acumen Legal Services, filed May 7 with the U.S. District Court for the District of Columbia, Hennessey sought a ruling on the outsourcing of privileged client data that he contended was subject to eavesdropping by the U.S. government. He brought the suit against Acumen after the firm pitched its outsourcing services to Newman McIntosh & Hennessey.

Hennessey argued that foreign companies are not afforded the same privacy rights by the Fourth Amendment of the U.S. Constitution as are domestic companies, because the National Security Agency is free to spy on them at will. The suit also named U.S. President George W. Bush a co-defendant along with Acumen Legal Services and its now-defunct American subsidiary, Acumen Solutions Inc. of Houston.

Newman McIntosh & Hennessey asked the ethics committees for the Maryland State Bar Association and the Washington, D.C. Bar to weigh in on the case; the Maryland State Bar Association declined to address Hennessey’s question because the case was still being heard and because it involves political issues that the ethics committee claimed unfamiliarity familiar with.

“Hennessey was quoted after he withdrew the complaint that he did so because he was leaving to go to another law firm, but that’s no reason to drop a lawsuit,” Smith said. “He could have always asked the court for permission to amend the suit. By withdrawing it, he simply didn’t have to respond to Acumen’s challenge. It seems to me a pretty poor reason for dropping a case; maybe he realized that he didn’t have one.”