Dan McKenna thinks “of counsel” could be one of the misunderstood terms in the legal language!
Since the Great Recession in late 2007, law ﬁrms have vigorously
worked to meet the challenges posed by the evolving market for
legal services.‘ Clients increasingly challenge law firms to be price
competitive. Inter-firm competition also remains fierce in a market
confronting a shrinking demand for legal services, as companies
move more work in-house, or individuals turn to online self-help
resources. From solo practitioners to large law firms, opportunities
are pursued for advantageous relationships to grow businesses,
manage profitability and ultimately better serve clients.
Given these trends in the legal marketplace, solo practitioners
and small firm lawyers may look to develop ongoing relationships
with other firms in order to stimulate business or even to test
potential future partnerships. From another perspective, mid-size
and large ﬁrms continue to feel the pressure to do more with less,2
resulting in increasing billable hour demands for associates pursuing a partnership track. As a result, many attorneys are opting
for a better work-life balance by trading their pursuit of partnership
for alternative arrangements such as special counsel roles with
the firm. In other words, firms are increasingly open to exploring
opportunities beyond the standard "partner-associate” management structure in order to generate business and better meet the
demands of their clients.
While the designation "of counsel” has been used by firms for
many years, the concept can still be a bit of a paradox, if not often
completely misunderstood. Misrepresenting a lawyer as "of
counsel"3 may unnecessarily expand a firm's risk profile, transcend
professional rules governing lawyer advertising and fee splitting
and, at worst, may create conflicts of interest jeopardizing the
firm's relationships with long standing clients.
Special Counsel, Co-Counsel
or Something Entirely Different
The American Bar Association ("ABA") Model Rules of Professional
Conduct do not directly define or address use of the “special
counsel" designation.The leading national guidance on use of the
term continues to be ABA Formal Ethics Opinion 90-357 (1990).
According to Formal Op. 90-357, "[t]he use of the title ’of counsel,’
or variants of that title, in identifying the relationship of a lawyer
or law firm with another lawyer or firm is permissible as long as
the relationship between the two is a close, regular, personal
relationship and the use of the title is not otherwise false or misleading" (emphasis added). It is this close, regular and personal
relationship on which most states base their definition of the
special counsel relationship. ABA Formal Op. 90-357 goes on to
provide four leading examples of proper use of the special counsel
1. a part-time practitioner, who practices law in association with
a firm, but on a basis different from that of the mainstream
lawyers in the firm;
2. a retired partner of the firm who provides institutional
recollections of his or her experiences with the firm and is
available for consultation;
3. a lawyer, usually a lateral hire, brought into the firm with the
expectation that the lawyer will shortly become a member;
4. a lawyer who occupies a permanent senior position in the
firm with no expectation of becoming a partner.
These four examples underscore that the special counsel designation should not be used to designate more casual relationships
which depend on occasional interactions. ABA Formal Op. 90-357
also provides four examples of improper use of the special counsel
designation, which includes the following:
- A relationship involving only an individual case;
- A relationship of forwarder or receiver of legal business;
- A relationship involving only occasional collaborative
efforts among otherwise unrelated lawyers or firms; and
- The relationship of an outside consultant.
The opinion goes on to also authorize use of the special counsel
designation between a firm and an independent lawyer or firm
that have close, regular, personal relationships. There are many
different types of interactions between independent lawyers in the
joint representation of their clients. To think of this on a spectrum
consider, first, a client who independently retains Law Firm X and
separately retains Law Firm 2 to act as co-counsel in the defense
of a claim. While both firms remain fundamentally independent,
they may share responsibilities in their representation of the client
Moving along the spectrum, consider Law Firm X, a litigation firm,
directly hires Law Firm 2, a firm uniquely skilled to handle complex tax issues, as retained counsel, to assist Firm X in creating a
financial plan for a high net worth individual. Continuing along
this spectrum, consider Law Firm X finds itself with a number of
high net worth clients and regularly calling on Law Firm Z to assist
At this point, it might make sense to form a special counsel relationship if the firms routinely represent a similar client base. The
final stop along this spectrum would be Law Firm X acquiring, or
merging with, Law Firm Z.
The "close, regular, personal relationship" requirement is subject
to interpretation, but has routinely been applied by state ethics
boards as being close, ongoing, regular and involving frequent
contact for the purpose of providing consultation and advice.
However, state ethics boards typically have rejected special counsel
designations between firms that are merely attenuated alliances
for marketing purposes or for lawyers who simply share office
space. A Virginia opinion on this point noted that the "of counsel"
designation is too often used in a way that is not permissible: to
define the relationship between a national plaintiff's firm that solicits
cases and, in turn, makes referrals to local firms.‘ The opinion
concluded that this relationship was solely a business relationship
and that the firms did not collaborate on the legal matters.
An accurate description of a firm's relationship with special counsel
is imperative, because that designation imposes professional
obligations related to division of fees, advertising, conflicts of
interest and confidentiality.
Division of Fees
Lawyers are humble enough to recognize that they may not be
able to handle every type of matter that a client presents. However,
lawyers also recognize the importance of maintaining strong client
relationships and referring clients to another attorney may dilute
those relationships. By holding out a lawyer as special counsel to
the lawyer's own firm, a lawyer has some control over the brand
recognition of the representation. In addition, a lawyer may wish
to keep the terms of business referrals to external counsel confidential. The special counsel relationship balances these competing
interests by treating the lawyers as a single entity.
The ethical standard that governs division of fees between lawyers
who are not in the same firm is ABA Model Rule 1. 5(e). Generally,
ABA Model Rub 1.5(e) states that a division of fees between lawyers
not in the same firm may only be made if the division is proportional
to the services performed by each lawyer‘, the client confirms the
terms of the agreement in writing and the total fee is reasonable.
When forming a special counsel relationship, the special counsel
is typically considered a member of the same firm for purposes of
fee sharing. Therefore, the requirements of ABA Model Rule 1.5(e)
do not apply.‘ While lawyers may appreciate the business benefit
provided by the circumvention of ABA Model Rule 1.5(e), they must
weigh this benefit against the other obligations and restrictions that
go along with a special counsel designation, as discussed below.
Misrepresenting a lawyer as "of
counsel "3 may unnecessarily expand
a firm’s risk profile, transcend
professional rules governing lawyer
advertising and fee splitting and, at
worst, may create conﬂicts of interest
jeopardizing the firm’s relationships
with long standing clients.
A ﬁrm that has a relationship with a special counsel must consider
the manner in which they market that relationship, whether through
digital media or a standard letterhead. Generally, the ethical rules
implicated are ABA Model Rules 7.1: Communications Concerning
a Lawyer‘s Services and ABA Model Rule 7.5: Firm Names and
Letterheads. ABA Model Rule Z! prohibits "false or misleading
communications about [a] lawyer or the lawyer's services.” ABA
Model Rule ZS prohibits the use of "a firm name, letterhead or
other professional designation that violates ABA Model Rule 2!."
Therefore, whatever special counsel designation is used, the
attorney listing must be sufficiently detailed in order to notify consumers of the nature of the relationship.
In addition to notifying the public of the nature of the special
counsel relationship, firms also must be scrupulous in expressly
stating any jurisdictional limitations if the special counsel practices
in a different jurisdiction from the firm.7 Moreover, out-of-state
attorneys on both sides of the special counsel relationship (where
authorized) must limit their representations to only the jurisdictions in which they are licensed to avoid the unauthorized practice
When conducting conflict checks,
law firms in special counsel
relationships should consider obtaining the potential client's
consent to disclose sufficient
information to the other firm.
Conﬂicts of Interest
When a lawyer or firm is special counsel to a firm, the parties must
continue to act in accordance with all rules of professional conduct
including conﬂicts of interest. Pursuant to ABA Model Rule 1.10:
imputation of Conﬂicts of interest: General Rule, when a lawyer
becomes special counsel to a firm, all conﬂicts are imputed from
the lawyer to the firm and similarly, from the firm to the lawyer.9
This imputation cannot be avoided by screening the lawyer from
other cases within the firm on which the special counsel is not
working, unless screening is otherwise permitted by state rules.
Therefore, conﬂicts checks for all new matters for both entities
must be cleared by both the firm and the special counsel. It is not
sufficient to run a conflicts check solely pertaining to the matters
on which both entities are jointly representing clients. For con-
flicts purposes, in other words, once the relationship is formed the
entities are in for a penny in for a pound.
If a firm decides to form a special counsel relationship, then the
firm should begin the relationship with an initial conflicts clearance
in a manner analogous to its management of a lateral hire. Some
opinions recommend disclosing the "of counsel" relationship in
an engagement letter, while others require doing so.10 When con-
ducting conflict checks, law firms in special counsel relationships
also should consider obtaining the potential client's consent to
disclose sufficient information to the other firm in order to perform
a thorough conﬂicts check.
Accordingly, firms have two choices when it comes to affiliating
with external lawyers. First, they can continue working as independent firms through a co—counsel, retained counsel, or contract
counsel relationship in which case their fee-sharing must be done
in accordance with ABA Model Rule 1.5(e). Alternatively, they can
form a special counsel relationship in which case they may keep
fee-sharing confidential but, in turn, must accept the imputation
of joint firm conﬂicts.
Law firms affiliated through a formal special counsel relationship
also must take steps to preserve conﬁdentiality of client files.
While it may seem intrusive, the law firms should engage in due
diligence to confirm that the special counsel firm's practice meets
the law firm's own security standards.This is a necessary step in
today's digital legal environment. Firms should thus ensure that
their file sharing and communications, as well as that of their
special counsel, comply with their state requirements for technology usage. Recent guidance on this topic was recently issued in
ABA Formal Opinion 477R (May 22, 2017), which provides guidance
on securing communications of protected client information.
ABA Model Rule 5.1(c) limits an attorney‘s responsibility for another
lawyer's misconduct to circumstances where the attorney knew
about the misconduct, either ordered or ratified it, or knew of
the conduct at a time when its consequences could have been
avoided or mitigated, but failed to take reasonable remedial
action. Accordingly, a law firm and the special counsel will generally not be liable for one another's misconduct unless they are
jointly responsible for such matters. Nevertheless, if the special
counsel is planning to handle cases independently of the special
counsel relationship with the firm, then the special counsel must
procure a separate lawyers professional liability policy to cover
acts and omissions in the course of those independent matters.
To meet the demands of today’s legal market, law firms may turn
to special counsel relationships to better serve their clients. While
the relationship may make good business sense, firms must ensure
that the related professional obligations and potential risks associated with such relationships are addressed.
This article was authored for the benefit of CNA by:
Michael Barrett is the Risk Control Director for CNA's Lawyers
Professional Liability Program. In this role, he manages a team of
highly qualified attorneys who are responsible for the design, content and distribution of risk control content relevant to the practice
of law. He also collaborates with executive leadership from CNA's
underwriting and clams teams to develop and execute strategies
for profitable growth of the program. Prior to joining CNA, he
was a successful defense litigator specializing in the defense of
commercial and professional liability lawsuits. He is admitted to
practice in Illinois and Pennsylvania and he is a Registered Patent
Attorney with the United States Patent and Trademark Office.