Risk Update

OCGs: Outside Counsel Guidelines, Terms of Engagement, Positional Conflicts, Landmines and Trojan Horses — Trends & Strategies for Pushing Back

This article is truly worth reading in full. It goes into great detail, collecting examples and insight from several law firm GCs and risk leaders. I highly recommend it: “Terms of Engagement” —

  • “With risk management increasingly fraught, avoiding client conflicts is key. Many law firms now have dedicated general counsel to review the terms of engagement letters, which include conflict provisions, and advise partners on negotiating waivers where appropriate.”
  • “[Terry Burgoyne, general counsel at Osler Hoskin & Harcourt LLP] says they will sometimes ask for an “issue-conflict” guarantee. “They’ll sometimes say you have to notify them before you take a position on behalf of another client — in a totally unrelated case — that be might contrary to the way they’d like that issue to be resolved. On those we push back almost universally. ‘For one thing, you don’t know the issues they care about. And we have no way of searching for that, for issues we can’t identify later on.'”
  • “…he says Osler walks away from ‘a not immaterial amount’ of work, between 5% and 10% of potential engagements, for conflicts reasons.”
  • “Clients, too, are getting more and more sophisticated about conflicts and, from the law firm’s point of view, both in a good and bad way. [Says Kenneth Crofoot, general counsel of Goodmans LLP]: ‘I find clients are more understanding in many cases that waiving conflicts is appropriate and that firms have systems to put up walls and insulate information, which means everyone on a matter can get the counsel of their choice. On the bad side, a lot of client terms of engagement we’re seeing from large international corporations are pretty onerous.'”
  • “When he talks about onerous, he’s talking about boilerplate that can be 40 pages long, ‘with conflicts expressed much more widely than under our law. They extend to every single entity that’s part of their empire; there can be 500 or more companies involved — which is a bit of a problem to put into your conflict system.'”
  • “‘They provide that it can be a conflict for us to represent a party or take a stance in any proceeding that’s inconsistent with their business interests. When you consider that would cover all these 500 companies, how are we supposed to know what their current business interests would be in all those operations? We have no way of tracking that.'”
  • “The model Norton Rose uses is not a GC, but five regional compliance offices with teams that oversee regional and global conflicts as well as other risk-management issues. In addition, the firm has a section that does nothing but look at the reputational risk of potential new clients.”

From the Legal Ethics and Malpractice group at Harris, Wiltshire & Grannis comes: “How Corporate Counsel Can Push Back on Outside Counsel Guidelines by Citing the Ethics Rules” —

  • “In recent years, clients have begun to insist that their corporate counsel sign Outside Counsel Guidelines (“OCGs”) that restrict a lawyer from providing services to competitors of the client, even if the work is unrelated to the work being performed for the client and the lawyer has no confidential client information relevant to the work. Those OCGs have also begun to define the “client” as all subsidiaries, affiliates, or parent companies of the entity to which the lawyer’s services pertain. Both trends restrict a lawyer from representing a host of potential clients in the future. How can outside corporate counsel push back?”
  • “The two trends cited above directly implicate ABA Model Rules of Professional Conduct 5.6, 1.7 and 1.9.[1] By citing these Rules, and the restrictions they impose, corporate counsel may gain headway in negotiating more permissive OCGs.”
  • “ABA Model Rule 5.6 (“Rule 5.6”) prohibits a lawyer from entering into any post-employment non-compete agreements with her law firm because they infringe on a client’s right to choose her lawyer and a lawyer’s professional autonomy… OCGs that prevent a lawyer from representing any client competitor—whether true adversity exists or not—do the very thing Rule 5.6 prohibits. While a traditional non-compete is imposed on the lawyer by her firm, OGCs are non-competes in disguise being imposed on the lawyer by her client. Importantly, both non-competes have the same effect: they limit a lawyer’s professional autonomy and limit the client’s ability to choose a lawyer.”
  • “Similarly, OCGs that define the client to include all subsidiaries and affiliates of a company also implicate the Rules. ABA Model Rule 1.7, Comment 34 notes, ‘A lawyer who represents a corporation or other organization does not, by virtue of that representation, necessarily represent any constituent or affiliated organization, such as a parent or subsidiary… Thus, the lawyer for an organization is not barred from accepting representation adverse to an affiliate in an unrelated matter.’ Courts have held that the existence of an attorney-client relationship with one corporate affiliate does not create an attorney-client relationship with all corporate affiliates. “
  • “Procedurally, consider implementing firm-wide rules that govern what terms your firm will accept in OCGs and having a designated management committee member negotiate all OCG terms. Having an established protocol for negotiating OCGs will reduce the need for the client relationship or billing partner to negotiate terms and potentially harm the relationship. In addition, make sure that a firm employee is keeping track of OCGs the firm agrees to in order to run additional as-needed conflict checks, e.g., agreeing to represent a company and its subsidiaries alters the firm’s conflict profile. That employee should also ensure compliance with Most Favored Nation (“MFN”) agreements with existing clients, because agreeing to certain terms in OCGs may require the firm to offer similar terms to current clients under existing MFNs.”

And, published last year by CNA, but just now crossing my desk, comes this article authored by two lawyers from the Professional Responsibility Group at Frankfurt Kurnit Klein & Selz: “Fighting the Trojan Horse: Managing Outside Counsel Guidelines” —

  • “If there is one thing keeping law firm general counsel awake at night, it is the myriad of outside counsel guidelines (OCGs) that may be floating around the firm… These OCGs differ from client to client, may be dozens or hundreds of pages in length and, as shown below, may incorporate requirements that the firm cannot meet.
  • “Moreover, many firm lawyers treat the OCGs in a cavalier manner, neglecting either to read them or to send them to their firms general counsel. Even where the firm requires review and approval of OCGs as part of its client intake process, the firm may fail to keep track of the precise terms to which it has agreed with any specific client, or may fail to follow up to ensure that each OCG is followed.”
  • “Moreover, the OCGs may contain terms or conditions that the law firm cannot satisfy, because those terms and conditions either exceed the firm’s resources or are inconsistent with ethical or other legal obligations.”
  • “In this article, we will discuss five common issues that can arise with OCGs and what firms can do to address them”
  • The article covers:
    • Expanded Conflicts Policies
    • Cyber Security Requirements
    • Billing Guidelines
    • Indemnity Provisions
    • Erecting the Dam: Controlling the Flow
  • “OCGs can contain a number of risk management landmines for law firms. As outlined above, OCGs can significantly alter the power dynamic between the lawyer and client and may expose the firm to additional liability that may not be covered by the firms malpractice insurance. Law firms should, therefore, ensure that any OCGs are reviewed and approved in advance by the firm’s general counsel or management committee so that the firm can address any problematic provisions prior to the representation and also monitor what the firm has agreed to with a particular client. This strategy will help ensure a successful and constructive professional relationship.”