An 'of counsel' relationship should come with a good business reason.

Can I have an “of counsel” arrangement with a lawyer when we are both licensed in different states and have our offices in our respective states?

The designation “of counsel” does not mean what it used to. Under the old disciplinary rules, which were abolished in 1988, to use the term of counsel one had to have a prior relationship with the law firm. In other words, pre-1988, one had to work for or been a partner or an associate with the law firm at one point if they wanted to have an of counsel designation. The current Rules of Professional Conduct that came into effect in 1988 and continue to be in effect—with a number of revisions over the years—abolished that particular requirement. It doesn't exist anymore.

Therefore, anyone can form an of counsel relationship with another firm if there is an agreement. Having an of counsel relationship can have consequences. One of the major consequences is that there has to be an expanded conflict of interest check. Both firms have to check, because being of counsel may be a conflict and could force a firm out of a case because of the other firm's clients. Another major concern, of course, is legal malpractice. If the of counsel commits legal malpractice or the firm commits legal malpractice, it's fairly certain that a former client suing for malpractice is going to include both of counsel and the firm. Therefore, when one is forming an of counsel relationship both insurance carriers have to be advised. The malpractice coverage has to be expanded. If the of counsel is just going to be covered by the firm's policy, that has to be raised and agreed to by the insurance carrier.