Ad Hoc Committee on Multidisciplinary Practice RE: ABA Commission on Multidisciplinary Practice - Center for Professional Responsibility

NOTE: This Memorandum and the views expressed therein have not been adopted or approved by the Section of Business Law, or by its Council or Officers.

MEMORANDUM

 

TO: Officers and Council, Section of Business Law

FROM: Ad Hoc Committee on Multidisciplinary Practice

DATE: April 16, 1999

RE: ABA Commission on Multidisciplinary Practice


In February 1999 Jim Cheek appointed the following as members of an Ad Hoc Committee of the Section of Business Law on Multidisciplinary Practice: Charles E. McCallum (Chairperson); Jill S. Gelineau; Andrew W. Hendry; Richard H. Rowe; Larry P. Scriggins; Charles H. Still; Ann Yvonne Walker; Herbert S. Wander ( ex officio); and James H. Cheek III ( ex officio).  The charge to the Ad Hoc Committee was to help formulate a submission by the Section of Business Law to the ABA Commission on Multidisciplinary Practice. This is an initial report by the Ad Hoc Committee, which held its organizational meeting on Thursday, April 15.

Background

In August 1998 the President of the American Bar Association appointed the Commission on Multidisciplinary Practice. The Commission was directed to study and report on the extent to which and the manner in which professional service firms operated by accountants and others who are not lawyers are seeking to provide legal services to the public. Additionally, the Commission was asked to analyze:

  • The experience of clients, foreign and domestic, who have received legal services from professional service firms, and report on international trade developments relevant to the issue;

  • Existing state and federal legislative frameworks within which professional service firms may be providing legal services, and recommend any modifications or additions to that framework that would be in the public interest;

  • The impact of receiving legal services from professional service firms on a client's ability to protect privileged communications and to have the benefit of advice free from conflicts of interest; and

  • Application of current ethical rules and principles to the provision of legal services by professional service firms, and recommend any modifications or additions that would serve the public interest.

 

In a Background Paper issued in January 1999 the Commission invited the responses of interested persons, including ABA entities, to the following questions:

  1. How would clients be harmed or benefited by amending the ABA Model Rules of Professional Conduct (Model Rules) to permit a lawyer to enter into a partnership with a nonlawyer or enter into other arrangements that permit fee sharing with a nonlawyer? Can any specific instances of harm to a client by such a change be identified in either the United States or a foreign jurisdiction? If the benefit to clients would outweigh the harm, what restrictions, if any, should the Commission recommend? Should the restrictions follow or differ from those adopted in Rule 5.4 of the Washington, D.C. Rules of Professional Conduct?

  2. How, if at all, would a lawyer 's independent professional judgment be impaired by changing the Model Rules to permit a lawyer to enter into a partnership with a nonlawyer or enter into other arrangements that permit fee sharing with a nonlawyer?
  3. How, if at all, are the professional standards that govern the conduct of accountants and accounting firms different from those that govern the conduct of lawyers and law firms? How do any differences in professional standards impact on the protections offered to clients and the public?
  4. If the Model Rules were amended to permit a lawyer to deliver legal services to the clients of a non-law firm entity at which the lawyer is employed or of which the lawyer is a partner ( e.g., accounting firm, gerontological consulting firm, engineering firm, etc.)
  1. what changes, if any, should be made (1) to protect client confidentiality, i.e., information relating to the representation (Rule 1.6); and (2) to assure the lawyer's avoidance of conflicts of interest (Rules 1.7-1.9)?
  2. what changes, if any, should be made to the general rule on imputed disqualification (Rule 1.10)? Should all the clients of the non-law firm entity be treated as if they were the clients of the lawyer?
  1. what changes, if any, should be made to the rules on the responsibilities of a partner or supervisory lawyer (Rule 5.1), the responsibilities of a subordinate lawyer (Rule 5.2), the supervision of nonlawyer assistants (Rule 5.3), the unauthorized practice of law (Rule 5.5(b)), the responsibilities regarding law-related services (Rule 5.7), and advertising and solicitation (Rules 7.1-7.5)?
  2. should the Model Rules be amended to permit the discipline of law firms and/or MDPs?
  3. what changes, if any, should be made to other Rules?
  1. Is an entirely new regulatory framework needed? If so, how should it be structured?

On March 1, 1999, the Commission followed up on its initial publication by posing five models, accompanied by various hypotheticals, of how a multidisciplinary practice might be achieved. The Commission requested comments on these models. The five models are:

 

1. The Cooperative Model. This is the status quo. There would be no changes in Model Rule 5.4. Lawyers and law firms could work cooperatively or collaboratively with, but independently from, nonlawyer professionals and firms.

2. The Command and Control Model. This model is based on the District of Columbia amendments to Model Rule 5.4. These amendments permit a nonlawyer to become a partner in a law firm, but only if (a) the firm limits its activities to the practice of law, (b) all nonlawyers with managerial authority or a financial interest in the firm agree to be bound by the Model Rules, and (c) the lawyers in the firm accept responsibility for the nonlawyer participants to the same extent as if they were lawyers.

3. The Ancillary Business Model. In this model a law firm operates an ancillary business which, pursuant to Model Rule 5.7, makes sure that its clients know that the ancillary business is distinct from the law firm and does not offer legal services, and that the protections of the lawyer-client relationship do not apply to dealings between the client and the ancillary business.

4. The Contract Model. In this model the law firm would remain independent but would enter into a contract with a professional services firm providing for such things as joint marketing (including identification of the affiliation), reciprocal referral, and the provision to the law firm of management services, communications technology, non-lawyer staffing, and office space and equipment by the professional firm.

5. The Fully Integrated Model. In this model there is no free-standing independent law firm. Lawyers are partners or employees of a single professional services firm which provides a number of services to clients, including legal services.

Preliminary Observations

The issues presented by multidisciplinary practice are both complex and of great importance to the legal profession. As we address them, it is the interests of the client and of the public which must guide us, not the interests of lawyers or of any other profession. But determining the interests of the client and the public is not easy.

Proponents of the relaxation of the restrictions on multidisciplinary practice have argued that the public (clients) insist on such a change, that it is necessary in order to achieve economies in the delivery of legal and other services, and that if the bar does not do this then clients will increasingly turn to non-lawyers for many of the things that lawyers do today. Clients are demanding, they say, one-stop shopping. Those opposed assert that lawyers practicing law in an organization which includes other professional services will suffer compromise of their independent legal judgment and will inevitably slip in their adherence to the Model Rules. The opponents further predict that clients will lose confidence in such lawyers as zealous advocates and confidential counselors.

The Ad Hoc Committee is, at this stage of its deliberations, skeptical that there is significant client pressure for one-stop shopping for professional services. The Committee is aware, however, that consumer advocates believe that individual clients would be better served by multiprofessional firms including, for example, lawyers, psychologists, and gerontologists (for service to the elderly), or lawyers, financial planners, and accountants (for debt counseling). The Committee is also aware that some solo and small-firm lawyers, especially outside of major metropolitan areas, believe that multidisciplinary practice with accountants and independent insurance agents is the only way for them to compete effectively with large financial institutions offering a range of services through a branch network.

The Ad Hoc Committee has discussed the issue of whether the organized bar should be more aggressive in enforcing restrictions on the unauthorized practice of law. The recent history of efforts to enforce such restrictions is not encouraging, and some have warned that renewed efforts could backfire by triggering antitrust scrutiny. Such an approach would also be viewed as defensive protection of turf, and could forfeit public support.

The most difficult aspect of the unauthorized practice issue, however, is defining exactly what constitutes the practice of law. It will not suffice to define the practice of law as those things which lawyers do, because lawyers do a great many things in the course of their practices that non-lawyers are clearly authorized to do. For example, lawyers and investment bankers both negotiate deals, lawyers and accountants both do tax returns, lawyers and jury consultants both formulate trial strategy, lawyers and industrial relations specialists both run labor organizational campaigns, and lawyers and environmental consultants both advise clients on the impact of federal and state regulations. Some have argued that the drafting of all instruments having legal force and effect should be done by lawyers. But surely any business person may, without running afoul of unauthorized practice restrictions, negotiate and enter into contracts for his or her employer. And if an employee of a company may draft a contract, why not an independent contractor?

A more narrow definition of the practice of law is that the practice of law consists not of those things lawyers do, but instead of those things which non-lawyers may be prohibited from doing. This definition is, of course, circular unless we have recourse to the actual experience in the courts. That experience is that non-lawyers may be prohibited from (1) representing clients in most courts and tribunals (depending on the rules of those courts and tribunals), and (2) holding themselves out as lawyers. It is the second branch of this definition that may prove of some help in addressing multidisciplinary practice issues.

The Ad Hoc Committee believes that when a professional holds himself or herself out as a lawyer certain promises are made by the professional, and by the firm with which that professional is affiliated, namely:

  • that independent professional judgment will be exercised on behalf of the client;

  • that the client's confidences will be preserved and that communications between the lawyer and the client will be subject to the attorney-client privilege;

  • that the lawyer and the members of his or her firm will avoid conflicts of interest; and

  • that there will be and can be no limitation of the lawyer's liability to the client for malpractice.

One approach to the multidisciplinary practice dilemma might be to amend Rule 5.4 so as to permit lawyers to become partners of non-lawyers, but to require those lawyers and their firms, if the lawyer holds himself or herself out as practicing law, or if the firm holds itself out as providing legal services, to adhere to the Model Rules, and to be subject to discipline, in order to assure that the foregoing promises are delivered. The concept here would be that clients, and the public, are entitled to expect certain things when they understand themselves to be receiving legal services from lawyers.

Preliminary Statement of Issues

In light of the foregoing, the Ad Hoc Committee has identified a number of issues for further study and debate. There may be better-worded formulations of these issues, and there may be additional issues which should be examined. The Committee would appreciate input from the Officers and Council.

Issue 1 - Should the Model Rules be amended so as to facilitate the integration of the law practice with other professional services? In particular, should Rule 5.4 be amended so as to permit lawyers to form partnerships and/or share fees with non-lawyers?

Issue 2 - Should lawyers practicing law in a multidisciplinary firm be subject to the Model Rules if they and their firms do not hold themselves out as practicing law?

Issue 3 - Should the Model Rules be amended so as to provide disciplinary authority over law firms as well as over individual lawyers? If so, should there also be disciplinary authority over multidisciplinary firms which hold themselves out as providing legal services, or which include lawyers who hold themselves out as practicing law?

Issue 4 - If multidisciplinary practice is permitted, should the Model Rules be amended so as to relax certain restrictions (including, for example, some of the changes proposed several years ago by the Section's Task Force on Conflicts of Interest) in order to enable lawyers and law firms to compete more effectively with multidisciplinary firms?

Issue 5 - In particular, should the Model Rules be amended so as to facilitate the multistate practice of law (in effect reversing the California Supreme Court's Birbrower decision)?

Issue 6 - Are there any useful distinctions in answering any of the foregoing questions depending on whether the legal services are rendered as counselor or as advocate?

Issue 7 - Should there be any distinction in answering any of the foregoing questions depending on whether or not the other services rendered by the multidisciplinary firm are professional services subject to significant ethical standards and disciplinary machinery?

Work Plan of the Ad Hoc Committee

The Commission, on which our Section is ably represented by Herb Wander and Bob Mundheim, plans to issue a report or position paper in June, with a view to taking it before the House of Delegates in August. The Ad Hoc Committee will continue its work through the Spring, perhaps meeting by conference call in May. The Committee will undertake, upon receipt of the Commission's report, to evaluate it and to make recommendations to the Council at the Annual Meeting as to what position, if any, the Section of Business Law should take with respect to the Commission's recommendations. This will probably require at least one additional meeting by conference call in July.

C.E.M.

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