This Memorandum has not been adopted or approved by the Council of the ABA Section of Business Law. It represents only the views of the Section's Ad Hoc Committee on Multidisciplinary Practice.
TO: Officers and Council, Section of Business Law
FROM: Ad Hoc Committee on Multidisciplinary Practice
DATE: August 4, 1999
RE: Report and Recommendations of the ABA Commission on Multidisciplinary Practice
On June 8, 1999, the ABA Commission on Multidisciplinary Practice issued a Report to the ABA House of Delegates recommending that the ABA Model Rules of Professional Conduct be amended consistent with a set of principles. The Report was accompanied by an Appendix setting forth a set of possible amendments to the Model Rules, and by extensive Reporter's Notes. The Commission will meet to receive comments on its proposals in a public hearing to be held from 2 to 5 p.m. on Sunday, August 8, 1999, and intends to present its recommendations to the House of Delegates when it convenes on August 9 and 10, 1999.
For the reasons set forth below, the Ad Hoc Committee recommends to the Officers and Council of the Section that the Section Delegates to the House of Delegates be instructed to vote in favor of deferring action by the House on the Commission's Report and instead directing the Commission to undertake further deliberations in light of the comments and concerns expressed herein and by others.
The Ad Hoc Committee does not make this recommendation lightly. We are aware that the Commission's Report was unanimous, and that among the Commission's membership are two distinguished members of this Section, including a former Section Chair. We are persuaded, however, that there are legitimate concerns about some aspects of the Commission's Report, that the matter is of such significance to the profession that further reflection and study are warranted, and that there is no compelling urgency for action at this time on the Commission's proposals.
Summary of the Commission's Recommendations
Multidisciplinary practice, or MDP, means a partnership, professional corporation, or other association or entity that
(a) includes lawyers and nonlawyers and has as one, but not all, of its purposes the delivery of legal services to clients other than the MDP itself, or
(b) holds itself out to the public as providing nonlegal, as well as legal, services.
It includes an arrangement by which a law firm joins with one or more other professional firms (which are not law firms) to provide services if part of the arrangement is a direct or indirect sharing of profits.
Legal services means services that, if provided by a lawyer engaged in the practice of law, would be regarded as part of the practice of law for purposes of application of the rules of professional conduct.
Practice of law means the provision of professional legal advice or services where there is a client relationship of trust or reliance. The definition goes on to say that one is presumed to be practicing law when engaging in any of the following conduct on behalf of another:
(a) preparing any legal document, including instruments intended to affect interests in real or personal property, instruments intended to affect the disposition of property of decedents' estates, documents relating to business and corporate transactions, and contracts (except "routine agreements incidental to a regular course of business");
(b) preparing or expressing legal opinions;
(c) appearing or acting as an attorney in any tribunal;
(d) preparing any claims, demands or pleadings of any kind, or any written documents containing legal argument or interpretation of law, for filing in any court, administrative agency or other tribunal;
(e) providing advice or counsel as to how any of the foregoing activities might be done, or whether they were done, in accordance with applicable law; and
(f) furnishing an attorney or other person to render the services described in (a) through (e).
The Commission's recommendations may be summarized as follows:
Existing rules of professional conduct should be amended so as to permit new structures for the more effective delivery of legal services and better public access to those services, while at the same time protecting the profession's core values of independence of professional judgment, protection of client confidential information, and loyalty to the client through the avoidance of conflicts of interest.
Lawyers should be permitted to share legal fees with nonlawyers and to form a partnership or other entity with a nonlawyer, but only through practice in either: (a) an MDP controlled by lawyers; or (b) an MDP not controlled by lawyers that is subject to the regulatory scheme described below.
A lawyer may not practice in an MDP not controlled by lawyers unless that MDP gives to the highest court with the authority to regulate the legal profession in each jurisdiction in which the MDP delivers legal services a written undertaking, signed by the MDP's chief executive and governing board, that the MDP will:
(a) not directly or indirectly interfere with a lawyer's exercise of independent professional judgment on behalf of a client;
(b) establish, maintain, and enforce procedures designed to protect a lawyer's exercise of such independent professional judgment from interference by the MDP or any of its members or affiliates;
(c) establish, maintain, and enforce procedures to protect the lawyer's obligation to segregate client funds;
(d) cause its members who deliver or assist in the delivery of legal services to abide by the rules of professional conduct applicable to lawyers;
(e) respect the unique role of the lawyer in society as an officer of the legal system, a representative of clients, and a public citizen having a special responsibility for the administration of justice, and acknowledge that the MDP's lawyers have the same pro bono obligations as lawyers practicing solo or in law firms;
(f) annually review the procedures established pursuant to (b) and amend them as needed to make them effective;
(g) annually certify to the court (together with relevant information about each lawyer in the MDP) its compliance with (a)-(f) and provide a copy of that certification to each lawyer in the MDP;
(h) permit the court to review and conduct such administrative audit of the MDP as the court deems appropriate to determine and assure compliance with (a)-(g); and
(i) bear the cost of such administrative audit through the payment of an annual certification fee.
An MDP that fails to comply with its written undertaking is subject to withdrawal of its permission to deliver legal services and other remedial measures ordered by the court.
Any existing or future provisions of the model rules of professional conduct applicable to law firms should also be applicable to MDPs.
A lawyer in an MDP who delivers legal services to the MDP's clients should be bound by the rules of professional conduct. Such a lawyer should not be relieved of liability for a violation of the rules of professional conduct because he or she acted in accordance with a nonlawyer supervisor's reasonable resolution of an arguable question of professional duty.
For purposes of determining conflicts of interest and imputed disqualification, all of the clients of the MDP (whether or not those clients receive any legal services) should be considered the clients of every lawyer in the MDP in the same manner as if the MDP were a law firm.
If both legal services and services that are not legal services are delivered to the same client, a lawyer in the MDP who delivers legal services should be required to make reasonable efforts to ensure that the client sufficiently understands that lawyers and nonlawyers in the MDP may have different obligations with respect to the disclosure of client information, and that the courts may treat the client's communications to nonlawyers in the MDP differently from its treatment of communications to MDP lawyers.
A lawyer in an MDP should not represent, either to the public generally or to a specific client, that the lawyer's services are not legal services if those same services would constitute the practice of law if provided by a lawyer in a law firm.
A lawyer in an MDP who delivers legal services to a client should be required to ensure that the MDP has in effect measures that guarantee that any delivery of nonlegal services by nonlawyers in the MDP in connection with the MDP's delivery of legal services is compatible with the professional obligations of the lawyer.
Nonlawyers in the MDP should not be permitted to deliver legal services.
Reasons for Recommending Further Study
The Commission needs to make a more persuasive case for the changes it proposes .
The Report does not adequately define the benefits expected to be derived from MDPs, nor does it convincingly weigh those benefits against the risk of harm to the core values of the profession. Instead, the benefits are to a considerable extent assumed, or treated as self-evident. In particular, the Report appears to assume that clients will save time and money by one-stop shopping, that a member of an MDP will be more accessible to the public than a lawyer practicing solo or in a law firm, and that the services rendered by a lawyer in an MDP will be at least as competent as those rendered by an independent lawyer. These assumptions should be critically evaluated.
The Report likewise assumes, without critical analysis, that the complex regulatory scheme it proposes will effectively ensure the preservation of the core values of the profession. This may be Pollyannaish, or at least subject to reasonable doubts. Recognizing that "he who controls the purse controls all," some commentators have suggested that it is inevitable that, despite the very best-crafted set of regulations, lawyers practicing in a large MDP dominated by non-lawyers will find that their independent professional judgment is influenced, if not compromised, by the economics of the firm.
In addition, while the Commission's earlier white paper indicated that it was looking at several different models, the Report does not clearly indicate why the Commission opted for the relatively more sweeping changes it has proposed. There is furthermore no indication that the Commission considered limiting MDPs to professional disciplines, such as accounting, that are subject to licensure, self-regulation, rigorous examination, and rules of professional conduct comparable to those applicable to lawyers. There is a reference to "professions that may appropriately be included in MDPs" in the comments to sample Model Rule 5.8, but neither the sample rules nor the Commission's recommendations limit MDPs to specified "professions," and the examples of appropriate "professions" include such fields as lobbying, consulting, and architecture. Some commentators have suggested that there is nothing in the Report that would prevent a lawyer from entering into an MDP with a bill collector or an auto body shop.
Finally, the Commission's recommendations may inadvertently produce distortions in the economic balance of the professions. For example, the Report would seem to permit a large accounting firm that has qualified as an MDP not controlled by lawyers to make a large investment in the "equity" of its legal practice, while a law firm that is not an MDP would remain unable to meet this new competitive force through outside equity of its own.
The proposed regulatory scheme for MDPs not controlled by lawyers is incomplete and possibly unworkable. Furthermore, no good reason has been given why such a scheme should not apply equally to MDPs controlled by lawyers.
The proposed regulatory scheme for MDPs not controlled by lawyers does not contain a definition of "control." Presumably the states will make their own definitions. Suppose an MDP has a majority of lawyers, but also has an extensive set of agreements (support services, marketing arrangements, etc.) with a larger professional firm in which the MDP's non-lawyers are also members. Who is in "control" of the MDP?
The proposal imposes a substantial regulatory burden on the highest court in each jurisdiction, with little guidance as to how those courts are to discharge that burden. The funding is to come from annual MDP certification fees, but there is no definition of the costs (marginal additional costs? fully loaded costs?) that those fees are to defray. Is a state supreme court the logical body to administer this regulatory scheme? Can it do so without, at least in some states, legislative authority?
How are the undertakings of the MDP to be enforced? The Report suggests possible disqualification of the MDP or other remedies devised by the court, but there should be more guidance on this issue. Perhaps the MDP chief executive and governing board who signed the certification should be subject to loss of their licensure or to other sanctions under the regulatory scheme (if any) by which their conduct is governed. And perhaps MDP clients and bar associations should be made the express third party beneficiaries of such certifications, with a private right of action for violations.
And how will this regulatory pattern work in a multistate practice context? Must a state defer to another state's decision as to whether an MDP has violated its undertakings? Or will there be coordinated enforcement?
Finally, if such a regulatory scheme, with modifications and further definition, were to be put in place, no good reason has been given as to why it should apply only to MDPs which are not controlled by lawyers. Indeed, some have suggested that such a scheme, if it were to be put in place, should apply to all organizations including lawyers, including law firms and in-house legal departments.
Omissions and ambiguities in the Report should be corrected.
Commentators have noted omissions and ambiguities in the Commission's Report. Some examples are as follows:
The Report states that an MDP lawyer will not be "excused from failing to observe the rules of professional conduct" because he acted in accordance with a nonlawyer supervisor's resolution of a question of professional duty. Better would be a provision that the fact that he so acted is not admissible, in mitigation or otherwise, in a professional discipline proceeding.
The Report states that an MDP lawyer "who delivers legal services to the MDP's clients should be bound by the rules of professional conduct." Does this mean that the lawyer should be so bound only with respect to the particular delivery of legal services, or that he should be at all times so bound because of his status as a lawyer providing legal services? It should be the latter, but the Report is not clear on this point.
The Report states that conflicts and imputation should be determined "in the same manner as if the MDP were a law firm and all employees, partners, shareholders or the like were lawyers." Obviously there are many employees of a law firm (legal assistants, summer associates) who are not lawyers. The sentence in question should end with a period after the words "law firm."
The Report should include competency as a core value of the profession.
4. The Report should address the issue of providing simultaneous audit and legal services.
Noting that the SEC had referred the issue of a firm's providing simultaneous audit and legal services to the Independence Standards Board, the Report expressed no opinion other than to say that the issue is appropriate for resolution in the SEC/ISB forum. That resolution will, however, focus on the auditor's obligations, and then only in the context of the federal securities laws. The Commission should address the effect of simultaneous legal and audit services on the lawyer's professional obligations.
5. The Report's proposed definition of the practice of law should be deleted.
The Report's definition of the practice of law is based on District of Columbia Rule 49. The chair of the D.C. Bar's ad hoc committee that drafted Rule 49 has filed a thoughtful comment with the Commission noting that the Rule is subject to extensive commentary, and suggesting that the bare rule, without the commentary, will not be helpful.
There are two possible definitions of the practice of law:
those activities that, if undertaken by a lawyer practicing law, would be regarded as part of the practice of law for purposes of application of the rules of professional conduct
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 prepare tax returns, lawyers and jury consultants both formulate trial strategy, lawyers and industrial relations consultants both run labor organization campaigns, and lawyers and environmental consultants both advise clients on the impact of federal and state regulations.
those activities that a non-lawyer can be prevented from undertaking
This is a much narrower definition. In general, non-lawyers can be prohibited from (1) representing clients before, and filing papers in, most courts and tribunals, (2) filing certain documents in certain governmental offices, and (3) holding themselves out (expressly or impliedly) as lawyers or as providing professional legal services.
The definitions of legal services and the practice of law in the Report are both confusing and potentially dangerous. The danger lies before those engaged, as all lawyers increasingly must be today, in the multi state practice of law. That it is not a merely theoretical concern is shown by the California Supreme Court's decision in the Birbrower case ( Birbrower, Montalbano, Condon & Frank, P.C. v. Superior Court of Santa Clara County, 17 Cal. 4 th 119, 949 P.2d 1 (1998).
The concern is that if we define the practice of law too broadly in our rules of professional conduct, we invite state bar associations and supreme courts to expand their prosecution of all those who practice (as broadly defined) in their jurisdictions but are not licensed there, nonlawyer and out-of-state lawyer alike. The effect of this will be an increase in the cost of legal services (multiple law firms required on even the simplest deals), which will in turn drive clients away from lawyers and to other service providers. Like the businesses we represent, we must learn to deliver our services "better, faster, and cheaper." Birbrower style protectionism works against that goal. The Report does not need the broad definition of the practice of law it sets forth as a part of its sample amendments to the model rules. It should be eliminated.
Charles E. McCallum
The members of the Ad Hoc Committee on Multidisciplinary Practice are: 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).