STATEMENT OF JAMES W. JONES
Vice Chairman and General Counsel of APCO Associates Inc.
- First, all promotional literature and all retainer agreements used by each subsidiary company were required to disclose the relationship between the company and the law firm; to note that the company itself was not engaged in the practice of law; and to state that the clients of the company were not required to use the services of the law firm even if legal services were required in connection with the matters for which the company was retained.
- Second, each of the subsidiary companies was held to the same ethical requirements – in terms of conflicts of interest, protection of client confidences, advertising of services, etc. – that applied to the law firm itself, and all questions arising in this area were required to be resolved by the firm’s ethics committee and not by the subsidiary company.
- Third, for purposes of conflict-of-interest screening, all of the subsidiary companies and the law firm itself were treated as a single entity, and any potential conflict that emerged was required to be resolved by the governing committees of the law firm and not by the subsidiary companies.
- And fourth, all brochures and other promotional materials of each of the subsidiary companies were required to be cleared by the law firm’s ethics committee using principles consistent with those applicable in the legal profession.
The ABA’s Debate on Ancillary Business ActivitiesI should stress that these principles were put in place in 1984 out of an abundance of caution and in the absence of any clear guidance as to the applicability of the Model Rules to these sorts of activities. Consequently, they exceeded – in certain respects – the requirements currently imposed under Rule 5.7 of the Model Rules concerning the provision of "law-related services." Nonetheless, as many members of the Commission will recall, Arnold & Porter’s activities – and those of a large number of other law firms also engaging in these so-called "ancillary businesses" – were widely criticized within the ABA at the time. Many critics asserted that permitting affiliations between lawyers and non-lawyers would inevitably lead to serious ethical conflicts and abuses of the rights and interests of clients. Indeed, one report issued by the Section of Litigation boldly asserted that such activities posed "one of the most important [crises] to ever face the American legal profession."Caught up in this fervor, the House of Delegates in 1991, over the strong objection of the Standing Committee on Ethics and Professional Responsibility, narrowly approved a prohibitory version of Rule 5.7 proposed by the Section of Litigation. That version prohibited law firms from providing non-legal services ancillary to the practice of law, unless such services were provided by employees of the law firm, to clients of the firm, and in connection with legal services otherwise being provided. Not surprisingly, the prohibitory version of the rule was quickly recognized as too extreme, prohibiting as it did a great variety of activities traditionally engaged in by lawyers throughout the nation. Consequently, the House of Delegates, responding to requests from several ABA sections and bars across the country, repealed the prohibitory rule in 1992. It was ultimately replaced in 1994 by the current version of Rule 5.7, which takes a far more moderate, disclosure oriented approach to the regulation of ancillary services.I take the time to recount this history of the ancillary business debate of the early 1990’s because I think that the lessons learned from that experience are both relevant and instructive for the Commission’s current deliberations concerning the MDP concept. To emphasize this point I would note that the current MDP debate is, in one sense, the "flip side" of the previous ancillary business debate.Most of the ancillary businesses that were the subject of attention in the early 1990’s were, in fact, entities engaged in multidisciplinary practice, combining the skills of lawyers and non-lawyers to serve the needs of clients. The focus of the ancillary business debate was, however, on the extent to which lawyers themselves should be permitted to own or control entities engaged in multidisciplinary practice. In today’s MDP debate, the primary focus is on the extent to which lawyers should be permitted to practice in entities not owned or controlled by lawyers – in a sense the "flip side" of the previous question. So, it is, I think, relevant to reflect on several points arising out of the ABA’s prior consideration of the ancillary business question. There are four such points that I would raise for your consideration.
Affiliations between Lawyers and Non-lawyers Have a Long HistoryThe first is the importance of realizing that affiliations between lawyers and non-lawyers do not constitute a new phenomenon in American law. Indeed, such affiliations have been a part of the legal landscape in America for a very long time.In the first place, many practicing lawyers have qualified to practice other professions as well and hold separate licenses as certified public accountants, real estate brokers, insurance agents, financial planners, marriage counselors, and the like. It is quite common to find such persons, in communities across the country, engaging in both their non-legal specialties and their law practices, sometimes working closely with non-legal professionals. Indeed, for many lawyers in small towns and rural areas, the ability to supplement the income derived from their law practices by engaging in other professional and business activities is critical.However, even in cases where lawyers do not hold licenses to practice separate professions, the affiliation of members of the bar with non-lawyer professionals in a wide range of activities is quite common. To cite but a few examples identified by the Working Group on Ancillary Business Activities of the ABA’s Special Coordinating Committee on Professionalism:
- In hundreds of law firms throughout the country, real estate lawyers routinely act as agents for title insurance companies in connection with transactions in which the lawyers are also involved representing one or more of the parties concerned. In some cases, the lawyers own the local abstract or title company involved in the transactions.
- In hundreds of other cases, lawyers routinely provide trust services as adjuncts to their probate practices or serve as personal representatives for decedents, minors, or incompetents. Indeed, in Massachusetts, some firms many years ago established separate trust companies, registered with the SEC, to service the needs of their clients and others.
- Many lawyers routinely act as trustees in bankruptcy proceedings or as conservators in other types of insolvency matters.
- Other lawyers practicing in the domestic relations field often also provide marriage counseling or mediation services.
- Still other lawyers with active criminal practices offer private investigation services to their clients.
- And, in neighborhood legal clinics and other centers across the country providing legal services to the poor, lawyers routinely work in combination with social workers, medical personnel, family counselors, and other non-lawyer professionals in providing comprehensive services to meet the special needs of their clients.
The "Practice of Law" Is Almost Impossible to Define PreciselyThe second point I would offer for your consideration is that the definition of the "practice of law" is frustratingly illusive. Indeed, aside from a few obvious functions (like the filing of pleadings in court or the rendering of formal opinions), it is almost impossible to define with precision what constitutes the practice of law in the United States today, at least in any exclusive sense. While it is certainly possible to list the hundreds of things that lawyers do, as bar counsel and many courts have discovered, it is very difficult to come up with a comprehensive list of many things that only lawyers can do. To cite but a few examples:
- Everyone would agree that assisting a client in the negotiation of a contract constitutes the practice of law when undertaken by a lawyer holding himself out as engaged in legal practice. But few would argue that such functions cannot also be performed by lay persons (such as real estate agents, talent agents, professional managers, or financial advisors) without violating proscriptions on the unauthorized practice of law.
- Similarly, lawyers who engage in lobbying activities or who advise their clients on the drafting of proposed legislation are clearly practicing law, even though lay persons who undertake the same activities are not subject to prosecution for unauthorized practice.
- And lawyers assisting clients in tax and estate planning are involved in providing legal services while lay persons engaged in the same activities are not.
The Development of the MDP Concept Is a Logical Step in the Ongoing Evolution of the ProfessionThe third point I would suggest for your consideration is that the current deliberations regarding the MDP concept are quite consistent with the evolving character of the legal profession. It bears remembering, in this regard, that the American legal profession has never been static but has always evolved to meet the changing needs of the country. Thus the profession has changed dramatically and often during its some 200+ years of history. Creative and innovative lawyers have introduced many "revolutionary" concepts that are now an accepted part of our professional landscape.The creation of law firms – an American invention – is a good case in point. The modern law firm was first conceived in New York in the 1870’s as a means of providing more responsive and comprehensive legal services to growing corporate enterprises that needed large-scale representation. Although many at the time criticized this decision of lawyers to act as a joint economic unit and feared the implications of it, the form soon became a permanent part of the American legal landscape and completely transformed the way legal work was organized and performed.Many other examples of the dynamic character of the American bar could also be cited:
- The concept of "in-house counsel" -- also an American invention -- and the growth of large corporate legal staffs, developments that were vigorously attacked in former days on a variety of ethical and professionalism grounds;
- The provision of legal service by "in-house" lawyers to members of trade associations and similar groups, a development that altered traditional concepts of the appropriate relationship of lawyer and client;
- The use of pre-paid legal services plans, a development that triggered a substantial amount of opposition from bars around the country; and
- The expansion of "legal services" to include work in a wide variety of areas certainly not historically included in the definition of lawyering – e.g., legislative services, the structuring of complex financings, compliance audits for various regulatory schemes, etc.
Modifications to the Model Rules Are Needed to Assure the Continuing Role of the Legal Profession in Key Client MattersAnd that leads to the fourth and final point I would like to offer for your consideration. It is the need to rethink the applicability of various provisions of the Model Rules to the evolving MDP concept and the implications of that applicability to the future of the legal profession. It is a very important point, because I believe that – in a perverse way -- the strict applicability of the Model Rules has led (and will continue to lead) to the increasing marginalization of the legal profession, at least in respect of certain clients and certain types of matters. Let me explain what I mean.Under Rule 5.4, a lawyer is forbidden from sharing "legal fees" with a non-lawyer and from engaging in the "practice of law" in any organization in which a non-lawyer has an ownership interest, serves as a director or officer, or has a right to direct or control the lawyer’s professional judgment. The implications of this rule are clear in the context of a law firm, where virtually everything that a lawyer does is regarded as the "practice of law." However, many of these same activities if performed by non-lawyers do not constitute the unauthorized practice of law. Consequently, when those activities are undertaken in non-law firm settings – whether by lawyers or non-lawyers – they do not constitute the "practice of law." As a consequence, such activities – even though undertaken by persons who are trained as lawyers – are not governed by most of the rules of the legal profession.In my view, this is a highly undesirable result from the standpoint of all concerned. It deprives the lawyers themselves of full participation in their profession; it prevents the bar from exercising its supervisory role over a growing number of lawyers who choose to work in non-traditional settings; and it deprives the public of the full benefits and protections of dealing with "regulated lawyers." Moreover, as the range of services offered through MDP organizations expand and as more lawyers elect to work in such settings, the problem will only be exacerbated. Perversely, the rules intended to preserve the integrity of the legal profession will, over time, force increasing numbers of lawyers into this jurisdictional limbo where the services they perform and for which they were trained will fall outside the ambit of the legal profession.I believe that all lawyers working in settings where they are called upon to use their legal skills and experience should be subject to the discipline of the bar regardless of the nature or ownership structures of the organizations for which they happen to work. However, to achieve this result it will be necessary to modify Rule 5.4 to remove the restrictions that cause the current problem. And that, in turn, will require an openness to the continuing evolution of the profession and to the changing demands being placed upon it by the society it serves.* * *I hope that the Commission will find my comments of some help as it continues with its important deliberations. Thank you again for inviting me to appear today. I would be happy to try and answer any questions you might have.