Report & Recommendations of the MDP Committee of the Indiana State Bar Association - Center for Professional Responsibility

Report & Recommendations of the MDP Committee
of the Indiana State Bar Association

I. Introduction

The Indiana State Bar Association established its Multidisciplinary Practice Committee 1 (the "Committee") to examine issues presented by the multidisciplinary practice concept. In its work, the Committee adopted the American Bar Association's definition of a "multidisciplinary practice" ("MDP"), a multidisciplinary practice with both lawyers and nonlawyers as owners who share fees generated by the practice. The Committee was charged with answering two questions:

1. Is MDP good for the citizens of Indiana?

2. If so, is it good for Indiana lawyers?

As discussed in the report that follows, after careful analysis, the Committee has concluded that MDP may be good for Indiana citizens and lawyers. Some of the benefits MDPs may provide to the citizens of Indiana include: (i) convenience (i.e., "one-stop shopping"); (ii) close coordination of work by the disciplines in the MDP to address all issues, both legal and nonlegal, presented by client problems; and (iii) greater efficiency by the MDP, meaning lower costs to clients. Providing such benefits to clients will inherently benefit Indiana lawyers as clients desiring services from an MDP have access to them, thus fulfilling the responsibility of the legal profession to see that clients have ready access to legal services and representation. Having concluded that MDPs can be good for Indiana citizens and lawyers, however, the Committee does not conclude that nonlawyers should in any way control MDPs that deliver legal services to the public. As discussed below, the core values of the legal profession -- competence, independence of professional judgment, protection of confidential client information, loyalty to the client through the avoidance of conflicts of interest and pro bono publico obligations -- must be preserved for the benefit of clients. It is, and will continue to be, the professional responsibility of lawyers to see that they are.

II. The methodology

As the Committee was performing its work, the ABA postponed its vote on the recommendations of the ABA Commission on MDP until the July 2000 meeting in New York. The Committee then scheduled biweekly followed by bimonthly meetings, presentations by guest speakers and interviews with Indiana lawyers. It reviewed extensive materials on the subject with an eye to having preliminary answers to the two questions posed by July 2000.

Subcommittees were assigned to analyze each of the core values and their status in an MDP. Committee members spoke with Indiana lawyers to collect views and concerns for the Committee to consider. The work of the Committee has continued following the ABA's rejection of the recommendations of the ABA Commission on MDP. Since then, the Committee has focused on if and how the core values of the legal profession might be preserved in an MDP.

III. The current reality

Multidisciplinary practice is already a reality in America. It can be seen in several forms today. At least two are authorized by rules governing lawyers' conduct. Law firms provide some multidisciplinary practice-type services by nonlawyer assistants pursuant to Rule 5.3. Lawyers also work cooperatively, but independently, with other service providers to give clients the benefit of the distinct training and experience of other professionals. In fact, lawyers should do so to see that the proper expertise is involved in the process of solving problems for their clients.

Each of these two arrangements can offer clients a range of professional services, yet in full compliance with current rules governing lawyers' professional conduct.

In recent years, the Big Five (formerly Big Six) accounting firms have actually begun to practice corporate law outside the U.S. and started to hire even more lawyers in the U.S. For example, the Big Five are among the eight largest law firms in France, with Peat Marwick employing more than 1,000 lawyers. It is speculated that each of the Big Five probably has more lawyers on their staffs in the U.S. than the largest American law firms. To illustrate, Ernst & Young has more than 800 lawyers employed in the U.S. Whether those lawyers employed in the U.S. will be permitted to practice law in the U.S. depends on the resolution of the MDP issue.

IV. The core values of the legal profession

The Rules of Professional Conduct and the rules governing admission and discipline of lawyers ensure that clients' interests are protected by requiring lawyers to be qualified, independent and loyal to their clients. The so-called "core values" of the legal profession -- competence, independence of professional judgment, protection of confidential client information, loyalty to the client through the avoidance of conflicts of interest, and pro bono publico obligations -- work to protect clients by imposing strict standards on the actions and conduct of lawyers, and appropriately so. Indiana law prohibits nonlawyers from "practicing law," thereby giving lawyers a government-sponsored monopoly to provide legal services to the public. In exchange, the legal professional is closely regulated to see that clients are protected. Lawyers believe that the comprehensive regulatory scheme imposed on lawyers protects and serves the interests of clients, not of lawyers. Others, however, assert that the real motivation behind the regulation of the legal professional is to protect its turf. Regardless of motive, the rules and regulations have, and must continue, to define and preserve the core values of the legal profession.

V. The current MDP debate

The public debate about MDP has been prolonged and beneficial. It seems clear today that no one is advocating that nonlawyers should be permitted to practice law. Lawyers agree that the unauthorized practice of law must be stopped if clients are to be protected. The "core values" of the legal professional are recognized as fundamentally important to protect clients' interests. The ultimate question in the debate is therefore whether an MDP, i.e. firms in which nonlawyers are also owners, will be permitted. The answer turns on whether that arrangement will inherently undermine the legal profession's ability to serve and protect clients' interests and the core values of the profession.

VI. The current MDP prohibition

The Rules of Professional Conduct today prohibit the MDP model in which nonlawyers are owners of law firms. This is established by the Rule 5.4(a) prohibition of lawyers sharing legal fees with nonlawyers. The basis for that rule, and the other parts of the rule, is to protect the independence of the lawyer's judgment. Nonlawyer ownership of the firm was seen as so contrary to the principal of independence of the lawyer's judgment that the rule categorically prohibits it. Therefore, changing the rule, which must occur to allow nonlawyer owners, should require compelling justification.

VII. The "demand" for MDPs

The marketplace is said to be demanding the MDP form where nonlawyers are owners. In Europe and Asia, MDPs have been an effective means to fully serve and handle all aspects of a corporate clients' foreign or international transactions. However, no groundswell of support for such arrangements has been seen in Indiana. The principal advocacy for them is from some accounting firms -- often firms that have hired lawyers but deny that those lawyers are engaged in the practice of law for the public in the U.S. The lawyers, like the other professionals in those accounting firms, are said to provide the public with consulting, not legal, advice. This position does indicate the need for a meaningful definition of "practice of law."

VIII. The MDP compromise of the legal profession's core values

Allowing nonlawyers to be owners of firms providing legal services to the public could undermine the legal profession's performance of its mandate to serve the public. Nonlawyer owners -- who are not bound by the regulatory arrangement governing lawyers 2 -- who act as decision-makers in the what, how and when of delivering legal services to clients have no obligation or incentive to see that the core values of the legal profession protect clients' interests. It is naive to expect that they will defer to the lawyers to make the decisions about the delivery of legal services to clients to ensure that the core values of the legal profession are preserved for clients' protection. If the nonlawyers did not want to exercise the owner's prerogative of making decisions, why would they want to become owners at all? If profit is the motive, the inherent tension between the profit motive of nonlawyers and the regulatory constraints on lawyers is obvious. Therefore, any MDP arrangement must ensure that lawyers retain actual control in order to see that the core values of the legal profession are preserved for the benefit of clients. Further, requiring that any nonlawyer owners of an MDP be members of another regulated profession, subject to a code of ethics, will ensure that the MDP remains grounded in a system of ethical standards consistent with those of the legal profession. It should also be obvious that the lawyer owners of the MDP will continue to have the undiminished responsibility to see that the MDP provides legal services consistent with the regulatory and ethical framework of the legal profession. They will also need to fully disclose to clients the nature of the MDP, how the MDP may complicate conflicts of interest by the MDP owners, how confidential communications between attorney and client may be affected, and any other issue implicated by the clients' selection of an MDP over the traditional law firm which had no nonlawyer owners.

IX. Will the U.S. legal profession be left behind?

It is said that if the legal profession does not acquiesce in MDP, the legal profession in the United States will be left behind in the dust. The legal profession in the United States, however, is a model for the world. Each day it functions to preserve the very democratic institutions and system which all Americans enjoy. To change the rules governing the legal profession for the sake of "not being left behind" without ensuring that the core values of the profession are preserved would be a grave mistake.

X. Conclusions and recommendations

Following an exhaustive review, consideration and analysis of the issues, challenges, obstacles and concerns of the members of the Indiana legal profession, the Committee has concluded that: (i) MDPs may be good for Indiana citizens, and therefore for Indiana lawyers; and (ii) the current Rules of Professional Conduct should be amended to permit MDP, but in a way to ensure that the core values of the legal profession are preserved.

Having evaluated and assessed the purpose and interests to be protected by the Rules of Professional Conduct, the Committee has further concluded that the core values of the legal profession are essential for the protection of clients and must be preserved. Only lawyers should engage in the practice of law. Lawyers should scrupulously adhere to the core values of the legal profession. Lawyers must not allow the urge to provide clients with "law-related" or other services to affect their primary responsibility, providing legal service to clients.

To allow nonlawyers to become owners of an MDP while ensuring that the core values of the legal profession are preserved, the Committee recommends the following:

1. The "practice of law" must be defined. The Committee encourages the amendment of the Preamble to Rule 5.5 of the Rules of Professional Conduct to define what constitutes the practice of law as determined by the Indiana Supreme Court in its various decisions including, but not limited to the following activities: a) providing legal advice to clients; b) preparing legal documents for clients; c) representing clients in legal proceedings; and d) conducting the business management of a law practice. By defining the activities that constitute the practice of law, clients should be better protected from the unauthorized practice of law.

2. Rule 5.4 should be amended to permit nonlawyers to become owners of an MDP, but any such nonlawyer owner of an MDP must be a member of a regulated profession, subject to a code of ethical conduct, and the percentage ownership of an MDP by nonlawyers be limited to a minority which cannot assert control over the MDP.

These changes to the Rules of Professional Conduct will permit MDP so that clients who want legal services from an MDP have the opportunity to obtain them. They also ensure that the core values of the legal profession are maintained for the benefit of clients and that legal services do not become yet one more of the array of "consulting services" offered to clients by an MDP.

ENDNOTES:

1. The committee of 10 individuals from all over the state of Indiana includes lawyers from small, medium and large firms and from business (banking, corporate and professional association executives) and nonlawyers from accounting and insurance.

2. The AIPCA made clear that it did not want the entire MDP firm subject to the law governing lawyers when it opposed that part of the ABA MDP Commission's Initial Report and Recommendations.

James W. Riley Jr., Chair
Nancy Gargula, Vice Chair
George A. Buskirk Jr.
Paul DeCoursey
Elizabeth A. Frederick
Richard R. King II
James J. Larkin
Dock McDowell Jr.
Thomas J. Sponsel
Jodi L. Tuttle
Andrew D. Thomas

April 9, 2001

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