Report of the Ohio State Bar Association Council of Delegates on Multidisciplinary Practice and The Legal Profession - Center for Professional Responsibility

Report of the
Ohio State Bar Association
Council of Delegates on
Multidisciplinary Practice and
The Legal Profession

On March 24, 1999, then OSBA President John P. Petzold appointed a special committee to examine the subject of multidisciplinary practice and the legal profession. The members of the special committee were: Robert N. Farquhar, Dayton, chair; William C. Becker, Akron; J. William Dunning, Lebanon; Geoffrey S. Goll, Salem; Theodore M. Mann, Jr., Cleveland; Jonathan W. Marshall, Columbus; Steven A. Martin, Dublin; Barbara L. Morgenstern, Hamilton; Michael E. Murman, Lakewood; Jack L. Neuenschwander, Piqua; John C. Norwine, Cincinnati; David E. Railsback, Mt. Vernon; Walter Reynolds, Dayton; Michael A. Rumer, Lima; Jan A. Saurman, Lakewood; Hon. Richard T. Schisler, Portsmouth; Heather G. Sowald, Columbus; William R. Stewart, Cleveland; Linde Hurst Webb, Toledo; and Jerry Whitmer, Akron. William K. Weisenberg, assistant executive director for public affairs and government relations and Eugene P. Whetzel, OSBA general counsel, served as staff counsel. It is significant to note that five members of the special committee also currently serve as members of the OSBA Committee on Legal Ethics and Professional Conduct and three of those are former chairs of that committee.

In his letter appointing the special committee, Petzold stated:

It is my purpose in creating the committee to examine the myriad of issues impacting the intrusion, encroachment and interference with the practice of law. It is a matter of great importance to the legal profession and the public at large.

There is no doubt that the issue of multidisciplinary practice (MDP) is the most serious and profound matter to confront the legal profession in recent memory. It challenges the very fabric of the profession, the foundation upon which its relationship to the public is molded – individual loyalty to the client, independence of judgment to best serve the client, attention to conflicts of interest, and trust and confidence based on confidential communication.

The landscape of legal services is changing rapidly. Legal services more than ever are subject to changing market forces driven by a global economy where time and distance are measured in seconds. The "economic" marketplace appears to be dictating how professional services are to be delivered and marketed. The profession has been commercialized for many years, at least dating back to the 1970’s when advertising took hold. Some colleagues and clients contend that growth in the size of law firms, expansion both nationally and internationally, sophisticated public relations, marketing and "solicitation" converted us from a profession to a business. Like it or not, the practice of law is a business and, as such, is subject to market forces. However, this does not mean that we can compromise or sacrifice our principles and values simply to be competitive. The challenge is how to reconcile the competing forces and influences, and not succumb to complacency or indifference.

It is the opinion of the OSBA that the practice of law today is a profession conducted as a business and, although somewhat different in character and nature, the two are not irreconcilable. In fact, one could conclude that the two complement one another in terms of efficiency, economy and sound management principles. Law office administration and technical staff provide operational services to our firms and practices, enabling the lawyer to keep current with rapidly changing technology and entrepreneurial innovations. Lawyers are better able and equipped to serve the client with such a range of support services. In marketing our services, lawyers regularly represent technological sophistication to the client.

It would be hypocritical and disingenuous to say that our profession is not market driven and not responsive to changing economic times. Lawyers advertise more than ever and are found today through online legal directories. A simple click on http://www.aol.com/webcenters/legal features Ohio lawyers known to all of us. Pick up a local business publication or trade journal and our availability for legal services is more than casually noticeable.

Law firms today are engaged in a broad array of services delivered through wholly owned ancillary business entities that are "consulting" in non-traditional legal services. Title companies have been around a long time, and now law firms consult in health care, insurance, business development, investment services and governmental relations. Law firms employ countless non-lawyers to provide these services, employees who are salaried and under the firm’s supervision and control. They are not partners in the firms, do not share profits and do not perform legal services for the client. Lawyers have structured their services through utilization of non-lawyers so as not to be in conflict or in violation of the disciplinary rules and so as not to compromise their independence of judgment to the client. A recurring question when exploring an MDP entity is whether independence of judgment to the client is compromised to the extent of irreparable harm to the attorney-client relationship and sacrificing the core values of that relationship.

The law has been and is a noble profession, a higher calling and the oath we affirm publicly represents the highest form of professionalism. Service to the client, to the public and to society as officers of the court represents a commitment to excellence and high standards. We must remember that the Code of Professional Responsibility and unauthorized practice of law statutes are designed for the benefit of the public, defining a minimum standard we expect from ourselves. Our expectations of conduct and performance go well beyond the minimum, and as professionals we adhere to principles that call for civil, but zealous representation and character exemplified by trust, honor, respect, loyalty and civility to the courts, lawyers and the public.

Partnerships or other entities offering legal services in combination with various other services exist throughout the world, and are emerging in the United States, albeit not formally. The present legal ethics rules prohibit activities that are central to presently structured and proposed multidisciplinary practices, the most noteworthy being the prohibition on fee sharing between lawyers and non-lawyers. There are a host of other impediments that have been identified by the special committee and would require extensive examination before change could be recommended.

What is the impetus for MDP and who and what is driving it?

Leslie W. Jacobs, a past president of the OSBA and the current state delegate to the American Bar Association, offers the following observation:

Advocates of so-called multidisciplinary practice frequently point to developments in Europe as either a model or evidence of inevitable evolution. In an article reporting the formation of the American Bar Association’s Commission on Multidisciplinary Practice in October 1998, the ABA Journal noted: "Since the early 1990s, the Big Five accounting firms have made significant headway into the practice of law in Europe. Most observers believe the United States is the next target." This conclusion followed the earlier ABA Journal article in February 1998 reporting, "Unlike nearly every U.S. jurisdiction, … most European countries either allow accounting firms to engage in law practice themselves or to affiliate with law firms. Today, all the major accounting firms have significant legal practices throughout Europe…. Indeed, in some markets they are among the largest providers of legal services for businesses."

The European phenomenon naturally presents the question whether Europe is a precursor or an aberration. The answer is simply that it is different. The continental legal system is organized around civil law concepts that diverge from our common law heritage; its views of government and the judiciary vary from our constitutional principles; and the roles of lawyers and their traditions are dissimilar in important ways….

(The full text of Mr. Jacob’s comments appears as Exhibit A.)

It is indisputable that the driving force behind MDP is the accounting profession, specifically the "Big 5" firms. In his presentation to the special committee at its January 20, 2000, public hearing in Columbus, Press C. Southworth III, chair of the board of the Ohio Society of Certified Public Accountants, stated:

Many of our members have an obvious interest in the issue of whether the legal profession’s rules will be changed to permit attorneys to associate with other professionals in multidisciplinary practices. I appear before you today in support of that concept.

Southworth made several observations worth noting:

The CPA profession’s vision of the future sees CPAs practicing in increasingly nontraditional areas … we concluded that the world in which CPAs and all other professionals will operate in will be significantly different ten years from now. To succeed in the future, CPAs must become more market driven and not as dependent upon regulations … the market will demand less audit and accounting work and more value-adding consulting services. While that statement may seem to apply only to the accounting profession, I believe it applies to business professionals at large. We will all be expected to provide more broadly based services and the public will increasingly demand ‘one-stop shopping’ … .

To accomplish its goal of expanding its range of services, the accounting firms are spinning off the accounting-audit functions from consulting services to avoid conflicts found to exist most noticeably by the Securities and Exchange Commission. The Wall Street Journal reported in its February 18, 2000, edition that:

Accounting and consulting colossus PricewaterhouseCoopers LLP announced plans to break its business into two or more entities, a restructuring triggered by regulatory pressure from the Securities and Exchange Commission over conflicts of interest at the firm. The restructuring calls for the Big Five company to separate its audit, business-advisory and tax business from its lucrative management-consulting practice … the drastic move to break up its business comes a month after the SEC released an embarrassing report by an independent consultant which showed nearly half of PricewaterhouseCoopers’ partners, and numerous employees, owned investments in 2,159 corporate audit clients, in violation of SEC auditor independency rules … .

It thus appears that in their quest to move rapidly into "nontraditional" areas of practice, accounting firms are prepared to take whatever measures necessary to address conflicts of interest and other impediments that would stifle their objectives.

In addition, other entities including banks, insurance companies and investment houses are expanding the scope of their traditional services. The recent repeal of the Glass-Stegall Act prohibiting banks, insurance companies and securities firms from offering each other’s services and products creates new opportunities for multidimensional service centers by those entities. Will the universal bank of the future offer one-stop shopping for all personal, business and professional needs? It is more likely sooner than later. It could be now. (Please see correspondence dated February 1, 2000, from Marcus L. Collins to John C. Norwine, Exhibit B.)

Commerce and industry are driving the MDP train predicated on the economic principles of free and open markets without concern for long-established professional legal standards of practice. As to where the legal profession falls into this movement, just note the creation by Ernst and Young of the Washington, D.C. law firms of McKee Nelson Ernst and Young. Messrs. McKee and Nelson departed the Washington, D.C. office of Atlanta’s King and Spalding to form this new entity.

To identify and analyze the multitude of issues raised by MDP, the special committee was divided into three subcommittees:
  • ADR/Litigation/Administrative Law;
  • Corporate/Business Disputes and Consumer Rights; and
  • Activities and Client Expectation.

The subcommittees were asked to address 11 questions:

1. What is best for the client and how do we protect the client? In other words, the public interest and protection of the client must be paramount in our deliberations.

2. Is there currently a need or demand for MDP?

3. How will division of fees or fee splitting be addressed?

4. What are the inherent and real conflicts that arise when a lawyer and non-lawyer merge their services?

5. Can the independence of judgment of the lawyer be preserved? What are the alternatives, if any?

6. How and to what extent will the cost of legal services be affected?

7. What are the implications for insurance companies dictating how a legal matter will be handled? To what extent does supervision by an insurance company impair the independent judgment of the lawyer?

8. What are the evils of MDP?

9. What are the benefits of MDP?

10. If MDP is sanctioned, what disciplinary rules will need to be modified, and if so how?

11. If MDP were sanctioned, how would the client be billed?

To guide the subcommittees in their analysis of these questions, the special committee initially addressed the question of what is meant by the term "multidisciplinary practice" and adopted the following description:

MDP refers to a state of affairs whereby lawyers, accountants, financial planners and a host of other disciplines could practice together in a multidisciplinary entity under a new scheme of rules and regulations different from that traditionally reserved for our profession. Such a configuration raises a multitude of questions, the most significant of which address the independence and loyalty of an attorney to a client, privilege and confidentiality, sharing of fees and conflicts.

As a result of the subcommittee’s efforts 22 disciplinary rules were identified that would have to be modified if multidisciplinary practice is sanctioned. While the special committee did not address this issue, we believe that if multidisciplinary practice is ever sanctioned, the legislature would also have to look at the issue of extending some type of client privilege to each of the members of other disciplines working with attorneys.

In recognition of the significance of MDP and its impact on all lawyers, the special committee was of the opinion that the members of the OSBA should be solicited for comment. Beginning in mid-October 1999, all OSBA members with recorded electronic-mail addresses received correspondence seeking input on this subject. The memorandum was published in the Ohio State Bar Association Report on several occasions. (The correspondence is attached as Exhibit C.)

The response by members was impressive and gratifying. (Approximately 400 responses were received.) A significant number of members provided lengthy and well-reasoned comments raising numerous questions about MDP. Almost everyone had some thoughts on the matter. The underlying message from the members: concern about independence of judgment and loyalty to the client. It was not about money or protecting turf. The comments addressed the traditional, core values of the profession and raised concern about "cross-marketing" and commercialization.

A tally of the 400 responses indicated that 25 percent expressed a desire for change to permit MDP in some form, 50 percent opposed MDP in any form, and 23 percent were ambivalent, neutral or desiring more information. A significant number of responses addressed the "inevitability" of MDP or the fact that it is here in some form and that the "bar" should be proactive in defining its parameters rather than being on the receiving end of the movement.

To address the questions posed in the interim report, 5 public hearings were held around the state: January 20, Columbus; January 28, Cincinnati; February 22, St. Clairsville; February 29, Toledo; and March 8, Cleveland. Twenty-nine persons testified. (List of Witnesses, Exhibit D.) All hearings were transcribed.

Answer to the threshold question

In the special committee’s interim report, dated December 17, 1999, the following question was posed:

Can the public interest be well served through the offering of multidimensional (multidisciplinary) services, e.g., law, accounting, financial, insurance, and investment, without sacrificing or compromising the traditional and sacred core values of the legal profession, those being professional independence of judgment, protection of confidential client information and undivided client loyalty through avoidance of conflict of interest?

It is the opinion of the OSBA that the time has not yet come for the disciplinary rules to be modified to permit or authorize MDP in Ohio. The risk to the public outweighs the perceived benefit to attorneys, other professionals and businesses and does not warrant a relaxing of rules that would in all likelihood compromise the core values of the profession, rules promulgated to provide optimum protection to the public in their receipt of legal services. However, to ignore this important issue and assume it is going away would not be in the best interests of the profession, our clients or the general public. Issues of independence of judgment, undivided loyalty to the client, attorney-client privilege and conflicts of interest require additional attention and reinforcement so that client and public interests continue to be protected from current encroachments.

The special committee heard from many witnesses at the public hearings that undivided loyalty to client and independence of judgment would be compromised in an MDP entity. It heard how fundamental these core values are to the profession and how any relaxation or weakening would be contrary to the public interest. Perhaps one of the more articulate expressions of this issue came from a paper presented by Kathleen B. Burke, a past president of the OSBA, at the Cleveland hearing:

The answer is that no matter what our views may be on the future of the profession, we all know that it is in the public interest to designate certain qualities as fundamental to being a lawyer in a particular jurisdiction. That is what we mean when we say, "these are the core values of the profession." These are the values that are non-negotiable; they are beyond the reach of the marketplace. We also set minimum standards for legal education and competence and, in some states, continuing legal education. These minimum standards are also non-negotiable. We also implement prophylactic measures designed to secure those values and enforce the standards, all in the public interest. Apart from those important exceptions, yes, the marketplace can and should rule--the marketplace, that is, and the conscience of each lawyer.

The OSBA acknowledges that it is difficult to reconcile the profession’s core values with service to the public in an MDP. More work will need to be done to determine if this can be accomplished. It is important to note that the disciplinary rules and creed of professionalism alone will not and cannot be the measure by which lawyers perform service to the client. The "conscience of each lawyer," doing what is right and placing the client first is paramount, and the moral and ethical imperative so fundamental to the higher calling of the legal profession will always be the true measure of the core values and whether they can be preserved. The marketplace is ever present; however, our core values dictate that they be exercised in a manner to advance the interests of the client, the marketplace always subordinate to these core values.

The OSBA wants to stress that protection of the client and loyalty to the client must not under any circumstances be compromised. Each and every attorney who communicated with the special committee was unwavering with this principle of the attorney-client relationship. In addition, numerous lawyers pointed to additional conflicts that could present themselves if, for instance, a law firm and a large accounting firm merged. Would the conflicts be so widespread and encompassing that the client would be regularly denied the right to select counsel of his or her choice? Gerald L. Draper, a Columbus attorney and former OSBA president, addressed this issue at length in his testimony at the Columbus hearing. It is worth repeating that protection against conflicts, loyalty to the client, attorney-client privilege and independence of judgment were the common denominator throughout the hearings and the correspondence received. How to preserve these core values with MDP was the barrier that the OSBA cannot overcome.

Findings and Recommendations

1. The OSBA finds that the accounting industry, through its consulting affiliates and subsidiaries, is holding itself out as providing legal services to the public. The spin-off of accounting-audit functions from consulting-business advisory services is evidence of this market driven endeavor. Enhanced recruitment at law schools is another example of this aggressive expansion to provide legal services. Further, the OSBA recognizes the expansion of financial institutions, brokerage houses and insurance companies into multidimensional service centers as evidence of widespread consulting conglomerates.

With regard to the accounting profession and its desire to combine legal services as part of its consulting business, several persons cited the comments of Securities and Exchange Commissioner Norman S. Johnson in his March 6, 1999, address to the Utah State Bar Mid-year Convention, where he stated:

Of all the varied independence problems, there is one that I personally find especially troubling: the efforts by accounting firms to expand into the legal services area…. Attorneys have an ethical duty to represent zealously the interests of their private clients, and it is impossible to reconcile this role as private advocate with the duty accountants and auditors owe to the investing public.

The OSBA shares Johnson’s concerns.

An additional issue worthy of note was raised at the Toledo public hearing concerning whether accountants and presumably other professionals legally have a fiduciary duty to their clients, as do attorneys. Dennis P. Witherell, a Toledo attorney and a former chair of the OSBA Health Care Law Committee, did some research on the question and concluded that while attorneys do have a fiduciary duty to the client, he could not find in the Code of Responsibility of the American Institute of Certified Public Accountants any such duty.

Indeed, most of the terminology in their Code (CPA) refers to the duty to remain independent and objective, which seems inconsistent with the fiduciary duty of an agent. This strikes me as a fairly fundamental difference between the roles of accountants and other business consultants on the one hand, and attorneys on the other, in serving their client." (March 6, 2000 e-mail to Nick Farquhar and William Weisenberg.)

2. The OSBA finds that MDP is not just inevitable, it is here and now. Some would argue, as the term implies, that it cannot be avoided and is a reasonable certainty. Our observations earlier in this report note that law firms are already engaged in multidimensional services through ancillary business arrangements and await the day that more formal restructuring can occur.

3. Although the special committee did not hear through public hearings or correspondence any significant demand for MDP through "one-stop shopping," it did receive some correspondence that it may be a growing preference in the future. (Exhibit E)

4. In addition, the OSBA recommends that for the protection of the public more vigorous investigation and enforcement of the unauthorized practice of law occur.

Conclusion

The OSBA does not believe that MDP should be authorized or sanctioned. The OSBA, Ohio’s organized bar, should be proactive in addressing this issue to protect the client and public interest, and not assume a purely defensive position.

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