Report

This report summarizes the study of the Commission on Multidisciplinary Practice that was undertaken at the direction of ABA President Philip S. Anderson in August 1998 to determine what changes, if any, should be made to the ABA Model Rules of Professional Conduct with respect to the delivery of legal services by professional services firms. Members of the Commission unanimously support this report and its accompanying recommendation. In fulfilling its charge, the Commission has been guided by the need to protect at all times the interests of clients and the public and the core values of the legal profession. In the course of its study, the Commission has heard sixty hours of testimony from fifty-six witnesses from around the world and received written and oral communications from numerous others. Testimony and/or written materials have been presented by U.S. and foreign lawyers, consumer advocates, representatives of four of the five largest accounting firms in the world, law professors, chairs of ABA sections and standing committees, officers of foreign and domestic bar associations, ethics counsel of foreign and domestic bar associations, small business clients, the American Corporate Counsel Association and in-house counsel of international corporations. 1

After extensive reflection and analysis, the Commission has concluded that there is an interest by clients in the option to select and use lawyers who deliver legal services as part of a multidisciplinary practice (MDP). An MDP is defined for the purposes of this report as a partnership, professional corporation, or other association or entity that includes lawyers and nonlawyers and has as one, but not all, of its purposes the delivery of legal services to a client(s) other than the MDP itself or that holds itself out to the public as providing nonlegal, as well as legal, services. For example, a lawyer, a social worker, and a certified financial planner might form an MDP to provide legal and nonlegal services in connection with counseling older clients about estate planning, nursing home care and living wills. It also includes an arrangement by which a law firm joins with one or more other professional firms to provide services, including legal services, and there is a direct or indirect sharing of profits as part of the arrangement. Whether a sustained - as opposed to a sporadic or casual - relationship between a lawyer and a nonlawyer for the delivery of legal and nonlegal services to a client may be considered an MDP will depend upon the totality of the relevant facts and circumstances.

While detailed empirical data is not available, representatives of both individual and corporate clients expressed support for relaxing the rules of professional conduct that currently either foreclose or make it extremely difficult to choose such an option. The Commission has concluded that a complementary interest exists among many U.S. lawyers in different practice settings in having the option to form relationships with nonlawyers that include the sharing of legal fees.

Lawyers already practice in various forms of such relationships outside the United States. An increasing number of U.S. lawyers with significant practice experience are leaving law firms to join organizations such as the Big 5 accounting firms that provide a variety of professional services, and those organizations have also substantially stepped up their hiring of recent law school graduates. As those organizations expand the use of lawyers to design and help sell products for use by clients of the organization, additional care must be taken to assure that the lawyer members or employees of the organization are not aiding the unauthorized practice of law.

The Commission has concluded that it is possible to satisfy the interests of clients and lawyers by providing the option of an MDPwithout compromising the core values of the legal profession that are essential for the protection of clients and the proper maintenance of the client-lawyer relationship. To ensure that those values are preserved the Commission has specifically proposed that a lawyer in an MDP who delivers legal services to the MDP's clients is bound by the rules of professional conduct and all the rules of professional conduct that apply to a law firm also apply to an MDP. It should be stressed that the Commission is not recommending that nonlawyers be permitted to deliver legal services. Rather the Commission recommends that lawyers be permitted to practice in a wider variety of settings than is currently permitted because of the restrictions in the state counterparts of Model Rule 5.4 (Professional Independence of a Lawyer).

Nothing in the Commission's recommendations is intended to alter the current unauthorized practice of law rules except to the extent that an MDP will be permitted to provide legal services to the MDP's clients if it complies with the safeguards described below. 2 Finally, the Commission notes that it has not received any reports or testimony of relevant disciplinary or malpractice matters related to ancillary businesses operated jointly by lawyers and nonlawyers or the delivery of law-related services in those jurisdictions that have adopted a version of Model Rule 5.7 (Responsibilities Regarding Law-Related Services).

In reaching these conclusions, the Commission considered the history of and reasons for the prohibition against the sharing of legal fees and forming of partnerships or other entities with nonlawyers. The existing bans found in Model Rule 5.4 were not contained in the original Canons of Professional Ethics adopted by the ABA in 1908. It was not until twenty years later that the ABA added Canons 33 through 35, Model Rule 5.4's predecessors. The Canons, moreover, expressed the prohibitions in precatory, not mandatory language. Mandatory language appeared for the first time in 1969 when the ABA adopted the Model Code of Professional Responsibility.

The Commission is particularly mindful that the principal arguments raised in the past, and again now, for retaining such prohibitions relate to concerns about the profession's core values, specifically professional independence of judgment, the protection of confidential client information, and loyalty to the client through the avoidance of conflicts of interest. The Commission has examined these thoughtful arguments and kept them in the forefront of its deliberations. It believes that appropriate safeguards can be developed and adopted in conjunction with the lifting of the prohibitions against fee sharing and forming partnerships or other entities or arrangements with nonlawyers to adequately address the concerns and maintain the core values while providing broader access to legal services for the public.

Professional Independence of Judgment

The most frequently raised concern before the Commission relating to the protection of professional independence of judgment involved nonlawyer supervision of lawyers. In today's world, many lawyers routinely work in practice settings in which they are subject to management oversight by nonlawyers. The profession has a history of lawyers working in corporate law departments or government offices. Lawyers also work for organizations that provide legal services to their members or other clients (e.g. union-sponsored and prepaid legal services plans, community legal services organizations). Independence has been maintained in those settings.

Professional independence of judgment is required of all lawyers regardless of the practice setting. Accordingly, the Commission does not recommend any change to Model Rule 5.4(c), which states that

[A] lawyer shall not permit a person who recommends, employs or pays the lawyer to render legal services for another to direct or regulate the lawyer's professional judgment in rendering such services.

Nevertheless, as an added protection, the Commission recommends that the ABA Model Rules of Professional Conduct clearly state that a lawyer who is supervised by a nonlawyer may not use as a defense to a violation of the rules of professional conduct the fact that the lawyer acted in accordance with the nonlawyer's resolution of a question of professional duty.

In addition, the Commission recommends, as part of its list of safeguards, a requirement that an MDP not controlled by lawyers give to the highest court with the authority to regulate the legal profession in each jurisdiction in which the MDP is engaged in the delivery of legal services, written undertakings that it will not directly or indirectly interfere with a lawyer's exercise of independent professional judgment on behalf of a client and that it will establish and enforce procedures designed to protect a lawyer's exercise of independent professional judgment on behalf of a client from interference by the MDP, any member of the MDP, or any person or entity controlled by the MDP. These undertakings are directed toward MDPs that are controlled by nonlawyers. The Commission believes that it is unnecessary to require MDPs under the control of lawyers to comply with the safeguard certification process since lawyers' duties under the rules of professional conduct already provide those protections.

The Commission is not prepared to recommend any change in the present provisions limiting the holding of equity investments in any entity or organization providing legal services. Ownership would be limited to members of the MDP performing professional services. It would not be permitted for an individual or entity to acquire all or any part of the ownership of an MDP for investment or other purposes.

Confidentiality

Concerns were expressed about the possible inappropriate disclosure of confidential client information within an MDP, since there is not uniformity among different professions about the circumstances under which client information may, must, or must not be disclosed to a third party. The Commission recommends that no change be made to the lawyer's obligation to protect confidential client information.

Acknowledging that a nonlawyer in an MDP may be subject to an obligation of disclosure that is inconsistent with the lawyer's obligation of confidentiality ( e.g., the disclosure obligations of mental health care workers in cases of suspected child abuse or the disclosure obligation of accountants performing the attest or audit function), the Commission specifically recommends several safeguards to assure that a nonlawyer who works with, or assists, a lawyer in the delivery of legal services will act in a manner consistent with the lawyer's professional obligations. 3

Attorney-Client Privilege

The concern for the potential impairment of the attorney-client privilege arises from the possibility that a client of an MDP would not be properly informed as to the separate functions performed by the MDP and that the members or employees of the MDP would not treat legal matters in a manner appropriate to the preservation of the privilege. In response to these concerns, the Commission recommends amendments to the ABA Model Rules of Professional Conduct that would clarify a lawyer's position within the MDP, the lawyer's relationship with the MDP's clients and the obligations of an MDP to protect client and public interests. They require the provision of information to clients concerning the lawyer's function as a provider of legal services and the likelihood that the client's communications to nonlawyers in the MDP that are unrelated to the provision of legal services would not be protected by the attorney-client privilege.

Conflicts of Interest

The concern about conflicts of interest arises from differences between the rules of lawyer conduct related to the lawyer's obligation of loyalty to the client and the ethics rules of other professions. The Commission acknowledges those inconsistencies, but it recommends against the dilution of a lawyer's obligation of loyalty to the client. The Commission recommends that in connection with its delivery of legal services, an MDP be governed by the same rules of professional conduct as a law firm with regard to the imputation of conflicts and permissible screening measures.

Thus, a lawyer who provides legal services in an MDP would be subject to the rules of lawyer conduct respecting conflicts of interest and disqualification and would be subject to discipline for a violation of those rules. For the purposes of a conflict of interest analysis, the lawyer must treat each and every client of the MDP as the lawyer's client.

Holding Out as a Lawyer

The Commission recognizes that the protections offered to a client by a lawyer can be lost if appropriate care is not paid to the manner in which the lawyer is identified to the client and the manner in which the lawyer forms and maintains the client-lawyer relationship. Accordingly, the Commission emphasizes the need for lawyers to fully disclose to clients their status. Lawyers in an MDP who hold themselves out, or who are held out, as providing services, which, if provided by a lawyer otherwise engaged in the practice of law, would be regarded as part of such practice of law for purposes of application of the rules of professional conduct, must adhere to all the professional conduct rules.

A lawyer in an MDP should not represent to the public generally or to a specific client that services the lawyer provides are not legal services if those same services would constitute the practice of law if provided by a lawyer in a law firm. Such a representation would presumptively constitute a material misrepresentation of fact. Depending on the circumstances, however, a misrepresentation may be avoided if in a specific matter it is made clear to the client, preferably in writing, that the MDP is not providing legal services and that the client should consider retaining its own counsel.

The following are examples of the ways in which a lawyer will be considered to be holding out as a lawyer: using the term esquire, attorney at law, counselor at law, or JD after the lawyer's name or the like; providing biographical information that indicates that the lawyer is licensed to practice law; or offering the provision of services that if offered by a lawyer in a law firm would be considered the practice of law.

Pro Bono Publico Legal Service

The Commission acknowledges the unique role of the lawyer in society as a representative of clients, an officer of the legal system, and a public citizen having special responsibility for the administration of justice. Accordingly, the Commission recommends that an MDP formally acknowledge those obligations as well as the special obligation of a lawyer to render voluntary pro bono publico legal service. Lawyers in law firms are expected to meet their professional obligations by providing a substantial majority of their pro bono publico legal services to persons of limited means or to charitable, religious, civic, community, governmental and educational organizations in matters that are designed primarily to address the legal needs of persons of limited means. Lawyers in an MDP should fulfill that responsibility in the same way.

Legal Fees and Client Trust Accounts

The Commission also notes that lawyers in MDPs must fulfill their professional obligations to charge reasonable fees and to segregate client funds. Commingling of client funds with those of a lawyer or law firm is a serious disciplinary problem. Many jurisdictions require that fees paid by a client remain segregated until earned by the lawyer. Lawyers in an MDP may not have the same direct supervision over the handling of funds that they do in a law firm. Moreover, whereas fees paid by clients to law firms are by definition legal fees, fees paid by clients to MDPs will often cover both legal and nonlegal services. Thus, a lawyer in an MDP must take special care that payment for legal services and funds received on behalf of a legal services client are clearly designated as such and segregated from other funds of the MDP as required by the rules of professional conduct. In this regard, the MDP must also comply with any and all financial recordkeeping rules of the jurisdiction in which the legal services are being delivered.

Certification and Discipline

The Commission recognizes that new procedures must be developed to regulate the delivery of legal services through MDPs. This does not mean that a new regulatory body must be established or that regulation must be done on a national level. The Commission's recommendations provide for continued regulation of the delivery of legal services by the highest court of each jurisdiction, regardless of the organizational structure in which a lawyer practices.

The recommended procedures include an annual certification process that will place the burden on an MDP not controlled by lawyers to establish and maintain procedures protecting the independence of professional judgment of the lawyers the MDPs employ. They also include an administrative audit process, the expense of which will be borne by such MDP through the payment of a reasonable annual certification fee. An MDP that fails to comply with its written undertaking shall be subject to withdrawal of its permission to deliver legal services or to other appropriate remedial measures ordered by the court.

The Commission believes that the recommended procedures required of such MDP do not constitute an unreasonable burden. MDPs covered by these special provisions are controlled by nonlawyers. Since the MDP and its members must conduct themselves so as not to permit violations of the rules of professional conduct, these procedures will make senior officials of the MDP sensitive to these special obligations.

Interstate and Cross-Border Practice

The Commission also has considered the ramifications of recommending the amendments described above in the larger context of the practice of law across state borders. Significant problems related to interstate delivery of legal services exist independent of the issues addressed in this Report and the Commission has determined not to consider or address them in the Report.

The Commission is aware that various international treaties, such as the North American Free Trade Agreement and the General Agreement on Trade in Services, and the work of the World Trade Organization, aimed at opening up commerce among nations, may have an impact on the delivery of legal services by MDPs. Nonetheless, the Commission does not believe that it is appropriate to alter its recommendations in anticipation of what that impact might be.

Conclusion

After careful study, deliberation and analysis, the Commission has concluded that with appropriate safeguards a lawyer can deliver legal services to the clients of an MDP without endangering the core values of the legal profession or the interests they are designed to protect. The opportunity to structure a new vehicle for the delivery of legal services should be available to the lawyers who express an interest in providing those services to their clients through an MDP and to those clients who express an interest in additional choices of legal service providers. There is, of course, no assurance that lawyers will choose to practice in MDPs or that clients will prefer to purchase legal services from such providers.

Respectfully submitted,

Sherwin P. Simmons, Chair
Carl O. Bradford
Paul L. Friedman
Phoebe A. Haddon
Geoffrey C. Hazard, Jr.
Roberta Reiff Katz
Carolyn B. Lamm
Robert H. Mundheim
Steven Craig Nelson
Burnele V. Powell
Michael Traynor
Herbert S. Wander


Board Liaisons

Joanne M. Garvey
Seth Rosner

August 1999

ENDNOTES

1. Appendix B identifies the witnesses who testified before the Commission and the individuals and organizations that provided written comments. Appendix A offers an illustration of a Model Rule specifically intended to govern an MDP and the lawyers who deliver legal services to clients on its behalf and suggests corresponding amendments to other Model Rules consistent with the Recommendations contained in this Report. Appendix C presents Reporter’s Notes providing additional historical background, referencing specific witness testimony and explaining in greater detail the thought processes underlying the Commission’s recommendations.

2. The lawyer codes of professional conduct traditionally have not defined the practice of law. They have left the definition to the individual states. The states have taken different approaches. To facilitate consideration of practice of law issues that may arise in an MDP context, the Reporter has provided one possible definition. (See Appendix A)

3. In a letter from the Office of the Chief Accountant (OCA) of the Securities and Exchange Commission (SEC), this Commission was advised that the SEC has asked the Independence Standards Board (ISB) to place the topic of legal advisory services on its agenda. The SEC intends to look to the ISB for leadership in establishing auditor independence regulations applicable to the audits of the financial statements of SEC registrants. According to the letter, the SEC auditor independence regulations specifically state that the roles of auditors and attorneys under federal securities laws are incompatible. The OCA would consider an auditing firm’s independence from an SEC registrant to be impaired if that firm also provides legal advice to the registrant or its affiliates. The Commission believes that this issue is correctly initially discussed in those fora. When the ISB completes its study, appropriate ABA entities will wish to comment on its recommendations and, possibly, to take formal positions.

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