Preliminary Report Of The Njsba Ad Hoc Committee On Multidisciplinary Practice - Center for Professional Responsibility

PRELIMINARY REPORT OF THE NJSBA AD HOC COMMITTEE ON MULTIDISCIPLINARY PRACTICE


BACKGROUND

One of the most significant and controversial issues facing the legal profession is the emergence of multidisciplinary practices or partnerships (MDPs) that offer legal services, and other services, to the public. These types of partnerships exist throughout the world, but not yet in the United States because legal ethics rules prohibit activities that are central to MDPs, such as fee sharing between lawyers and non-lawyers. The major impetus behind the American MDP movement comes from international accounting firms, but other businesses including consulting firms, banks, insurance companies and brokerage firms are exploring the viability of MDPs.

In response to these developments, in April 1999 then NJSBA President Joseph Bottitta appointed an ad hoc Committee on Multidisciplinary Practice. This report represents the committee’s preliminary examination of MDPs and their potential impact on the delivery of legal services in New Jersey.

At the time the committee was appointed, it was assumed there would be ample time to address the many issues raised by MDPs. However, the American Bar Association’s Commission on Multidisciplinary Practice recently released a report advocating MDP development in the United States, and the report has been placed on the fast track for consideration by the ABA Board of Governors.

NJSBA President Ann Bartlett therefore asked the committee to produce a preliminary report that would help educate the Board of Trustees about multidisciplinary practice and the issues it implicates.

MDPs can be categorized as either formal or informal. A formal MDP is a firm or other form of organization (whether a partnership, corporation, professional association, etc.) that includes lawyers and non-lawyers as owners and offers legal as well as non-legal services to clients. Examples of MDPs include a partnership consisting of lawyers and accountants, or a professional corporation that is a subsidiary of an accounting firm. MDPs can be owned by nonlawyers.

Informal MDPs rely on either on agreements or course of dealings to establish their relationship. The best example of an informal MDP is a strategic alliance between a law firm and an accounting firm in which the two entities agree to engage in joint marketing, joint delivery of services, and sharing of fees.

MDPs have been functioning in Europe for decades. In many European countries non-lawyers are permitted to offer legal advice as long as their credentials are not misrepresented. They may provide transactional services but cannot appear in court. As a result many accounting firms in Europe have long been providing legal services.

Given the emergence of the world economy and the desire of international accounting firms to provide clients with a variety of professional services, MDPs now rank among the largest providers of legal services in the world. For instance, PricewaterhouseCoopers employs 1663 non-tax lawyers in 39 countries and Arthur Anderson employs 1500 non-tax lawyers in 27 countries. These firms have publicly stated their desire to become major players in the marketplace for legal services around the globe and are actively pursuing clients not only in Europe, but in Canada and Australia through the acquisition of traditional law firms in those jurisdictions.

The legal services offered by MDPs are not limited to representation of multinational entities or financial institutions. In areas where MDPs now operate, they offer a variety of personal services including estate planning, real estate transfers, family law, and others.

As noted above, all 50 states have disciplinary rules that effectively prohibit the creation of MDPs. These rules prohibit fee sharing with non-lawyers, and practice within a firm that has a non-lawyer owner. The underlying fear is that a non-lawyer owner might exercise undue influence over the independence of a lawyer in representing a client.

Even if the ABA were to approve of non-lawyer practice, each state would have to modify its ethics rules for MDPs to operate. In New Jersey this means approval by the New Jersey Supreme Court.

Proponents of MDPs suggest that they offer "one stop shopping" that would benefit clients through expanded services, economies of scale, and perhaps reduced fees.

An example would be a financial services firm consisting of lawyers, accountants, and financial planners. Or, a family practice firm consisting of lawyers, psychologists, and accountants. It has been suggested that rules prohibiting MDPs are outdated and that it makes no difference whether a lawyer, licensed to practice in a particular jurisdiction, is employed by an in-state firm, an out-of-state firm, or a fast food chain, as long as the lawyer complies with applicable ethical rules.

Opponents argue that MDPs not only could impact on a lawyer’s independence and the attorney-client privilege, but would result in inherent conflicts of interest across practice areas. For instance, if an MDP is providing legal services to Company A about a dispute with Company B, could that MDP concurrently provide accounting services to Company B?

What follows is a summary of the recently released report of the ABA Commission on Multidisciplinary Practice, a recitation of basic issues, and preliminary commentary from the NJSBA ad hoc Committee on Multidisciplinary Practice.

 

REPORT OF ABA COMMISSION

On June 8, 1999 the American Bar Association’s Commission on Multidisciplinary Practice released a report recommending that:

  • fee-sharing be permitted between lawyers and non-lawyer owners of MDPs
  • MDPs be defined as partnerships, professional corporations or other associations or entities of lawyers or non-lawyers that include among their purposes the delivery of legal services
  • ownership of an MDP be limited to working members of the MDP; a MDP could not be acquired for investment purposes.
  • a lawyer in an MDP be bound by the Rules of Professional Conduct
  • all ethics rules applicable to a lawyer or law firm apply to the MDP
  • all MDP clients be treated as lawyer clients for the purpose of determining
  • conflicts of interest and imputing knowledge about a client to other members of the firm
  • a lawyer in an MDP be required to explain to a client the differing obligations lawyers and non-lawyers within the MDP may have regarding the disclosure of confidential information. A lawyer would have to "make reasonable efforts" to ensure the client understood the differing obligations, and that courts would not protect confidences shared with a non-lawyer

  • a lawyer within an MDP who is working with a non-lawyer on serving a client "make reasonable efforts" to ensure that the non-lawyer conforms to legal professional ethics
  • an MDP not be able to escape regulation under ethics rules by describing the work of its lawyers as consulting rather than performing legal services
  • nothing in the report should be interpreted as permitting nonlawyers to practice law
  • MDPs controlled by non-lawyers certify to the highest court of their jurisdiction that –

 

  • the MDP will not interfere with a lawyer’s exercise of professional judgement
  • members of the MDP will observe legal ethics rules when their services involve the practice of law
  • the MDP will "respect the unique role of lawyers on society…including rendering pro bono service
  • the MDP will submit to an administrative audit and will agree to pay for the cost of regulation

The report indicates that the Commission found "an interest by clients in the option to select and use lawyers who deliver legal services as part of a multidisciplinary practice". Although recognizing that no empirical data exists to support its conclusion, the Commission concluded that "representatives of both individual and corporate clients" support the modification of current ethics rules so as to permit MDPs.

The Commission further concluded that it is possible to permit MDPs to function "without compromising the core values of the legal profession that are essential for the protection of clients and the proper maintenance of the lawyer-client relationship".

 

GENERAL ISSUES FOR CONSIDERATION

1. Should the Rules of professional Conduct be amended to facilitate the integration of law practice with other professional services?

2. In particular, should RPC 5.4 be amended to permit lawyers to form partnerships and share fees with non-lawyers?

3. What factors militate against permitting MDPs in New Jersey?

4. Is it possible to permit MDPs, and on the other hand provide safeguards that adequately protect client interests?

5. Might law firms benefit from MDP arrangements that would permit the offering of a wider array of services to clients?

6. If MDPs are allowed, should the RPCs govern them if they provide legal services?

7. If MDPs are allowed, should certain restrictive RPCs be amended so as to facilitate lawyers joining or creating RPCs?

8. If MDPs are allowed, what sort of regulatory oversight would be required, and what reporting, record-keeping, or other requirements need be established?

 

CONCERNS OF THE NJSBA COMMITTEE

The initial review of the ABA report by the NJSBA’s committee unearthed a number of issues. In fact, the committee concluded that the ABA report raised more questions than it answered. The principal issues are in the following areas: professional independence, confidentiality, attorney-client privilege, and conflicts of interest.

A. Professional Independence

Concerns have been voiced in many quarters about the influence of an MDP on the independence and judgement of lawyers working in the MDP. RPC 5.4 states that a lawyer shall not permit his or her employer to direct or influence the lawyer’s professional judgement. The Commission would add to the RPCs a new rule prohibiting an MDP employed lawyer charged with an ethics violation from raising the defense that he acted in accordance with a nonlawyer’s direction. The Commission further recommends that MDPs fall within the oversight of their jurisdiction’s highest court. An MDP would have to annually certify that its lawyers observe the ethics rules and that the MDP does not interfere with a lawyer’s exercise of professional judgement. Finally, MDPs would be required to submit to administrative audits and pay for the cost of regulation. But, is this enough? Or, does the nature of MDPs make it impossible for them to operate within the structure set by traditional ethics rules?

It is of course essential to the profession and society that lawyers exercise independent professional judgement. Those favoring MDPs point out that law practice, like any profession, is subject to pressures and temptations that may compromise the exercise of a lawyer’s professional judgement. They argue, for instance, that conflicting financial considerations in an MDP are no different than those within a law firm. Further, they suggest that the position of in-house counsel is comparable to that of a lawyer within an MDP.

However, do MDPs inherently present conflicts between the professionals they employ, based on the fundamental differences between the roles and responsibilities of lawyers and other professionals? And, if this be the case, can lawyer independence be preserved?

Further, might the very nature of an MDP bring additional pressures and temptations to bear, beyond those endured by someone within a law firm? Committee members mentioned two important factors– the existence of market pressures and organizational incentives. Working within an MDP will be unlike working in a law firm. An MDP will be managed, at least in part, by non-lawyers from other disciplines who may bring to the enterprise distinctive marketing strategies that may clash with traditional values and ethics that guide the bar. These MDP partners may be very market driven and able to exert pressures that have the impact of clouding lawyer professional judgement. Sure, the Commission suggests new rules to guard against this, but might market realties work against strict observance of such rules? And, how might such rules be enforced? What if a lawyer joins an MDP that offers rich performance incentives, or utilizes legal services as a product to attract more lucrative business? In the former situation, a lawyer may be faced with a conflict between service to client and the need to expand the business? Or, what if an MDP offers legal services simply as an enticement to prospective clients, might the quality of the services suffer?

B. Confidentiality

The committee is quite concerned about the potential for inappropriate disclosure of confidential client information within an MDP. The rules governing lawyers are quite different than those governing other professions regarding the confidentiality of client information. Whereas a lawyer may be prohibited from divulging certain information, others within an MDP may have differing obligations, and in some instances an affirmative duty to disclose. An accountant performing an audit, for instance, may be required to reveal certain information. Under these circumstances, how can the client be protected?

The ABA Commission recommends a number of alleged safeguards. A lawyer would have to explain to a client the differing obligations of the professionals within the MDP, and take steps to ensure that non-lawyers in the MDP "behave in a manner that discharges the lawyer’s obligation of confidentiality".

But, is this enough? Will even the most sophisticated client understand (or care about) the obligations placed upon professionals within the MDP? As a result, might confidentiality be jeopardized regularly, to the client’s detriment? Do the ABA proposed rules place too many burdens on lawyers? What are other professions doing in response to MDP development? Is it at all possible to reconcile the conflicting professional demands that will exist within an MDP? Because accountants do auditing work they may be required to divulge information that a lawyer would deem sacrosanct. An accountant may ask a client to waive confidentiality, something a lawyer would not do. How can an MDP protect a client’s interests given these very different approaches to confidentiality?

C. Attorney-Client Privilege

Another major concern of the committee is whether an MDP will be able to treat legal clients and legal matters in a manner consistent with the attorney-client privilege.

The ABA Commission suggests that lawyers be required to advise clients about the separate functions performed within an MDP, and that most non-lawyer members of the MDP are not guided by the attorney-client privilege. The rule proposed by the Commission says that a lawyer "should take special care to avoid endangering the privilege….and shall take such measures as are necessary to prevent disclosure of confidential information…"

But, do the ABA rules go far enough? Or, is it just not possible to protect adequately the rights of a client served by an MDP?

The committee suggests that inherent conflicts exist within MDPs that may make it difficult, if not impossible, to maintain the attorney-client privilege and safeguard confidential information. How can a lawyer ensure that others within an MDP act to safeguard the attorney-client privilege? Will they even care, given their own professional obligations which may conflict with those of their lawyer partners?

D. Conflicts of Interest

How will an MDP define and deal with conflicts of interest that arise? Again, a lawyer’s notion of a conflict, and his or her obligation to withdraw or advise a client, may be quite different than that of an accountant or other professional.

The ABA Commission recommends that MDPs be governed by the conflict rules within the RPCs. The Reporter’s Notes appended to the Commission report observe that the Commission is "unpersuaded that lawyers within an MDP would be any more likely to break the rules of lawyer conduct than those who practice within a traditional firm".  That may be the case, but will the very structure and nature of an MDP make it very difficult for the RPCs to be observed? How can other professionals in an MDP reconcile their own professional obligations (or lack thereof) with those of a lawyer, particularly in the critical area of conflicts?

MDP proponents point out that law firms often represent clients with competing interests, following disclosure and the establishment of screening mechanisms. However, law firms operate under one set of rules, the RPCs, whereas professionals within an MDP may be pulled in different directions by their own notions of conflicts and how to address them. Will it be possible to tame this constant tension?

E. Where Is The Groundswell of Support?

Proponents of MDPs, including the ABA Commission argue that "clients" are demanding access to a wider array of services, and that these can be best provided through an MDP. But, members of this committee have not had any clients ask about other professional services, or express a desire for "one stop shopping". It may very well be that support for MDPs does exist in New Jersey, but right now it appears to be limited to large accounting firms.

It is interesting to note however, that entities within the organized bar, other than the ABA Commission, have announced support for the MDP concept. A special committee of the New York State Bar Association has concluded that "the legal profession should continue to explore the oportunities presented by multi-disciplinary practice with a view toward permitting such practice unless insuperable obstacles appear". Also, the ABA Section on Solos and Small Firms has issued a resolution supporting the MDP concept. The American Corporate Counsel Association issued a statement in support of the MDP concept "…subject to resolving important issues of ethics and professionalism in the best interests of the client and public".

 

CONCLUSION

Multidisciplinary practice presents a variety of important issues that deserve further study, and close examination by the NJSBA. The committee attempted to identify in this report the issues and questions it sees a most important. It will continue its work in the hope of presenting to the Board of Trustees a definitive report. For now, we sound a note of caution – that the promise some say is presented by MDPs seems to be outweighed by inherent conflicts and unworkable practice arrangements that will in the long term bring no real benefits to consumers of legal services.

 

Respectfully submitted,

Ad Hoc Committee on Multidisciplinary Practice:

Stuart A. Hoberman, Chair
Randolph C. Lafferty
Bruce E. Mantell
John H. Ogden
Mary Lou Parker
Steven M. Richman
Richard H. Steen
Leo Zatta

 


 

RESOLUTION

New Jersey State Bar Association Board of Trustees

July 16, 1999

WHEREAS, the American Bar Association Commission on Multidisciplinary Practice issued a report recommending that lawyers be permitted to form or join multidisciplinary practice (MDP) groups that offer legal services, and other professional services; and

WHEREAS, the New Jersey State Bar Association’s ad hoc Committee on Multidisciplinary Practice was appointed to examine the impact of MDPs on the delivery of legal services in New Jersey; and

WHEREAS, the NJSBA committee and other entities have raised questions about the propriety of lawyers forming or joining MDPs, specifically whether MDPs will lead to the impairment of the independence of lawyers, erosion of the attorney-client privilege, inherent conflicts of interest, and the inappropriate disclosure of confidential client information; it is

RESOLVED, that the NJSBA opposes any changes in existing Rules of Professional Conduct that would permit lawyers to join or form MDPs.

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