PostScript to February 2000 Midyear Meeting
Approximately forty-one state and local bar associations are currently studying the question whether and to what extent the current ethical prohibitions on fee sharing and entering into a partnership with a nonlawyer should be relaxed. At the conclusion of the ABA Midyear Meeting in February 2000, many of these bar associations urged the ABA Commission on Multidisciplinary Practice (Commission) to issue an update describing its views for the purpose of assisting the bar associations in their deliberations. Acknowledging the critical importance of the participation of the state and local bar associations in the debate over multidisciplinary practice, the Commission is releasing this PostScript to February 2000 Midyear Meeting (PostScript) to provide such interim guidance. The Commission strongly invites responses and comments to the PostScript. The Commission especially encourages comments on whether it should recommend (1) a single MDP structure for adoption by the House of Delegates or different structures, to be adopted alternatively; or (2) a simple resolution that the House of Delegates approve the relaxation of the ethical prohibitions in general, allowing the states, if they so choose, to adopt the structure(s) best designed to protect the public interest and the interests of the bar in each individual jurisdiction.
Reflections on the Possible Organizational Structures for the Delivery of Legal Services in a Multidisciplinary Organization
A. Model Five: The Fully Integrated Model
At the center of the discussion is the debate over whether the fully integrated model poses a threat to the core values of the legal profession sufficient to remove it from consideration. The Commission recognizes the concerns voiced by many commentators who believe that independence of professional judgment may be more at risk when a nonlawyer supervises a lawyer in connection with the delivery of legal services to a third party. Accordingly, the Commission is considering modifying its original proposal to provide (1) that the lawyers in a fully integrated MDP must be organized in a unit separate from the MDP's other units ( e.g., business, technology, or environmental consulting and auditing services); and (2) that these lawyers must report to a lawyer-supervisor whose responsibilities include fixing the lawyers' compensation and terms of employment, making decisions with respect to professional issues such as staffing of legal matters and the allocation of lawyer and paraprofessional resources, and advising on issues of professional responsibility. It has been suggested to the Commission that these types of structural arrangements might contribute to fostering a culture of professionalism and help to preserve lawyer identity within large MDP organizations.
Furthermore, the adoption of such a measure might bring a significant number of the lawyers currently practicing in professional services firms more clearly under the regulatory tent, to the benefit of the public. Because of the restrictions imposed by most states' unauthorized practice of law statutes, many individuals who graduated from an accredited law school, hold a state license to practice to law, and are presently employed by professional services firms must disingenuously claim to be "practicing consulting" not law. They make this claim even though the services they are rendering to the firms' clients have been reported to the Commission as being comparable to the services being rendered on a daily basis by lawyers in law firms to the law firms' clients. Under the arrangement presently being considered by the Commission, only those lawyers housed in the separate unit could hold themselves out as "lawyers" capable of establishing a traditional client-lawyer relationship with the clients of the professional services firm, including the protection of the ethical duty of confidentiality and the attorney-client privilege. It would be the responsibility of the MDP to ensure that a client receiving services from a lawyer who was not housed in the MDP's separate legal services unit understood that no client-lawyer relationship existed. In addition, the Commission is considering the suggestion that the rules of imputation apply only to the clients who are being provided legal services, not to all the clients of the MDP.
The Commission recognizes that as the size of an MDP shrinks, the structural safeguards discussed in the preceding paragraphs might have to be adjusted. However, the Commission is confident that the states can work out the necessary details. For example, lawyers in small firms have for generations functioned as dual professionals, offering legal and nonlegal services to their clients. They have had to observe various organizational safeguards designed to ensure that their legal and nonlegal services were separately conducted and that the clients who purchased these services understood the different roles the lawyer played. Similarly, lawyers in smaller MDPs ( e.g., a lawyer, a social worker, and certified financial planner) will have to establish procedures suitable to that practice setting to protect the exercise of independent professional judgment and to ensure that they are ultimately responsible for all decisions relating to the legal services being provided to the MDP's clients.
B. Model Two: The Command and Control Model (A Modified Version of Rule 5.4 of the Washington, D.C. Rules of Professional Conduct)
Rule 5.4 of the Washington, D.C. Rules of Professional Conduct permits a lawyer to enter into a partnership and share fees with a nonlawyer subject to certain conditions. Some MDP proponents have urged the Commission to recommend the adoption of a similar rule. Some MDP opponents have suggested that such a rule might be acceptable. At the heart of the D.C. rule is the provision that "the partnership or organization has as its sole purpose providing legal services to its clients." The provision's practical consequence is that entities in Washington, D.C. in which legal fees are being shared with nonlawyers are lawyer-controlled. In the proponents' view, the D.C. rule has the dual advantage of offering clients the option of selecting a form of "one-stop shopping" (one where top level nonlawyer professionals are more likely to reside than in a jurisdiction where nonlawyers are permitted only to be employees) while lessening the possibility that the nonlawyer members of an MDP will be able to force the lawyer member to disregard the lawyer's ethical obligations.
An alternative would be a D.C.-type rule with one major modification, the substitution of the language "a principal purpose" or "a purpose" for "its sole purpose." This would provide for greater flexibility in the structuring of MDPs and lead to expanded choices for MDP clients.
In connection with this change, the Commission may also explicitly recommend lawyer-control of the MDP. The Commission is inclined to define "control" simply in terms of the ownership interest held by the lawyer member(s) (i.e., fifty-one percent). A supermajority may be appropriate (i.e. sixty-seven or seventy-five percent ) on some issues. A modified D.C. rule would also contain language to the effect that the lawyer member(s) is ultimately responsible for all decisions relating to the legal services being provided to the MDP's clients.
C. Model Four: The Contract or Affiliation Model
Law firms and professional services firms, both large and small, have for generations referred clients to one another. Generally speaking, these referral arrangements have not been a cause of professional alarm or considered a threat to a lawyer's independence of professional judgment. Based on reports in the press it appears that these arrangements, often now referred to as "strategic alliances," are becoming increasingly formalized. The Commission is concerned that where the substance of the arrangement is not consistent with its form, the practical effect of such an alliance will be to create a virtual MDP in which a lawyer is sharing legal fees with a nonlawyer in violation of Rule 5.4 and that the nonlawyer may be able to exert an ownership-like control over the law firm.
The Commission is considering recommending the adoption of a model rule that would remind a lawyer of the lawyer's duty to exercise independent professional judgment on behalf of a client regardless of the setting in which the lawyer delivers legal services to the client. It would specifically warn B in the text of the rule itself or in the accompanying comments B of the threat to independence that will result if the terms of a strategic alliance place too much business, financial or other power in the control of the nonlawyer.
Reflections on Other Matters of Concern Drawn to the Commission's Attention
A. The Provision of Legal and Audit Services to the Same Client by an MDP
In the Commission's final Recommendation, it will state more clearly that an MDP should not be allowed to deliver legal and auditing services to the same client. The disclosure obligations of an auditor are incompatible with the legal profession's duty of confidentiality.
B. Should the Commission's final Recommendation Define the Practice of Law?
Appendix A to the August 1999 Recommendation contained a proposed definition of the practice of law modeled on Rule 49 of the District of Columbia Rules. The definition has been widely criticized as too broad and far reaching. These criticisms are well-taken. The Commission is considering whether it should include any definition in its final Recommendation, and if so, what that definition should be. Over the course of the past two decades, the concept of what constitutes legal services has changed. Law firms are now regularly providing services to clients that were unheard of twenty or even ten years ago. Nonlawyers are now providing services that mimic those provided by law firms ( e.g., environmental, human resources, and compliance consulting.) Given the complexity of the lawyer and nonlawyer services offered to clients today, it may be impossible to satisfactorily define the practice of law on a national level. The composition of such a definition may best be left to each individual jurisdiction, particularly in light of each jurisdiction's historical development and precedence regarding its current definition.
C. Should a Lawyer Be Permitted to Enter into an MDP with any Nonlawyer or only a Nonlawyer Whose Occupation Falls within Certain Parameters?
The Commission has been asked to consider whether a lawyer should be permitted to enter into an MDP with any nonlawyer or only certain types of nonlawyers. The choice is complicated. There is an argument to be made for letting the marketplace decide the extent and scope of the services an MDP may offer. Proponents of this view argue that restricting MDP membership to certain groups of nonlawyers may deprive clients of innovative services. Moreover, creating the desired parameters for permissible nonlawyer partners is no easy task. Licensure is not a helpful criterion since many nonlawyers whose services might not be considered an appropriate part of an MDP are licensed ( e.g., cab drivers, beauticians, etc.). One possible solution is employing the definition "a member of a recognized profession whose conduct is governed by ethical standards" and supplementing the definition with a list of such professionals similar to the lists and descriptions found in the comments to ABA Model Rule 5.7 and Model Rule 5.4 of the Washington, D.C. Rules of Professional Conduct. Such a list might include, for example, accountants, psychologists, psychiatric social workers, and real estate brokers, among others.
D. The Audit and Certification Procedures
The Commission is listening carefully to the critical comments that the audit and certification procedures originally proposed in Recommendation 14 are unworkable. In that regard, the Commission is in contact with the committee appointed by the Conference of Chief Justices to study MDPs and awaits such guidance as that committee may wish to provide, recognizing that the justices may deem it inappropriate or premature to render such guidance, which, in any event, would not be forthcoming until after the ABA's 2000 Annual Meeting.
The Commission has been asked to consider dropping the audit procedure, while maintaining and extending the certification procedure to lawyer-controlled MDPs as well. The certification would be filed with the institution in each jurisdiction in which the MDP provides legal services that is responsible for the regulation of lawyer conduct.
The Commission believes that the lawyers in MDPs and the MDPs' chief executive officer (or similar official) and its board of directors (or similar body) will fully appreciate the seriousness of the written undertaking that they must execute. We believe that both the lawyers and nonlawyers will not lightly disregard a statement that they are signing under penalty of perjury. Furthermore, they will be cognizant that these sworn-to statements might be used against the MDP in any action for malpractice or breach of fiduciary duty in which the independence of the lawyers' professional judgment might be at issue. This possibility should act as an incentive for them to put in place and enforce the institutional structures needed to protect the core value of independence.
E. Commission Schedule
The Commission is mindful of the desires of the states to receive further guidance regarding the MDP issue. The Commission will be meeting on March 4 th and 5 th to attempt to finalize its deliberations in anticipation of filing a report for the House of Delegates for the 2000 Annual Meeting. Nevertheless, the Commission remains concerned about acting before the states and the chief justices have given us the benefit of their deliberations.