April 22, 1999
Center for Professional Responsibility
541 N. Fairbanks Court, 14th Floor
Chicago, Illinois 60611-3314
Re: Multi-Disciplinary Practice
Dear Mr. Garwin:
The Bar Association of San Francisco responds to the questions raised by the ABA Commission on Multi-Disciplinary Practice in the Commission's Background Paper on Multi-Disciplinary Practice: Issues and Developments concerning lawyers entering into partnerships with non-lawyers and other arrangements that permit fee sharing with non-lawyers. We also briefly comment on the possible models for addressing multi-disciplinary practice posted on the Commission's website. We have examined the issues presented in the context of protecting clients and the interests of the public.
We observe at the outset that the controversy regarding multi-disciplinary practice ("MDP") is not new and that the issues under consideration by the Commission are similar to those that were debated in 1983 when the Model Rules of Professional Conduct were presented to the ABA House of Delegates. We also note that ethics rules prohibiting lawyers from entering into partnerships with non-lawyers if any of the activities of the partnership consist of the practice of law, and rules forbidding lawyers from assisting lay persons in the unauthorized practice of law have been upheld against constitutional challenges of due process and equal protection as well as challenges under the First Amendment. See Lawline v. American Bar Ass'n, 956 F.2d 1378 (7th Cir. 1992), cert. den. 114 S.Ct. 551 (1993).
At the same time, we are aware of the recent emergence of MDPs, principally outside the United States, and the aggressive promotion -- largely by accounting firms -- of the benefits and efficiencies offered by "one-stop shopping" for professional services. We observe that in California, professional service entities have already expanded into the practice of law and that an increasing number of lawyers are practicing law with accounting firms, consulting firms and other MDPs. The California Rules of Professional Conduct ("COPRAC") and the statutes prohibiting the unauthorized practice of law are not being effectively enforced, and in some cases are being selectively enforced.
The benefits advanced by proponents of MDPs include improved client service, better access to resources, client savings and efficiencies and the public's preference for "one-stop shopping" for professional services. These claimed benefits have not been supported, to our knowledge, by empirical evidence. Our Association believes that the reported benefits of MDPs should be substantiated before proposed changes to the ethics rules are considered.
We are sensitive to the criticism that an absolute prohibition of fee-sharing with non-lawyers prevents the development of "full service" practices in which members of different professions work together to meet the needs of clients and that the current rules inhibit innovative forms of practice. However, we do not subscribe to the view that restrictions on engaging in the practice of law with non-lawyers are completely outdated or that the ABA needs to act rapidly to meet the demands of the public on this issue.
We favor a careful re-examination of the policies underlying the prohibition of fee-sharing with non-lawyers in view of today's practice and the needs of consumers of legal services. At the same time, we urge an active and uniform enforcement of the rules of professional conduct and the current law prohibiting the unauthorized practice of law. We recommend that the ABA promote the benefits afforded clients by the Model Rules, particularly rules requiring lawyers to avoid conflicts of interest, maintain confidentiality and professional independence.
The Commission's Questions
The MDP debate covers an extremely broad area that involves more than sophisticated multi-national corporations that favor "one-stop shopping" arrangements. The MDP debate encompasses all consumers of legal services regardless of their sophistication and desire for the benefits offered by MDPs. In the context of private sector legal services alone, associations between lawyers and other professionals can take many forms and implicate numerous ethical issues and disciplinary rules. For instance, the ethical implications of prohibiting fee sharing with non-lawyers, in the context of accepting referrals from non-lawyers, or rendering services as in-house counsel, to customers of a corporation who shares fees with in-house counsel, are not the same as the ethical implications where lawyers and non-lawyers jointly represent multiple parties in all aspects of a business transaction for a single fee. The broad proposals advanced for MDPs would permit traditional law firms to acquire nonlawyer businesses and nonlawyer businesses to acquire law firms. Given the complexity of the issues and the multi-faceted nature of MDPs, it is not possible to respond meaningfully to the Commission's question whether the benefits of a rule prohibiting or limiting fee sharing with non-lawyers outweigh the harm to the public.
The questions posed by the Commission go beyond modifying ABA Model Rule 5.4 and challenge the nature of the lawyer-client relationship itself. This unique relationship has consistently been described as being of the highest character and one that binds the attorney to the most conscientious fidelity to the client. See Lee v. State Bar (1970) 2 Cal.3d 927, 939 [88 Cal.Rptr. 361, 369]; Yorn v. Superior Court (1979) 90 Cal.App.3d 669, 675 [153 Cal.Rptr. 295, 297-298]. The fundamental quality of the attorney-client relationship is the absolute fidelity owed by the attorney to each client, which includes the duty of undivided loyalty, the duty of confidentiality and the duty to avoid conflicts of interest, including relationships that impede the lawyer's exercise of independent professional judgment on the client's behalf. Therefore, we believe that the MDP controversy implicates the core function of the Rules of Professional Conduct and is not limited to the question whether restrictions should be lifted on lawyers entering into a partnership with non-lawyers or other arrangements that permit fee sharing with non-lawyers.
We enclose for the Commission's consideration California State Bar Formal Opinion No. 1995-141, which addresses some of the ethical concerns applicable to law-related or ancillary business services offered by lawyers to clients and to the public. While MDPs are not limited to legal or law-related services (see ABA Model Rule 5.7), the opinion is relevant to the MDP debate in pointing out that an attorney's ethical obligations are not limited to activities involving traditional legal services. The opinion confirms that lawyers are held to the standards of conduct required under the Rules with respect to all activities that are related to the practice of law, and that the benefit of being licensed to practice law carries with it restrictions on what a lawyer may do that a person who is not licensed to practice law might otherwise be permitted to do. We believe the ethical issues raised in State Bar Formal Opinion No. 1995-141, including conflicts of interest, adverse affects on independent professional judgment, loss of client confidentiality, overreaching and improper solicitation, non-lawyer control of a law practice, fee sharing and the unauthorized practice of law, are also implicated in an analysis of the risks associated with multi-disciplinary practice.
California's Rule 1-320(A) is similar to Model Rule 5.4, in precluding lawyers from sharing fees with non-lawyers with limited exceptions. California has a separate rule precluding lawyers from forming a partnership with non-lawyers -- if any of the activities of the partnership constitute the practice of law. CRPC Rule 1-310. California also precludes lawyers from aiding any person or entity in the unauthorized practice of law, CRPC Rule 1-300, and advising the violation of law. CRPC Rule 3-210.
The ethical principles underlying CRPC Rule 1-320(A) (and we believe Model Rule 5.4) are that fee-sharing arrangements with non-lawyers would (1) unduly encourage competitive solicitation for attorneys by lay persons; (2) enable lay persons to interfere with or exercise control over the attorney's duty to exercise independent professional judgment on behalf of the client; and (3) permit lay persons receiving fee splits to select the most generous rather than the most competent attorneys. See California Practice Guide: Professional Responsibility (The Rutter Group 1997) ¶ 5:510; see also ABA Formal Opinions Nos. 95-392, 88-356 and 87-355.
ABA Model Rule 5.4, as well as California's counter-part, is one of a series of rules intended to preserve the client-lawyer relationship. Simply changing Model Rule 5.4, or adopting Rule 5.4 of the Washington, D.C. Rules of Professional Conduct, without addressing the other important ethical consequences would not, in our opinion, be an adequate response to the debate on multi-disciplinary practice.
Issues relating to the imputation of the services of the law firm or the MDP to one or the other are outside the scope of the California Rules of Professional Conduct. Most state rules of professional conduct, including California's, are intended to regulate professional conduct of lawyers through discipline. As a result, California does not have a rule comparable to Model Rule 1.10, since it is not a rule of discipline but instead addresses the civil consequences of a conflict of interest. Ethical screens have not been successful in avoiding imputed disqualification in traditional law firm conflict situations. It is not apparent to us why a different result would apply in the case of MDPs.
Regarding the impact of MDPs on the attorney-client privilege, we wish to point out that the attorney-client privilege as a rule of evidence is much narrower than the ethical responsibility of lawyers to maintain client confidences and secrets. See ABA Model Rule 1.6 and California Bus. & Prof. C. § 6068(e). The duty to protect client confidentiality is a more serious issue than preservation of the attorney-client privilege because the ethics rules and case law preclude lawyers from engaging in activities that pose a risk of loss of confidentiality and are not limited to a mere breach of the privilege. This issue cannot be resolved simply by a change in the ethics rules or by affording accountants and other professionals a form of "privilege."
In our view, there are several options available to the ABA and the legal profession in addressing the current MDP debate. One course of action is to actively enforce existing statutes prohibiting the unauthorized practice of law and require lawyers to abide by the rules of professional conduct regardless of the manner in which they practice law. This Association favors this approach despite the lack of effective enforcement in the past and the current scope of legal practice by professional service entities.
A second option is to amend Model Rule 5.4 along the lines of the District of Columbia rule which would allow greater flexibility for lawyers to practice law with non-lawyers. In line with this option, the ABA could adopt a rule similar to Model Rule 5.7 outlining the permissible parameters of an MDP arrangement as in the case of ancillary business services. As previously stated, we do not believe this would be an adequate solution to the complex problems presented by the MDP controversy.
As a third alternative, the ABA could decide not to change its rules to accommodate MDPs and confirm that the legal profession will vigorously compete with non-lawyer service providers for consumers of legal services.
Finally, the ABA could decide to change the Model Rules to accommodate the demands of multi-disciplinary practice and recognize that its ethics rules no longer afford the level of client protection originally intended. We do not believe that this is the case. However, we also do not believe that the emerging multi-disciplinary practice can easily be reconciled with the core principles underlying the current Rules of Professional Conduct. In the end, the legal profession will have to justify the value of the rules in protecting the interests of the public or recognize that the rules no longer serve their intended purpose and should be eliminated in their entirety.
This Association generally supports the first option. We firmly believe that the trust and confidence in the attorney-client relationship should be preserved and that the legal profession should enforce the rules of professional conduct and better promote the benefits afforded by the rules to consumers of legal services. We do not believe that changes to the ethics rules should be considered until the purported benefits of MDPs have been substantiated.
We also believe that the Rules of Professional Conduct should continue to apply to lawyers in all areas of practice. Creating exemptions for certain types of practice could lead to other exemptions and ultimately could undermine the effective enforcement of the rules. All lawyers admitted to practice are officers of the court and should uphold their oath to discharge their duties as an attorney and to support and promote the administration of justice in the jurisdictions in which they are admitted to practice.
As we said at the outset, the rules should be examined in the context of protecting the client and the public. Finally, the civil remedies at law, including disqualification, should be preserved.
The Commission's Models and Hypotheticals
We provide the following comments to the models and hypotheticals posted on the Commission's website:
We do not have a problem with the "Cooperative Model" proposal. We believe that the Rules of Professional Conduct should apply equally to lawyers in whatever form of practice they choose - whether in sole practice or in partnership with other lawyers. It has not been demonstrated that lawyers are unable to compete effectively without sharing fees with other professionals or that the public is being deprived of legal services because of restrictions on fee sharing with non-lawyers. Lawyers may have to compete more vigorously with accounting firms and other professional service providers, but that alone is not sufficient justification to change the ethics rules.
The Command and Control Model presents a viable alternative provided the lawyer adequately supervises and is accountable for the work of the other professionals in the MDP. Requiring other professionals to be bound by the Rules of Professional Conduct of lawyers, however, raises questions of enforcement and jurisdiction. All lawyers, regardless of the nature of their practice, are officers of the court of the state in which they are admitted to practice and are typically subject to the jurisdiction of the highest court in that state with respect to their conduct. Architects and accountants, on the other hand, would not be answerable to the same extent as lawyers for violations of the Rules of Professional Conduct. While this alternative would do the least violence to the core principles of the ethics rules, it would probably not resolve the MDP debate.
We do not believe the Ancillary Business Model would be workable in the broad context of MDPs. Requiring lawyers to maintain a distinction between law-related services and the provision of legal services in order to avoid the application of the ethics rules does not address issues relating to conflicts of interest and confidentiality - particularly in situations where the MDP renders law-related services to clients of the lawyer or the lawyer's law firm. Proponents of MDPs want to include the services of lawyers in promoting the "one stop shopping" concept to the public. In our view, the lawyer or law firm in this MDP model may have an attorney-client relationship with consumers of the MDP's services or at least owe fiduciary duties to the consumer.
The Contract Model would clearly create the risk of interference with the exercise of the lawyer's independent professional judgment on behalf of the client. An independent lawyer unburdened by the affiliations in this model could conclude that it would be in the client's best interests to use another professional service provider rather than XYZ Professional Services, LLP or not to use such services at all. The effect of the arrangement on the fees charged the client, preserving the client's confidential information, and advertising the services of the law firm and the affiliate are not adequately addressed.
As we stated above, the current framework of the Rules of Professional Conduct would not be compatible with the Fully Integrated Model. We do not believe it is practical to reconcile the basic ethical principles that define the attorney-client relationship with a totally integrated MDP arrangement as described in Model 5. Either a separate set of rules would govern lawyers in this model or lawyers would be exempt from the core ethics rules that define our profession. Neither alternative is attractive to this Association.
We appreciate the opportunity to respond to the ABA Commission's inquiries.
Very truly yours,
Therese M. Stewart