Remarks About the Recommendations and Report
of the ABA Commission on MDPs
Professor Laurel S. Terry
Penn State Dickinson School of Law
Since I have actively followed the Commission's work and have provided extensive testimony about the issues related to MDPs, I wanted to share my reactions to the Commission's Recommendations and Report. Obviously, it is difficult to provide a succinct yet thorough response to the Commission's Recommendations and Report. This letter contains ten observations, including: 1) some general observations about the Commission's work; 2) an endorsement of the Commission's basic approach; 3) identification of some of the areas in which I disagree with the Commission; and 4) most importantly, identification of some points that I think should be clarified before the ABA votes on these recommendations.
Observation 1: The Significance of Unanimity
The very first thing that struck me about the Commission's Report was the fact that it was unanimous. In my view, this outcome was not a "done deal" at the time the Commission was appointed. Indeed, I believe that when the Commission began its work, many Commission members were skeptical of MDPs, if not downright hostile. Thus, I believe that it is important to consider that a very diverse group of people who have lived with these complex issues, debated them, and worked extremely hard for almost one year, reached a unanimous conclusion.
Second, the unanimous ABA Commission report echoes what has happened elsewhere in the world. I recently spoke at a conference with Toby Greenbury, who was chair of the London Law Society MDP Working Party. He initially despaired about having to prepare a report since his committee had such diverse views about MDPs. Ultimately, however, his committee issued a unanimous report, approving MDPs in concept and proposing various types of regulations. He explained that some committee members were enthusiastic about MDPs while others endorsed them reluctantly, but all ultimately concluded that it was better to regulate lawyers within MDPs than have them go without regulation. While I do not mean to suggest that reasonable minds cannot disagree regarding MDPs, I consider the fact that the report was unanimous to be significant. I would urge all lawyers to carefully consider the Commission's reasoning before reaching their own conclusions on these important issues.
Observation 2: The Clever Nature of the Commission's Submissions to the ABA
The second thing that struck me about the Commission's materials was the creative and effective manner in which the Commission presented very complex difficult issues. During the past year, I have wondered how the Commission would proceed logistically if it intended to recommend anything other than maintenance of the current fee-sharing ban. The Commission is to be commended for the manner in which it presented its work. While there may be disagreement about whether the House should vote on the Commission's work in August 1999, February 2000, or later, the structure in which the Commission presented its findings is excellent. The Commission's "Recommendations" give U.S. lawyers and the ABA House of Delegates a concrete set of principles to debate and vote upon. And while the proposed Model Rules changes are not binding, this was a useful mechanism to help lawyers envision the types of changes contemplated and the likely impact of the Commission's recommendations upon the ABA Model Rules. I agree with the Reporters for the ABA Ethics 2000 Commission, who recently noted that until the policy issues are decided, it is not worth parsing the MDP Commission's proposed changes to the Model Rules. As the work of the Ethics 2000 Commission demonstrates, it is not a simple job to draft rule language, even after there is agreement on the basic principles. In sum, I think the MDP Commission is to be commended for the overall manner in which it presented its work, including its effort to draft sample Model Rule changes.
Observation 3: The Commission Focused the Debate on the Proper Issues - Client Protection and Public Interest, which are Served by Lawyer Confidentiality, Loyalty, and Independence
Even the critics of the Commission's Recommendations and Report concede that the Commission asked the right questions and focused on the right issues, although they don't like the Commission's answers. Critics such as Larry Fox and Professor Bernard Wolfman, for example, have commended the Commission for its acknowledgment of the lawyer's core values of confidentiality, loyalty and independence. As the Ethics 2000 Commission reporters noted:
The MDP Commission should be congratulated for taking a serious, independent look at an issue on which knee-jerk reactions are very easy. The report correctly keeps its focus on client needs rather than lawyer preferences for the status quo.
I hope that U.S. lawyers and the members of the ABA House of Delegates will likewise focus on client needs and the public interest when evaluating the Commission's recommendations.
This is, of course, a lot to ask of lawyers. Since lawyers are being asked to make recommendations about self-regulation, it would not be surprising to find that they were influenced (consciously or unconsciously) by their views about the impact of MDPs on their pocketbooks 1 . In my view, this possibility makes the MDP debate particularly difficult. I strongly believe that the financial impact on lawyers is not an appropriate basis for regulation. On the other hand, I fear that some lawyers, especially those who have not been extensively engaged in the debate, may "vote their pocketbooks." The ironic thing, of course, is that lawyers' pocketbooks may benefit by MDPs because MDPs may make lawyers more accessible and relevant in the 21 st Century, as several witnesses testified. So I find it frustrating that lawyers may vote an issue that is not appropriate, but may be laboring under a misunderstanding. Given these political realities, I think the Commission is to be particularly congratulated for maintaining the discussion on the appropriate topics, which are client protection, public interest and lawyers' core values, which help achieve those goals.
Observation 4: The Commission "Got it Right" When it Recommended that the Fee-Sharing Ban Be Eliminated but Discussion and Debate about the Details is Healthy
In my view, the Commission basically "got it right" when it recommended that Model Rule 5.4's fee sharing ban be eliminated. In my testimony, I identified two major reasons why I think it is important for the ABA to regulate MDPs, rather than continue Rule 5.4's fee sharing and partnership ban. These reasons have, directly or indirectly, been the subject of discussion by critics of the Commission's recommendations. Even after reading these comments, however, I continue to believe that the Commission "got it right" with respect to its conclusion that the fee-sharing ban should be modified.
First, I am convinced that the MDP phenomenon will occur with or without a rules change by the ABA or state courts. I think it is better to regulate these lawyers than have them "practice" in an unregulated fashion (and have parallel worlds of regulated and unregulated lawyers.)
Second, because there was testimony of at least some client and lawyer demand for MDPs, and because the current fee-sharing ban limits client and lawyer autonomy, I think those who want to prohibit fee-sharing have the "burden of proof" to justify such a ban. After attending all of the Commission's hearings and reading all of the submissions, I am not convinced that there is sufficient evidence of harm to justify taking away client autonomy on this point. While I agree there are risks, I think many of the cited risks are speculative. There was not sufficient testimony of harm to justify overriding clients' own decisions about the context in which they want legal services (assuming that regulators have the "burden of proof" to justify a fee split ban.)
While I believe the Commission "got it right" on the large issue, I agree that some of the details need further refinement. Given all of its hard work, I imagine that the Commission may be frustrated if there is no vote in August 1999. However, a six-month delay before the vote is healthy. The discussion that has emerged subsequent to the issuance of the Report is important and necessary, particularly with respect to the court audit and lawyer-control requirements.
My remaining six observations assume that the current fee-sharing ban will be removed; these remaining observations therefore address the "details" of the Commission's recommendations. Although I disagree with some of the details in the Commission's Recommendations and Reports, my comments must be placed in a larger context. I want to commend the Commission for its tremendous efforts and for having moved the discussion forward so substantially.
Observation 5: Recommendation 5 Needs to Be Clearer About When the Ethics Rules Apply to MDP Lawyers and Whether the Decision is Based on the Lawyer's Status or the Particular Activity
One of the issues facing the Commission was whether the legal ethics rules should apply to lawyers practicing in an MDP and if so, under what conditions. I believe that it is exceedingly important that this issue be resolved as clearly and unambiguously as possible. There was substantial agreement from all witnesses that the legal ethics rules should apply to lawyers who choose to practice law in an MDP setting. With respect to the conditions under which such rules would apply, two major choices emerged: 1) to have the ethics rules apply to a lawyer based on the lawyer's status within the MDP ( i.e., ask if the lawyer is employed in the MDP in order to provide legal services or to provide nonlegal services?); or 2) to have the ethics rules apply if the particular activity in question involves the practice of law.
Commission Recommendation 5 resolved this issue as follows:
A lawyer in an MDP who delivers legal services to the MDP's clients should be bound by the rules of professional conduct.
In my view, Recommendation 5 is not sufficiently clear and should be revised. I assume that the Commission intended for the legal ethics rules to apply based on the lawyer's status in the MDP and not the activity. But I can imagine someone arguing that Recommendation 5 should be interpreted to mean "a lawyer who delivers legal services [in this particular matter] to [these] MDP clients should be bound by the rules of professional conduct." In other words, it is at least possible that someone could argue that this Recommendation focuses on the lawyer's activity, rather than the lawyer's status.
Accordingly, I believe Recommendation 5 should be revised in order to eliminate any chance of ambiguity. While there may be better solutions, the addition of four words would make this recommendation much clearer. Recommendation 5 could be revised to say:
A lawyer whose function in an MDP is to deliver legal services to the MDP clients should be bound by the rules of professional conduct.
(If and when a Model Rule ultimately is drafted, the comment could discuss how a lawyer might establish the fact that his or her function in the MDP is to provide something other than legal services. Placement of the lawyer somewhere other than in a "legal department" and not holding oneself out as a lawyer are two factors that might be relevant.)
Observation 6: The Court Audit Requirement Should Apply to All MDPs. (Alternatively, the term "control" should be defined.)
Recommendation 12 states:
A lawyer should not share legal fees with a nonlawyer or form a partnership or other entity with a nonlawyer if any of the activities of the partnership or other entity consist of the practice of law except that a lawyer in an MDP controlled by lawyers should be permitted to do so and a lawyer in an MDP not controlled by lawyers should be permitted to do so subject to safeguards similar to those identified in paragraph 14.
Several commentators have criticized this court audit requirement 2 . Some commentators contend that the court audit will not provide an effective control mechanism, whereas the consumer advocacy representatives worry that the audit will prove too expensive and will serve to discourage "Main Street" MDPs. 3 My criticism of Recommendation 12 is different. I think that if a court audit requirement is used, it should apply uniformly to all MDPs.
There are two main reasons why I think a court audit requirement should be uniformly applied to all MDPs. First, I think it is important to ask what the purpose is of the court audit. While discipline and enforcement is certainly one role the court audit may serve, I consider "education" to be an equally important function of the court audit requirement. And even lawyer-controlled MDPs would benefit from the education provided by the court audit. If MDPs are permitted in the U.S., it will be a new experience for U.S. lawyers. Even lawyers practicing in a lawyer-controlled MDP will have to face new issues and old issues in new contexts. The audit could aid in this education function. For example, the court audit might provide a checklist for MDPs. The court audit also provides a context to discuss issues such as that raised by commentator Silvia Ibanez. She asserts that MDP lawyers should be required to provide a disclaimer to clients warning them about possible compromises to confidentiality [attorney client privilege] that could occur when lawyers and nonlawyers work together. 4
Second, the court audit requirement should be uniformly applied because I think it would be a waste of resources to have to determine, prior to a court audit, whether the MDP is controlled by lawyers or nonlawyers. I join those who have criticized the Commission's failure to provide a definition of control. 5 But even if a definition were provided, I assume that there could be some room for disagreement. I believe the focus (and any disagreements) should be whether the MDP is operated in a manner consistent with client and public interests and whether the MDP somehow compromises a lawyer's core values. The fight (and resources) should not be about whether to have a court audit in the first place.
Observation 7: The Commission Should Provide Additional Guidance to State Courts about the Possible Content of the Court Audit.
If Recommendation 12 is approved, the Commission should be asked to provide additional guidance to state courts with respect to this requirement. The Commission has spent a significant amount of time educating itself about the issues and concerns related to MDPs. This expertise should be made available to the state supreme courts that have not had time, and probably will not have time, to devote equivalent resources to these issues. Although Recommendation 14 identifies various core values that must be preserved, I believe it would be appropriate for the Commission to suggest specific methodologies or questions that a state supreme court could use when conducting the audit. In short, I do not think it is fair for the Commission to suggest an audit procedure but expect state courts to "reinvent the wheel." One certainly can understand why the Commission did not go into this level of detail at this point. If Recommendation 14 is approved, however, I think this should be the Commission's next assignment.
Observation 8: The Commission Should Not Have Ducked the Issue of Providing Simultaneous Audit & Legal Issue Services
One of the issues facing the Commission was whether there was an inherent incompatibility when the an MDP simultaneously provides legal and audit services to the same client. The Commission heard several different perspectives on this issue. It responded to this issue in note 3 of its Report. The Commission deferred a decision on this issue, citing its belief that:
... this issue is correctly initially discussed in [the Independence Standards Board and SEC] fora. When the ISB completes its study, appropriate ABA entities will wish to comment on its recommendations and, possibly, to take formal positions. 6
In my view, the Commission inappropriately ducked the audit-legal issue. The analyses of the ISB and SEC necessarily will focus on the requirement that an auditor be independent. Regardless of their answers with respect to an auditor's obligations, I think the ABA has an obligation to analyze the effect of simultaneous legal and audit services on a lawyer's professional obligations.
It is possible that the Commission considered this issue, could not reach agreement, but declined to make its disagreement public. For example, when I read Recommendation 9, I wondered whether this recommendation reflected a disagreement within the Commission about whether legal and audit services are incompatible:
To the extent that the delivery of nonlegal services to a client is compatible with the delivery of legal services to the same client and with the rules of professional conduct, a lawyer should be required to make reasonable efforts to make sure that the client sufficiently understands that the lawyer and nonlawyer may have different obligations with respect to disclosure of client information and that the courts may treat the client's communications to the lawyer and nonlawyer differently. (Emphasis added.)
In my view, the Commission should not deprive the legal community of its significant expertise by remaining silent on this important issue. If the Commission chose not to address the issue previously, then I think it should do so now. Alternatively, if the Commission addressed this issue, but could not resolve it, that information should be made public, along with the Commission's apparent decision in Recommendation 9 to leave this issue for state court resolution.
Observation 9: If Recommendation 4 (about nonlawyers providing legal services) is retained, it should be made clear that the implementing rules may define the "practice of law" in an inclusive sense, but should not attempt to define the practice of law in an exclusive sense with the intent that it be used to limit nonlawyer activity.
Recommendation 4 states:
Nonlawyers in an MDP, or otherwise, should not be permitted to deliver legal services.
Recommendation 11 states:
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.
If read in isolation, both of these recommendations could be acceptable. Recommendation 4 could be read simply as a factual statement that the Commission has not recommended any changes to the current criminal unauthorized practice of law (UPL) provisions. Recommendation 11 could be read as an effort to ensure that lawyers whose function in an MDP is to provide legal services do not avoid the new regulatory system by claiming that they are not engaged in the "practice of law." To state it another way, Recommendation 11 could be read as a quid pro quo provision: Recommendation 11 grants lawyers permission to be partners with nonlawyers and practice in an MDP setting, provided these lawyers agree that if certain activities, namely those done in a law firm, these MDP lawyers are engaged in the practice of law and are subject to regulation as a lawyer. Recommendation 11 thus attempts to address the current situation in which lawyers who are partners with nonlawyers, but doing the same activities they previously did in a law firm, say they are not practicing law. 7
The problem, of course, is that Recommendations 4 and 11 cannot be read in isolation. These two recommendations inevitably will be read in the context of Appendix A, which included illustrations of possible amendments to the Model Rules. The proposed amendments to the "Terminology" section included adding a definition of the "Practice of Law," including a presumption that one is practicing law if engaged in any of the activities identified in six subsections. This definition probably would be used when interpreting Rule 5.5 (Unauthorized Practice of Law) and perhaps even in a criminal UPL case.
Not surprisingly then, some commentators have concluded that the Commission's work product could serve to increase the lawyer's monopoly and decrease the choices available to consumers. Criticisms have come from entities as diverse as James Schaller (the former chair of the D.C. Court of Appeals Committee on the Unauthorized Practice of Law and chair of the ad hoc committee that drafted the rule upon which the Commission's definition was based) 8 ; the Ethics 2000 Commission reporters 9 ; Louise Trubek (Senior attorney, Center for Public Representation and Professor of Law, University of Wisconsin-Madison) 10 ; six individuals who wrote on behalf of the consumer advocacy community 11 ; the American Antitrust Institute, 12 and the American Corporate Counsel Association 13 , the last three of whom had previously endorsed the concept of MDPs.
I believe that it is appropriate for the Commission to define the practice of law in an "inclusive sense" with respect to licensed lawyers. Since the Commission will have to tell lawyers practicing in an MDP the contexts in which the Model Rules would apply to them, Recommendation 11, combined with a definition of the "practice of law" may be an appropriate way to do achieve this. One of my goals is to avoid parallel worlds of regulated and unregulated lawyers and I think this "quid pro quo", inclusive approach will be an effective useful way to regulate lawyers practicing in an MDP setting. (This "inclusive" approach could be analogized to the definitions of covered activities that are used in malpractice insurance policies.)
On the other hand, I believe that it is a major mistake for the Commission (or the ABA) to attempt to define the practice of law in an "exclusive" sense, which is intended to limit the activities of nonlawyers. The Commission heard significant testimony about the difficulty of devising such an exclusive definition (not to mention the antitrust concerns). The Commission has enough difficult issues to face and resolve without trying to address or "solve" the UPL issue.
Consequently, the Commission's Recommendations would be much better if Recommendation 4 were deleted. I recognize, however, that this may be very difficult to do politically because the deletion of Recommendation 4 might be interpreted by some as an endorsement of the "practice of law" by nonlawyers. Therefore, at a minimum, I would hope that clarifying language would be added so that it is clear that any definition of the "practice of law" is intended to be "inclusively" only, in order to explain to MDP lawyers when the Model Rules apply to them. This definition should be the basis of excluding nonlawyers from certain activities nor would it be used when interpreting Rule 5.5. In sum, I think it would be wiser for the Commission not to suggest changes to the existing UPL law or to attempt to define the "practice of law" for purposes of excluding people from engaging in these activities.
Observation 10: Miscellaneous Observations Regarding Drafting Issues, Rather than Policy Issues
In this section, I have identified several points that I think need to be clarified in the Commission's Recommendations and Report. This section may reflect my bias because I have assumed that I know the Commission's intentions and that the issues raised are primarily drafting issues rather than policy disagreements.
Observation 10A: The Commission's Report Should be Clearer Regarding Who can Join an MDP
As the Commission knows, some MDP schemes, such as Germany's, limit the individuals with whom a lawyer may join in an MDP 14 . Some of the witnesses testified that there should be limits on who can join in an MDP with a lawyer; one of the Big 5 representatives, for example, suggested that there are professions that are compatible with the profession of a lawyer and those that are incompatible and that he knows them when he sees them. 15 In contrast to these witnesses, I recommended that there be no limitations on the individuals with whom a lawyer may join in an MDP. Because the definition of an MDP in Recommendation 3 contained no limitation on who could join an MDP, I assume that the Commission shares my views on this issue.
Other Commission materials, however, may undermine this conclusion. The ABA has not been asked to take any action with respect to Appendix A (illustrations of possible amendments to the Model Rules). Nevertheless, the Commission may want to revise the language of Comment  of Appendix A in order to avoid creating any confusion.
Comment  states:
"MDP" is defined in the Terminology section. Examples of professions that may appropriately be included in MDPs are [an alphabetical list follows.](Emphasis added.)
In my view, the word "appropriately" is confusing and ambiguous. The inclusion of this word arguably suggests a test of "compatibility" or "appropriateness," independent of issues related to the lawyer's ability to maintain the lawyer's core values. Therefore, in order to avoid any confusion about the Commission's recommendations, I would delete the word "appropriately."
Observation 10B: The "Signature" Requirement in Recommendation 14 Should Be Revised So That it Is Suitable for "Main Street" MDPs as Well as "Wall Street" MDPs
Throughout the hearings, the Commission members repeatedly stated that they were particularly interested in hearing about the risks and benefits of MDPs to smaller, consumer-oriented clients. Elder care and family care MDPs were cited as examples of MDPs that might benefit "Main Street" clients and lawyers.
Recommendation 14 would apply to some of these Main Street examples because not all hypothetical MDPs discussed had a lawyer majority. (One example was an MDP consisting of a lawyer specializing in elder law, a financial planner, and a counselor or assisted-living specialist.)
Although the signature requirement in Recommendation 14 certainly could be applied in this situation, this language does not lend itself particularly well to this three person MDP. I suggest that the language be revised so that it clearly signals the Commission's view that MDPs will be useful to Main Street clients and lawyers.
Observation 10C: Recommendation 1 Should be Revised to Include "Competency" As a Core Value
I have assumed (perhaps erroneously) that the Commission's failure to include competency as a core value was an oversight and a drafting error, rather than a deliberate policy choice. In my view, loyalty, independence and confidentiality are important, among other reasons, because of their relationship to competency. As the consumer representatives and state bar ethics representatives advised the Commission, competency is very important to clients. Therefore, I would like to see the Commission revise Recommendation 1 and explicitly include competency as a core value.
Observation 10D: Recommendation 3 Should Be Revised In Order to Expressly Include Law Firms that Hold Themselves Out as Affiliated with a Non-Legal Entity Such as a Big 5 Firm
Various of the Commission's recommendations apply to MDPs, which are defined in Recommendation 3. I assume that the Commission intended its Report to apply to MDPs it earlier described as AModel 4 - The Contract Model." But I can imagine a scenario in which a Model 4 MDP lawyer would argue that he is not covered by the Commission's report because: 1) he is not a member of an association of lawyers and nonlawyers but instead is part of an all-lawyer firm; 2) his firm does not hold itself out to the public as providing nonlegal services; and 3) there is no direct or indirect sharing of profits between his law firm and the affiliated firm, such as a Big 5 firm. Instead, there are things such as joint marketing arrangements, cost-sharing agreements, and contracts to provide back room services. These three points are similar to the manner in which Commission witnesses Gerard Nicolay and Neil Cochran described their law firms. 16
I cannot imagine that the Commission intended to exempt this type of law firm (MDP) from the ambit of its report. Therefore, I think the definition of an MDP should be revised to include law firms that hold themselves out as having an affiliation with a nonlegal entity such as a Big 5 firm. This expansion of the definition of MDP probably will be sufficient to include the Model 4 MDPs since all Model 4 (contract) law firms that I am aware of permit their affiliation to be advertised. (The revised language will need to be carefully crafted to avoid inclusion of group legal services plans which are separately regulated in many jurisdictions.)
Observation 10E: Recommendation 8 Should Be Revised to Be More Precise With Respect to MDP-wide Imputation; as Written, this Recommendation Appears Both Over-Inclusive and Under-Inclusive.
Not surprisingly, one of the most controversial recommendations has been Recommendation 8 setting forth the scope of imputation within an MDP. The Commission adopted an imputation rule that looks at the entire MDP firm, rather than just the lawyers working within the firm. Although I have endorsed this approach (at least in the fully integrated Model 5 MDP context), I think Recommendation 8 is both under-inclusive and over-inclusive. The imputation issue undoubtedly will be the subject of further significant policy debates. I think the debates might be clearer, however, if the Commission revised this recommendation.
Some commentators explicitly or implicitly have criticized the Commission's work based on the assumption that, as a general matter, the Commission has tried to impose the lawyers' ethics rules on nonlawyers. 17 In my view, this is an incorrect reading of the Commission's recommendations. The imputation rule in Recommendation 8 applies only in connection with the delivery of legal services. While I agree with the Ethics 2000 reporters that further debate on this topic will be useful, 18 I currently believe that this is an appropriate line to draw. Even if one agrees with this policy, however, the Recommendation should be revised.
Recommendation 8 states:
...all clients of an MDP should be treated as the lawyer's clients for purposes of conflicts of interest and imputation in the same manner as if the MDP were a law firm[.]
and all employees, partners, shareholders or the like were lawyers.
I recommend that a period be placed after the words "as if the MDP were a law firm." I think the sentence as revised would convey the MDP-wide imputation rule, as contrasted with a lawyer only imputation rule. In my view, the deleted language serves only to confuse the issue and raise questions. The current ethics law does not treat all employees of a law firm as if they were lawyers. For example, conflicts involving paralegals, summer associates and secretaries often are treated differently than conflicts involving lawyers. Therefore, I think the last portion of this sentence is over-inconclusive and simply provides room for confusion.
My observation about the under-inclusiveness of this definition could be attributable either to a drafting error or a policy decision. I interpret Recommendation 8 as applying to the situation in which nonlegal services are provided first to Client 1 and thereafter Client 2 seeks legal services. Recommendation 8 tells the lawyer that he or she must treat the nonlegal Client 1 as a client of the law firm for purposes of doing the conflicts analysis for legal services Client 2.
I am not sure, however, that the Commission's recommendations address the converse situation. This was the hypothetical I mentioned during my oral testimony. Imagine that client 1 is a law client. For example, the MDP lawyers might have previously represented Prince Jefri's company in connection with something called the Project Lucy litigation. The litigation concludes. Imagine that Client 2 is now a nonlegal client. For example, forensic accountants from the same MDP might now be retained by the Brunei Investment Agency to investigate a misappropriation charge against Prince Jefri. Imagine that investigation of the misappropriation charge will be substantially related in many respects to the Project Lucy litigation. Absent client consent, should the legal ethics rules prevent the MDP nonlawyer from subsequently opposing an MDP legal client if the matters are substantially related? In other words, must the lawyer's conflict in this situation be imputed to the nonlawyers, in order to protect the lawyer's core value of confidentiality? I am not sure that Recommendation 8 is drafted broadly enough to cover this hypothetical. I think the Commission's resolution of the Legal Client 1-Nonlegal Client 2 hypothetical should be more clearly expressed.
I hope these comments have been helpful.
Laurel S. Terry
1. See generally Written Remarks of Robert Gordon, MDP, May 1999, http://www.abanet.org/cpr/gordon.html (visited July 29, 1999).
2. See, e.g., Sydney M. Cone Written Comments to Report, MDP, 1999; Written Response of Silvia Ibanez to MDP Final Report, June 1999; Written Response Lawrence Fox to MDP Report, July 8, 1999; Consumer Alliance Community’s Response to the MDP Final Report; and The Association of the Bar of the City of New York’s response to the MDP Report, July 20, 1999. All of the above items are links from the Commissions webpage devoted to comments responding to the Commission’s report. See http://www.abanet.org/cpr/multicomreplies.html (visited July 28, 1999).
3. Compare Consumer Alliance Community’s Response to the MDP Final Report (worrying about the effect of an audit’s cost) with the other commentators listed in note 2. See also Louise Trubek Response to MDP Report (noting that "A similar system for group and pre-paid plans is working effectively under Wisconsin Supreme Court Rule 11.06.") All of the above items are links from the Commissions webpage devoted to comments responding to the Commission’s report. See http://www.abanet.org/cpr/multicomreplies.html (visited July 28, 1999).
4. See Written Response of Silvia Ibanez to MDP Final Report, June 1999, http://www.abanet.org/cpr/ibanez.html (visited July 14, 1999).
5. See, e.g., Sydney M. Cone, Written Comments to Report, MDP, 1999; The Association of the Bar of the City of New York’s Response to the MDP Report. The above items are links from the Commissions webpage devoted to comments responding to the Commission’s report. See http://www.abanet.org/cpr/multicomreplies.html (visited July 28, 1999).
6. See Commission on Multidisciplinary Practice Report, at n. 3, http://www.abanet.org/cpr/mdpreport.html (visited June 9, 1999); compare Reply of the US Securities and Exchange Commission to the MDP Report, July 1999, http://www.abanet.org/cpr/goldschmid.html (visited July 14, 1999)(responding to Report n. 3 and clarifying the SEC’s rules with respect to simultaneous legal and audit services to the same client).
7. Some commentators have strenuously criticized such lawyers, stating that they are flaunting the law, displaying their contempt for the legal ethics rules, and thereby proving that an MDP system will not and cannot work. I do not share these views. First of all, I think one has to be realistic and recognize that U.S. lawyers who are currently working in an MDP context must claim that they are not practicing law. To do otherwise would be to concede a violation of Rule 5.4.
So the next question for me is: 1) is this a blatant violation of the UPL provisions? or 2) are the lawyers taking advantage of a "loophole", namely ambiguity in the definition and enforcement of UPL? The testimony before the Commission convinced me that the situation is the latter. Although the Commission asked many witnesses, I did not hear a convincing definition of the "practice of law", which could be enforced in an exclusive, criminal sense. I realize that many lawyers will not like this idea, but I think one must face this reality regardless of whether one likes the situation.
Consequently, I am less inclined than some critics to blame MDP lawyers for using the "loose UPL definition loophole" because I think we lawyers often use loopholes. Furthermore, I am unwilling to assume that because they use a loophole, MDP lawyers would not comply with explicit rules regulating their role in an MDP. Indeed, the Commission testimony suggested that many MDP lawyers would welcome the opportunity to be regulated and to acknowledge their status as lawyers who provide legal advice.
8. See Jim Schaller’s Written Response to MDP Final report, June 1999, http://www.abanet.org/cpr/schaller.html (visited July 14, 1999).
9. See Working Draft - For Use by Ethics 2000 Commission Only, The Report of the Commission on Multidisciplinary Practice (for Discussion at August 1999 [Ethics 2000] Commission meeting), "Initial Reactions to the [MDP Commission] Report", Item 6 at pages 4-5, July 19, 1999 (on file with author).
10. See Louise Trubek response to MDP report, http://www.abanet.org/cpr/trubek.html (visited June 26, 1999).
11. See Consumer Alliance Community’s response to the MDP final Report, http://www.abanet.org/cpr/consumer2.html (visited July 16, 1999).
12. See Comments of the American Antitrust Institute Regarding MDP Report, http://www.abanet.org/cpr/aai2.html (visited July 28, 1999).
13. See ACCA Fears ABA plan may kill MDPS, http://www.lawmoney.com/public/news/hotnews/news9906/news990625.4.html (visited July 7, 1999).
14. See generally German Bundesrechtsanwaltsordnung § 59a. Given the tenor of the U.S. debate, U.S. lawyers may find it interesting that in Germany, accountants and tax advisors are among the few professions with whom lawyers may join. The rationale includes a belief that lawyers and accountants share similar obligations and values.
15. See, e.g., Oral Remarks of PricewaterhouseCoopers’ Samuel DiPiazza, http://www.abanet.org/cpr/dipiazza1.html (visited July 28, 1999); see also Appendix B6 to Testimony of Laurel S. Terry, http://www.abanet.org/cpr/terryb6.html (visited July 28, 1999)(Forms of Association Item A summarizes the testimony of witnesses with respect to the issue of who can join an MDP).
16. I do not consider this reaction speculative. At a recent conference on MDPs, a lawyer practicing in Model 4 MDP that is affiliated with a Big 5 firm commented that he wasn’t sure whether the ABA Report would apply to his firm.
17. See, e.g., The National Conference of Lawyers and CPA’s response to the MDP Final Report, http://www.abanet.org/cpr/nclcpa.html (visited July 28, 1999) and Comments of the American Antitrust Institute Regarding MDP Report, http://www.abanet.org/cpr/aai2.html (visited July 28, 1999). In my view, both of these entities came quite close to making this point.
18. The Ethics 2000 Commission reporters stated:
There seems no doubt that accountants should not have less constraints than lawyers, i.e., they should not be immune from imputation or permitted to screen when lawyers are treated otherwise. However, saying that every audit client is automatically treated as if it were a law client seems to be a stretch. We will want to come back to this when we get to Rule 1.10 again.
Working Draft - For Use by Ethics 2000 Commission Only, The Report of the Commission on Multidisciplinary Practice (for Discussion at August 1999 [Ethics 2000] Commission meeting), "Initial Reactions to the [MDP Commission] Report", Item 5 at page 4, July 19, 1999 (on file with author).
I believe that MDP-wide imputation will be particularly important in smaller MDPs. If there are criticisms that this rule is unworkable, then I would rather consider the application of the nonconsentable conflicts rule in an MDP context instead of narrowing the scope of imputation. In short, I favor more rather than less disclosure. Greater disclosure is better achieved through a broad imputation rule.