Testimony of Laurel S. Terry,
Professor, Penn State Dickinson School of Law
Before the ABA Commission on Multidisciplinary Practice
March 12, 1999 *
I would like to thank the Commission for the opportunity to testify. What I want to do today is tell you who I am, what I have brought with me, and what I think about some of these issues.
Who am I?
My name is Laurel Terry and I am a Professor at The Dickinson School of Law of the Pennsylvania State University. I have been teaching and writing in the field of legal ethics since 1985. I am a former member of the Association of American Law Schools' Professional Responsibility Section Executive Committee and was Vice-Chair of the Pennsylvania Bar Association Legal Ethics Committee from 1993 to 1998.
I have also taught on six occasions starting in 1987 a course on Comparative Legal Professions and Cross-Border Legal Practice; I've offered this course in the U.S. to U.S. and foreign law students; to U.S. law students in summer abroad programs; and to European law students at the University of Vienna. The course has evolved as the law has evolved; its current title is Cross-Border Legal Practice and it is now a regular part of the Dickinson curriculum. I use materials that I have prepared; the course covers cross border legal practice provisions in the U.S., the European Union, NAFTA, and the GATS Treaty, and proposals by organizations such as the ABA, the International Bar Association and the CCBE. During the last four times I have offered this course, MDPs have been one of the topics covered.
Approximately one year ago, I wrote an article about MDPs entitled " What If?...."I understand that this article has been distributed to the Commission; I know it's cited in the Commission's Background Paper. I wrote the What If? article to prepare myself for my 1998-99 sabbatical. I am spending this academic year on sabbatical in Germany and have a grant to study Germany's approach to MDPs. I picked Germany because it is one of the few places where MDPs are expressly permitted.
What have I brought to the Commission today?
I've brought no definitive answer, but a lot of paper, with the emphasis on the word "lot." I'd like to tell you briefly about the history and nature of my submissions.
After attending the November hearings and reading the Law Society's Consultation Report, I found my head spinning. I began to wonder what on earth I would do if I were on the Commission. I decided that before I could make a recommendation to the ABA House of Delegates, I would want to figure out what questions I should be asking, in what order, and what the possible answers were. The Commission may have a different view, but I found that deciding how to tackle the Commission's mandate was an exceedingly difficult task. I therefore decided that if I were on the Commission, I would want an "issue checklist."
I have submitted two different types of documents to supplement my testimony today. Appendix A is an issue checklist that the Commission might want to consider using. It identifies the issues I think the Commission needs to address (grouped according to topic), lists alternative answers for each issue, and provides my recommended answer. Appendices B1-B5 are a series of charts. These charts represent my effort to synthesize the testimony you have heard; I have organized the charts according to the issues I identified.
In an ideal world, I would have liked to hand you one piece of paper with all the necessary provisions on it that would have solved all your problems, in other words, the typical law review article solution. I don't know if it's possible given the complexity of the issues, but even if it is possible, I haven't brought it to you today. I have some tentative conclusions I am ready to share with you today, but as so many witnesses have already told you, these issues are complex and intertwined and need a lot of thought and work. (As an aside, I am a big believer in collaborative processes, and I think the Commission's hearings have shown how useful it is to have so many different people and perspectives when asking questions.)
Finally, by way of caveat, I would like to mention that I had not even contemplated testifying until the very end of the February hearings, when I was first invited. So I have put together this material in about 22 weeks and haven't had time to step back and reflect. I was told you didn't need a law review quality article and you are definitely not getting that. I also regret that the timing of my sabbatical and the Commission's work is such that if I wanted to participate in the Commission's work, I had to do so before conducting the interviews that I plan to do during my sabbatical. Consequently, I don't guarantee that I won't change my opinion over the course of the next year or two.
What are my Conclusions?
I have forty entries listed on my charts (and I have given you my recommendations for almost all of those entries.) Obviously, I don't have time to go over all of these issues, but I wanted to highlight 10 points that seemed particularly important to me as I was thinking about these issues and creating these charts.
1. IT IS USEFUL TO HAVE SEPARATE THRESHOLD, FUNCTIONAL AND ETHICS ANALYSES AND TO DO THE "FUNCTIONAL ANALYSIS" BEFORE THE SUBSTANTIVE "ETHICS ANALYSIS".
As you can see from my issue checklist, I have broken down the analysis into three sections. First, I think there is a set of threshold questions you need to ask. This is where I have placed questions such as the standards you use to evaluate the MDP issues, core values, etc. Although it's not on the Witness Summary Charts, the final question here is whether the Commission is willing to consider revising MRPC 5.4's absolute ban on fee sharing. The second and third sections are based on the assumption that the Commission is at least willing to consider that possibility.
Second, I have grouped together those questions that deal with the functional aspects of an MDP. As the Commission may know, I wrote an article a couple of years ago that focused on an Agreement between the ABA & the Brussels Bar Associations, but that also discussed different models of cross-border legal practice regulation. In that article, I grouped the cross border legal practice issues into three categories: 1) Forms of Association issues, 2) Scope of Practice issues, and 3) Ethics and Discipline issues. I've used this same structure in the second part of my issue checklist; I find it makes it easier to think about the MDP issues if you can pigeonhole them as involving how the organization should be structured, what the people in it can do, and how ethics and discipline are going to be handled from a procedural perspective, rather than the substantive content of the such rules.
The third section in my issue checklist groups together those issues that have to do with the substantive content of the ethics rules that would apply in an MDP context. This third section in turn has two parts. First, I think it's worthwhile for the Commission to identify and articulate what its threshold premises are or should be. The charts then turn to specific ethics provisions. (The charts also include a place where I listed miscellaneous comments and the witnesses' bottom line advice to the Commission.)
One of the conclusions I bring to the Commission is that I find it useful to begin with the threshold analysis to determine whether the Commission is willing to reconsider Rule 5.4's absolute ban. If the Commission decides that it is willing to consider a change to Rule 5.4, I found it useful to separate the functional analysis of MDPs from the substantive ethics analysis of MDPs. Clearly both types of thinking have to be done. But I have found it very confusing to try to do both simultaneously, as I think sometimes has been done. I therefore recommend that the Commission do each of these types of analysis separately.
After the threshold analysis questions, I turned to the functional analysis, rather than the substantive ethics analysis. Why? One reason is because my What If? article on MDPs began with, and focused on, the substantive ethics analysis. But more importantly, I think it makes sense to begin with the functional analysis because I think the answers you reach there may determine some of the substantive ethics analysis. For example, if you decide to permit only the affiliated MDP model, not the fully integrated MDP model, it will affect the substantive ethics answers you come up with. Am I 100% sure that the functional analysis should come first? No; after I had almost finished my charts, I had a few panicked moments, thinking that maybe the functional analysis should come after thinking about the threshold ethics premises. But even if the Commission disagrees with my approach, I hope the submissions will help facilitate the Commission's deliberations.
2. IN THE THRESHOLD ANALYSIS SECTION, ONE OF THE MOST IMPORTANT ISSUES YOU DECIDE MAY BE A "BURDEN OF PROOF" ISSUE.
It may be the fact that I also teach Civil Procedure, but I found that as I started to articulate my conclusions, a concept akin to "burden of proof" played a significant role in my thinking. Let me explain.
I believe the following is a fair summary of the testimony the Commission has heard:
there is virtually unanimous agreement that the only legitimate grounds for regulation are client protection and public interest (although the witnesses disagree about what those terms encompass);
there is at least some client and lawyer demand for MDPs (with some witnesses saying the need is overwhelming and some saying the demand is minimal, and is being driven mostly by the suppliers);
the MDP phenomenon is occurring in the U.S. (by MDP phenomenon I mean that there are now a significant number of lawyers working in entities that have nonlawyers and who are offering services that if offered in a traditional law firm would be called legal services);
lawyers participating in the MDP phenomenon, for the most part, have been pulled out of the legal profession's regulatory and discipline system because they are in a posture where they have to say they are not practicing law or else they could be charged with MRPC 5.4 violations; and
there are lots of uncertainties about MDP issues, how lawyer-MDPs will work and what pressures they would create. Even in Europe and Australia, which have had MDPs much longer than in the U.S., these issues are very much in flux and not resolved.
In other words, the world is changing before our eyes and we don't know what is going to happen and whether it is going to be good or bad.
So given this uncertainly, who has the burden of proof? Do those who want to change MRPC 5.4 have the burden of convincing the Commission that this change is good and the risks minimal? Or is the burden on those who want to keep MRPC 5.4, which places limits on the way lawyers can organize and practice? Changers or keepers, who has the burden? For me, this question of who has the "burden of proof" ends up being a critical question since I don't know what the future holds.
I ended up deciding that for me, the keepers have the burden of proof. The MDP ban in MRPC 5.4 is a limitation on client autonomy. In my view, the testimony from witnesses such as Bennett and Wall (speaking as clients) and Tucker and Ramirez (speaking for the ABA Tax and General Practice sections) have shown that there is at least some client demand for MDPs. (Some witnesses went so far as to say that MDPs are absolutely necessary in today's world and that if you don't allow them, clients will stop using lawyers to solve their problems.) If the Commission agrees that the testimony shows at least some client demand for MDPs, then in order to keep Rule 5.4's MDP ban, the Commission has to be able to look those clients in the eye and say: "I'm sorry, I know you want MDP's, but for your own good, I am not going to let you have them." I think there are certainly occasions where it is appropriate to have such paternalistic rules. But I also think the burden should be on the person who is insisting on a paternalistic rule to justify that limitation on client choice.
3. I HAVEN'T HEARD THE CASE MADE AS TO WHY CLIENT CHOICE SHOULD BE OVERRIDDEN AND MDPs PROHIBITED.
As explained, I believe those who want to keep Rule 5.4 as is must "make the case" as to why Rule 5.4's absolute ban is necessary. That case was never made to my satisfaction. The Commission heard relatively little testimony about clients who had been injured by lawyers practicing in an MDP. Witness Elizabeth Wall was one of the few witnesses with first-hand knowledge of a problem (the Trojan Horse problem), but she wants the ability to choose an MDP. On the other hand, the Commission heard testimony about places in which MDPs currently are functioning, without any evidence that this has eroded the rule of law or fundamental nature of the profession. See Witnesses Gerard Nicolay, Thomas Verhoeven, Neil Cochran, all of whom practice in an MDP and Witnesses Allison Crawley, Michel Gout, Andrew Scott, and Gerard Mazet, who are regulators or bar advisors in countries with MDPs. (In contrast to these witnesses, Witness Hellwig stated that he thought there had been an effect on the legal profession in Europe in terms of over-commercialization of the legal profession.) Third, the Commission heard testimony from lawyers currently practicing in some type of MDP context who felt they could do so without compromising their legal values. Witness Gerard Nicolay, for example, stood up and said something along the lines of (paraphrased): "I am a sixth generation lawyer. My ethics and honor are important to me. I would never compromise them while working for PricewaterhouseCoopers." Witness Neil Cochran testified similarly. Witnesses Robinson, Jones, Tucker, and Ramirez predicted that it would be possible for a lawyer to work in an MDP context without compromising one's values or independence.
Weighed against this testimony is the concern that one can't quite believe these lawyers, or that these lawyers are anomalies. Witness Gerard Mazet testified, for example, that he wouldn't be worried if all lawyers were like PricewaterhouseCoopers's Gerard Nicolay. Larry Fox has suggested that it is unrealistic to expect lawyers in these MDP settings to resist the pressures they will face. But given my decision to place the burden of proof on the keepers, the evidence of lawyers who seemingly can comply with the legal profession's values in an MDP context, and the paucity of evidence of client harm, I am not willing to override clients' demands for lawyer MDPs on the basis of concerns which might be called speculative (especially since some of the witnesses have been quite ardent and impassioned in their testimony about the necessity of MDPs.)
I certainly don't feel able to look lawyers like Gerard Nicolay and Neil Cochran in the eye and say "I don't believe you. I think the circumstances are beyond your control and that you ultimately will compromise your ethics and values." Nor do I think I have a sufficient basis to conclude that lawyers Nicolay and Cochran are ok, but the majority of lawyers would not be as professional and would not be able to honor their professional obligations.
In short, although I have concerns about whether MDP lawyers will honor their obligations, I can't quite bring myself to override client choice on this basis. As the Commission heard, there are many situations in which lawyers face pressures to compromise their independent legal judgment: pressures within a large law firm, pressures because of high student debt loads that must be paid, pressures from nonlawyers in a government agency, pressures within a corporate law setting, and pressures from insurance companies. Yet our system (unlike many European systems) has been willing to put lawyers in situations in which they face such pressures. We have had a system based on the integrity of the individual lawyer and have been willing to trust the lawyer to resist such pressures.
Witnesses Fox and Foonberg suggest that the corporate counsel situation is distinguishable because corporate counsel has only one client, whereas the MDP lawyer will have many clients. In my view, this distinction does not undercut the value of the analogy. Although corporate counsel may only have one client, we expect the lawyer to honor the lawyer's ethical obligations with respect to that client, notwithstanding pressure from nonlawyers and other constituents of the client.
Witness Fox also stated that the third party payer-insurance company situation shows that it is a bad idea to permit nonlawyer employment of lawyers. Fox asked the Commission not to make a bad situation worse. There is no doubt that the insurance company payer situation has placed new and tremendous pressures on lawyers; a recent issue of the ABA/BNA Lawyers Manual on Professional Conduct, Current Reports, for example, cited three different inquiries to the bars about this situation, and Witness Shely testified that this was a much greater problem than MDPs. In my view, however, this isn't sufficient to justify the MDP ban. First, given that MRPC 5.4 restricts clients' autonomy, I am uncomfortable using a rationale of "don't make a bad situation worse," especially since we tolerate some of the "bad situations" when they involve pressures within a large law firm, and since some law firms may benefit economically from a decision to prohibit MDPs. Second, I think the legal profession's response to the third party payer-insurance situation demonstrates that lawyers will resist pressure to undermine their judgment. I applaud, for example, Larry Fox's successful efforts at the American Law Institute to ensure that in third party payer situations, lawyers obtain client consent to direction and maintain their independent professional judgment. Ultimately, I think my decision goes back to the burden of proof. Since we have other situations in which lawyers face pressure, and since MDPs don't seem qualitatively different, I do not believe the bar can carry its burden of justifying a limitation on client choice.
The closest I can find to a principled basis for distinguishing the MDP practice is the size of the entity with which the lawyer would be practicing. Although the point was not explicitly framed in this manner, I think many witnesses share the view that relative size is dangerous and that if a lawyer is only a small part of a large organization and the lawyer is not in control, then pressures will be placed on the lawyer and that we cannot expect or rely on an individual lawyer to resist such pressures. I would note, for example, that many witnesses who supported MDPs expressed concern about passive investment in law firms. Although the bar has been willing to trust lawyers in certain situations in which they face pressures, the underlying and unstated assumption may be that the lawyers in the current situations have enough power and prestige so that their judgments and resistance will be respected. In contrast, opponents of MDPs may believe that lawyers in an MDP will be relatively powerless and that their judgments about ethical responsibilities will not be respected or honored within the MDP, and as a result, these lawyers will not continue to honor their obligations.
Ultimately, however, I don't think the size of the MDP entity can be the basis for a principled decision. First, there is the line-drawing problem (how big is too big?) Second, there is the problem of uneven application (as Witness Jones said, will we apply this rule to large law firms?). Third, many of the MDPs which the Commission heard about and which would be excluded by an MDP ban, would be small MDPs - used by Main Street not Wall Street lawyers for Main Street clients. Fourth, every witness who addressed the topic urged the Commission not to fragment the bar, which might happen if there was a rule that made small but not large MDPs acceptable.
Witness Larry Fox said in his testimony that the fact that problems currently exist does not mean lawyers cannot get better or that lawyers cannot say "here is where we draw the line." I would agree with him if I thought the decision was only about lawyers getting better. But I don't think we can use legitimate concerns about size and pressure as a basis for overriding the will of clients, given that we have been willing in the past to rely on a lawyer's integrity and given a lawyer's promise to abide by the applicable ethics rules.
There is one more reason that makes me endorse changing Rule 5.4. The Commission has heard about large numbers of lawyers who practice in an MDP setting and who are outside the tent of regulation. These lawyers are in a situation in which they have to claim they are not practicing law if they don't want to be found in violation of Rule 5.4. The Commission also heard that there is probably not much, if anything, anyone can do about this situation given the difficulty of defining the practice of law in an exclusive sense. I would prefer to have the legal ethics rules realistic and functional, rather than ignored; I think the current situation breeds disrespect for the law in lawyers, clients and the public. To use Larry Fox's language, I think the current situation also places the legal profession's heart and soul at risk. I would much prefer to bring lawyers "into the tent" of regulation. And the testimony before the Commission and my anecdotal experience make me think that lawyers working in MDPs would like to be back in the tent and to be able to acknowledge themselves as lawyers offering legal services.
After the November 1998 hearings, I ended up thinking that in many ways, this is like an issue of faith, combined with the burden of proof issue. For example, I suspect that Larry Fox will always believe that MDPs amount to selling a lawyer's birthright and that he who pays the piper calls the tune. Ultimately, you either believe the core values of the legal profession will be fundamentally compromised by MDPs or you don't believe these values will be compromised because you are willing to trust lawyers' words that they will continue to follow their ethical obligations.
Does all of this mean that I am completely comfortable with my recommendation? No. I sometimes fear and dread that Larry Fox is correct and that the profession will lose its heart and soul. I also wonder how many law schools will exist in 20 years and whether I'll still have a job. I would have liked to have had the opportunity before giving this Testimony to interview more lawyers in MDPs in order to better evaluate Witnesses Fox and Foonberg's concerns. I also would have liked to have heard a historian provide perspective about lawyers' roles in our society and other societies, and about the importance of, and historical challenges to, the rule of law. I think it also would have been helpful to hear more about the analogies to medicine that Witness Fox made (although I would note that Witness Willard discussed the beneficial uses of MDPs in medicine, citing the example of the multidisciplinary pain care clinics.) But as Witness Charles Robinson told us, change and the unknown are always scary. And we are definitely in a time of change. I think the Commission and the ABA have to allow the evolution to continue, rather than trying to change the tide, get the train back in the station, or ride a dead horse, to use various of the metaphors the Commission has heard. Rather than trying to stop the MDP phenomenon, I think the ABA should try to shape it as much as possible to protect clients and the public and our society.
4. I RECOMMEND (tentatively) THAT THE COMMISSION NOT IMPOSE RESTRICTIONS ON THE MANNER IN WHICH AN MDP IS STRUCTURED (i.e. I would not forbid the fully integrated MDP model.)
When analyzing the functional issues, the Commission must decide which of several MDP models it will allow. (The Commission's hypotheticals, for example, identify four models and the status quo.) I recommend, albeit tentatively, that the Commission not place requirements or restrictions on the manner in which an MDP is structured. In other words, I would permit the fully integrated MDP. My reasoning is as follows.
First, numerous witnesses have testified that these kinds of requirements (lawyer majority ownership, lawyer controlling interest, having separate legal entity to provide legal services) are not the correct way to go about protecting lawyers' core values, clients or the public. I have been convinced by the testimony that requirements like these are easily manipulated. Second, I don't think there is a complete correlation between these formalistic requirements and the underlying goals. For example, a majority ownership requirement might or might not translate into protecting a lawyer's ability to exercise independent legal judgment. Third, I would point out that models less than the fully integrated MDP seem merely to be interim-steps in a progression toward the fully-integrated model. For example, the Law Council of Australia recently adopted a recommendation significantly more lenient than New South Wales' MDP rule. Witnesses Cochran, Crawley and Nicolay testified that they expect the rules in their jurisdictions ultimately to be relaxed. Witness Potter noted that the Canadian Bar's Interim Report, recommending such restrictions, likely will be revised. Germany's new GmbH law, requiring a lawyer majority interest in limited liability firms, has been in effect approximately one month and already has been the subject of criticism. And if the U.S. ultimately will have a fully-integrated model, I think there is something to be said for starting off immediately with that model and trying to get it right. Rather than use rules about legal forms as a proxy for our true concerns, the Commission should focus on the underlying issues. In short, although I have reservations, I recommend that the Commission not focus on the form of practice in an MDP, but instead try to figure out what the underlying concerns are, and then attempt to respond directly to those concerns where appropriate.
5. THE COMMISSION SHOULD SERIOUSLY CONSIDER THE ISSUE OF TRANSPARENCY
The Commission has heard testimony about two different kinds of transparency requirements. Several witnesses testified that there should be disclosure (transparency) from lawyers to clients. Disclosure items that were mentioned included:
1) the nature of the MDP firm (or the relationship between firms under the Ancillary Business and Contract models);
2) identification of lawyers qua lawyers on business cards, announcements, etc.;
3) disclosure of lawyer participation in a particular project ( i.e. no Trojan horses);
4) the fact that a client who uses one set of services of the MDP (e.g. audit) is under absolutely no obligation and will face no penalties if it does not use other services of the MDP;
5) possible compromises to the attorney-client privilege from using an MDP;
6) the amount of any MDP fee attributable to legal services.
I assume that if MDPs are permitted, some if not all of such lawyer-client disclosures will be required. Indeed, I did not hear any witnesses who opposed the idea of lawyer-client disclosure, although I suspect there might be disagreements about the exact contents of such disclosures. (I listed the items above according to my view of the ascending order of likely objection.) Thus, the necessity of lawyer-client disclosure, if not the details, seems beyond debate.
The second type of transparency would be more unusual in the U.S. The Commission heard testimony about several European systems in which MDP lawyers are required to share with the regulatory authorities their MDP agreements. The Paris Bar MDP proposal, for example, appears to require MDP lawyers to disclose their firm agreements to regulators. See Resolution of the Paris Bar Counsel of 21 st April 1998, submitted by Witness James Silkenat ("The Paris Bar Counsel asks the Government to act in order that the conditions of exercise of these activities for the concerned professions...be declared null all agreements or contracts not communicated to the Bar associations or other authorities concerned.") The CCBE's proposed-but-not-yet-adopted MDP Policy, which Witness Michel Gout submitted, requires MDP lawyers to provide regulators with "full access to all facts, including documents and other forms of data storage, relevant to the observance, by lawyers, of the rules concerning co-operation with non-lawyers, and that lawyers have an unrestricted duty to disclose such facts to the relevant authorities, with due safeguards for client confidentiality." See Preliminary Draft of the CCBE Position Adopted at the Plenary Session of April 1998. Such data presumably would include the firm agreements. In NOVA v. Wouters, the Netherlands court assumed facts harmful to the MDPs because it thought it had not been given all of the agreements it requested.
Transparency requirements also have been used outside the MDP context. For example, when England recently proposed adopting a limited liability provision for law firms, it included a requirement that law firm accounts be disclosed to the bar. (One commentator anticipated, however, that U.S. law firms "will attempt to seek an exemption because the U.S. view is that there is no need for non-listed companies to file accounts." See UK Publishes Draft Law for Limited Liability Partnerships, http://lawmoney.oyster.cp.uk/public/news/hotnews/news9809/news980921.2html (visited Oct. 29, 1998). The American Bar Association has signed an agreement with the two Brussels Bar Associations which on its face permits the Brussels regulators to insist on seeing a U.S. law firm's partnership agreement. (I have been advised, however, that U.S. law firms have been able to satisfy this requirement by submitting a summary of the Partnership Agreement, rather than the actual agreement itself; in addition, the Agreement provides an informal dispute resolution mechanism to help resolve problems between U.S. lawyers and the Brussels regulators.) See Terry, Cross-Border Legal Practice, 21 Fordham Int'l L. J. at 1492 (Art. 8, '1).
At first blush, the Commission might not even want to consider this second type of transparency requirement because it is antithetical to U.S. privacy and other traditions. Moreover, if this second kind of transparency requirement applied only to MDP lawyers, they might complain that they were being unfairly singled out since there are numerous situations in which lawyers are subject to financial pressures that might cause them to compromise their independent legal judgment. (These situations include lawyers who might be tempted to compromise their ethics in order to please a client whose fees represent a disproportionately large portion of the lawyer's income, lawyers whose financial situation (debts, income flow) might lead them to urge too-quick settlements, and lawyers who are dependent on cases forwarded to them by third party payers, such as insurance companies.)
On the other hand, I suspect that this type of transparency could prove effective in bringing to light financial arrangements that might put pressure on a lawyer to compromise the lawyer's independent legal judgment. (This is especially true if the agreements were publicly available, rather than just available upon a regulator's demand.) Larry Fox, for example, has said that if you follow the money, you will find the power and control. Transparency might serve to counteract some of these effects. Thus, particularly if the Commission favors Witness Holden's opt-in mega-regulator approach or a periodic audit requirement, it might want to consider including this second kind of transparency requirement as well as the first. Alternatively, if Rule 5.4 is relaxed, the Commission may want to suggest to the ABA Ethics 2000 Commission that it consider the issue of a generally-applicable transparency requirement.
6. THE COMMISSION'S DISCUSSION OF A NEW MEGA-REGULATOR SHOULD BE COMBINED WITH A DISCUSSION OF THE COMMISSION'S GOALS & EXPECTATIONS
One difficulty I had when thinking about these issues was the relationship between the issues on the one hand, and the Commission's goals, expectations and reality on the other hand. For example, should the Commission try to determine the best approach that has a reasonable likelihood of being implemented, taking into account the political realities? Or, alternatively, should the Commission try to come up with the ideal solution as if it were a Magician who could wave a magic wand and have its proposals implemented?
I have struggled with these two approaches ( magic wand versus reality) throughout this process, but especially with respect to the issue of who should regulate an MDP. I do not believe that our current system of state regulation matches the reality of what lawyers do. Main Street as well as Wall Street lawyers travel outside state borders and the current state admission and UPL systems simply don't match what U.S. lawyers do. I think Witness Holden's opt-in federal approach might be an appropriate middle ground (and a way to include nontraditional ideas such as firm discipline and transparency regarding the MDP agreement.) But more importantly, I think the Commission should discuss its mandate and whether it should come up with an ideal solution or a workable solution; and if it is the latter, then the Commission must decide which solutions are outside the realm of political reality.
7. WHETHER A LAWYER WORKING IN AN MDP IS BOUND BY THE LEGAL ETHICS RULES SHOULD DEPEND ON WHETHER THE LAWYER HOLDS HIMSELF OUT AS A PRACTICING LAWYER; IT SHOULD NOT BE DECIDED ON A MATTER-BY-MATTER BASIS OR DEPEND ON WHO IS " DRIVING THE DEAL."
Every witness that has addressed the issue agrees that if MDPs are permitted, lawyers practicing in an MDP should be bound by the legal ethics and other lawyer rules. The difficult issue is determining exactly what that means. Two different visions have emerged. In one approach, the decision about whether to use the legal ethics rules is based on the lawyer's status ( e.g. Jones, Moser); in the alternative approach, the decision is based on the lawyer's (and perhaps others') activities ( e.g. Oberly, Dzienkowski.)
I favor using the first approach in which the lawyer's status determines whether the lawyer must comply with legal ethics rules: lawyers who hold an active law license and who have not clearly indicated that they are serving in a permanent non-legal capacity within the MDP should be treated as ordinary lawyers and subject to the legal ethics rules.
In my view, the Commission, the regulators, lawyers, clients, the public and other professionals in an MDP need a bright simple line they can use to define when a lawyer must comply with the legal profession's ethics and discipline system. An individual lawyer's status as an actively-licensed lawyer, absent clear caveats to the contrary, provides such a line. (There is obviously an overlap between this issue and the appropriate MDP model, but in my view a lawyer's disclosure about status must be clear, regardless of the method in which the MDP is organized.)
Obviously, this status approach has limitations since not everyone who has taken a bar examination is going to practice law (whatever that means) for the rest of their life. There also are some inconsistencies with the attorney-client privilege caselaw; not everything a lawyer does is covered by the privilege. But because these difficulties are relatively minor compared to the difficulties inherent in defining the nature of a lawyer's activities, I recommend the status approach.
Virtually every witness asked about the topic conceded that there was no effective definition of a ctivities that can be used to establish the exclusive areas of practice for lawyers ( i.e. there is no effective UPL definition.) Witness William Freivogel of ALAS provided nine examples of items that ALAS defines as the practice of law for coverage purposes and noted that other carriers used similar definitions; in response to a question, however, he conceded that the list included many things that nonlawyers could do. In other words, the items defined as the "practice of law" did not belong to the exclusive province of lawyers. Witness William Elliott's testimony concerning the fate of the State Bar of Texas' UPL complaint against Arthur Andersen revealed the difficulty of pursuing a UPL claim in today's environment. Other witnesses who spoke about the difficulty of defining the practice of law included: Moser, Galler (other than in-court appearances), Turner, Nicolay, Bower, Tucker, Sterett, Hill, and Robinson. ( But see Witness Shely, who referred the Commission to the ABA UPL study and suggested it pick the best of those definitions and Witness Foonberg, whose report accompanying Resolution 105 lists activities lawyers engage in.)
Witness James Jones perhaps said it best when he testified:
[T]he definition of the "practice of law" is frustratingly illusive. Indeed, aside from a few obvious functions (like the filing of pleadings in court or the rendering of formal opinions), it is almost impossible to define with precision what constitutes the practice of law in the United States today, at least in any exclusive sense. While it is certainly possible to list the hundreds of things that lawyers do, as bar counsel and many courts have discovered, it is very difficult to come up with a comprehensive list of many things that only lawyers can do. To cite but a few examples: [contract negotiation, lobbying, tax and estate planning are considered legal services when performed by a lawyer but few would argue that nonlawyers cannot do this.]
Stated differently, the scope of the "legal monopoly" in the U.S. - i.e., those activities that only lawyers may engage in -- is fairly narrow and arguably getting narrower. Thus, any regulatory scheme that is premised on a tightly drawn exclusive definition of lawyering is likely to be either too narrow to be much good in a regulatory sense or too broad to be enforceable. I would accordingly be very suspicious of any regulatory approach to dealing with the MDP concept that depends for its effectiveness on a precise definition of the "practice of law."
In sum, if the Commission uses a lawyer's activities or the term "practice of law" to determine when legal ethics rules apply to lawyers within an MDP, we may never emerge from the UPL quagmire. In contrast, an MDP lawyer's status should prove to be a relatively easy line to apply.
8. BEFORE ANALYZING SPECIFIC ETHICS RULES, ESPECIALLY CONFIDENTIALITY, CONFLICTS, AND IMPUTATION, I RECOMMEND THAT THE COMMISSION DETERMINE HOW THE MRPC TERM "FIRM" SHOULD BE DEFINED IN THE MDP CONTEXT.
As noted above, virtually every witness agrees that the proper basis for MDP regulation is client and public protection. Many, but certainly not all, witnesses then identify four core values of the legal profession which they believe advance client and public protection interests. The four core values cited most often are: competence, confidentiality, loyalty ( i.e. avoidance of conflicts) and independence.
Not surprisingly, then, many of the Commission's questions have raised issues of confidentiality, conflicts and imputation. To my mind, the November and February hearings were not very enlightening on these issues because the witnesses' underlying premises often were not articulated. The issues have been further blurred by calls to change the imputation principles in Rule 1.10. I have found myself not knowing whether a witness believes: 1) as a threshold matter, there is no conflict; or 2) there is a conflict but a screen satisfies the exception because it is imposed pursuant to client consent and the conflict is consentable; 3) there is a conflict, but the screen satisfies the exception because it is imposed pursuant to client consent and there should be no such thing as nonconsentable conflicts; or 4) there is a conflict, but it can be cured by a screen, even without client consent. Thus, there are very few entries in the Threshold Ethics Premises pages of my charts. The Commission's distribution of hypotheticals may make the March hearings much more satisfying in this regard. In addition to the hypotheticals, however, I think it would be worthwhile for the Commission to discuss at a very general level what its premises or assumptions are with respect to how the legal ethics rules should operate in an MDP context.
And, as I began to think about this further, it occurred to me that the Commission might have a very simple tool it could use to focus this discussion. My recommendation is that the Commission use the Model Rules' definition of a "firm" as a means of clarifying its vision of how conflicts and imputation should function in an MDP context. The word "firm" is used in many places in the MRPC, but it is especially important in the "conflicts" setting because it defines the scope of the conflicts and imputation rules. For example, in a traditional law firm setting, if the term firm were defined so that it did not include branch offices, many objections to imputation might disappear.
As the Commission knows, the ABA Ethics 2000 Commission recently addressed the issue of the proper definition of a firm and the location of that definition within the MRPC. The Ethics 2000 Commission considered providing a definition for various alternative practice forms, but ultimately decided not to do so. It concluded that the variety of new relationships within and among law firms was so substantial that it would be fruitless to try to sort them out and that any such language would soon be outdated. See Reporter's Observations to Nov. 12, 1998 Working Draft, Proposed Rule 1.10 - Draft No. 3, ABA Ethics 2000 Commission. Although the Ethics 2000 Commission did not want to provide definitions for all the new forms of organization, I think it would be helpful for this Commission to draft such a definition for MDPs. Although this definition ultimately might not be placed in the MRPC, I think the Commission would find the drafting exercise to be a useful process. In short, if the Commission at the very outset wrote the definition of a firm that would apply in the MDP context, I think that would go a long way toward solving many specific ethics issues.
Although one can create variations, there are two fundamental approaches one could take in defining the term firm in an MDP context. First, the Commission could choose to treat the entire MDP firm in a manner comparable to a law firm.. Thus, MRPC provisions that apply to a "firm" would apply to the entire MDP firm. (It is important to remember, however, that this is a threshold assumption and does not rule out the possibility of firewalls or screens, either with or without client consent, depending on what happens in the Ethics 2000 Commission, and whether current or former clients are involved.) If a firm were defined as the entire MDP firm, then in Commission Hypothetical 4.1, the information learned by XYZ Professional Services Corporation, LL.P. when auditing Husband's company's books would be imputed to Law Firm A& B that has been asked to represent Wife in her divorce. Similarly, the representations in Hypotheticals 5.2 and 5.3 would be imputed from the New York office of XYZ to the Chicago XYZ lawyers, regardless of whether any lawyers participated in the New York representation.
Alternatively, the Commission might choose to define the MDP "firm" more narrowly, consisting only of the lawyers practicing law in the MDP (and perhaps their direct support staff.) This approach would treat the MDP "firm" more closely to an in-house legal department, rather than a traditional law firm. In other words, the MRPC would apply only to the legal department of the MDP organization. Compare Restatement of the Law Governing Lawyers '203, Comment (d)(1) and the ABA Ethics 2000 Commission's Working Drafts 2-4 of Proposed Rule 1.10 (discussing corporate counsel).
In my view, both of these definitions - the entire MDP firm and the law department only - are reasonable approaches to the issue. I believe that the clarity of the definition, combined with a requirement of disclosure to the client, are more important than the actual content of the definition.
Whichever definition the Commission uses, it will have a series of follow-up questions it must address. Presumably, if the narrow definition of firm applies to the fully integrated MDP (Model 5), then this narrow definition also will also apply to MDP Models 1-4 listed on the Commission's Hypotheticals. Therefore, if the Commission recommends the narrow definition, it need not engage in difficult line-drawing exercises. The Commission will have a difficult follow-up task, however, because it will have to consider whether to specify measures that must be used to keep the lawyers separate from the rest of the MDP. The decision to use a narrow definition of firm may make the Commission want to reexamine its decision regarding the forms of association issue. For example, the Commission might decide to permit the fully integrated MDP, but still recommend formal separation measures between the legal services arm and the other services offered in an MDP.
On the other hand, if the Commission applies the broader definition of firm to the fully integrated MDP, the Commission must decide whether this broad definition also applies to Models 1-4. I believe that this broad definition should not apply to the Cooperative Model, but I am not ready to say today where the dividing line should be and what the criteria should be. As the Commission can see, I don't have all the answers today. What I am offering is a tool the Commission can use to help it come to grips with these issues; I think the process of sitting down to write a definition of firm would be an excellent method of tackling the difficult conflicts and imputation issues.
That said, let me give you my very preliminary thoughts and one caveat about how I would define the term firm in the fully integrated MDP model context. My current recommendation is that for the fully integrated MDP model, the Commission should define the term "firm" to include the entire MDP firm. I think that in this context, it is significant that the nonlawyer members of the MDP have joined together in a common enterprise in order to provide better service to third party clients. In my view that makes the MDP more analogous to a law firm than corporate counsel. Shared economic interests is one reason why we have traditionally had imputation and that exists in the fully integrated MDP context. Third, I believe there is risk of information leakage and am skeptical enough of screens to believe that in most cases, they should only be imposed with client consent ( cf. former Government lawyers). In order to trigger such a consent requirement, one must define firm broadly. This broad definition of firm also seems consistent with many MDPs own view of themselves as providing a seamless web of services.
To support my conclusion, I would suggest that one imagine a variation of the facts alleged in the UK case Bolkiah v. KPMG. Assume that KPMG is a fully integrated MDP in the U.S. that includes lawyers. Assume that for approximately eighteen months, KPMG lawyers (rather than KPMG forensic accountants) represented companies with which Prince Jefri was closely associated in connection with major litigation. The case settled. Assume that KPMG forensic auditors were then hired on behalf of the Brunei Investment Agency to investigate misappropriation claims against Prince Jefri and assume that these claims were substantially related to the confidential information that had been relevant in the KPMG lawyers' earlier representation of the Prince's companies. The KPMG forensic accountants accepted this representation and, at some point, told Prince Jefri that they had erected a firewall.
I suspect that even though the first service providers have been changed from accountants to lawyers (or perhaps especially so), Prince Jefri would still feel that his firm was suing him and that the forensic accountants might somehow get access to information he provided on a confidential basis to the lawyers in the earlier matter (i.e. I have posited both loyalty and confidentiality concerns.) My view is that these concerns are understandable and require consent and disclosure in order to proceed. I don't think it is healthy for the legal system if former clients or the public suspect the integrity and legitimacy of the system. In other words, my gut feelings about this case are part of the reason why I would define the term firm to include the entire firm, at least in the fully integrated model context. (As an aside, I note that I express no opinion today about the definition of firm in the Contract Model (Model 4) context, although many of the same arguments apply. Although the Contract Model usually requires the captive firm to be legally separate from the MDP, most do not require the captive to be physically separate. Moreover, if the basis for treating the captive differently is that it has no shared economic interest with the MDP, I would note that many witnesses testified that it may be difficult, from an enforcement perspective, to recognize the difference between cost sharing and profit sharing.)
Now for the caveat. The above discussion has been based on the assumption that MDP lawyers provide services directly to a client. But in fact, the testimony suggests that MDP lawyers function in two different ways. Sometimes they do serve clients directly, either alone or as part of a multidisciplinary team. On other occasions, however, they may help other units in the MDP develop a product when is then sold by that unit to third parties. This is the issue raised in Commission Hypothetical 5.6. Thus, the Commission probably should consider the issue of whether the same definition of a firm should apply if the lawyer has not had a direct relationship with a client.
Let me offer a final comment about the Commission's Hypotheticals. On the one hand, I found that these Hypotheticals were a very useful tool to focus my thinking about these issues. On the other hand, I think it would be a mistake for the Commission to try to answer all the questions in the Hypotheticals. Let me explain.
The Commission distributed twelve hypotheticals (although there are actually more than that because some of the hypotheticals asked several follow-up questions based on fact variations.). While the fact patterns were relatively simple, the questions that followed raised some of the most fundamental debates within the legal profession. For example, if the Commission's hypotheticals were revised so that they only involved lawyers and the Commission asked witnesses to answer the questions following the hypotheticals, I think the Commission would still hear a broad range of answers and much disagreement.
Thus, in my view, instead of answering all the questions posed after the hypotheticals, the Commission should use these hypotheticals as a means to focus on two basic questions:
- What imputation rule will apply to an MDP (and how does that rule apply to the different fact patterns in the Hypotheticals)?
- Does the Commission believe that MDP lawyers should be subject to the same set of rules as other lawyers, or does it believe new rules should be created?
If the Commission believes, as I do, that MDP lawyers should use the same ethics rules as other lawyers, then most of these hypotheticals contain only one new question that the Commission needs to answer, namely imputation. Indeed, the very first question in almost all of the hypotheticals can be paraphrased as "Should the knowledge and conflicts be imputed from one set of MDP professionals to another?
Virtually all of the questions beyond that first question invite the reader to apply existing, established principles or invite the reader to criticize the existing, established principles, e.g., by criticizing the concept of nonconsentable current client conflicts. But I don't think it is this Commission's job to evaluate the rules that apply to all lawyers; that's the job of the Ethics 2000 Commission. And I think this Commission makes its job much more complicated if it tries to take on issues of the application and wisdom of the current conflicts and imputation rules since we all know that even within a pure law firm setting, there is much disagreement on these points.
Thus, I believe the Commission should use the Hypotheticals to provoke thought, and help visualize the ramifications of certain positions, but that the Commission's job is to figure out the answer to the first question in each Hypothetical about imputation. The Commission, of course, can and probably should pass on to the Ethics 2000 Commission its views about the wisdom of the existing conflicts and imputation rules. And I recognize that even if there is only one set of rules, the application and interpretation could vary depending on the facts. For example, the amount of disclosure necessary to obtain informed consent will vary depending on the circumstances. Thus, it would be appropriate for the Commission to answer these kinds of questions following the hypotheticals. My point is simply that while it is appropriate for the Commission to do this, it is not necessary to do so. My fear is that if the Commission tries to do more than is necessary, it will get lost in the morass and detail of the general debate about the application and wisdom of our conflicts and imputation rules.
9. THE COMMISSION MUST FACE THE ISSUE OF THE DEGREE TO WHICH IT EXPECTS MDP NONLAWYERS TO COMPLY WITH LEGAL ETHICS RULES. I RECOMMEND THAT THE NONLAWYERS NOT BE BOUND BY THE LEGAL ETHICS RULES PER SE, BUT THEY BE OBLIGED TO COMPLY WHEN NECESSARY TO ENSURE THAT THE LAWYER COMPLIES; THE EXTENT OF NONLAWYER COMPLIANCE THUS WILL DEPEND ON THE DEFINITION OF A FIRM THAT THE COMMISSION SELECTS.
Although the Commission arguably has no authority to recommend rules to be used by nonlawyers, it can address the issue of nonlawyer conduct because it can specify the conditions under which a lawyer may work in an MDP. For example, the Commission could recommend that a lawyer only be permitted to work in an MDP if all nonlawyers in the MDP complied with the lawyers' ethics rules. This is the approach used in Germany's BerufsOrdnung which was adopted by the German mandatory bar association BundesrechtsanwaltsKammern (BRAK) pursuant to the authority granted in the Bundesrechtsanwaltsordnung (BRAO). Alternatively, the Commission can recommend that nonlawyers in an MDP be required to register with the bar, as suggested by the Consultation Paper of the Law Society of England and Wales at p. 13. A corollary to registration could be use of the lawyers' ethics rules.
I recommend a narrower approach than that used in Germany or discussed by the Law Society's Consultation Paper. First, the anecdotal evidence I have heard suggests that the "all must comply" approach has not been particularly effective in Germany. In giving talks throughout Germany, I have referred to the BerufsOrdnung requirement that nonlawyers in an MDP comply with the lawyers' ethics rules. I have received two different types of comments in response to my observations: 1) this provision is not directly enforceable against the nonlawyers and therefore will never be truly effective; and 2) that German lawyers haven't yet had to work through what this provision means and what types of conflicts, if any, might exist. (One reason for this latter point might be the much higher threshold standard in Germany for defining a conflict of interest.)
The second reason why I rejected the German approach is because in my view, lawyers would be quite offended, and properly so, if they suddenly were told that they were expected to comply with some other profession's ethics rules, rather than their own rules. Presumably, other professionals would have the same reaction if lawyers told them that they must comply with the legal profession's rules, rather than their own rules. An accountant providing consulting services, for example, should not have to use the lawyers' conflict of interest rules in deciding whether to accept a client, assuming that the client is not or has not received legal services. Similarly, I see no reason why the fee and reimbursement schedule of an engineer in an MDP should be governed by lawyers' fee rules. (To answer Dean Powell's question, assuming there was no involvement by lawyers, I would not prohibit the engineer-directed advertising that guarantees results even though the legal ethics rules would forbid such guarantees.) Thus, one of my answers to Commission Hypothetical 5.3 is that if there were no lawyers on either XYZ's Chicago team representing Radio #2 or XYZ's New York team representing Radio #1, then the legal ethics rules should not apply; since no lawyers were involved, lawyers should not be telling these professionals which rules to use.
On the other hand, I do not think one can simply say that the lawyers but no one else in the MDP firm are subject to the lawyers' ethics rules. Although I am sure this language can be improved upon, I would suggest that the nonlawyers in an MDP be required to follow the lawyers' ethics rules in either of two situations:
1) when working at the lawyer's direction on a matter; or
2) when necessary in order for the lawyers to honor their own ethical obligations.
The first of these requirements is consistent with the current legal ethics requirements. The Model Rules currently require lawyers to ensure that nonlawyer personnel comply with the lawyers' ethical obligations. No one imagines, for example, that it would be proper for a secretary or paralegal or law firm Ph.D employee to reveal client confidences. These nonlawyers are subject to certain legal ethics rules. The discussion in the Commission's Hypotheticals concerning the Cooperative Model (Model 1) is consistent with my conclusion regarding this first situation in which nonlawyers must comply with some legal ethics rules. Since the Command and Control Model (Model 2) requires the nonlawyers to work in an MDP whose sole purpose is the provision of legal services, I would expect a similar analysis and result.
The second provision listed above is slightly less traditional, but in my view it is consistent with the reason why we ask nonlawyers to obey ethics rules and should not be offensive to nonlawyers. (It may be viewed as undesirable or impracticable, but I don't think it should be viewed as offensive.) Commission Hypothetical 4.2 provides an example to which one could apply this second principle. One might conclude, for example, that the nonlawyers in XYZ should act consistently with the legal ethics rules when deciding whether to accept representation of Target, given that the Law Firm A& B already represent Raider in its efforts to take over Target. One could conclude that to do otherwise compromises the lawyer's duties of confidentiality and loyalty. (As the Commission can see, this decision to require nonlawyers to comply with the legal ethics rules is intertwined with the decision about imputation, which is intertwined with the definition of a firm that the Commission thinks should apply to the situation.)
In sum, even if the Commission does not think it proper for lawyers to completely impose their rules on nonlawyers, there still might be circumstances in which it would be appropriate to have MDP nonlawyers use legal ethics rules in order to facilitate MDP lawyers' compliance with these rules. The Commission should therefore decide whether there it agrees that there are fundamental reasons why we would want nonlawyers to comply with lawyers' ethics rules and then clearly express that rule.
10. IF THE COMMISSION RECOMMENDS AMENDING MRPC 5.4, IT SHOULD ALSO EXAMINE EACH MODEL RULE FOR APPROPRIATE CHANGES OR ADDITIONS AND SHOULD ALSO DRAFT A NEW RULE DIRECTED TO LAWYERS PRACTICING IN AN MDP CONTEXT
If the Commission decides to recommend revision of MRPC 5.4, then each MRPC provision should be analyzed in order to determine whether any changes in the black letter rule or comment are necessary. Given the length of this document and the complexity of issues already before the Commission, I have not performed such a rule-by-rule examination, but at some point, this must be done. For example, the Commission should consider additions that could be made to the definition of a firm, and to MRPC 1.6, 1.7, 1.8, 1.9, 1.10, 5.3 and 5.4. In addition, the Commission should consider how it would interpret the "publicity or marketing" provisions found in MRPC 7.1-7.5; money related issues found in MRPC 1.15, as well as state random audit statutes and client security fund provisions; fee issues arising under MRPC 1.5; pro bono requirements under MRPC 6.1; competence requirements under MRPC 1.1 (and the relationship of this requirement to lawyers participating in selling standardized "products"); training and supervision requirements such as those found in MRPC 5.1-5.3; and disclosure obligations, such as those found in MRPC 3.3 and 4.1. See, e.g., Terry, "What If..." cited in footnote 7 of the Commission's Background Paper on Multidisciplinary Practice: Issues and Developments, at pp 49-53 (identifying various MRPC issues that might arise if lawyer MDPs are permitted). In my view, however, revision of these provisions should be relatively straightforward if the Commission can agree on the "threshold ethics questions" identified above.
If the Commission recommends revisions to MRPC 5.4, it should also consider whether to draft a new MRPC provision that would specifically apply to lawyers practicing in an MDP context. I think such a provision would be appropriate, given the legitimate concerns that exist and given the newness of the situation. For comparison purposes, I would note the success of MRPC 1.13, which applies to in-house counsel. Although some have criticized various aspects of the rule, I believe there is general agreement that it has been useful to have a special rule that explains how a lawyer's core values apply in the corporate counsel context. I similarly believe that it would be useful to have such a rule for lawyers practicing in an MDP context. The strongest counter-argument I can imagine is that there should be a better information base before drafting such a rule; opponents might note that the Rule 1.13 emerged after a decade's worth of experience with the Model Code. Given the novelty of the issues, however, and a need to educate the nonlawyer members of the MDP as to lawyer's core values, I think a special rule is appropriate.
If the Commission decides to draft a new MRPC provision to apply to lawyers practicing in MDPs, what types of provisions might it include? Witnesses have mentioned the following kinds of provisions that might be included (although not all of these will be appropriate for all MDPs):
- Disclosure Provisions (see discussion above);
- Requirements of supervision and training of lawyers by a lawyer;
- Clearly established lines of authority, so that junior lawyers understand who they report to and so that independence of judgment is preserved;
- A physical situation, including offices, files, computers, and reception, among other things, which protects client confidentiality from unnecessary disclosures (even if one imputes knowledge among MDP members);
- Evaluation of lawyers' work by other lawyers, other than the Chief Counsel;
- Clear rules regarding the interpretation of confidentiality, independence and loyalty requirements in an MDP context ( i.e. how should conflicts be evaluated and imputed, etc.)
- Procedures for addressing ethical concerns.
Other Observations and Recommendations:
In the course of its hearings, the Commission heard broad-ranging testimony that touched on a number of important issues. While many of these issues are relevant to the MDP phenomenon, I consider the issues listed below to be outside the immediate jurisdiction of the Commission. (This is not to say, of course, that it wouldn't be very desirable to have a resolution of these issues.) When it issues its report, however, the Commission may want to identify the following issues and recommend further ABA study or action with respect to these issues:
A. Witnesses testified that the MRPC imputation rules have come under increasing pressure and may need be reexamined (I would note, however, that the ABA Ethics 2000 Commission currently is engaged in this process).
B. Witnesses testified that the UPL system, if it ever was functional, is functional no longer. Thus, the ABA must consider what to do based on the assumption that it will be exceedingly difficult and perhaps impossible to enforce the current UPL provisions.
C. Witnesses testified that the system of state regulation faces serious pressures because of the national and international nature of many lawyers' work. This is true not just for the Wall Street lawyers but also for the Main Street lawyers. The MDP phenomenon may thus accelerate the discussion of whether the current state-based regulatory system is still functional and appropriate. Alternatives might include a state-registration system.
D. Discussion following Witness Judith Billings' testimony suggested that the mandatory pro bono issue should be revisited in view of the MDP phenomenon, which may make it more difficult to preserve those portions of a lawyers' culture related to the core values.
E. Many jurisdictions with MDPs have mandatory malpractice insurance requirements. Some witnesses testified to concerns about increased malpractice issues as a result of the MDP phenomenon; query whether the MRPC adequately protects clients from lawyer mistakes (some experts estimate that 50% of lawyers are uninsured or under-insured.) Thus, the Commission may want to recommend study of the issue of whether malpractice insurance should be required for all lawyers.
F. Witnesses testified that the Commission may want to look to the ancillary business experiences and debates when considering the MDP issues since in many ways the MDP issue is the reverse of the ancillary business situation.
I am glad to have had an opportunity to testify and I hope this has been helpful.
Professor Laurel S. Terry
The Dickinson School of Law of
The Pennsylvania State University
150 S. College St.
Carlisle, PA 17013
Until August 1999:
University of Bremen
FB6, GW 1
28334 Bremen, Germany
(49 421) 218-7784