Written Remarks of Gregory A. Tselikis - Center for Professional Responsibility

Written Remarks of Gregory A. Tselikis, Esquire

HERE COME THE ACCOUNTANTS: DO THE MAINE BAR RULES ALLOW LAWYERS TO EFFECTIVELY COMPETE?

THE CHANGING LANDSCAPE. As if the pressures on Maine lawyers from banks, real estate brokers, trust officers, insurance companies, legal software companies promising cheap wills and do-it-yourself forms ("designed by an expert team of lawyers with the legislation of your state in mind"), help chat rooms on the internet, "independent" paralegals, engineers, "consultants", and financial planners of all types were not enough, the traditionally supportive relationship between lawyers and accountants and the demarcation between their respective professional service areas is eroding. A new, more competitive environment has already formed with increasing pressure from the top and bottom of the service spectrum.

As do-it-yourself tax software programs become common place, and with other market forces reducing their traditional sources of income, larger accounting firms have seen a flattening of revenues. Many have recognized that growth opportunities now lie beyond conventional audit and tax services. With virtually nothing to stop them, accounting firms have moved aggressively into "consulting" services.1/  One "big six" accounting firm now identifies itself only as a "consulting" firm.2/  Many already call themselves professional service firms.

These consulting services increasingly involve advice regarding estate planning, business organization, entity selection, troubled business assistance, contract and lease negotiations, mergers, acquisitions, business appraisals and valuations, "litigation support",3/ and a variety of other services that would not have been considered standard fare for accounting firms just a few years ago.

Many of these new services are hard to distinguish from the customary "legal" services Maine general practice and business lawyers have been providing to their clients for decades. To further compound the blurring of accounting and legal practice, larger accounting firms are hiring lawyers to work in-house to provide such services. Much as the interstate bank mergers all but crushed small local banks, large accounting firms have the financial muscle and talent to pose serious competition for Maine lawyers.

If you think this phenomenon has not yet reached Maine, think again. Recent advertisements from accounting firms in Maine have announced their services in litigation support, mergers and acquisitions and financial restructuring.4/  The competition for services is well underway.

Not enough Maine lawyers are adequately aware of the scope of the challenge or the way the landscape of services will likely change. In addition, Maine lawyers enter this competition for services burdened by Bar Rules that harken from an earlier, simpler time.

Professional responsibility rules and opinions governing lawyers’ freedom of association, fee sharing, the characterization of non-litigation services, and conflicts of interest - all traditionally designed to protect clients- now take on added significance.

The attorney-client privilege, once a prime reason clients selected lawyers over other types of advisors, is under attack as accountants seek their own federal legislation to secure privilege and work product immunity as part of the controversial "tax adviser privilege" in the Senate passed IRS restructuring bill.5/  In the May meeting of the ABA Tax Section in Washington, a spokesman for KPMG Peat Marwick asked: "why the playing field shouldn’t be level … why there should be a disadvantage depending on the type of tax professional used".6/  This argument may resonate with legislators.

Defining what is and is not the unauthorized practice of law was once a relatively obscure exercise largely confined to disciplinary cases involving lawyers who still held themselves out as lawyers after disbarment or suspension or setting the limits of pro se representation. Such definitions may now become the new frontier of professional interaction. Opinions by the Maine Ethics Commission may inadvertently assist the expanding role of non-lawyers by findings that many of the services only lawyers have done for decades may be done by nonlawyers.

THE CHALLENGES:

  • At what point are accountants who provide consulting services involved in the unauthorized practice law?
  • If certain "consulting" services are not legal services when done by an accountant, do they become "legal services" when done by a lawyer ?
  • Can lawyers be disciplined for alleged misdeeds when providing service that a lay person can do ?
  • Do the Maine Bar Rules prohibit lawyers from effectively competing for the same services with accountants and other consultants ?
  • Is it a violation of the Maine Bar Rules for a Maine lawyer to have partner status or its equivalent in an accounting firm ?
  • Is public protection really at issue when competent inter disciplinary professionals join forces to provide services and share the income they generate ?
  • Where is the legal profession heading as its traditional work product is parsed out among new providers ?

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PROFESSIONAL ASSOCIATION. To protect lawyers and clients from undue influence, the Maine Bar Rules have long prohibited a lawyer from entering into a "partnership" with a non lawyer if any of the activities of that partnership consist of "the practice of law". See Rule 3.12 (c). The Rules also prohibit practicing law in a corporate form where a non-lawyer owns any interest in, is any part of the governing body, or controls the entity. Rule 3.12(d). "Partner" is defined as a member of a group that controls the activities of a legal entity through which legal services are provided.7/

In the real world, most injuries to clients of lawyers happen when there is no other professional around to curb the lawyer’s worst impulses. Talented non-lawyer professionals, of the caliber that the Bar Rules ought to facilitate joining with lawyers, will not be content with permanent employee-only status in law related service organizations they help build. Rules of ethics which preclude equity ownership to highly qualified people only act to ensure that they will not join with lawyers.

In 1996, amendments to Rule 3.2(h) of the Maine Bar Rules were enacted in an attempt to deal with the realities of the modern practice of law. It is a sound beginning. But the Maine Bar Rules remain largely untested against the many challenges facing the need of the legal profession to expand services and hold market share. The amendment to Rule 3.2(h) allows lawyers to provide "law related services".

Rule 3.2(h) states:

Responsibilities Regarding Law-Related Services

  1. A lawyer shall be subject to the Code of Professional Responsibility with respect to the provisions of law-related services, as defined in paragraph (2), if the law-related services are provided:
    1. by the lawyer in circumstances that are not distinct from the lawyer’s provision of legal services to client; or
    2. by a separate entity controlled by the lawyer individually or with others if the lawyer fails to take reasonable measures to assure that a person obtaining the law-related services knows that the services of the separate entity are not legal services an that the protections of the client-lawyer relationship do not exist.
  2. The term "law-related services" denotes services that might reasonably be performed in conjunction with and in substance are related to the provision of legal services, and that are not prohibited as unauthorized practice of law when provided by a non-lawyer. (Emphasis Added).

The amendment recognizes the right of the lawyer to provide law related services, (as distinct from legal services referenced in Rule 3.12), personally or through an entity controlled by the lawyer so long as the lawyer remains subject to the Code of Professional Responsibility or adequately informs clients that no legal service is being provided and no lawyer - client relation exists. The definition of "law related services" was intended to be broad but to stop short of the practice of law.

The Advisory Committee Notes state that Rule 3.2 was intended to allow a fair degree of recognition to the "new methods of organizing the delivery of legal services".8/  The Advisory Committee was prophetic when it stated:

"Commercial and non-commercial organizations that are not law firms but employ lawyers to offer service that may include the practice of law in its traditional broad sense have become common place. … It is important to both lawyers and the consumers of their services that the Bar Rules not inhibit unjustifiably new methods of organizing the delivery of legal services." (Emphasis Added).9/

The amendment allows (with some restraint) lawyers to enter into employment, associations and organizations with non lawyers subject to restrictions that should be manageable for the non lawyers. It is less helpful for the lawyers. Despite the seemingly clear intention of the drafters, a recent Ethics Commission Opinion is illustrative of the problem lawyers may face when Rule 3.12 meets Rule 3.210/ and "legal services" are contrasted with "law related services".

The Commission considered the request for an opinion by an attorney practicing law and serving as a lobbyist as to the propriety of his entering into a partnership with a non-lawyer to continue governmental relations including lobbying. The attorney intended to discontinue the practice of law and the partnership would do only lobbying and governmental services. The Commission found the proposed partnership prohibited by the Rules and stated:

"For purposes of the construction of Rule 3.2(a)(2), with respect to persons on the roll of active attorneys maintained by the Board of Overseers, the practice of law consists of the provision of services that lawyers typically provide, notwithstanding that lay persons may also lawfully provide the same service."

In other words, what constitutes the practice of law for purposes of the Maine Bar Rules is to be controlled by the status of the provider and not by the nature of the service being performed. The Commission acknowledged it was going beyond the interpretation the Attorney General uses to prohibit unauthorized practice.

The Commission did not stop there. In commenting on the 1996 amendment to Rule 3.2(h), it observed:

"The Commission finds it difficult to conceive of any law related services that would not, if rendered by a lawyer, constitute the practice of law, for purposes of Rule 3.2(a)(2)." … It may be that in this jurisdiction any service other than litigation is a "law related" service. (Emphasis Added). 11/

Those services that constitute the practice of law are well recognized by lawyers and clients. The Commission’s opinion not only chills the efforts of a practicing lawyer becoming a partner with a non-lawyer for any "law related" service, but also weakens traditional notions of what is the practice of law in such areas as business and commercial transactions, probate, real estate, banking, municipal, and corporate by its intimation that such services may not be the practice of law unless done by a lawyer, even though when the exact services are provided by anyone else, they may be merely "law related".

The Opinion is a source of support to non-lawyers seeking to provide a wide range of "law related" services in any combination with any other non-lawyer. The justification of the Commission -- that it sought to "protect the public in its dealings with lawyers" -- is hard to fathom. The lawyer asking for the advisory opinion intended to stop practicing law. And under the amendment, customers of the new venture would have to be informed that no attorney-client relation was being created.

Making it easier for non lawyers to dabble in client representation without adequate training, insurance, regulatory supervision, or ethical obligations by minimizing the fear of prosecution for unauthorized practice of law (without also defining what the parameters of the practice of law may be in this State) in almost any service other than court room litigation, exposes the public to far greater risk than a lawyer joining forces with an accountant and sharing fees.

The Commission’s suggestion that the lawyer could have taken inactive status is no answer to the larger question of what is the frontier for the practice of law, is small comfort to practicing lawyers who do not want to give up their careers, and is of questionable efficacy.

It is submitted that the Commission’s construction of Rule 3.2(h) is not in keeping with the spirit of the change to Rule 3.2 considering the evolving nature of the practice of law and law related services. If the Commission’s view is correct, then it must follow that a lawyer who has received his license in Maine (even though he/she may be also licensed as an accountant) cannot provide legal services or law related services while a partner or employee in an accounting firm and still be a licensed lawyer because the lawyer’s status as a lawyer transforms law related services into the practice of law. See Bar Rule 3.12(d)(3).

The election of inactive status under Rule 6(c) would not avoid the practice of law definitions if "all conceivable law related services" constitute the practice of law when done by a "lawyer". Unless the election of inactive status is found to be the same as surrender or loss of license, the licensee is still a "lawyer". And if a lawyer who elects inactive status can do exactly what a lawyer can do except for court room litigation - what are the Bar Rules protecting ? Can a disbarred lawyer provide "law related services" that include everything except court room litigation so long as he does not hold himself out to be a lawyer ?

FEE SHARING. While a ccountants are not absolutely prohibited from sharing fees or profits with other professionals, with exceptions that are not germane, Rule 3.12(a) of the Maine Bar generally prohibits lawyers from sharing "legal fees" with non-lawyers. And if law related service really does equal the practice of law when done by lawyers, then, a lawyer cannot form (or join) a partnership with an accountant or any other non lawyer and share the fees from the work they might do together.

Conversely, even if the Maine Bar Rules prevent the lawyer from being hired, no professional rule governing the accounting profession prohibits the accounting firm from hiring a lawyer to give "tax advice" to clients.12/  The bottom line paradox: accountants can be partners with lawyers under the professional rules of conduct governing accountants but lawyers cannot be partners with accountants under the Maine Bar Rules if the accounting partnership engages in the "practice of law" or provides law related services and they seek to share fee income.

If the services provided by the proposed lawyer - accountant partnership are not legal services - are the fees to be divided "legal fees" within the meaning of Rule 3.12(a) ? If not, is the association still prohibited ?

While the original rationale for Rule 3.12 (c) is still sound, its unconditional application places lawyers at considerable and pointless disadvantage. Fee sharing is only a problem if the lawyer’s judgment is impaired by the source of the funds. Sharing with other licensed professionals who are subject to disciplinary oversight and loss of license in Maine assures adequate protection for the public. Allowing accountants and lawyers to join forces, especially in more rural parts of Maine, might actually enhance client safety.

UNAUTHORIZED PRACTICE. At the heart of the inter professional turf wars is the issue of the limits of just what is the "practice of law". The Bar Rules do not define the term. Rule 3.2 merely prohibits lawyers from unauthorized practice outside their licensed jurisdiction and from helping lay persons in the unauthorized practice of law. Not surprisingly, there is no mention of unauthorized practice of law in the Code of Professional Conduct of the American Institute of Certified Public Accountants ("AICPA").

To date, the Attorney General has concluded that unless a person holds himself out as a lawyer or appears before a court, there is no violation of state law.

This inquiry also raises the question of just what constitutes the practice of public accounting. The American Bar Association sub- committee known as the National Conference of Lawyers and Certified Public Accountants is now struggling with those definitions.

If the "practice of law", at least for purposes of the Maine Bar Rules, is defined by Commission opinion, court decision or statutory definition, to court room litigation and strategy work in anticipation of litigation, a significant percentage of the volume of legal business traditionally done by Maine business lawyers is at risk of being done by others.

The unauthorized practice of law by non lawyers has gone largely unenforced in Maine. Maine case law expressly forbids (but does not define) the unauthorized practice of law. Putting aside the question of which branch of government has the right to define what is the practice of law, and excluding representation of one’s self, Title 4 M.R.S.A. § 807 would seem to speak plainly enough as to practicing law for a fee for third parties:

"Prohibition. No person may practice law or profess to practice law within the State or before its courts , or demand or receive any remuneration for those services rendered in this State, unless that person has been admitted to the bar of this State and has complied with section 806-A, or unless that person has been admitted to try cases in the courts of this State under section 802." (Emphasis Added).

Simply put, one cannot practice law or profess to do so for money in the State or in its Courts unless admitted to the bar. There are a few reported Law Court cases dealing with questionable activities by suspended or disbarred lawyers and pro se actions by corporations. There are no reported cases for real guidance on the issue of what constitutes the practice of law.

It seems clear from §807 that the trial of a disputed matter for another before a Maine court is the practice of law. But when actual court room litigation is not involved, the question of what sorts of advice, consultation, strategy, administrative agency appearances, or document preparation constitutes the "practice of law" as distinguished from accounting services or other unregulated consultation is less clear.

If the fair reading of §807 is that both the " practice law" or " profess[ing] to practice law" "within the State" "or before its courts" is prohibited by non lawyers, - then it seems clear that the statute includes some non-court activities. It then remains to decide what is included in the practice of law to make the statue co extensive with the Bar Rules.

In 1995, Justice Rudman had no difficulty concluding that drafting documents that had legal significance and opining as to the title of real estate was the practice of law.13/

Many accounting firms now offer "litigation support" services that include discovery supervision, document assembly, stamping and retrieval. The accountants defend their work by claiming that so long as they do not hold themselves out to be lawyers, do not interpret the legal meaning or significance of the documents they are otherwise controlling, or provide legal strategy, they have not practiced law.

In what may prove to be a landmark, the Texas Supreme Court has responded to a complaint from the Texas bar’s tax section by authorizing a committee to investigate whether the accounting firm of Andersen Deloitte is practicing law in that state by paying lawyers in their staff to offer legal advice and represent clients and share fees in apparent violation of Texas law.14/

What is - and what is not - the practice of law when done by lay persons is a question that cannot forever remain avoided.15/ Lawyers must push for resolution of this question to demarcate what areas of work remain the sole domain of the lawyer.

CONFLICTS OF INTEREST. Another equally important factor in this competition are the conflict of interest rules. It had long been imagined that one major reason clients seek out lawyers as opposed to non lawyers for financial advice is to obtain strict conflict rule compliance. But such notions are hard to prove in real life.

The "advantage" lawyers have over accountants in client perception is rarely based on such ethereal stuff. On balance, it seems more likely that clients assume ethical behavior on the part of all those who serve them and seek out services based on their perception of competence and value for their problem.

Accountants and lawyers come at client representation from different directions. Lawyers are trained to be advocates for a client’s position and may never be "neutral". Accountants conversely, are required by Article IV §55 of the Code of Professional Conduct of the American Institute of Certified Public Accountants ("AICPA") to remain "independent" to provide audit results, and by §102 to retain integrity and objectivity. Indeed, it seems almost impossible to reconcile a CPA firm’s duty of loyalty to the investing public for a client for whom the firm is doing audit and compliance work with its duty to the company when giving tax advice. That split duty must invariably detract from the ability of the accountant to be the kind of zealous advocate an attorney must always be for a client.

Accountants do have a conflict of interest rule of sorts. Section 102-2 of AICPA provides:

"102-2 - Conflicts of interest. A conflict of interest may occur if a member performs a professional service for a client or employer and the member or his or her firm has a relationship with another person, entity product, or service that could, in the member’s professional judgment, be viewed by the client, employer or other appropriate parties as impairing the member’s objectivity. If the member believes that the professional service can be performed with objectivity, and the relationship is disclosed to and consent is obtained from such client, employer, or other appropriate parties, the rule shall not operate to prohibit the performance of the professional service. When making the disclosure, the member should consider Rule 301, Confidential Client Information. [ET section 301.01]." (Emphasis Added).

Note that the test is subjective, i.e., does the member "believe" he can remain "objective". This is a far cry from the objective standard imposed on lawyers by the Maine Bar Rules.

In a $4.5 billion malpractice lawsuit against Ernst & Young ("E&Y") by a bankruptcy trustee of Merry Go Round Enterprises,16/ alleging fraud by E&Y for not disclosing a professional relationship with the bankrupt’s law firm that was also defending E&Y in another action at the same time and that recommended hiring E&Y to the bankrupt, one of the defenses of the accounting firm was that there are no professional standards requiring an accounting firm to even make any such disclosure. The case is pending.

It is doubtful that the conflicts rules as such provide a meaningful advantage to lawyers in their competition with accountants for client loyalty.

PRIVILEGE. Client communications with accountants are not privileged. This shield of privacy has, more than any other, served to advantage lawyers in the competition with accountants. But accountants are seeking national legislation to grant them limited privilege in tax cases.17/ 

This major advantage now held by lawyers is under attack. If it is lost, fewer reasons will exist to distinguish between using lawyers and accountants.

THE EMPIRE STRIKES BACK ? A few, tentative steps have been taken by the legal profession in a few states. For example, a committee created by the Texas Supreme Court is investigating whether the Nation’s largest publisher of legal self help books is practicing law in Texas without a license when publishing Nolo’s Living Trust Maker 2.0.18/  An adverse ruling could bar the publisher from selling in Texas.

In another case, the California Supreme Court held that a New York law firm, with no members admitted in California, cannot recover fees for in state services rendered in an arbitration to a California resident on matters of California law and that such activities were the practice of law.19/

In yet another case, the federal court in West Virginia held it had "no power" to review a state bar committee opinion that Allstate Insurance could not distribute pamphlets advising insurance claimants as to whether they needed a lawyer and that such efforts constituted the unauthorized practice of law.20/  Allstate had challenged the ruling as an impingement on its right of free speech.

North Carolina’s bar association has opened a dialogue with accounting firms in that state expressing concerns about the delivery of legal services and the preparation of wills and settlement agreements. These efforts may signal a stirring that could change the bar’s strange quiescence on this important issue.

OTHER RESPONSES . The Maine Bar Association should consider these developments with the seriousness they merit and champion amendments or clarifications to the Maine Bar Rules and to Maine law which will give Maine lawyers the opportunity to compete in this emerging "new methods of organizing the delivery of legal services". The holding of Opinion 158 should be reconsidered. A simple change to Rule 3.12 (c)might read as follows:

"A lawyer shall not form a partnership or other business relationship with a non-lawyer if any of the activities of the partnership or other business relationship consist of the practice of law or law related services unless the non-lawyer is subject to licensing and supervision by other agencies of this State deemed adequate by the Board of Bar Overseers to insure protection of the public with respect to the services to be performed by the non-lawyer and the lawyer partner is subject to and observes all other applicable provisions of Rule 3."

Subsection (d) could likewise be revised to mirror the same result. By this simple mechanism, the State can remain confident that lawyer - non lawyer business relationships remain safe for the clients and allow Maine lawyers the chance to retain their client base.

THE FUTURE. It is unrealistic to assume that accountants will be prevented from continuing to provide expanding advice and consultation or to hope that any reliable line can be drawn to demarcate where the practice of law begins and the profession of accounting ends without the joint effort of both professions. Attempts to restrict the accountants will be characterized by our opponents as protectionism and contrary to the public interest.

Lawyers, as usual, will find few allies in this struggle. In the end, the battle will be fought in the market place. But lawyers, especially the small practitioners, are doomed to lose much of that battle if they are not allowed to compete on an equal footing and are defeated by their own ethical rules. If accountants can join with lawyers under the professional rules governing accountants, there surely can be no reason why lawyers cannot join and share fees with accountants (or other licensed professionals such as doctors, nurses, etc) under the Bar Rules given adequate safeguards.

If, as is largely the case now in Europe, the legal and accounting professions are destined to integrate into one stop shopping facilities where legal and accounting services blur into one another and are available from the same professional organization, Maine lawyers are entitled to an equal chance in that evolving market place. Without a concerted effort, Maine lawyers may be denied that chance.

The Maine Bar Association should promptly open a dialogue with our accounting brethren to determine if collaborative measures can help both professions.

ENDNOTES

1/ Squeeze Play, ABA Journal, Feb. 1998.

2/ Ernst & Young, Arthur Andersen, Deloitte and Touche, Coopers & Lybrand, Price Waterhouse and KPMG Peat Marwick make up the big six.

3/ The National Litigation Support Services Association is an association of CPA firms actively soliciting lawfims for such work.

4/ One Maine accounting firm has formed a new company to " …provide financial advisory services, including mergers and acquisition services, target searches for business acquisitions, facilitation of management lead leveraged buy outs, asset or business divestitures and acquisitions, business valuation; strategic and business succession planing and implementation, and commercial consulting… sources equity, mezzanine and senior debt financing packages for its clients"

5/ The bill has many problems and has been formally opposed by the ABA, the Treasury, the Department of Justice and the FBI.

6/ Tax Practice, Vol. 18, No. 10 (June 8, 1998).

7/ Rule 3.14(b), Maine Bar Rules.

8/ Note to M. Bar R. 3.12

9/ Id.

10/ Professional Ethics Commission, Opinion No. 158 (April 3,1997).

11/ Id at fn 4.

12/ What constitutes the practice of accounting is not dealt with here. Accountants are governed by state and association rules. See Title 32 M.R.S.A. §§ 12228 et seq.

13/ Board of Overseers v Edwards, Bar # 93-12 & 18.

14/ Wall Street Journal, B15, May 28, 1998.

15/ Other challenges to the boundaries of the practice of law are also being made. Some advertisements by "paralegals" boldly state "Did you know you Don’t Need a Lawyer For:"

16/ 31 BCD 1, Issue 24.

17/ United States v Arthur Young & Co., 465 U.S. 805(1984).

18/ Money, p. 27 June 1998.

19/ Birbrower, Montalbano, Condon & Frank v Superior Court, ABA/BNA Lawyer’s Manual on Professional Conduct, Vol 13, No. 26

20/ Allstate Insurance Co. v West Virginia State Bar, DC SWVa., Civ. No. 2:97-1056 3/20/98.

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