The first witness was Stefan F. Tucker, Chair of the ABA Section of Taxation, who presented an overview of the diverse 20,000 member Section that serves as "the national representative of the legal profession with regard to the tax system." Among active Section members and Section leadership, he identified lawyers from the Big Five and other accounting firms, in-house corporate legal staff and full-time law professors, as well as investment firm and trade association representatives; in fact, he said 40% of the Section Committees and Task Forces are chaired by lawyers not in law firms.
Although the Section has not come to a comprehensive agreement on the issue of multidisciplinary practice and the MDP phenomenon today extends beyond tax into areas such as employee benefits, real estate, environmental law, and even litigation and alternative dispute resolution, the Tax Section has found itself at the forefront of the MDP issue. Two weeks ago at its Midwinter Meeting in Orlando, the Section followed the lead of the Toronto Annual Meeting showcase program, "The Ends of the Profession", with an emphasis on the future of tax lawyers.
In preparation for this hearing, Mr. Tucker reviewed the witnesses' comments from the November hearing and, in particular, treatises regarding the Model Rules of Professional Conduct. In sum, multidisciplinary practice is a product of a consumer-driven global economy that presents increasingly complex issues that intermingle finance, accounting, law and other disciplines. The Model Rules fail to recognize these marketplace realities and are now in many respects unnecessary from a consumer point-of-view. Certain aspects of the lawyer regulatory system must be overhauled. The Section considers that a rapid response from the ABA is absolutely necessary. As the train has left the station and headed down the track, the Section urges that the Bar's response be focused on the direction and configuration of the tracks ahead.
In the highly competitive business world, companies expect quick response and focus on cutting costs. In the face of what may be considered the unauthorized practice of law that is happening every day, the customer perceives the bar's UPL efforts as lawyers protecting their pocketbooks rather than the interests of the public. Lawyers can analogize to other professions where at one time 'professionals', such as engineers and architects, had been self-contained and are now members of some other group. In medicine, doctors at one time made the rules that are now being made by health maintenance organizations or large medical service providers. As the law moves to more prepaid legal service plans, these will subordinate the lawyer role to their rules.
Certain of the Model Rules should be rewritten, as they are not protecting the consumer who, if he or she wants a certain lawyer, is willing to waive (or forego the issue of) a conflict. Commenting that lawyers are probably doing more fee-sharing now than they want to admit, he recalled the small city practice of the late '40s, '50s and '60s where the lawyer did real estate title, tax return and insurance brokerage work along with the law to support a practice. In-house counsel, who are paid from corporate earnings, oftentimes also are involved in stock purchase plans and own stock options, so to say that lawyers are not sharing fees is to put one's head in the sand.
Amending MR 5.4 to permit lawyers to enter into partnerships or other fee-sharing arrangements with nonlawyers would not harm the client as long as the client understands the facts. The American Bar Association should spearhead media communications to engender this understanding on an over-all basis through state and local bar groups. Clients believe they benefit from one-stop shopping as demonstrated by the proliferation of the Big Five, American Express, or Century Business Systems approach, as well as passage of an expanded attorney-client privilege to a taxpreparer privilege (on which, from anecdotal information, the AICPA spent $10 million) that is leading to allowing anyone to do just about anything in the tax world.
Clients cross state and national borders every day and the accountants are not shackled by state licensing protectionism the way lawyers are, as exemplified by the strange result in the recent California case that voided fees payable to an out-of-state law firm on a California matter where the work was done in New York. A change in the Model Rules would not risk impairment of a lawyer's independent professional judgment as lawyers already receive contingent fees, interests in a client’s entity as a fee, or preferential acquisitions or terms of acquisition on behalf of a client in consideration for services, all of which, in Mr. Tucker's opinion, have a more prejudicial impact on independent professional judgment than fee sharing. A law firm survives because it provides not only legal, but also business or financial, advice to help the clients solve their problems. Failure to abide by the exhortation in the Preamble of the Model Rules that a lawyer maintain communication with the client is the problem most commonly voiced by clients. The confidentiality rule (Model Rule 1.6) that mandates disclosure and informed consent does not need to be changed, as it is clear that the level of sophistication of the client determines the extent of disclosure required for truly informed consent. The notion of imputed knowledge, developed in a generation when every law firm was in one or maybe two or three cities rather than a multinational presence, whose partners in different offices may not even know each other, needs to be revised in a wholesale way.
Rule 7.2(c), prohibiting giving anything of value for recommending the lawyer's services, is also out of touch with reality. 'Unauthorized practice of law' is an increasing reality in our consumer-oriented society so what were once considered 'law-related services' are now offered outside the traditional law practice much as lawyers routinely performed real estate title, insurance brokerage and tax preparation services a generation ago. The Model Rules should not discipline law firms or MDPs for the action of one lawyer if there has been no actual exchange of information within the law firm - discipline should be focused on the individual lawyer. Jim Holden's recommendation of a federal level commission to regulate lawyers in a multidisciplinary setting is not favored as the Tax Section doesn't think the federal government should set lawyer rules. The ABA, however, must take a leadership role and bring the states along. Lawyers should be guiding their wagons, not circling them around evanescent notions, as multidisciplinary practice represents the future of the legal profession.
Professor Daly started off the questioning. In response to her inquiry, Mr. Tucker said that Rule 5.4 should be amended to allow fee-sharing in providing any professional services, not just legal services as in the D. C. model. The Rule should be changed to omit all partnership restrictions in one and not two steps. The Rule 7.2(c) referral constraint was considered too broad and an example of bad facts, such as ambulance chasing, making bad law. Mr. Tucker thought that there should be no regulation of the law firm or group in toto: lawyers' rules, including the supervision mandates, should govern individual lawyer conduct. Internal organizational rules should discipline the employee. The market, through civil damages and impairment of reputation, will regulate the MDP. The ABA should take the lead in overhauling the ethics rules, and its leadership must permeate to the state level in order to allow cross-border practice. The interstate commerce clause was offered as a possible override to eliminate state barriers. Mr. Tucker thinks a lawyer should be responsible for those working under him or her.
When Mr. Wander questioned how much disclosure was necessary to communicate to the client that another firm office was working against the client's interest as a predicate to informed consent, Mr. Tucker talked about creating a 'wall' on the order of Big Five practice, much like what was allowed in the instance of an ex-government employee. To the comment "We're not going to tell you because we don't know," Mr. Tucker responded that a lawyer can't know everything. Presented with a hypothetical where open files in the firm are available to lawyers and nonlawyers, the nonlawyer supervisor tells the lawyer to do something unethical and the lawyer does it and only the lawyer is subject to discipline, Mr. Tucker reiterated that only the individual lawyer should be responsible and that discipline of lawyers in the big law firms in reality currently follows this model.
Judge Friedman then asked how you communicate the reach of confidentiality to a client in a multidisciplinary practice. Mr. Tucker answered that the lawyer should tell the client what is privileged. Although there is a devolution of privilege today, it is not as broad as it was once thought to be.
Mr. Nelson asked to what extent will an organization of several different professions attribute to lawyers what the firm's nonlawyers do. Where lawyers are in charge there is no question, but if a lawyer is not in charge of the matter, Mr. Tucker felt the marketplace would mete out the damages; Mr. Nelson, however, questioned whether there would be damages if no rule had been violated.
Mr. Mundheim queried whether requiring the law firm to operate as a separate entity, with the nonlegal elements owning less than 50%, would allow lawyers clearly to be in control and better carry forward certain legal traditions. Mr. Tucker thinks that today's realities must be faced, and that the separate entity approach is not the answer. He eschewed the percentage control notion by talking about a tax lawyer's creative way of shifting profits and determining costs, deductions and offsets to allow 50% ownership to reside in one entity while shifting 75% of profits elsewhere. He said it's the practical ramification that should be thought through, and that, by defining the lawyer's lines of responsibility, the same thing can be accomplished in a MDP.
Dean Powell commented that law practice is by nature interdisciplinary; lawyer rules ought to exist for the benefit of clients; and the marketplace should be allowed to operate. The Chair commented that all but one of the Big Five have indicated that they are going to try cases in Tax Court. Although Tax Court rules prohibit a practitioner's appearance in three instances - those who have been involved in planning the transaction, who represent more than one person in conflicting interests in the same matter or who are potential witnesses, neither the IRS nor the Tax Court is going to object to "violation" of these Tax Court rules.