Larry P. Scriggins Re: Proposed Rules 5.5 and 8.5(a) - Center for Professional Responsibility

May 17, 2000

 

American Bar Association
Commission on the Evaluation of the
Rules of Professional Conduct
541 North Fairbanks, 14 th Floor
Chicago, Illinois 60611

Attention: Susan Campbell

Re: Proposed Rules 5.5 and 8.5(a)

Ladies and Gentlemen:

This letter is being sent in response to the publication by the Ethics 2000 Commission of its Public Discussion Draft (4/18/00) of Proposed Model Rule 5.5 and its most recent draft of Proposed Model Rule 8.5(a).

These comments have been prepared by a Drafting Group of the Ad Hoc Committee on Ethics 2000, Section of Business Law of the American Bar Association. The Ad Hoc Committee on Ethics 2000 is composed of the members of the Section of Business Law listed at the end of this letter. It includes the Chairs of the principal Section Committees on practice, professionalism and ethics - the Committees on Conflicts of Interest, Counsel Responsibility, Law Firms, Lawyer Business Ethics, Corporate General Counsel, and Multidisciplinary Practice. It also includes other Section leaders and members knowledgeable in the field, including two members of the ABA Standing Committee on Ethics and Professional Responsibility (the "Ethics Committee"). A draft of this letter was circulated for comment among the members of the Ad Hoc Committee and the Officers of the Section. Virtually all of those who have reviewed the letter in draft form have indicated their agreement with the views expressed. However, this letter does not represent the official position of the Section nor does it necessarily reflect the views of all of those who have reviewed it.

Proposed Rule 5.5

We welcome the proposed addition to Rule 5.5 of subparagraph (b)(2)(ii), addressing the increasingly multi-jurisdictional nature of the business law practice. This is consistent with the position taken by Section 3(3) of the proposed Restatement of the Law Governing Lawyers (The American Law Institute, Proposed Final Draft No. 2, April 6, 1998), repudiating the California Supreme Court's unfortunate decision in the Birbrower case. ( Birbrower, Montalbano, Condon & Frank, P.C. v. The Superior Court of Santa Clara County, 17 Cal. 4 th 119, 949 P.2d 1 (1998)) We encourage the Commission to consider including in the Comments to Rule 5.5 statements similar to those in Comment e to Section 3 of the proposed Restatement.

As helpful as the current version of Rule 5.5 is, its formulation (in common with that in the proposed Restatement) begs a critical question: When does a "particular matter" not "arise out of" or bear a "reasonable" relation to the lawyer's practice "on behalf of a client" in another jurisdiction? In this connection we note that the Commission has invited comment on the possible expansion of the safe harbor provided by subparagraph (b)(2)(ii). We believe that this provision should be broadened so as to sanction occasional interstate practice by an out-of-state lawyer in connection with the lawyer's practice in a jurisdiction in which the lawyer is licensed. This should apply even though the lawyer's interstate practice does not involve a specific matter of a client in the lawyer's home jurisdiction, but instead involves a client who contacted the out-of-state lawyer because of that lawyer's reputation.

Consider the following, all of which represent circumstances that have arisen in the actual practices of members of the Drafting Group:

(1) A Michigan lawyer represents a German company that has subsidiaries in Virginia and Michigan. The Michigan lawyer goes to Virginia to negotiate settlement of a dispute that has arisen under Virginia law between the German client's Virginia subsidiary and a Virginia party. Has the Michigan lawyer violated Rule 5.5?

(2) A Canadian company that is in the process of moving its US headquarters from New York to Chicago engages a Michigan lawyer to assist in the negotiation of collective bargaining agreements and provide other labor and employment law services at 15 different locations in 8 states (not including Michigan). As much as possible of the related legal work is done in and from the lawyer's Michigan offices. The lawyer meets on a number of occasions in Chicago with the client's senior management, and travels to each of the 15 locations for meetings with local management and for the labor negotiations. Has the Michigan lawyer violated Rule 5.5?

(3) A Michigan lawyer's corporate client in Michigan has numerous subsidiaries in a number of states, including California. The Michigan lawyer goes to California to attempt to settle a dispute, involving issues of California law, between the client's California subsidiary and a California party. The settlement negotiations are unsuccessful and litigation is commenced. The Michigan lawyer engages a California firm to try the case but, without being admitted pro hac vice, furnishes a significant amount of legal services (briefing, assembling and indexing evidence, development of trial strategy) in connection with the lawsuit. Has the Michigan lawyer violated Rule 5.5?

(4) A Michigan lawyer has a national reputation in environmental law. An Illinois company, whose house counsel has met the Michigan lawyer at ABA seminars and meetings, retains the Michigan lawyer to advise on EPA matters in Illinois and Indiana. The Michigan lawyer has telephone conversations with the client from her Michigan offices and conducts research at and from those offices. She then goes to offices of the client in Illinois and Indiana to counsel the client, and subsequently confers with EPA, Illinois, and Indiana enforcement staff at their offices in Illinois and Indiana. Has the Michigan lawyer violated Rule 5.5?

(5) A Maryland lawyer is engaged by a California-based corporation to help prepare the defense of product liability litigation pending or threatened in several states (not including California or Maryland). The Maryland lawyer spends considerable time in California meeting with management and prospective witnesses and reviewing files. The Maryland lawyer has been admitted pro hac vice in the pending actions, but only in states where litigation has actually been commenced. Has the Maryland lawyer violated Rule 5.5?

(6) A Michigan lawyer with a national reputation in broker-dealer representation spends over a month in California working with two clients headquartered there. For one client he advises on the development and implementation of a compliance program and on the settlement of regulatory proceedings pending before several state securities administrators. He travels with the client to those states (not including Michigan) and negotiates resolution of the pending matters. As to the second client, he assists in the negotiation of a merger with another California firm, and conducts the due diligence activities in connection with the merger. Has the Michigan lawyer violated Rule 5.5?

(7) A law firm has offices in several states, including Maryland and Illinois. An Illinois high-tech client of the Chicago office of the firm is seeking venture capital. A lawyer from the firm's Baltimore office, who is not admitted to practice in Illinois, travels to Chicago to meet with the client to help negotiate venture capital financing. Other lawyers in Maryland do related legal research and drafting. None of the firm's Illinois lawyers is involved in the project. The financing is provided by a small Chicago-based venture capital fund. Has the Maryland lawyer violated Rule 5.5?

(8) A Michigan lawyer specializes in representing the U.S. legal interests of non-U.S. firms. A number of his non-U.S. clients were referred to him by other non-U.S. clients or by non-U.S. law firms. Most of his non-U.S. clients have no operations in Michigan. His work for these clients is similar to what might be done by inside counsel. He meets with the management of these clients at their various U.S. locations, does some of their legal work himself (or with the assistance of others in his firm), and retains and manages the work of lawyers in other jurisdictions as to other matters (notably litigation). Has the Michigan lawyer violated Rule 5.5?

Clients increasingly expect to be able to hire whomever they want to provide legal services. As a result, the business practice of law, in both its counseling and transactional aspects, has become increasingly multi-jurisdictional in recent decades. Corporate general counsel routinely conduct nationwide "beauty contests" for the selection of counsel. Sophisticated clients accept, of course, that in certain circumstances (e.g., court appearances) matters must be handled by or in association with local counsel. In general, however, clients have become resistant to burdening a transaction with what they view to be too many lawyers. And outside the transactional arena, clients expect to be able to counsel with a lawyer with whom they have an existing relationship, or who may have been recommended to them by a peer, without regard to state lines.

The recent emergence of the multidisciplinary practice issue has brought these concerns into sharp focus. If the rules governing the legal profession burden the delivery of legal services with what clients view as excessive border restrictions, clients will be (indeed, already are) tempted to shift those services to accountants and other consultants who are not so limited. If multidisciplinary practices are ultimately permitted, border restrictions will favor MDPs at the expense of firms that limit themselves to the practice of law. It is in the interest of neither the public nor the profession to balkanize the practice of law.

In addressing this issue, there is much to commend in the position taken by some states, including the State of Michigan. The Michigan statutory prohibition on the unauthorized practice of law (MCL §600.916) concludes as follows: "This section does not apply to a person who is duly authorized to practice law in another state while temporarily in this state and engaged in a particular matter." As helpful as it is, however, the Michigan statute does not go far enough.

Professionals other than lawyers are free to provide some services that lawyers also provide. For example, lawyers and investment bankers both negotiate deals, lawyers and accountants both prepare tax returns, lawyers and jury consultants both formulate trial strategy, lawyers and industrial relations consultants both run labor organization campaigns, and lawyers and environmental consultants both advise clients on the impact of federal and state regulations. If a nonlawyer is permitted to provide a type of service in a jurisdiction, then it is anomalous to prohibit a lawyer admitted in another jurisdiction from doing so, as long as the out-of-state lawyer does not hold himself out as admitted to practice in the jurisdiction. There is no logical justification for limiting lawyers' ability to compete with other disciplines.

Accordingly, we suggest that Rule 5.5 be expanded to permit:

(a) Services (other than appearing before a tribunal) in a jurisdiction by a lawyer admitted to practice elsewhere, so long as (1) the lawyer does not hold himself or herself out as being admitted to practice in the jurisdiction, and (2) the lawyer is in the jurisdiction only temporarily; and

(b) Services in a jurisdiction by a lawyer admitted to practice elsewhere that could be rendered in that jurisdiction by a nonlawyer.

As stated above, we support the Commission's current version of Rule 5.5, but suggest that its safe harbors be expanded. In addition we suggest revisions to the language of the Rule to reflect the realities of practice in a law firm. Finally, we suggest the addition to the Comments of a definition of "organizational affiliate," and the deletion from the Rule of the phrase "commonly owned" on the basis that with the new definition this phrase is unnecessary and confusing. For convenience, we have shown below the Commission's current version of Rule 5.5, with our proposed deletions from the current version [bracketed] and printed in bold italics and our proposed additions bold printed and underlined :

RULE 5.5 - UNAUTHORIZED PRACTICE OF LAW

(a) A lawyer shall not practice law in a jurisdiction where doing so violates the regulation of the legal profession in that jurisdiction.

(b) A lawyer admitted to practice in another jurisdiction, but not in this jurisdiction, does not engage in the unauthorized practice of law in this jurisdiction when the lawyer is not permanently based in this jurisdiction, the lawyer does not hold himself or herself out as admitted to practice in this jurisdiction, and :

(1) the lawyer is authorized to appear before a tribunal in this jurisdiction by law or order of the tribunal or is preparing for a proceeding in which the lawyer reasonably expects to be so authorized;

(2) other than making appearances before a tribunal with authority to admit the lawyer to practice pro hac vice,

(i) a lawyer who is an employee of the client acts on the client's behalf or, in connection with the client's matters, on behalf of the client's other employees or its [commonly owned] organizational affiliates; or

(ii) the lawyer acts in this jurisdiction with respect to a matter that arises out of or is otherwise reasonably related to either (A) the lawyer's practice in a jurisdiction in which the lawyer is admitted to practice, or (B) the practice of the lawyer's firm [on behalf of a client] in [a] any jurisdiction in which the lawyer 's law firm maintains an office staffed by one or more lawyers admitted to practice in that jurisdiction, regardless of the fact that neither the lawyer nor any other lawyer in the lawyer's firm is admitted to practice in this jurisdiction ; or

(iii) the lawyer is associated in a particular matter with a lawyer admitted to practice in this jurisdiction; or

(iv) the lawyer acts with respect to a matter involving issues of federal law or the law of one or more other domestic or foreign jurisdictions; or

(v) the lawyer performs services as a lawyer that would not constitute the unauthorized practice of law in this jurisdiction if performed by a nonlawyer.

(c) A lawyer shall not assist another person in the unauthorized practice of law.

Comments

We suggest the following changes in the proposed Comments:

[5] Paragraph (b)(2)(ii) recognizes that the complexity of many matters requires that a lawyer be permitted to act [whose practice] on behalf of a client [includes practice] in [a] jurisdiction s in which the lawyer is neither permanently based nor admitted to practice , [also be permitted to act on the client's behalf in other jurisdictions] in matters arising out of or otherwise reasonably related to the lawyer's or the lawyer's law firm's practice [on behalf of a client] . If a client engages a lawyer or a law firm because of the reputation of the lawyer or his or her law firm with respect to a particular type of practice, or because of an existing or previous relationship with the lawyer or the lawyer's law firm, that engagement would be considered as having arisen out of or as being otherwise reasonably related to the lawyer's practice in a jurisdiction in which the lawyer is admitted to practice, irrespective of whether the engagement requires the lawyer to render services to the client in another jurisdiction in which the lawyer is not admitted to practice, and irrespective of whether the lawyer or the lawyer's law firm maintains an office in that other jurisdiction. [ Remainder of Comment [5] unchanged.]

We also suggest the addition of the following comments:

[ ] Representation of a client often requires a lawyer admitted in one state to conduct activities while physically present in one or more other states. Such practice is customary in many types of legal representation. Such activities should be permitted so long as they arise out of or otherwise reasonably relate to the lawyer's or his or her firm's practice in a state in which the lawyer is admitted or his or her firm maintains offices. A number of factors are relevant in determining whether activities arise out of or reasonably relate to practice in another state. These include: whether the client has contacts with such state, or contacted the lawyer or his or her firm there; whether a multistate transaction has connections with such state; and whether either the activities of the client involve multiple jurisdictions or the legal issues involved are in significant part federal or multijurisdictional in nature. In addition, occasional and temporary services in one or more other states, when reasonable and appropriate in performing the lawyer's functions for the client, are a proper aspect of the lawyer's practice in a state in which the lawyer is authorized to practice and do not constitute the unauthorized practice of law in the other states.

[ ] Paragraph (b)(2)(iv) recognizes that many transactional and counselling activities of lawyers involve issues of transnational or federal law. Such lawyers customarily practice on a national basis. For example, tax lawyers who specialize in federal income tax matters often have national practices. Likewise, many transactional and counselling activities of lawyers involve issues of the law of several states. It not in the interest of clients to mandate that services be burdened by necessarily requiring separate legal counsel for each jurisdiction whose law touches on the transaction or other matter (although in particular instances it may be necessary or prudent to engage such separate legal counsel). Subject to the overriding requirements that the lawyer may not be permanently based in a jurisdiction in which he or she is not admitted, and may not hold himself or herself out as admitted to practice in a jurisdiction in which he or she is not admitted, a lawyer who enters this jurisdiction to advise clients here and handle matters arising here involving issues of federal law, or involving issues of the law of several jurisdictions (domestic or foreign), does not thereby engage in the unauthorized practice of law in this jurisdiction.

[ ] Paragraph (b)(2)(v) recognizes that many of the things customarily done by lawyers in the course of the practice of law may also be done by non-lawyers without constituting the unauthorized practice of law. For example, lawyers and investment bankers both negotiate mergers and acquisitions, lawyers and accountants both prepare tax returns, lawyers and jury consultants both formulate trial strategy, lawyers and industrial relations consultants both run labor organization campaigns, and lawyers and environmental consultants both advise clients on the impact of federal and state air and water quality regulations. If done by a lawyer in the course of his or her practice, these activities clearly constitute the practice of law and are subject to all of the rules of professional conduct applicable to lawyers. Clients expect that when they obtain such services from a lawyer they will have the benefit of the lawyer's duty of confidentiality, the attorney-client privilege, and the lawyer's duty to avoid conflicting interests. But it would be anomalous to prohibit a lawyer from another jurisdiction, who neither bases his or her practice in this jurisdiction nor holds himself or herself out as admitted to practice in this jurisdiction, from doing things that any non-lawyer could do with impunity.

[ ] As used in this Rule, the term "organizational affiliate" of a party means any entity (whether corporation, partnership, limited liability company, or other form of business organization) that controls, is controlled by, or is under common control with the party.

Proposed Rule 8.5(a)

We support the concept in Proposed Rule 8.5(a) that a state or territory have jurisdiction to discipline a lawyer for misconduct in the jurisdiction, even though the lawyer has not been formally admitted there. Such a rule has worked well in the several states that have it, notably in Maryland.

A rule like Proposed Rule 8.5(a) is essential to the concept in Proposed Rule 5.5 and our suggested revisions thereto that, subject to certain limitations, work in a jurisdiction by an attorney duly admitted in another state or territory does not constitute the unauthorized practice of law. The state or territory in which the work is performed needs to be able to impose sanctions for lawyer misconduct occurring within its jurisdiction.

We appreciate the opportunity to submit comments and are available to meet with the Commission or your Reporter to respond to any questions.

Respectfully submitted,

Larry P. Scriggins, Chair
Ad Hoc Committee on Ethics 2000

  Drafting Group

Charles E. McCallum, Chair
Robert L. Berner
Richard E. Gutman
Herbert S. Wander

By____________________________

Charles E. McCallum

Members of the Ad Hoc Committee
on Ethics 2000:

Larry P. Scriggins, Chair
David Albenda
Harold S. Barron
Robert L. Berner, Jr.
Robert A. Creamer
Richard E. Gutman
Richard E. V. Harris
Dennis J. Lehr
Simon M. Lorne
Bruce A. Mann
Frank D. Mayer, Jr.
Charles E. McCallum
M. Peter Moser
Robert E. O'Malley
Richard M. Phillips
Marshall L. Small
A. A. Sommer, Jr.
Charles H. ("Hank") Still
Ann Yvonne Walker
Herbert S. Wander

504893v8

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