Comments of the American Antitrust Institute
Recommendations of the ABA Commission
July 23, 1999
The American Antitrust Institute provided a written statement to the ABA Commission on Multidisciplinary Practice (MDP) on April 6, 1999, supporting on antitrust grounds the general direction of making it possible for consumers to engage in one-stop shopping for professional services.
From our perspective, the Report to the House of Delegates of the ABA Commission on Multidisciplinary Practice (MDP) moves the debate forward in some commendable ways. Recognizing that the MDP concept is supported by consumer groups and small and solo practice law firms as well as some larger law firms and accounting firms, it agrees that the old restraints on sharing legal fees with a non-lawyer need to be relaxed. The Report also recognizes that any relaxation must be accompanied by rules to protect the core values of the legal profession.
All of this is well and good. However, the Report also contains certain restrictions that unduly constrain the emergence of MDP’s. The result is to take back in practice most of what was given in the abstract. Indeed, we are concerned that the recommendations could have the net effect of extending the Bar’s monopoly rather than providing the range of new options apparently desired by consumers.
We have three primary concerns. First, by applying the rules of professional conduct to an entire MDP, rather than to the subentity that contains lawyers engaged in the practice of law, the recommendations over-reach and make it impractical for MDP’s to exist unless they are controlled by lawyers.
Second, by defining a lawyer as one whose services would constitute the practice of law if provided by a lawyer in a law firm, the recommendations create a broad expansion of the profession’s ability to restrain its competitors.
And, third, by prohibiting equity investments by outsiders, the recommendations arbitrarily restrict entry into the MDP market.
- Applying the Rules to the Entire MDP Rather Than to the Lawyers within the MDP Creates an Unreasonable Competitive Advantage for Law Firms over MDP’s.
Principle 7. All rules of professional conduct that apply to a law firm should also apply to an MDP.
Principle 8. In connection with the delivery of legal services, all clients of an MDP should be treated as the lawyer’s clients for purposes of conflicts of interest and imputation in the same manner as if the MDP were a law firm and all employees, partners, shareholders or the like were lawyers.
The Recommendations establish two different kinds of MDPs, those controlled by lawyers and those not controlled by lawyers. The latter category, but not the former, would be subjected to a regime of undertakings and audits paid for by annual fees. It is by no means clear that such a distinction, which places the non-lawyer MDP’s at a competitive disadvantage, has a valid justification. Moreover, the Bar through these Recommendations is imperialistically asserting jurisdiction over entities that contain non-lawyers, saying that its rules will (to the extent there is any conflict) supersede the professional rules that apply to accountants, architects, engineers, economists, or other professionals. The likely effect of this assertion will be to persuade other professionals not to organize in an MDP.
Let us explore the practical ramifications of imputing the lawyer’s conflicts to the entire firm. First, if lawyers’ rules govern the MDP firm, all matters are imputed once one lawyer is involved in any matter. This would lead to a large-scale dependence on waivers or, if clients won’t waive their rights against conflicts, the departure of clients. Here is how we believe it will work in an MDP dominated by accountants:
Law Firm and Accounting Firm have merged to create an MDP. Prior to the merger, Law Firm represented clients A and B, which came to stand in an adversarial relationship with respect to one matter. Law Firm could only represent either A or B in the adversarial cause, but could continue to represent both clients in other matters if both had full disclosure of the relationship and consented. It could not represent both clients in the conflicted matter, even with consents.
Prior to the merger, Accounting Firm also serviced both A and B. Under accountants’ standards, the firm can represent both A and B, but must build an internal firewall around each, to protect confidentiality. If A and B enter an adversarial relationship, Accounting Firm can continue to service both, even with respect to the contested matter, if both consent, with firewalls in place.
After the merger, under the MDP recommendations, Law Firm’s conflict will be imputed to the whole MDP and legal rules will govern, with the result that if A and B do not both agree to waivers for the lawyers, not only will MDP lose legal business of one of the clients, but Accounting Firm will not be permitted to continue to represent both A and B, even if A and B are willing to give waivers to the accountants.
If this interpretation is correct, then accountants stand to lose what may amount to significant business by coming under lawyers’ standards. In effect, the Commission’s recommendations create a competitive advantage for law firms vis a vis MDP’s. From a competition policy perspective, the question is whether the public can reasonably be protected by a less restrictive standard. The answer is, yes. Principle 7 should be changed so that applicability would be limited to the lawyers employed by an MDP.
By focusing its standards on the lawyers within the MDP, the Bar can avoid imposing its rules on other professionals. The main issue presented is whether lawyer-recognized conflicts of interest must be imputed to the non-lawyers of the overall MDP firm. We see no justification for saying that other professionals within the firm need to stop servicing a client, just because the lawyers can only represent one client in a conflict. It is the other professions that need to determine the existence or not of a conflict involving their own members and the means for dealing with a conflict, insofar as they are providing non-legal services.
In the case of an accountant-led MDP, in our example, the primary conflict issue would occur when A and B cannot both be represented by the MDP’s lawyers, but wish to continue to be represented by the accountants. Why not leave that decision to the clients to make, upon being presented with disclosure of the circumstances?
- Too Broad a Definition of "Lawyer" May Leverage the Bar’s Monopoly Power into Non-Legal Markets.
The Recommendations include a very broad definition of "lawyer" and "legal services" in the MDP context:
Principle 11. A lawyer in an MDP should not represent to the public generally or to a specific client that services the lawyer provides are not legal services if those same services would constitute the practice of law if provided by a lawyer in a law firm. Such a representation would presumptively constitute a material misrepresentation of fact.
The questions raised are (1) whether a non-lawyer who engages in services that can be offered by a law firm should be subject to Bar regulation; and (2) whether an individual who has earned a law degree (whether or not a member of the Bar) and who is employed by an MDP is necessarily a lawyer, for purposes of being regulated by the Bar.
We have no general problem with a "holding out" test that restricts non-licensed individuals from representing the public in legal matters. We believe, however, that it goes too far to say that the mere provision of services, which (somewhere, sometime) can be provided by a lawyer in a law firm, presumptively constitutes holding out. What this does is to bring under the Bar’s umbrella of control all sorts of activities that can legally (and appropriately) be performed by non-law firm competitors. There is a real risk, as well, that this new definition will have legs that will carry it into the arena of the unauthorized practice of law.
Thus, if a person currently works for a realty firm as a realtor, and without otherwise holding himself out to be a lawyer, engages in residential closings (an act that can be performed by lawyers in a law firm), the realty firm itself may be transformed into an MDP subject to the Commission’s regulatory regime. Moreover, although the person’s conduct would today (in most states) not be illegal, courts might apply the new expanded definition with the effect of expanding the realm of UPL, a development rife with anticompetitive implications.
If our suggestion were accepted and the Recommendations were only to apply to lawyers within an MDP, part of this problem would be eliminated, because the non-lawyers would no longer be endangered. But there would still be a question of whether all persons in the MDP having a law degree would be deemed part of the lawyers’ subentity. We would deal with this by saying that an employee of the MDP who has a law degree could be placed outside of the lawyers’ subentity by having a formal job description which precludes holding out to clients of the MDP that the person’s responsibilities include acting as an attorney.
III. The Prohibition on Passive Investors Arbitrarily Reduces Consumer Choice.
The Recommendations continue the Bar’s preclusion of outside investment in a law firm:
Principle 12. A lawyer should not share legal fees with a nonlawyer or form a partnership or other entity with a nonlawyer if any of the activities of the partnership or other entity consist of the practice of law except that a lawyer in an MDP controlled by lawyers should be permitted to do so and a lawyer in an MDP not controlled by lawyers should be permitted to do so subject to safeguards similar to those identified in paragraph 14 [which relates to an MDP’s written undertaking submitted to court].
Principle 13. Allowing fee-sharing and ownership interest in an MDP does not change the rules of professional conduct prohibiting fee-sharing and partnership in any other respect, including the current provisions limiting the holding of equity investments in any entity or organization providing legal services.
But the MDP will be a new type of institution, and old rules should not automatically apply. Taken together, these Recommendations substantially reduce the range of companies that could provide consumer services. For example, they preclude the tax preparation services offered by H & R Block, the personal financial services offered by American Express, the banking services provided by Citibank, and the real estate services provided by Century 21. All of these companies are publicly owned or have equity shareholders, hence could not offer any "legal services" as that term is now broadly defined by the Commission. And, of course, they could not employ lawyers to provide these services.
We believe that these restrictions are arbitrary and anti-competitive, unnecessarily limiting consumer choice. Once it is agreed that there can be MDP’s, in which lawyers can be employed within a firm that may be controlled by non-lawyers, the sources of capital for the MDP are essentially irrelevant.
The Commission developed a record showing good cause to allow fee-sharing. It set forth a commendable rationale of responding to the "interest by clients in the option to select and use lawyers who deliver legal services as part of a multidisciplinary practice." Unfortunately, the Commission then proposed a regulatory regime that will, in fact, restrict consumer choice. We have focused on three aspects of the Recommendations which we believe must be modified in order for the Report to succeed in its stated purpose, and which are necessary in order to avoid anticompetitive results.
Some may hold the opinion that the antitrust laws do not apply to the ABA under these circumstances, because any anticompetitive results will ultimately be the result of state actions (see Parker v. Brown, 317 U.S. 341 (1043), MSL at Andover, Inc. v. American Bar Ass'n, 107 F.3rd 1026 (3rd Cir. 1997)) and efforts to obtain state actions will be protected by the First Amendment (see Eastern R.R. Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127 (1961) and United Mine Workers v. Pennington, 381 U.S. 657 (1965)). We suggest that the ABA's adoption of the Recommendations, without amendment to reduce the anticompetitive aspects, might instead come under the Supreme Court's opinion in Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492 (1988), holding that a standard created by an association may in itself have marketplace effects which are actionable. (See footnote 8 of MSL at Andover, Inc. v. American Bar Ass'n, 107 F3rd 1026, 1036 (1997.) Given the enormous influence of the ABA's Model Rules, one can predict that the adoption of the Recommendations will impose a substantial chilling impact on the market for professional services long before states take action to adopt and quite apart from the lobbying process. It should not be taken for granted that Noerr-Pennington will protect the ABA from an antitrust challenge. Regardless of the legal issue, as a matter of policy, we urge the ABA to act in a manner that is consistent with our national and state antitrust laws.
Albert A. Foer, President
American Antitrust Institute