Testimony of Sydney M. Cone, III, March 1999 - Center for Professional Responsibility

March 8, 1999

Testimony of Sydney M. Cone, III
Counsel, Cleary, Gottlieb, Steen & Hamilton;
C.V. Starr Professor of Law, New York Law School
before the
American Bar Association Commission on Multi-disciplinary Practice
Washington, D.C., March 12, 1999

Contents Page
Introduction 2
Different Models for MDP 2
Model 5—The Fully-Integrated Model 3
(a) Law Firms and the Common Law of Legal Practice 3
(b) The Suggested Change of Focus to the Individual Lawyer 4
(i) Lawyer Competence 5
(ii) Attorney-Client Privilege 6
(c) The Imputation of Conflicts of Interest 6
(d) Fee-Sharing, Loyalty and the Independent Judgment of Lawyers 8
Models 2-4—Possible Forms of Accommodation 10
Model 2—The Command and Control Model 10
Model 3—The Ancillary Business Model 11
Model 4—The Contract Model 11
Model 1—The Cooperative Model 12
Conclusion 13
Sources 14


It is an honor to appear before you. The background of my comments is my 40 years with the firm of Cleary, Gottlieb, Steen & Hamilton, most of them as a partner. Geographically, I have been based in the firm’s New York office for over 25 years, in the firm’s Paris and Brussels offices for over 10 years, and in the firm’s Washington, D.C. office. During the past two-plus years, I have also been a law professor, as the first C.V. Starr Professor of Law at New York Law School.

One area to which I have devoted considerable time is the regulation of lawyers established and practicing outside their home jurisdictions. I was a member of the committee that drafted New York’s legal consultant rules in the early 1970s (rules that were the basis for the ABA rules adopted in 1993). I have worked with Steve Nelson and others, in the ABA and elsewhere, on the host-jurisdiction regulation of foreign lawyers. Also, I am the author of International Trade in Legal Services, published by Little, Brown in September 1996. This book provides a comprehensive review and analysis of cross-border legal practice in the principal legal centers found in North America, Europe (including Russia), and Asia (including Australia). A common theme guiding the analysis of multi-jurisdictional practice and multi-disciplinary practice is determining whether applicable rules in fact assure that legal services are performed by qualified lawyers trained as, and subject to discipline as, legal professionals.

Since as a lawyer I would find it difficult to begin without a definition, let me mention that herein "MDP," depending on the context, means either the concept of multi-disciplinary practice, or an entity or a group of entities engaging in multi-disciplinary practice, in each case where one of the disciplines is the practice of law.

Different Models for MDP

I shall discuss the five different models for MDP proposed by the Commission earlier this month. I shall begin with Model 5, the fully-integrated model, because, in my opinion, it raises the basic issues involved in analyzing MDP, and a discussion of the other four models can be dealt with efficiently once these basic issues have been examined in the context of Model 5.

On the basis of the analysis set out below, I have reached essentially two conclusions:

First, the proponents of Model 5 (the fully integrated model) underestimate the problems that its implementation would entail, and the exposition of those problems found below argues strongly for the rejection of Model 5.

Second, a case can be made for each of Models 1-4. The choice between any of Models 2-4 (possible ways to accommodate MDP) and Model 1 (retaining the status quo) depends in large part on the weight given to the claimed potential benefits of MDP and the weight given to existing rules governing the fiduciary relationship between lawyer and client.

Model 5—The Fully Integrated Model

Under Model 5, the rules governing legal practice would be amended to permit an MDP wholly owned (or majority-owned) and controlled by non-lawyers to function as a full-fledged provider of legal services. Among the leading advocates of this approach are the Big Five accounting firms. Their role in promoting this approach is described in section XV (pp. 69-72) of the January 8, 1999 report of a special committee of the New York State Bar Association, which you have received as a source of background information. In addition, you have received the February 4, 1999 statement of Kathryn Oberly of Ernst & Young, and I refer to it (the "E&Y Statement") as a basis for some of the comments made below. (I understand that representatives of other Big Five firms will be submitting statements to you, but I had not received them prior to preparing this paper.)

The E&Y Statement suggests an underestimation if not a misunderstanding of the rule changes that would be involved were MDPs controlled by non-lawyers to be authorized to function as full-fledged legal practitioners. These changes would involve not the ABA Model Rules of Professional Conduct as such (the rules referred to in the E&Y Statement and in your own description of Models 1-5). These changes would involve the rules actually in force in individual states and the common law of legal practice that gives meaning to those rules.

My discussion is based on the applicable provisions of the Judiciary Law of the State of New York, on New York’s Code of Professional Responsibility, and on New York’s common law of legal practice. I have not undertaken the major task of identifying every piece of New York legislation and every New York judicial rule and precedent that would be affected were MDPs to be permitted in New York. Rather, I have attempted to identify a few key issues, and to provide an indication of the scope of the changes that Model 5 would entail.

(a) Law Firms and the Common Law of Legal Practice

Before discussing particular rules, I would like to mention their setting, which I call the common law of legal practice. Here, I shall focus on practice by law firms. In the private practice of law, most lawyers practice in firms. Because the MDP would be a firm, the context in which firms practice is directly relevant. To a substantial extent, law-firm practice is carried out by teams; either the firm itself is the team, or the firm comprises a number of teams. Some teams consist entirely of lawyers; others consist of lawyers who are supported by non-lawyers. In either case, each team is under the leadership and direction of one or more lawyers, and the firm itself is under the leadership and direction of lawyers. The leadership of the firm and its teams is fundamentally rooted in the fact that the firm is owned and controlled by lawyers.

The fundamentals of ownership, control, leadership and direction by lawyers pervade the rules that govern legal practice by firms. Compliance with the rules is predicated on legal training and competence. It is the responsibility of the lawyers leading the firm to manage the on-going training of lawyers within the firm, and to assure that lawyers are assigned to handle legal matters that they are competent to handle.

Compliance with the rules that govern legal practice by firms is also predicated on an understanding of and commitment to the legal system and its role in society. It is the responsibility of the lawyers leading the firm to communicate that understanding and to foster that commitment—among other things, by maintaining standards of professional responsibility and seeing to it that the firm fulfills its pro bono obligations.

The rules governing legal practice are highly contextual. They lose their essential meaning if they are wrenched out of the common law of legal practice—if they are divorced from the predicate that firms practicing law will be owned, controlled, led and directed by lawyers. If one reads the New York Code of Professional Responsibility in the context of pertinent materials embodying the common law of legal practice, one can grasp the true significance of the Code, particularly as it relates to practice by law firms. If, however, one abandons our common law tradition and reads isolated Code provisions as if they were stand-alone dicta, one is unlikely to gain a useful appreciation of the essence of American legal professionalism as it applies to law firms.

For example, a mere reading of the Code does not suffice to establish the fiduciary nature of the relationship of attorney to client. New York case law, however, makes it abundantly clear that "an attorney stands in a fiduciary relationship to the client." See below under (d) Fee-Sharing, Loyalty and the Independent Judgment of Lawyers.

In brief outline, those are the relevant elements of the common law of legal practice.

With them as background, I turn to portions of the E&Y Statement.

(b) The Suggested Change of Focus to the Individual Lawyer

The E&Y Statement recognizes that if lawyers are to work in MDPs that are owned and controlled by non-lawyers, it will be necessary to change the rules governing legal practice. According to the E&Y Statement, the rule changes should "focus on the individual lawyer, rather than the organization in which the lawyer practices." The E&Y Statement justifies focusing on the individual lawyer, rather than the organization in which the lawyer practices, with the following sentence: "It is the individual lawyer who is obligated to satisfy the core values of the profession."

These observations represent a serious misunderstanding of legal professionalism as it applies to law firms. They fly in the face of New York statutory law which has been in effect for a century, and court decisions thereunder. In 1910, New York’s highest court, applying this legislative policy, located the profession’s core values not only in the individual lawyer but also in the organization in which the lawyer practices. Addressing the dangers to the public of permitting non-lawyers to own law firms, the court forbade such ownership in order to avoid "injury to the state."

The public responsibility of law firms and their owners is more than some old-fashioned idea. It is quite current, as illustrated by the recent trend in New York. This trend has been in exactly the opposite direction of that proposed by the E&Y Statement. The trend is to focus ever more closely on law firms as such—to place responsibility for professional conduct on law firms, not just on "the individual lawyer."

In May 1996, the Appellate Division in each New York judicial department amended the Code of Professional Responsibility by adding disciplinary rules that emphasize the responsibility of the law firm to ensure that all lawyers in the firm conform to the Code. The judiciary thus sought, first, to make it clear that it is the affirmative obligation of the law firm to require its attorneys to comply with the obligations of the Code and, second, to hold law firms responsible, where appropriate, by way of disciplinary sanction for violations of those obligations by the firm’s attorneys.

The purpose and background of the New York rules adopted in May 1996 can be found in a report, entitled Discipline of Law Firms, published in June 1993 in The Record of the Association of the Bar of the City of New York. Calling for "[m]ore emphasis on law firm (as distinct from individual lawyer) responsibility" (emphasis in the original), this report sets out seven reasons for subjecting law-firm conduct to the Code’s disciplinary rules. Briefly, they are:

(1) to provide "an important incentive to improve firm-wide compliance with ethical norms";

(2) to further the model of firm self-governance in order to police ethical violations;

(3) to recognize the realities of the modern practice environment within law firms as regards joint responsibility and supervision;

(4) to make the firm (as distinguished from individual lawyers) responsible for the firm’s non-lawyer employees;

(5) to deal with issues of responsibility when legal work is performed by teams;

(6) to hold the firm responsible for an ethical breach when no individual lawyer is clearly responsible; and

(7) to address organizational problems at the level of the firm and not at the level of the individual lawyer.

The New York City Bar report identified problems of modern legal practice, and recognized that they could be solved only by focusing on law firms as distinguished from individual lawyers. The courts of New York modified the New York Code along the lines recommended by the City Bar report. In contrast, under the E&Y Statement (which would focus on the individual lawyer and not on the law firm), the solution to these problems of modern legal practice would be to leave them unsolved and not susceptible of solution. It would pretend that an MDP would somehow be immune from these problems. A more realistic approach—one far more likely to enable the legal profession to discharge its responsibilities to the legal system and the public—would be to require that firms offering legal services to the public be owned and controlled by lawyers subject to rules like those in New York’s Code of Professional Responsibility. Many examples might be given. I shall mention two.

(i) Lawyer Competence

A disciplinary rule prohibits lawyers from handling legal matters that they are not competent to handle. The same rule forbids lawyers to handle legal matters "without preparation adequate in the circumstances." When lawyers practice in firms and in teams, this rule finds functional meaning when the firms and teams are controlled, managed and led by lawyers whose reputation and standing depend upon their ability to judge legal competence. Judging legal competence is uniquely the role of legal professionals. The competence/adequate preparation rule would be eviscerated if it were carried out in a context where lawyers were not ultimately responsible for judging legal competence, for requiring adequate preparation to handle legal matters, and for controlling the process that assures the results. This is not the isolated responsibility of "the individual lawyer" but the responsibility of the team and the firm of lawyers charged with providing competent legal services.

(ii) Attorney-Client Privilege

Another example relates to the attorney-client privilege. In analyzing attorney-client privilege in the context of proposed MDP, the E&Y Statement makes the following assertion: "The attorney-client privilege runs between the individual lawyer and the client, not the law firm and the client." This is a surprising misreading of privilege. Surprising because one of the many occasions when privilege is the responsibility of the law firm and not "the individual lawyer" is when the firm prepares a response to an auditor’s request for information. The request may present complex issues relating to privilege. The client in question will be a client not of "the individual lawyer" but of the firm. The response to the auditor’s request will typically be signed not on behalf of "the individual lawyer" but on behalf of the entire firm. Lawyers throughout the firm may actually be aware of, or have been consulted in respect of, privileged communications relevant to the firm’s response, as well as the drafting of the response itself.

Any attempt at this evolved stage of firm-client relations to reduce the matter of privilege to "the individual lawyer" is both to ignore reality and to put the privilege at risk. More often than not, privilege is not the fragmented responsibility of isolated individuals, but the collective responsibility of firms of lawyers that discharge their responsibility under the leadership of owner-managers who themselves are lawyers formed under the common law of legal practice. Transferring responsibility from the firm to "the individual lawyer" would enable MDP to become a device for effectively destroying the privilege, first by exonerating firms from honoring it, and second by encouraging individual lawyers to put on blinders taking the overall work of the firm out of their field of vision.

(c) The Imputation of Conflicts of Interest

The E&Y Statement asserts that "the time has come for the bar to re-examine and alter ... the rule governing imputation of conflicts [of interest]." The E&Y Statement then refers to the problem a law firm may have when it is "faced with conflicts [of interest] from matters ... serviced by lawyers in offices around the country and even around the world." As regards conflicts of interest in MDPs, the E&Y Statement makes the following observation: "Changing the imputation rules, and creating firewalls between the engagement teams, would establish rules that all professionals could accept." Thus, the E&Y Statement invokes difficulties that a large law firm allegedly faces (and, by extension, that an MDP would allegedly face) in staying abreast of potential conflicts of interest "in offices around the country and even around the world." The E&Y Statement then calls for changes in the bar rules that impute conflicts of interest to all lawyers in a law firm (and, by extension, in an MDP), and suggests that "firewalls" are the solution to conflicts of interest within an MDP. Let me take up these points in order.

Many large law firms have in place technologically advanced information systems that alert every partner in the firm instantaneously of potential conflicts of interest. Typically, notices of potential conflicts appear on the computer screens of all partners several times a day. It is therefore not the case that multiple offices in multiple jurisdictions present an information problem. Indeed, modern technology makes it easier to deal quickly with potential conflicts than used to be the case in firms of modest dimensions. The use of this technology by law firms is mandated by the New York Code of Professional Responsibility, pursuant to a disciplinary rule that was adopted in May 1996.

In New York, the imputation rule and the possible alternative of "firewalls" have been the subject of considerable case law and commentary. I quote from Professor Roy Simon’s Annotated New York Code (p. 242, 1998 ed.):

The text [of the imputation rule] says nothing about "Chinese Walls" or "screens" or "firewalls" that can separate disqualified lawyers from the rest of the firm. .... In New York, Chinese Walls generally do not cure conflicts, but the courts have not drawn a bright line. Courts employ a case-by-case analysis and have allowed Chinese Walls to cure conflicts in certain unusual circumstances.

The three major arguments against screens are: (1) lawyers cannot be trusted to act against their own financial and social interests by keeping useful information from their partners and associates; (2) even if attorneys can be trusted, inadvertent disclosures cannot be prevented; and therefore (3) clients will be less candid with their lawyers if they know that one day their lawyer may move to the enemy camp.... These arguments are powerful. ....

The foregoing can be illustrated by quoting from a 1995 New York case, Trustco Bank New York v. Melino, where the court ruled as follows:

What [the law firm’s] proposal for a quarantine, or an impermeable "Chinese Wall" as characterized by them, amounts to, is a total abandonment of the irrebutable presumption rule and a substitution therefor of a "trust me" rule. This is unacceptable. The policy considerations that gave rise to the irrebutable presumption rule in the first place are of an order too important to be safeguarded by a "trust me" rule, however good-intentioned [the law firm] may be. These policy considerations are, indeed, the very essence of the attorney client privilege. ....

While attorney Smith remains at [the law firm], the maintenance of the Chinese Wall would require periodic hearings to assure the wall was not being breached. In effect, what this means is that the parapets of the Chinese Wall would have to be manned by the judiciary, and the judiciary does not have sufficient resources to take on this added duty. Nor is the impermeability of a Chinese Wall an attainable concept. Even the original "impermeable" Chinese Wall was overrun by barbarians.

In a couple of recent cases that may be pertinent to conflicts of interest in an MDP, the arguments against firewalls prevailed. One is Prince Jefri Bolkiah v. KPMG, decided by the British House of Lords on December 18, 1998. The Lords found that the "Chinese Wall" employed by an accounting firm was not a solution to the fact that the accounting firm had possession of confidential information of a prior client and was rendering services to another client adverse to the prior client.

The other case, Koulisis v. Rivers, was decided by a Florida state court on January 6 of this year. It disqualified a law firm from acting for a client in a situation where it hired a non-lawyer who was privy to confidential information relating to the party adverse to the client being represented by the law firm. According to the Florida court, the building of "a wall of isolation around the employee" did not serve to prevent the imputation of this information to the firm. The court said that disqualification of the firm was necessary in order to preserve the integrity of a fair adversary system.

The imputation rule is not some recent inconvenience. It has been applicable to the legal profession for a long time, and many large law firms deal with the rule successfully. Given the history of the imputation rule and recent trends in enforcing it, and given the rules (discussed above) recently adopted in New York requiring firms to be held responsible as firms and not as aggregations of individuals, I would suggest that there is substantial reason for conflicts of interest, now imputed to law firms as firms, to be imputed to MDPs as MDPs; and I do not think that arguments along the line of the E&Y Statement provide a persuasive basis for treating an MDP differently from the way that New York now treats law firms.

If the Commission were, nonetheless, to contemplate so fundamental a change as relaxing or abandoning the imputation rule, I think it should not reach a decision until after it has analyzed the rule in practical, functional terms and, more important, in terms of its benefits to the legal system and the public.

(d) Fee-Sharing, Loyalty and the Independent Judgment of Lawyers

The E&Y Statement says that rules forbidding lawyers to share fees with non-lawyers should be changed. This observation seems to rest on the conclusory reasoning that these rules might stand in the way of an MDP controlled by non-lawyers. And well they might. Fee-sharing has been forbidden as being inconsistent with the duty of loyalty imposed upon lawyers. Thus, a law firm may not withdraw from the representation of a client if to do so would prejudice the interests of the client. This kind of obligation is not imposed on other professions, which may help explain why the E&Y Statement hardly does it justice.

The purpose of the rules against fee-sharing is to safeguard the independent judgment of the lawyer in the context of the fiduciary relationship between lawyer and client. Here, the courts in New York have rigorously enforced the highest of standards. A 1997 decision by the United States District Court for the Southern District of New York, in refusing to dismiss a claim that a law firm had breached its fiduciary duty to a client, summarized New York’s standards, as found in the common law of legal practice, as follows:

"[A]n attorney stands in a fiduciary relationship to the client." .... "[T]he attorney-client relationship requires an extraordinary degree of trust". .... "This unique fiduciary reliance, stemming from people hiring attorneys to exercise professional judgment ... is imbued with ultimate trust and confidence. The attorney’s obligations, therefore, transcend those prevailing in the commercial market place. The duty to deal fairly, honestly and with undivided loyalty superimposes on the attorney client relationship a set of special and unique duties, including maintaining confidentiality, avoiding conflicts of interest, operating competently, ... and honoring the client’s interests over the lawyer’s." .... "[C]lients must be able to maintain extraordinary confidence in their attorneys, and attorneys must be unyielding in representing their clients with undivided loyalty." .... "The unique nature of the attorney client relationship requires that attorneys be sensitive not only to obvious conflicts, but also to forces that might operate upon them subtly in a manner likely to diminish the quality of their work." .... "[T]he lawyer may not place himself in a position where a conflicting interest may, even inadvertently, affect, or give the appearance of affecting, the obligations of the professional relationship." .... "The obligation of a lawyer to exercise professional judgment solely on behalf of his client requires that he disregard the desires of others that might impair his free judgment. The desires of a third person will seldom adversely affect a lawyer unless that person is in a position to exert strong economic, political, or social pressures upon the lawyer. These influences are often subtle, and a lawyer must be alert to their existence."

In contrast to the "subtle" influences referred to in the case there before the court, influences on lawyers practicing within an MDP might be the opposite of "subtle" if exercised by non-lawyer owner-managers who did not owe the lawyers’ fiduciary duty to the client—and, indeed, might have rather different objectives.

A more general concern regarding independence is that MDPs owned and managed by non-lawyers might impair the societal benefits that an independent bar provides when it upholds the integrity of the legal system, acts to preserve individual liberty against governmental oppression, and performs legal work pro bono publico. These aspects of independence are examined in the report, referred to above, of a special committee of the New York State Bar Association, §VIII (pp. 23-26).

On a more mundane level, I would add the suggestion that the sharing of fees, if permitted, would be unlikely to have a material effect on the billing of clients. When I go to a shopping mall to get a haircut, eat a hamburger, and buy a dishwasher, I expect to be billed for each as a separate good or service. Clients for legal services are no different. Today’s reality is that clients are interested in minimizing legal fees. In all likelihood, MDP or no MDP, they are going to insist on being billed for legal services as such. And to want to know who provided the legal services and what they did. A bill reading, "For MDP services rendered during the period January through March---- x dollars," might well be found risible, and the claimed billing benefits of changing the rules forbidding fee-splitting may prove to be illusory.

Models 2-4—Possible Forms of Accommodation

If this Commission concludes that, within and without the legal profession, there is sufficient well-grounded support for MDP to justify an effort at accommodation and to outweigh the arguments for Model 1, the following three approaches might be considered.

Either of Models 2 and 3 would permit non-lawyers to acquire ownership interests in law firms offering professional services to the public, but would assure that, in each case, effective management and professional control would reside in members of the legal profession. Model 4 would permit contractual associations between lawyers and non-lawyers. Thus, under each of these three approaches the creation of MDP would be permitted. At the same time, maintaining the professional standards of the legal profession would remain the responsibility of legal professionals, who would be in a position of control enabling them to discharge that responsibility.

Model 2—The Command and Control Model

Model 2 is based on Rule 5.4 of the District of Columbia Rules of Professional Conduct. Under this model, the MDP must have "as its sole purpose providing legal services to clients"; all owners are bound by the rules of professional conduct applicable to lawyers; and the lawyer-owners/lawyer-managers of the MDP are "responsible for the nonlawyer participants to the same extent as if [the latter] were lawyers". The rules for this approach are relatively simple because, here, members of the legal profession and their non-lawyer partners or co-owners remain within the familiar territory of "providing legal services to clients". In contrast, when the MDP is permitted to provide additional services, more extensive rule-making becomes necessary.

Model 3—The Ancillary Business Model

The Model 3 MDP might be permitted to offer legal and other services to the public if it were both majority-owned and managerially controlled by members of the bar. Effective ownership and control by lawyers could solve the vexing problems discussed under Model 5 above, because the lawyers owning and managing the MDP, and hence the MDP itself, would be in a position to carry out their responsibilities under the rules governing lawyers and law firms. In particular, the lawyers owning and managing the MDP would be in a position to see to it that:

  • the MDP as a law firm ensured that all lawyers in the firm complied with proper standards of legal service and professionalism;
  • information protected by the attorney-client privilege was treated properly;
  • potential conflicts of interest were handled properly;
  • a lawyer weighing matters involving professional judgment would not be subject to control by non-lawyers in the firm; and
  • one or more lawyers within the MDP were responsible for on-going legal training.

It would seem important that each individual member of the MDP be independent from—not be subject to control by—entities outside the MDP with which the MDP was collaborating in rendering services to the public. Were a non-lawyer member of the MDP also a member of such an outside entity, then the lawyer members might not in reality be in control of the MDP. Thus, the rules governing control of the MDP should be drafted with the problem of "Trojan horse" non-lawyer members of the MDP in mind. More generally, these rules should take account of the economic relationship between lawyers and non-lawyers in the MDP, so that the form of an arrangement reflects the substance of the underlying relationship, including the benefits that are in fact being sought by the non-lawyers in the MDP.

The rules for the Model 3 MDP would, however, involve further complications. If it were not restricted to "legal services," just what types of additional services could it provide? How would the ABA or, more likely, a state bar group go about answering this question (either initially or from time to time)? Who would be responsible for the professional conduct of non-lawyers within the MDP, and on what basis? Who would be responsible for resolving inconsistent professional rules? Is there not inherent in the Model 3 MDP the risk that members of the public claiming professional misconduct would lack an effective forum for their grievances? These are important questions. They are not easy questions, and part of the attraction of Model 4, next discussed, is that it effectively avoids them.

Model 4—The Contract Model

The attributes of an MDP might be sought not within an entity so labeled, but by means of an association where an individual legal practitioner or a law firm, wholly owned and controlled by members of the bar, would by agreement associate itself with, and from time to time co-ordinate its professional activities with, a professional entity that was not a law firm. Such an association might resemble the association described to the Commission by Neil Cochran between his law firm, Dundas & Wilson, and Andersen Worldwide. Thus, the law firm in the association would be wholly owned and managed by lawyers, and the attributes of legal practice by law firms, mentioned above, might be readily assured.

Even so, this approach raises the question of just what would and would not be permitted in the agreement between the law firm and the entity with which it was associating. Hans-Jürgen Hellwig of the Deutscher Anwaltverein, in his presentation to the Commission, was, I thought, quite helpful in warning of the manifold ways that a law firm might be contractually controlled in a manner that would be inconsistent with appropriate standards of legal professionalism. It might prove necessary to try to draft bright-line rules as to permissible and impermissible contractual arrangements. As alluded to above, I would find it highly suspect if an association between a law firm and another entity were coupled with an ownership interest or managerial role in the law firm on the part of that other entity. Another difficult set of issues is whether, and if so on what basis, the law firm and the other entity would be permitted to bill their services jointly, or share fees, or share profits (issues referred to under 5(d) above).

Model 1—The Cooperative Model

As I understand Model 1, no changes would be made in existing rules governing the practice of law. The argument for making no changes is threefold:

One , as discussed above, the required changes to existing rules governing the practice of law could be extensive and, from the standpoint of society at large, could involve adverse consequences.

Two , these rules are grounded in generations of experience, and they have been updated to reflect today’s realities. They deal with the serious matter of rendering personal services in the context of the fiduciary relationship between lawyer and client. In New York, the statutory and judicial rules and decisions explicating the duties of lawyers and law firms to the public, the legal system and the profession have evolved in the course of the past century, and the accumulated jurisprudence commands respect. This jurisprudence should not be dismantled in reaction to railway metaphors or promotional slogans like "one-stop shopping." Nor should it be diluted at the behest of those members of the legal profession who would seize upon MDP as a pretext for lowering the standards of professionalism to which they are held.

Three , the claim that MDP will provide less costly services than would otherwise be available should be viewed with considerable skepticism. One might ask what the long-term consequences for the cost of legal services would be were MDPs to come to dominate legal practice. Indeed, it does not seem altogether unreasonable to question whether the proponents of MDP, including those proficient in financial calculation and analysis, are acting without regard to their own prospects for revenues and profits.

In summary, the argument for making no changes, based as it is on time-tested standards of legal professionalism, has considerable merit.


The foregoing analysis leads to one principal conclusion: when legal services are rendered by firms to members of the public, they should be rendered by firms that are owned, controlled, managed and led by lawyers. This conclusion is grounded in the experience that informs the rules governing legal professionalism, experience that I have called the common law of legal practice. To ignore this experience is to ignore the essential elements of, and current trends in the evolution of, rules governing the fiduciary relationships of law firms and clients.

These are not arbitrary rules to be lightly discarded because someone would find it convenient or opportune to do so. They are rules reflecting substantial legislative, judicial and professional experience with

  • the on-going training of lawyers,
  • making sure that lawyers handle matters that they are competent to handle,
  • providing legal services pro bono publico,
  • attorney-client privilege,
  • conflicts of interest,
  • the exercise of independent judgment by legal professionals and their duty of loyalty to clients.

It may be possible to find an accommodation whereby these critical matters can be properly dealt with and some form of MDP can be permitted. I conclude, however, that these matters can be properly dealt with in a firm offering legal services to the public only if those services are the direct and ultimate responsibility of lawyers whose positions of ownership and control within the firm permit them to discharge that responsibility in a manner consonant with the greater responsibility that members of the bar have toward our legal system.


The following citations do not include (1) sources fully cited in the text or (2) materials that have been delivered to or prepared by the Commission. Each citation is listed below only once, at the principal place where it is relevant to the text. New York is abbreviated "N.Y.".

Introduction -- On qualified lawyers trained as, etc., see Opinion 646 - 6/8/93 (49-92) of the Committee on Professional Ethics of the N.Y. State Bar Ass’n.

Model 5 - N. Y. Judiciary Code and Code of Professional Responsibility are found in Book 29, McKinney’s Consolidated Laws of New York - Annotated (1983, 1992 + 1999 Cumulative Pocket Part) (West Publishing Co.).

(b) The Suggested Change of Focus to the Individual Lawyer. See N.Y. Judiciary Code §495. The 1910 decision is In re Co-operative Law Co., 198 N.Y. 479, 484 (N.Y. Ct. App.).

Text and analysis of the May 1996 amendments to N.Y. Code of Professional Responsiblity are found on pp. 1 and 4 of the New York Law Journal, June 4, 1996. See esp. new N.Y. Disciplinary Rules 1-104(a) and 5-105(e). See also McKinney’s 1999 Cumulative Pocket Part.

(i) Lawyer Competence. N.Y. Disciplinary Rule 6-101.

(ii) Attorney-Client Privilege. N.Y. Disciplinary Rule 4-101.

(c) The Imputation of Conflicts of Interest. The conflict-of-interest rule is N.Y. Disciplinary Rule 5-105; the imputation rule is part (D) thereof; the use of technology is mandated by part (E) thereof.

Simon’s New York Code of Professional Responsibility - Annotated is published by West Group.

The Trustco Bank case is at 625 N.Y.S.2d 803, 808 (Sup.Ct. Albany County).

House of Lords Opinions of the Lords of Appeal for Judgment in the Cause Prince Jefri Bolkiah (Appellant) v. K.P.M.G. (A Firm) (Respondents) Oral Judgment: 18 November 1998 Reasons: 18 December 1998 Lord Browne-Wilkinson, Lord Hope of Craighead, Lord Clyde, Lord Hutton, Lord Millett.

Florida Dist. Ct. App. 4th Dist., No. 98-1043, reported in ABA/BNA Lawyers’ Manual of Professional Conduct, 2/17/99, pp. 27-28.

(d) Fee Sharing, Loyalty and the Independent Judgment of Lawyers. See N.Y. Disciplinary Rules 3-101 through 3-103, and 5-101 through 5-110.

The 1997 decision is Estate of Joseph Re v. Kornstein, Veisz & Wexler, 958 F.Supp. 907, 924-29 (S.D.N.Y.).