October 05, 2011


July 8, 1999

Dear Commissioners:

I have read your report with a combination of delight, disappointment and dismay. First, let me congratulate you for your endorsement and support for our profession's values -- core and otherwise. Your unwillingness to compromise our standards governing confidentiality, imputation of conflicts and our other ethical proscriptions is a testimonial to your recognition that our lawyer rules stand for important principles that deserve respect and vigilant enforcement. Lawyers are not just another set of service providers and your report makes that clear.

Second, let me tell you how disappointed I was to find nowhere in your report, except by implication, an acknowledgement and condemnation of the systematic civil disobedience in which the Big 5 accounting firms have engaged. Without their willingness to hire lawyers, to claim these lawyers are not practicing law, and to permit these lawyers to violate not only Rule 5.4, but our other important rules as well, this Commission would never have been formed, this crisis would not have been created and your unfortunate proposal would have never seen the light of day. And since your proposal, as badly flawed as it is, solves none of the Big 5's problems, I would have hoped this Commission would have been fearless enough to address this issue. As I read the report I came away totally disillusioned that, while you did not hesitate for a moment to find "client demand" where the evidence is really non-existent, you made no finding - when the evidence is so clear - regarding the violations of Rule 5.4 by lawyers employed by accounting firms. Indeed you ignore this issue entirely! As a result your report will be read as condonation of conduct of which you could not possibly approve, given your report's other recommendations.

Third, let me address your proposal itself. At the outset let me say that its content is the very best argument anyone could ever make why this is an exercise on which you should never have embarked. Preserving professional independence is not one of these values we can compromise. Your attempt to protect it, erecting an elaborate and unworkable new framework for MDP's while jettisoning the one rule that has preserved it so far, proves why the rules should be left in place. Knowing the blatant violations of professional independence that occurred when our colleagues at the bar became employees of the accounting firms, it absolutely amazes me that you were willing to engage in a purely speculative enterprise hoping against hope that this brave new world of MDP's that your Commission has constructed out of whole cloth could possibly prove effective in maintaining core values.

Now let me address the details. As I read your report, it envisions two legal constructs: an MDP controlled by lawyers and an MDP not controlled by lawyers. As to the former we have a certain level of regulation; as to the latter a bit more. But all of that MDP paraphernalia and your repetitive approval of the concept of sharing fees mask entirely the fundamental fact that your proposal contemplates a world in which Rule 5.4's prohibition lives on: lawyers don't share fees with non-lawyers because all of the fees go to non-lawyers!

Under your proposal lawyers could be employed in MDP's in which they have no ownership interest, hold no directorships or partnerships and fill none of the officer positions. Not one. And the bulwark against the loss of professional independence that is almost certain to occur when these mere employee lawyers are working for non-lawyers is the filing by the controlling non-lawyers of a certificate with the Supreme Courts of the various states in which these non-lawyers certify that procedures are in place to assure ethical compliance and professional independence. How would they know? Why would they care? And how will the Supreme Courts really find the time, energy or resources to police them, even with your filing fee requirement?

It is not without a touch of irony (an admittedly overworked phrase) that our C.P.A. brethren and sisters insist that their firms be controlled by C.P.A's (a great idea by the way that inspires confidence that they are doing their very important task objectively and competently), but that your Commission did not even think that to preserve our independence that these captive lawyers needed to own at least a controlling interest in the enterprise. What were you thinking?

This error gets compounded by the only other requirement of your so-called MDP: it must hold itself out as delivering another service. No requirement as to how many customers must receive this other service, how many people must deliver it or whether there must be any relationship between the legal and non-legal service side of the business. As I read it (maybe I am missing something), Merrill Lynch could set up a wholly-owned subsidiary, Merrill Lynch Law, register it as an MDP, hold itself out as an MDP, hire three thousand lawyer employees and ask one of those lawyers sometime during each year (decade?) to provide financial planning services to one Merrill Lynch law client. Is that really where we want our profession to go?

The proposal does, in fact, identify the profession's core values. But other than the idea of registering MDP's, the only other protection offered is a repeat in a special MDP rule of those values, with an added insistence that we really mean it. We really mean you should avoid conflicts of interest. We really mean you should preserve confidences. We really mean you should not limit liability for legal services. From all of this we should, take, I am afraid, little comfort. You see, we really meant it the first time we said it in Rules 1.6, 1.7, 1.8, 1.9 and 1.10, and we saw that those rules were systematically ignored in the Big 5 context.

I was also saddened that you fell into the trap of citing our brothers and sisters who work in-house as an apt analogy for why we should endorse MDP's and the sharing of fees. I hope the members of ACCA are appropriately insulted and outraged. As I pointed out in my earlier submission, the differences are profound and ones not of degree but of kind. These lawyers only have one client; they are paid by that client, not a third party; they experience no pressure to compromise their loyalty; indeed, with one client, they are by definition the most loyal of lawyers; and they never have to compromise confidentiality!

Recent events at the American Medical Association only reinforce how important it is we preserve independence by leaving Rule 5.4 intact. As I am sure you have read with as much interest as I, our physician colleagues have now authorized the AMA to form a labor union to protect the doctors' autonomy and independence, autonomy and independence they lost when they sold their practices to non-physicians years ago. With your proposal implemented it will only be a matter of time before the thousands of lawyers employed by Merrill Lynch Law (along with financial services) or the American Automobile Association (along with towing services) or Funeral Parlors of America (along with embalming and professional grieving) will be asking the ABA to form the ABA Union to protect their professional role, since they will own and control not one share of their employers' businesses.

Finally, as I've considered Rule 5.4's limitation on sharing of fees to preserve independence, it occurred to me this idea has an important analogue. Professors employed by universities and colleges, to protect their independence, have a holy shrine called tenure. It is received wisdom that academic freedom can only thrive if this guarantee of long tern employment is in place. The suggestion that tenure be abolished would be met with the greatest hue and cry, one that would not subside if university administrators simply signed a pledge with their State Supreme Courts that they would not interfere with the scholarly work product of their faculty. No, it would be argued, more than a pledge is required here to preserve this fragile value. So too, we should conclude, when it comes to lawyer independence.

The idea of tenure, of course, has no place in our profession because it would fly in the face of one of our core values - client autonomy. But not sharing fees has worked to preserve professional independence and should, like tenure, be left in place. Your unusual invention of a new entity, MDP, and total reliance on Supreme Court supervision of MDP's to preserve professional independence, while I am sure well-intentioned, should be given a respectful and prompt internment. Instead, your Commission should call on disciplinary officials to enforce Rule 5.4 and end the civil disobedience of the Big 5 that brought us to this sad juncture


Lawrence J. Fox