October 05, 2011

Letter from Robert W. Gordon - Center for Professional Responsibility

May 21, 1999

Sherwin P. Simmons, Esq.,Chair
American Bar Association Commission on Multidisciplinary Practice
541 North Fairbanks Court
Chicago, Illinois 60611

Dear Mr. Simmons:

I understand that the Commission on Mulitidisciplinary Practice, which you chair, is studying how to assure that any changes in current legal practice remain consistent with the protection of the public interest, and in particular, how a lawyer's independent professional judgment could be preserved if lawyers were allowed to enter into partnerships or other fee-sharing arrangements with non-lawyers. To that end, you have heard a number of witnesses argue that such fee-sharing arrangements will threaten a lawyer's exercise of independent professional judgment. I believe that these concerns are exaggerated or, at best, unsubstantiated, and I have written this letter to share with the Commission the basis for my conclusion.

Let me start with a brief description of my professional background and relevant qualifications. I am presently the Fred A. Johnston Professor of Law at Yale Law School, and am also a professor of history at Yale University. I graduated from Harvard Law School in 1971. From 1972 to 1977, I was on the faculty of the State University of New York at Buffalo Law School; and then from 1977 to 1983, of the University of Wisconsin Law School. In 1983 I became a professor of law at Stanford, where I remained until I moved to Yale in 1995. I have also taught at the Harvard and Oxford Law Schools as a visitor. I have served as a director of the American Society for Legal History and the Law & Society Association; as a member of a special task force on ethics of the Litigation Section of the American Bar Association; and am currently on the Advisory Board of the Legal Profession program of the Open Society Institute (Soros Foundation). I have been writing about the history and current condition of the legal profession for 20 years; and have a special interest in the issue of lawyers' independence: see my articles on "Corporate Law Practice as a Public Calling," 49 Maryland L. Rev. 255 (1990), "The Independence of Lawyers," 68 B.U. L. Rev. 1 (1988), and "'The Ideal and the Actual in the Law': Fantasies and Practices of New York City Lawyers, 1870-1910," which appeared in The New High Priests: Lawyers in Post-Civil War America (G. Gawalt, ed. 1984). Finally, I am in process of finishing a book, based on Holmes Lectures I gave at Harvard Law School, on the history of law as a "public profession", that is, a profession in which lawyers are supposed to serve the interests of the republic and its legal system as well as the interests of their clients.

Multidisciplinary Practice and Lawyer Independence

Our profession is evidently undergoing a major revolution in the organization and delivery of legal services. Among the forces driving these changes is the fact that clients small and large are increasingly demanding access to an entire array of affordable professional services from a single professional provider. 1 Despite such demand, lawyers in the United States are generally foreclosed from joining forces with non-lawyers by operation of ethical rules such as Model Rule 5.4, which bars a lawyer from sharing fees with a non-lawyer. The chief concern of those who support the continued survival of Rule 5.4, and oppose multidisciplinary firms, is that, in an effort to maximize profits, a non-lawyer might improperly influence the independent professional judgment of a lawyer.

I am in complete agreement with what I take to be the basic premises of the critics of multi-disciplinary practices: that it is important that lawyers exercise independent professional judgment (in ways that I will try to spell out more specifically below); and that there are legitimate reasons to be concerned about market pressures and organizational incentives that are likely to compromise a lawyer's independent judgment. But I also believe, and will try to support this assertion in some detail, that the study of the recent history of the legal profession and of the organized bar's initiatives to protect lawyers' independence, make it necessary to address two fundamental questions about these B and indeed any other -- proposed changes in modes of practice and the rules regulating them:

First: Any and all forms of professional practice are subject to pressures, constraints and temptations -- pressures from hierarchical superiors or peers, payment systems or fee arrangements, incentives to career advancement or financial reward inside firms or in the profession generally -- that may to a greater or lesser extent compromise the exercise of a lawyer's independent judgment. Over the course of this century, the legal profession has adopted many arrangements and organizational forms for representing clients and receiving payment for services that pose conflicts between their own interests on the one hand and the interests of clients and the public good on the other. Hourly billing, to take one of many examples, tempts some lawyers to run the meter, churn cases, and pad bills; contingent fees, to take another, tempts others to shirk on effort, and settle early and low. Such conflicts are unavoidable: No set of arrangements has ever been or ever will be devised that will entirely remove such pressures and temptations. The question your Commission has to ask is, Do the proposed arrangements for lawyers to practice with non-lawyers promise to add any significant sources of pressure, constraint and temptation to those that already exist? And even the answer to that question should turn out to be Yes (or Maybe), does the likely cost or risk of adding new sources of pressure offset the likely benefits of multi-disciplinary practices?

Second. Historically, the sad if hardly surprising fact has been that the organized bar's resistance to new modes of practice, though often clothed in the high-minded rhetoric of protecting the ethical standards and independent judgment of the legal profession, has been to a considerable extent motivated by far less elevated desires to protect the incomes of lawyers from economic competition or their status from erosion by groups perceived as interlopers. Given this history of protectionist and factional motives, it is reasonable -- without for a moment questioning the sincerity and good faith of the critics of multi-disciplinary practice -- to treat resistance to organizational innovation with some skepticism and to ask whether support for such resistance is more likely to stem from concern for the incomes rather than the independence of lawyers.


The Multiple Meanings of Lawyer "Independence"

The historical record is first of some use in helping us to understand what lawyers have traditionally meant by the "independence" they seek to protect. What is often thought of as the monolithic concept of lawyer independence is really a bundle of several related B and yet very different B notions of how lawyers may be understood to operate independently.

1. First, independence means the bar's freedom to regulate its own practices without outside interference. This freedom is usually analyzed as part of a social bargain B a public privilege awarded in exchange for public benefits. Lawyers are given a monopoly over certain kinds of work and certain special privileges such as the attorney-client privilege. In return, the bar regulates terms of entry, fixes practice and ethical standards, and disciplines offenders to ensure that lawyers will not only represent clients competently and faithfully, but also uphold the law.

2. Lawyers also traditionally seek to benefit from a second type of independence B the discretion to determine the conditions of their work. Ideally, independent lawyers freely decide which clients and causes they will represent, how to divide their time between paying clients and other commitments, what strategies and tactics to follow in pursuit of the clients' ends, and so forth. The client dictates (as moderated by the lawyer's advice) the results to be sought and has the final say on major decisions, but there are large areas of often crucial choices reserved for the professional's discretion.

These forms of independence, bar self-regulation and autonomy in work have usually been justified as instrumental to a broader purpose: the practice of independent judgment for the benefit both of clients and of the legal system.

3. The most often stressed form of independence B and the most relevant to the issues the Commission is considering B is that which enables the lawyer to make an objective and disinterested assessment of the law and facts of the client's situation, in order to render the best possible legal advice. Disinterested judgment can be compromised when it is unduly distracted or distorted by extraneous concerns B in particular, the universal and unavoidable concern with making a profitable living in competition with other providers. In order to attract the client's business or keep its repeat business, the over-dependent professional can want to please or impress the client too much: to be unwilling to be the bearer of bad news; or oversell the positive attractions of the client's proposed course of conduct while understating legal and other risks; to be hyper-aggressive in negotiations in order to impress the client at the cost of impeding a reasonable settlement in the client's best interest; or to be reluctant to probe when there is reason to suspect that the client is fudging or concealing information that, if revealed early, would actually help the lawyer further the client's cause. The duty to represent a corporate entity and its long-term interests may be at odds with the wishes and desires of the corporate officer who is representing the client. The duty to represent multiple interests that may sometimes conflict, as for example in the case of insurance defense lawyers who represent both policyholders and insurers, may be compromised if only one of those interests is paying and supervising the lawyers concerned. In short, doing a good job in rendering professional advice is not always the same thing as keeping the client or its immediate agents happy; a good lawyer sometimes has to stand up to his or her clients as well as eagerly serving them; to try to protect her objectivity in assessing facts and law; to insulate herself against the temptation to accept as true what it would be most convenient for her to believe. The more "independence" she is afforded by the organizational and financial conditions in which she practices, the better she will be able to do those parts of the job.

4. The lawyer also needs to protect his or her ability to represent the law to the client as well as representing the client to the law: that is, to make clear if and when necessary that there may be legal constraints on a client's course of action that the lawyer cannot, in good faith and consistently with his or her obligations to the legal system, assist the client to transgress B in particular, aiding the client to plan or continue a course of conduct that the lawyer has reason to believe is fraudulent or otherwise unlawful, that stretches the boundaries of applicable law beyond plausible good faith interpretation, or that if pursued would effectively nullify the purposes of a legal regime set up to prevent such conduct.

5. Finally, there is what may be called political independence -- the ability of the lawyer, in his or her role as a citizen with special responsibilities to preserve the well-being of the framework of law and regulation, to take an independent position on the merits of existing laws and proposed reforms. Traditionally American lawyers have tended to stress the importance of remaining independent of the state: in fact one of the reasons that the bar gave for resisting government subsidies of legal services until mid-century was that along with such subsidies might come state controls (a fear that, with the advent of stringent restrictions on the practices of LSC-funded legal services offices, has partially come to be realized). But traditionally American lawyers have also thought it important to protect their independence from all factional interests in society, including the interests of their own primary clienteles, in order to function as disinterested public advisors, both in and out of public office. To be sure, a lawyer owes clients duties of loyalty and effective representation, but a lawyer whose judgment is wholly the captive of a client or of an industry cannot effectively perform the public functions of working towards improvement of the legal framework in the general interest. The ideal of independence never demanded the impossible, that lawyers should have an outlook completely unaffected by their interests and background: lawyers like everyone else are conditioned by their life and work experiences. But the ideal did expect that as judges, public officials, and expert advisors on legislation and law reform, lawyers should be able to rise above parochial loyalties.


The First Identity Crisis of the Profession, 1870-1920

Concerns for all these types of independence, and changes in practice conditions that seemed to threaten them, were very much on the minds of American lawyers over a century ago. The profession was going through one of its major periods of organizational change, comparable in many ways to the present period. After the Civil War, key sectors of trade and industry passed from individual to corporate ownership; and those corporations in turn, beginning with railroads and spreading to other major sectors such as oil, steel, electricity, meatpacking, and many others, were consolidated to form giant enterprises. These new businesses and organizations sought lawyers to organize and advise them, to supervise their security issues, and to represent them in relations with financiers, governments and their labor forces. As a result, elite law practice had by the 1890s begun to shift from the courtroom to the law office and the conference room. Lawyers invented for themselves liaison roles in building or rebuilding the financial structures of American corporations that ensured the prosperity of the largest city law firms and came to seem indispensable to their clients.

Yet at the same time, members of a profession whose leaders had become used to thinking of themselves as statesmen of the republic, who had used their law practices as an independent base to engage in public service as well as to represent clients, found themselves performing essentially business jobs. A notable consequence of this professional shift was an extraordinary outpouring of rhetoric B during bar association conferences and law school commencement addresses, as part of memorial speeches on colleagues, and in articles and books B on the theme of the profession's "decline from a profession to a business." These laments on decline were mostly not about ethics, per se. Indeed, the general ethical standards of practice among both businessmen and lawyers were almost certainly significantly higher, if measured by the personal engagement of high-level corporate officials in plainly illegal conduct, after 1890 than in the 1860s and 1870s. Rather, these complaints concerned the loss of opportunities to exemplify through private practice the public roles demanded by conceptions of independent disinterested service.

A particular concern of lawyers of the period was that their independence would be undermined by relations of continuous dependence on large business clients: in other words that their judgment, their time, their ability to control the terms under which they would offer service and their working conditions would be subverted; that they would effectively become absorbed in into corporate hierarchies as employees whose discretion, skill and judgment were under the command of employers. The eminent New York lawyer Elihu Root, who represented several very large consolidated enterprises such as the Metropolitan Street Railway Corporation, and who also served as Secretary of War, Secretary of State and U.S. Senator, liked to stress that he was not a "corporation lawyer", but simply a lawyer who had corporations among his clients. Some of the ways in which lawyers expressed these concerns were through participation in reform movements to remove judges they believed some of their own clients had corrupted, to pass legislation making it difficult for business interests to bribe legislators, to replace patronage appointments with civil servants selected by "merit", and to create regulatory bodies in the form of administrative commissions staffed with disinterested professionals. They also sought, with some success, to raise standards of entry to their profession by demanding higher standards of education and examinations; and wrote (beginning in 1908) the first national ethical codes of practice. They founded bar associations, such as the Association of the Bar of the City of New York, partly for the purpose of disciplining members of their own ranks, corporate lawyers they believed had gone too far in representing clients such as the Erie Railroad Ring. They wanted to collectively strengthen their own capacity to stand up to their own clients, if asked to do things they believed lawyers should not do. In this period leading lawyers tended to leave the service of large corporate clients as their general counsel, and to found independent firms. Francis Lynde Stetson, for example, whose chief client was J.P. Morgan, insisted on keeping his small law firm, which served other clients as well, as his base of operations. Paul Cravath, founder of the famous firm that bears his name, forbade members of the firm from investing in any of its client businesses, lest their professional objectivity be warped by their financial interest. And it was also in this period that lawyers were instrumental in passing statutes forbidding the practice of law by corporations.

In short, many of the leading lawyers at the turn of the last century, out of concern that they were losing their reputation for independent judgement and disinterested public service, took some steps to try to restore the practical conditions for their independence. There can, I think, be little doubt that their anxieties were genuine and the reforms they engaged in part designed to alleviate them. Yet looking back on these reforms, we cannot ignore that the rhetoric of professionalism and independence also concealed an agenda with less inspiring motives. Reform in the name of professionalism and ethical uplift was, among other things, an ideology of middle-class, native-born whites, invoked to impose training or certification requirements to exclude and discipline newcomers such as immigrant lawyers who were beginning to undertake plaintiff's personal-injury work. Elite lawyers tried to prohibit new practices such as contingent fees, advertising and "ambulance chasing", in part because worried about barratry and ethical conflicts, but in part simply to protect their dignity and status, and not incidentally to discourage lawsuits brought against their business clients. The concern for the "practice of law by corporations" was indeed partly motivated by fear that independent professionals would be absorbed (as for example engineers in the same period were being absorbed) into corporate hierarchies as employees; but was just as much or more driven by fear of competition for business with trust companies and title insurance companies that were beginning to encroach on traditional lawyers' turf. Thus reforms that on their face stood for claims of independence or improved ethics were also on a deeper level a means of circling the wagons, of protecting the legal monopoly and the status of the upper bar against threats to its image, at the cost of making it more difficult for needy clienteles to obtain affordable and efficient services.


Group Legal Services: The Bar's Slow Response to the Unmet Need for Legal Services

The bar's reluctance to change, and its use of the rhetoric of professionalism to resist change, was displayed again in the decades-long fight over group legal services. Beginning in the 1930s, if not before, there was a growing perception among some that the bar did not satisfy the legal needs of poor individuals and those of moderate means. This, in turn, resulted in calls for reform in the way legal services had been traditionally delivered in an effort to increase the availability of such services. One idea, popular especially among labor unions and public service entities, was group legal services including prepaid legal service plans. The organized bar, however, actively opposed these sorts of organizations, and fought a long battle, which it ultimately lost, to prevent them from forming.

Thus, the ABA Canons of Ethics forbid the provision of group legal services. See Canons of Professional Ethics No. 35. The bar defended this rule on the ground that such arrangements potentially threatened a lawyer's independence as well as necessarily involved impermissible solicitation. The Supreme Court rejected these contentions in a series of decisions in the 1960s and early 1970s. See United Transp. Union v. State Bar of Michigan, 401 U.S. 576 (1971); Brotherhood of R.R. Trainman v. Virginia State Bar, 377 U.S. 1 (1964); NAACP v. Button, 371 U.S. 415 (1963). The bar then grudgingly adopted a rule that purported to allow group legal services. As originally drafted, the Model Code of Professional Responsibility permitted lawyers to participate in group legal service organizations "only in those instances and to the extent that controlling constitutional interpretation at the time of the rendition of the services requires the allowance of such legal service activities." Model Code DR 2-103(D)(5) (Final Draft, July 1, 1969). As the reporter of the 1969 Code later commented, this provision was "more in the nature of a lateral pass of the problem to the United States Supreme Court than an attempt to find solid grounds upon which to regulate group legal services." John F. Sutton, The American Bar Association Code of Professional Responsibility: An Introduction, 48 Tex. L. Rev. 255, 262 (1970).

The ABA was soon forced to retreat from this position, because of pressure from those who believed the Code's restrictive approach to group legal services was unjustified. In 1974, it amended DR 2-103 by dropping the reference to constitutionally allowed activities. The new rule was still quite narrow, however. It permitted group legal services only if such services were provided as an incidental purpose of the organization and only if the plan had what was known as an "open panel" B whereby the client could choose an attorney not employed by the plan, and the plan would pay the fees of an attorney so selected.

Almost immediately after adopting this revised rule, the ABA came under renewed pressure B particularly from labor unions B to drop these requirements. At the behest of the labor unions, Congress held hearings on the ABA group legal service rule, at which it was suggested that the bar's restrictions raised significant antitrust issues. Further, the National Consumer Center for Legal Services filed an antitrust lawsuit against the ABA soon after the 1974 amendments were adopted. The ABA thus was compelled to modify the rule again in 1975. The 1975 version of DR 2-103 retained the requirement that plan members could select counsel outside the plan, but eliminated the requirement that the plan had to reimburse members for the cost of such counsel. The amendments also eliminated the incidental purpose requirement.

Nonetheless, the 1975 rule imposed a number of significant conditions on group legal service plans. These conditions included the following: (1) the organization sponsoring the plan cannot derive any profit from the rendition of legal services and, moreover, if the organization is for profit, the legal services cannot be provided by lawyers employed, directed, supervised, or selected by the organization; (2) lawyers associated with the organization may not initiate or promote the plan for the primary purpose of providing themselves with financial or other benefits; (3) the organization may not be operated for the primary purpose of procuring legal work or financial benefit for any lawyer as a private practitioner outside of the legal services program of the organization; (4) the person to whom legal services are furnished, and not the organization, is recognized as the client of the lawyer; (5) the lawyer does not know or have reason to know that the organization is in violation of applicable laws, rules of court or other legal requirements that govern its legal service operations; and (6) the organization files annually with appropriate disciplinary authority a report concerning its legal service plan. Model Code DR 2-103(D)(4).

Ultimately, the bar chose to remove even these conditions in 1983, when the Model Rules of Professional Conduct were adopted. The Model Rules, in fact, hardly mention group legal services. And so today, after decades of resistance, the only limitation on such organizations in states that have adopted the Model Rules is the general restriction found in Model Rule 5.4(c), under which the administrators of the plan cannot interfere with the lawyer's professional judgment. Furthermore, in the almost four decades since the bar first began to loosen the restrictions against group legal services, there has been no evidence that ethical violations are more prevalent among lawyers who work through such organizations as compared with lawyers generally.



The lessons of the past B that the bar often actively resists change, that dramatic changes in the legal landscape that nonetheless occur trigger calls for reform of what is perceived to be a profession in decline, and that reform itself (not to mention the reformers) must be carefully scrutinized B apply with great force to the modern debate over multidisciplinary practice. In the context of that debate, it is not difficult to see that lawyers have a strong interest in safeguarding the freedom of the bar to regulate its own practices and administer its monopoly. Obviously, the notion of fee-sharing with accountants, social workers, or other non-lawyers represents for some legal practitioners an encroachment upon their economic turf. In a less tangible sense, fee sharing also has the effect of placing non-lawyers on a more equal social footing with lawyers. As I have already suggested, the social prestige that lawyers receive as part of the professional social bargain is not an insubstantial benefit. Sharing this social prestige with non-lawyers further adds to a sense that lawyers are undergoing a professional identity crisis, as they have in the past.

More important still for present purposes, despite what I believe were genuine and intensely felt concerns for their loss of independence, the leading lawyers of the 20 th century gradually acquiesced, with occasional protests but little practical resistance, in changes in practice conditions and ethical standards that cemented them firmly to their clienteles. Around 1900, for example, lawyers gradually began to specialize by party and client type B to represent only defendants and not plaintiffs, management and not labor, corporations and not individuals B as well as by field, thus firmly affiliating themselves with, and tending to adopt the perspectives and outlooks of, specific identifiable interest groups. Gradually also the general ethical standard that lawyers must balance their duties to clients against the claims of the public interest and the legal system, and should not undertake to help clients to pursue unjust causes, gave way to the now dominant idea that lawyers are simply supposed to zealously pursue client interests within the limits of clear commands of positive law and specific ethical rules. And lawyers have also accepted many organizational forms and payment systems that have the potential to compromise their independence in various ways. Outside firms seek out anchor clients that will be dependable sources of repeat business, and that they cannot afford to alienate. They serve as house counsel to corporations, in legal departments that have been rapidly expanding since the 1970s in the effort to control legal costs. They condition promotion in firms and shares of partnership profits on ability to attract and retain clients -- not (at least not usually) on the ability to exercise independent judgment in dealing with them.

I have noticed, in studying the record of testimony before your Commission, that one argument that prominent lawyers would almost certainly have made 100 years ago against sharing practice and fees with accountants, is B unless I overlooked it B completely missing from your proceedings. That is the argument that lawyers as a profession possess a special form of social capital: training and experience that gives them knowledge of, and a keenly felt obligation to promote, the justice and public-interest-serving purposes of the law; and it is this that makes them uniquely able to stand up for the law and its interests in representing clients. But I assume that the reason you are not hearing this argument is that it is no longer a plausible argument, given changes in professional ideology and the realities of practice. In fact one of the leading arguments your Commission has heard is to exactly the opposite effect: that accountants would be too independent, that their obligations to disclose material facts in the interests of investors and the public would override their loyalty to clients.

My point here is not to deplore these practices or condemn lawyers for engaging in them. Many of these changes, given the pressures of demands of clients and the economic realities of practice, and the relative weakness of professional movements to stem the tide, were doubtless to some extent inevitable. The point is simply that lawyers already experience many forms of pressure and constraint on their independent judgment. The case against multi-disciplinary practice would have to be that it would impose additional pressures and constraints, quantitatively and qualitatively more severe in kind and degree, to those that already exist. I am, however, unaware of any empirical support for the position that a lawyer who shares fees with a non-lawyer is more likely to subordinate the exercise of his independent professional judgment to the pursuit of profit than a lawyer who shares fees only with other lawyers. Indeed, the universal acceptance of in-house corporate counsel provides a contrary example. Of course, as some witnesses before the Commission have pointed out, the non-lawyer employer of a corporate counsel is also the client, and thus the client remains the focus of the lawyer's attention B though even this is not always entirely true, as for example when an in-house lawyer for an insurer represents policyholders as well as his company. But the issue is not merely whether the lawyer will act for the benefit of the client, but whether the lawyer will exercise his own best independent judgment for the benefit of his client. The fact that the employer is also the client increases rather than decreases the likelihood that a corporate in-house lawyer could be swayed to subordinate his own independent professional judgment about how to advise the client-employer to the client-employer's own profit-driven judgment.

I do not purport to question the sincerity of those who believe that permitting lawyers to participate in multidisciplinary practices will pose a threat to professional independence of judgment. But I think as the Commission considers such arguments, it is also useful for you to understand some of the historical background regarding the notion of lawyer independence and, more generally, regarding the bar's reaction to change. Upon closer inspection, a lawyer's lofty conception of professional ideals often conceals what is also a narrow factional or guild interest. Historically, when lawyers have complained that law has turned from a profession to a business, their real complaint has been that accountants and title insurance companies were stealing lawyers' work, or that lawyers take cases on contingent fees and are overly aggressive in discovery tactics, or that new immigrant ethnic groups are beginning to compete with their own, or just that ungrateful clients are beginning to ask for some cost-accounting instead of unquestioningly paying bills "For Professional Services."

The independence of lawyers in all its forms B autonomy in work conditions; ability to exercise independent judgment in advising clients, both in their own best interests and that of the integrity of the legal system; the ability as a citizen, official and law reformer to rise above parochial interests B is a social good of potentially high value, and one well worth trying to promote against the many pressures that have combined to erode it. But there are surely better ways of protecting professional independence than by restricting the development of forms of multi-disciplinary practice that promise many benefits in innovative and cost-effective services to clients and consumers.


Robert W. Gordon

1. ABA Commission on Multidisciplinary Practice, Background Paper on Multidisciplinary Practice: Issues and Developments, at 1 (Jan. 1999).