Testimony Of Steven C. Krane Of The New York State Bar Association, August 1999 - Center for Professional Responsibility





AUGUST 8, 1999

Good afternoon. My name is Steven Krane. I am a partner with the New York City law firm of Proskauer Rose LLP, and am a member of the Executive Committee of the New York State Bar Association ("NYSBA"). I appreciate the opportunity to address the Commission on the issue of whether lawyers should be permitted to practice law in multidisciplinary practice ("MDP") groups. This issue, on which opinions are sharply divided, is one of elemental importance to lawyers, clients and the public.

The NYSBA has been studying the MDP issue for some time. A preliminary informational report on the subject, prepared by the Association's Special Committee on Multidisciplinary Practice and the Legal Profession, of which I was a member, was released in January 1999. Over the following months we studied with interest the report of the various other bar associations that have addressed the MDP issue, including the recent report of this Commission. Now, under the leadership of former ABA President Robert MacCrate, the newly created NYSBA Special Committee on the Law Governing Firm Structure and Operation, of which I am a Vice-Chair, will pick up where the prior report left off by studying the MDP issue in depth and making recommendations to the NYSBA leadership as to the appropriate course to chart.

MDP means different things to different people. Some view it as an issue that will primarily affect the "Big 5" accounting firms and the "megafirms" of the legal profession. Some look at it as an issue that will ultimately have its greatest impact on the small firm, the Main Street lawyer who will be forced to compete with the "professional services" department of the Wal-Mart near the Interstate. Some think that the mid-sized boutique firm will find it attractive to form partnerships with consulting firms in their particular fields and other professionals with whom they regularly work in serving clients. The reality is that all of these views of the effect of MDP on the legal profession may be correct to an extent. Permitting lawyers to form partnerships with nonlawyers will likely have a dramatic and pervasive effect on the way in which lawyers render legal services to their clients.

Let us first step back and reflect on the origins of this issue. Why are we looking at this issue at all? Why has MDP suddenly been thrust upon the legal profession as an issue with which it must grapple? Is there any validity to the mantra of providing clients with the opportunity for "one-stop shopping," to which we repeatedly hear MDP proponents refer as the principal justification for permitting lawyers to form professional partnerships with nonlawyers. The mantra, which assumes certain efficiencies arising out of integration of efforts on behalf of clients, is incanted chiefly by accounting firms and traditionally anti-lawyer organizations. It is incanted by a self-selected sampling of organizations which purport to represent the interests of consumers of legal services and insist that there is client demand for MDPs. At bottom, the reason the legal profession feels itself pressed to deal with the MDP issue at all is because the issue is being forced upon the profession mainly by nonlawyers who would like to add legal services as an additional profit center for their organizations, and by lawyers who see MDP as a means of enhancing their bottom line.

Even assuming that there was some evidence of client demand for integrated legal and non-legal services, our obligation as a profession is to evaluate and balance the perceived benefits of MDPs against their projected harms.

I am gravely concerned that allowing lawyers to practice law in MDPs will cause a significant diminution in the protection traditionally afforded to attorney-client communications.

I am also gravely concerned that allowing lawyers to practice law in MDPs will cause a significant dilution of the duty of loyalty lawyers owe their clients, and a risk of irreparable harm to the independent professional judgment of lawyers.

More fundamentally, I am gravely concerned that allowing lawyer-nonlawyer partnerships will mark the beginning of the end of the independent legal profession. We can seriously question whether the nonlawyer members of an MDP will stand idly by while the lawyers in the organization attempt to fulfill their traditional functions of standing up to the excesses of government, representing unpopular causes, and providing free legal services to the poor.

We can seriously question whether actual and potential clients of lawyers would still support the concept of MDPs if they knew what else they were giving up in terms of the nature and quality of the legal services they are receiving as well as the societal implications of the negative effects of MDPs on the legal profession.

Many within the organized bar believe that we should embark on a course of fundamental change for the legal profession, either resignedly C expressing the view that market forces render such change "inevitable" C or firmly believing that mechanisms can be employed to preserve the so-called "core values" of the legal profession. In my view, we should explore less intrusive alternatives before any radical steps are taken.

The rules of professional ethics in effect in most jurisdictions in the United States today permit nonlawyer employees to be compensated through profit-sharing plans. The services of nonlawyer professionals can thus be integrated with those of lawyers in a law firm and the nonlawyers compensated based on the success of the overall venture.

Likewise, strategic alliances and joint marketing programs between otherwise independent firms of professionals likewise can provide clients with the benefits of integration of effort without compromising the integrity of the professions involved.

These approaches, permissible under existing rules of legal ethics, could very well permit clients to benefit from efficiencies without damaging the intrinsic nature of the legal profession, and without converting the practice of law into just another profit center for a professional services firm.

With these thoughts in mind, the NYSBA House of Delegates voted on June 26, 1999 to proceed cautiously, to study the MDP issue further and to examine all of its ramifications before reaching an ultimate decision. In the interim, the House reaffirmed the existing rules that prohibit lawyers from forming partnerships with nonlawyers. We are now proceeding along that course, and urge the ABA to proceed with all due caution as well.