October 05, 2011

Written Remarks Of Melinda Merk And Patrick Schmidt Co-Chair And Vice Chair Of The Tax Law Committee Of The Young Lawyers Division - Center for Professional Responsibility

Written Remarks of Melinda Merk and Patrick Schmidt

Co-Chair And Vice Chair Of The Tax Law Committee Of The Young Lawyers Division Of The American Bar Association

Mr. Chairman and distinguished Members of the Commission, we are pleased to be here today to represent the Tax Law Committee of the Young Lawyers Division of the ABA to assist you as you continue to deliberate the issue of multidisciplinary practice, which impacts most significantly on the future careers of all young lawyers in this new millennium.

The Planning Board of the Tax Law Committee is in favor of revising the Model Rules of Professional Conduct to permit a lawyer to partner and to share legal fees with a nonlawyer who performs professional services, subject to certain safeguards intended to protect the client’s best interest. Such safeguards should focus on the preservation of the attorney-client privilege and lawyer independence, but should not be so broad as to unduly restrict the performance of non-legal services by a lawyer in an MDP.

During the last few years, the legal profession has undergone significant changes, particularly in the tax law area. Today, young lawyers have more opportunities upon graduation from law school to apply their legal education in non-traditional practice settings such as consulting firms, banks and trust companies, investment and financial planning services firms, corporate legal departments, and various government agencies. The marketplace has changed in the last few years as well—young entrepreneurs of the ".com generation" are looking for efficient "one-stop shopping," where all of their business, financial, legal, and investment needs can be taken care of by a team of advisors under one roof. Given this current state of affairs, one wonders who the existing Model Rules are really protecting?

Each individual lawyer engaged in the practice of law should be subject to the same ethical rules, regardless of the practice setting in which the lawyer is employed. Some commentators base their objection to any change in the Model Rules on the assumption that supervision of a lawyer by a nonlawyer undermines the lawyer’s professional independence of judgment. However, others have testified before this Commission that this is clearly not the case where a lawyer is supervised by nonlawyers as general counsel of a corporation. Moreover, this concern is easily alleviated by segregating the legal services of an MDP into a separate legal division headed by a lawyer. Irrespective of one’s place of employment, if an individual lawyer fails to maintain his or her independence of judgment and puts the interests of his employer above that of the client’s, then that individual lawyer should be subject to disciplinary action by the state bar, not to mention a malpractice claim and loss of the client’s business.

The concern that confidential attorney-client information could not be protected in an MDP is also misplaced. Again, the duty to preserve client confidences should apply to individual lawyers engaged in the practice of law in all practice settings. It is essential that the client understands whether a lawyer is holding himself out in a legal or non-legal capacity in the performance of services. This issue is not particular to MDPs—it also arises in the traditional law firm environment where the lawyer is performing non-legal services for the client, e.g., the preparation of tax returns as in the recent Frederick case. Similarly, to the extent that a lawyer in a law firm, or a lawyer in an MDP, uses nonlawyer professionals in the same firm to assist in the rendering of legal advice, the attorney-client privilege could extend to such nonlawyer professionals. As recommended in the Commission’s report, the client should be advised that his or her communications to nonlawyers in the MDP that are unrelated to the provision of legal services would not be protected by the attorney-client privilege.

The standard for determining whether a lawyer is holding himself out in a legal capacity needs to be more clearly defined so that the Model Rules do not unduly restrict the performance of non-legal services by a lawyer in an MDP. In its report, the Commission states that a lawyer will be considered to be "holding out as a lawyer" if he or she is "offering the provision of services that if offered by a lawyer in a law firm would be considered the practice of law." The Model Rules should provide a clear definition of the "practice of law," similar to the list of enumerated activities that are rebuttably presumed to constitute the practice of law which is set forth in Rule 49 of the District of Columbia Court Rules. Additionally, commentary to D.C. Ct. App. Rule 49 section (b)(2) states that those

"who do not indicate they are providing legal advice or services based on competence and standing in the law are not engaged in the practice of law, because their relationship with the customer is not based on the reasonable expectation that learned and authorized professional legal advice is being given. Nor is it the practice of law under the Rule for a person to draft an agreement or resolve a controversy in a business context, where there is no reasonable expectation that she is acting as a qualified or authorized attorney."

Finally, we recommend that the revision to the Model Rules permitting the sharing of fees with nonlawyers be restricted to nonlawyer professionals only. The term "nonlawyer professional" should be defined in the Model Rules as "a member of a recognized profession whose conduct is governed by ethical standards." This definition could be supplemented in the text or accompanying commentary by an illustrative recitation of nonlawyer professionals similar to that found in the comments to Model Rule 5.7, such as those professionals engaged in providing title insurance, financial planning, accounting, trust services, real estate counseling, social work, or psychological counseling. However, since this group of nonlawyer professionals will vary on a state by state basis, this illustrative list could be left to the individual states.

In conclusion, the Tax Law Committee urges those in the legal profession to end the debate over whether MDPs should exist and realize that MDPs are already here. By amending the Model Rules to make the core ethical values of the legal profession applicable to all lawyers engaged in the practice of law, regardless of the type of practice setting, the Bar will ensure that the interests of clients are fully protected.