The Application of Unauthorized Practice of Law Regulations to Attorneys Working in Corporate Law Departments

Associate Professor Carol A. Needham
Saint Louis University School of Law

Addressing Unauthorized Practice.

All jurisdictions in the United States currently have in place court rules, legislation, other regulations and/or opinions interpreting those provisions which prohibit the unauthorized (or unlawful) practice of law. Unless some exception has been adopted in that state, only those persons who have been admitted to the bar there are permitted to give legal advice in that state. In addition to prohibiting law practice by persons who have no legal training at all, the UPL regulations also prohibit practice by lawyers holding law licenses in other states.

In most states, all out-of-state lawyers are subject to these UPL regulations. This includes in-house counsel employed by corporations as well as lawyers working in government agencies and lawyers working at law firms. The wording of the prohibition varies from state to state, but typically it includes a statement to the effect that it is unlawful to practice law or give legal advice in the state if you are not a member of that state's bar. The highest court in each state interprets that state's regulations, statutes, court rules and prior case law to determine whether a specific activity is (or is not) the practice of law. Not surprisingly, the courts have not agreed on a uniform standard to be applied.

Applying the UPL regulations to in-house counsel who are licensed in states other than the one in which they maintain their office is not necessary to protect the policy goals the regulations are intended to achieve. The general public is protected, since the in-house lawyers provide legal advice only to their own employer. If changes are made (1) to permit lawyer licensing on the national level, or (2) to encourage each state to readily grant reciprocal admission to all out-of-state lawyers, in-house counsel should of course be eligible. Alternatively, even if reform is unrealistic for attorneys at private law firms, out-of-state attorneys working exclusively as in-house counsel should be (3) eligible for an admission category, or at the very least, (4) exempted from the reach of the UPL regulation.

II. In What Specific Situations Are Problems Being Encountered?

[Hypo A] Nationwide client questions and travel

Lawyer A works for ABC Company, serving as the expert in consumer credit issues for ABC's nation-wide lending operation. Especially in areas requiring sophisticated legal analysis, it is common for the attorneys in a legal department to be responsible for giving advice to the corporation and its affiliates on a specific area of the law. In this system, Lawyer A will handle all legal questions within his assigned topic, regardless of the geographical location in which the issue arises. His office is located in New York and he usually performs most of his work there. Throughout a single day, he may answer questions regarding consumer credit regulations in California, Nevada, Pennsylvania, Florida, Illinois, Michigan and Texas. If he travels to these states to meet with and advise ABC managers, only Michigan currently permits him to give legal advice while he is in the state.

[Hypo B] International responsibilities and travel

Part 1

Lawyer B, licensed in New York, works for DEF Company. She is responsible for developing hotel properties in Europe and Asia. She oversees the negotiation of land acquisition, building construction, operation agreements, and joint ventures with local entities which manage resort properties. None of her work involves the interpretation of U.S. law. Should Lawyer B have to take another bar examination if DEF moves its headquarters from New York to California?

Part 2

If Lawyer B is licensed only in Ohio and maintains her office in Paris, France (where she is properly admitted) at the time she is hired to work for DEF Company, should she be required to become a member of the New York bar, even though none of her work involves U.S. law?

[Hypo C] Reporting to a G.C. not licensed in the state

Lawyer C, who is licensed in California, has been working for a California oil company for 15 years. Six months ago, the company hired a new General Counsel who is not licensed in the state. Since he reports to someone who is not a member of the California bar, Lawyer C is told that he is subject to criminal penalties for aiding and abetting the G.C.'s unauthorized practice of law simply by keeping his job.

[Hypo D] Taking a new job in a law department in another state

Lawyer D has been practicing law for fifteen years. He worked at a law firm in Chicago, Illinois for the first four years and holds an Illinois license. He then took a job in the legal department of a large consumer products company, and moved to Ohio. After two years there, he was offered a promotion to a position in a subsidiary with offices in Arizona. Two years later, the subsidiary moved its executive offices and its law department to Oregon. Four years after that, Lawyer D accepted a job as Associate General Counsel for a Fortune 500 company and moved to that company's Missouri offices.

Missouri is one of the states which has adopted a special admission category for in-house counsel, so that is the only state in which he does not have to take a new bar examination. Currently, Lawyer D is required to take the bar examination (and pay for the moral fitness investigation) when he moves to Ohio, Arizona and Oregon.

[Hypo E]

Lawyer E works for a company which rotates all new mid-level managers through six-month stints at each of its five divisions. The members of the legal department participate in the rotation program and perform legal work in each of the five states. Does Lawyer E have to become a member of each of the five bars?

[Hypo F] Giving advice on business trips/maintaining privilege

Lawyer F works for Upstart Rent-a-Car Company. He travels to major airports throughout the U.S. and negotiates the terms of locating rental counters on airport property. Can he properly give legal advice to the Upstart managers who accompany him during these negotiations? If he confines his work on the road to business advice only, does the company lose the attorney-client privilege for those discussions?

[Hypo G] Giving legal opinions to third parties

Lawyer G, licensed in New York, is the General Counsel for GHI Corp., located in Miami, Florida. She is asked to give an opinion letter to a bank in connection with a credit agreement. The terms of the limited admission rule in Florida specifically prohibit her from giving an opinion letter to be relied upon by any entity other than her employer. However, if she were working for a company located in Missouri or Virginia, she would be permitted to give an opinion letter to a bank, since the scope of permitted legal practice is broader under the provisions in those states. The scope of legal services permitted should broadened to be the same in all states.

Another aspect of this problem is presented when the opinion is requested on behalf of a client division operating in Illinois, or state other than the one in which Lawyer G is working. If the opinion would be proper under Illinois law, should Florida be allowed to bar Lawyer G from giving her opinion in Illinois?

[Hypo H] Working in a home office in a state other than the one in which the corporation's offices are located

Part 1

Lawyer H works at the headquarters of JKL Corp., located in Virginia, where he is licensed to practice. He lives in Maryland. By working in his home office on the weekends, Lawyer H is arguably violating Maryland's prohibition on UPL.

Part 2

JKL Corp. moves its executive offices from Virginia to Texas. Since Lawyer H travels so much anyway, and many of the company's operations are easier to reach from the East Coast, JKL Corp. executives agree to allow him to continue living in Maryland indefinitely, using his home office as his primary work space.

There is a collision between the realities of national and international practice on the one hand and the differing requirements imposed by the fifty-one separate licensing authorities on the other. Many, if not most, in-house lawyers (other than general counsel) concentrate their practice in relatively defined areas of the law. Their expertise in these areas satisfies the client protection concerns underlying the current UPL regulations. Furthermore, it is much more cost-effective for the client to have a single expert handle related legal issues in various states, rather than requiring the company to retain separate counsel in each state and educate each of them regarding the company's unique business concerns. In addition, wording in the Birbrower opinion indicates that, at least in California, out-of-state lawyers cannot be certain that the retention of local counsel will protect them from UPL violations.

A variety of different approaches can be considered to ameliorate these difficulties. Each has its strengths and weaknesses. A number of states have recently made changes which significantly improve their regulations concerning in-house counsel. The issue is receiving additional attention in a few of the states which have not yet modified their regulations. However, until all jurisdictions in the U.S. change their UPL provisions, in-house lawyers will continue to grapple with the complexities of the current system. Some of the most frequently considered alternatives are discussed below.

A. Specifically exempt in-house counsel.

Some states have adopted separate regulations specifically exempting in-house counsel from their UPL rules. States which have adopted a special admission category for in-house counsel typically require that the lawyers give legal advice only to the corporation which employs them. These jurisdictions include: Alabama, the District of Columbia, Florida, Idaho, Kansas, Kentucky, Maryland, Minnesota, Missouri, North Carolina, Ohio, Oklahoma, and South Carolina, Virginia, and Washington. These regulations typically also apply to lawyers who practice exclusively for associations, governmental entities and forms of business organization other than corporations. Additional states, notably Connecticut, Utah and Louisiana, are currently considering adopting similar specific exemption provisions. The Connecticut regulation is modeled on Florida's. Unlike Florida, however, it permits in-house counsel to give legal opinions to third parties.

The fact that the Restatement of the Law Governing Lawyers approves of such provisions is likely to strengthen the movement towards enactment of similar provisions in even more states. In Comment f to Chapter 1, section 3, the authors of the Restatement observe, "[s],D have permitted local practice by inside legal counsel for a corporation or similar organization, even if the lawyer is not locally admitted and even if the lawyer's work consists entirely of instate activities, when all of the lawyer's work is for the employer-client" and does not include court appearances. They go on to declare, "[l]eniency is appropriate because the only concern is with the client-employer, who is presumably in a good position to assess the quality and fitness of the lawyer's work. In the course of such work, the lawyer may deal with outsiders, such as by negotiating with others in settling litigation or directing the activities of lawyers who do enter an appearance for the organization in litigation." Additional states are likely to favorably consider adding either a special admission category for in-house counsel or at least a specific exemption from UPL prosecution in light of the unqualified endorsement contained in the Restatement.

In addition, the ABA's Ethics 2000 Commission is also considering adding language to Model Rule 5.5 that would explicitly permit out-of-state lawyers to engage in specific enumerated activities. Prof. Geoffrey C. Hazard, a member of the commission, has supported the idea that the list of permissible activities should include services rendered by in-house lawyers to their employers, fellow employees and affiliated entities. Some states would be more likely to amend their regulations if this language is added to the Model Rules.

The primary benefit of the special admission category is that it creates a reliable safe harbor for in-house attorneys. As long as an in-house lawyer complies with the terms of the regulation, he can give legal advice in that state without worrying about prosecution for a UPL violation. In addition, these regulations are an improvement over most of the provisions allowing admission on motion. The number of years in practice required in many states' on motion rules can be problematic for in-house counsel. Consider the following hypothetical:

In-house counsel Lawyer J, licensed in another state, has worked in Virginia for the past seven years. Virginia's rule permits her to work there without becoming admitted in Virginia. Lawyer J now wants to apply for admission in a third state, which requires her to have been engaged in the practice of law for five of the previous seven years. Does her time working in Virginia qualify her for admission in the third state?

Virginia's UPL provision excludes services provided by in-house attorneys. Technically, Virginia's view is that Lawyer J is not committing UPL because she is not practicing law while she is working in Virginia. This definition does provide Lawyer J with absolute protection from UPL prosecution while she is working in Virginia, but it is problematic. The standard used in the third state typically offers reciprocal admission to Lawyer J only if she has spent five years "practicing law in a jurisdiction in which he is admitted." Since her time working in Virginia does not meet the requirement, she cannot qualify for admission on motion in the third state. It is for this reason that in-house counsel would prefer a provision structured as a special admission category, such as that adopted in Missouri, rather than an exemption from UPL prosecution modeled on the Virginia regulation.

If the years in practice requirement are intended to protect the public by demonstrating that the out-of-state attorney has practiced adequately elsewhere, this additional hurdle is not necessary for in-house lawyers. There is less need to protect the public in the case of in-house counsel, since they will be working for only a single client, typically a sophisticated consumer of legal services.

The special admission category approach, however, is not a complete solution for all in-house lawyers. It does not resolve all of the difficulties facing the in-house lawyer with an active transactional workload. An attorney who travels across the country may run afoul of the UPL prohibitions in states in which he attends meetings, but does not maintain an office. This occurs because in order to qualify for the admission category the attorney must be employed within the state. Therefore, the attorney cannot simultaneously satisfy the requirements of the special admission provision in numerous states. Some house counsel have resolved this problem by carefully refraining from providing anything other than business advice while conducting negotiations in states in which they are not licensed. Although structuring their work in this way should protect them from UPL problems, it can potentially raise problems in maintaining the attorney-client privilege.

Furthermore, the scope of legal work allowed under the special admission varies from state to state. Recall the situation described above, faced by Lawyer G, the New York licensed General Counsel for a Florida company. Giving a legal opinion to your own company is, of course, permitted. In most states with a special admission category for in-house counsel, the G.C. would be allowed to issue an opinion to a regulatory agency, bank or other third party. In Florida, however, the regulation exempting in-house counsel from UPL prosecution does not allow this attorney to issue opinion letters to be relied upon by any entity other than her employer. A regular member of the Florida bar therefore must be retained to give an opinion letter to be relied upon by a regulatory body or a lender.

Another problematic aspect of the special admission category approach is that it distinguishes between in-house counsel and lawyers practicing in law firms. Historically, a significant number of in-house counsel have objected to being treated differently. In states such as California, in which in-house counsel refrained from strongly endorsing such separate treatment, the lack of interest stalled efforts to enact a separate admission category.

In those states which require pro bono work, the separate category also presents a practical problem. How can in-house counsel satisfy pro bono requirements if they are supposed to provide legal advice only to their employers? In states which allow lawyers to satisfy the requirement by paying a set amount to agencies which provide legal services to under-served populations, the lawyers can simply pay. The question remains whether this amounts to a tax on those lawyers who are prevented from providing the advice themselves. Other states, such as Missouri, explicitly allow in-house counsel to provide pro bono legal services.

Finally, by satisfying the needs of in-house lawyers who move from another state permanently, such regulations divert support away from more complete reforms. A comprehensive approach which applies to all out-of-state lawyers would lead to a more logical set of regulations.

B. Exempt occasional practice .

A handful of states, notably Michigan and Virginia, have revised their regulations to permit occasional practice by all out-of-state lawyers. The safe harbor in Michigan applies to in-house counsel as well as to lawyers who practice in firms. In-house lawyers are already protected in Virginia, since the definition of UPL excludes in-house lawyers. Consider the following situation:

Lawyer K would not be prosecuted if he entered Michigan for a limited period of time to advise a client who had employed him before he entered the state. Similarly, a lawyer returning telephone calls and sending e-mail while at an airport in Michigan would not violate the UPL regulation there, since he is only temporarily working within the state. However, if the lawyer took a job which required him to maintain an office in Michigan, the temporary presence exemption would no longer apply. On balance, the exemption for occasional practice is better than a complete prohibition. However, it does not provide adequate protection for lawyers who are transferred to offices or who frequently travel to provide legal services in states in which they are not licensed.

C. Create an exemption for advice on federal law.

A third option would be to allow all out-of-state lawyers to give advice on federal law and on the law of the states in which they are admitted. If a national solution is not available, action in each state will be needed. The Florida Supreme Court in Florida Bar v. Savitt and Chandris v. Yanakakis has allowed out-of-state lawyers to give advice regarding federal law when they are temporarily in the state and to give advice regarding other non-Florida law. The competing interests involved, and the analysis of the sources of the power to admit attorneys have been discussed elsewhere. The concept is mentioned here to indicate one comprehensive solution to the problems facing in-house counsel whose client wants legal advice when the attorney travels throughout the United States.

D. Maintain the status quo.

Keeping the regulations as they are now written is an option. However, this would maintain the current inequitable treatment of in-house counsel. Lawyers working at law firms are permitted to escape UPL prosecution by associating with another lawyer licensed in the state. Although this approach represents a shallow analysis which has been discussed elsewhere, in-house counsel licensed out-of-state are still disadvantaged to the extent that disciplinary authorities will not allow them to escape UPL prosecution by associating with another lawyer in the legal department who is licensed in the state. In addition, as previously mentioned, the California Supreme Court in its opinion in Birbrower has cast doubt on the protection available through associating local counsel.

E. Enact federal legislation.

It is conceivable that Congress could be prodded to enact federal legislation which would exempt out-of-state lawyers from prosecution for the unauthorized practice of law. Once in place, the operation of the Supremacy Clause would require the states to accept the federal regulation. Congressional action is a possibility; one of its advantages is that those pushing for change could focus their attention only on the House and Senate rather than mounting 50 separate campaigns lobbying the appropriate decision-makers in each of the 50 states.

However, federal legislation in this area raises its own set of difficulties. Most importantly, once the regulation of lawyers is in the hands of legislators, the vagaries of the political process may well result in an illogical, unworkable provision. In addition, other interested groups might see this as an opportunity to pursue their own agendas at the expense of attorneys. (Management at the Big Five professional services organizations, for example, might be quite interested in this legislation.)

In addition, practical problems remain. No group is currently committed to organizing constituent pressure on this issue. A significant amount of time and resources would have to be spent to have even a chance at getting federal legislation passed. In addition, few representatives would be interested in taking up the cause and sponsoring the needed legislation.

III. Changes Indicated by the California Supreme Court.

Under the traditional analysis, a lawyer who remained physically located within a jurisdiction in which he is licensed, was thought to be able to properly give legal advice, including advice regarding the laws of other jurisdictions. However, for lawyers who give legal advice regarding California law, a new analysis is needed in light of the California Supreme Court's opinion in Birbrower. By indicating that Calif. Bus. & Prof. Code section 6125 can be triggered when an out-of-state lawyer gives advice on California law even when he is not physically present in the state, the court takes the position that a lawyer can violate California's UPL prohibition even if he gives his legal advice while located elsewhere. Consider the following hypothetical:

Prior to Birbrower, Lawyer L would not have been in danger of prosecution for a UPL violation. However, after Birbrower, she must analyze whether she is giving advice on California law to a California company. The court did not provide explicit guidance on the standard to be used to determine whether an entity is a California company. A company organized under the laws of California and operating in the state would certainly be included.

From the perspective of preventing later problems, it would be prudent to assume that any company with substantial operations in the state also might be viewed as a California company, even if it is not organized under the laws of California.

If her employer is viewed as a California company, Lawyer L must sort through the Birbrower opinion to ensure that her actions do not amount to a UPL violation. Under the Birbrower "sufficient contacts" test, an out-of-state attorney is deemed to be practicing law "in California" whenever the attorney engages in "sufficient activities in the state or create[s] a continuing relationship with the California client that include[s] legal duties and obligations." The court states, "one may practice law in the state in violation of section 6125 although not physically present here by advising a California client on California law in connection with a California legal dispute by telephone, fax, computer, or other modern technological means." The court's opinion makes it clear that no out-of-state lawyer in that situation will be able to confidently predict whether his actions will be held to violate the UPL prohibition. Declaring that each case must be decided on its individual facts, the court says, "[A]lthough we decline to provide a comprehensive list of what activities constitute sufficient contact with the state, we do reject the notion that a person automatically practices law "in California" whenever that person practices California law anywhere, or "virtually" enters the state by telephone, fax, e-mail or satellite."

The language of the opinion should not be read to prevent in-house counsel employed by non-California companies from giving legal advice on California law. However, lawyers not licensed in California who advise California companies must recognize that California courts may find that their work violates the Birbrower standard.

If other states adopt this approach and begin regarding advice concerning their state's law to be practicing law "within the state" even when the lawyer does not provide the advice while located there, a new category of UPL prosecution will be opened. For example, if Delaware adopted it, a lawyer giving advice to executives at a Delaware corporation about procedures for a Board of Directors meeting would be viewed as interpreting Delaware law. He could be prosecuted for engaging in the unauthorized practice of law even if he was licensed in the state in which he gave the advice. In the two years since the California Supreme Court issued its opinion, no other state's highest court has adopted the expansive interpretation of "practicing law in the state" which California pioneered in the Birbrower opinion. However, lawyers with a multijurisdictional practice are well-advised to take an active interest in developments in this area of law.

IV. Conclusion.

Multijurisdictional practice has become the norm, rather than the exception. The current UPL provisions in most states make no distinction between ordinary legal work performed by out-of-state lawyers and advice given by persons who have no legal training at all. It is time to change the regulations. In light of the increasing awareness of the evolution in the arena in which legal services are delivered, the opportunity for change is at hand. Accounting firms and other professional services providers are free to send "consultants" across the U.S. and to other countries without geographic restrictions imposed by the states. There is no client protection problem presented when in-house lawyers are allowed to practice law across state boundaries. The disciplinary record in the fifteen jurisdictions which currently permit in-house lawyers to practice without taking yet another bar examination provides some empirical evidence which should demonstrate that the lawyers in those jurisdictions continue to uphold their duty of competence and other professional obligations to their clients, even though they did not take the bar examination in those states. There are reasons to allow even transactional attorneys working in private law firms to give advice across state lines, especially

advice on federal law. Surely an in-house lawyer, working exclusively for a single sophisticated client should be permitted to give advice wherever the corporation needs his legal services.

Copyright 2000 by the American Bar Association, Stein Center for Law and Ethics at Fordham University School of Law, Attorneys Liability Assurance Society and the American Corporate Counsel Association. All rights reserved.