The MDP Commission Report: A Good Beginning
 

Scott Univer *

The Recommendation and Report of the ABA's Commission on Multidisciplinary Practice is an important document that breaks new ground in recognizing the need to revamp the Model Rules of Professional Conduct to enable the American legal profession to be more competitive and more responsive to the needs of clients. By recommending that lawyers should, subject to certain safeguards, be permitted to share fees with nonlawyers and to deliver legal services through MDPs in partnership with nonlawyers, the Commission has recognized the need for considerably more flexibility in the organizational settings in which lawyers practice than is permitted under current rules. While affirming that the legal profession should continue to adhere to rules that protect its core values, the Commission pointedly concluded that the profession "should not permit existing rules to unnecessarily inhibit the development of new structures for the more effective delivery of services and better public access to the legal system."(1)

The Commission's unanimous conclusion that it is possible for lawyers to practice in combination with nonlawyers "without compromising the core values of the legal profession"(2) is certainly a welcome change from the traditional stance of the organized bar. Likewise, the Commission's proposal for permitting MDPs under a regulatory scheme that assures that all lawyers who deliver legal services in an MDP format should be bound by the legal profession's rules of conduct is a useful step forward in assuring that such activities will be undertaken in ways consistent with the highest standards of the profession.

However, in formulating its recommendations, the Commission incorporated certain limitations that significantly reduce the attractiveness of MDPs from a potential user's standpoint. These restrictions are not only curious from a substantive standpoint, but they also limit the flexibility of this new practice vehicle in ways that seem inconsistent with the overall thrust of the Commission's findings.

Most significantly, the Commission's recommendation appears to endorse MDPs, but only if they are relatively small. That is the practical effect of the Commission's twin decisions to ban so-called passive investments in MDPs and to treat all clients of an MDP as clients of the lawyers for purposes of conflicts of interest.

As to the first _ the prohibition of passive investments _ the Commission's recommendation contemplates that all "members" of a permitted MDP must be actively engaged in providing services (either legal or non-legal) to clients of the MDP. Thus, the Commission would prohibit MDPs, or the law firms or other organizations forming them, from raising funds to support their operations through traditional access to the capital markets. This inability to access the capital markets has historically been a major factor in limiting the growth of law firms and in putting them at a distinct competitive disadvantage vis-à-vis other professional services organizations. As lawyers, using the MDP format, move toward the offering of non-legal as well as legal services, this competitive disadvantage will become even more acute.

Although the Commission report is silent as to its rationale, the prohibition on passive investment stems presumably from concerns about maintaining the independence of professional judgment of the lawyers participating in an MDP. However, this justification cannot withstand close scrutiny. First, the Model Rules clearly permit lawyers to work in-house at corporations or for insurance companies under pre-paid legal services plans without suggesting that the independence of their professional judgment is compromised by the presence of "passive investors" in those enterprises. And second, under the Commission's recommendation, all MDPs not controlled by lawyers would be required to register with the highest court in each jurisdiction where they offer legal services and to certify on an annual basis, subject to verification by administrative audit, that they have in place "procedures designed to protect a lawyer's exercise of independent professional judgment on behalf of a client from interference by the MDP, any member of the MDP, or any person or entity controlled by the MDP."(3) Given these facts, it is difficult to understand why the Commission felt constrained to prohibit passive investments in MDPs, particularly since it puts the legal profession at such a competitive disadvantage.

Another problem relates to the Commission's decision to apply the conflict of interest rules _ and, indeed, all of the requirements of the Model Rules _ to the whole of every MDP, regardless of the size or organizational structure of the MDP entity. At the hearings held by the Commission, a number of witnesses urged that the Commission consider limiting the applicability of the provisions of the Model Rules to those units of MDPs actually providing legal services, albeit with requirements for adequate "fire walls" between such units and other operating units of the MDPs. By rejecting this suggestion, the Commission in effect opted for limiting the size of MDPs in the same way that law firm growth is artificially constrained by application of the so-called "imputation rule" on conflicts.(4) While, again, the overly expansive nature of the conflict standards set out in the Model Rules is not a uniquely MDP problem, it operates _ as in the case of the passive investment prohibition _ to place MDPs offering legal services at a competitive disadvantage to other types of professional services organizations. While one can understand the Commission's reluctance to take on this difficult issue, the recommendation as it stands significantly reduces the potential benefits of the MDP format as a means of re-positioning the legal profession from a competitive standpoint.

Aside from these issues, there is at least one element of the Commission's recommendation that threatens _ quite needlessly _ to create an administrative nightmare, and that relates to the attempted definition of "legal services." Specifically, the Commission recommends that lawyers working in an MDP should not be permitted to claim that the services they are offering are not legal services "if those services would constitute the practice of law if provided by a lawyer in a law firm."(5) Presumably this provision is aimed primarily at accounting firms that offer, inter alia, tax consulting services to their clients. The Commission appears to be saying that, if a lawyer working in an MDP were offering tax consulting services, he or she should not be permitted to claim that such services were not legal services and thus avoid complying with the rules that would otherwise be applicable to the provision of legal services by lawyers in the MDP. The problem, however, is that the standard set out by the Commission to make this judgment is impossibly flawed. By suggesting, as it does, that "legal services" consist of anything that lawyers in law firms may do, the Commission has embarked on a definitional slippery slope that may well have unintended consequences.

In the first place, there is a very wide range of services that if performed in a law firm clearly constitute the practice of law but if performed outside a law firm _ even by nonlawyers _ do not constitute the unauthorized practice of law. Indeed, there are numerous court decisions throughout the country making this important distinction. It is also probably safe to say that some lawyer in some law firm has at some time or other performed virtually every kind of service offered by other professional services organizations. Consequently, the range of "legal services" under the Commission's definition would be exceedingly broad. And the consequences of that broad definition would be serious.

For example, the Commission's recommendation also states that "[n]onlawyers in an MDP, or otherwise, should not be permitted to deliver legal services."(6) Using the overly broad definition of "legal services" described above, the Commission would presumably regard any nonlawyer in an MDP who performs any service that could be performed in a law firm _ regardless of the nature of the service _ as engaging in the unauthorized practice of law, a conclusion that could easily be at odds with established judicial precedents.

One must therefore question whether the definition of "legal services" offered by the Commission is either workable or necessary. Presumably, the reason for suggesting the rule in the first place was to create some means of easily ascertaining who within an MDP is subject to the rules as a practicing lawyer and who is not. If that is the case, there are clearly less cumbersome ways of achieving that objective. For example, during the course of the Commission's hearings, several witnesses proposed some type of "opt in" procedure under which lawyers working in an MDP would formally subject themselves to the discipline of the Model Rules. Other witnesses suggested that lawyers working in MDPs who elected to remain active members of the bar might be presumed to have agreed to such restrictions. The point is that, as awkward as these mechanisms might be, they are far preferable to the course taken by the Commission _ attempting the difficult task of defining the practice of law in a workable and practical way.

As noted at the outset, the Commission, with its Recommendation and Report, has taken a very important first step toward helping the legal profession become more competitive and more responsive to the needs of its clients. What is needed now is a firm resolve to not be satisfied with limited measures in achieving the salutary goals that the Commission has set out.


* Scott Univer is general counsel of the accounting firm of BDO Seidman.

  1. Recommendation and Report of the ABA Commission on Multidisciplinary Practice ("Commission Report"), Recommendation at 1.
  2. Id., Report at 2.
  3. Id., Recommendation at 2.
  4. Under Rule 1.10 of the Model Rules, the knowledge of one lawyer in a law firm is "imputed" to all other lawyers in the firm in the application of conflict of interest rules. Thus, a partner in a firm's New York office is presumed to know everything that his partners in Los Angeles, London, or Hong Kong know for purposes of determining conflict of interest issues. This rule poses serious problems for multi-office and multi-national law firms _ problems that, under the Commission's recommendation, would be extended to MDPs as well.
  5. Commission Report, Recommendation at 2.
  6. Id., Recommendation at 1.
   

2001 The Federalist Society