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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.
- Recommendation and Report of the ABA Commission
on Multidisciplinary Practice ("Commission Report"),
Recommendation at 1.
- Id., Report at 2.
- Id., Recommendation
at 2.
- 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.
- Commission Report, Recommendation
at 2.
- Id., Recommendation at 1.
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