Ronald D. Rotunda *

Accountants obviously can engage in accounting without practicing law. Yet, when they prepare complex income tax returns and give tax advice regarding complex transactions, there can come a time when the accountant may be said to be applying the law to the specific facts and, in effecting, practicing law.(1) If accountants are found to be "practicing law," it does not matter that they perform their legal services as well as, or even better than, a lawyer in the particular matter,(2) because it has never been a defense to the unauthorized practice of law that the advice rendered is completely competent.

If the accountant is also a lawyer admitted to the bar, the accountant still may not practice law if she is employed by an accounting firm, because accounting firms (just like corporations) may not practice law. Thus, if a law firm hired an accountant, there would be no problem with the accountant practicing accountancy because the law forbids unauthorized practice of law, not unauthorized practice of accountancy. But the accounting firm cannot practice law, even if lawyers admitted to the bar are the employees of that accounting firm. In other words, the ethics rules now forbid a lawyer and accountant from practicing together, if any of the practice includes giving legal advice, unless the lawyer is in charge. If the lawyers are in charge, they can include these nonlawyer accountants in "a compensation or retirement plan that is based in whole or in part on a profit-sharing arrangement."(3)

One should reread the preceding paragraph. It tells us that lawyers can form partnerships that engage in the practice of law and in accountancy and share fees with accountants, as long as lawyers are the bosses. If accountants are in charge, then it would be a violation of the ethics rules for the lawyers to give legal advice, even though these lawyers are duly admitted to the bar and give perfectly competent advice. Lawyers write the ethics rules, they persuade state courts to adopt them as positive law (just like the rules of civil procedure are law), and they use these rules to govern what role that accountants or other professionals may have in firms that are engaged in multidisciplinary practice. There is multidisciplinary practice ("MDL") when an entity or other association that includes both lawyers and nonlawyers, provides both nonlegal and legal services to clients, and shares profits with the participants in this entity and the nonlawyers are not the employees of the lawyers but also share managerial responsibility.

That is the rule today, but it was not always so. When the American Bar Association first adopted the original Canons of Professional Ethics, in 1908, it had no Canon that prevented lawyers and accountants and other professionals from forming partnerships. In 1928 the ABA added Canon 32, the second paragraph of which stated: "Partnerships between lawyers and members of other professions or nonprofessional persons should not be formed or permitted where any part of the partnership's employment consists of the practice of law."(4) Notice that the rule is not phrased in the imperative; it is only expresses an aspiration, "should."

It was not until 1969 that the ABA House of Delegates approved DR 3-102(A) of the ABA Model Code of Professional Responsibility. That Disciplinary Rule made mandatory what had been only a precatory standard. When the ABA approved the Model Rules of Professional Conduct in 1983 it continued this prohibition in Rule 5.4(b).

In 1983, the drafters of the Model Rules proposed reform in this area, and recommended that nonlawyers be permitted to form partnerships with lawyers if there would be no interference with the lawyers' independent professional judgment or with the lawyerclient relationship, the lawyers could keep client confidentiality, and the advising and fee arrangements did not violate any of the ethics rules governing lawyers. But, during the ABA floor debates an ABA delegate asked: "Does this rule mean Sears & Roebuck will be able to open a law office?" When the Reporter for the Model Rules, answered "Yes," the proposal failed.(5)

The laws that American jurisdictions have regarding the practicing of law by accountants are not reflected abroad. Accounting firms in Europe, for example, are able to offer their clients both accounting advice and legal advice with respect to drafting documents, negotiating transactions, and so forth. Clients want one-stop shopping, and so American accounting firms are expanding abroad and joining forces with foreign firms because that is what market forces dictate, even though such multidisciplinary practice is not yet allowed in the United States. As the chairperson of Pillsbury, Madison & Sutro has noted, "forward-looking firms" will lobby to change the ethical rules limiting multidisciplinary practice because, it "is so obvious that the market wants this."(6) Of course, clients should also be protected by the ethical rules governing lawyers, but the purpose of those ethical rules ought be only to protect clients, not to protect lawyers from competition from the giant accounting firms.

It would be difficult to exaggerate the significance of the expansion of American accounting firms both in this country and abroad. In early 1999, two major accounting firms that operate both in the United States and abroad, Arthur Anderson and PricewaterhouseCoopers, employed more than 1,500 lawyers working around the world.(7) In 1999, more big name tax lawyers who are rainmakers are leaving law firms to join the Big Five accounting firms.(8) If the Big Five accounting firms were included in annual ranking of law firms by size, they already employ so many lawyers that they would occupy four of the top 15 places and two of the top five.(9)

Traditional law firms are finding themselves in a competitive disadvantage. Witness, for example, the title of a recent article in the American Bar Association Journal on this subject: "Squeeze: As Accountants Edge into the Legal Market, Lawyers May Find Themselves Blindsided by the Assault But Also Limited by Professional Rules."(10)

The American Bar Association is responding. Its special Commission on Multidisciplinary Practice has published its Report and Recommendations on the Internet: http://www.abanet.org/cpr/mdpfinalreport.html

This Commission has proposed dramatic changes that will give the consumer of legal services more options and better service by removing some of the artificial barriers to entry that limit lawyers in offering one-stop shopping to those clients who want that alternative. In some of its significant sections its recommends:

• A lawyer should be permitted to deliver legal services (and share profits) through a MDP, defined as a partnership, professional corporation, or other association or entity that includes lawyers and nonlawyers and has as one, but not all, of its purposes the delivery of legal services to one or more clients other than the MDP itself.
  
  
• Nonlawyers in an MDP should not be permitted to deliver legal services; when lawyers in an MDP delivers legal services to the MDP's clients, they should be bound by the Rules of Professional Conduct.
  
  
• Lawyers acting in accordance with a nonlawyer supervisor's resolution of a question of professional duty should not be excused from failing to observe the rules of professional conduct based on a theory that they were just following orders.
  
  
• Lawyers in an MDP who deliver legal services to a client of the MDP and who works with, or is assisted by, nonlawyers delivering nonlegal services in connection with the delivery of legal services to the client must make reasonable efforts to ensure that the MDP has in effect measures to ensure that the nonlawyer's conduct is compatible with the professional obligations of the lawyer. (Lawyers in law firms already engage in such supervision of lay assistants when, e.g., they instruct the paralegals to protect client confidences.)

The Commission's proposals are a significant step in the direction of loosening the restrictions governing MDP's, but the Commission has proposed other restrictions that may be more controversial:

• In connection with the delivery of legal services, all clients of an MDP should be treated as the lawyer's clients for purposes of conflicts of interest and imputation in the same manner as if the MDP were a law firm and all employees, partners, shareholders or the like were lawyers.

Lawyers would be upset if they had to follow accounting rules when they were not engaged in the practice of accountancy. We may expect that accountants may object to being forced to comply with legal rules regarding conflicts of interest when they are not engaged in, or aiding in, the practice of law.

This proposed imputation rule assumes that the entire MDP should be treated as one law firm. On the other hand, ABA Model Rule 1.10, Comment 1, advises that the definition of "firm" should "depend on the specific facts." A "legal department of a corporation or other organization" may be the same firm. Should the "legal department" of a MDP be treated as just one firm? If so, then its disqualifications would not automatically be imputed to everyone else in the MDP.

Later, in this same Comment to Rule 1.10, the ABA advises: "A group of lawyers could be regarded as a firm for purposes of the rule that the same lawyer should not represent opposing parties in litigation, while it might not be so regarded for purposes of the rule that information acquired by one lawyer is attributed to the other." That Comment appears to directly undercut the assumption of the Commission that the entire MDP should be treated as a firm for purposes of imputing knowledge from one nonlawyer in the Berlin office to a lawyer in the New York office.

The Commission also recommended:

• "A lawyer in an MDP should not represent to the public generally or to a specific client that services the lawyer provides are not legal services if those same services would constitute the practice of law if provided by a lawyer in a law firm. Such a representation would presumptively constitute a material misrepresentation of fact."

This ominous rule raises other questions. Assume that a lawyer in an MDP does not represent to the world that she is working as a lawyer. There are many things that a lawyer does that can also performed by a nonlawyer, such as estate planning, accounting, economic analysis, lobbying, tax planning. If the person who happens to be engaged in lobbying is a lawyer (whether or not admitted to the bar of that particular jurisdiction), why is there a "material misrepresentation of fact" if the person does not hold herself out to be a lawyer while she engages in lobbying?

Nonetheless, the ABA Commission on Multidisciplinary Practice has gone a long way in removing barriers to the existence of MDP's when those barriers are not needed to protect clients. It remains to be seen how the House of Delegates react to these major reforms. ABA President Philip S. Anderson acknowledged that change in the legal profession is "inevitable" in this area, and the ABA should not put roadblocks to the creation of new types of legal practice that give clients more choices without limiting those rules designed to protect their rights. However, Anderson also predicted that these reforms may still years away.(11) The global economy may not wait that long for the ABA to act.

The ABA Commission's proposal for reform of the rules governing MDP are already proving to be controversial. Four state and local bar associations (N.Y. County Lawyers' Association; N.Y. State Bar; Florida Bar; Ohio Bar; ) have already vocalized their strong opposition to Commission's proposals. (See, ABA/BNA Manual on Professional Conduct, Current Reports, vol. 15, No.12, July 7, 1999, at p. 323.)

* Ronald E. Rotunda is the Albert E. Jenner, Jr. Professor of Law at The University of Illinois College of Law.

1. See, Lowell Bar Association v. Loeb, 315 Mass. 176, 52 N.E.2d 27 (1943); Matter of Bereu, 273 App. Div. 524, 78 N.Y.S.2d 209 (1st Dept. 1948).
2. Donald Weckstein, Limitations on the Right to Counsel: The Unauthorized Practice of Law, 1978 Utah L. Rev. 649, 650 (tax accountants may know more of tax law than lawyers who are not tax lawyers).
3. ABA Model Rule 5.4(a)(3) (emphasis added).
4. ABA Canons of Professional Ethics, Canon 33 (emphasis added), reprinted in Thomas D. Morgan & Ronald D. Rotunda, 1999 Selected Standards on Professional Responsibility 627 (Foundation Press, N.Y., N.Y. 1999).
5. Thomas D. Morgan & Ronald D. Rotunda, Problems and Materials on Professional Responsibility 539 (Foundation Press, 6th ed. 1995).
6. Inside: New Pillsbury Madison Chair Aims for MDP, Int. Fin. L. Rev. 4 (Feb. 1999), quoted in, Laurel S. Terry, Multidisciplinary Practice: Examining the Issues, presented at the 25th Annual Conference on Professional Responsibility, June 3, 1999, LaJolla, Calif. See also, The Bar Must Change Model Rules, MDP [Multidisciplinary Panel] Panel Told, Tax Notes, Feb. 15, 1999, at 951: "The bar must abolish or amend the ethical rules that prevent lawyers from engaging in some form of multidisciplinary practice, according to an overwhelming majority of witnesses appearing before an American Bar Association commission in Los Angeles February 4-6." See also, National Conference of Lawyers and CPAs Endorse MDPs, Tax Notes, March 15, 1999, at 1543.
7. Paul M. Barrett, Drive to Go Global Spurs Law-Firm Merger Talk, Wall Street Journal, March 18, 1999, at B1, col. 5.
8. Tom Herman, Tax Report, Wall Street Journal, March 24, 1999, at p. A1, col. 5.
9. Laurel S. Terry, Multidisciplinary Practice: Examining the Issues, presented at the 25th Annual Conference on Professional Responsibility, June 3, 1999, LaJolla, Calif. See also, Laurel S. Terry, What If? . . . The Consequences of Court Invalidation of Lawyer-Accountant Multidisciplinary Partnership Bans, in, Private Investment Abroad C Problems and Solutions in International Business in 1998 (Matthew Bender 1999), at ch. p.
10. John Gibeaut, Squeeze: As Accountants Edge into the Legal Market, Lawyers May Find Themselves Blindsided by the Assault But Also Limited by Professional Rules, A.B.A. J., Feb. 1998, at 42.
11. ABA/BNA Lawyers Manual on Professional Conduct, News, vol. 15, No. 10 (June 9, 1999).