|
MEMORANDUM TO: Members, Virginia
Joint Commission to Study Multidisciplinary Practices (MDPs)
Introduction
Activity of
the American Bar Association At its July 2000 meeting in New York, the ABA House of Delegates adopted Resolution 10F, rejecting the ABA Commission's Recommendations, calling for measures to step up enforcement of current rules and discharging the ABA Commission on MDPs. This measure passed overwhelmingly by a vote of nearly 3 to 1.
Activity of
other State Bars and Bar Associations Twenty-three
states have appointed committees but the committees have not yet
returned reports. States that have
come out opposed to MDPs are: Florida, Illinois, Kansas,
Kentucky, Nebraska, New Jersey, New York, Ohio, Pennsylvania, Tennessee,
Texas The Virginia MDP Commission was appointed in 1999 by past President W. Scott Street, III. The Virginia MDP Commission conducted its first organizational meeting in Williamsburg on January 13, 2000. Due to serious illness, the Commission Chair, Robert Nusbaum was not able to attend the first meeting and further meetings were abated pending report on his health. Mr. John A. C. Keith served as interim Chair and recently was appointed permanent Chair of the Commission after Mr. Nusbaum indicated that he would prefer to serve as a member rather than Chair of the Commission. A Steering Committee was appointed which met by conference call on August 10, 2000 to assist the Commission in refocusing on its mission. Participating in that conference were: John Keith, Tom Edmonds, Jim McCauley, Tom Spahn, Frank Thomas, Heman Marshall and James White. As a result of this conference some "Working Groups" were established:
The primary function of the Ethics/UPL Group is to spot issues and propose solutions as they relate to the ethics and UPL implications of MDPs. The purpose of the Accountancy Regulation Group is to study and inform the rest of the Commission regarding what professional ethics rules apply to accountants working in MDPs and how they would apply in contrast to lawyer ethics rules. The Other Disciplines Group would consider how lawyers and other disciplines might work (or not work) in a MDP. The Effect on Small/Solo Law Firms will explore how MDPs may hurt or help small and solo firms if MDPs were permitted in Virginia. Education and Communication will deal with informing the rest of the bar and public on the work of the Commission and recommend ways to obtain comment and input from the bar and public on MDPs. The Commission's meeting dates are on Tuesdays: August 29, September 26, October 24, November 28, December 19, and January 23, 2001. Possible Objectives of the Virginia Joint Commission on MDPs
To facilitate
the flow of information and comments between the Joint Commission
and members of the Virginia bar, the Commission should establish
a webpage that can be accessed through the VSB website at www.vsb.org.
The ABA Commission also has a website with links to the Commission's
report and recommendations as well as many state, local and international
bar associations' reports, at www.abanet.org.
Summary of the Report and Recommendations of the ABA Commission on MDP In August 1999, the Commission on Multidisciplinary Practice of the American Bar Association submitted a report to the ABA on whether to make changes to the ABA Model Rules of Professional Conduct to permit lawyers to deliver legal services in professional services firms that include nonlawyers who provide nonlegal services. This form of law practice is known as multidisciplinary practice (MDP). After considerable study and testimony, the Commission concluded that there is strong interest among both clients and lawyers in allowing lawyers to practice law in MDPs. The chief obstacle to MDPs is that most state legal ethics rules prevent lawyers from sharing legal fees with nonlawyers, entering into partnerships with nonlawyers that include the practice of law, and practicing law in a firm in which a nonlawyer owns a financial interest. The key ethics rule is Rule 5.4, but others are implicated in the discussion. The ABA Model Rules are not binding on the states, but modifications to them carry significant weight because of the leadership role of the ABA and because most states have adopted and follow a version of the Model Rules. The impetus behind
MDPs is that in recent years Big 5 accounting firms have been hiring
lawyers to provide legal services to accounting clients, in part
to meet competition in international markets, where lawyers are
permitted to practice in MDPs. MDPs would not, however, be limited
to accounting firms that offer legal services. The variety of MDPs
is limited only by the potential combinations of professions involved,
individuals or entities associated, and duration of the MDP, among
other characteristics.
Please observe
that the Commission recommended keeping the current ethical rules
against fee-sharing with nonlawyers, partnerships with nonlawyers
offering legal services, and nonlawyer ownership interests in law
firms, and the suggested amendments would create certain exceptions
to permit lawyers to practice in MDPs. The Commission considered
but decided not to address its recommended amendments in the "larger
context of the practice of law across state borders." The Commission
also stressed that it did not recommend permitting nonlawyers to
deliver legal services or otherwise changing rules against unauthorized
practice of law, except to allow lawyers to deliver legal services
through MDPs.
Principal Arguments In Favor of the ABA Recommendation Technology, instant communications, and globalization of commerce demand new ways to address and solve business problems. Clients increasingly need coordinated advice from teams of professionals from various disciplines. Clients prefer to get all these services under one roof -- "one stop shopping for a seamless web of professional services." Clients should not be precluded from getting services in this way by rules drafted by lawyers at a different time under different circumstances. Let the marketplace decide whether this is a good idea. MDP already exists in accounting firms and other settings, denoted as "professional" or "consulting" services. It will continue to happen no matter what the legal profession wants. Get with it or get buried by it. If we want to help shape the direction this takes, we must move in this direction now before it is too late. Look at what the accounting firms are doing abroad -- acquiring law firms at a breathtaking pace. Even in the U.S., accounting firms are hiring good lawyers away from firms and good law students. These lawyers are not all "practicing tax." They are practicing law in various settings even though they say they are not. Ernst & Young is financing a law firm in Washington D.C [McKee, Nelson, Ernst & Young]. The ABA proposal
is a reasonable step in the direction of bringing back under our
rules those lawyers now operating outside the rules in these other
settings. The proposal was supported by such diverse groups as AARP,
the solo and small firm section of the ABA and the American Corporate
Counsel Association. In other words, it is not just the accounting
firms who are driving this. Consumer groups also testified in favor.
Finally, lawyers need to face the fact that they are not well regarded by large segments of the public -- many of whom think greed and self-interest are the primary motivations of most lawyers. After the House of Delegates rejected MDPs in July 2000, an article appeared in the Wall Street Journal, criticizing the ABA's move as "anti-competitive" and "turf-protective." The rules against fee-sharing and against partnerships with non-lawyers are merely another example of lawyers trying to protect their own self-interest. If we insist on enforcing those rules, we just reinforce those negative views about the profession. Furthermore, those rules weren't even part of our ethical rules until 1928, didn't become mandatory until 1969 and were criticized as far back as the Kutak report in 1983. Thus, it is hard to argue that those rules are fundamental to our core values. The experience in Europe seems to show that MDPs have operated for a number of years now with little or no complaint by clients. Moreover, the
cost of enforcing the ethics and UPL rules against MDPs and lawyers
practicing in them may outweigh any benefits of enforcement. The
definition of the "practice of law" is too broad and distinguishing
between "legal information" as opposed to "legal advice" may make
UPL enforcement extremely difficult. The bar could conceivably win
in a court case or bar proceeding, only to face legislative intervention,
thus "winning the battle, but losing the war." The market and political
forces are too strong for the bar to preserve the status quo and
the choice is to change voluntarily, or the legal profession will
be forced involuntarily to change. The ABA Commission
on Multidisciplinary Practice issued an updated report in December
1999, to address some of the criticisms that have been voiced by
opponents to its recommendation, including the following. Maintaining the prohibition against passive or equity investment in law firms may place traditional law firms at a competitive disadvantage in an MDP climate, because the MDPs will be able to draw on their earnings to finance and subsidize their legal services units, while traditional law firms must continue to rely on bank financing to raise capital. The ABA recommendation does not adequately address the segregation of fees from client funds. The Commission on IOLTA (interest on lawyers' trust accounts) proposes that the existing rules of professional conduct governing a lawyer's receipt, safeguarding and distribution of client funds be made applicable to all client funds received by an MDP. The ABA Commission's recommendation does not adequately outline how MDPs would be regulated, certified and audited in the various jurisdictions, or how these operations will be funded. The ABA Commission's recommendation does not propose adequate safeguards for the independent professional judgment of a lawyer practicing in an MDP. The infinite variety of MDP structures that may arise may call for variable rules, depending on the size of the MDP or of its legal services unit, or depending on whether the organization or the legal services unit is controlled/managed by lawyers or nonlawyers. Does the advent of MDP call for a new, more specific or broader definition for the term, "the practice of law?" The ABA report includes a new definition -- is that definition appropriate? Should the control of an MDP be limited to lawyers as a way of ensuring the independent professional judgment of lawyers practicing in MDPs? If that requirement were imposed, it would eliminate the need to treat MDPs controlled by nonlawyers differently from MDPs controlled by lawyers. Presumably, it would also eliminate the interest of the large accounting firms in having MDPs including lawyers. Should MDPs be permitted to provide both audit and legal services to the same client? How can such conflict of interest issues be regulated? If both audit and legal services cannot be provided to the same client, is there a market for accounting/legal MDPs?
Other Criticisms
The ABA offers
no empirical evidence that the consumers of legal services are demanding
MDPs, nor really any benefit analysis at all. The Big 5 accounting
firms are the impetus for and champions of MDPs, but their motive
is advancement of their own economic interests. The ABA's proposed
safeguards to the core values of the legal profession, resting in
the hands of the already over-burdened and underfunded state supreme
courts, are not likely to be effective. Enforcement is likely to
be quite inconsistent from one jurisdiction to the next. How can
courts discipline nonlawyers who are not subject to the court's
powers of suspension or disbarment? Burying our heads in the sand is not an option. Opposition to MDPs by the organized bar will not stem the tide of de facto MDP's in the accounting firms and elsewhere. The existing rules must be aggressively enforced to retard the growth of MDPs, or lawyers will be put to an increasing competitive disadvantage compared to accountants and others who provide legal services without being required to adhere to the same ethical standards that govern lawyers. Small practitioners, solos and young lawyers starting out in practice will be most adversely affected by MDPs, as they will not be able to compete with large well-funded accounting firms. Young lawyers will suffer from the lack of mentoring by experienced, ethical lawyers as they learn how to practice in the real world. The ultimate victims will be the public, who will lose the right to choose and the right to the personal services of a trusted lawyer. A lawyer in an MDP would need to have the information necessary to identify conflicts of interest and address them; this process will be more complicated in an MDP, especially where clients may receive multiple services from the MDP, and only come to request legal services at a later stage of the relationship. It is inevitable that the sharing of fees earned through blended professional services will affect the lawyers' judgment for the good of the organization rather than the singular benefit to the client. Lawyer advertising has demeaned our profession. Advertising, solicitation and referral issues in other professions are not subject to the same degree of standards and regulation. It can only get worse with MDP. Consumers already do not understand the benefits they derive from the core values of our profession. How will lawyers go about explaining the loss of those benefits to a client who engages an MDP? Will there be
any restrictions on who can form MDPs? Will an attorney be allowed
to form a MDP with a doctor and a chiropractor and share in the
fees generated by a personal injury client? What will prevent the
attorney asking for or the doctor recommending a course of treatment
which may be unnecessary because the fees generated will benefit
the MDP? Can the doctor in the MDP properly serve as an expert witness
in a case when a positive outcome will financially benefit the MDP
and ultimately the doctor and attorney personally? Is it enough
to state that the alliance can affect the credibility of the expert
witness and to let the jury decide? Can personal injury lawyers
form MDPs with tow truck and ambulance drivers and circumvent the
rules against "running and capping?" Will an estate attorney be
allowed to form a MDP with a tax planner, certified financial planner
and bank, which is consistent with "one stop shopping" but could
lead to the bilking of the client for fees?
|