Although MDP has been developing in Europe for nearly a decade, the ethics and unauthorized practice of law ("UPL") rules in every state in the United States, except the District of Columbia, forbid lawyers from sharing fees or entering partnerships with non-lawyers. The national dialogue on MDP often focuses on whether huge accounting firms will be allowed to merge with large law firms. However, the MDP issue is properly seen as much broader -- involving small law firms and even solo practitioners who believe that their clients might be best served by being able to obtain multiple professional services from one entity. While much of the media's focus has been on the activities of the "Big Five" accounting firms, the controversy over MDP is a continuation of long-standing debate on whether the prohibitions on "fee-splitting" and "partnering" with non-lawyers makes sense in a changing business and regulatory world.

The Changing Nature of Professionals

In the past, each profession had fairly well-defined roles. In recent times, the distinctions have begun to blur as many professional firms have expanded their services to better meet the needs of their clients. This change involves lawyers practicing outside traditional law firm settings, as well as non-lawyers performing tasks that lawyers have traditionally undertaken.

The uncertainty caused by both of these developments is exacerbated by the inherent difficulty of defining the "practice of law." For instance it is improper for a non-lawyer to give "legal advice," but such non-lawyer may give "legal information" to third parties. Distinguishing between these two concepts is very difficult, and is only one of the many problems facing the Bar in any effort to enforce UPL restrictions.

Thus, many lawyers working in professional service firms and corporations do not consider themselves to be "practicing law." An example of this phenomenon is lawyers being employed by accounting firms and using their experience and training to serve the needs of their firm and its clients. The question is -- are they "practicing law?"

The issue of non-lawyers performing tasks that lawyers have traditionally handled can also be clearly seen. Consolidation and convergence is rapidly occurring in the areas of estate planning, financial planning, tax planning, probate and trust services. Today, in each of these areas, professionals other than lawyers are doing exactly what lawyers do for their clients. Twenty-five years ago these service areas were separate and distinct. Lawyers provided planning advice and drafted documents. CPA's prepared income tax returns and did audits. Stockbrokers sold stocks and bonds. Life insurance agents sold life insurance. Bank trust departments provided fiduciary services. None of these professionals encroached on the other's "turf" and typically they worked together as a "team" referring clients to each other. This is not what is happening today. Many of the stock brokerage firms offer estate planning services, conduct seminars and develop plans and document provisions to implement them. CPA firms are getting into the investment advisory services and provide clients with all sorts of personal, financial and business advice. Banks are doing likewise, assisting "high-end" customers with tax return preparation, investments, trust creation and management and financial planning services. Insurance agents are also providing their clients with estate planning advice.

Moreover, many non-lawyers work in occupations which require them to know and apply particular laws and legal principles. Examples include accountants, social workers, estate planners, financial planners, investment counselors, employment counselors, real estate agents, foreclosure trustees, ERISA plan managers, loan officers, police officers, building inspectors, OSHA inspectors, environmental engineers and real estate settlement agents. By statute or even the unauthorized practice rules themselves, lay persons are permitted to lawfully perform certain activities which many consider the practice of law. These exceptions or "carve outs" have expanded and will continue to do so in the future.

These factors, together with changes in technology, especially the Internet, have led to an increasing involvement of non-lawyers in law-related endeavors. Non-lawyers are in direct competition with lawyers in the distribution of legal research, legal forms and legal information. Mergers, consolidation and convergence in the professional service markets have enabled companies to provide a broader spectrum of services to their clients. Lawyers must recognize that competition from outside the legal profession is accelerating and prepare to deal with it.

UPL violations are difficult to police, particularly where the clients are well served and do not complain, which is generally the case. The overwhelming majority of UPL is reported not by the clients, but rather by attorneys who act under a notion that they are ethically required to report UPL.

Moreover, non-lawyers will continue to successfully challenge the bar's UPL rules when those rules prevent them from conducting a profitable business and the "clients" are not complaining.(1) In the future, courts and legislatures will almost surely insist that the bar demonstrate actual or likely consumer harm as a result of UPL.

Enforcement of restrictions on UPL, in the Joint Commission's view, is simply not a viable way for the profession to address MDP.

MDPs

What is "multidisciplinary practice" or an MDP? An MDP is 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 a client (other than the MDP itself) or that holds itself out to the public as providing non-legal, as well as legal, services. In its broadest sense, an MDP is an arrangement in which lawyers and non-lawyers work together jointly to serve their clients. For example, a lawyer, a social worker, and a certified financial planner might form an MDP to provide legal and nonlegal services in connection with counseling older clients about estate planning, nursing home care and living wills.

The current debate over MDPs involves a much narrower definition in which lawyers practice law in entities that are wholly or partially owned by non-lawyers (and therefore share their fees with non-lawyers).

In its first report, the ABA Commission on Multidisciplinary Practice (discussed more fully below) aptly summarized the debate over whether the Rules of Professional Conduct should be modified to allow lawyers to practice in an MDP:

Proponents of MDP argue that individual and business clients are better served by a professional service firm that can provide a multidisciplinary approach to problems. Client problems and business solutions are increasingly complex, and traditional law firms cannot satisfy all client needs. Some argue that the prevailing market forces, driven by globalization, consolidation, competition, convergence and technology, will dictate the manner in which professional services are delivered. Many believe these market forces are too strong to resist. They maintain that restrictive, guild-type rules are not in the public interest and restrain trade and competition, keeping the costs of legal services beyond the reach of many. Consumers and lawyers alike should be able to choose how legal and other professional services are delivered.

Opponents are concerned that if lawyers are permitted to deliver legal services in entities controlled by non-lawyers, the "core values" of the legal profession will be damaged and the legal profession will lose its identity. These core values are: (1) independence of judgment, (2) loyalty (by avoiding conflicts), and (3) protecting confidentiality. In the opponents' view, the debate is about whether lawyers can be realistically expected to adhere to these core values of the legal profession in an environment or culture controlled by non-lawyers who do not share such values.

Many forms of MDP are already in everyday use in Virginia, and are permitted under the present rules. Lawyers and non-lawyers have referral networks through which members of different professional disciplines refer clients to one another. Lawyers hire professionals to help serve the lawyer's clients either as permanent members of their staff, or on an ad hoc basis as independent contractors. Various types of formalized strategic alliances between law firms and other service providers are increasing in popularity. Law firms own separate "ancillary businesses" to provide services to clients and others. Some examples include lawyer-owned title companies and governmental relations consulting firms. Accounting firms hire lawyers who (acting as a lay person and not a lawyer) advise clients on a wide variety of subjects such as taxation, regulatory compliance and estate planning.

Significantly, Virginia lawyers currently practice in institutions controlled by non-lawyers, such as in-house corporate counsel, staff counsel for liability insurance companies, counsel for legal service organizations, government lawyers, and counsel for labor unions and public interest groups. These examples not only demonstrate the proliferation of arrangements in which lawyers work in environments controlled by non-lawyers, they also provide some empirical evidence of whether lawyers can be trusted to honor the profession's core values in institutions owned (in whole or in part) or managed by non-lawyers.

II. DEVELOPMENT OF MDPs IN OTHER JURISDICTIONS

The past few years have seen a trend toward, and in some jurisdictions an acceptance of, partnerships between members of various professions, including the legal profession. Globally, the "Big Five" accounting firms aggressively expanded their services well beyond public accounting and tax practice to include other consulting services remarkably similar to legal services offered by traditional law firms. These consulting services offered by the "Big Five" include, for example, advice on such matters as estate planning, mergers and acquisitions, health care regulation, human resources, telecommunications, capital markets and litigation support.

The laws in some countries permit lawyers and non-lawyers to form certain types of business arrangements that are prohibited in the United States. Consequently, the "Big Five" accounting firms aggressively developed markets for legal services in those foreign countries, acquiring ownership interests in, or strategic alliances with, law firms. Moreover, these large accounting firms aggressively recruit lawyers from law schools and laterally hire experienced lawyers from traditional law firms to practice in areas other than tax.

In continental Europe, the "Big Five" accounting firms have established law firms under their trade names and have integrated them with their accountancy/consulting practices.(2) MDPs have operated in Europe now for at least five years and very few consumer complaints about these firms have been reported.

Closer to home, in 1998, Ernst & Young established the "captive" law firm of Donahue & Partners in Toronto, Canada which has over 20 lawyers. Report of the Multi-Disciplinary Task Force, The Law Society of Upper Canada (September 21, 2000) at iii-iv.(3)

Although developments in the United States obviously have not been as dramatic, there have been a number of noteworthy events worth mentioning. In November 1999, five partners from the Atlanta and Washington D.C. offices of King & Spalding broke away from that firm and formed a separate law firm in Washington D.C. In a controversial move that rocked the legal profession, they formed the law firm of McKee, Nelson, Ernst & Young. Based on information obtained by the media, the ABA Commission reported that Ernst & Young provided a considerable amount of start-up capital and leased a building to the new law firm. American Bar Association, Report of the MDP Commission to the House of Delegates, July 2000, Appendix at 6 ("ABA Commission Report"). In exchange, the law firm agreed to trade under the name of McKee, Nelson, Ernst & Young. In more recent legal press, it is reported that the law firm will pay off the loan made to it from Ernst & Young and drop the latter from the law firm name. The accounting firm and law firm claimed that they were separate free standing entities, but skeptics considered the move a big step toward establishing MDP in the United States.

Other developments in this country are also noteworthy. Since 1997, a strategic alliance has existed between PriceWaterhouseCoopers (PWC) and Miller & Chevalier, a Washington, D.C. law firm which specializes in representing domestic and international clients with complex tax matters in the United States. In August 1999, KPMG announced a strategic alliance with certain law firms which are members of SALTNET, a network of state and local tax attorneys.

III. THE ABA COMMISSION ON MULTIDISCIPLINARY PRACTICE

Beginning in August 1988, the ABA Commission on Multidisciplinary Practice undertook, at the direction of ABA President Philip S. Anderson, to determine what changes, if any, should be made to the ABA Model Rules of Professional Conduct with respect to the delivery of legal services by professional services firms.

In fulfilling its charge, the Commission was guided by the need to protect at all times the interests of clients and the public, as well as the core values of the legal profession. The ABA Commission did not undertake this task lightly. The ABA Commission heard the testimony of over 95 witnesses, received 120 written comments from interested parties and organizations, held 9 days of public hearings and met 10 times in executive sessions. Testimony and/or written materials were presented by U.S. and foreign lawyers, consumer advocates, representatives of four of the five largest accounting firms in the world, law professors, chairs of ABA sections and standing committees, officers of foreign and domestic bar associations, ethics counsel of foreign and domestic bar associations, small business clients, the American Corporate Counsel Association and in-house counsel of international corporations.

The ABA Commission was unanimous in reaching its conclusion:

At its annual meeting in August 1999, the ABA House of Delegates debated the recommendations of the ABA Commission on Multidisciplinary Practice in favor of fully integrated MDPs.(4) The House of Delegates ultimately passed a resolution that no changes to the Model Rules of Professional Conduct be made unless and until further study establishes that MDPs would be in the best interests of the public and could exist without compromising the legal profession's core values of independent professional judgment, protecting confidentiality, avoidance of conflicts of interest, competence and loyalty. After that meeting, many state and local bar associations appointed task forces to undertake such studies.

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.

IV. ACTIVITY BY OTHER STATES CONCERNING MDPs

With the discharge of the ABA Commission, the American Bar Association "stepped out of the ring" in the fight over MDP. However, nearly all of the fifty states in the United States have formed study commissions, a number of which have issued reports in support of, or rejecting MDP.

As of August 1, 2001, thirteen (13) states have issued reports recommending that some form of MDP be permitted. Fifteen states have rejected MDP. Most of the remaining states have commissions which are studying MDP but which have not issued any report or made any recommendation.

Of the thirteen states that have issued pro-MDP reports, all would ban "passive investments" in MDPs. Several of the states that have issued pro-MDP reports insisted that the MDPs remain "lawyer-controlled." Those states include: Georgia, Indiana, Maine, Minnesota, and North Carolina. One state, South Carolina, restricts ownership of MDPs to specific licensed professionals. In addition to requiring a "lawyer-controlled" MDP, Indiana requires that any non-lawyer owner of an MDP must be a member of a regulated profession.

V. THE VIRGINIA STATE BAR AND VIRGINIA BAR ASSOCIATION JOINT COMMISSION ON MULTIDISCIPLINARY PRACTICE ("JOINT COMMISSION")

While the ABA Commission was studying MDPs, VSB President W. Scott Street, III and VBA President David Craig Landin appointed a Joint Commission to study MDP in Virginia.

The first meeting of the Joint Commission was held in Williamsburg on January 13, 2000. Robert Nusbaum of Norfolk was initially appointed as Chair of the Joint Commission, but due to Mr. Nusbaum's illness, John Keith was asked to serve in his stead. A list of the members of the Joint Commission is attached to this report. See Appendix A. The Joint Commission resumed regular meetings beginning in August 2000 and has met every month since.

In the Joint Commission's initial view, there were essentially three recommendations it could make:

1. The Bar could do nothing and make no changes with respect to MDP.

2. The Bar could enforce existing ethics and unauthorized practice of law (UPL) rules that prohibit lawyers from practicing in an MDP.

3. The Bar could recommend changes in the existing ethics and UPL rules that would permit lawyers to practice in an MDP.

The Joint Commission carefully considered all three approaches. As explained more fully below, the Joint Commission recommends the third approach: the Bar should make changes in the ethics and UPL rules that permit lawyers to practice law in an MDP.

The Joint Commission considered four MDP models as it began its work:

1. Lawyer-Controlled, Law-Related MDPs­Lawyers can practice in any entity provided the work is limited to law-related services and as long as lawyers control the entity (which can have non-lawyer partners). Example: Law firm that does construction litigation has an architect as a partner.

2. Lawyer-Controlled, General MDPs­Lawyers can practice in any entity, the work of which can include any professional services, as long as lawyers control the entity (which can have non-lawyer partners). Example: Law firm has an accountant partner who performs separate accounting services unrelated to the firm's law practice.

3. Fully Integrated MDPs Employing Only Licensed Professionals­Lawyers can practice in any entity, the work of which can include any professional services, even if other professionals control the entity. Example: Lawyer practices law in an engineering firm.

4. Fully Integrated MDPs­Lawyers can practice in any entity, the work of which can include any services, even if non-lawyers control the entity. Example: Lawyer forms an MDP with a certified financial planner (who is not licensed or regulated by the state of Virginia) to provide estate planning services. As stated below, this is the model recommended by the Joint Commission.

The Joint Commission developed five subcommittees: UPL/Ethics, Accountancy Regulation and Other Disciplines, Implications for Small Practices, Education/Communication/Funding, and European/Canadian Experience. Each of these subcommittees organized separate meetings and reported to the Joint Commission on a regular basis.

Several of the Joint Commission's meetings were focused on particular issues. In November 2000, for instance, the Joint Commission was joined by representatives from a number of non-profit organizations. These representatives addressed the problems that many of them experienced by operating under the existing ethical rules and described the opportunities that an approved MDP structure would provide their organizations in serving the public. In December 2000, representatives of the Virginia Society of CPAs, the general counsel of the AICPA, and Senator Walter Stosch met with the Joint Commission to provide the public accounting profession's view of MDPs. In January 2001, the Joint Commission met to give a presentation and receive comments from attendees at the Virginia Bar Association Winter Meeting. Members of the Joint Commission gave presentations at and received comments during the Bar Leadership Institutes in March. In addition, members of the Joint Commission continue to give presentations at CLE programs throughout the Commonwealth, soliciting input from those in attendance at those seminars.

The Joint Commission conducted a survey which was published in the Virginia Lawyer and the Virginia Lawyers Weekly. The survey was also published in The Connection, a newsletter for all local Bar leaders. Finally, the survey was also distributed at all of the Risk Management Programs offered by the American National Lawyers Insurance Reciprocal. A copy of the survey and a summary of the results are attached to this report. See Appendix B. Of the 230 responses received, only 22 favored retention of the status quo and doing nothing with regard to MDP. A total of 47 respondents favored more active and stringent enforcement of existing rules prohibiting lawyers from practicing in a MDP. On the other hand, 163 members of the Bar stated that they would prefer to allow some form of MDP, and regulate lawyers practicing in a MDP setting.

The Joint Commission has continued to meet monthly to study the issues and develop possible recommendations. Ultimately the Joint Commission arrived at the ten (10) recommendations at the end of this report.

VII. ANALYSIS

The Joint Commission carefully analyzed the current ethics rules prohibiting MDPs as envisioned by the Joint Commission, the available evidence that the public interest would be served by the availability of legal services as part of MDPs, ways in which the critically important core values of the profession can be maintained in MDPs, and the various forms for MDPs that would be appropriate for Virginia.

The Joint Commission kept uppermost in its consideration what would be in the public interest. The Joint Commission also approached its job with the attitude that clients and lawyers should be given the greatest possible freedom to choose the manner in which they obtain or provide legal services, as long as the profession's core values can be maintained.

B. Consumer Demand for MDPs

As indicated above, the Joint Commission started with the presumption that consumers should be allowed to obtain legal services in the greatest possible variety of entities, consistent with the preservation of the legal profession's "core values." Under the approach, the burden should be on those opposing MDPs to show that clients would be harmed by this greater freedom.

The Joint Commission nevertheless examined the readily available public record addressing consumer demand, met with a number of interested groups with information on this issue, and conducted its own limited survey of Virginia practitioners (budgetary constraints precluded a broader survey of legal services clients).

The ABA Commission concluded that there is significant client interest in choosing legal services from an MDP firm:

ABA Commission Report, Appendix, supra at 2.

Significantly, the ABA Commission reached this conclusion after hearing testimony from numerous consumer groups urging that the barriers to MDPs be eliminated.

At its November 28, 2000 meeting, representatives of a number of non-profit organizations(7) spoke to the Joint Commission on how MDP is currently employed or could be employed to improve the delivery of legal services to the constituents they serve, predominantly low-income clients. The consensus of all the speakers is that changing the rules to allow MDP, particularly for non-profit organizations, would be beneficial. All the speakers offered the opinion that lawyers can work in a non-profit organization run by non-lawyers and still maintain independent professional judgment, avoid conflicts and preserve confidential information. One could argue that non-profits that use an MDP approach in serving the public are in violation of the current ethics rules. Professor Stacey Brustin(8), testified before the Joint Commission that her research indicated that non-profit organizations are not specifically exempted from the requirements of Rule 5.4.

The information provided to the Joint Commission corroborates the ABA Commission's findings that MDPs have enormous potential for lower-income clients by bringing together multiple professionals for socio-legal problems.

The Joint Commission also conducted a limited survey. As indicated above, of the 230 respondents in the survey conducted by the Joint Commission, nearly a third (76) stated that they had clients that would be interested in multidisciplinary professional services. In addition, as stated above, seventy percent (163) of the attorneys responding to the survey favored MDP which also suggests significant demand for freedom of choice in selecting professional service providers. See Survey Results, Appendix B.

Some may still argue that there is no empirical evidence that clients want "one-stop shopping" or MDP. The Joint Commission observes that there is considerable evidence that consumers want to have this choice. The very fact that other professions are performing tasks which traditionally only lawyers performed, and that non-lawyer firms are recruiting lawyers to undertake such tasks, provides powerful evidence. These trends would not develop in the absence of client interest or demand.

In addition, the Joint Commission believes that the public would be better served if consumers were free to obtain the services of a licensed attorney in an organization of their choice, rather than being forced to obtain such services only from a traditional law firm.

C. Preservation of Core Values

Given what the Joint Commission considers to be a justifiable presumption that clients and lawyers should be given the greatest possible freedom to obtain and deliver legal services, as well as the empirical evidence that there is consumer demand for legal services as part of MDPs, the Joint Commission examined ways in which consumers and lawyers can be given maximum choice while preserving the profession's core values.

Because of the critical importance of the core values, it is worth discussing each one in some detail.

(1) Independence

Independence is necessary for the individual lawyer to provide unimpaired advice or services solely for the benefit of the client. The lawyer must be independent of outside influences in giving advice to clients.

The Joint Commission is of the opinion that professional independence must be measured on a case-by-case basis. Lawyers today work in a number of settings where non-lawyers are in positions of ownership, management or control. Examples include lawyers serving as in-house counsel, insurance defense lawyers, staff lawyers for public interest groups, legal aid lawyers, government lawyers and labor union lawyers. These practice settings are permitted under the current rules with the expectation that lawyers in such settings will adhere to their ethical duties. The Joint Commission is aware of no evidence that lawyers are less independent or more likely to violate duties to clients in those settings than lawyers in traditional private practices. The Joint Commission sees no reason why less should be expected of lawyers working in MDPs.

Lawyers in small firms, in addition, have for many years functioned as dual professionals, offering legal and nonlegal services to their clients. They have had to observe various organizational safeguards designed to ensure that their legal and nonlegal services were separately conducted and that the clients who purchased these services understood the different roles. See, e.g., Legal Ethics Op. 430 (1981) ( lawyer serving in dual capacity as lawyer/stockbroker must advise that the attorney-client privilege does not apply to communications if lawyer is acting as stockbroker); Legal Ethics Op. 1317 (1990) (a lawyer may conduct a law practice out of a non-legal business office if there is separation of the two functions and the public is not misled; the lawyer may also provide non-legal services to clients if there is consent after full disclosure); Legal Ethics Op. 1482 (1992) (acting as a lawyer and an escrow agent is not per se improper); Legal Ethics Op. 1612 (1994) (lawyer who sells insurance may also represent plaintiffs against insurance companies for which the lawyer/agent has written policies as long as the client consents).

Moreover, under the existing ethics rules, lawyers are permitted to form ancillary businesses and develop alliances with non-lawyer service entities. See Legal Ethics Ops. 1564, 1658. Lawyers refer clients to such entities, subject to the requirement that they disclose their financial interest, if any, in the entity to which they refer the client. In these instances, the bar seems to accept that full disclosure to the client of all facts affecting their independence is sufficient.

If an MDP lawyer permits a non-lawyer to control the legal representation of a client, with the result that the lawyer's independent professional judgment is impaired, then such a lawyer would face disciplinary and/or malpractice exposure. As an entity, the MDP would face liability for negligence committed by one of its members or employees. If the lawyer undertakes representation of a client in a matter that is materially limited by the lawyer's relationship with a non-lawyer or an affiliated entity, he or she is subject to discipline. Rule 1.7 (b); Rule 5.4 (c). The Joint Commission is of the opinion that permitting lawyers to work in an MDP poses no greater risk to the lawyer's professional independence than that faced by lawyers who are permitted, under the existing Rules, to practice in the settings described above.

The Joint Commission recommends the continuation of Rule 5.4's requirement of professional independence. The Joint Commission proposes only that the prohibition against fee-sharing and partnering with non-lawyers be removed from Rule 5.4's provisions.

(2) Loyalty and Avoidance of Conflicts of Interest

The Joint Commission is convinced that relaxation of Rule 5.4's prohibition of forming partnerships and fee-sharing with non-lawyers will not threaten the core value of loyalty to clients.
Lawyers in MDPs should be required to apply and adhere to the same conflicts avoidance rules that apply to lawyers in traditional practice settings. If the delivery of legal services is involved, every client of an MDP should be deemed a client of every lawyer in the MDP, just as each client of a law firm is deemed a client of every lawyer in the law firm. In Virginia, ethics screens, "Chinese Walls" or "firewalls" are not generally recognized as appropriate devices to overcome conflicts, unless the parties consent after consultation and waive the conflict. In short, such screening devices may induce client consent, but are not a substitute for client consent.

The Joint Commission believes that the requisite degree of lawyer loyalty can be assured by an ethics rule requiring that, when complying with conflicts of interests rules, lawyers practicing law in MDPs must consider as their clients: (1) all clients of the MDP; and (2) all clients of anyone else practicing in the MDP, including clients of the MDP owners/employees' separate practices. In addition, lawyers in MDPs will be bound by any current laws or regulations (such as the SEC's prohibition on the same entity providing both legal services and auditing services to the same client) and any future laws or regulations.

(3) Confidentiality

The Joint Commission believes that MDPs can be structured and precautions taken to protect confidentiality of client information.

MDPs should have an incentive to do so; otherwise, they face liability for the mishandling or improper disclosure of client information. In addition, the MDP lawyers involved face disciplinary action if the confidences of a law client are improperly revealed. In larger MDPs, this may require the formation of a separate legal services unit supervised by lawyers, where non-lawyers, other than legal services support staff, do not have access to client information.

The lawyer in an MDP must have an affirmative obligation to inform the client that certain requirements are necessary to protect communications under the attorney-client privilege, and make sure the client understands that all other communications are not privileged. Finally, the lawyer also must take precautions to ensure that client information is not accessible, absent client consent, to non-lawyer members who are not part of the engagement for legal representation.

It is important to recognize that the obligations of other professionals with respect to client confidentiality may differ from a lawyer's duties. Non-lawyers in an MDP may be subject to different rules regarding disclosure of information to third parties. See, e.g., Virginia Code § 63.1- 248.3 (disclosure obligations of health care professionals, teachers, social workers, court-referred mediators, etc., to report suspected child abuse or neglect). Just as a lawyer must do now when working with non-legal professionals on a client matter, lawyers in MDPs must make reasonable efforts to ensure that the client understands the different roles and obligations with respect to client information and that the courts may treat differently the clients communications with the lawyer and non-lawyer.

Similarly, just as a lawyer must in a traditional law firm, a lawyer practicing in an MDP must implement safeguards to ensure that non-lawyers employed by or associated with the lawyer will act in a manner consistent with the lawyer's professional obligations. Rule 5.3 (a), (b).

Thus, lawyers in an MDP may have to take special precautions when performing intake functions, to protect against a potential impairment of the attorney-client privilege. Impairment could occur where the client is not properly informed of the separate functions and services performed by the MDP or where nonlawyer employees of the MDP fail to treat legal matters in a manner consistent with maintaining the privilege.

The Joint Commission therefore recommends that lawyers practicing in MDPs be required to inform clients, in writing, of the duties of confidentiality and disclosure governing non-lawyers who might provide services to the same client.

D. Appropriate Form of MDPs

After determining that clients and lawyers should be given the greatest possible freedom in obtaining and providing legal services, and that the critical "core values" can be protected in an MDP environment, the Joint Commission addressed four particular issues about the appropriate form of MDPs.

(1) Prohibition on Passive Investment in MDPs

The Joint Commission recommends continuing the prohibition on direct or indirect third party investment in an entity or organization providing legal services. Ownership of an MDP should be limited to those persons providing professional services through the MDP. The Joint Commission's recommendation would not allow third parties to have an ownership interest in an MDP for investment or other purposes. Among other things, this would prohibit direct or indirect public ownership of entities in which lawyers practice law.

The Joint Commission recognizes the argument put forth by proponents of passive investment that the prohibition may place an MDP at a distinct disadvantage compared to their competitors that do not provide legal services and thus are free to raise capital by "going public" or
otherwise seeking passive investors. Proponents also argue that if the individual lawyers are ethically bound to uphold the core values in whatever setting they practice, the type or form of other ownership theoretically should be irrelevant. While these arguments may have merit, the Joint Commission feels that its initial proposal should limit ownership to the active participants in the MDP and allow for the parameters to expand in the future if it is determined that the limitation
hinders an MDP's ability to serve the public adequately.

Significantly, the 13 states that have issued "pro-MDP" reports have uniformly rejected passive investment as an option, instead requiring that any equitable owner of an MDP also participate in the delivery of services by that entity.

While not entirely a "passive investment" problem, the Joint Commission also recommends that suspended or disbarred lawyers be prohibited from participating or owning an interest in any MDP. Whether such lawyer's involvement be deemed "active" or "passive, "the Commission believes that permitting a suspended or disbarred attorney to participate in or manage an MDP is not in the public interest and would undermine public confidence in the legal profession. The Joint Commission recommends an amendment to Rule 5.5(b) and (c) to address this issue.(9)

(2) No Requirement of State Registration

The Joint Commission believes that requiring MDPs to register with the state would create a needless bureaucratic burden, would improperly involve the Virginia Supreme Court (which has jurisdiction over lawyers) in corporate regulation and governance issues, and would be inconsistent with the basic approach adopted by the Joint Commission of focusing on individual lawyers—wherever they practice—rather than on the institutions in which they practice.

(3) No Requirement of Majority Ownership by Lawyers

While it would be tempting to protect lawyer "turf" by insisting that lawyers control MDPs, the Joint Commission believes that such a restriction would unduly limit consumer and lawyer choice in the absence of any evidence that it would enhance individual lawyers' adherence to the profession's core values. As indicated above, lawyers currently practice law in entities majority-owned by non-lawyers (including in-house lawyers, insurance company lawyers, and others). The Joint Commission does not believe that such a dramatic restriction on consumer and lawyer choice is justified, given the emphasis on lawyer independence recommended by the Joint Commission.

(4) No Requirement That Owners Be Licensed Professionals

As explained above, some states have limited ownership of MDPs to licensed professionals. For instance, South Carolina's Task Force specifically listed the professionals who would be allowed to work in an MDP in that state.(10)

However, the Joint Commission decided not to limit the form of MDPs to that extent. It would be difficult to pick and choose among the many occupations licensed and regulated under Virginia law.(11) Excluding any of the statutorily recognized occupations would undoubtedly trigger a dispute. Furthermore, because the Joint Commission believes that the best approach is to focus on individual lawyers (as with the current regulatory approach), it should not matter what other occupations work in an MDP. Finally, the Joint Commission believes that the marketplace will ultimately determine what combination of professions best serves consumers' interests. Thus, while it is easy to ridicule the possibility of an MDP consisting of a lawyer and a palm reader or some other seemingly inappropriate occupation, the Joint Commission believes that if consumer demand justifies such a combination, Virginia law should not prohibit it—because enough safeguards will be built into the proposed MDP regulations.

VIII. CONCLUSION

The practice of law has changed with the rest of the world and the professional regulations written in the early twentieth century did not foresee or recognize these changes. Today, law firms are not the only providers of legal services. Multidisciplinary practice is a fact. Already there are forms of multidisciplinary practice and non-lawyer management in organizations providing legal services that are permitted under current Rules.

The best approach, in the Joint Commission's view, is to regulate the individual lawyers who practice in an MDP setting in the same manner as the Bar regulates lawyers practicing in law firms. This will require some changes in the Rules of Professional Conduct to allow lawyers to serve modern clients' interests in a traditionally ethical manner.

IX. RECOMMENDATIONS

1. Limited Ability to Practice in MDPs. Lawyers should be permitted to practice law in entities (commonly called "MDPs") in which non-lawyers hold a position of control or an ownership interest, as long as the owners are not merely passive investors or suspended/disbarred lawyers. MDPs should not be required to register with the state, and should not be restricted to entities that are majority-owned by lawyers. MDP ownership should not be limited to licensed professionals.

2. Requirement to Follow All Ethical Obligations. Lawyers who practice law in MDPs must abide by the Rules of Professional Conduct, including the Rules protecting the "core values" of competence, loyalty, independence, confidentiality and avoidance of conflicts, and must assure that their legal services clients receive the same level of professionalism and protection as clients of lawyers who are not practicing law in MDPs.

3. Requirement of Lawyers' Independence. Lawyers who practice law in MDPs must possess sufficient autonomy within the MDP to maintain their independence and to assure their adherence to all of their other ethical obligations.

4. Requirement to Avoid Assisting UPL. Lawyers (whether or not they are practicing law) shall not participate in any MDP or other entity in which non-lawyers are allowed to engage in the unauthorized practice of law.

5. Requirement to Explain Different Confidentiality Duties. Lawyers who practice law in MDPs must explain, in writing, the duties of confidentiality and disclosure governing others in the MDP who will provide services to the lawyer's client, including any differences between the lawyers' duties and the others' duties.

6. Requirement to Explain Client Options. Lawyers who practice law in MDPs must explain, in writing, that: (a) the lawyer may benefit financially if the lawyer's client obtains other services offered by the MDP; (b) the lawyer's client is not obligated to use any other services offered by the MDP; and (c) the lawyer's client may consult with an independent lawyer before obtaining other services offered by the MDP.

7. Requirement to Avoid Conflict of Interests. Lawyers who practice law in MDPs must consider all clients of the MDP or any of its owners/employees as legal services clients for purposes of avoiding conflicts of interest.

8. Responsibility to Attend Continuing Legal Education (CLE). Lawyers who practice law in MDPs should attend educational programs that emphasize the legal profession's core values and the particular ethical obligations of lawyer practicing in MDPs. Virginia's law schools, the VSB's Mandatory Professionalism Course and all CLE providers should make such education available.

9. Responsibility to Perform Pro Bono Work. All lawyers, including lawyers practicing law in MDPs, should provide pro bono legal services.

10. Implementation. The Virginia State Bar should develop modifications to specific Rules implementing these Recommendations.

Endnotes:

1 For instance, Parson's Technology, distributor of the Quicken Family Lawyer 2000 product, persuaded the Texas legislature to enact a statute protecting it from further prosecution by the Texas UPL Committee, stating that the distribution of its self-help CD-ROM software is not the "practice of law."

A coalition of bankers, realtors and title companies were similarly successful in having the Virginia General Assembly authorize lay settlement agents to conduct real estate settlement services, after the Bar's UPL Committee had declared that such activity was the "practice of law" and could only be performed by lawyers. UPL Op. 183. One of the key points raised in the Barlow Commission Report, prior to the enactment of the Consumer Real Estate Settlement Act, was that the Bar could not demonstrate that consumers were at any greater risk hiring a non-lawyer settlement agent rather than a lawyer.

2 Arthur Andersen's "captive" law firm in the United Kingdom is called Garrett & Co. ("Garrett") with offices in seven cities, including London, Reading, Leeds, and Manchester. Garrett competes with other law firms for high-profile corporate work, including banking, intellectual property, and real estate. Garrett aggressively recruits lawyers from other English law firms and competes with established law firms for sophisticated corporate work involving major transactions. Gianluca Morello, Note, Big Six Accounting Firms Shop Worldwide for Law Firms: Why Multi-Discipline Practices Should Be Permitted in the United States, 21 Fordham Int'l L. J.. 190, 198-203 (1997)(describing legal activities of "Big Six" accounting firms in Europe)(hereinafter "Morello").

Andersen has established a law practice in the Netherlands under the name Wouters Advocaten. In Spain, Andersen ALT merged with a Spanish law firm to form J & A Garrigues Andersen y Cia. In 1992, Andersen acquired the Paris office of the English law firm S.G. Archibald, acquiring an established corporate and intellectual property practice to complement its tax work. As a result of the acquisition, the firm grew from approximately fifty lawyers to over 240 attorneys as of 1996. Id.

Ernst & Young L.L.P. ("Ernst & Young") has several ties with Dutch law firms and has legal practices in Switzerland, Spain, Germany, and France. KPMG Peat Marwick L.L.P. ("KPMG") has a large legal and tax division in France named KPMG Fidal Peat International ("KPMG Fidal"). In 1991, KPMG Fidal had 760 lawyers in 130 offices throughout France, practicing a variety of legal and tax work on behalf of small and medium-sized French companies. That same year, sixty-one percent of KPMG Fidal's work was tax-related and thirty-nine percent legal. KPMG Fidal's legal work included mergers and acquisitions, restructurings, joint ventures, and routine contract work. In 1996, KPMG Fidal was the largest law firm in Europe. KPMG also recently formed an alliance in Sweden with new law firm KPMG Wahlin Advokatbyra. Morello, supra at 201-02.

3 The Donahue firm offers a broad range of business law services. There is no requirement that Ernst & Young refer clients to Donahue or vice versa. Each firm bills their respective clients directly and the relationship between the two firms is explained to clients. Id. The two firms share certain operating expenses which are calculated on a cost basis. Donahue has in place confidentiality procedures which restrict access to Donahue files, prevent access by Ernst & Young to Donahue's client list, and ensures that the confidentiality of Donahue's word processing and accounting systems are preserved. Donahue has its own dedicated floor, including reception area, on the 17th floor of the Ernst & Young Tower in Toronto. Id.

4 As explained below, a "fully integrated" MDP is an entity jointly owned by lawyers and non-lawyers which offers legal services as well as other services without any requirement that the entity be "lawyer-controlled."

5 For a detailed look at the Rules of Professional Conduct which may be implicated in permitting lawyers to practice in an MDP, see the chart at Appendix C.

6 RULE 5.4 Professional Independence Of A Lawyer

7 Andy Block­Legal Director, JustChildren (Charlottesville-Ablemarle Legal Aid Society); Phyllis Katz­Co- founder, Legal Information Network for Cancer (LINC); Debbie Sifford­Executive Director, New River Valley Legal Aid Services­The Guardianship Program; and Elizabeth Pendzich, Director, Loudoun Abused Women's Shelter (LAWS) Legal Clinic.

8 Professor Brustin, a law professor at Columbus School of Law, Catholic University in Washington, D.C., appeared before the Joint Commission and spoke about her case study of MDP in the context of non-profit organizations.

9 Rule 5.5 (b) provides: A lawyer, law firm or professional corporation shall not employ in any capacity a lawyer whose license has been suspended or revoked for professional misconduct, during such period of suspension or revocation, if the disciplined lawyer was associated with such lawyer, law firm or professional corporation at any time on or after the date of the acts which resulted in suspension or revocation.

Rule 5.5 (c): A lawyer, law firm or professional corporation employing a lawyer as a consultant, law clerk or legal assistant when that lawyer's license is suspended or revoked for professional misconduct shall not represent any client represented by the disciplined lawyer or by any lawyer with whom the disciplined lawyer practiced on or after the date of the acts which resulted in suspension or revocation.

10 South Carolina's Task Force has recommended that lawyers be permitted to work in an MDP in professional association with the following licensed and regulated professions: Architect, Certified Public Accountant, Certified Financial Planner, Enrolled Agent before the IRS, Land Planner, Licensed Social Worker, Licenced Insurance Agent, Physician, Professional Engineer, Registered Investment Advisor, Registered Land Surveyor, Registered Nurse, Stockbroker and Investment Advisor registered with NASD or SEC. Additions to the list should only include licensed and regulated professions. Recommendation by the Task Force on Multidisciplinary Practice to the South Carolina Bar House of Delegates.

11 Virginia's list of licensed and regulated professionals includes: Attorney; Architect; Engineer; Surveyor; Landscape Architect; Interior Designer; Geologist; Public Accountant; Physician; Audiologist; Speech Pathologist; Dentist; Dietician; Nutritionist; Nurse; Nurse Practitioner; Clinical Nurse Specialist; Physical Therapist; Optometrist; Pharmacist; Professional Counselor; Psychologist; Social Worker; and Veterinarian. See Virginia Code, Title 54.1, Subtitles II-IV; Va. Code §§ 13.1-543, -544.

Examples of other licensed and regulated occupations that some may consider "professions" include: barbers; promoters of boxing or wrestling events; cosmetologists; hearing aid specialists; and polygraph examiners. Id.

Appendix A

Appendix B

Appendix B2

Appendix C