September 1999
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September 1999 |
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Classifieds
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Multidisciplinary Practice:
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Suggested links: Home page of the American Bar Association's Center for Professional Responsibility, which includes links to the ABA Commission on Multidisciplinary Practice
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The issue of multidisciplinary practice, addressed by the House of Delegates of the American Bar Association in August and tabled pending further study, is likely to animate debate throughout the profession in the coming year and to be reconsidered by the ABA in July 2000. To help inform the debate, the September 1999 Bench & Bar presents the following articles by Phil Cole, an attorney in private practice, and Steve Nelson, a member of the ABA Commission who is also in private practice. Elsewhere in this issue are the perspectives of President Wood Foster and Ed Cleary, the director of lawyers professional responsibility, as well as the recommendations of the ABA Commission on Multidisciplinary Practice. (See additional links at left.) President Foster has appointed a Task Force
on Multidisciplinary Practice, headed by Judge Arthur Boylan and Rebecca
Egge Moos. Readers are encouraged to share their thoughts on the issue
with members of the task force directly, with MSBA members generally through
letters to the editor of Bench &
Bar, or both. --Ed.
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by Phillip A. Cole
With this recommendation at its center, the ABA Commission on Multidisciplinary Practice has delivered a stunning report to the House of Delegates accepting the demise of the independent profession of law. The balance of the 15 recommendations seeks to preempt the question of how the lay-controlled MDP delivering legal services will be regulated. According to the report, such regulation should be by the rules governing the practice of law in order to protect the "core values" of the profession. Nonetheless, the acceptance of lay-dominated business organizations as appropriate entities for admission to the practice of law represents the key concession in the report to the enormous competitive pressures on the legal profession from accounting and consulting firms in the delivery of "legal services." Notions about how these organizations would be regulated in the long run -- and who would do it -- will have to be tested against the social, political, and economic realities that emerge with the dissolution of independent law firms at the center of the practice of law. This would include, of course, the question of who will control the ABA and the state bar organizations five years after the commission’s report is accepted in a majority of jurisdictions.
There should be no question that the ABA, as well as state bar organizations and the courts, should be asking the questions placed before the ABA Commission. If anything, the current interest in the subject is about five years behind the curve. Things began to change in the mid-eighties. The major accounting firms, then known as the "Big Eight" and now the "Big Five," began to deemphasize the delivery of audit services and other commodity accounting services. They repositioned themselves to deliver to their business clients a bundle of services denominated as "consulting" or "financial" services marketed as adding value to the enterprise. Thus these firms began to consult on production efficiencies, human resource management, mergers and acquisitions, tax planning, succession planning, trade issues, technology, and other issues likely to confront a business striving for growth and profit. "Multidisciplinary" aptly describes these businesses. Their "consulting" or "financial" service endeavors proved hugely rewarding in proportion to audit work, which has largely become a loss leader in the marketing of the services of these firms. The globalization of the economy saw these firms spread worldwide and consolidate in order to strengthen their capital base for their enormous and rapid growth. Among the large western nations, it was only in the United States and the United Kingdom that lawyers practiced in large organizations employing hundreds of lawyers. These firms, however, remained focused by necessity on the practice of law because the rules governing the profession prohibited joint business or professional arrangements with other disciplines. Inevitably, the services delivered by the MDP included giving legal advice and counsel to its clients. This practice was recognized formally in some European countries, where the delivery of legal services by MDPs was accepted as the practice of law. Germany is an example of a principal nation where MDPs currently dominate the practice of law. The United Kingdom is another and closer-to-home example of a nation that has accepted MDPs into solicitor practice. Barristers continue to practice in their Inns as independent advocates and officers of the court. Arthur Andersen Consulting has become in the space of 15 years the world’s largest law firm. It employs more than 5,000 lawyers around the world, about twice as many as Baker & McKenzie -- the best example of a global law firm purporting to deliver only legal services. There should be no doubt, however, that in the United States these consulting firms and their smaller regional competitors were also delivering "legal services." While the term "legal services" no longer has clear meaning, it is used here and by the ABA Commission to mean services that if delivered by a lawyer in private practice would be acknowledged to be the practice of law. Tax law is the most prominent example of an area of legal services where nonlawyers, primarily accountants, have come to dominate the delivery of advice and counsel to clients. This domination was recognized formally last year when Congress granted the privilege of confidentiality to accountant-client communications in tax disputes. The Wall Street Journal has over the last year documented faithfully the flight of major tax partners and their clients from major Wall Street law firms to major accounting firms. These lawyers have no intention of changing the nature of the service they have been rendering to their clients, only the situs from which it will be delivered. These lawyers, however, did leave the "practice of law." In sum, the delivery of a large category of legal services for a fee is no longer the exclusive domain of the lawyer in private practice. This fact should, of course, surprise no one. |
Phillip A. Cole is a trial attorney with the Minneapolis law firm of Lommen, Nelson, Cole & Stageberg PA, practicing primarily in complex civil litigation. He is a 1964 graduate of the Georgetown University Law Center. |
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Autonomy Threatened The fact that other entities and professionals have been permitted to compete with the legal profession in rendering certain types of service traditionally believed to be "legal service" has not so far led the profession to surrender its autonomy. The commission recommends that lawyers employed in lay-controlled organizations who are rendering services competitive with lawyers in private practice will be deemed, along with their employer, to be in the "practice of law" and subject to the rules of legal ethics. Given the immense size and wealth of the MDPs desiring to deliver legal services, it does not take great imagination to foresee their ascent to dominance in the bar. The profession’s dissipation of its tradition of autonomy will leave the inevitable ABA commission of the future, convened to address the "new market realities" of legal practice, with a rational basis to align the so-called "core values" with the economic needs of the MDPs. It is not a stretch, given implementation of the recommendations, to foresee lawyers in 10-15 years, like physicians today, clamoring for trade union representation as a means to assert professional autonomy. The commission’s recommendation, although well-meant, would restructure the profession on terms certain to compromise its values in time. The profession of the law derives its integrity from the maintenance of independence and a consensus concerning values. The commission’s recommendation abandons the structure of the profession and almost certainly would forfeit its integrity over time. Although the commission declares it an essential aim to preserve the "core values" of the profession, it proposes to entrust this preservation to business organizations that will have no commitment to the profession except as a profit center. In short, the commission is disturbingly shortsighted about the medium-term effects of the structural changes it would wreak. Once the profession of law is let loose from the moorings of its traditions of actual independence and once the practice of law is perceived in commerce as a craft, its "core values" will almost certainly change. Changing the structure of the profession of the law while declaring its "core values" intact is whistling in the graveyard. What the "core values" will become is anyone’s guess. The ABA commission, of course, is responding to years of encroachment on the practice of law by other professional and business organizations. MDPs are in the legal service business to stay whatever the fate of the commission’s recommendation. If they are not admitted to the practice of law, they will surely fit in elsewhere. Two principal ingredients likely to stimulate the growth of MDPs in the legal service sector are the North American Free Trade Agreement and the 1994 General Agreement on Trade in Services. Both these treaties contain provisions calling for regulations to open up the exchange of professional services, including legal services, across international borders. To some extent, therefore, regulation of the profession will be transferred from the states to international organs administering these treaties. Apparently, the "internationalization" of the legal profession under these treaties will be targeted at the counselor role of lawyers, not advocacy. Indeed, the privilege to appear in a state or federal court as an advocate is a professional function outside the reach of these treaties as a "service supplied in the exercise of governmental authority." The ABA commission notes that these treaties "may have an impact on the delivery of legal services by MDPs but declares it inappropriate to alter its recommendations in anticipation of that impact. |
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The Practice of Law Two issues deserve special discussion in this debate. These are the definition of legal services within the context of the practice of law and distinguishing the advocate and counselor roles within the practice of law. The term "legal service," once meant to denominate the lawyer’s exclusive franchise, has virtually no meaning in the sense of defining an area of activity reserved for the licensed practice of law. In Minnesota, for example, drawing a will is an activity reserved by statute for a licensed attorney. This definition does not prevent a nonlawyer from advising a testator on the content of a will and simply instructing a lawyer on the client’s behalf on how it must be drawn. In fact, estate planning, although a "legal service," is not one that is reserved exclusively for lawyers. Will drafting, by itself, is not a franchise anyone will fight for. Forms for wills and trusts, in any case, will be downloaded off the Internet. Examples abound where laypersons may deliver legal services for a fee. Banks and real estate brokers, for example, do conveyancing for their customers and have for decades. "Legal services" should not be hard to define. The term embraces two distinct categories of service. First, counseling and assisting a client in personal and business transactions in order that the client may conform the transaction and/or his behavior to the law and gain the benefits permitted by law should be a "legal service." Services rendered as a counselor by lawyers in private practice, however, would not be the exclusive domain of the practice of law. Such counsel would be available from other professionals or lawyers working for lay-controlled organizations. The counselor service, when delivered by someone other than an independent practicing lawyer, would not be the "practice of law." An MDP would not be within the domain of regulation by the profession. Its service would not be attended by the protection afforded clients by the ethical rules governing lawyers, including confidentiality. A client wanting the legal service with its traditional commitments of independence and guarantees of confidentiality would seek out a lawyer in private practice. This proposal breaks no new ground since it simply affirms what is, in large part, already the case. The second category of "legal services" would be the representation of a client as an advocate before a court or other government tribunal. The advocate role, distinctively, would be preserved exclusively for the practicing lawyer, private or government, who must remain identifiably independent of the control of other professionals and businesses. The lawyer as advocate has duties to the court as well as the client. The independence of the advocate remains an attribute of the justice system giving substantial assurance that the lawyer will not subvert the judicial (or administrative) process to serve a client. Ensuring that the advocate remains independent from the control of business entities and nonlawyer employers serves to vest this attribute with integrity. The tradition of the independent advocate and the values it spawns would not likely survive the subordination of the profession of the law to the multifaceted needs and interests of an MDP.
The commission claims that the bar’s tradition of independence from lay control dates only from rules adopted in mid-twentieth century. The commission thus finds it unremarkable to abandon the tradition after such a relatively short interval. In truth, the tradition of independence has bound the profession since time out of memory. There was no need for explicit regulation before this century because it was simply not an issue. John Adams said it clearly when he explained his decision to defend the British soldiers who had fired upon a crowd of citizens in Boston, " the bar ought . . . to be independent and impartial, at all times and in every circumstance." It is useful to keep in mind that the legal services in issue with the MDPs are, in the main, the services being delivered to business organizations and clients of wealth. The MDPs are not organizing to handle individual bankruptcies, defend DUIs, or initiate securities fraud claims on behalf of bilked investors. Before the profession wholly restructures itself for the convenience of these clients, we must decide whether the ideals of the profession of the law can be preserved where the structure of independence is abandoned. Some sense of the answer to that question can be gained from the controversies that presently confound the profession of medicine. The ideal that the law is an independent profession with a commitment
to the law and its processes that is superior to any claim by a client
seems worth preserving. If the profession has in recent years caused observers
to question this commitment, it is time for the profession to remind them
what we stand for. The debate certain to be initiated by the commission’s
recommendation is surely such an occasion. |
"Changing the structure of the profession of the law while declaring its "core values" intact is whistling in the graveyard." |
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A Choice of Adaptation or Marginalization by Steven C. Nelson Since its public release on June 8, 1999, the report and recommendation produced by the American Bar Association's Commission on Multidisciplinary Practice (the "report") has attracted a high level of interest and extraordinary controversy, both within the legal profession and elsewhere. The criticisms of the report are nothing if not diverse, ranging from condemnation by legal traditionalists as a "sellout" of the basic values of the profession to the summary rejection by some of the profession's critics of what they see as a "regulatory grab" by the bar. Clearly there is an issue here. The commission was appointed last fall by then-incoming ABA President Philip Anderson to determine what changes, if any, should be made to the ABA Rules of Professional Conduct with respect to the delivery of legal services by professional services firms, frequently referred to as multidisciplinary practices or "MDPs." President Anderson's charge to the commission was to make that determination on the basis of the interests of clients and the public, rather than of the economic interests of lawyers or law firms. The commission is composed of tough-minded lawyers and judges who have no lack of commitment to the core values of the legal profession. They include a distinguished federal district judge from the District of Columbia; a justice of the Maine Supreme Court; five experienced practicing lawyers; two corporate general counsels, one of whom is a former general counsel of the United States Treasury Department; and three academics, among them the executive director of the American Law Institute, who is also one of the leading American authorities on the law of lawyering. To say that we accepted appointment and approached our task with diverse opinions and a high degree of skepticism would be a major understatement. We needed to be persuaded, not only that there is a need for MDPs, but that they can be permitted without sacrificing the core values of the legal profession: independence, loyalty, confidentiality and public service. It is therefore not insignificant that, having heard some 60 hours of testimony, waded through hundreds of pages of written submissions and spent countless hours of debate with one another in executive session, we produced a unanimous report.
The defenders of the bar's traditions are outspoken in their opposition to the commission's central recommendation that the rule of professional conduct that absolutely prohibits the sharing by lawyers of fees with nonlawyers, as well as the formation of partnerships between lawyers and nonlawyers where any part of the activities of the partnership consist of the practice of law, be relaxed to permit the formation, subject to certain safeguards, of MDPs. They argue that anyone who has control over the economic future of a lawyer is in a position to influence that lawyer's professional judgment. The paradigm invoked is that of the "Big Five" accounting firms, which already employ large numbers of lawyers worldwide -- including some 5,000 in this country, according to evidence received by the commission -- but are controlled by nonlawyers who are not bound by the lawyer's rules of professional conduct. If MDPs were permitted, so the argument goes, these nonlawyers would bring pressure to bear on the lawyers to abdicate their duty of independence if and as dictated by the economic imperatives of the MDP firm. The commission concluded that the rule against fee-sharing and forming partnerships with nonlawyers is not so indispensable to the preservation of independence and the other "core values" of the legal profession as the traditionalist argument maintains. In fact, the prohibition against fee-sharing and forming partnerships with nonlawyers has been a mandatory provision of the ABA's ethical rules only since the current Model Rules of Professional Conduct were adopted in 1969. The commission believes that there are other, less restrictive ways of preserving the core values of the profession. Even if one were to accept the argument that control by nonlawyers is incompatible with lawyer independence, that would not justify prohibition of lawyer-controlled MDPs. More to the point, the possibility that the lawyer's professional judgment may be swayed by economic considerations is not unique to the MDP. The issue can arise as well in a law firm, where the financial well-being of lawyers is subject not only to the decisions of the firm's lawyer-managers but also, in an era when "rainmaking" is such an important factor in firm compensation decisions, to the appreciation of key clients. In the final analysis, independence of professional judgment is an individual responsibility of the lawyer. Most lawyers guard that independence jealously as an aspect of their own professionalism, regardless of the setting in which they practice. They recognize that it is their professional integrity and independence that give real value to their advice. In short, the commission concluded that lawyers are not so spineless as the opponents of change would have us believe. |
Steven C. Nelson is a partner in the Minneapolis office of Dorsey & Whitney LLP and a member of the ABA Commission on Multidisciplinary Practice. |
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Defining the Practice of Law In any case, the rhetoric of the critics fails to come to grips with one very crucial fact: large numbers of lawyers have in recent years elected to join professional services organizations other than law firms. In most cases, these lawyers have continued to provide services that if provided by a lawyer in a law firm would be considered the practice of law. All the while they have protested that they are not engaged in the practice of law. The commission received copies of letters, written by lawyers on the letterheads of "Big Five" consulting firms, advising clients that in their new employments the lawyers would continue to provide the same services as they had provided while partners in their previous law firms, but with greater resources at their disposal. Testimony before the commission from deans of prominent law schools indicated that the "Big Five" are hiring, in large numbers, the best and the brightest graduates of those law schools. The law schools are indeed adapting their curricula to make their graduates even more attractive to the large multinational consulting firms. There is every reason to expect that these trends will not only continue but accelerate over the coming years. Confronted with these facts, the traditionalists argue that the solution is more effective enforcement of state statutes against the unauthorized practice of law or "UPL." Once again, however, the effort to Keep Things the Way They Have Always Been collides with inconvenient facts. It is a fact that the record of enforcement of UPL statutes throughout the country can best be described as dismal. In no event does it offer hope of effective action against professional services firms performing services that courts in many states have said may be provided by nonlawyers, even if those firms happen to be using lawyers to provide those services. The recent effort by the State Bar of Texas, which brought an action against Arthur Anderson & Co. under the Texas UPL statute but was forced to dismiss that action for lack of resources to prosecute the well-capitalized firm, casts the problem into bold relief. Testimony before the commission also indicated that prosecutors generally decline to respond to requests from bar regulators for prosecution of UPL cases on the grounds that the offense is so ill-defined that those cases cannot be won.
As so often happens, we are faced with a situation where the facts on the ground have outrun theories stoutly defended by those who fail to see or understand the realities. After the close of its evidentiary proceedings, the first question the commission considered was whether it should simply recommend no change to the existing rules. It took us no time at all to conclude that doing nothing was simply not an option. The current and foreseeable situation is intolerable, and the bar must find a way to adapt to the new circumstances rather than waiting to be marginalized by providers of legal services who operate without regard for the rules of professional conduct by which lawyers are bound. We concluded that, while the complete prohibition of MDPs is an unduly restrictive means of ensuring lawyer independence, there remains at the same time a very real need to bring lawyers practicing law in MDPs back under the regulatory "tent." Both to protect clients and the public, we must ensure that those lawyers remain subject to the same rules of professional conduct as lawyers in law firms. Quite apart from our conviction that this is the right thing to do in the interests of clients and the public, the commission takes some comfort from the fact that our approach enables the profession to take the political high ground against the challenges that one can expect will continue to be mounted against lawyers' "monopoly" over the provision of legal services. In this respect, the successful effort of the accounting profession some two or three years ago to obtain changes in the federal tax laws, according evidentiary privilege to client communications with accountants in tax matters and allowing accountants to try cases in tax court, is instructive. The argument of the proponents of those changes was that there is no reason people should have to go to a lawyer for a service that someone else can provide. The bar lost that argument. If the commission's approach is adopted, the argument becomes one of whether or not lawyers should be governed by the same rules regardless of the setting in which they practice. We can win that argument. |
"lawyers are not so spineless as the opponents of change would have us believe" |
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Serving Clients and the Public Interest In their effort to discredit the commission's approach, traditionalist critics have resorted to emotive references to American Express and WalMart as potential future owners of MDPs, ignoring the commission's proposal that ownership be restricted to individuals actively involved in the provision of professional services. They also conjure up visions of partnerships between, for example, personal injury lawyers and tow-truck drivers. This is good theatre but disingenuous advocacy. The commission's recommendation would limit ownership to "professionals," although we intentionally left that term undefined at the present stage due to potential differences among the states in this regard. The critics also have failed to acknowledge the tough proposals in the report for the regulation of lawyers in MDPs. These include the recommendation that those lawyers be fully subject to the rules against conflicts of interest and that they be required to take into account for these purposes not only their own clients and the clients of other lawyers in the MDP but the clients of nonlawyers in the MDP as well. The lawyers would also be required to take special measures to protect confidential client information from disclosure, without the client's consent, to those members of the MDP not involved in the provision of legal services. As a result of the inclusion of these proposals, the commission's report has been received with anything but enthusiasm by the "Big Five" and their supporters. Indeed, the board of directors of the American Institute of Certified Public Accountants has adopted a resolution objecting to the report on the grounds that it would "have the exact opposite of its desired effect by significantly restricting client choice and impairing the formation of MDPs." A similar resolution has been forwarded to the commission by the American Corporate Counsel Association, arguing in effect that the commission's proposals would prevent MDPs from achieving the efficiencies that "one-stop shopping" is supposed to provide. Whether or not that is the case, the commission considers its proposals in this regard essential to the protection of clients and the public interest. Lest the commission's report be thought essentially defensive in nature, it should be emphasized that there are some strong affirmative arguments for permitting MDPs that the commission found persuasive. The preponderance of testimony provided by groups representing clients was heavily in favor of MDPs, on the grounds that they would enable lawyers and other professionals to provide certain services more effectively than if they were in separate firms. Among the examples were lawyers and financial planners partnering to provide estate planning services; family law specialists teaming with social workers and psychologists to deal more effectively with such matters as child custody disputes; and environmental lawyers joining forces with engineers to provide a comprehensive environmental consulting service. And the ABA bodies that represent solo practitioners and small firms testified that their members were strongly in favor of having the flexibility to form partnerships with other professionals to meet what they perceive to be real client needs. If anything, it was in this sector of the profession that the commission found the greatest evidence of a need for change.
To paraphrase Mark Twain, the rumors of the demise of the legal profession
are greatly exaggerated. Regardless of the existence of MDPs, regulated
or not, practicing lawyers and law firms will continue to be the favored
providers of most legal services, both because they will always be better
at it than anyone else and because most clients will continue to prefer
to entrust their most important legal problems to a traditional law firm,
with the unalloyed professionalism that only a law firm can provide. The
profession needs to approach this issue with an appropriate level of self-confidence,
tempered by the objectivity that is its hallmark and the realization that
lasting values can be preserved in times of change only by thoughtful
adaptation to new realities. The commission, which has recently been reappointed
by incoming ABA President William Paul, expects to work closely over the
coming year with state and local bars and other ABA entities to forge
a solution that can command widespread support. |
