MDP Pot Boils — But No Action in 1999 | New York Legal Ethics Reporter

MDP Pot Boils — But No Action in 1999

By Linda Galler

[Originally published in NYPRR September 1999]

No issue facing lawyers has attracted more interest or more tension than the issues surrounding MDPs. On June 8, 1999, the ABA Commission on Multidisciplinary Practice released its report recommending that lawyers be permitted to share legal fees, and enter into partnerships with non-lawyers for the delivery of legal services.

At its August 1999, meeting, the ABA’s House of Delegates voted 304–98 to postpone any decision on the recommendations. On June 26, 1999, the NYSBA House of Delegates adopted a resolution opposing “any changes in existing regulations prohibiting attorneys from practicing law in MDPs, in the absence of a sufficient demonstration that such changes are in the best interests of clients and society and do not undermine or dilute the integrity of the delivery of legal services…” (The State Bar has since appointed a special committee to study the impact of MDPs on clients and the practice of law.)

In the present turmoil, it’s useful to ask what all the fuss is about. What did the Commission say and how would its recommendations change the practice of law as we know it?

Under the recommendations, lawyers could provide legal services to clients through MDPs, multi-disciplinary practice entities that are controlled or owned, in whole or in part, by non-lawyers. Law firms could also affiliate with or control non-legal professional services firms for the provision of legal services. The Commission did not recommend any changes to lawyers’ rules on confidentiality and conflicts of interest.

Practicing Law in Multidisciplinary Firms

Under the proposals, lawyers could provide legal services — through entities that provide both legal and non-legal services and that are owned or controlled by non-lawyers. Lawyers employed by these multidisciplinary practices might find themselves acting under the direction of non-lawyer supervisors. The commission’s recommendations make clear, however, that MDP lawyers would be bound by the legal profession’s rules of conduct in all respects and that taking instructions from a non-lawyer would never excuse a lawyer from observing these rules. Although MDP lawyers could work together with non-lawyers, the non-lawyers would not be permitted to deliver legal services.

The report anticipates that an MDP might be controlled either by lawyers or by non-lawyers. MDP firms controlled by lawyers would not be subject to any additional regulations. MDP firms controlled by non-lawyers, however, would be permitted to provide legal services only if they agreed to subject themselves to regulation by the highest disciplinary authority in any jurisdiction in which they engage in the delivery of legal services. The firms would be required to sign a written undertaking agreeing, inter alia:

…not to interfere with a lawyer’s exercise of independent judgment on behalf of a client; to establish and enforce procedures designed to protect a lawyer’s independence of judgment on behalf of a client, free from interference by the firm or by others in the firm; to establish and enforce procedures to protect a lawyer’s professional obligation to segregate client funds; and to ensure that members of the MDP who provide legal services will abide by the rules of professional conduct applicable to lawyers in that state or jurisdiction.

Firms also would be required to acknowledge in writing the lawyer’s duty to the administration of justice, including the rendering of pro bono publico legal services.

Law firms would be permitted to affiliate with non-legal professional firms to provide legal and other services to clients and to share the fees and profits of such firms.

Protecting Client Confidentiality

The report recommends no changes to lawyers’ rules on confidentiality, but it proposes amending the Comments to Model Rule 1.6 to ensure that clients be given assurances that non-lawyers who assist in providing legal services understand the obligation to maintain client confidences.

The Comments would also admonish MDP lawyers to avoid endangering the attorney-client privilege. The Commission’s fee-sharing proposal, however, raises interesting questions regarding the resulting impact on this privilege.

The attorney-client privilege protects communications made in confidence by a client for the purpose of obtaining legal advice, as well as communications made in confidence to a client by a lawyer in the course of rendering legal advice. Applied to law firms, the privilege assumes that both the client and the lawyer intend that communications between them be kept confidential. This presumption might not be reasonable, however, in an MDP in which non-lawyers helping in legal services have access to client information.

MDP firms would have to exercise great care in limiting access by non-lawyers to legal client files. Moreover, law firm clients can be assumed to seek only legal advice or services from their lawyers. Not so with MDP clients, who may seek other types of services as well. Communications with clients would not be privileged if made in the context of non-legal services, and communications with clients to whom a firm provides both legal and non-legal services would need to be carefully monitored.

The statutory privilege for communications between clients and federally authorized tax practitioners would help to resolve this dilemma in tax advice cases, but the privilege applies only to tax advice that would be privileged if given by an attorney. If a client did not intend a communication to be confidential, there would be no privilege. Besides, this privilege applies only in limited circumstances.

Effect on Big Five Accounting Firms

Many commentators predicted that the ABA report would leave the Big Five accounting firms alone but would recommend rule changes designed to enable law firms to compete with them more effectively, for example by liberating lawyers and their firms from onerous conflict of interest rules. Somewhat surprisingly, the report recommends no changes to lawyers’ conflict of interest rules. The report does take aim at accounting firms (and other MIDPs), however, in several significant ways.

The ABA report recommends that lawyers who render services to clients of MDPs should not represent to the public or to specific clients that they are not providing legal services if those same services would constitute the practice of law when provided by a lawyer in a law firm. In fact, such a representation would presumptively constitute a material misrepresentation of fact. Big Five accounting firms currently claim not to engage in the practice of law and lawyers employed by those firms claim that they provide consulting services rather than legal services. The report recognizes that the definition of law practice is a matter of state law, but includes a model definition of the “practice of law” for purposes of the proposed rule change.

By claiming that their lawyers provide consulting services rather than legal services, Big Five accounting firms and their lawyers effectively avoid the application of ethical rules that apply to lawyers. The report recommends that the Model Rules be amended to state explicitly that MDP lawyers are bound by lawyers’ ethical rules, several of which pose problems for accounting firms. For example, to comply with confidentiality rules, accounting firms would have to reconcile their duty as auditors to disclose certain information to the public with their duty as legal services providers to maintain client confidences. Also, the accounting firms would be required to follow the legal profession’s more stringent conflicts of interest rules when rendering legal services. (The impact of this requirement on accounting firms could be short-lived, however; discussion drafts of the “Ethics 2000” amendments include a proposal to relax the Model Rules’ imputed conflicts rules.) Further, complying with the requirements of state-by-state regulations may not be easy for large accounting or other non-legal firms.

Effect of Proposal on Law Firms

While the focus of debate on multidisciplinary practice issues has been in the area of tax practice, the Commission’s recommendations would have a sweeping effect throughout law practice. Any law firm could admit non-lawyers as partners and could provide both legal and non-legal services to clients. The report provides as an example of a non-tax, small MDP, a firm consisting of a lawyer, a social worker, and a certified financial planner who counsel older clients on estate planning, nursing home care, and living wills. Other examples (based on Comments to District of Columbia Rule 5.4, which permits fee-sharing and partnerships with non-lawyers) are: economists working in a firm with antitrust or public utility lawyers;~ psychologists or psychiatric social workers working with family law practitioners to assist in counseling clients; and non-lawyer lobbyists working with lawyers who perform legislative services.

Timetable for Action on Proposals

Now that the ABA Delegates have tabled the proposals, they will probably lie dormant until the Delegates meet again in the year 2000. In the meantime, the pot will continue to boil. The recommendations will be the focus of discussion among bar associations and committees in the several states. As in New York, study groups will take up all the vexatious issues. While the debate continues, the employment of lawyers by nontraditional employers will continue to grow and the pressures arising from the control of legal services by non-lawyers will multiply.

Linda Galler is a Professor of Law at Hofstra Law and is Chair of the ABA Tax Section Committee on Standards of Tax Practice.

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Confidentiality Linda Galler Multidisciplinary Practice Non-Legal Professionals