Multidisciplinary Practices Ethical Concerns or Economic Concerns

When the American Bar Association (ABA) promulgated the Canons of Professional Ethics in

1908, there were no rules prohibiting lawyers from entering into partnerships with

non-lawyers.¹ Amid objections from some members of the bar,² Canons 33³ and 34,⁴ which

prohibit mixed non-lawyer and lawyer associations, were introduced in 1928. When the Model

Code of Professional Responsibility was promulgated in 1969, it continued the prohibition

against mixed lawyer and non-lawyer associations.⁵ In 1983, the Model Code was replaced with

Model Rules of Professional Conduct⁶ in response to the recommendations of the ABA's

Commission on Evaluation of Professional Standards (the Kutak Commission). The Kutak

Commission found the prohibitions against lawyer and non-lawyer business associations to be

contrary to the best interests of clients and to constitute "economic protectionism for

traditional legal service organizations."⁷ It has been reported⁸ that it was concerns over

threats to a lawyer's professional independence that led the ABA House of Delegates to

promulgate Rule 5.4,⁹ continuing the prohibition on such associations.

In August 1998, in response to increasing questions over the law-related activities of the "Big

5" accountants¹⁰ and recent changes in the rules governing the ability of multidisciplinary

practices (MDPs) to practice law in foreign countries,¹¹ the ABA president directed that a

commission on multidisciplinary practice be formed to determine if changes should be made to

the Rules as they relate to the provision of legal services by professional service firms that are

not customary law firms, such as the Big 5 firms.¹² On June 8, 1999, the commission

recommended changes to the Rules permitting MDPs, within certain guidelines, to render legal

services.¹³ Proposed changes must be voted on by the ABA's House of Delegates. This vote is due

to take place at the ABA's meeting in Atlanta, where a public hearing on the proposal is

scheduled for August 8, 1999.

The possibility of MDPs having control over practicing attorneys, particularly those with

non-lawyer owners, raises a number of issues, some particularly relevant in the bankruptcy

practice.¹⁴ This article addresses some of these ethical issues.

Professional Independence and Judgment

One of the major concerns with respect to MDPs practicing law is the possibility that a lawyer's

professional independence and judgment might be compromised. "The prohibition against MDPs

is rooted in the perception that it prevents a layperson from exercising undue influence over

the independence of a lawyer in the representation of a client in attempt to subordinate the

protection of clients to the pursuit of profit."¹⁵

The concern has been voiced that a lawyer who is employed by an MDP would be subject to

influence by non-lawyer superiors whose decisions might be motivated by financial gain for the

MDP, rather than concern for the client's needs.¹⁶ The fear is that where a lawyer's decisions

are influenced by non-lawyers, the client may receive inferior legal services. Every law firm

of every size has to find a balance between its ethical duties to clients and the economics of the

firm. If the firm is so oriented to client service that it continues to work on problems long after

the economics of the case and the pocketbook of the client would dictate, the law firm's financial

future becomes questionable. On the other hand, a law firm motivated solely by short-term

profit might not satisfy its professional obligations to its clients. Non-lawyer MDP owners

would not have been trained in the ethics of the law and may not be sympathetic to the type of

concerns that lawyers are required to consider. A non-lawyer owning a law firm may thus be

more influenced by bottom-line financial considerations.¹⁷ This set of circumstances could lead

to a deterioration in the level of legal service being provided to clients.

On the other hand, this analysis ignores the economic reality that if MDPs provide inferior

legal services, clients would very quickly become dissatisfied with MDPs and return to

traditional law firms for higher quality service. The argument that client service might suffer

at the hands of an MDP also presupposes that an MDP, such as a Big 5 accounting firm, would be

prepared to risk its reputation and long-term relationships with its significant clients in an

effort to obtain a "fast buck" by inappropriately attempting to influence the decisions of their

own lawyers.

It is also not clear that large law firms will react much differently than MDPs, particularly

in light of increased competition from MDPs. As law firms increase in size, the partners have

less and less contact with each other's clients. If a decision has to be made that pits the economic

interest of a partner (and his family) against the interest of a client, a lawyer may be less

willing to personally sacrifice for a client with whom he has no relationship. Ultimately, a law

partner, just like his counterpart in a large accounting firm, a business owner or stock

investor, is looking for a return on his investment in the firm.¹⁸

Confidentiality

It has been suggested that permitting lawyers to practice in an MDP would interfere with the

maintenance of the attorney-client privilege.¹⁹ The attorney-client privilege is particularly

threatened when a lawyer's non-attorney supervisor is subject to conflicting professional

considerations, giving him inconsistent obligations to third parties. An accountant, for

example, has an obligation under certain circumstances (such as fraud) to disclose certain of a

client's confidential information that has come to his attention.²⁰ Thus, by merely keeping a

non-lawyer supervisor informed as to the progress of a case, the lawyer may be jeopardizing

the attorney-client privilege.

The committee has recognized the existence of irreconcilable ethical disclosure obligations

between attorneys and auditors,²¹ but chose to leave the issue to the Independence Standards

Board and the Securities and Exchange Commission (SEC). According to a letter from the SEC,²²

the SEC would consider an auditing firm to be precluded from providing auditing services to a

registrant for which that MDP was also a provider of legal services. Thus, one solution to this

issue would be to recognize the incompatibility of an auditor's and attorney's obligations and let

MDPs choose whether they will provide auditing or legal services to a client.

Conflicts of Interest

Rule 1.10(a) of the Rules provides that:

While lawyers are associated in a firm, none of them shall knowingly represent a client

when any one of them practicing alone would be prohibited from doing so.

The committee has suggested that a lawyer employed by an MDP should regard all of the clients

of the MDP as his client for conflict of interest purposes.²³ The fact that the Big 5 accounting

firms represent about 90 percent of the Fortune 500 companies, and that the policy of many

companies is to rotate their auditors, may mean that many large companies may have a difficult

time hiring an appropriate auditor or in employing their attorney of choice. It could be that the

anticipated benefits of a large law firm or large accounting firm forming an MDP might be

substantially diminished by business lost to conflicts.

The conflict problem would be particularly acute in bankruptcy cases, which add an additional

layer of conflict issues on top of the non-bankruptcy conflict rules governing attorneys. For

example, how is a debtor's potential MDP attorney to know if a non-lawyer colleague from the

Hong Kong office is negotiating an audit engagement with one of the debtor's creditors, or that

the firm's Rwanda office is considering a consulting assignment for the same creditor? Aside

from the practical consideration of checking conflicts (which will continually be aided by

improving technologies), it may well be that the large MDPs will simply be conflicted out of

many cases. However, we believe that it is quite likely that conflict rules will be revised over

time to reflect the reality of law practice in the age of MDPs.

Conclusion

The Report of the New York Bar Association's Special Committee on Multidisciplinary Practice

and the Legal Profession concludes that services emanating from an MDP, rather than separate

firms or practitioners, can result in the provision of higher quality, more efficient services

for local, regional and global clients.²⁴

"Simply put...providing clients with the option of going to a simple professional services

organization for all their professional needs can furnish advantages in efficiency, timeliness,

coordination and cost-effectiveness to the consumer."²⁵ Attorneys working on a bankruptcy or

insolvency matter at an MDP may well have better access to broader in-firm resources. It also

seems probable that an MDP's unified team providing legal, financial and other services could

achieve significant administrative and time savings, encouraging more cross-fertilization of

ideas between lawyers and financial professionals.

While MDPs do provide advantages in terms of the scope of services available, they also

present significant ethical challenges. Issues of independence, conflicts and confidentiality are

very real concerns and the solution to these problems will not only determine whether MDPs

will play an ever-increasing role in the provision of legal services, but will have a significant

impact on the way law is practiced and on the special relationships between attorneys and their

clients.

Footnotes

¹ See Gillers, Stephen & Simon, Roy D. Jr., Regulation of Lawyers, 423 (1996). Return to article

² See Adams, Edward S. & Mateson, John H., Law Firms on the Big Board? A Proposal for Non-Lawyer Investment in Law Firms, 86 Cal. L. Rev. 1, 4. (1998) (hereinafter "Adams

& Mateson"). Return to article

³ Canon 33 provided that "[partnerships] between lawyers and members of other professions or non-professional persons should not be formed or permitted where any part of the

partnership's employment consists of the practice of law." Return to article

⁴ Canon 34 prohibited fee-splitting with non-attorneys. Return to article

⁵ Disciplinary Rule 3-103(a) provides: a "lawyer shall not form a partnership with a non-lawyer if any of the activities consists of the practice of law." Return to article

⁶ The Rules have now been adopted in most states. Return to article

⁷ See Andrews, Thomas R., Non-Lawyers in the Business of Law: Does the One Who Has the Gold Really Make the Rules? 40 Hastings L.J. 577, 594 (1989); Adams & Mateson at 9. Return to article

⁸ Id. Return to article

⁹ Model Rule 5.4 provides:

(a) A lawyer or law firm shall not share legal fees with a non-lawyer, except that:

(1) an agreement by a lawyer with the lawyer's firm, partner or associate may provide for the payment of money, over a reasonable period of time after the lawyer's death, to

the lawyer's estate or on one or more specified persons;

(2) a lawyer who purchases the practice of a deceased, disabled or disappeared lawyer may, pursuant to the provisions of Rule 1.17, pay to the estate or other representative of

that lawyer the agreed-upon purchase price; and

(3) a lawyer or law firm may include non-lawyer employees in a compensation or retirement plan, even though the plan is based in whole or in part on a profit-sharing

arrangement.

(b) A lawyer shall not form a partnership with a non-lawyer if any of the activities of the partnership consist of the practice of law.

(c) A lawyer shall not permit a person who recommends, employs or pays the lawyer to render legal services for another to direct or regulate the lawyers' professional judgment

in rendering such legal services.

(d) A lawyer shall not practice with or in the form of a professional corporation or association authorized to practice law for a profit, if:

(1) a non-lawyer owns any interest therein, except that a fiduciary representative of the estate of a lawyer may hold the stock or interest of the lawyer for a reasonable time

during administration;

(2) a non-lawyer is a corporate director or officer thereof; or

(3) a non-lawyer has the right to direct or control the professional judgment of a lawyer. Return to article

¹⁰ See, e.g., http://www.abanet.org/cpr/multicomreport0199.html (1999). Return to article

¹¹ In the U.K., for example, the Law Society removed the bar on lawyers offering services through MDPs in 1998. In France, after a similar change, the Big 5 accounting firms

rapidly became the country's largest law firms; see, also, New York State Bar Association Report of the Special Committee on Multidisciplinary Practice and the Legal

Professional, http://www.nysba.org/whatsnew/multidiscrpt.html (1999). Return to article

¹² See Report of Commission on Multidisciplinary Practice, http://www.abanet.org/cpr/mdreport.html (1999). Return to article

¹³ Id. Return to article

¹⁴ The District of Columbia has enacted an amended version of the Rules that permits organizations that provide legal services to admit non-lawyer partners. Delaware is the only

jurisdiction to have effectuated such a liberal rule. See ABA/BNA Law. Man. Prof. Conduct, 91:401 (May 18, 1944). Return to article

¹⁵ Commission, Background Paper on Multidisciplinary Practice: Issues and Developments, http://www.abanet.org/cpr/multicomreport0199.html (1999). Return to article

¹⁶ See, e.g., testimony of Laurence J. Fox to the Commission on Mutidisciplinary Practice, http://www.abanet.org/cpr/multicomsched299.html (1999). Return to article

¹⁷ It is not beyond reasonableness to imagine an associate attorney's being intimidated about even raising certain questions in such an environment. Return to article

¹⁸ See Smith, Larry, "McKinsey's Conspicuous Absence...Can Law Firms Think Analytically?" Aspen Law Business Review, 18, No. 2 of Counsel 2 (1999) (explaining that even

large firms are much like mid-size businesses and can suffer from internal difficulties associated with management style and decision-making). Return to article

¹⁹ Rule 1.6(a) states that "a lawyer shall not reveal information relating to the representation of a client unless the client consents after consultation, except for disclosures that are

implied to be authorized in order to carry out the representation." Return to article

²⁰ See testimony of Lawrence J. Fox to the Commission on Multidisciplinary Practice (Feb. 4, 1999); letter from Lawrence J. Fox submitted following Feb. 4 testimony (undated);

e-mail from Lawrence J. Fox (Apr. 8, 1999); testimony of Sidney M. Cone (Mar. 12, 1999); e-mail from Edward Lamar Taylor (Mar. 19, 1999), http://www.abanet.org/cpr

(1999). Return to article

²¹ While for an attorney the attorney-client privilege rule is always paramount, under certain circumstances an auditor has to disclose information such as fraud to the SEC. Return to article

²² See Report of Commission on Multidisciplinary Practice, http://www.abanet.org/cpr/mdreport.html, n.3. Return to article

²³ See Recommendation 8 of the Commission on Multidisciplinary Practice and Report of the Commission on Multidisciplinary Practice, http://www.abanet.org/cpr (1999). Return to article

²⁴ See http://www.nysba.org/whatsnew/multidiscrpt.html (1999). Return to article

²⁵ Id. Return to article