Multidisciplinary Practices Ethical Concerns or Economic Concerns
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
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.
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.
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
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;(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.
(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.
(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
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
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
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