 San
Francisco attorney Demetrios Dimitriou serves as ethics counsel to individuals and firms;
acts as an expert witness on ethics and standard of care issues; represents individual
attorneys, firms and clients in fee disputes; and advises firms on internal practice
management issues including malpractice risk reviews and firm dissolutions.The
rules should be changed now to reflect the realities of current client and public needs
By DEMETRIOS DIMITRIOU
The principal purpose, justification and focus of the Rules of Professional Conduct
should be on the needs of consumers of legal services, the scope of those services and
what the profession must do to meet these needs while at the same time protecting
legitimate client interests. To the extent existing rules are "lawyer turf
protecting" rules, any attempt to continue supporting such rules will ultimately
fail.
Some undeniable facts
1. In spite of the existing rules, there is a widespread and pervasive
rendering of services by non-lawyers which lawyers have traditionally performed and which
lawyers consider to be the rendering of legal services. For example, see the American Bar
Association Commission on Non-lawyer Practice Report "Non-lawyer Activity in
Law-related Situations" 1995, dealing with paralegal activities, non-lawyer
representation before administrative bodies, and typing services [preparation of
bankruptcy petitions and divorce documents], among other non-lawyer activities in
law-related situations.
2. An increasing number of lawyers are practicing law with financial
management firms, accounting firms, consulting firms, insurance firms [life and accident]
and banks, to name a few, as employees or equity owners. These lawyers are rendering legal
services to their firm clients and the fees charged for these legal services are paid to
the firm [fee sharing with non-lawyers]. See item 5 below.
3. There is an increasing tendency by legislatures to permit
non-lawyers to render services to the public which services have traditionally been
rendered by lawyers, e.g., workers' compensation matters and representation of taxpayers
before the U.S. Tax Court.
4. There is no consensus within the legal community with respect to
what the unauthorized practice of law entails, e.g., some say that whatever activities a
lawyer undertakes, in his/her capacity as a lawyer, is the practice of law. Although the
unauthorized practice of law is a crime, it is perceived as a low-level crime and very
casually enforced, if at all, by district attorneys in most instances. It is also a
violation of California Rule of Professional Conduct 1-300 [Unauthorized Practice of Law],
which proscribes attorneys from aiding another in the unauthorized practice of law.
5. All states have a rule of professional conduct patterned after, or
similar to, ABA Rule 5.4 - Professional Independence of a Lawyer [proscribing the sharing
of fees for legal services with non-lawyers]. The rule in California is Rule 1-320
[Financial Arrangements with Non-Lawyers]. This rule is almost never enforced against
lawyers except in instances where an attorney is engaged in "running and
capping" activities. An interesting non-running and capping case is Crawford v. State
Bar (1960) 54 Cal.2d 659. Also, the activities described in item 2 fall within this rule's
proscription.
6. The current activities of lawyers practicing law, even though some
insist that they are only acting as consultants, involve the violation of the above rules
in addition to the possible violations of Rule 1-310 [Forming a Partnership With a
Non-Lawyer], Rule 1-400 [Advertising and Solicitation], Rule 1-600 [Legal Services
Programs], Rule 3-300 [Avoiding Interests Adverse to a Client] and Rule 3-310 [Avoiding
the Representation of Adverse Interests]. In spite of the above violations, the State Bar
does little to enforce these existing rules against those violating them, both lawyers and
non-lawyers.
Needs of consumers
Unless we can, as a profession, meet the current and future needs of consumers of legal
services, we will become irrelevant as a profession as we know it. A new class of
"lawyers" will merge to fill client demands and needs and their economic
concerns. Students will be going to law schools and graduating with the necessary legal
skills and then going to work for various multidisciplinary practices, (passing bar exams
but not being sworn in by courts, thereby not being burdened by arcane rules having little
relevance to themselves, their partners, their employers or clients being served). Only
lawyers practicing before some courts will be licensed (take the oath), at least until
changed by legislation or international treaties entered into with other countries.
The future path
What should we do - change the rules?
Yes! We should change the rules.
At a minimum, the existing rules should be changed and refocused to meet the needs of
consumers of legal services.
Those aspects of the existing rules which focus on "turf protection" should
be eliminated. The more troubling aspect is the bar's failure to enforce the current
rules. It is duplicitous for the bar to have rules which are ignored, unenforced or very
selectively enforced.
Our rules should be changed to reflect the realities of current client and public needs
and be subjected to rigorous bar enforcement. To have rules, either existing rules or
changed rules, which the bar is unwilling to enforce across the entire profession should
be untenable.
The bar's continued failure to adequately enforce existing rules results in the
public's disrespect for the bar and its members.
How can we justify our alleged right to a "legal monopoly" and right to
self-policing/governing if we continue as we have in the past? |
 David
M.M. Bell, now in private practice, is former State Bar director of professional
competence, overseeing rule development and the Ethics Hotline. He can be reached at dmbell@dnai.com. With many
ramifications, it clearly is too soon to change the rules without having an adequate
debate
by DAVID M. M. BELL
The ABA Commission on Multidisciplinary Prac-tice has released its report recommending
that lawyers be permitted to enter into partnerships with non-lawyers to offer mixed
professional services, including legal services, to the public. A multidisciplinary
practice (MDP) would provide an efficient, coordinated "one-stop" package of
services to a client. Possible services to be offered are myriad and could include, among
others, accountancy, architecture, consulting, financial planning, law, lobbying,
psychological counseling, social work and tax return preparation. The commission report
notes that both clients and lawyers see a need for MDPs and that corporate law firms, as
well as lawyers in solo and small firm practices, show substantial interest in forming
MDPs.
Different forms
An MDP could come in many different forms, including partnerships, professional
corporations and associations. The commission model would permit an MDP to be controlled
by non-lawyers, and would allow an MDP to provide legal services as an adjunct, or
secondary, service in support of a primary service, such as financial planning. Lawyers in
an MDP would be permitted to share legal fees with non-lawyer partners, and to share in
the profits generated by the MDP's non-legal divisions. Non-lawyers in an MDP, while
permitted to share legal fees, would not be permitted to practice law.
Professional conduct rules create a barrier to the formation of MDPs by lawyers.
Current prohibitions against fee sharing and the formation of partnerships to practice law
with non-lawyers would need to be relaxed in order to permit lawyers to form MDPs with
non-lawyers. In addition, observers agree that confidentiality and conflict of interest
rules would require amendment, in order to recognize MDP practice while simultaneously
protecting professional independence and client interests adequately. Not unexpectedly,
the commission has recommended abolishing the fee sharing and partnership prohibitions
regarding lawyer practice in MDPs. It has also suggested a number of ABA rule amendments
addressing the other areas of concern.
In California, some say that the debate is closed, that MDPs exist already and are here
to stay. The legal profession should recognize reality and bow to the inevitability of the
MDP model. As lawyers, we harm ourselves by clinging to old rules that do not recognize
modern legal practice or the modern legal marketplace and that hurt our competitiveness as
a profession.
Supporters maintain that the professional conduct rules can be amended to accommodate
MDP practice in a manner that retains lawyers' "core values" of professional
independence, client confidentiality and conflict-free legal representation. Supporters
also promote MDPs as potentially providing improved access to legal services by the
public.
Ethical concerns
There are, however, profound ethical concerns raised by lawyer participation in MDPs.
As numerous observers have commented, MDPs jeopardize the foundation of the
attorney-client relationship, that is the fiduciary duty of undivided loyalty owed by a
lawyer to each client. The concept of undivided loyalty, embedded in both professional
conduct rules and California common law, includes the duty to maintain client confidence
and secrets inviolate and to avoid conflicts of interest, including relationships or
interests that interfere with a lawyer's independence of professional judgment on behalf
of clients.
A fundamental goal of our fee sharing, partnership formation and conflict of interest
rules is to protect the independent professional judgment of lawyers. Amending the rules
to permit lawyers to form mixed legal/non-legal businesses and share legal fees with
non-lawyers will absolutely impact, and potentially compromise, lawyers' independence of
professional judgment. Even amending the conflict rules, as the commission has
recommended, to treat an MDP the same as a law firm for conflicts purposes (requiring a
conflicts check against all clients of the MDP, not just those represented by the MDP's
legal division) will not solve a central conflict problem inherent in practicing in an
MDP. The conflict of interest presented that may most impact an MDP lawyer's independence
of professional judgment is the lawyer's profit motive.
Profit motive
MDPs will change the profit motive for lawyers practicing within them. As Thomas O.
Rice, chairman of the New York State Bar Association, has noted, "One of the great
risks [of MDPs] is that the profit motive could begin to skew the picture." This is
because the MDP lawyer may share in the profits of all MDP divisions, not just its legal
division, and because the lawyer's non-lawyer partners may also share in all MDP profits,
including its legal profits.
There exists a risk that lawyers' advice and representation may be colored as a result
of MDP internal profit-sharing. For example, a non-lawyer-controlled MDP offers financial
planning services and products primarily, and legal estate planning services secondarily.
The key profit area of this MDP is its sale of financial products to clients. Where the
MDP lawyer, providing legal estate planning services to MDP clients, has financial
incentive as an employee of the MDP to promote MDP financial products, the conflict of
interest issue is raised. The problem is compounded if non-lawyers controlling the MDP
bring pressure on the MDP lawyers to promote profitable MDP financial products to clients,
products which net the MDP greater return than its provision of legal services.
An MDP lawyer could also find his or her independence of professional judgment
compromised regarding confidential client information. While California lawyers are bound
to maintain inviolate confidential client information, members of other professions, such
as accountants and psychotherapists, are legally required to disclose certain types of
confidential client information. One can envision situations where these incompatible
confidentiality obligations, existing within the same MDP, could impede the MDP lawyers'
independence of professional judgment in questioning, counseling and representing an MDP
client who is receiving mixed MDP services.
In its report, the commission acknowledges that it has no detailed empirical data
supporting its position that clients and attorneys favor relaxing the professional conduct
rules in order to facilitate the formation of MDPs. Some observers, including the New York
State Bar Association Special Committee on Multidisciplinary Practice and the Legal
Profession, recommend that empirical evidence is needed to demonstrate the purported
benefits of MDPs before specific recommendations can be made, including, for example,
evidence of the public's demand for MDPs, the intention and plans of other professions,
and the likely risks of changing statutes and ethics rules.
Premature move
Based upon the thorny ethical issues identified, it appears premature at this time to
promulgate the sweeping changes to the professional conduct rules necessary to accommodate
MDP practice without further empirical study. The commission is to be commended for its
groundbreaking work, and its concern for maintaining high ethical standards, but more work
needs to be done before the MDP model can be justified, let alone sanctified in the
professional conduct rules. As the commission itself concludes in the final sentence of
its report: "There is, of course, no assurance that lawyers will choose to practice
in MDPs or that clients will prefer to purchase legal services from such providers."
This being the case, it is clearly too soon to amend the professional conduct rules, even
if MDPs are determined ultimately to be desirable and in the best interests of the public
and the profession. |
