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MEMORANDUM To: Members of Illinois State Bar Association Task Force on Multidisciplinary Practice From: Gary T. Johnson Re: Draft "Con Report" and Related Materials
1. Because of the legal profession's unique nature and role in society, it is essential that the independence of lawyers and law firms be preserved. 2. Partnerships with nonlawyers and multidisciplinary practice in which non-lawyers have any degree of ownership or control over the practice of law must continue to be prohibited. 3. Legal service firms and nonlegal professional service firms, while remaining independent of each other, under current rules may cooperate in providing services to a client on a "side-by-side" basis, but new safeguards must be adopted to protect the public against nonlawyer involvement in the practice of law with such arrangements. 4. Within these permitted relationships, costs and expenses may be shared, clients may be mutually referred on a non-exclusive basis, and the nature of the relationship may be advertised. 5. We support draft revisions to the Model Rules of Professional Conduct to implement the above recommendations. Introduction The original impetus for the appointment of the Illinois State Bar Association Task Force on Multidisciplinary Practice was the appointment by the American Bar Association of its Commission on Multidisciplinary Practice. Events, however, have overtaken that hard-working ABA Commission. In August 1999 the ABA's House of Delegates, in response to the issuance of the ABA Commission's "Final Report," set the following standard for the consideration of future reports on multidisciplinary practice, a standard which the ABA Commission's "Final Report" implicitly had not met: RESOLVED, that the American Bar Association make no change, addition or amendment to the Model Rules of Professional Conduct which permits a lawyer to offer legal services through a multidisciplinary practice unless and until further study demonstrates that such changes will further the public interest without sacrificing or compromising lawyer independence and the legal profession's tradition of loyalty to clients. Since that time, the ABA Commission has met a number of times and has posted a second Draft Recommendation on its web site, considerably shorter than its "Final" Report. In addition, reports and draft reports have begun to emerge from the state and local bar associations that are studying the issue. Of particular interest is the draft report of the New York State Bar Association, a report of approximately 400 pages in length. Because of the unfolding nature of events, the Illinois State Bar Association's "Con Report" that follows does not limit itself to issues raised by the ABA Commission. It does, of necessity, refer often to the ABA Commission's Final Report because that report represented the most far-reaching reform yet recommended by any group of American lawyers and, if adopted, would have gone farther in the direction of reform than any jurisdiction in the world. The Con Report that follows refers extensively to the New York Report for two reasons: first, because its comprehensiveness sets new a benchmark for understanding the subject of multidisciplinary practice and second, because this Con Report is in basic agreement with major conclusions of the New York Report. Independence and the Core Values of the Profession What is the issue before us? Jack F. Dunbar of Mississippi, a former member of the ABA's Board of Governors (and the author of an article on multidisciplinary practice ("MDP")) may have said it best on the floor of the ABA House of Delegates during its MDP debate last August in Atlanta: Will we "blend" the legal profession into other professions or will it remain independent? This report submits that it is not in the public interest for legal services to be blended into other services and that the price the public will pay by sacrificing institutional independence is unacceptable. Consider the rule and philosophical changes that will be necessary to permit MDPs to offer legal services. Some have been recommended by the ABA Commission, and others have been recommended by other advocates of reform in testimony before the ABA Commission. (We should include these further possible changes as part of the wider debate about MDPs because the question is a moving target). Potential reform includes these key areas:
These are key areas in which our rules of professional conduct and our disciplinary philosophy must change if MDPs are permitted to practice law, including both the changes proposed by the ABA Commission and broader changes that would permit MDPs to operate with even fewer restrictions. The cost for making these changes would be great. The rules above represent core values of the profession and changing them would change our definition of what it means to be a lawyer and to offer legal services to the public. Consider them in turn: Confidentiality and the Attorney-Client Privilege serve the same purpose: to encourage the unrestricted flow of information. There must be complete trust in the lawyer's ability to maintain a confidence before the client will share information. The touted benefits of "one-stop shopping," that rest on the ability of a single firm to bring together lawyers and non-lawyers, could undermine the client's faith in disclosing information freely by bringing non-lawyers into the picture. The ABA Commission frankly acknowledged that clients might not be properly informed about the separate functions performed within an MDP and would have put the burden on the lawyer to ensure that other participants in the MDP observe confidentiality. This is an unrealistic burden to place on a lawyer in a large organization that includes non-lawyers. Beyond the ABA Commission's initial recommendation is the possibility of even more drastic reform, one that would construe the attorney-client privilege so narrowly that it would run only between the individual lawyer and the client, not the MDP and the client. No doubt, this more drastic reform would simplify operations in an MDP, but would this narrow view of privilege not put the privilege at risk? What matters in fostering the free flow of information is how the privilege appears from the client's point of view. It is unrealistic to believe that the client's confidence in this fragmented version of privilege would remain unchanged, particularly when the very raison d'être for selecting an MDP is the benefit of one-stop shopping, of having collaborative teams from different disciplines working together. For the privilege to remain intact, it must remain a collective responsibility. "Transferring responsibility from the firm to 'the individual lawyer' would enable the MDP to become a device for effectively destroying the privilege, first by exonerating firms from honoring it, and second by encouraging individual lawyers to put on blinders taking the overall work of the firm out of their field of vision." Imputed Disqualification. The ABA Commission's Final Report retained the concept of firmwide imputation of conflicts of interest, much to the displeasure of existing professional services firms, who believe that the time had come to reexamine this concept in global organizations. The proposed alternative involved firewalls and screens between working groups, but the legal status and the efficacy of such screens is not established, as evidenced by an important recent decision by the British House of Lords. Any further examination of the concept of firmwide imputation, however, should include an analysis of how this rule works today in functional terms and its impact on the public interest, not only with respect to MDPs, but law firms in general. Regarding MDPs in particular, such an examination should involve a careful analysis of the proffered benefits of one-stop shopping and global service. Is it realistic in that context to limit imputation of conflicts to putative working teams? Will such measures square with the claim of seamless service based on the mobilization of global resources linked by intranets and extranets alive with the pulse of instantaneous, modern communications? Shift in Disciplinary Focus to the Individual. Individuals are the ultimate subjects of disciplinary concern, but the ABA Commission's proposed shift in focus overlooked the insights the bar has gained from defining and enforcing professional standards. For example, Model Rule 5.1 of the Model Rules of Professional Conduct, holding supervisory attorneys and partners accountable for the work of subordinates, was adopted in the 1980s. It and its companion rules arose from the realization that individuals work in organizations, that organizations offer incentives and disincentives for professionalism and that therefore organizations are a key to compliance. Professionals do not work in splendid isolation; ethical compliance turns on organizational guidance — or neglect. This realization is consistent with regulatory insights in general. "Failure to supervise" and "inadequate procedures" are common charges made by regulators today when they identify misconduct in industries such as banking and securities. The proposed narrowing disciplinary focus overlooked what we have learned in recent years about organizational behavior. Compliance requires mutual reinforcement, peer support and clear institutional messages. Nor, of course, is it inevitable that the MDPs will be controlled by individuals who are governed by their own professional codes. Certified public accountants have their own rules, but many of the specialties included in today's professional services firms are not directly subject to professional codes or formalized standards of any kind. Some have said that the cost of rule changes is exaggerated because nothing will force traditional law firms to change their old ways of operating, if they do not want to. Why not simply allow law firms that proclaim their adherence to the old rules to compete against MDPs that do not? We should turn this question around so we can understand why there are have ethical rules at all. Why not simply repeal all the ethics rules and allow every lawyer to offer legal services at any level of ethics that he or she wants? Firm A offers its services with a guarantee of client confidentiality, but makes no promises about conflicts of interest. Firm B respects confidentiality and also will avoid "material" conflicts. Firm C respects confidentiality and has a tighter version of conflicts of interest, the one in today's Model Rules. Firm D just says, "Come to us, we are the lowest cost provider. We know you don't care about confidentiality or conflicts of interest." If the marketplace values confidentiality, then theoretically everyone will offer confidentiality in order to compete. For that matter, why set standards on legal education or require lawyers to pass a bar exam? Let the marketplace decide between those who have those traditional qualifications and those who do not. Why are these extreme hypothetical offensive? The answer is that no matter what our views may be on the future of the profession, there is a consensus that is in the public interest to designate certain qualities as fundamental to being a lawyer in a particular jurisdiction. That is what we mean when we say, "these are the core values of the profession." These are the values that are non-negotiable; they are beyond the reach of the marketplace. There also are minimum standards for legal education and competence and, in some states, continuing legal education. These minimum standards also are non-negotiable. There also are prophylactic measures designed to secure those values and enforce the standards, all in the public interest. Apart from those important exceptions, yes, the marketplace can and should rule. The marketplace, that is, and the conscience of each lawyer. Distinguishing between what is non-negotiable and what the market can decide is the function of the rule makers in each jurisdiction. Any time that they draw a line and say that the market will not decide a particular matter, the court or the bar association is open to the unwarranted criticism that it is acting merely to protect the members of the bar, that every exception to the logic of the marketplace is simply a "vestige" of a guild era. But the liberal use of these pejorative terms does not solve the problem of where to draw the line, when we all agree that the line must be drawn somewhere. Allowing different brands of ethics to compete in the marketplace would undermine public confidence in the delivery of legal services. If the consumer knows that there are different versions of privilege and of confidentiality floating around in the marketplace, will information flow freely or will it be chilled? If, as the ABA Commission suggested, the lawyer must take pains to explain and educate the client regarding these core values, will not the public become suspicious? Allowing different brands of ethics to compete could create a kind of Gresham's Law of ethics: The public will suspect that the lower standard is driving out the higher standard and there will be no way to disprove that suspicion. It is the independence of practicing lawyers that is the key to protecting core values and the legal profession should not countenance any reform that permits lawyers to report to superiors who are not lawyers and are not clients. It should not be a startling proposition that the most fundamental safeguard for core values is independence. At even the largest law firms, no matter how large they may be, the head of the firm is an officer of the court, as are all the lawyers. They all owe the same direct fiduciary obligations to the clients. They all are licensed by the courts and subject to the direct supervision of the courts. They all have duties to defend the judiciary and to protect the legal system. It is naive to believe that the economic setting will not affect the maintenance of core values. Sydney M. Cone, III, has made this point very eloquently in a statement submitted to the ABA Commission: Legal disciplinary rules are subject to interpretation. The core values of the legal profession rest on interpretations made in the best interest of the client. In an MDP controlled by non-lawyers, ultimate management would be in the hands of non-lawyers more likely to be concerned with economic performance by the MDP than with interpretations of legal professional rules made in the best interest of the client. It therefore would be surprising, as these rules were interpreted from time to time by lawyers in the MDP, if the lawyers were uninfluenced by the economic concerns of the non-lawyers in positions of ultimate control. Accordingly, it seems reasonable to expect that there would be an incentive for the lawyers in an MDP to interpret the legal rules of professional ethics in a manner most consistent with the interests of a management comprising non-lawyers, as contrasted with the best interests of the client. For this reason, there seems to be a substantial risk that, over time, the operation of MDPs controlled by non-lawyers would lead to the erosion of the core values of the profession. Lawyers are unlike other professions because they owe duties to the judicial branch of government. Judicial independence is the foundation of our federal Constitution, and the constitution of every state. Because lawyers are in service to the court, a bar that blends into other professions and loses its institutional independence undermines the independence of the judiciary itself. One of the most distinguished federal judges, Hon. William M. Hoeveler, has said: We must never lose our independence or permit incursions into it. The danger is clearly present; an independent judiciary without an independent bar is like a scabbard without a sword. It is important to be clear about one issue concerned with independence: the role of the in-house lawyer. In-house counsel are respected members of the legal profession, and they play an indispensable role. What distinguishes them, whether they work for a corporation or a government agency, is that they serve only one client, not many. What is problematic about allowing an MDP not headed by officers of the court is that it creates a hierarchy with a new element, a boss who is neither employed by a client nor a fellow officer of the court. The same issue arises in an MDP headed by a lawyer but subject to substantial influence and investment control by non-lawyers. In-house lawyers should not be cited as a quasi-precedent for allowing MDPs to offer legal services. For purposes of discussion, take an extreme example of a new MDP, one cited by a draft of the MDP Task Force of the Florida Bar. It is an MDP headed by a disbarred lawyer. There is nothing in the ABA Commission's Final Report that would have prevented this, so long as this MDP filed its annual compliance certificate in every jurisdiction and the disbarred lawyer fell into another "professional" group. Could we countenance an MDP headed by a disbarred lawyer? The solution to an overly broad general rule is to draw lines, which the ABA Commission by and large has not done. The only defensible line, the one that serves the prophylactic purposes of securing our core values, is to say that non-lawyers cannot exercise control over the practice of law. For that reason, lawyers should not be allowed to form integrated multidisciplinary practices and, even as stand-alone entities, law firms should not be allowed to accept outside investment, because investment implies a degree of control. Whatever Happened to One-Stop Shopping? Another important line concerns what services are incompatible with the offering of legal service. Consider the co-existence of auditing and advocacy in the same entity, a subject that is attracting the regulatory attention of the Securities and Exchange Commission. Its job is to protect the investing public by regulating market participants and by safeguarding the quality of disclosure about securities. Every new trend in the market literally comes across its desk. This gives the SEC one of the best informed perspectives on the market. Here is what SEC officials have said about the problems inherent in combining auditing and legal services. SEC Commissioner Norman S. Johnson said on March 6, 1999: Of all the varied independence problems, there is one that I personally find especially troubling: the efforts by accounting firms to expand into the legal services area.... Attorneys have an ethical duty to represent zealously the interests of their private clients, and it is impossible to reconcile this role as private advocate with the duty accountants and auditors owe to the investing public. On December 17, 1998, the SEC's Director of Enforcement Richard H. Walker, emphasized the same point: What do we say (i) when lawyers in one part of a firm are ethically bound to advocate a client's interest and hold information obtained from the client in the strictest confidence; (ii) while accountants in another part of the firm are ethically bound to exercise skepticism in dealing with the client's management and must show primary allegiance to the public by disclosing damaging confidential information about the client; (iii) while consultants in another part of the firm are giving the client management advice, the results of which may be reviewed during the audit; and (iv) while others in the firm are trying to sell expensive new goods and services to the client? The message is loud and clear: the combination of auditing and advocacy simply should not be permitted. This is where the market trends of one-stop convenience and consolidation run into a brick wall. Too much is at stake to permit this particular combination. Meanwhile, for their own business reasons, leading professional services firms have been reversing the trend of combining various services within the same entity. For example, there is currently pending an arbitration before the International Chamber of Commerce in which the constituent business units of Andersen Consulting seek to separate themselves from Andersen Worldwide and the business units of Arthur Andersen. Ernst & Young is selling its management consulting business to Cap Gemini Group SA, a Paris computer-consulting company in a deal that could surpass $4.8 billion. PricewaterhouseCoopers LLP also has announced that it is dividing its consulting and auditing operations. On May 5, 2000, KPMG filed an SEC registration statement for a $1 billion initial public offering that will reduce the accounting firm of KPMG's stake in the consulting company to 20%, thus making it an independent company. Remember that the original stated rationale for MDP reform was the convenience of "one-stop shopping." Where do these recent developments leave us? Let us review the bidding. Since the original demand for MDPs to offer legal services based on the convenience of one-stop shopping, the SEC has made it crystal clear -- and for excellent reasons -- that the same firm cannot offer legal services in the United States, at least, to an auditing client of an SEC-registered company. Auditing and legal services, then, involve at least two stops. In addition, there is an emerging trend among the Big Five professional services firms to sever consulting from other services. Paradoxically, the trend is for legal services to remain with auditing, not consulting services, so now we are talking about at least three stops: auditing, legal and consulting services. A more realistic way to characterize the reformers' goal, in the light of recent developments, is to say "fewer-stop shopping." The concept of "one-stop shopping" for a broad range of professional services in the United States is dead. We submit that the report above has identified what the client would lose by allowing the practice of law to blend into other services, losses in terms of confidential, privilege, undivided loyalty and independence. Left unanswered is the following question: what would the client gain by allowing MDPs to offer legal services, when one-stop shopping is no longer realistic and there already exist side-by-side arrangement that can offer many of the same advantages without raising the same ethical concerns? Side-by-Side Arrangements Between Lawyers and Nonlawyer Professional Service Firms Under current ethical rules, there are many ways that lawyers and non-lawyers already can cooperate to provide professional services to their respective clients. When client needs arise, lawyers are accustomed to working cooperatively with other professionals as members of ad hoc teams with other professionals, teams that may dissolve after a particular project is completed or that may remain in place to serve a particular client or group of clients. Lawyers also make referrals of other professionals to clients, and, in turn, lawyers accept referrals. In today's market conditions, a trend is emerging for such arrangements to evolve into cooperative endeavors of a more durable character. Such lasting arrangements have a number of names, such as "alliances," and they may arise not at the behest of a particular client, but rather as a result of the marketing and service programs of the cooperating firms themselves. In 1997, the Washington, D.C. firm of Miller & Chevalier announced a "strategic alliance" with the accounting firm of Price Waterhouse. This alliance offered both firms with a non-exclusive source of business referrals and the ability to market themselves as offering "seamless service" to their respective clients. Similar alliances were formed during 1999 between the professional services firm of KPMG, the Chicago law firm of Norwood Marcus & Bark Chad. and the San Francisco-headquartered firm of Morrison & Fester. The public announcements of this alliance refer to an agreement by the participants to use their best efforts to refer clients to one another on a non-exclusive basis. No fees are shared, nor are referral fees to be paid. The first side-by-side arrangement in the United States in which nonlawyers are reported to have a financial involvement involves the newly-created law firm of McKee Nelson Ernst & Young LLP in Washington, D.C. The name partners both withdrew from the law firm of King & Spalding to create the new entity. According to press reports, the accounting firm of Ernst & Young is providing "start-up" financing to the new firm but otherwise has "no financial interest" in the firm and "will not be involved" in its day-to-day management. Although the law firm will rent space from Ernst & Young, the offices of the firms will be physically separate, and the law firm's files are said to be inaccessible to employees of the accounting firm. Side-by-side arrangements must, of course, operate within current ethical constraints. One of the well-established rules of ethics is that a lawyer may not pay or agree to pay a nonlawyer for a client referral. As explained in a forthcoming restatement: Such arrangements would give the nonlawyer an incentive to refer to lawyers who will pay the highest referral fee, rather than to lawyers who can provide the most effective services. They also would give the nonlawyer referring person the power and an incentive to influence the lawyer's representation by an explicit or implicit threat to refer no additional clients or by appealing to the lawyer's sense of gratitude for the referral already made. Also, lawyers cannot give anything of value to third parties for recommending their services, even with the client's consent. It also is essential that an interprofessional strategic alliance be non-exclusive. The lawyer must be free, despite the alliance, to recommend a competitor of the strategic ally, if the competitor is best for the client. Ethics decisions in various states have divided on the issue of lawyers receiving fees for referring clients to nonlawyer service providers. In any event, the professional responsibility is upon each member of a alliance to utilize its best judgment for its clients in recommending the most appropriate referral. To go beyond that, such as providing minimum guarantees and exclusive dealing agreements would transform a mutually beneficial business relationship into what the New York Report calls "a creature that could have a direct negative impact on clients." Side-by-side arrangements also give rise to questions about the extent to which the relationship between the lawyer and the nonlawyer service provider creates a potential conflict of interest, particularly as interprofessional contractual relationships evolve into more complex sets of commercial and structural agreements. Under current principles, depending upon the economic importance to the lawyer, the lawyer must disclose the existence and nature of the interprofessional contractual relationship to clients so that they can make an informed judgment regarding the services of both the nonlegal ally and the lawyer. This is because the desire of the lawyer to perpetuate the stream of referrals from the ally, as it rises in significance, may constitute an interest that could conflict impermissibly with the lawyer's duty to exercise independent professional judgment on the client's behalf. As relationships between the lawyer and the nonlegal professional services firm become closer, the operations can combine on a de facto basis and depart dramatically from the original concept of combining forces to provide cross-referrals and the offering of professional services in complementary teams. One consequence is that, depending upon the nature and extent of the relationship between the participants, it may be necessary and appropriate to treat the law firm and nonlegal professional service firm as a single law firm within the meaning of the ABA Model Rules of Professional Conduct, just as if the nonlegal professional service firm maintained an "of counsel" relationship with the law firm. Such relationships exist in the lawyer-to-lawyer context when the parties have a close, continuing, regular and personal relationship or when the of counsel attorney has a present day-to-day working familiarity with the affairs of the law firm in question. The relationship does not exist solely by virtue of the referral of business between firms or an occasional consulting relationship, as a result of consultation on a single matter, or occasional collaborative efforts among otherwise unrelated lawyers or firms. Once the relationship becomes ongoing, however, and particularly if it involves more than a mere cross-referral arrangement, the interprofessional alliance more closely approximates a single enterprise in its structure and operation. The principal implication of an of counsel relationship, which may arise in the context of a contractual relationship between the legal and nonlegal service providers, is that client relationships and conflicts of interest are imputed between the participants. Thus, the lawyer or law firm in such a relationship would be deemed, for conflict of interest purposes, to owe a duty of loyalty to each client of the nonlawyer professional or nonlawyer professional service firm, and would be precluded from accepting engagements adverse to such clients without their informed consent. While the existing provisions of the Model Rules of Professional Conduct thus address issues raised by side-by-side arrangements, in several respects the Model Rules do not adequately deal with important concerns, such as the risk that the nonlawyer professional service firm may be the dominant participant in the alliance and may possess economic influence not adequately anticipated or prevented by the other rules. Furthermore, we are concerned that lawyers and law firms not be permitted to enter side-by-side arrangements with nonlawyers whose standards of ethics and professionalism could dilute the lawyers' duties to clients. Therefore, a lawyer entering into an interprofessional alliance must be satisfied that the nonlawyer professionals belong to a profession requiring a reasonable degree of higher education and having a set of enforceable standards of professional conduct sufficiently comparable with those of lawyers. Moreover, we are concerned that in many cases it may not be possible to reconcile the standards of ethics and professionalism applicable to an association between a law firm and a nonlawyer professional service firm, and that no single public authority has jurisdiction over the association as such. Accordingly, the determination whether lawyers should be permitted to enter into systematic and continuous interprofessional arrangements is best determined on a profession-by-profession basis, taking into account the intrinsic nature of each profession and assuring that affiliation with it will not impair lawyer professional standards to any extent. Accordingly, we propose amendments to the Model Rules of Professional Conduct, as first proposed first in the New York Report, and we further recommend revisions in the Model Rules on the collateral issues of advertising and the use of a law firm's professional name, to permit publicity regarding the existence of a permissible side-by-side arrangement and to ensure that the public not be misled by the use of a nonlawyers' name in the name of a law firm that has entered into such an arrangement with a nonlegal professional service firm. The proposed amendments to the Model Rules of Profession Conduct are in Appendix A. Conclusion
1. Because of the legal profession's unique nature and role in society, it is essential that the independence of lawyers and law firms be preserved. 2. Partnerships with nonlawyers and multidisciplinary practice in which non-lawyers have any degree of ownership or control over the practice of law must continue to be prohibited. 3. Legal service firms and nonlegal professional service firms, while remaining independent of each other, under current rules may cooperate in providing services to a client on a "side-by-side" basis, but new safeguards must be adopted to protect the public against nonlawyer involvement in the practice of law with such arrangements. 4. Within these permitted relationships, costs and expenses may be shared, clients may be mutually referred on a non-exclusive basis, and the nature of the relationship may be advertised. 5. We support draft revisions to the Model Rules of Professional Conduct to implement the above recommendations. (See Appendix A.) APPENDIX A summary of possible amendments to the aba model rules of professional conduct (marked to show changes to the existing rules)
(1) The profession of the nonlegal professional or nonlegal professional service firm is a profession listed by the [high court of the state] pursuant to Rule 5.8(b); and (2) The lawyer or law firm neither grants to the nonlegal professional or nonlegal professional service firm, no permits such person or firm to obtain, hold or exercise, directly or indirectly, any ownership or investment interest in, or managerial or supervisory right, power or position in connection with, the practice of law by the lawyer or law firm. (b) For purposes of Rule 5.8(a): (1) (i) (ii) are licensed by this State; and (iii) are required under penalty of suspension or revocation of license to adhere to a code of ethical conduct that is reasonably comparable to that of the legal profession. (2) (c) Rule 5.8(a) shall not apply to relationships consisting solely of non-exclusive reciprocal referral agreements or understanding between a lawyer or law firm and a nonlegal professional or nonlegal professional service firm. (d) Notwithstanding Rule 5.4(a), a lawyer or law firm may allocate costs and expenses with a nonlegal professional or nonlegal professional service firm pursuant to a contractual relationship permitted by Rule 5.8(a). Comment [1] Rule 5.8 permits lawyers to enter into interprofessional contractual relationships for the systematic and continuing provision of legal and nonlegal professional services provided the nonlegal professional or nonlegal professional service firm with which the lawyer or law firm is affiliated does not own, control, supervise or manage, directly or indirectly, in whole or in part, the practice of law by the lawyer or law firm. Examples of the activities in which the nonlegal professional or nonlegal professional service firm may not play a role include the decision whether to accept or terminate an engagement to provide legal services in a particular matter or to a particular client, the hiring and training of lawyers, the assignment of lawyers to handle particular matters or to provide legal services to particular clients, decisions relating to the undertaking of pro bono publico and other public-interest legal work, financial and budgetary matters relating to the legal practice, and the compensation and advancement of lawyers and of persons assisting lawyers on legal matters. [2] The contractual relationship permitted by Rule 5.8 may provide for the reciprocal referral of clients by and between the lawyer or law firm and the nonlegal professional or nonlegal professional service firm. It may also provide for the sharing of premises, general overhead, or administrative costs and services on an arm's length basis. Such financial arrangements, in the context of an agreement between lawyers and other professionals to provide legal and other professional services on a systematic and continuing basis, are permitted notwithstanding that they involve the exchange of value for client referrals and technically, a sharing of professional fees, matters that are dealt with specifically in Rules 7.2(c) and 5.8(d). [3] Similarly, lawyers participating in such arrangements remain subject to general ethical principles in addition to those set forth in Rule 5.8 including, at a minimum, Rules 1.7(b), 5.4(c), 5.4(d) and 7.5(d). Thus, the lawyer or law firm may not, for example, include in its firm name the name of the nonlegal professional service firm or any individual nonlegal professional, or enter into formal partnerships with nonlawyers, or practice in an organization in which nonlawyers own any interest. Likewise, a law firm's interest in maintaining an advantageous relationship with a nonlegal professional service firm might, in certain circumstances, adversely affect the independent professional judgment of the law firm creating a conflict of interest subject to Rule 1.7(b). [4] Each lawyer and law firm having a contractual relationship under Rule 5.8 has an ethical duty to observe these Rules of Professional Conduct with respect to its own conduct in the context of the contractual relationship. For example, the lawyer or law firm cannot permit its obligation to maintain client confidences as required by Rules 1.6 and 1.8(b) to be compromised by the contractual relationship or by its implementation by or on behalf of nonlawyers involved in the relationship. In addition, the prohibition in Rule 8.4(a) against a lawyer or law firm circumventing a Rule of Professional Conduct through actions of another applies generally to the lawyer or law firm in the contractual relationship. [5] When in the context of a contractual relationship permitted under Rule 5.8 a lawyer or law firm refers a client to the nonlegal professional or nonlegal professional services firm, the lawyer or law firm shall observe the ethical standards of the legal profession in verifying the competence of the nonlegal professional or nonlegal professional service firm to handle the relevant affairs and interests of the client. Referrals should only be made when requested by the client or deemed to be reasonably necessary to serve the client. [6] To assure that only appropriate professional services are involved, a contractual relationship for the provision of services is permitted under Rule 5.8 only if the nonlegal party thereto is a professional or professional service firm meeting appropriate standards as regards ethics, education, training, and the licensing. The [high court of the state] maintains a public list of eligible professions. Individuals and firms in this state may apply for the inclusion of particular professions on the list, or professions may be added to the list by the [high court of the state] sua sponte. A lawyer or law firm not wishing to affiliate with a nonlawyer on a systematic and continuing basis, but only to engage a nonlawyer on an ad hoc basis to assist in a specific matter, is not governed by Rule 5.8 when so dealing with the nonlawyer. Thus, a lawyer advising a client in connection with a discharge of chemical wastes may engage the services of and consult with an environmental engineer on that matter without the need to comply with Rule 5.8. Likewise, the requirements of Rule 5.8 need not be met when a lawyer retains an expert witness in a particular litigation. [7] Depending upon the extent and nature of the relationship between the lawyer or law firm, on the one hand, and the nonlegal professional or nonlegal professional service firm, on the other hand, it may be appropriate to treat the parties to a contractual relationship permitted by Rule 5.8 as a single law firm for purposes of these Rules of Professional Conduct, as would be the case if the nonlegal professional or nonlegal professional service firm were in an "of counsel" relationship with the lawyer or law firm. The principal effect of such a relationship would be that conflicts of interest would be imputed as between them pursuant to Rule 1.10. To the extent that the rules of ethics of the nonlegal profession conflict with these Rules, the rules of the legal profession will still govern the conduct of the lawyers and the law firm participants in the relationship. A lawyer or law firm may also be subject to legal obligations arising from a relationship with nonlawyer professionals who are themselves subject to regulation. RULE 7.2 ADVERTISING
(i) (ii) (iii) (2) a lawyer or law firm may refer clients to a nonlegal professional or nonlegal professional service firm pursuant to an agreement or other contractual relationship with such nonlegal professional or nonlegal professional service firm to provide legal and other professional services on a systematic and continuing basis as permitted by Rule 5.8. (d) Any communication made pursuant to this rule shall include the name of at least one lawyer responsible for its content. Comment [1] To assist the public in obtaining legal services, lawyers should be allowed to make known their services not only through reputation but also through organized information campaigns in the form of advertising. Advertising involves an active quest for clients, contrary to the tradition that a lawyer should not seek clientele. However, the public's need to know about legal services can be fulfilled in part through advertising. This need is particularly acute in the case of persons of moderate means who have not made extensive use of legal services. The interest in expanding public information about legal services ought to prevail over considerations of tradition. Nevertheless, advertising by lawyers entails the risk of practices that are misleading or overreaching. [2] This Rule permits public dissemination of information concerning a lawyer's name or firm name, address and telephone number; the kinds of services the lawyer will undertake; the basis on which the lawyer's fees are determined, including prices for specific services and payment and credit arrangements; a lawyer's foreign language ability; names of references and, with their consent, names of clients regularly represented: the nature or extent of any nonlegal services provided by the lawyer or by an entity owned and controlled by the lawyer; the existence of contractual relationships between the lawyer or law firm and a nonlegal professional or nonlegal professional service firm, to the extent permitted by Rule 5.8, and the nature and extent of services available through those contractual relationships; and other information that might invite the attention of those seeking legal assistance. [3] Questions of effectiveness and taste in advertising are matters of speculation and subjective judgment. Some jurisdictions have had extensive prohibitions against television advertising, against advertising going beyond specified facts about a lawyer, or against "undignified" advertising. Television is now one of the most powerful media for getting information to the public, particularly persons of law and moderate income; prohibiting television advertising, therefore, would impede the flow of information about legal services to many sectors of the public. Limiting the information that may be advertised has a similar effect and assumes that the bar can accurately forecast the kind of information that the public would regard as relevant. [4] Neither this Rule nor Rule 7.3 prohibits communications authorized by law, such as notice to members of class in class action litigation. Record of Advertising [5] Paragraph (b) requires that a record of the content and use of advertising be kept in order to facilitate enforcement of this Rule. It does not require that advertising be subject to review prior to dissemination. Such a requirement would be burdensome and expensive relative to its possible benefits, and may be of doubtful constitutionality. Paying Others to Recommend a Lawyer [6] A lawyer is allowed to pay for advertising permitted by this Rule and for the purchase of a law practice in accordance with the provisions of Rule 1.17, but otherwise is not permitted to pay another person for channeling professional work. This restriction does not prevent an organization or person other than the lawyer from advertising or recommending the lawyer's services. Thus, a legal aid agency or prepaid legal services plan may pay to advertise legal services provided under its auspices. Likewise, a lawyer may participate in not-for-profit lawyer referral programs and pay the usual fees charged by such programs. Paragraph (c) does not prohibit paying regular compensation to an assistant, such as a secretary, to prepare communications permitted by this Rule. [7] Reciprocal referrals of clients by and between a lawyer or law firm and a nonlegal professional or nonlegal professional service firm pursuant to an interprofessional contractual arrangement permitted by Rule 5.8 are excluded from the scope of Rule 7.2(c). NOTE: THIS APPENDIX B IS NOT A PART OF THE DRAFT CON REPORT AND IS INCLUDED SOLELY FOR DISTRIBUTION TO THE ILLINOIS STATE BAR ASSOCIATION TASK FORCE ON MULTIDISCIPLINARY PRACTICE. IT INCLUDES THE REVISION TO THE MODEL RULES OF PROFESSIONAL CONDUCT PROPOSED BY THE DRAFT REPORT OF THE NEW YORK STATE BAR ASSOCIATION REGARDING ALLOWING LAWYERS TO OFFER ANCILLARY BUSINESSES. THE ILLINOIS TASK FORCE DRAFT CON REPORT TAKES NO POSITION ON THIS PROPOSED RULE CHANGE. Appendix B
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