REPORT TO THE ASSEMBLY OF THE ILLINOIS STATE BAR ASSOCIATION (A Report Favoring Adoption of American Bar Association Recommendation on MDP) Submitted by the Corporate Law Departments Section Council May 17, 2000 INTRODUCTION In August 1999, the Commission on Multidisciplinary Practice ("Commission") recommended that the Model Rules of Professional Conduct be amended, subject to certain restrictions, to permit a lawyer to partner with a nonlawyer even if the activities of the enterprise consisted of the practice of law and to share legal fees with a nonlawyer. The Commission concluded that: (1) such a change is in the best interests of the public; (2) it will expand the availability of legal services; and (3) the change will allow the development of new business structures enabling lawyers to reconfigure their practices to assist clients in resolving multidisciplinary problems. When the matter came before the ABA House, the House adopted a resolution that reads in part: 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 additional 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. According to the Commission, "Multidisciplinary practice ("MDP") denotes a "partnership, professional corporation, or other association or entity that includes lawyers and nonlawyers and has as one, but not all, of its purposes the delivery of legal services to a client(s) other than MDP itself or that holds itself out to the public as providing nonlegal, as well as legal, services. It includes an arrangement by which a law firm joins with one or more other professional firms to provide services, and there is a direct or indirect sharing of profits as part of the arrangement." Court-imposed ethic rules have discouraged fee-sharing and mixed professional partnerships in the United States since 1908, and expressly barred them since 1969. Rule 5.4 of the Rules of Professional Conduct prohibits lawyers and law firms from sharing legal fees with nonlawyers, with certain limited exceptions. Prohibitions against "fee splitting" have been part of the law governing lawyers for a long time, even though the organized bar did not adopt a specific ethical canon against the practice until 1928. Recently, various commentators have criticized Rule 5.4 as protectionist. When the Model Rules of Professional Conduct were first proposed in 1982, the ABA Commission on Evaluation of Professional Standards ("the Kutak Commission") recommended that the Code of Professional Ethics' prohibition on fee splitting be repealed. The Commission took the position that fee splitting prohibitions were outmoded in light of modern business practices. However, the Kutak Commission's proposal was rejected by the ABA House of Delegates in 1983 before the Model Rules were adopted. The debate over MDP's has intensified in recent years because of the number of such businesses in Europe and elsewhere. Additionally, the acquisitions of law practices by the "Big Five" professional services firms has also added heat to the debate. According to the ABA reports, for example, PriceWaterhouseCoopers now employs one thousand six hundred lawyers in forty-two different countries. The Commission has also reported that "[t]he international accounting firms have publicly stated their intention to become major players in the marketplace for legal services around the globe." THE COMMISSION'S RECOMMENDATIONS In June, 1999, the Commission recommended to the ABA that it lift its ban, and allow lawyers to share fees and partner with non-lawyers, subject to restrictive conditions. In the course of its study, the Commission heard sixty hours of testimony from fifty-six witnesses from around the world and received written and oral communications from numerous others. The testimony and written materials were presented by U.S. and foreign lawyers, consumer advocates, representatives of four of the five largest accounting firms in the world, law professors, chairs of ABA sections and standing committees, officers of foreign and domestic bar associations, ethics counsel of foreign and domestic bar associations, small business clients, the American Corporate Counsel Association, and in-house counsel of international corporations. Some of the key features of the Commission's proposals include: The legal profession should maintain its Rules of Professional Conduct to protect the profession's core values, but that these rules should not unduly or unnecessarily inhibit development of new structures through which a lawyer might deliver legal services to the public more effectively and offer better public access to the justice system. Lawyers would not be permitted to "share" fees with non-lawyers in any context other than MDPs as those delivery systems would be identified under the Model Rules. Allowing lawyers to deliver services through MDPs would not change the prohibition against non-lawyers providing legal services. A lawyer in an MDP should remain bound by the Rules of Professional Conduct, particularly those relating to confidentiality and loyalty, and could not defend misconduct by citing orders from a non-lawyer supervisor. All Rules of Professional Conduct that apply to law firms would apply to MDPs. All MDP clients should be treated as lawyers' clients when determining potential conflicts of interest. The Commission presented its Recommendation to the House for debate on August 10, 1999, but in recognition of the many requests by state and local bar associations for more time to consider the issues, moved to defer the vote. The House subsequently adopted a resolution that reads in part as follows: 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 additional 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. However, the House made it clear that the Commission could continue to study issues related to MDPs and report back to the House when it determined such action was appropriate. Since the August 10 vote, the Commission members have endeavored to work with state and local bar associations in advancing discussion. The House of Delegates is expected to reconsider the issue at its July 2000 Annual Meeting. The Commission recently re-drafted its Recommendation to the House of Delegates as follows: RESOLVED, that the American Bar Association amend the Model Rules of Professional Conduct consistent with the following principles: 1. Lawyers should be permitted to share fees and join with nonlawyer professionals in a practice that delivers both legal and nonlegal professional services (Multidisciplinary Practice), provided that the lawyers have the control and authority necessary to assure lawyer independence in the rendering of legal services. "Nonlawyer professionals: means members of recognized professions or other disciplines that are governed by ethical standards. 2. This Recommendation must be implemented in a manner that protects the public and preserves the core values of the legal profession, including competence, independence of professional judgment, protection of confidential client information, loyalty to the client through the avoidance of conflicts of interest, and pro bono publico obligations. 3. To protect the public interest, regulatory authorities should enforce existing rules and adopt such additional enforcement procedures as are needed to implement the principles identified in this Recommendation. 4. This Recommendation does not alter the prohibition on nonlawyers delivering legal services and the obligations of all lawyers to observe the rules of professional conduct. Nor does it authorize passive investment in a Multidisciplinary Practice. The District of Columbia is the only jurisdiction which permits lawyers to share fees with nonlawyers. The Washington, D.C. version of Rule 5.4 requires that the law firm or organization must have "as its sole purpose" the provision of legal services to others; the nonlawyer must agree "to abide by these rules of professional conduct;" the lawyers with a financial interest or managerial authority must undertake to be responsible for the nonlawyer participants to the same extent as if nonlawyer participants were lawyers under Rule 5.1; and these conditions must be set forth in writing. Although the Rule does not define or limit the vocation of the nonlawyer partner, the Rule does not permit partnership for the purpose of investment. On May 2, 2000, the New York State Bar Association released the Report of its Special Committee on the Law Governing Firm Structure and Operation "Preserving the Core Values of the American Legal Profession: The Place of Multidisciplinary Practice in the Law Governing Lawyers." This Report calls for two forms of multidisciplinary practice with nonlawyers but partnerships with nonlawyers and multidisciplinary practice in which nonlawyers have any degree of ownership or control over the practice of law would be prohibited. On April 28, 2000, the Association's Executive Committee endorsed the Report. The NYSBA House of Delegates will debate and vote on the report on June 24, 2000. REASONS WHY THE ISBA SHOULD ADOPT A PRO-MDP POSITION Changes in the marketplace demand a new legal forum Great changes in the marketplace have affected the practice of law as we know it. The practice of law must be seen though the prism of modern day business. In favoring the MDP, it must be realized that lawyers today cannot maintain the status quo and must shift their practice to reflect modern business trends. The practice of law must be seen as : A business that is susceptible to the same market-driven forces as any other service business in the post-industrial, information-based global economy. A business that is subject to the same management principles and practices that are applicable to any other business of similar type or character. A business that is so impacted by the pervasive change in technology and communication. Business leaders must recognize that dynamics of change affecting the marketplace, and advise both companies and law firms to create and manage these changes. According to Tom Peters in Fast Company, "[w]e are in the midst of the most profound change since the beginning of the Industrial Revolution, over two centuries ago . . . perhaps the most profound change since the Chinese more or less invented hierarchy thousands of years ago." The law profession must recognize several trends as we consider the MDP issues: The change from a producer-driven economy to a consumer-driven economy. The move from producer-at-center orbited by consumer to consumer-at-center orbited by producers. The old model was based on order, logic, and conformity. The new model is moving at Internet speed. There is a shift from capital investment to intellectual capital. Clients are interested in one-stop shopping The available evidence suggests that at least some clients are interested in advisors who can provide comprehensive solutions, combining legal and non-legal elements and approaches to their problems. The American Corporate Counsel Association adopted the following position in February of 1999 regarding the MDP issue: The American Corporate Counsel Association supports a broader range of choice for clients to select from service providers capable of formulating comprehensive solutions which address not only the legal aspect of their problems but various other facets as well. Subject to resolving important issues of ethics and professionalism in the best interests of the client and the public, such a broader range of choice could include multidisciplinary practices wherein lawyers are affiliated with nonlawyers. Surveys also indicate a strong preference for the MDP one-stop shopping environment. According to the Financial Times report on September 9, 1999, more than half of the big corporate buyers of legal services in the U.K. and the U.S. would be willing to use a firm that combined lawyers and accountants. Additionally, according to a National Association of Realtors 1997 survey of over 5,000 home buyers, over two-thirds of the people who had recently purchases a home would, in the future, select a company that is able to provide every service they need under one roof. Other evidence of client interest can be found in statements made to the Commission during the course of the ABA's recent deliberations of the MDP issue. Business representatives either expressed interest themselves in obtaining multidisciplinary services, or they suggested that there was market interest in having interdisciplinary advice available through a single office. Consumers of legal services often present lawyers with problems that require the active evaluation and counsel by more than one professional. These problems require one-stop solutions which are more efficient and cost-effective in nature. As the Commission reported, MDPs have already existed in the marketplace for a long time. For example, lawyers in accounting firms, consulting firms, insurance companies, American Express, in H&R Block and hundreds of others, are being employed as lawyers and are performing "consulting services." Thus, the MDP format would provide clients with one-stop shopping which provides a more competent and cost-effective solution. Lawyers themselves want to market interdisciplinary approaches Another reason for considering MDPs is the interest expressed by lawyers in developing and marketing interdisciplinary approaches to solving clients' problems. For some time, lawyers have supported arrangements that would allow the merging of legal and non-legal expertise under one roof. Lawyers argue that the MDP environment is needed to attract and to retain high quality professionals who will not stay with a law firm if they cannot participate in firm governance and profit sharing. In submissions to the ABA Commission, Phillip Stinson, a lawyer who represents parents in disputes with public school officials, asserted that he regularly works with other professionals, including clinical psychologists with certifications in school psychology. Stinson advocates amending Rule 5.4 to allow MDPs because "he believes that his clients would be best represented by teams of lawyers and other professionals working together, rather than by lawyers alone employing arms-length experts. Other small-firm lawyers desire to expand practices to include other professionals. According to Larry Ramirez, then-Chair of the ABA's General Practice, Solo and Small Firm Section, rules against fee sharing with nonlawyers should be "relaxed." Additionally, the Chair of the ABA's Standing Committee on the Delivery of Legal Services also expressed his Committee's support for a relaxation of the fee splitting prohibition, arguing that the current rule "limits the creativity of innovative legal service providers and prevents the institutionalization of methodologies we have not yet considered." To accomplish the best results for clients, lawyers need to have access to resources beyond those they have traditionally used. One important source is the ability to collaborate with professionals from other disciplines which can assist in creating a solution for the client. Lawyers are already combining with other professionals to best serve the client's needs. Examples of these possible combinations include: Litigation attorneys are teaming with certified public accountants, actuaries, and economists to provide multidisciplinary support to a client in complex litigation such as antitrust, RICO, money laundering, and similar cases. Patent attorneys are teaming with civil and electrical engineers to provide patent law and related services. Environmental attorneys are teaming with biologists, geologists, hydrologists, urban land planners and civil engineers to provide environmental permitting services. Design-build construction attorneys are teaming with architects, engineers, land surveyors, landscape architects, general contractors, and urban land planners to provide design-build construction services to the single owner. Criminal attorneys are teaming with investigators, social workers, and psychologists. Family law attorneys are teaming with accountants, financial planners, and family counselors to provide comprehensive services to assist clients in their adjustment to life as single persons. Elder law attorneys are teaming with financial advisors, insurance agents, social workers, and geriatric care managers to provide holistic care to chronically ill elders and their families. Not only would MDPs provide freedom of choice for clients as to where, how and from whom they obtain professional services, but MDPs would provide freedom of choice for lawyers as to the kind of partnership in which they want to practice. Current ethics rules give lawyers little choice. According to Ward Bower, a principal in Altman Weil, an international legal consulting firm, "MDPs present opportunities for attorneys by creating more job opportunities and open more lines of ancillary businesses such as auditing, legal services and tax management and other consulting areas." Additionally, the law firm partnership is an endangered workplace organization structure, for people trained as lawyers are increasingly seeking out occupational environments outside of the traditional law firm. The Commission heard testimony from a number of witnesses who explained that lawyers wanted to work collaboratively with experts in other disciplines to provide clients with advice. In a letter to the Chair of the Commission, female law students and recent law graduates explained that current law firm structure does not give women and lawyers of color the opportunity to do interesting and exciting work in law firms. Many of these supporters of MDP were attracted to the work environments found at management consulting, policy analysis, real estate, retail, and publishing and accounting firms, yet they cannot use their law licenses to practice law in such firms due to the current ethics rules which provide no choice. Therefore, MDP's would provide lawyers to move beyond the narrowly-focused, crises-driven work of law firms, and deliver high quality client advice with other professionals. THE COMMISSION'S RECOMMENDATIONS STILL SUBJECT LAWYERS TO ALL RULES OF PROFESSIONAL CONDUCT Like members of most other professions, lawyers and law firms may not disclose clients' confidential information. The lawyer's obligation is very broad and covers substantially all information learned in the course of a representation. In addition, confidential communications to a lawyer are guarded by the attorney-client privilege. Similarly, the conflicts rules reflect the high value that lawyers and judges place on the principles of loyalty, fiduciary duty and confidentiality the underlie the profession. There are valid worries raised by the opposition to MDPs concerning the problems that these rules pose for new forms of practice involving members of different professions. One valid concern is whether MDPs are a safe means of providing legal services to the public. However the Commission makes clear that MDPs would be subject to certain certification and audit procedures, designed to protect the interests of clients and the public while maintaining the core values of the legal profession- independence of judgment, confidentiality, and loyalty to clients through the avoidance of conflicts of interest. Some of these safeguards include: The Recommendation does not permit a nonlawyer to deliver legal services. The Recommendation proposes no change to the duties of lawyers, delivering legal services in an MDP. The Recommendation proposes that conflicts of interest be treated the same with respect to the delivery of legal services in an MDP as in a law firm. The Recommendation proposes that lawyers delivering legal services in an MDP be obligated under the Model Rules to take special precautions to ensure that confidentiality of client information and the attorney-client privilege are not compromised. The recommendation proposes that lawyers and the MDP be obligated under the Model Rules to give to the highest court in the jurisdiction with the authority to regulate the legal profession in each jurisdiction in which the MDP is engaged in the delivery of legal services written undertakings that they will comply with the safeguards established for MDPs. MDPs must respect the pro bono public service obligation of lawyers. Therefore, the Commission has addressed and responded in reaction to the opposition's concerns. The Model Rules contain provisions barring the sharing of legal fees with nonlawyers, preventing lawyers from forming partnerships with nonlawyers, admonishing lawyers not to allow persons who recommend, employ or pay the lawyer to direct the lawyers' professional judgment in rendering legal services, and prohibiting lawyers from practicing law in organizations in which nonlawyers own any interest. Hence, the current Model Rules do not adequately deal with the delivery system for legal services as they are being demanded today. CONCLUSION The Philadelphia Bar Association became the first state or local bar association in the nation to ratify pro-multidisciplinary practice legislation on March 23, 2000. Its Board of Governors approved a proposal that allows for MDPs as long as the entity in question is at least fifty-one percent lawyer-owned. The ISBA should follow the Philadelphia Bar Association's leadership in this area, and also adopt a resolution favoring MDPs. The ISBA should embrace the practice of law in the new paradigm, as part of a compendium of professional services linked by a common business objective, thus permitting attorneys to be part of a multidisciplinary system for the delivery of professional services. The ISBA should be a leader in guiding the practice of law in the 21st century.