September 2000

NYS Bar Committee Says Lawyer - Controlled MDP's Are OK

By James A. Woehlke

In a move that opens the door for combining firms practicing in differing disciplines, the New York State Bar Association’s House of Delegates approved a 400-page recommendation that calls for multidisciplinary practices (MDPs) in late June.

The report, issued by the New York State Bar Association Special Committee on the Law Governing Firm Structure and Operation, recommends amending the rules governing the legal profession in New York to permit lawyer-controlled “integrated” practices. MDPs would allow the practice of law and other professions, like accounting, within one firm.

The report calls for changing current rules to permit exclusive referral arrangements between law and other professional firms. The report also suggests a revised definition of the “practice of law” and recommends vigorous enforcement of the unauthorized practice of law criminal statute.

The committee’s report is entitled “Preserving the Core Values of the American Legal Profession: The Place of Multidisciplinary Practice in the Law Governing Lawyers.” Of key importance to the report’s authors is that attorneys maintain control of the offering of legal services so that a lawyer’s loyalty is always to the client and not to a business arrangement with nonlawyers.

As for integrated MDPs owned by nonlawyers, the report states, “[t]he Committee's proposed changes do not, however, include changes that would permit MDPs in which the practice of law is owned or otherwise controlled by nonlawyers.”

The report goes on to say, “[e]ven were changes permitting such MDPs to be considered desirable, the Committee is of the view that substantial additional time would be required to develop informed views about suitable rules to this end. At the present time, the Committee does not consider it appropriate to undertake the formulation of possible rules permitting such MDPs.”

The report advises the NYSBA to “be a sensitive and informed observer” and should “remain open” in the event “consumer interests and the public interest in general [should] so demand” integrated MDPs owned by nonlawyers.

Regarding alliances, the committee would permit exclusive referral arrangements between a law firm and a nonlegal professional services firm if the nonlegal firm involved a profession which required that its members

1) earn a bachelor’s degree;
2) are licensed by the State of New York; and
3) are required under penalty of license suspension to adhere to an ethics code that is “reasonably compatible” to the legal profession’s ethics code.

Although these alliances could include neither the granting of an “ownership or investment interest” in the legal firm to the nonlegal firm, nor the sharing of fees, nor the management or supervision of a law practice, they could involve the sharing of expenses.

The report recommends that lawyers’ ethics rules should be clarified to forbid law firms from including a nonlawyer’s or a nonlegal firm’s name in its own name. If enacted, this change would preclude firm names in New York such as McKee, Nelson, Ernst & Young (MNEY) -- the name given to a Washington, D.C., law firm with close ties to Ernst & Young. The MNEY law firm was purposely founded in the District of Columbia because of its liberal rules on law firm names.

The report goes to great lengths describing the history of the legal profession in the United States. It discusses recent developments affecting the practice of law -- including the 20th century phenomenon of large law firms; the growth of diversity in the legal profession; the effect of law-practice specialization; the introduction of in-house legal counsel to manage the legal affairs of businesses; the various cooperative arrangements between attorneys and other professionals; the tendency of large accounting firms to hire attorneys; and the existence of nonlawyer-controlled MDPs outside the United States.

While overall the report appears well researched and well reasoned, at times the fear of incursion into the legal arena by firms controlled by nonlawyers surfaces and the reports’ authors resort to rumor and innuendo. For instance, when discussing the “economic power of the proponents of MDPs,” the report noted, “When the Texas Unauthorized Practice Committee with an annual budget of $60,000 began to investigate Arthur Andersen, the accounting firm hired Weil, Gotshal and Manges to represent it. Rumor has it that the fees paid to Weil, Gotshal exceeded the annual budget of the Texas committee by more than an order of magnitude. It has also been said that the accounting profession spent an eight-figure dollar amount to secure their very limited tax practitioner privilege under the Internal Revenue Code. This battle was won against the active lobbying of the American Bar Association.” And again, chapter 10 on “Identifying and Appraising the Factors Looking Toward Change” concludes, “The substantial economic power of international professional service organizations with hundreds of thousands of employees must be taken seriously.”

The report also proposes that the law governing the unauthorized practice of law should be changed. While the report’s authors did not entirely flesh out their reform proposal, they indicated a preference for the work of the Washington Bar Association. Adapted for use in New York, the Washington approach would broadly define the practice of law, give specific illustrations of law practice, and spell out any exceptions from the enforcement of the unauthorized practice statute.

The broad definition suggested by the committee was, “The practice of law is the application of legal principles and judgment with regard to the circumstances or objectives of another entity or person which requires the knowledge and skill of a person trained in the law.” Among the specific illustrations of law practice were, “giving advice or counsel to others as to their legal rights or the legal rights or responsibilities of others for fees or other consideration,” “selection, drafting, or completion of legal documents or agreements which affect the legal rights of an entity or person,” and “negotiation of legal rights or responsibilities on behalf of another entity or person.”

The unauthorized practice area of the report concluded, “Regardless of whether this or some other formulation of the definition of the practice of law is adopted, this Committee recommends that it be combined with meaningful enforcement mechanisms consistent with NYSBA (and ABA) policy, and that the unauthorized practice of law be policed with increased vigor, with a view toward protecting the public against injury at the hands of those who lack the professional training, governmental oversight, and ethical inculcation of duly licensed attorneys.”

The report considered the issue of nonlawyer investment in law firms and concluded that law firms should not be permitted to attract equity investments from nonlawyers. The chief concern was that lawyers would become preoccupied with satisfying the demands of outside investors rather than focusing on clients’ needs. Specifically, the report states, “We share the concern that outside equity investment in a legal practice may confer ultimate control of that practice on nonlawyers. When (as mentioned above) the purpose of this outside investment is to further the investor’s own business plan, and the outside investor is financially dominant in the relevant arrangement, there is a substantial likelihood that, should considerations of independent legal judgment or other considerations of legal ethics not coincide with the business plan of the dominant outside investor, that independence or those ethics might be subject to inappropriate tensions.”

The report can be obtained from the NYSBA’s website, www.nysba.org. A copy is also available for download from the Society’s website at www.nysscpa.org/home/mdpcenter/mdplinks.htm


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