December 2001

Strategic Society Hosts MDP Breakfast Conference to Examine New Rules

Accounting Firms Begin to Weigh Risks and Advantages of Cooperative Business Arrangements with Law Firms
By Jay Dismukes

NEW YORK—On Nov. 1, 2001, New York became the first state in the nation to enact multidisciplinary practice (MDP) rules that permit law firms to establish contractual relationships with nonlegal professions for providing cross-disciplinary services to law-firm clients. Though not yet confirmed, it is widely believed that the four Appellate Divisions of New York’s Supreme Court will include the CPA profession among the nonlegal professions eligible to enter into these cooperative business arrangements with law firms.

As the appellate divisions prepare to promulgate their list of eligible professions, international accounting firm BDO Seidman LLP is confident that the CPA profession will make the cut and is actively discussing the possibility of building alliances with law practices throughout the country.

“The general philosophy (at BDO) is that we want to cross sell as much as possible,” said Domenick J. Esposito, a BDO managing partner who spoke on Nov. 27 before members of the New York State Society of CPAs Large- and Medium-Sized Firms Practice Management Committee on the subject. True to their belief in one-stop shopping for clients, BDO has entered into a three-year alliance agreement with one law firm and is negotiating with 18 others, Esposito said at the committee meeting.

Though BDO and other large accounting firms—some Big Five among them—are positioning themselves to take advantage of the new rules, Esposito said small- and medium-sized firms should be aware of the opportunity for side-by-side arrangements while weighing the associated risks and advantages.

“Does it make sense for you to have an alliance with a law firm?” Esposito encouraged the members to consider. “Do you sprinkle your referrals around or do you strengthen your informal arrangement with one or two firms and possibly get more referrals?…Remember that this is evolving, just keep your eyes open to it.”

The MDP Discussion

In wanting to help all members be cognizent of multidisciplinary practice, the Society on Dec. 5 hosted a breakfast and panel discussion examining the impact that the new rules could have on CPA firms.

Held at the Yale Club in midtown Manhattan, the event featured former NYSSCPA President and Andersen partner Francis T. Nusspickel as moderator and speakers Sydney M. Cone III, Esq., former vice chairman of the New York State Bar Association’s Special Committee on Law Governing Firm Structure and Operation, and Dan L. Goldwasser, Esq., a partner in Vedder, Price, Kaufman & Kammholz.

MDPs originally took hold in Europe and have become increasingly attractive to CPA firms in this country as the practice has expanded to include more nontraditional services like information technology, business consulting and human resources, and because transactions, particularly in areas such as estate planning and taxation, often require accounting as well as legal skills.

To open his presentation, Cone, of Cleary, Gottleib, Steen & Hamilton, gave a brief history of the MDP rules in New York state. In late June 2000, the New York State Bar Association’s (NYSBA) House of Delegates adopted rules that are similar to those proposed in a 400-page report called Preserving the Core Values of the American Legal Profession: The Place of Multidisciplinary Practice in the Law Governing Lawyers, issued by the NYSBA’s Special Committee on the Law Governing Firm Structure and Operation and made available to the public.

The American Bar Association (ABA) did not take any action on the NYSBA report, and, according to Cone, the ABA declined to adopt a report made by its own MDP commission and instead moved to dissolve the commission, the significance of which is that there is not currently an ABA rule on MDPs.

Rules and Ethical Considerations

Cone then addressed the provisions of New York’s MDP rules. Chief among them, those nonlegal professions that enter into formal client-service relationships with law firms must first be approved by the appellate divisions. In addition to CPAs, architects, engineers, land surveyors and certified social workers are believed to be on the court’s list of eligible professions.

Other caveats to the MDP rules include the following:

  • Clients must be notified in writing of the alliance before referral of the client to the nonlegal professional services firm. All clients must be provided with a copy of the “Statement of Client’s Rights in Cooperative Business Arrangements.”
  • Non-lawyers cannot have ownership or investment interests in law firms.
  • Non-lawyers cannot control, manage or supervise the legal practice.
  • Lawyers and law firms cannot give or receive any monetary or other tangible benefit for giving or receiving a referral.
  • Though expenses and costs can be allocated between the law firm and nonlegal professional firm, legal fees cannot be shared.

When asked after the event whether these rules are likely to change in the foreseeable future, Cone replied, “I think these are the rules now and I don’t know of any current plans to modify them.”

Cone also focused on certain ethical considerations of MDPs, namely that the reciprocal referral arrangement between law firms and nonlegal professionals is permissible, but cannot be performed on an exclusive basis.

In his presentation, Goldwasser also addressed the CPA/attorney referral arrangement, noting that referrals cannot involve referral-fee payments and should only be made when requested by the client. Additionally, law firms must verify the professional competence of the referree.

Under the MDP rules, the protection of an attorney-client relationship does not exist with respect to the nonlegal services. Goldwasser further pointed out that MDPs in New York state providing non-distinct services—those for which it is unclear whether the attorney-client privilege attaches to client communications— must comply with bar restrictions. MDPs must also defer to these restrictions in areas such as advertising, deceptive practices and conflicts of interest.

Conflicts of interest seemingly would abound in cooperative business arrangements between auditors and attorneys as the nature of the two professions are inherently different, with attorneys serving the interests of their client while auditors act in the interest of the general public, providing valuable attest services. However, as pointed out by those familiar with MDPs, there are many areas—including corporate mergers and acquisitions, equity and debt offerings and employment contracts, among others—in which the two professions can share their expertise and information without risking independence in the interest of better serving the client.

For Esposito, it is this ability to provide one-stop shopping to the client without jeopardizing the integrity of the CPA profession that makes MDPs so attractive to accounting firms like BDO.

The Society has tentatively scheduled a second breakfast and panel discussion on MDPs for Jan. 17 in Rochester. For more information, contact Sheila Griffiths at (212) 719-8391 or sgriffiths@nysscpa.org.


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