In August 1999, the ABA Commission issued a report recommending that ABA Model Rule of Professional Conduct 5.4 be revised to permit sharing of legal fees between lawyers and non-lawyers in a newly defined multidisciplinary practice entity called an “MDP.”An MDP would not have to be controlled by lawyers, but the report recommended that MDPs not controlled by lawyers be required to register with court authorities and to certify in writing that:
- it will not directly or indirectly interfere with a lawyer’s exercise of independent professional judgment on behalf of a client;
- it will establish, maintain and enforce procedures designed to protect a lawyer’s exercise of independent professional judgment on behalf of a client from interference by the MDP, any member of the MDP, or any person or entity associated with the MDP;
- it will establish, maintain and enforce procedures to protect a lawyer’s professional obligation to segregate client funds;
- its members will abide by the rules of professional conduct when they are engaged in the delivery of legal services to a client of the MDP;
- it will respect the unique role of the lawyer in society as an officer of the legal system, a representative of clients and a public citizen having special responsibility for the administration of justice. This statement should acknowledge that lawyers in an MDP have the same special obligation to render voluntary pro bono publico legal service as lawyers practicing solo or in law firms….
The ABA Commission also proposed revision of Model Rule 1.10 to provide that a disqualification arising from a conflict “with any client of the MDP, not just a client of a professional services division of the MDP or of any individual lawyer member of the MDP,” would be imputed to every lawyer of the MDP. A proposed revision of Rule 1.6 would have required lawyers within an MDP to assure that the MDP undertakes “reasonable efforts to ensure that [each] nonlawyer [participant in the MDP] behaves in a manner that discharges the lawyer’s obligation of confidentiality.” The ABA Commission also stated in its Report that ownership in the MDP “would be limited to members of the MDP performing professional services. It would not be permitted for an individual or entity to acquire all or any part of the ownership of an MDP for investment or other purposes.”
Shortly after the Commission issued its recommendations, the ABA House of Delegates adopted the following resolution:
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.
The House of Delegates’ resolution placed the burden of persuasion on those advocating change to demonstrate that change will be in the “public interest” and will not compromise lawyer independence or loyalty to clients.
Subsequently, the ABA Commission continued to meet and consider the subject. It also solicited input from state and local bars and suggested consideration of possible alternative approaches. Of particular interest to this jurisdiction, in an Updated Background and Information Report and Request for Comments issued in December 1999, the Commission put forward the current District of Columbia Rule of Professional Conduct 5.4 as a model for possible consideration.
D.C. Rule 5.4 differs from ABA Model Rule 5.4 with respect to provision of multidisciplinary services. ABA Model Rule 5.4, as adopted in most states, provides that “(a) [a] lawyer or law firm shall not share legal fees with a non-lawyer …, [and] (b) a lawyer shall not form a partnership with a non-lawyer if any of the activities of the partnership consist of the practice of law.” The District of Columbia version of Rule 5.4 does permit lawyers and non-lawyers to share legal fees, but only if the following stringent conditions are met:
- … [i]ndividual non-lawyer[s] … perform … professional services which assist the organization in providing legal services to clients,
- the partnership or organization has as its sole purpose providing legal services to clients,
- all persons having … managerial authority or holding a financial interest undertake to abide by the Rules of Professional Conduct,
- the lawyers who have a financial interest or managerial authority in the partnership undertake to be responsible for the non-lawyer participants to the same extent as if the non-lawyer participants were lawyers under Rule 5. 1, and
- “the foregoing conditions are set forth in writing.”
As the D.C. Bar’s Board of Governors explained to the D.C. Court of Appeals: “This Rule rejects an absolute prohibition against lawyers and non-lawyers joining together to provide collaborative services, but continues to impose traditional ethical requirements with respect to the organization thus created.” More precisely, the Rule permits sharing of fees with non-lawyers only in an organization engaged “solely” in the practice of law and only if traditional legal ethical requirements are applied to all participants in the enterprise.
The District of Columbia Rules of Professional Conduct also differ from those of most states in specifically recognizing and regulating lawyer participation in non-legal ancillary enterprises. Shortly after adoption of the D.C. Rules, some District of Columbia law firms formed affiliated enterprises providing lobbying, real estate, financial consulting and other services. This development led the Board of Governors to appoint a committee to study, among other things, whether the recently effectuated D.C. Rules of Professional Conduct should be modified to address lawyers’ sharing in the fees and management of non-legal enterprises that provide services “ancillary” to legal services. After studying the subject, the committee proposed a new Comment 25 to Rule 1.7, relating to conflicts of interest, and the new Comment was approved subsequently by the D.C. Court of Appeals. Rather than forbid lawyer participation in fees generated by non-legal work, the Comment requires that clients and potential clients be given sufficient information to decide for themselves how and by whom they wish to be represented as to both legal and ancillary non-legal work.
So far as this committee is aware, the greater permissiveness of the District of Columbia Rules has not resulted in any damage to the public or to the profession. It has also not led to a notable increase in non-lawyer partners of law firms. Failure to make greater use of this opportunity has been attributed both to the severe restrictions embodied in the D.C. rule and to the fact that other jurisdictions in which D.C. law firms might have or wish to locate offices are not comparably permissive.
In its December 1999 Report and in a subsequent February 2000 Postscript, the ABA Commission suggested that other jurisdictions might wish to consider adopting D.C. Rule 5.4 or a variant that would relax the “sole purpose” limitation by permitting non-lawyer partners in firms having the practice of law as “a principal purpose.” The ABA Commission also suggested that non-lawyer partners might be limited to “professionals” and that control of the resulting organization might be confined to lawyers. In effect, this variant would permit firms managed by lawyers to offer other professional services but would not allow professional service organizations controlled by members of other professions to practice law. Alternatively, the ABA Commission suggested that organizations controlled by non-lawyers might be permitted to offer legal services, but, if they did, their legal services personnel should be organized into separate units supervised by lawyers.
The ABA Commission also recognized in its December 1999 Report and February 2000 Postscript that, in the District of Columbia and elsewhere, it is possible to create arrangements for multidisciplinary collaboration without revision of current rules. Because the only barrier to the collaborative provision of legal and other professional services is the rule prohibiting non-lawyers’ sharing in legal fees, it is possible to create arrangements in which lawyers and non-lawyers share in almost every aspect of their respective practices except in the lawyers’ fees. The Commission identified the District of Columbia law firm of McKee Nelson Ernst & Young as sharing part of its name with an accounting firm, although the firm does not provide the accounting firm a share of its legal fees. Another District of Columbia firm, Miller & Chevalier, was identified by the Commission as having entered into a “strategic alliance” with the accounting firm of PricewaterhouseCoopers. The legal trade press has also reported an alliance between the law firm of Morrison & Foerster and KPMG, the merger of the money management practice of Bingham Dana LLP with Legg Mason, an investment firm, and the creation of investment and consulting affiliates by McGuire Woods Consulting and McGuire Woods. Therefore, if, as proponents suggest, there is demand for collaborative provision of legal and non-legal services, means short of single firm collaboration and fee sharing already exist to meet that demand.
It was in this context that in May 2000 the ABA Commission issued a revised Recommendation and Final Report. The ABA Commission’s final Recommendation reads as follows:
Resolved, that the American Bar Association amend the Model Rules of Professional Conduct consistent with the following principles:
- 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.
- 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.
- Regulatory authorities should enforce existing rules and adopt such additional enforcement procedures as are needed to implement these principles and to protect the public interest.
- The prohibition on nonlawyers delivering legal services and the obligations of all lawyers to observe the rules of professional conduct should not be altered.
- Passive investment in a Multidisciplinary Practice should not be permitted.
The full text of the Commission’s Recommendation, Final Report and extensive appendices is available on the Commission’s website at abanet.org/cpr/multicom. In those materials the Commission did not propose a single model by which lawyers should retain “the control and authority necessary to assure lawyer independence in the rendering of legal services.” Instead, the Commission concluded that the ABA should not seek to “interfere with the states’ ability to identify and enforce the particular structures that they determine are necessary to protect the interests of clients.”
Although the ABA Commission concluded that the control and independence requirement “can be satisfied in a variety of ways,” the majority of the Commission would not require “that there be [lawyer] majority ownership of an MDP.” Instead, the Commission majority concluded that in a large MDP, “such as one including several hundred professionals in different disciplines, formal structures are certain to be needed.” In such circumstances, the Commission would require
(1) structuring the MDP so that the lawyers who are delivering legal services to the MDP’s clients are organized and supervised separately from the MDP’s other units (e.g., business, technology, or environmental consulting services); and (2) establishing a chain-of-command in which these lawyers report to a lawyer-supervisor whose responsibilities include hiring and firing, fixing the lawyers’ compensation and terms of service, making decisions with respect to professional issues such as staffing of legal matters and the allocation of lawyer and paraprofessional resources, and advising on issues of professional responsibility.
A minority of the ABA Commission would have gone further to require that “there be lawyer majority ownership of an MDP (or a supermajority, as any individual state might determine) and that a primary purpose of the MDP be the delivery of legal services.” These Commission members described themselves as supporting a modified version of the existing District of Columbia Rule 5.4.
On June 26, 2000, shortly after the final ABA Commission Recommendation became available, this committee issued its first report, recommending, in substance, that the D.C. Bar support the Recommendation of the ABA Commission. Despite that recommendation, and support by D.C. Bar delegates, on July 11, 2000, the ABA House of Delegates, by a vote of 314 to 106, rejected the Recommendation of the ABA Commission, resolved to adhere to the current version of ABA Model Rule 5.4, and disbanded the ABA Commission.
Despite the action taken by the ABA House of Delegates, the issues raised by the ABA Commission did not die. State bar committees continued to study multidisciplinary practice and the barriers to it, and bar committees in several states and in several major cities have recommended, with varying limitations and restrictions, that multidisciplinary practice, including sharing of legal fees, be permitted. 1 Nevertheless, to date, no state of the United States permits pooling the revenues of multidisciplinary practice in a single firm (except to the extent permitted in the District of Columbia), and several state bars have rejected any movement in that direction. 2
This committee, likewise, continued to consider whether it should make a recommendation to change the existing District of Columbia Rule 5.4 and, if so, what changes it should recommend. Reflecting the results of that study, on February 23, 2001, the committee published a Preliminary Report and Request for Comments that was distributed to the various sections and committees of the D.C. Bar and to other bar organizations in the District of Columbia. The Report was disseminated over the D.C. Bar’s website and publicized in the D.C. Bar’s magazine distributed to all Bar members.
In its Preliminary Report, the Committee stated that it expected to recommend that D.C. Rule 5.4 be amended to permit sharing of legal fees among professionals engaged in multidisciplinary practice, and it gave reasons for the committee’s tentative conclusion. To focus comment, two proposed revisions of the existing D.C. Rule 5.4 were appended to the Report. One version permitted multidisciplinary sharing of fees only within an organization controlled by lawyers; the other did not require lawyer control.
Despite the controversy generated by this subject within the ABA House of Delegates, the committee’s Preliminary Report and Request for Comments generated surprisingly little response. Two well-publicized public meetings scheduled during the D.C. Bar’s annual meeting attracted fewer than ten attendees not members of the committee. The comments received were few in number. They consisted of a series of thoughtful suggestions and questions submitted by the D.C. Bar’s Rules of Professional Conduct Review Committee; a request for information, without further comment, from the President of the British Columbia Law Society; a letter from the Chairman of the firm of Miller & Chevalier clarifying the nature of the strategic marketing alliance between that firm and an accounting firm; comments from an Assistant Professor of Law at Catholic University; comments from two individual members of the D.C. Bar supporting the view of the majority of the committee that multidisciplinary practice should be permitted without requiring lawyer control, and a comment from one other D.C. Bar member supporting greater freedom to engage in multidisciplinary practice limited to organizations controlled by lawyers. No comment opposed multidisciplinary practice in concept or supported the existing restrictions on non-lawyer sharing in legal fees.
- Bar committees reported on the ABA Commission website as recommending that at least some degree of multidisciplinary practice be permitted include those of the states of Arizona, California, Colorado, Georgia, Maine, Minnesota, North Carolina, Pennsylvania, South Carolina, and Utah, as well as the bars of New York County and San Diego County and the bars of the cities of Boston, Denver, New York, and Philadelphia. In the immediate vicinity, in 1999 the Maryland Multidisciplinary Practice Task Force recommended unanimously that multidisciplinary practice in firms owned and controlled by lawyers be permitted, but that recommendation subsequently was rejected by the Board of Governors of the Maryland State Bar. In Virginia, a committee to study and report on the issue has been formed but has yet to issue a report.
- Adopting a recommendation of the New York State Bar, the appellate courts of New York have ruled that, effective November 1, 2000, the state of New York, which led the fight against the Recommendation of the ABA Commission in the ABA House of Delegates, will permit multidisciplinary collaborations between law firms and contractually affiliated entities practicing other disciplines, but existing barriers to sharing of legal fees within a single organization will be maintained. Other state bars reported on the ABA Commission website as having determined to continue to prohibit multidisciplinary fee sharing include those of Arkansas, Florida, Kansas, Maryland, Nebraska, New Jersey, Oregon, Pennsylvania, Rhode Island, Texas, and West Virginia.