Enforcement of MDP rules remains elusive
Levinson, L Harold
A recurrent theme in the MDP debate is the lack of enforcement of the existing rules against multidisciplinary practice. A recent example was reported in the Miami Daily Business Review dated October 23, 2001, reprinted the same day in Law.com. The article, by Adam Miller, is titled “Professional Schizophrenia,” and starts with the following summary: “As big accounting firms step up the hiring of lawyers, the lines of acceptable conduct increasingly become blurred.”
The article focuses on a complaint, filed in January 2000 with the Florida Bar by a member of the Bar’s board of governors, alleging that another lawyer had violated the Florida Rules of Professional Conduct by providing legal services to clients while employed by one of the Big Five accounting and consulting firms in Virginia.
According to the complaint, the lawyer appeared before the U.S. Tax Court on behalf of the firm’s clients and gave legal advice to clients concerning their rights and obligations under the law. For these services, the firm billed the clients, while paying the lawyer a salary. In response to the complaint, the lawyer pointed out that the Tax Court rules allow qualified non-lawyers to practice before the court. He admitted receiving a salary from the firm, and asserted he did not share in the profits or fees for his services charged by the firm. He denied the services he provided were “legal services.” Instead, he called them “professional services.”
This complaint involves the Florida Rule, which is essentially the same as the corresponding ABA rule. The ABA rule is summarized as follows:
Rule 5.4(a) prohibits the sharing of “legal fees” with a non-lawyer (with narrow exceptions, not applicable here);
Rule 5.4(b) prohibits partnership with a non-lawyer if any of the activities constitute the “practice of law”;
Rule 5.4(c) states that a lawyer shall not permit a non-lawyer to direct or regulate the lawyer’s professional judgment in rendering “legal services”; and Rule 5.4(d) states that a lawyer shall not practice in a professional corporation or association authorized to 46 practice law for a profit” if a non-lawyer owns any interest therein, or is an officer of director thereof, or has the right to direct or control the lawyer’s professional judgment.
See also Rule 5.5(b), which states that a lawyer shall not assist a non-lawyer in the performance of an activity that constitutes the “unauthorized practice of law.”
These rules are designed to protect the professional independence of lawyers and the legal profession. Enforcement has never been effective, partly because the rules contain ambiguous and undefined terms, and partly because bar disciplinary authorities have not made vigorous attempts to enforce the rules. These problems were pointed out during the public hearings of the ABA Commission on Multidisciplinary Practice, starting in 1998. As indicated by the news item reviewed here, the same problems persist.
“De Facto Partnerships” Distinguished From Fee Splitting
Much of the MDP debate has focused on Rule 5.4(b), and the type of arrangement that would be a prohibited “partnership” for purposes of this rule. The term “de facto partnership” has been used to refer to arrangements that should be regulated as if they are partnerships, because their substance is similar to that of partnerships although their form is not.
The concept of “de facto partnership” is used in some theoretical writings, and is also found in Alabama State Bar Op. 89-15 (Mar. 2, 1989), which advises that certain space sharing circumstances may create de facto partnerships; the opinion is noted in Arthur Garwin, Suite Harmony: Protecting Client Confidentiality While You Share Space, 78 A.B.A.J. 88 (Mar. 1992). I am not aware of any judicial authority for enforcing the antipartnership rules against a de facto partnership.
The allegations in the recent Florida complaint involve another part of the rule, namely, Rule 5.4(a), prohibiting the sharing of “legal fees” with non-lawyers. The complaint implied that the lawyer shared “legal fees” with the firm, since the firm paid the lawyer a salary and, presumably, billed a larger amount to the client; the firm’s markup allegedly represented the firm’s “split” of the legal fee generated by the lawyer’s services to the client.
The respondent asserted that tax practice, including practice in the Tax Court, does not generate “legal fees” since this type of practice is not reserved to lawyers. According to this interpretation, the term “legal fees” in Rule 5.4(a) means fees from services which only lawyers are allowed to perform. I am not Aware of any judicial authority on either side of this dispute.
The complaint filed in this case could have given the Florida courts an opportunity to resolve the meaning of “legal fees” in Rule 5.4(a). The bar’s grievance committee for multidisciplinary issues, however, decided in April 2001 that there was “no probable cause for further disciplinary proceedings,” because of insufficient evidence.
How does the news story’s title, “Professional Schizophrenia,” relate to these proceedings? In essence, the author points out the contrast between (1) the legal profession’s willingness to preserve the existing rules against fee splitting and partnerships with non-lawyers, and (2) the profession’s inability to enforce these rules effectively. According to the author, “Many lawyers see the competition from the big accounting firms as too powerful – and the appeal of affiliations with them and other nonlawyer professionals as too attractive to continue to fight against MDPs.” Further, based on Bar sources who did not want to be identified, the author finds that “Bar officials are hesitant to crack down on violators. First, the public isn’t complaining about the accounting firms and’ other entities providing legal services. Second, attorneys are worried that if they do name names, they may end up fingering attorneys and accounting firms with whom they might have to do business in the future. Making matters more complicated is that some leaders of the Bar quietly support MDPs and don’t want to see strong enforcement action in this area. . .”
The author documents the steady increase in the number of lawyers employed by the big accounting firms, and in the types of services these lawyers perform, including services that are scarcely distinguishable from those rendered by law firms.
In my opinion, the events described in this story constitute a renewal of the challenge facing lawyers throughout the United States. If any state takes a tolerant view of fee splitting and other forms of MDPs with non-lawyers – whether by relaxing its rules, establishing a demonstration project (as proposed by the California bar task force on MDP), or declining to enforce its rules effectively – that state will encourage tolerance in other states. Conversely, a state that clarifies and enforces its rules will encourage enforcement in other states. No state can remain isolated from the national debate on fee splitting and other forms of MDPs.
L. Harold Levinson Professor of Law Emeritus Vanderbilt University Law School.
Copyright American Association of Attorney-Certified Public Accountants Dec 2001
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