Upcoming ABA vote on MDP'S threatens to extend bar monopoly. An AAI Column

FTC:WATCH® NO. 527ISSN. 0196-0016

The aai Column

Upcoming ABA vote on MDP'S threatens to extend bar monopoly

by Albert A. Foer

In a previous column, the American Antitrust Institute urged the American

Bar Association to make it possible for consumers to engage in one-stop shopping for professional services.

From our perspective, the recently published Report to the House of Delegates of the ABA Commission on Multidisciplinary Practice (MDP) moves the debate forward in some commendable ways. Recognizing that the MDP concept is supported by consumer groups and small and solo practice law firms as well as some larger law firms and accounting firms, it agrees that the old restraints on sharing legal fees with a non-lawyer need to be relaxed. The Report also recognizes that any relaxation must be accompanied by rules to protect the core values of the legal profession.

All of this is well and good. However, the Report also contains certain restrictions that unduly constrain the emergence of MDP's. The result is to take back in practice most of what was given in the abstract. Indeed, we are concerned that the Recommendations could have the net effect of extending the Bar's monopoly rather than providing the range of new options apparently desired by consumers. When the ABA House of Delegates meets in August, it should make three key changes before approving the Report.

First, by applying the rules of professional conduct to an entire MDP, rather than to the subentity that contains lawyers engaged in the practice of law, the Recommendations over-reach and make it impractical for MDP's to exist unless they are controlled by lawyers.

Second, by defining a lawyer as one whose services would constitute the practice of law if provided by a lawyer in a law firm, the Recommendations create a broad expansion of the profession's ability to restrain its competitors.

And, third, by prohibiting equity investments by outsiders, the Recommendations arbitrarily restrict entry into the MDP market.

Each of these problems must be addressed.

Regulate the lawyers, not the firm

The Recommendations establish two different kinds of MDPs, those controlled by lawyers and those not controlled by lawyers. The latter category, but not the former, would be subjected to a regime of undertakings and audits paid for by annual fees. It is by no means clear that such a distinction, which places the non-lawyer MDP's at a competitive disadvantage, has a valid justification. Moreover, the Bar through these Recommendations is imperialistically asserting jurisdiction over entities that contain non-lawyers, saying that its rules will (to the extent there is any conflict) supersede the professional rules that apply to accountants, architects, engineers, economists, or other professionals. The likely effect of this assertion will be to persuade other professionals not to organize in an MDP.

By focusing its standards on the lawyers within the MDP instead of on the whole MDP, the Bar can avoid imposing its rules on other professionals. The main issue presented is whether lawyer-recognized conflicts of interest must be imputed to the non-lawyers of the overall MDP firm. We see no justification for saying that other professionals within the firm need to stop servicing a client, just because the lawyers can only represent one client in a conflict. It is the other professions that need to determine the existence or not of a conflict involving their own members and the means for dealing with a conflict, insofar as they are providing non-legal services.

In the case of an accountant-led MDP, in our example, the primary conflict issue would occur when two clients cannot both be represented by the MDP's lawyers, but wish to continue to be represented by the accountants. Why not leave that decision to the clients to make, upon being presented with disclosure of the circumstances?

Regulate "holding out" without defining "what lawyers do"

Our second concern is that the Recommendations include a very broad definition of "lawyer" and "legal services" in the MDP context.

We have no general problem with a "holding out" test that restricts non-licensed individuals from representing the public in legal matters. We believe, however, that it goes too far to say, as do the Recommendations, that the mere provision of services which (somewhere, sometime) can be provided by a lawyer in a law firm, presumptively constitutes holding out. What this does is to bring under the Bar's umbrella of control all sorts of activities that can legally (and appropriately) be performed by non-law firm competitors. There is a real risk, as well, that this new definition will have legs that will carry it into the arena of the unauthorized practice of law.

Thus, if a person currently works for a realty firm as a realtor, and without otherwise holding himself out to be a lawyer, engages in residential closings (an act that can be performed by lawyers in a law firm), the realty firm itself may be transformed into an MDP subject to the Commission's regulatory regime. Similarly, an economist working for a consulting firm on merger arbitrage may cause the firm to be an MDP. Moreover, although the person's conduct would today (in most states) not be illegal, courts might apply the new expanded definition with the effect of expanding the realm of UPL, a development rife with anticompetitive implications.

If our suggestion were accepted and the Recommendations were only to apply to lawyers within an MDP, part of this problem would be eliminated, because the non-lawyers would no longer be covered. But there would still be a question of whether all persons in the MDP having a law degree would be deemed part of the lawyers' subentity. We would deal with this by saying that an employee of the MDP who has a law degree could be placed outside of the lawyers' subentity by having a formal job description which precludes holding out to clients of the MDP that the person's responsibilities include acting as an attorney.

Regulate conduct, not ownership

Our third concern is that the Recommendations continue the Bar's preclusion of outside investment in a law firm.

The MDP will be a new type of institution, and old rules should not automatically apply. The Recommendations substantially reduce the range of companies that could provide consumer services having a counterpart in law firms. For example, they may preclude the tax preparation services offered by H & R Block, the trust management and estate planning services offered by American Express or Citibank, and the real estate services provided by Century 21. All of these companies are publicly owned or have equity shareholders, hence could not offer any "legal services" as that term is now broadly defined by the Commission. And, of course, they could not employ lawyers to provide these services.

We believe that these restrictions are arbitrary and anti-competitive, unnecessarily limiting consumer choice. Once it is agreed that there can be MDP's, in which lawyers can be employed within a firm that may be controlled by non-lawyers, the sources of capital for the MDP are essentially irrelevant.

Some may hold the opinion that the antitrust laws do not apply to the ABA under these circumstances, because any anticompetitive results will ultimately be the result of state actions and efforts to obtain state actions will be protected by the First Amendment under the Noerr-Pennington doctrine. We suggest that the ABA's adoption of the Recommendations, without amendment to reduce the anticompetitive aspects, might instead come under the Supreme Court's opinion in Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492 (1988), holding that a standard created by an association may in itself have marketplace effects which are actionable. Given the enormous influence of the ABA's Model Rules, one can predict that the adoption of the Recommendations will impose a substantial chilling impact on the market for professional services long before states take action to adopt and quite apart from the lobbying process. Regardless of the legal issue, as a matter of policy, we urge the ABA to act in a manner that is consistent with our national and state antitrust laws