The AAI starts from the proposition that competition serves the most vital interests of the American public by (1) assuring competitive prices and consumer choice, (2) protecting opportunities for small and medium-size businesses to compete on the merits, and (3) countering the concentration of political and economic power in very large corporate enterprises. We bring this perspective to the current controversy over the future structure of America’s professional service industry.
We seek to explore here, and to stimulate discussion respecting, the current controversy whether the legal rules of professional conduct should be changed “to accommodate participation by lawyers in a multidisciplinary practice setting-that is to practice in association and share fees with professionals of other disciplines, such as accountants, financial counselors, and consultants.”2
This primer is the first in what we hope will be a distinguished series of AAI volumes on issues of importance to the development of competition policy.
Convergence is the process whereby two or more previously separate industries come together in new ways to service a more broadly defined market. The convergence of professional services is very much a part of today’s antitrust picture, in which the boundaries that surround and identify markets are constantly changing.
Consider the accordion-like nature of markets. Sometimes a market grows broader, as developments in transportation, telecommunication, computer technology, management systems, and the regulatory environment, among other factors, make it possible for producers in previously separated geographic markets to compete directly against one another within an enlarged geographic market; or for products or services not necessarily similar on their face to readily substitute for one another, within a converged product or service market. At other times, a market splinters into niches, as producers of directly competing products and services find ways to establish specialized niches that allow them a degree of insulation from competition.
The expansion and contraction of markets is perhaps the most important manifestation of the effectiveness of competition. The molten core of a market economy, competition simultaneously opens up new opportunities for entrepreneurs and challenges the survival of existing firms.
We live in a time of particularly rapid change-the core is exceptionally hot. Just as the coming of the railroads at the time of our Civil War facilitated the invention of the modern corporate structure and the arrival of national firms, our industrial structure today must accommodate an infrastructure revolution which includes the desk top computer and e-mail, internet commerce, unprecedented global trade, and a global shift from planning to markets.3
The convergence process is on-going and gradual in free markets. It occurs more explosively when it breaks down existing barriers created and sustained by public laws and regulations and/or self-regulation. Take the 1999 Congressional action overturning a Depression-era regulatory structure that had separated financial institutions, investment institutions, and insurance institutions. Without the old legal structure to hold bankers, investors, and insurers apart, it is likely that many firms which had been specialized in one of these fields will join with those in one or more of the other fields in order to service the converged market. A similar process is underway between electric utilities and communications companies to maximize their mutual abilities to bring product-transporting wires into the home.
Convergence is not necessarily an all-around blessing. Driven, as it is, by the desire to better serve consumers (and thereby increase profitability), there is no guarantee that it will in fact and in all ways bring improvement. For those consumers who seek “one-stop shopping,” convergence represents a positive value. Even for those who are not convinced that one-stop shopping is in their interest, increased consumer choice-the option of having another way available-is an important value by itself. As the retail giant Sears found out when it acquired its way into the financial services market, it may not be easy to persuade consumers of the advantage of buying washing machines and making investments at the same store. On the other hand, as various firms engage in convergence experiments, innovation breaks out and consumers are offered an enhanced range of choices, some of which will prove to be more appealing than others.
The breaking down of old boundaries creates new opportunities and threatens the status quo. For firms committed to markets that are suddenly in the process of change, major strategic decisions must be made: Should we stick to our knitting, in which case the competition that converges into our market may figuratively eat our lunch? Or should we take the offense by expanding our range of activities, attempting to occupy the expanded market? If the latter, we might go it alone, in which case we need to make major investments, either through in-house growth or by acquiring one or more firms with an established presence in parts of the market currently unfamiliar to us. Or we can become part of another firm. The wrong decision could be fatal to stockholders, employees, customers, and, perhaps most of all, to management.
The Controversy Surrounding the Convergence of Professional Services
For many years, the legal profession has not permitted lawyers to share fees with or form partnerships with non-lawyers to deliver client services. Over the past decade, clients have increasingly demanded integrated solutions to complex problems that have legal components, and government regulators and professional associations worldwide have begun to remove restraints on the ability of lawyers to practice with non-lawyers. Recognizing this client demand for multidisciplinary practice (often called “MDPs”), the American Bar Association appointed a Commission to study the issue and make recommendations whether the current ban ought to be lifted. The American Antitrust Institute became interested in this debate and filed comments with the Commission, urging that MDPs present a new competitive mechanism to provide additional options for the delivery of professional services to users.4
In June 1999, the Commission recommended to the ABA that it lift its ban, and allow lawyers to share fees and partner with non-lawyers, subject to certain very restrictive conditions. We submitted supplemental comments in which we commended the Commission for attempting to break from the status quo and criticized it for imposing improper and unduly restrictive limitations. At its annual meeting in August 1999, the ABA House of Delegates resolved that the Model Rules not be changed to permit MDPs unless or until additional study indicates that core values of the legal profession can be preserved. The Commission continues its study, and the House of Delegates is expected to reconsider the issue at its annual meeting in August 2000.
But the issue is far more than a matter of Bar Association politics, and merits far more attention from the popular press and regulatory authorities than it has thus far received. The ABA’s decision will affect practitioners of many professions besides lawyers and it will affect their clients, including individual consumers, small businesses, and big businesses. It will even affect America’s future role in the international trade of professional services.
It is against this backdrop that the American Antitrust Institute has prepared this primer. We hope that it will spur debate about these important issues, and beyond that, provide an impetus for long-overdue change in this area.
Albert A. Foer
American Antitrust Institute
1. The philosophy, personnel, and work product of the AAI are available at . Members of the AAI Advisory Board were provided a draft of this document for their comments. The Advisory Board does not vote on AAI positions, hence nothing herein should be imputed to any particular advisor.
2. William G. Paul, “To MDP or Not to MDP,” ABA Journal, Dec. 1999, at 6.
3. Obviously, the professions have long worked together on projects in a variety of coordinated ways. Convergence represents a form of vertical integration to incorporate multiple professional disciplines that had previously operated separately in the marketplace. See, in general, Oliver Williamson, Markets and Hierarchies (1975). For example, vertical integration of services occurs when a client retains a law firm which in turn hires a specialized lobbying firm to mold and execute strategy. Of course, there is also a horizontal aspect to convergence, as services which are near-substitutes (in this example, law and lobbying) are brought together within the same firm.
4. Filed March 30, 1999, available at and . A summary of our views appears in a column by Albert A. Foer in FTC:WATCH No. 521 (April 26, 1999), available at .
Today, the professional guilds in this country are largely a thing of the past, a casualty of the developing antitrust laws and market forces beyond their ability to resist. The legal profession is a notable exception. It has tenaciously clung to guild rules, cast in the guise of rules of ethics, that preserve its privileged status against outside competition-including restrictions on lawyers’ ability to form business associations with non-lawyers.
But changes are afoot. Consumers of professional services, driven by historic market forces including globalization and the development of e-commerce, are demanding the creation of business organizations capable of delivering integrated professional services across a variety of disciplines, including legal services. Predictably, rather than conceding that its guild rules are outmoded and untenable, the legal profession has responded by proposing to reinforce those guild rules, through recommendations by the American Bar Association’s Commission on Multidisciplinary Practice, in a way that would extend its own dominance into this developing area. But the legal profession’s proposals may themselves provide the occasion for antitrust challenges to the lawyers’ guild rules, similar to those leveled at other professions over the past several decades.
We first address the decades-long history of antitrust regulation in the learned professions, and demonstrate that federal antitrust regulators have successfully challenged anticompetitive practice restrictions across a wide spectrum of learned professions, thereby opening up competition in those professions to the benefit of consumers and the public.
In the second chapter, we discuss the growing demand for multidisciplinary professional services. This demand exists across all sectors of society, including individuals, consumer groups, small businesses, and large corporations, all of whom want the option to hire an integrated team of professionals to resolve the complex, multi-layered problems confronting them in today’s digital global economy. There is likewise a groundswell of support among segments of the legal profession, particularly those who have traditionally been marginalized within the law firm power structure, and who would like the option of participating in a multidisciplinary practice.
The third chapter supplies an antitrust analysis of the ABA Commission’s recommendations and shows why those recommendations cannot survive antitrust scrutiny. This section demonstrates that the ABA is not immune from the antitrust laws for competitive harms that result from its activities, independent of the states’ adoption of its model ethical rules. It also describes the competitive harms that will flow directly from the ABA Commission’s recommendations, which would, among other things, radically extend the understood meaning of the “practice of law” as a way to choke off competition that exists in the professional services market today and prevent new competition in that marketplace. And it also demonstrates that there is no legitimate justification for the ABA Commission’s proposals, which are demonstrably unnecessary to protect the “core values” of the legal profession.
This primer also includes an appendix containing over fifty primary source documents, including the ABA Commission’s report and recommendations and representative comments supplied to the ABA Commission across a wide spectrum of consumer groups, individuals and small businesses, multinational corporations, segments of the legal profession, and members of other professions such as the accounting profession.
Earlier in our history, however, the professions were widely considered to be of a different nature from businesses-as if their essence was more spiritual than material. To appreciate the changes in policy that have occurred in roughly the last thirty years, it is appropriate to begin our discussion by looking backward to the conception of professionalism which had previously reigned and still motivates many of those who oppose further inroads by competitive norms.
The Professional Conception
“The professions have always held a unique place in the social and economic order. Their expertise in matters of vital public interest has set them apart from other groups and accorded them special privileges.”2 The professional conception, indeed, has been considered by many sociologists to be a “central feature of society, a key to the understanding of social structure.”3 Years ago, sociologists reached a consensus that five elements constitute the distinguishing attributes of a profession.4 These are (1) systematic theory,5 (2) authority,6 (3) community sanction,7 (4) a culture,8 and (5) ethical codes.9 Because of these attributes, the learned professions were traditionally considered distinctly different from other trades and occupations.10
The nature of a professional code is to restrict competition.11 In the years during which codes were considered outside of the reach of the antitrust laws, restrictions generally took several forms. Advertising, soliciting and touting were usually restricted. Undercutting the price of a fellow professional was considered unethical. In many professions, it was unethical for a professional to compete for work on the basis of a price bid. To reduce the role of price competition, numerous professions set minimum fee schedules. Blatant competition for clients (note the use of the word “client” in place of “customer”), which is the norm for many commercial pursuits, was out of place in the professional world.
This is not to say that there was no intraprofessional competition. Rather, competition among professionals was designed to be of a highly regulated sort, diluted with cooperative ingredients imparting to it a characteristically restrained quality. The way this was viewed as the codes were becoming prevalent is summarized by economist John Clark, writing in 1926:
Competition is commonly classified into that which centers in price and that which centers in quality, the difference hinging generally on whether the quality of the product is definitely standardized, fairly uniform throughout the market, and something of which the buyer can judge accurately . . . . [W]here the buyer cannot judge independently of what he is getting, the result is a serious weakening of the principal disciplinary force which keeps competition focused upon good quality and low prices. For instance, where the buyer judges quality by prices alone, all the seller has to do for the richer portion of his trade is to raise prices without taking the trouble to improve quality. And where the buyer is as little able to judge quality as this, there is a great deal of pressure to skimp quality past the point of good economy, in order to lower prices.12
The justification for competitive restraints in the professions, therefore, came down to a judgment that competition ought properly to focus primarily on the quality of services. Said Clark, it is “clearly not in the interest of good service”13 for the professional to advertise or follow typically commercial methods for promoting the sale of his services. Or, as a Harvard professor of business ethics wrote in 1931,
[T]he objective of every profession and of every practitioner is the performance of the best possible professional services, and the basis for professional reputation and advancement is the quality of services rendered. Such an objective implies that professional competition should be based on quality of services, and such an objective and basis is incompatible with any competition based solely or largely on the amount of fees or charges.14
The professional opposition to commercial-type competition, therefore, was part and parcel of the professional conception, going not only to the heart of the professional-client relationship, which was supposed to focus on trust and service, but to the fundamental question of how professional business was supposed to be acquired. Opposition to convergence of professions rests on the desire of particular professions to maintain their self-regulating authority, which will be diluted as near-substitutes for the regulated professional service are increasingly performed by those employed either outside of the profession’s traditional structure or, indeed, entirely outside of the profession.
The Breakdown of the Professional Conception
Beginning in the late nineteenth century, the professions, led by law and medicine, were able to convince the states to grant them statutory powers of self-regulation and monopoly. As time went by, both professional and occupational licensing expanded. A 1975 survey discovered that over one hundred separate professions and occupations were licensed by various states.15 Professionals in the U.S. tended to rank high on scales of income and prestige.
In a way, the professional conception had become too successful. From early times, critics argued that the service ethic was but a mask for self-interest.16 But the undermining of the professional conception entailed much more than jealousy or the unmasking of self-interest. It was academic criticism, coming primarily from economists, that began to establish an empirical base for reform. Increasingly, economists recognized that
[T]here is no conceptual difference in markets for goods and markets for personal services. Either sector of the economy may have components susceptible to market power, externalities, or substantial information costs, there being no presumption that professional services are more disposed to market failure, and therefore less congenial to the discipline of the market mechanism, than markets for goods. It is on this foundation that the issue of the compass for competition in professional services becomes accessible.17
Summarizing the economic literature on professional services regulation in 1980, Roger Blair and Stephen Rubin wrote,
Recent studies . . . reveal the extraordinary inefficiency associated with the delivery of professional services at a time when such services are in acute demand. Regulatory limitations on the nature of the services that may be offered by professionals, and on the information they may openly disseminate, at times have generated a surplus of overtrained specialists unable to communicate through effective informational advertising with consumers who are presently underserved or not served at all.18
The focus of economists on the professions was only a part of a much more generalized society-wide concern with markets, efficiency, national productivity, and deregulation. The movement toward deregulation in this country dates to the mid-1970’s. It picked up speed in the 1980’s and became a theme in many other nations as well, as the virtues of competitive markets became more widely accepted.19 In a nutshell, competition is expected to: (a) set prices at or near marginal costs, thereby benefitting consumers directly and furnishing the signals for society’s efficient allocation and use of resources; (b) generate a variety of options for consumers, so that the consumer has a reasonable ability to make choices in the marketplace; (c) motivate entrepreneurs and investors to start and grow businesses and to undertake the risk of innovation; and finally, (d) contribute to a democratic polity, by reflecting a diversity of economic power bases. In the pantheon of public values, the competitive model has moved ahead of the professional conception, not by any means eliminating it, but placing it into the context of modern competitive economic life.
The Fight to Eliminate Anticompetitive Practices in the “Learned Professions”
Over the past several decades, federal regulators have focused on restraints on competition imposed by ethics rules and practices of different professions. Typically, these professional restrictions have sought to prevent members of a given profession from forming business associations with others outside that profession. As the Chair of the Federal Trade Commission recently observed, professional rules of “[s]elf-regulation create competitive concerns in the limited group of cases in which rivals are foreclosed from the marketplace without justification.”20
A professional organization’s promulgation of a code of ethics is a form of standard setting, a subject that has been of repeated concern not only to the antitrust enforcement agencies, but also to the United States Supreme Court. The Supreme Court recognizes that a “standard-setting organization . . . can be rife with opportunities for anticompetitive activity.”21 Notwithstanding the announced public policy justifications of any professional regulation, the Supreme Court understands that “product standards set by such associations have a serious potential for anticompetitive harm” and that these associations “often have economic incentives to restrain competition.”22 Not surprisingly, many professions have adopted parochial rules to limit, and, in some instances, prohibit, members of that profession from affiliating with persons or entities outside the profession. Over the past 25 years, beginning with the seminal American Medical Association case,23 the United States Department of Justice and Federal Trade Commission have successfully challenged these rules.
For many years, the American Medical Association (“AMA”) published ethical rules for physicians which provided that “[a] physician should not dispose of his services under terms or conditions which tend to interfere with or impair the free and complete exercise of his medical judgment and skill or tend to cause a deterioration of the quality of medical care.”24 As interpreted by the AMA, this principle meant that it was unethical for physicians to join in partnerships or other professional relationships with non-physicians unless ownership remained solely in the hands of licensed physicians.25 Under the AMA rules, for example, business partnerships between an orthopedic surgeon and a physical therapist, or between a psychiatrist and a clinical psychologist, were prohibited. The medical profession attempted to justify these restrictions on the ground that they were necessary to preserve the independent judgment of doctors and the quality of medical care.26
In 1975, the FTC challenged the AMA’s non-association rule, together with a number of other anticompetitive rules promulgated by that organization. Before the FTC, the AMA defended its rules on the ground that they were “designed to avoid problems that can occur when a non-physician partner or associate advocates medically unsound treatment which the physician is powerless to oppose” and to prevent deception of the public as to the skills and training of the non-physician partner or associate.27 After an eight-month trial, with dozens of witnesses, the hearing officer rejected these justifications, finding that the AMA ethics rules “heavily tip the balancing scales against the needs of the public and in favor of the maintenance of the financial security of physicians.”28
The AMA appealed the ruling to the FTC Commissioners. The FTC affirmed its hearing officer, finding that it was “difficult to see how such sweeping ethical proscriptions are needed to prevent deception or to prevent non-physicians from having undue influence over medical procedures,” and that “[b]y keeping physicians from adopting what may be more economically efficient business formats in particular situations, . . . the restraints inevitably have an adverse impact on competition.”29 The AMA rules barring physicians from associating with non-physicians were found to lack an appropriate justification, and to adversely affect competition in violation of the antitrust laws.30 A federal appeals court subsequently upheld the decision of the FTC, finding that the AMA’s restrictions “had the purpose and effect of restraining competition by [non-physicians], and restricted physicians from developing business structures of their own choice.”31
Almost 20 years later, the current Chair of the FTC reflected on the AMA proceedings, and observed, “[f]rom today’s perspective, the restraints at issue . . . seem so naked and pernicious that it may be hard to understand how groundbreaking the actions seemed in their day.”32 In the intervening time, the FTC has continued to monitor and, where appropriate, challenge professional rules of the medical profession that acted to limit competition. For instance, in 1979, the FTC successfully challenged ethical rules of the American Society of Anesthesiologists barring its members from practicing as salaried employees of organizations such as hospitals, and obtained a consent decree requiring the organization to adopt a policy that “an anesthesiologist is free to choose whatever arrangement he prefers for compensation of his professional services.”33 In 1985 and 1986, the FTC invalidated the optometry profession’s ethics rules preventing its members from establishing businesses in commercial locations (like shopping malls) and from engaging in the “corporate practice” of optometry, including affiliations with non-medical persons or groups.34 In 1988, the FTC overturned a resolution by a professional association of physical therapists providing that it was illegal and unethical for its members to work under an employment agreement with a physician.35 And in 1989, the FTC obtained a consent decree against a state veterinary board regulation prohibiting veterinarians from forming partnerships with non-veterinarians for the practice of veterinary medicine.36 While each professional association argued that the guild restriction was necessary to preserve the professional independence of its members, the rationale was rejected by the FTC because it concluded that consumers would benefit from the abolition of the restriction.37
The FTC has not limited its antitrust scrutiny to standard setting by private associations. It has critically examined, and successfully overturned, efforts by physician groups to ward off competition from hospitals, health maintenance organizations, and other service providers. In 1985, for instance, it barred an attempt by doctors to prevent a hospital from establishing an urgent care center that would offer services in competition with the services offered by private attending physicians at that hospital.38 Similarly, the FTC has prohibited physicians from interfering with a hospital’s efforts to offer HMO health care services.39 And the FTC has attacked efforts by a physician-owned insurance company to deny insurance to doctors who employed nurse midwives, finding that such discrimination was anti-competitive.40
The Supreme Court has agreed with the FTC’s efforts to strike down attempts by professional organizations to limit competition in the health care area. In FTC v. Indiana Federation of Dentists,41 the Supreme Court unanimously affirmed an FTC ruling overturning an effort by a professional organization of dentists to frustrate an insurer’s cost containment program. There, the dentists had argued that they were justified in agreeing to withhold patient x-rays from an insurer because its cost containment plan, which was based on review of the x-rays, might “injure the health of the insured patients.”42 The Supreme Court took the dentists to task for limiting consumer choice in services, holding that “[a] refusal to compete with respect to the package of services offered to consumers, no less than a refusal to compete with respect to the price term of an agreement, impairs the ability of the market to advance social welfare by ensuring the provision of desired goods and services to consumers at a price approximating the marginal cost of providing them.”43 Both the FTC and Supreme Court rejected the dentists’ argument that providers should be able to “protect” patients by imposing their will on the market. The Supreme Court admonished that the antitrust laws do not permit a group of providers “to pre-empt the working of the market by deciding for itself that its customers do not need that which they demand.”44
Federal antitrust regulators have repeatedly sought to eliminate practice restrictions that restrain competition in other, non-medical professions. In National Society of Professional Engineers v. United States,45 the Supreme Court upheld a challenge to a professional engineering association’s “ethics” rule barring members from engaging in competitive bidding.46 The association had argued that permitting competitive bidding would encourage members to cut costs and thus potentially imperil public safety. While the Court recognized “[t]here is some risk . . . that competition will cause some suppliers to market a defective product,” it held that this potential risk does not permit courts to “indirectly protect the public against this harm by conferring monopoly privileges” on suppliers, and that even if “competition is not entirely conducive to ethical behavior, . . . that is not a reason, cognizable under the Sherman Act, for doing away with competition.”47 In 1990, federal antitrust regulators obtained a consent judgment prohibiting the American Association of Architects from instituting similar restrictions on competitive bidding and discounting.48 That same year, the FTC obtained a consent order against the American Institute of Certified Public Accountants preventing that organization from restricting its members’ ability to advertise, solicit business, and offer services for a contingent fee in certain circumstances.49 And the FTC has successfully challenged professional restrictions on advertising and solicitation imposed by a professional organization of social workers.50
The current Chair of the FTC, Robert Pitofsky, has observed that the “antitrust laws reflect a fundamental premise that consumer choice, rather than the collective judgment of sellers, should determine the mix of price and quality options available in the marketplace.”51 Federal regulators have steadfastly implemented that policy by repeatedly and successfully challenging practice restrictions that prevent members of professions from associating with individuals outside of the profession to deliver services to the consumer. Time and again, such restrictions have been struck down because they unjustifiably restrain competition by elevating service providers’ judgments over consumers’ ability to choose.
Although lawyers spearheaded the drive to secure such reforms in these other professions, the legal profession has, for the most part, been spared from similar court challenges to its anticompetitive practices. As we begin the 21st century, the time has come to take a hard look at the rules of the legal guild-the American Bar Association-and especially the recommendations of its Commission on Multidisciplinary Practice, which represent the profession’s latest vehicle for unduly burdening the ability of lawyers to associate with non-lawyers, and improperly restricting competition in the developing market for integrated professional services. We now turn to examine whether the competitive standards that have long applied to other professions should apply to the legal profession, with its practice restrictions prohibiting lawyers from associating with nonlawyers and the recent recommendation by the ABA Commission on Multidisciplinary Practice to replace such restrictions with other, equally restrictive, practice limitations.
THE PROMISE OF INTEGRATED PROFESSIONAL SERVICES
Historically, the legal profession has not permitted lawyers to share fees or form partnerships with non-lawyers to offer client services. That ban, which once was in place in virtually every country that regulated lawyers, was justified on the ground that any sharing of fees or profits would undermine the professional independence of lawyers.56 For many years, the model rules of the American Bar Association have prohibited lawyers from sharing fees, and entering into partnerships with, non-lawyers.57 This prohibition has been adopted by every jurisdiction in the United States, save the District of Columbia.58 In 1982, a blue-ribbon commission of the ABA (the “Kutak Commission”), composed of leading members of the bar, recommended that the ABA abandon these restrictions, and instead place the burden of maintaining independent judgment on the individual lawyer, where it properly belongs.59 That commission analyzed each professional value asserted as a justification to support the prohibition-prevention of unauthorized practice by non-lawyers, protection of confidences, protection of attorney independence, and prevention of improper client solicitation-and concluded that each value could be maintained with a less restrictive rule.60
These recommendations gave rise to a vigorous debate within the ABA membership, in which the focus was on protecting the economic interests of the guild rather than so-called “core” values. As one delegate argued in urging defeat, “How will you explain to the sole practitioner who finds himself [in] competition with Sears why you voted for this? How will you explain to the man in the mid-size firm who is being put out of business by the big eight law [sic] firms?”61 The ABA rejected the proposed reforms, and its maintenance of a “broad prophylactic rule where a narrow one would have sufficed suggests that . . . [an] illegitimate rationale was actually decisive, namely economic protectionism.”62
But the world has changed dramatically since the ABA members rejected those recommendations. In today’s global economy, there is globalization of legal practices. Over the past decade, clients worldwide have demanded coordinated solutions to a range of problems with legal and other components. And it is not only major clients in world commercial centers, such as New York, London, Paris, Singapore, and Hong Kong, who require knowledge of foreign legal systems. Small businesses in little towns now have an international market through the Internet which they can readily service through exports. U.S. businesses may retain foreign lawyers who travel to the U.S., or who advise clients by the Internet or by facsimile or by telephone. By the same token, U.S. lawyers regularly work with non-U.S. lawyers to advise clients about transnational issues.
The legal ethics rules in this country, when originally crafted, did not take into account the legal practice that exists today. Today, many Western European countries, including Germany, Switzerland, Spain, France, and Italy, as well as Australia, permit some form of fee sharing between lawyers and non-lawyers. Government regulators and professional associations across the globe have recognized this client demand, and have begun to remove existing restraints on the capacity of lawyers to associate with other service providers in partnership or other arrangements, thereby allowing them to combine different skills and provide a broad range of advice. Today, there is no one regulatory model for multidisciplinary business arrangements (so-called “MDPs”). As the current ABA MDP Commission recognized, virtually every country in Western Europe now permits MDP arrangements between lawyers and other service providers, or is in the process of liberalizing existing regulations to remove prohibitions on the capacity of lawyers to associate with other service providers in partnership or other arrangements.63 These arrangements can be grouped into three broad categories:
- a single organization, with a single structure of ownership, management and finances, in which professionals in multiple disciplines work together on project teams to deliver comprehensive and integrated advice. Some jurisdictions allow fully-integrated MDPs, including partnerships, with few restrictions on ownership. Other jurisdictions permit MDPs provided that lawyers own a majority interest in the entity. Still other jurisdictions allow integrated partnerships, provided that lawyers work only with certain closely-related professionals (such as patent agents, notaries, and tax advisors). Many countries in western Europe, including Germany, Switzerland, Spain, France, Austria, and Italy, as well as Australia, permit this form of MDP, and the Law Society of England and Wales, in October 1999, overwhelmingly voted to work toward allowing solicitors to provide legal services in MDPs.
- a semi-integrated arrangement where two separate firms share office space and back office support, and go to market together to deliver coordinated, complementary services to clients, but each firm maintains separate management authority, maintains separate client files, and renders separate client bills. This model is currently in use in the United Kingdom, which prohibits partnerships and fee-sharing between lawyers and non-lawyers, but permits affiliations between law firms and other professional firms with economic ties short of revenue sharing.
- alliances, associations, networks, or similar arrangements between firms of different professionals, which generally amount to little more than non-exclusive referral and teaming agreements.
In this country, however, no jurisdiction, except the District of Columbia, permits lawyers to share fees with non-lawyers. We currently have a patchwork of legal ethics rules, where each state must adopt its own set of ethics rules. Some states adopt the ABA Model Rules entirely, while other states adopt other rules. One thing is clear: today, there is no set of uniform lawyers’ rules among the 50 states, and the states often interpret the same rule very differently. When U.S. lawyers work with foreign lawyers in MDPs to advise clients, some states may reach the conclusion that such lawyers are aiding in the unauthorized practice of law. Depending on the way in which the fee is paid, other states may conclude that these lawyers are violating ethical prohibitions on fee sharing.
Responding to this global client demand for integrated professional services, ABA President Andersen appointed another Commission, in August 1998, composed of a broad cross-section of the bar, to evaluate whether there was demand in the United States among users of legal services to obtain integrated legal and nonlegal professional services and whether amended model rules to permit fee sharing could preserve the core values of the profession. President Andersen recognized that it was not realistic for the bar to attempt to use its ethics rules to insulate itself from the exchange of information, technology, investment, wealth and ideas that is stimulated and encouraged by the exploding use of the Internet and e-commerce. The Commission held eight days of hearings across the country and considered written comments from proponents and opponents. It posted all materials it received on its web site, for transparency in the process.64
Widespread Demand by Users for Integrated Professional Services
The Commission received substantial written and oral testimony from individual consumers and consumer organizations, small businesses, and large corporations, that addressed demand for integrated professional services. These commentors provided many reasons for the broad-based demand for integrated services.
Individual consumers and consumer groups explained that consumers of professional services do not view their problems as “legal” versus “non-legal.” In today’s world, almost every problem has a “legal” component (due, among other things, to increasing regulation); by the same token, there are few problems that are strictly “legal” in nature, and it is rarely sufficient to rely on lawyers alone to arrive at appropriate solutions.65 Clients want one comprehensive solution to their problems66 and do not want to retain multiple, separate service providers, pay the start-up costs of educating multiple providers, and receive advice that may be contradictory or impossible to implement.67 In addition, many individuals do not turn to a lawyer on a regular basis. They perceive that lawyers provide assistance in a crisis, like divorce or death-but avoid using lawyers as counselors and advisors because they perceive lawyers as intimidating and to be avoided if at all possible.68 While many Americans have an accountant for tax advice, more than 50% of Americans lack a will.69 The current prohibition on fee sharing between lawyers and nonlawyers often means that individuals simply fail to consult a lawyer and do not obtain the advice they need or would like.70
Testimony from individual consumers and consumer organizations provided specific examples of demand for integrated professional services:
- The AARP legal advocacy director explained that senior citizens confront diverse issues-including dealing with Medicare benefits, seeking other health coverage, sorting out prescription drug coverage, finding affordable and accessible housing, and planning for their future financial needs and the needs of their children-and would benefit from integrated advice from different professionals in one firm.71
- A lawyer representing families with disabled children seeking federal and state benefits explained the significant needs of his clients for an integrated team of lawyers, social workers, psychologists, and other professionals to assist in placement and education options.72
- A lawyer with a domestic relations practice explained the needs of families in crisis for integrated teams of lawyers, psychologists, social workers, accountants, and others to work through domestic relations and child custody disputes.73
- Individuals would utilize integrated service firms with respect to the purchase of a house-often the largest purchase a consumer makes-and would have ready and affordable access to legal services as part of real estate closings.74
Consumers commented that choice among types of service providers is an affirmative benefit that is desirable in its own right.75 Choice begets competition, and competition begets value.76 Were consumers able to choose between integrated service firms and traditional stand alone law firms, the resulting competition would benefit consumers.
Small business owners testified about their demand for integrated professional services. They observed that they could consolidate visits to professional service providers,77 and perceived that they could reduce professional service fees while improving the quality of the services.78 Commentors suggested several examples of integrated services for small businesses:
- Starting a business requires lawyers, accountants, financial planners, tax advisers, information technology experts, and even graphics and web design professionals, any or all of whom might combine in an integrated service firm.79
- A small business with environmental or engineering problems, such as a gas station owner, could benefit from an MDP in which engineers, remediation experts, and lawyers joined forces to provide a comprehensive environmental or engineering solution.80
- Small companies wanting to “go public” in an initial public offering could reduce their separate legal and accounting fees by hiring an integrated service firm.81
- Many small businesses prefer a single point of access for business advice and services, such as accounting services, tax advice, bookkeeping, legal services, and any other support needed.82
Large corporate users also testified about their demand for multidisciplinary services. Steven Bennett, former general counsel for Banc One Corporation, explained that companies face a plethora of regulations governing matters on which legal and non-legal expertise must be brought to bear, including such areas as employment practices, development of intellectual property, and the creation of risk control mechanisms.83 To address these problems, clients seek to retain service providers who can formulate comprehensive solutions addressing the legal and non-legal aspects of problems.84 Integrated service firms provide an attractive option because they can accomplish these goals efficiently and without the need to build teams of experts from separate firms on an ad hoc basis.85
Globalization is another factor that has spurred the demand for integrated service firms. Multinational businesses want international, multidisciplinary, integrated firms to handle complex cross-border transactions.86 They need firms with a global perspective that are conversant with the law and customs of the international marketplace.87 The success of accounting firms in establishing legal networks in Europe has shown that clients are demanding integrated services to deal with the globalization of their businesses and business problems.88 Indeed, a September 9, 1999 Financial Times article reported that “[m]ore than half” of the “senior executives at big companies and financial institutions” in the US and UK “would be willing to use a firm that combined lawyers and accountants,” and that “[a]mong US financial organizations this figure was 75 per cent.”89
Demand by Lawyers for Choice in Practice Structures
Not only would MDPs provide freedom of choice for clients as to where, how and from whom they obtain professional services, but MDPs would provide freedom of choice for lawyers as to the kind of partnership in which they want to practice. As Ward Bower, a principal in Altman Weil, an international legal consulting firm, noted, “MDPs present opportunities for attorneys by creating more job opportunities and open more lines of ancillary businesses such as auditing, legal services and tax management and other consulting areas.”90 But current ethics rules give lawyers little choice. They can only deliver legal services to private clients in a traditional law firm. In a constantly changing world, clients have problems that require professionals from many disciplines. Lawyers seek the freedom and the opportunity to choose to practice with other professionals to provide strategic advice to clients with multidisciplinary problems. The ABA Section that represents solo practitioners and small firms testified that its members strongly favored the flexibility to form partnerships with other professionals to meet what they perceive to be real client need.91 As one Commission member has explained, “it was in this sector of the profession that the commission found the greatest evidence of a need for change.”92 Similarly, the Chair of the ABA Tax Section testified that the Tax Section had concluded that MDPs would enable their members to provide certain services more effectively than if they were in traditional law firms.93
Lawyers are not the only professionals seeking to deliver professional services in integrated firms. Look at physicians. Two decades ago, the professional rules of the American Medical Association prohibited doctors from offering services with other health professionals, rules that were subsequently invalidated by the federal courts.94 Increasingly, physicians of many specialities-internists, plastic surgeons, gynecologists, and opthamologists-are teaming with nutritionists, physical therapists, social workers, midwives, chiropractors and others to offer integrated health-related services to clients.95 As one physician noted, patients are “‘excited about the one-stop-shopping aspect of it. People do not have the luxury of a lot of time . . . Coordination in care is a problem for patients. They get confused. Here they can consult with many specialists, who can then consult with each other.'”96
Abbie Willard, Assistant Dean at Georgetown University Law School, noted in her comments to the Commission that business and industry-not private law firms-are the fastest growing source of jobs for new graduates.97 A majority of these positions are in areas that are law-related but do not require a law degree. Abbie Willard also explained that the number of experienced lawyers leaving law firms for these sorts of jobs has increased in recent years. These lawyers are enthusiastic about the kind and caliber of work in these other environments, where they join a culture of teamwork and enjoy practicing with other experienced and knowledgeable professionals. They are also hopeful that they will have greater opportunities for advancement in non-traditional jobs.
But today, lawyers face unappealing options if they make that choice. While these individuals may be attracted to the work environments found and the client problems presented at, for example, management consulting, policy analysis, real estate, retail, publishing or accounting firms, they discover that they are not permitted to use their law licenses to practice law in such firms. Instead, these lawyers are left with the less than satisfactory option of taking “law-related” positions at such firms-positions in which they may rely upon their legal training, but are prohibited from providing anything resembling legal services. According to some, individuals trained as lawyers who currently offer professional services to clients outside of law firms are engaging in “civil disobedience” and should be charged with disciplinary violations by the state bar and their firms should be charged with the unauthorized practice of law.98 That leaves these lawyers with the unpleasant choice of turning in their law licenses or facing the prospect of disciplinary action.
And people trained as lawyers are increasingly seeking out occupational environments outside of the traditional law firm. A recent study published by the NALP Foundation-Perceptions of Partnership: The Allure and Accessibility of the Brass Ring-concludes that the law firm partnership “is the most endangered workplace organizational structure in the late 20th century.”99 It explores why lawyers, especially women lawyers, do not remain in the private practice of law. That report finds that women and lawyers of color perceive unequal opportunities to do interesting and exciting work in law firms. They feel that they lack female role models and mentors in law firms, and are dissatisfied with the level of training and career development. They believe that law firms, with their emphasis on billable hours and quantity over quality of work, have not accommodated the flexible work schedules required to balance the needs of families against job demands. There is a sense that the barriers to partnership in a law firm can no longer be overcome by hard work. Abbie Willard, a board member and past chair of the NALP Foundation, explained that, in her experience, young lawyers perceive that law firms have not offered job flexibility, do not provide adequate training, and lack collegiality. As a result, young attorneys, female and male, have become disillusioned with their law firms. That disillusionment may explain why law school graduates, including some of the best and brightest that law schools have to offer, are increasingly accepting non-legal positions with professional services firms other than law firms-a fact of which the MDP Commission recently took note.100
It is not only the young lawyers who are leaving the law firms. The old paradigm of law practice was that a lawyer graduated from law school, ran the interview gauntlet, and entered a law firm where he would practice for the rest of his professional life. There are few such career marriages today. Lawyers, including law firm partners, move as freely as professional agents, and place little value on firm loyalty and personal investment in the future of the law firm. They are looking for alternatives.
The Commission on Multidisciplinary Practice heard testimony from a number of witnesses who explained that lawyers wanted to work collaboratively with experts in other disciplines to provide clients with integrated advice, emphasizing negotiation and dispute resolution over the traditional, antagonistic approach to problem solving. Integrated services could be provided in a range of different firms, including family mediation centers, geriatric and elder care clinics, financial services and accounting firms, public relations firms, environmental consulting firms, and so on. The common thread of this testimony is that lawyers seek to move beyond the narrowly-focused, crisis-driven work of law firms and deliver high quality client advice with other professionals.101
Unfortunately, the Commission’s proposal, which only permits MDPs in certain highly confined circumstances, does not answer the demand for MDPs just discussed. This proposal erects insurmountable hurdles for any non-lawyer interested in forming an alliance with lawyers to offer professional services, and will likely lead clients to export their demand for integrated professional services abroad, where the ethics rules permit delivery of such integrated services.
To be sure, not every attempt at standard setting amounts to an antitrust violation. We now turn to examine the Commission’s MDP proposal under the antitrust framework applied to ethics rules established by other professions and analyze whether this proposal amounts to anticompetitive activity that is actionable under the Sherman Act.
Absence of Blanket Antitrust Immunity for the ABA
Many in the bar believe that the process of setting professional standards for the American legal profession, as well as the professional standards themselves, are immune from antitrust scrutiny. The basis for this perceived immunity rests on a principle announced by the U.S. Supreme Court in two cases from the 1960s, which is commonly called “Noerr-Pennington” immunity.106 The Noerr-Pennington doctrine immunizes from antitrust liability those individuals who urge the federal or state government to take certain actions that may impose restraints on trade.107
In this country, the American Bar Association (“ABA”) promulgates “model rules” for the legal profession. Because these “model rules” must be adopted by individual states, usually by state supreme courts,108 there appears to be a perception within the ABA that the ABA, and its activities in urging states to adopt the model rules, are immune from antitrust scrutiny under Noerr-Pennington.
But Noerr-Pennington immunity is not absolute. More than ten years ago, the U.S. Supreme Court reviewed whether model standards set by a private professional organization, the National Fire Protection Association (“NFPA”), were immune from antitrust scrutiny and liability. Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492 (1988). There, the defendant, a member of the NFPA, argued that the NFPA’s standard setting activities could not create antitrust exposure because the NFPA’s model standards had to be adopted by state and local governments to have legal force, and that the activities of the association and its members were therefore immune from antitrust scrutiny under Noerr-Pennington. The Supreme Court disagreed. The Court found that the “context and nature” of a private standard-setting process counsels in favor of antitrust review because of the substantial opportunities for anticompetitive abuse.109 The Court observed that the NFPA standard-setting process had independent anticompetitive effects because the NFPA code was used by private laboratories, underwriters, and contractors in determining which products to label, insure, or utilize.110 Accordingly, the Court refused to extend Noerr-Pennington immunity to the acts of the NFPA and its members, concluding that “where, as here, an economically interested party exercises decisionmaking authority in formulating a product standard for a private association that comprises market participants, that party enjoys no Noerr immunity from any antitrust liability flowing from the effect the standard has of its own force in the marketplace.”111 (At a later point in this chapter, we will discuss the application of Allied Tube to the ABA’s current MDP process and the reasons why the process would not be shielded from antitrust scrutiny. See below at 45-48.)
Prior Application of Antitrust Laws to the ABA
In 1995, the U.S. Department of Justice sued the ABA respecting its practices and procedures for the accreditation of law schools.112 The Justice Department alleged that the ABA had allowed the law school accreditation process to be “captured” by financially-interested legal education professionals, and it further contended that the process to adopt standards and policies had the effect of artificially raising or maintaining the compensation of legal education professionals.113 According to the Department of Justice, “rather than setting minimum standards for law school quality and thus providing valuable information to consumers, . . . the ABA at times acted as a guild that protected the interests of professional law school personnel” and “limit[ed] competition from non-ABA-approved schools.”114 The ABA did not defend against this lawsuit on Noerr-Pennington immunity grounds. Instead, it agreed to settle the action by consent decree requiring the ABA to change its accreditation policies and to undertake structural reforms to prevent the process from being dominated by financially-interested decisionmakers.115
The Department of Justice has filed suit on other occasions to combat guild activities of the organized bar directed at stifling competition from other professions. In one instance, the Justice Department sued an Indiana county bar association that had attempted to choke off competition from title insurance companies by adopting a resolution requiring lawyers’ examinations of title abstracts and inducing banks and others to require lawyers’ examinations in real estate transactions.116 That case resulted in a consent judgment against the bar association requiring it to cease its anticompetitive activities and publish an announcement rescinding the challenged resolution.117 Similarly, the Justice Department sued the New York County Lawyers’ Association over its publication of statements to the effect that providing trust and estate services would constitute the unauthorized practice of law, which were directed at preventing non-lawyer corporate fiduciaries from competing in the provision of such services.118 That case resulted in a consent decree in which the bar association pledged to discontinue the challenged practice.119 On numerous other occasions, the Justice Department has urged states to decline to adopt guild rules that would injure competition from non-lawyers.120
The Federal Trade Commission has likewise instituted litigation challenging anticompetitive activities by lawyers. In FTC v. Superior Court Trial Lawyers Ass’n, 493 U.S. 411 (1990), the FTC challenged a boycott aimed at increasing the fees paid to lawyers appointed to defend accused criminals in the District of Columbia. The lawyers attempted to defend their conduct on the ground that it was immune under Noerr because it was aimed at influencing the government.121 The Supreme Court rejected that defense, however, finding the case governed by Allied Tube, and holding that “the Noerr doctrine does not extend to ‘every concerted effort that is genuinely intended to influence governmental action.'”122 This case, and those cited above, make clear that the ABA does not enjoy blanket Noerr-Pennington immunity from antitrust liability for its standard setting activities.
Application of Antitrust Analysis to the ABA MDP Commission Recommendations
As noted above, where members of an industry work together to set standards that may affect market access, there is a danger that competition will be restrained. In Allied Tube, the U.S. Supreme Court recognized that members of private standard-setting associations “often have economic incentives to restrain competition,” and that “product standards set by such associations have a serious potential for anticompetitive harm.”123 Industry associations that have imposed standards or restrained their members’ business practices have often found such conduct challenged under the antitrust laws.124 These standards are analyzed under the “rule of reason”: whether the challenged standard is “one that promotes competition or one that suppresses competition” based on “the facts peculiar to the business, the history of the restraint, and the reasons why it was imposed;”125 and whether the standard is narrowly tailored to serve any valid justifications for a restriction.126
With this framework in mind, we turn to examine the recent recommendations of the ABA Commission on Multidisciplinary Practice (“MDP Commission”).127 As we discussed earlier, the ABA rejected the 1982 recommendations of a blue-ribbon Commission (the “Kutak Commission”) to eliminate the ban on professional affiliations between lawyers and non-lawyers. Seventeen years later, another blue ribbon Commission of the ABA, the current MDP Commission, was appointed to review the existing rules. That Commission heard testimony from a wide range of witnesses who testified that clients want freedom of choice as to where, how, and from whom they purchase professional services. It also heard from lawyers who sought freedom of choice for the kind of practice structure in which they deliver legal services. Witnesses explained that the demand for MDPs is at three different levels of business. There is great potential for MDPs on “Main Street.” For example, ethics counsel for the State Bar of Arizona, Lynda Shely, reports that she receives hundreds of calls each year asking whether “lawyers can form a partnership or some other business affiliation with CPAs, insurance agents, sports agents, certified financial planners, law firm marketing directors, or paralegals.”128 The second level is the small business owner who, with the explosion of e-commerce, has a global marketplace to reach.129 Even on a more local basis, the Commission learned, small businesses perceive that it would be tremendously convenient to purchase a complete package of professional services in one place.130 Third, there is a demand by large corporate clients for seamless global professional services and the Commission heard that, in Europe, MDPs are the developing way in which Big Five accounting firms and law firms practice together, either in partnership or by way of affiliated firms, to deliver transactional services to corporate clients.131 In short, the Commission recognized that the market for legal services is changing at all levels of practice, and concluded that there was substantial demand for lifting the current prohibition on affiliations between lawyers and non-lawyers.
The Commission recommended that the prohibition be eliminated, provided that certain other conditions were satisfied. Unfortunately, the Commission’s proposal contemplates substitution of one set of guild rules for another set that will restrict consumer choice and protect lawyers and law firms from competitors. As a member of the Commission and its liaison with the ABA Board of Governors, Seth Rosner, candidly stated, these recommendations were crafted to exclude the Big Five accounting firms from offering legal services.132 Among other things, the Commission’s regulatory regime:
- Expands dramatically the definition of the “practice of law” in an attempt to increase the limited monopoly of services that only lawyers can perform;
- Regulates any licensed attorney who offers a service that may also be offered by lawyers in law firms, even if that licensed attorney does not hold himself out to clients or to the public as offering legal services;
- Regulates the entire entity where the newly defined “practicing lawyer” works pursuant to the full set of lawyers’ rules; and
- Imposes burdensome and unworkable certification and audit requirements on MDPs controlled by non-lawyers but not on those controlled by lawyers.
The net effect of the Commission recommendations is to limit MDPs to those controlled by lawyers, so that legal services-as broadly defined by the Commission-could only be offered through the traditional law firm or through something closely akin to it, an MDP controlled by lawyers. In the name of change, the “monopoly” awarded to lawyers through the bar rules today would be preserved and indeed extended under the Commission’s recommended rules. The proposed scheme, however couched, appears to be nothing more than an effort to protect lawyers and law firms from competition. Indeed, a member of the Massachusetts bar gave a blunt assessment of the bar’s fury over the MDP issue: “[c]ould it be that . . . the members of the [ABA] House of Delegates clearly perceived the more practical concerns of the bar membership-that MDPs would threaten the continued viability of existing legal service providers?”133 Similarly, Mark Andrews, the senior partner of Wilde Sapte, who attempted to affiliate his firm with Arthur Andersen’s affiliated law firm in the United Kingdom, describes the campaign by lawyers to ban MDPs as “straight protectionism” based on economic self-interest: “There are conflict-of-interest issues,” he says, “but if you reach the conclusion that MDPs are the way forward in public-policy terms, then you can find ways of tackling these issues through regulation. It is not for lawyers to tell clients how they can buy legal services.”134
A. The Proposed Standard Suppresses Competition.
(1) Unprecedented expansion of the practice of law definition will limit choice of service providers. How does the Commission proposal preserve the law firm monopoly? Let’s turn to examine the definition of “legal services” and “the practice of law” advanced by the Commission. According to the Commission, if a lawyer who is not in a law firm offers any services that he or she could offer in a law firm, that lawyer is by definition practicing law.135 Today, there are few services that only lawyers can perform-appearing in court, for example, and preparing legal documents, such as a will. At the same time, there are many services that may be provided by lawyers in law firms but that are also routinely provided by non-lawyers. For example:
- Lawyers in law firms provide tax advice; non-lawyer accountants in tax preparation firms do the same thing;
- Lawyers in law firms provide estate planning advice; an estate planning specialist might provide similar advice;
- Lawyers in law firms provide expertise in adopting a child; adoption agencies might also provide such advice;
- Lawyers in law firms lobby for clients; non-lawyer professionals in lobbying firms engage in precisely the same activities;
- Lawyers in law firms provide strategic advice to businesses; non-lawyer professionals in public relations, management consulting, and economic consulting firms also provide such advice.
In short, as recognized in comments by consumer groups and businesses alike, lawyers and non-lawyers offer many of the same client services today.136
It appears that the Commission recommendations are aimed to restrict the ability of professional service firms to continue competing with law firms in areas where such competition already exists. As noted above, professional services firms, such as accounting firms, properly provide many of the same tax advisory services currently offered by law firms today. All these services could be deemed to constitute the unauthorized practice of law, pursuant to the proposed Commission definition, because they are offered by lawyers in law firms.
Numerous responses to the Commission’s recommendations demonstrate that its expanded definition of “legal practice” would drastically curtail the ability of non-legal firms to continue to provide services that they have been providing for many years. The American League of Lobbyists, and a substantial number of lobbying firms, for instance, commented that their businesses would be seriously threatened by adoption of the Commission’s recommendations.137 Likewise, the Association of Private Pension and Welfare Plans commented that the Commission’s recommendations could significantly limit non-lawyer employees from providing employee-benefit and pension-related services that they routinely provide today.138
By expanding the definition of services that only lawyers can perform, the Commission increases the likelihood that unauthorized practice of law claims will be brought against these non-lawyers and the firms for which they work. This proposal will act to chill non-lawyers from offering law related services that they have historically and properly provided to clients.139 As a result, consumers will find that the proposed rule, and its definition of the practice of law, restricts their choice of service providers, and chokes off the provision of such services by firms other than law firms.
In addition, this unprecedented expansion of the practice of law definition would severely restrict competition in today’s professional services marketplace. The Commission seeks to regulate, under bar rules, every individual trained and licensed as a lawyer, regardless of what he does. But the fact that an individual with legal training offers professional services does not convert those services into “legal services.”
The Commission seeks to create the impression that it is breaking no new ground because its definition of the practice of law is “based in great part” on the rule in the District of Columbia.140 But the Commission left out key elements of the DC rule. The Commission seeks to regulate every lawyer outside of a law firm who is performing services that could be performed in a law firm. But that is precisely the opposite of the approach adopted by the District of Columbia. In the comments to its rule, the District of Columbia explicitly recognizes that many professionals, such as “tax accountants, real estate agents, title company attorneys, securities advisors, pension consultants, and the like” offer law-related services that could be offered in a law firm but create no client expectation that they are giving legal advice, and, therefore, that these professionals are not engaged in the practice of law.141 The Commission itself admitted, after the fact, that it “may have erred by failing to attach the commentary from the original D.C. rule.”142 Nevertheless, as a public relations firm commented to the Commission, it will have “no choice but to require [its] lawyer employees to surrender their law licenses” to avoid having to fire these employees altogether.143
The Commission’s expanded definition of the practice of law is also troubling because it flies in the face of employment trends for lawyers. Increasingly, lawyers are taking non-traditional jobs in business and industry where they provide client service but do not create any expectation in the mind of the client that they are giving authorized professional legal advice.144 The Commission’s proposed definition ignores this trend and seeks to regulate all of these individuals as lawyers. This proposal to redefine “legal services” “threatens to destroy all private employment options for licensed lawyers outside traditional law firms.”145
(2) Application of all legal rules to MDPs will prevent formation of MDPs not controlled by lawyers. Building upon this expansion of the definition of who is practicing law, the Commission subjects the entire entity where this newly defined “practicing lawyer” works to the full set of lawyers’ rules. What does it mean to be subject to bar regulation? Among other things, the lawyers’ rules on conflicts of interest and imputation apply, so that the conflict of one professional is, by definition, a conflict for the entire organization.146 The legal conflicts rules would trump the ethics rules of all other professionals in the integrated services firm and would apply to all clients of the firm, not just legal services clients. As a result, the ability and impetus for non-lawyers to form integrated service firms with lawyers is severely reduced, if not eliminated where the price of admission-being subject to the ethics rules of a different profession-would inhibit their own practice.147
Take the accounting profession as an example. Under the AICPA Rules of Professional Conduct, certified public accountants today may advise clients with adverse interests, provided that each client has been informed of the other representation and consents to it, and confidences are properly safeguarded with firewalls. Add lawyers to that firm, and the accountants would find themselves subject to legal ethics rules that would preclude them from serving those same clients, even though nothing would be functionally different about the accountants’ relationship with the clients.148 Clients would be unable to obtain tax advisory services from their choice of service provider, and accountants would be forced to “fire” clients for reasons unrelated to their professional standards.149 Similarly, the lawyers’ rules on segregating clients’ funds from the organization’s funds apply, which would mean that bookkeeping and recordkeeping costs will rise. The lawyers’ rules on solicitation apply, so that only existing clients can be approached for new business. As the American Institute of Certified Public Accountants commented, “[i]mposition of the legal rules of conduct, and certification and audit requirements on non-lawyer controlled MDPs, . . . effectively creates an insurmountable barrier to the formation of such entities.”150 In short, applying the legal rules to the entire MDP will stifle the formation of integrated firms.151
In addition, the recommendations would prohibit passive investment in an integrated services partnership.152 This recommendation would eliminate potentially-formidable competition from corporations that provide services to individual consumers or business clients. These services would include tax preparation services such as those offered by H&R Block, personal financial services such as those offered by American Express, banking services such as those offered by Citibank, and real estate services such as those provided by Century 21.
(3) Application of the audit and certification rules only to non-lawyer controlled MDPs improperly raises costs of professional services and discourages formation of such MDPs. To the extent that the Commission recommendations are perceived as creating opportunities for the integration of professional services within a single firm, those opportunities are reserved, in practical effect, for firms that are controlled by lawyers. The Commission mandates new certification and audit requirements for non-lawyer controlled MDPs. It requires that an MDP not controlled by lawyers certify to the highest court in each state where it delivers newly defined “legal services” that it fully complies with the lawyers’ rules. It also requires that such an MDP submit to an audit on a regular basis by each such court, with draconian penalties if any violation of the bar rules by any professional-lawyer or non-lawyer-in the organization is found.153 An MDP controlled by lawyers, however, would not be subject to these regulations.154 Multistate firms would face multiple audits of their entire operations by states with varying and perhaps even conflicting standards.
These audit and certification requirements would discourage the formation of integrated service firms by non-law firms, which would be subjected to onerous regulations not shared by lawyer-controlled integrated service firms.155 These fees and costs would have to be passed on to consumers, and would place lawyer-controlled firms at a distinct competitive advantage vis-a-vis firms controlled by non-lawyers.156 Moreover, firms controlled by non-lawyers would find it hard to determine whether the added costs of regulation would justify clients’ use of their services in light of the clients’ available marketplace alternatives (e.g., ad hoc teaming, in-house counsel, or lawyer-controlled firms). Few non-legal firms would be willing to make significant investments in establishing integrated services practices that include legal services. In short, the recommendations would severely restrict integrated firms not controlled by lawyers and would promote lawyer dominance in the integrated services market.
B. The Proposed Standard is Not Narrowly Tailored to Serve Any Valid Justifications.
The Commission maintains that all of these restrictions are needed to protect the “core values” of the legal profession-namely, lawyer independence, conflict-free advice, and confidentiality.157 Historically, the legal profession has regularly attempted to justify anticompetitive rules on the ground that such rules are needed to protect client interests. As Robert Gordon, the Sterling Professor of Legal History at Yale University commented, “the sad if hardly surprising fact has been that the organized bar’s resistance to new modes of practice, though often clothed in the high-minded rhetoric of protecting the ethical standards and independent judgment of the legal profession, has been to a considerable extent motivated by far less elevated desires to protect the incomes of lawyers from economic competition.”158 With that perspective in mind, let’s turn to each of the values raised as a justification for the rules.
(1) There is no credible threat to independent judgment from MDPs. Before the Commission, opponents of MDPs argued that “[t]he issue before you is the independence of our profession,” that “money” equates to “power,” and that “as soon as the power rests with non-lawyers . . . , you will see the independence of the profession fall away.”159 Their thesis is that lawyers will disregard client interests if they practice in an organization not controlled by lawyers. But the perceived risk of loss of “independence” cannot justify the competitive restrictions-the audit and certification requirements on non-lawyer controlled MDPs-that the ABA Commission’s recommendations would impose.
There is no need to speak in terms of hypotheticals. Today, the ethics rules permit lawyers to practice in settings that pose similar threats to independence without such constraints. As Stefan Tucker, former Chair of the ABA Section on Taxation, observed, ethics rules currently permit lawyers to receive contingent fees and success bonuses and to obtain equity interests in client entities, all of which pose “far more of a threat to independent professional judgment than does fee sharing with non-lawyers; yet, they are clearly accepted and appear to have no impact whatsoever on attorney-client relations.”160 Similarly, the ethics rules allow lawyers to provide legal services in situations that are rife with potential threats to independence, such as in-house counsel, third party payor and prepaid legal services arrangements,161 all without additional external bar oversight.
Nor is there any factual support that this potential threat would be realized in a non-lawyer controlled MDP. Indeed, the only evidence presented to the ABA Commission was to the contrary. The General Counsel of the AICPA testified that the accounting profession prizes independent professional judgment as one of its core values, as demonstrated by AICPA Code of Professional Conduct Rule 102 which requires the individual CPA to “maintain objectivity and integrity and be free of conflicts of interest.”162 Wherever they practice, lawyers are subject to ethics rules that require them to maintain their independence and objectivity.163
Even if the bar were to conclude that the potential threat to independence from an MDP required additional safeguards, these safeguards must apply to all lawyers practicing in every MDP, not just to MDPs controlled by non-lawyers. Presumably, the ABA Commission considered, but declined to accept, that option. Of course, there are other alternatives. The Kutak Commission, for instance, suggested that independence could be protected by having a lawyer participating in a lay managed organization receive a written undertaking from his employer that independence of judgment would be protected.164 Professor John Dzienkowski, of the University of Texas Law School, proposed that lawyer independence would be protected in MDPs where lawyers were grouped within a legal department and would report to and be supervised by lawyers.165 Any of these alternatives are far more acceptable than the Commission’s audit and certification proposal which will establish enormous barriers to entry only for non-lawyer controlled MDPs. Ultimately, “whether the fee-splitting prohibition advances or impedes client interests will be determined by the marketplace. Clients who value a fee-splitting ban will obtain legal services from a traditional supplier of legal services.”166
(2) Conflicts can be managed in an MDP environment. MDP opponents have argued that conflicts of interest would be an intractable problem in an MDP because the conflicts rules of other professions are not as stringent as the rules of the legal profession, and that clients will be harmed.167 In an attempt to appease these critics, the Commission proposed that the legal ethics rules should be imputed throughout the entire MDP, rather than just to lawyers within the MDP.168 And the effect of this approach is further compounded by the fact that the ABA Commission defines “Multidisciplinary Practice” broadly to include any association between a law firm and a professional services firm which includes the provision of legal services and the “direct or indirect sharing of profits.”169 Even when separate firms form a loose affiliation to provide integrated services, the ABA Commission would impute the clients of one firm to all clients of both firms, whether or not they have received legal services.
This broad-based imputation of conflicts to all clients of an MDP is unnecessary to protect professional independence, and will interfere with the firm’s ability to satisfy client demand. There is no persuasive reason for subjecting other professions to the ethics rules of the legal profession, any more than it makes sense to subject lawyers to the ethical rules of another profession.170 There are reasonable means to handle conflicts short of a firm-wide imputation rule. Virtually every other profession uses client disclosure and consent, and firewalls, to separate persons and information on conflicting matters within a firm.171 For example, the ethics rules of the accounting profession allow two separate engagement teams within a single firm to advise clients on different sides of a transaction, provided that the conflict is disclosed and each client consents, and that firewalls are erected to protect client confidences and ensure objective judgment.172 And firewalls have proven effective when used within the legal profession. Professor Dzienkowski, an ethics professor at the University of Texas Law School, advised the Commission that the ABA endorses the use of firewalls in Model Rule 1.11, with respect to government lawyers, and the American Law Institute has endorsed their use as a method of removing imputation to the firm in the former client context and when information is learned from a prospective client who ultimately hires another firm.173 There is plainly no justification to impute conflicts on a firm-wide basis, instead of just with respect to the firm’s legal clients.174
(3) The recommended restrictions are not needed to preserve client confidences. MDP opponents argued that MDP firms would be unable to protect client confidences and that some professionals in a MDP would be covered by the attorney-client privilege while others would not. To respond to this argument, the Commission attempts to treat every professional in an MDP as a lawyer and imputes the ethics rules to the firm.
While this approach may lead to an unwarranted extension (or, some might argue, retraction) of the attorney-client privilege, it is plainly not reasonably related to the protection of client confidences. Many witnesses maintained that segregating all lawyers in a law department in an MDP- an approach recommended by Professor Dzienkowski and endorsed by several representatives from Big Five accounting firms-would foster the protection of privileged communications.175 Existing rules of professional responsibility recognize that non-lawyers regularly work with lawyers on a client representation; those rules govern individuals who may learn client confidences,176 and could apply to non-lawyers in an MDP.
C. The ABA is Not Immunized from Antitrust Liability.
As we discussed earlier, the U.S. Supreme Court has ruled that a private professional organization can be subject to antitrust liability for the model standards that it promulgates.177 In Allied Tube, the Court found that Noerr-Pennington immunity did not apply by looking to the independent anticompetitive effects of the proposed model rule, concluding that a “party enjoys no Noerr immunity from any antitrust liability flowing from the effect the standard has of its own force in the marketplace.”178
The factual findings underlying the Allied Tube holding are mirrored in the ABA Commission MDP proposal. Like the private association in Allied Tube, the ABA is not accountable to the public or otherwise imbued with governmental authority.179 The ABA’s adoption of its Commission recommendations would take place “within the confines of a private standard-setting process,” which “has long been defined and circumscribed by the antitrust laws without regard to whether the private standards are likely to be adopted into law.”180 Here, as in Allied Tube, particular competitors have been targeted for exclusion from the relevant market:181 Seth Rosner, a member of the ABA Commission, candidly remarked that “if this set of recommendations were approved by the House, in my opinion Big Five firms would not be willing or able to comply.”182
To be sure, Allied Tube requires a showing of independent harm to competition from the ABA proposal. But that burden is easily met here.183 The Supreme Court has recognized that restraints on competition within the legal profession are enforced not only through “the prospect of professional discipline from the State Bar,” but also “the desire of attorneys to comply with announced professional norms.”184 The ABA has announced that its model rules are the “announced professional norms” of the legal profession, apart from their adoption by the states.185 The ABA has established an Ethics Committee with a mandate to issue “definitive ethics opinions interpreting and applying those standards.”186 And as case law from the Fifth Circuit and elsewhere makes clear, courts look to the ABA’s rules and standards as “the ethical rules announced by the national profession” and subject attorneys to severe sanction-including disqualification-for failing to adhere to them, even where the ABA rules differ from the state rules in the jurisdiction where the attorneys are licensed.187
Another indication of the independent market effects of ABA activities can be seen from ABA Formal Opinion 91-360 (1991). There, the ABA issued an interpretive opinion stating that firms that formed partnerships with non-lawyers, allowed under the rules in the District of Columbia, would violate the ethics rules of other states if they maintained offices outside the District of Columbia. While this opinion has been adopted by only one state (Michigan), multi-city law firms with offices in the District of Columbia have not established partnerships with non-lawyers because of that opinion.188
Even if the ABA ultimately declines to adopt the ABA Commission recommendations, those recommendations will have an immediate and adverse impact on competition from non-lawyers. Most state statutes do not clearly define the practice of law. The Commission’s proposed definition will clearly inform the interpretation of vague state standards. This new definition has the potential to energize states to bring unauthorized practice of law charges against non-lawyers who regularly offer law-related client services. Non-lawyers will be deterred from offering law-related services because of concerns that they will be prosecuted for the unauthorized practice of law, which is a criminal offense in some states. Similarly, individuals trained as lawyers who are offering professional services in lobbying firms, public relations firms, accounting firms, and the like, will be wary that their services will be newly considered to be “legal” services and that they may be brought up on disciplinary charges by the state bars that have licensed them. These lawyers, in turn, will either turn in their bar licenses, or be forced to resign from these firms and join law firms in order to offer the same services, regardless of whether any state adopts the Commission recommendation. As a result, consumers will find that the proposed rule, and its definition of the practice of law, restricts their choice of service providers. The net effect is that consumers will be forced to seek such services from lawyers practicing in law firms, which will undoubtedly increase the costs of such services. The Commission proposed this dramatically expanded definition without any evidence that the public was harmed by provision of law-related services by non-lawyers.
Given these independent effects on competition in the relevant market from the Commission’s proposal, the ABA should not be shielded by Noerr-Pennington immunity, and its activities should be subject to scrutiny under the antitrust laws.
The “actions” referred to in the quotation as “groundbreaking” were antitrust suits which challenged anticompetitive practice restrictions in the learned professions. As shown in Chapter 1 above, the Department of Justice and the Federal Trade Commission have largely succeeded in eliminating such practice restrictions in the learned professions. The legal profession is a notable exception, however.
The time has arrived for bringing the legal profession into line with the other professions. Today, as never before, fundamental economic changes such as globalization and consumer empowerment through e-commerce are combining to create a broad-based demand for the delivery of integrated professional services. As shown in Chapter 2 above, individuals, small businesses, large corporations, and consumer organizations are calling upon the legal profession to wake up to the realities of the current marketplace and allow lawyers to join with other professionals in delivering integrated professional services. Substantial segments of the licensed bar, as well, would like the opportunity to participate in the delivery of such services.
The ABA acts at its peril in ignoring these cries for reform. As shown in Chapter 3 above, the ABA is not immune from antitrust scrutiny where its standard-setting activities adversely affect competition independent of state adoption of those standards. And the ABA’s activities with respect to MDP’s do have independent market effects including, for example, the demonstrable chilling effect of the ABA’s interpretive pronouncements on what constitutes the “practice of law.” The antitrust laws were enacted to provide a means of curbing conduct which harms competition in this manner, and the ABA’s anticompetitive MDP rules would be found wanting under the “rule of reason” analysis applicable under those laws. The “core values” of the legal profession do not demand that the ABA choke off competition from multidisciplinary services firms, or that the legal profession dominate the integrated services market. Like the emperor’s new clothes, the ABA Commission recommendations will be exposed for what they are, and are not.
Ultimately, consumer sovereignty must and will be respected. That is the way of the market, but it is also the way to serve the public. As we have seen, developments in the global and local marketplace have already resulted in the beginning of a convergence of professional services. These developments have brought forth a challenge to traditional conceptions of “professionalism” which have heretofore served as an excuse for limiting consumer choice.
Applying the principles of antitrust to the learned professions does not imply that consumers will automatically be protected.190 Indeed, because of the peculiar character of the professions, their self-regulation will necessarily continue to play an important and highly desirable role in consumer protection. But this role must be redesigned to better conform to the competitive model. We urge that the ABA, which is the bottleneck in the convergence movement, move away from its focus on who owns what and who pays whom, and instead focus on assuring that consumers of legal services are provided with a wider range of options among which they can choose effectively. Self-regulation should focus on what the professional does vis a vis the client, rather than on the institutional setting.
The key concept is that in a market, it should be up to consumers to choose intelligently among options. The modern consumer daily makes trade-offs on everything, from the quality of an automobile to the quality of a medical plan. Where necessary, government provides minimum thresholds of quality and requirements of information disclosure to avoid worst-cases and to facilitate informed selection by the consumer. The same paradigm should apply in law, accounting, and other professions. The convergence of professional services should not be stalled by the current ABA rules on fee-sharing and the ABA Commission’s proposed restrictions on MDPs. These should yield to rules that permit consumers a full range of options that confront them in a world in which change is the only constant.
1. National Soc’y of Prof’l Eng’rs v. United States, 435 U.S. 679, 695 (1978).
2. Roger D. Blair & Stephen Rubin, Regulating the Professions vii (1980).
3. Everett C. Hughes, “The Professions in Society,” reprinted in Professionalization 64 (H. Vollmer & D. Mills eds., 1966).
4. Ernest Greenwood, “Attributes of a Profession,” in Man, Work, and Society 206 (S. Nosow & W. Form eds., 1962).
5. The skills that characterize a profession flow from and are supported by a fund of knowledge that has been organized into an internally consistent system, called a body of theory. Orientation in such theory is characteristically best achieved through extended formal education in an academic setting. And the requirement of such specialized training is a threshold for entry into a profession. Other occupations generally do not subject their entrants to a similarly high emotional, temporal, and economic commitment.
6. The extensive specialized training of a professional sets him apart from others and gives him a claim, based on his knowledge (and license), to act authoritatively in areas of his expertise. Professional authority derives from several considerations: (a) The professional is sought out in matters which are of unusual importance, where lack of knowledge or poor judgment can be particularly harmful to a client and/or the public. (b) The client is not in a position to evaluate the professional’s service. The situation is therefore quite different from a typical commercial transaction, where buyer and seller are essentially adversaries and the rule is caveat emptor. For professionals, the motto is credat emptor. (c) This implies for the professional a degree of responsibility and fiduciary obligation that is rarely found outside the professions. The professional cannot allow his own potential gain to influence the advice he gives or the service he renders. (d) Such neutrality is fostered by the fact that the professional looks toward his colleagues, his professional association, and his code of ethics for support. His measure of success is not so much whether his client thinks he got his money’s worth, as whether his profession respects his work. Proper evaluation of a professional service is not only extraordinarily difficult for the client, in his relative ignorance, but in many cases must be held in abeyance for a long period of time, because a professional’s responsibility to his client or employer, as well as to the public, extends beyond any immediate employment.
7. A profession, knowing best of the matters in which it has expertise, gains certain powers and privileges from the community. For instance, it typically regulates those schools which give training for the profession and acquires control over admission into the profession. It is also given great leeway in establishing professional standards of conduct. In terms of industrial organization economics, these amount to control of entry into the market and restraints on trade. To minimize the risk of abuse of professional power, professional activities are typically regulated by codes of ethics, both written and informal, which are internalized by the members of a profession and enforced in the first instance by the professional association.
8. Professional work is viewed as an end in itself rather than a means to an end. The professional conception includes a sense of career and a sense of calling. In view of this element of total involvement, generated during the extended period of professional training and supported through a network of formal and informal groups, it is not surprising that a “community of profession” is characteristic of professions. This is manifested, for example, in the professional attitude toward sharing of knowledge. Any advance in theory and practice made by one professional “is quickly disseminated to colleagues through the professional associations. The proprietary and quasi-secretive attitudes toward discovery and invention prevalent in the industrial and commercial world are out of place in the professional.” In the commercial world, there is jealousy not only of information, but talent. The businessperson is less than delighted when an unusually talented competitor enters his market. In the professions, however, it is a badge of honor to attract the best people. Indeed, a profession goes out of its way to encourage the best students to enter its training schools and to keep them, once ‘captured’ for the profession, from deserting. See William J. Goode, “Community Within a Community: The Professions,” 22 American Sociological Review 194 (1957); Everett C. Hughes, “Professions,” in The Professions in America 2 (K. Lynn ed., 1965).
9. The oldest professional code is the Hippocratic Oath of the medical profession. Most professional codes have taken their present form gradually over the years, beginning in the early 20th century. To be sure, self-regulative codes are characteristic of all occupations, but a professional code is “perhaps more explicit, systematic, and binding; it certainly possesses more altruistic overtones, and is more public service-oriented.” Greenwood, supra, at 212.
10. It is not always perfectly clear why a certain occupation should be considered a profession. Even universally recognized professions may contain work elements that are subprofessional or entirely nonprofessional.
11. “The mere existence of a code, never mind its content, necessarily involves ‘restrictions.’ A rule without a restriction is an impossibility.” F. Bennion, Professional Ethics 202 (1969). The existence of such restrictions as a general characteristic of the professions was frequently noted. See, e.g., A.M. Carr-Saunders & P.A. Wilson, The Professions 432 (1933).
12. John Clark, Social Control of Business 138 (1926).
13. Id. at 207.
14. Carl F. Taeusch, Policy and Ethics in Business 342 (1931).
15. Roger D. Blair & Stephen Rubin, Regulating the Professions vii (1980).
16. In The Bramble Bush, Karl Llewellyn’s introduction to the study of law, a Carl Sandburg poem, “The Lawyers Know Too Much,” is quoted: “. . . The lawyers-tell me why a hearse horse snickers hauling a lawyer’s bones.” Llewelyn, acknowledging that the profession of law lacks popular appeal, blamed this in the first place on the fact that the lawyer “is a specialist, a worker in a craft too intricate for easy understanding.” “He practices a black art. He is a trickster. . . . And half of those who go to him are sunk.” Blair & Rubin, supra, at 142-144.
17. Kenneth Elzinga in Blair & Rubin, supra, at 109.
18. Blair & Rubin, supra, at vii.
19. On the world-wide movement toward open markets, see Daniel Yergin & Joseph Stanislaw, The Commanding Heights (1998).
20. )Robert Pitofsky, “Self-Regulation and Antitrust,” Remarks for D.C. Bar Association Symposium, Feb. 18, 1998, available at www.ftc.gov/speeches/pitofsky/self4.htm, at 8.
21. American Soc’y of Mechanical Eng’rs, Inc. v. Hydrolevel Corp., 456 U.S. 556, 571 (1982).
22. )Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492, 500 (1988). See also Radiant Burners, Inc. v. Peoples Gas Light & Coke Co., 364 U.S. 656, 658-59 (1961).
23. American Med. Ass’n, 94 F.T.C. 701 (1979), aff’d as modified, 638 F.2d 443 (2d Cir. 1980), aff’d by an equally divided court, 455 U.S. 676 (1982).
24. American Medical Ass’n, 94 F.T.C. at 896.
25. Id. at 909.
26. Id. at 896-99.
27. American Medical Ass’n, 94 F.T.C. at 1017.
28. Id. at 707, 956.
29. Id. at 1018.
31. American Med. Ass’n v. FTC, 638 F.2d 443, 449 (2d Cir. 1980), aff’d by an equally divided court, 455 U.S. 676 (1982).
32. Robert Pitofsky, “Thoughts on ‘Leveling the Playing Field’ in Health Care Markets,” Remarks before the National Health Lawyers Association, Feb. 13, 1997, available at www.ftc.gov/speeches/pitofsky/nhla.htm, at 1.
33. American Soc’y of Anesthesiologists, Inc., 93 F.T.C. 101, 102, 105 (1979).
34. Michigan Optometric Ass’n, 106 F.T.C. 342 (1985); American Academy of Optometry, Inc., 108 F.T.C. 25 (1986).
35. Iowa Chapter of the Am. Physical Therapy Ass’n, 111 F.T.C. 199, 200-04 (1988).
36. See “FTC Charges Oklahoma State Veterinary Board Illegally Restricted Competition; Board Agrees to Settle Charges,” FTC Press Release (Aug. 14, 1989).
37. The FTC has also successfully challenged attempts by other professional associations to limit advertising and solicitation by their members. For instance, in 1992, the FTC obtained a consent decree prohibiting the American Psychological Association from restricting the dissemination of truthful, non-deceptive advertising by its members. See American Psychological Ass’n, 115 F.T.C. 993 (1992). Similarly, the FTC has obtained consent decrees from chiropractic professional organizations preventing them from limiting truthful advertising by their members. See Connecticut Chiropractic Ass’n, 114 F.T.C. 708 (1991); Texas Bd. of Chiropractic Exam’rs, 57 Fed. Reg. 20279 (May 12, 1992).
38. Medical Staff of John C. Lincoln Hosp. & Health Ctr., 106 F.T.C. 291 (1985).
39. Medical Staff of Doctors’ Hosp. of Prince George’s County, 110 F.T.C. 476 (1988).
40. State Volunteer Mut. Ins. Corp., 102 F.T.C. 1232 (1983).
41. 476 U.S. 447 (1986).
42. Id. at 452.
43. Id. at 459.
44. Id. at 462.
45. 435 U.S. 679 (1978).
46. Id. at 694-96.
47. Id. at 694, 696.
48. United States v. American Inst. of Architects, 1990-2 Trade Cases ¶ 69,256 (1990).
49. American Inst. of Certified Public Accountants, 113 F.T.C. 698 (1990).
50. National Ass’n of Social Workers, 58 Fed. Reg. 17411 (Apr. 2, 1993) (restrictions on advertising and solicitation).
51. Robert Pitofsky, “Thoughts on ‘Leveling the Playing Field’ in Health Care Markets,” supra note 32, at 4.
52. American Bar Association Division for Media Relations and Communication Services, available at www.abanet.org/media.
53. See Massachusetts School of Law at Andover, Inc. v. American Bar Ass’n, 142 F.3d 26, 30 (1st Cir. 1998).
54. American Bar Association, Center for Professional Responsibility, Standing Committee on Ethics and Professional Responsibility, available at www.abanet.org/cpr/scepr.html.
55. See, e.g., In re Dresser Indus., Inc., 972 F.2d 540, 543 (5th Cir. 1992) (referring to ABA Model Rules as “the ethical rules announced by the national profession”).
56. See, e.g., 2 Geoffrey C. Hazard, Jr. & W. William Hodes, The Law of Lawyering: A Handbook on the Model Rules of Professional Conduct 796 (2d ed. Supp. 1991).
57. See ABA Model Rule 5.4. The text of the rule appears in Appendix 1 to this book. Documents appearing in the appendix are identified with the designation “App. __” throughout this book.
58. But the less-restrictive District of Columbia Rule 5.4 has not been widely used, in large part because of an ABA interpretive opinion that effectively barred multi-state firms with D.C. offices from taking advantage of the D.C. rule. See ABA Formal Opinion 91-360 (1991); Summary of the Testimony of Susan D. Gilbert Before the Multidisciplinary Practice Commission, Nov. 1998, available at www.abanet.org/cpr/gilbert1198.html (App. 23).
59. See 2 Geoffrey C. Hazard, Jr. & W. William Hodes, The Law of Lawyering: A Handbook on the Model Rules of Professional Conduct 796-99 (2d ed. Supp. 1991).
60. See id.
61. Unedited Transcript of ABA House of Delegates Session 28, 48-49 (Feb. 8, 1983), quoted in Thomas R. Andrews, “Nonlawyers in the Business of Law: Does the One Who Has the Gold Really Make the Rules?,” 40 Hastings L.J. 577, 617-17 (1989); see also David A. Kaplan, “Want to Invest in a Law Firm?,” National L.J., Jan. 19, 1987, at 28.
62. 2 Geoffrey C. Hazard, Jr. & W. William Hodes, The Law of Lawyering: A Handbook on the Model Rules of Professional Conduct 799 (2d ed. Supp. 1991).
63. See ABA Commission on Multidisciplinary Practice, Final Report, Reporter’s Notes, June 1999, available at www.abanet.org/cpr/mdpappendixc.html, at 4 (App. 2); ABA Commission Updated Background and Informational Report and Request for Comments, Dec. 1999, available at www.abanet.org/cpr/febmdp.html, at 3-4 (“ABA Commission Updated Background”) (App. 3).
64. These comments, including the comments cited below, are available at www.abanet.org/cpr.
65. Written Remarks of the Consumer Alliance, Mar. 31, 1999, available at www.abanet.org/cpr/consumer.html, at 1 (“Consumer Alliance Comments”) (App. 10); Written Remarks of James L. Brown, Center for Consumer Affairs, Mar. 10, 1999, available at www.abanet.org/cpr/brown1.html, at 1 (“Brown Comments”) (App. 6).
66. One commentor drew the analogy with consumer preference for a single service provider in the telecommunications area that can offer long-distance, cellular, and internet services. Written Testimony of Mark K. Phigler, President, Americans for Competitive Telecommunications, Feb. 2, 1999, available at www.abanet.org/cpr/phigler.html, at 2 (“Phigler Comments”) (App. 5).
67. E.g., Consumer Alliance Comments at 1; Brown Comments at 2.
68. Comments of Lora H. Weber, President and Executive Director, Consumers Alliance of the Southeast, Mar. 11, 1999, available at www.abanet.org/cpr/weber1.html, at 1-2 (“Weber Comments”) (App. 7); Consumer Alliance Comments at 1; Comments of Al Sterman, Electric Consumers Alliance, Mar. 26, 1999, available at www.abanet.org/cpr/sterman.html, at 1 (App. 9).
69. E.g., Weber Comments at 2.
70. Brown Comments at 2; Phigler Comments at 2; Oral Remarks of Richard Miller, General Counsel and Secretary of the American Institute of Certified Public Accountants, Mar. 12, 1999, available at www.abanet.org/cpr/rmiller.html, at 1 (App. 41); Weber Comments at 2.
71. Comments of Wayne Moore, Director, Legal Advocacy Group, AARP, July 27, 1999, available at www.abanet.org/cpr/aarp.html, at 1-2 (“AARP Comments”) (App. 14).
72. Statement of Philip Matthew Stinson, Sr., Oct. 9, 1999, available at www.abanet.org/cpr/stinson.html, at 1-2 (App. 32).
73. Comments of Marna S. Tucker, Apr. 7, 1999, available at www.abanet.org/cpr/tucker3.html, at 1-3 (App. 30).
74. Phigler Comments at 2; Weber Comments at 2.
75. E.g., Comments of Jim Conran, President, Consumers First, Feb. 1, 1999, available at www.abanet.org/cpr/conran.html, at 1 (“Conran Comments”) (App. 4); Comments of David Swankin, President, Citizen Advocacy Center, Mar. 24, 1999, available at www.abanet.org/cpr/swankin.html, at 2 (App. 8).
76. Conran Comments at 1.
77. Consumer Alliance Comments at 1; Comments of Scott Hart, President, Ellis/Hart Associates, Inc., Feb. 22, 1999, available at www.abanet.org/cpr/hart.html, at 1 (App. 17); Comments of Robert Thom, President/Owner, R.W. Thom & Co., Apr. 6, 1999, available at www.abanet.org/cpr/thom.html, at 1 (App. 18).
78. Conran Comments at 1-2; Comments of Michael Horner, President, Tom Sawyer Camps, Feb. 19, 1999, available at www.abanet.org/cpr/horner.html, at 1 (App. 16); Comments of Haydee Velazquez Tillotson, Feb. 19, 1999, available at www.abanet.org/cpr/tillotson.html, at 1 (App. 15).
79. Weber Comments at 2.
80. See Written Response of Theodore J. DelGaizo, PE, to MDP Commission Report, available at www.abanet.org/cpr/delgaizo.html, at 1 (App. 45).
81. Comments of Washington Legal Foundation, Apr. 6, 1999, available at www.abanet.org/cpr/wlfmdp.html, at 2 (“WLF Comments”) (App. 11).
82. Phigler Comments at 2. See also Michael Paul, “Manager’s Journal: Law Firms Shouldn’t Be for Lawyers Only,” Wall St. J., Aug. 9, 1999, at A18.
83. Remarks of Steven Alan Bennett, Former General Counsel of Banc One Corporation, Nov. 13, 1998, available at www.abanet.org/cpr/bennett.html, at 1-2 (App. 19).
84. See ABA Commission on Multidisciplinary Practice, Reporter’s Notes, available at www.abanet.org/cpr/mdpappendixc.html, at 8 & n.58 (App. 2) (noting resolution by American Corporate Counsel Association supporting removal of restrictions on MDPs and quoting resolution).
85. Comments of Jose Marti, European Financial Manager, NALCO ESPANOLA, SA and NALCO FRANCE, SARL, May 12, 1999, available at www.abanet.org/cpr/marti.html, at 1 (App. 20).
86. WLF Comments at 2; Comments of Benoit-Henri Koch, Holderbank European Services S.A., June 7, 1999, available at www.abanet.org/cpr/koch.html, at 1 (App. 22).
87. Comments of Damian Gisbert, Financial Director, Kellogg’s Espana, May 12, 1999, available at www.abanet.org/cpr/gisbert.html, at 1 (App. 21).
88. Phigler Comments at 2; WLF Comments at 2.
89. Jim Kelly, “Long arm of the law: The Big Five may be right that clients want them to move into legal services,” Fin. Times (London), Sept. 9, 1999.
90. Frank Jossi,” The Accountants Are Coming! The Accountants Are Coming!,” Law & Politics, Oct. 1999.
91. Oral Remarks of Larry Ramirez, Chair of the General Practice, Solo and Small Firm Section, Feb. 1999, available at www.abanet.org/cpr/ramirez1.html, at 1 (App. 25).
92. Steven C. Nelson, “A Choice of Adaptation or Marginalization,” available at www2.mnbar.org/bench%26bar/1999/sep99/mdp.htm, at 13.
93. Written Remarks of Stefan F. Tucker, Chair, ABA Section on Taxation, Feb. 4, 1999, available at www.abanet.org/cpr/tucker1.html, at 4 (App. 29).
94. See American Med. Ass’n v. FTC, 638 F.2d 443 (2d Cir. 1980), aff’d by an equally divided court, 455 U.S. 676 (1982).
95. “Vogue Beauty,” Vogue, Dec. 1999, at 312.
97. For discussion of the points raised in this paragraph, see Comments of Abbie Willard on MDP Commission Report, Aug. 2, 1999, available at www.abanet.org/cpr/willard3.html (“Willard Comments”) (App. 35).
98. Written Remarks of Lawrence J. Fox to the MDP Commission, Feb. 1999, available at www.abanet.org/cpr/fox1.html, at 2-3 (App. 27); Oral Testimony of Jay Foonberg, Feb. 1999, available at www.abanet.org/cpr/foonberg.html, at 1 (App. 28); Summary of Testimony of Karen Powell, Nov. 1998, available at www.abanet.org/cpr/powell.html, at 1 (App. 24).
99. NALP Foundation for Research and Education, Perceptions of Partnership: The Allure and Accessibility of the Brass Ring 17 (1999).
100. See ABA Commission Updated Background at 2.
101. Willard Comments at 2-3.
102. ABA Commission Updated Background at 4.
103. FTC v. Superior Court Trial Lawyers Ass’n, 493 U.S. 411, 423-24 (1990) (quoting National Soc’y of Prof’l Eng’rs v. United States, 435 U.S. 679, 695 (1978).
104. Superior Court Trial Lawyers Ass’n, 493 U.S. at 423-24.
105. Goldfarb v. Virginia State Bar, 421 U.S. 773, 781 (1975).
106. Eastern R.R. Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127, 136 (1961) (“Noerr“); United Mine Workers v. Pennington, 381 U.S. 657 (1965).
107. Noerr, 365 U.S. at 136.
108. See 1 Geoffrey C. Hazard, Jr. & W. William Hodes, The Law of Lawyering: A Handbook on the Model Rules of Professional Conduct § 206 (2d ed. Supp. 1998).
109. Allied Tube, 486 U.S. at 506-07. In the Allied Tube case itself, makers of steel electrical conduit prevented the NFPA from accepting a competing product by “packing” the standard-setting proceeding with new members who would vote against acceptance. Id. at 496.
110. Id. at 506-07.
111. Id. at 509-10. The Supreme Court has subsequently reaffirmed that a party’s subjective intent to influence government action will not immunize anticompetitive conduct that has an independent marketplace effect. See Professional Real Estate Investors, Inc. v. Columbia Pictures Indus., Inc., 508 U.S. 49, 59 (1993); see also, e.g., Premier Elec. Constr. Co. v. National Elec. Contractors Ass’n, 814 F.2d 358, 368 (7th Cir. 1987) (antitrust laws apply “if the injury occurs no matter how the government responds to the request for aid”).
112. United States v. American Bar Ass’n, 934 F. Supp. 435 (D.D.C. 1996) (“US v. ABA“).
113. US v. ABA, Complaint ¶¶ 7, 9-16 (App. 55).
114. 60 Fed. Reg. 39421, 39424 (Aug. 2, 1995).
115. US v. ABA, 934 F. Supp. at 436-37. The Justice Department viewed these structural reforms as critical to ending the “regulatory capture” that was the source of the anticompetitive restraints. 60 Fed. Reg. at 39427. The consent decree also required the ABA to retain an outside consultant to study and validate ABA standards and interpretations, and to implement an antitrust compliance program. US v. ABA, 934 F. Supp. at 437-39.
116. United States v. Allen County Ind. Bar Ass’n, 1980-81 Trade Cases ¶ 63595 (N.D. Ind. 1980).
118. United States v. New York County Lawyers’ Ass’n, 1981-82 Trade Cases ¶ 64371 (S.D.N.Y. 1981).
120. See, e.g., letter from Joel I. Klein (DOJ) and William Baer (FTC) to David Beach (Clerk of Supreme Court of Virginia), Jan. 3, 1997, available at www.ftc.gov/be/v960015a.htm, at 1 (objecting to proposed Virginia rule that would have prevented anyone other than lawyers from conducting real estate closings) (App. 56); FTC Press Release, June 12, 1987, available at www.ftc.gov/opa/predawn/F87/kyatty.txt (commenting that proposed rules in Kentucky would restrict “efficient forms of practice” and recommending that lawyers be permitted to “form partnerships with other professionals”) (App. 54).
121. 493 U.S. at 425.
122. Id. (quoting Allied Tube, 486 U.S. at 503).
123. Allied Tube, 486 U.S. at 500; see also American Soc’y of Mechanical Eng’rs v. Hydrolevel Corp., 456 U.S. 556, 571 (1982) (“[A] standard-setting organization . . . can be rife with opportunities for anticompetitive activity.”); Radiant Burners, Inc. v. Peoples Gas Light & Coke Co., 364 U.S. 656, 658-59 (1961).
124. Allied Tube, 486 U.S. at 500; American Med. Ass’n v. FTC, 638 F.2d 443, 450 (2d Cir. 1980) (upholding FTC ruling that the AMA had improperly restrained competition through ethical rules preventing physicians from entering partnerships and contract arrangements with non-physicians), aff’d by an equally divided court, 455 U.S. 676 (1982).
125. Professional Engineers, 435 U.S. at 691-92; Allied Tube, 486 U.S. at 500; see also, e.g., United States v. Associated Press, 326 U.S. 1, 13 (1945) (rules allowing members to exclude competitors lacked justification and “seriously . . . limit[ed] the opportunity of any new paper to enter [AP-controlled] cities”); American Medical Ass’n, 638 F.2d at 450.
126. See, e.g., NCAA v. Board of Regents, 468 U.S. 85, 118-20 (1984).
127. The MDP Commission recommendations, together with its final report and appendices, are included as Appendix 2.
128. Testimony of Lynda Shely, Ethics Counsel for the State Bar of Arizona, Feb. 1999, available as www.abanet.org/cpr/shely2.html, at 1 (App. 26).
129. According to estimates reported in the Wall Street Journal, holiday shoppers were expected to spend between $4 billion and $15 billion on-line in 1999, many times more than the $1.5 billion figure from 1998. Rebecca Quick, “Expect $4 Billion (or $9 Billion) in Online Sales,” Wall St. J., Dec. 6, 1999, at B1; “The E-Grinch,” Wall St. J., Nov. 29, 1999, at A28. Moreover, businesses and consumers are expected to spend $2 trillion online for goods and services in 2003, up from $50 billion in 1998. Anthony B. Perkins, “Can TV Spots ‘Ad’ Value to E-Commerce Companies?,” Wall St. J., Nov. 29, 1999, at A28.
130. See, e.g., Comments of Jim Conran, President, Consumers First, Feb. 1, 1999, available at www.abanet.org/cpr/conran.html, at 1 (App. 4); Comments of Scott Hart, President, Ellis/Hart Associates, Inc., Feb. 22, 1999, available at www.abanet.org/cpr/hart.html, at 1 (App. 17); Comments of Robert Thom, President/Owner, R.W. Thom & Co., Apr. 6, 1999, available at www.abanet.org/cpr/thom.html, at 1 (App. 18); Comments of Haydee Velazquez Tillotson, Feb. 19, 1999, available at www.abanet.org/cpr/tillotson.html (App. 15); Comments of Michael Horner, President, Tom Sawyer Camps, Feb. 19, 1999, available at www.abanet.org/cpr/horner (App. 16).
Indeed, electronic commerce is opening up many alternative means for small businesses to procure services. For instance, banks have begun to offer on-line loan services directed specifically at small businesses. “Banks Turn to the Internet for Loans to Small Businesses,” Wall St. J., Nov. 23, 1999, at B2.
131. See, e.g., Statement of Neil Cochran, Dundas & Wilson, Feb. 4, 1999, available at www.abanet.org/cpr/cochran1.html, at 2-3 (App. 52); Summary of the Testimony of Gerard Nicolay, Nov. 1998, available at www.abanet.org/cpr/nicolay1198.html, at 1 (App. 51).
132. According to Mr. Rosner, “if this set of recommendations were approved by the House, in my opinion Big Five firms would not be willing or able to comply.” Letter to the Editor from Seth Rosner, N.Y.L.J., Aug. 18, 1999, at 2. Of course, other likely entrants, such as investor-owned firms and smaller accounting firms, would also be excluded.
133. Albert B. Maggio, Jr., “Opinion: multidisciplinary practice is a problem, not a solution,” Nov. 30, 1999, available at www.massbar.org/lawyersjournal/1299/12-mdpopinion.html, at 3-4.
134. John Malpas, “Are MDPs The Way Forward?,” The Times, Nov. 30, 1999.
135. See ABA Commission on Multidisciplinary Practice, Recommendations, Principle 11 (June 1999), available at www.abanet.org/cpr/mdpfinalreport.html (“legal services” constitute “services [that] would constitute the practice of law if provided by a lawyer in a law firm”).
136. E.g., Comments of Consumers Alliance of the Southeast et al. on MDP Recommendations, July 15, 1999, available at www.abanet.org/cpr/consumer2.html, at 1-2 (“Consumer Alliance Response”) (App. 12); Response of Alpine Group, Inc. et al. to MDP Report, Aug. 3, 1999, available at www.abanet.org/cpr/lobbyletter.html, at 1 (“Lobby Firms’ Response”) (App. 47).
137. Response of American League of Lobbyists to MDP Report, Aug. 3, 1999, available at www.abanet.org/cpr/all.html, at 1 (App. 48); Lobby Firms’ Response at 1.
138. Response of James Klein, President, Association of Private Pension and Welfare Plans to MDP Report, Aug. 4, 1999, available at www.abanet.org/cpr/klein.html, at 1-2 (“Klein Response”) (App. 49).
139. See, e.g., Klein Response at 2.
140. ABA Commission on Multidisciplinary Practice, Final Report, Appendix A (June 1999), available at www.mdpfinalreport.html, at 2.
141. See Comments to Rule 49 of the D.C. Court of Appeals (noting that the relationship of these professionals to their clients “is not based on the reasonable expectation that learned and authorized professional legal advice is being given”); Response of James P. Schaller to MDP Final Report, June 25, 1999, available at www.abanet.org/cpr/schaller.html, at 4 (noting need to “include with that definition the gloss and explanatory comment which refines and clarifies [the rule’s] meaning”) (App. 31).
142. ABA Commission Updated Background and Informational Report and Request for Comments, Dec. 1999, available at www.abanet.org/cpr/febmdp.html, at 7 (App. 3).
143. Response of Steven Conafay, Shandwick, to MDP Report, July 12, 1999, available at www.abanet.org/cpr/shandwick.html, at 1 (“Shandwick Response”) (App. 46).
144. See Comments of Abbie Willard on MDP Commission Report, Aug. 2, 1999, available at www.abanet.org/cpr/willard3.html, at 2 (“Willard Comments”) (App. 35); Lobby Firms’ Response at 1; Shandwick Response at 1.
145. Willard Comments at 2.
146. See ABA Commission on Multidisciplinary Practice, Recommendations, Principles 7 and 8 (June 1999), available at www.abanet.org/cpr/mdpfinalreport.html (App. 2).
147. Comments of Wayne Moore, Director, Legal Advocacy Group, AARP, July 27, 1999, available at www.abanet.org/cpr/aarp.html, at 2 (App. 14); Consumer Alliance Response at 1.
148. See Response of American Institute of Certified Public Accountants to MDP Report, July 30, 1999, available at www.abanet.org/cpr/aicpa2.html, at 3 (“AICPA Response”) (App. 42).
149. The problem would increase in magnitude with the size of an integrated firm, and would be compounded by the proposed definition of a multidisciplinary firm as extending to all “affiliates” of a given firm. ABA Commission on Multidisciplinary Practice, Recommendations, Principle 3, available at www.abanet.org/cpr/mdpfinalreport.html (App. 2). In this respect, the proposed rule appears directed at ensuring that the “Big 5” accounting firms would be shut out of the integrated professional services market.
150. AICPA Response at 1; see also Response of the Association of Management Consulting Firms to MDP Report, Sept. 1, 1999, available as www.abanet.org/cpr/smith.html, at 1 (“Management Consultants’ Response”) (App. 50).
151. The expanded definition of the “practice of law” compounds this problem. Under the ABA Commission’s scheme, many of the services being provided today in professional services firms will be deemed the “practice of law” if performed by lawyers, and thus conflicts of interest rules will come into play that would cast doubt on the ability of the firms-and not just the lawyers in those firms-to serve existing clients.
152. ABA Commission on Multidisciplinary Practice, Recommendations, Principle 13, available at www.abanet.org/cpr/mdpfinalreport.html (App. 2) (recommendations “do not change the rules of professional conduct . . . limiting the holding of equity investments in any entity or organization providing legal services”).
153. Organizations will not be able to evade the bar’s regulatory reach by segregating lawyers into affiliates or through other structural approaches. The Commission’s proposal would apply the lawyers’ rules to the entire MDP where even just one lawyer works-with the MDP broadly defined to include all related entities.
154. See ABA Commission on Multidisciplinary Practice, Recommendations, Principle 14, available at www.abanet.org/cpr/mdpfinalreport.html (App. 2).
155. Consumer Alliance Response at 1; Management Consultants’ Response at 2.
156. Combinations among competitors that raise rivals’ costs of doing business ultimately injure consumers, and are accordingly held to account under the antitrust laws. See, e.g., Premier Elec. Constr. Co. v. National Elec. Contractors Ass’n, 814 F.2d 358, 368 (7th Cir. 1987).
157. ABA Commission on Multidisciplinary Practice, General Information Form (June 1999), available at www.abanet.org/cpr/mdpgeninfo.html, at 1 (App. 2).
158. Written Remarks of Robert Gordon to the MDP Commission, May 21, 1999, available at www.abanet.org/cpr/gordon.html, at 2 (“Gordon Comments”) (App. 34); see also Goldfarb v. Virginia State Bar, 421 U.S. 773, 787 (1975) (finding that minimum fee schedules for lawyers, defended on grounds of promoting quality of legal services, violated the antitrust laws); Bates v. State Bar of Arizona, 433 U.S. 350, 378-79 (1977) (finding that restrictions on attorney advertising, defended on consumer grounds including promoting quality of legal services, violated the First Amendment); United Mine Workers v. Illinois State Bar Ass’n, 389 U.S. 217 (1967) (finding that restrictions on a labor union’s ability to offer affordable legal services to its members, defended on grounds of attorney independence, violated members’ First Amendment freedom of association).
159. Written Remarks of Lawrence J. Fox to the MDP Commission, Feb. 1999, available at www.abanet.org/cpr/fox1.html, at 1 (“Fox Comments”) (App. 27).
160. Written Remarks of Stefan F. Tucker, Chair, ABA Section on Taxation, Feb. 4, 1999, available at www.abanet.org/cpr/tucker1.html, at 4 (“Tucker Comments”) (App. 29). Indeed, if lawyers are presumed to be able to resist pressure to depart from the ethical rules (as they are with respect to pressures imposed by clients and by their law partners), then there is no reason to presume that they would be unable to resist such pressures when brought to bear by their non-lawyer employers. On the other hand, if lawyers are presumed to be unable to resist “business-related” concerns that could detract from their independence, then that would call the entire standard-setting process into question. See Bates, 433 U.S. at 379 (“It is at least somewhat incongruous for the opponents of advertising to extol the virtues and altruism of the legal profession at one point, and, at another, to assert that its members will seize the opportunity to mislead and distort.”).
161. See Statement of James W. Jones, Vice Chairman and General Counsel of APCO Associates Inc., Feb. 1999, available at www.abanet.org/cpr/jones1.html, at 4-5 (App. 44); Gordon Comments at 3, 5-6. Professor Gordon notes that although the employer is the client in the case of in-house counsel, “[t]he fact that the employer is also the client increases rather than decreases the likelihood that a corporate in-house lawyer could be swayed to subordinate his own independent professional judgment about how to advise the client-employer to the client-employer’s own profit-driven judgment.” Id. at 7.
162. Written Remarks of Sam DiPiazza, Jr., Managing Partner, Tax Services-Americas, Pricewaterhouse Coopers LLP, Mar. 1999, available at www.abanet.org/cpr/dipiazza.html, at 2 (“DiPiazza Comments”) (App. 40); Written Remarks of Edward Summers, available at www.abanet.org/cpr/summers1.html, at 2-3 (“Summers Comments”) (App. 43); see also Written Remarks of Kathryn Oberly, Vice Chair and General Counsel, Ernst & Young LLP, Feb. 4, 1999, available at www.abanet.org/cpr/oberly1.html, at 3 (App. 37) (“all professionals in a multidisciplinary organization could be bound by a rule that required them to exercise their own professional judgment”).
163. See ABA Model Rule 1.7 (lawyers must remain faithful to their clients’ interests); ABA Model Rule 1.8(f) (governing situations where a third party pays for the lawyer’s services); 2 Geoffrey C. Hazard, Jr. & W. William Hodes, The Law of Lawyering: A Handbook on the Model Rules of Professional Conduct 798 (2d ed. Supp. 1991). See also United Mine Workers v. Illinois State Bar Ass’n, 389 U.S. 217, 224 (1967) (overturning injunction preventing labor union from employing lawyers on salary or retainer to represent its members, holding that “there was absolutely no indication that the theoretically imaginable divergence between the interests of union and member ever actually arose in the context of a particular lawsuit”).
164. See 2 Geoffrey C. Hazard, Jr. & W. William Hodes, The Law of Lawyering: A Handbook on the Model Rules of Professional Conduct 798 & n.1 (2d ed. Supp. 1991).
165. Written Remarks of John Dzienkowski to the MDP Commission, Feb. 1999, available at www.abanet.org/cpr/dzienkowski2.html, at 7-8 (“Dzienkowski Comments”) (App. 33).
166. Written Remarks of Irwin Treiger and William Lipton, National Conference of Lawyers and Certified Public Accountants, Mar. 11, 1999, available at www.abanet.org/cpr/treiger1.html, at 6 (App. 53).
167. Fox Comments at 4; Written Remarks of Bernard Wolfman, available at www.abanet.org/cpr/wolfman1.html, at 5 (App. 36).
168. See ABA Commission on Multidisciplinary Practice, Recommendations, Principles 7 and 8, available at www.abanet.org/cpr/mdpfinalreport.html (App. 2).
169. ABA Commission on Multidisciplinary Practice, Recommendations, Principle 3, available at www.abanet.org/cpr/mdpfinalreport.html (App. 2).
170. Written Remarks of Richard Spivak, Managing Partner-Tax-North American, Arthur Andersen, Mar. 1999, available at www.abanet.org/cpr/spivak3.html, at 4 (App. 38).
171. Dzienkowski Comments at 10 (“[F]irewalls are regularly used outside the legal profession to impede the flow of confidential information.”); Summers Comments at 3 (discussing firewalls in the accounting profession); Harvey L. Pitt & Karl A. Groskaufmanis, “Minimizing Corporate Civil and Criminal Liability: A Second Look at Corporate Codes of Conduct,” 78 Geo. L.J. 1559, 1617-26 (1990) (discussing use of screening mechanisms in securities and banking industries); 17 C.F.R. § 240.14e-3 (SEC regulation permitting use of firewalls in investment banks to avoid potential conflicts of interest between those making investment decisions and those with nonpublic information about investment opportunities); 12 C.F.R. § 9.5(b) (screening mechanisms in banking industry).
172. Written Remarks of Roger Page, National Director, Washington National Tax Practice, Deloitte & Touche, Mar. 11, 1999, available at www.abanet.org/cpr/page1.html, at 3 (App. 39).
173. Dzienkowski Comments at 10-11.
174. The imputation rules applicable to the legal profession have come under increasing attack in recent years, as the size and scope of law firms has grown dramatically and the dangers posed by conflicts of interests across an entire firm have become more and more attenuated. As tax attorney Stefan Tucker urged, the imputation rule should be revised “in a wholesale manner to take into account the realities of practice.” Tucker Comments at 5. It makes no sense to extend to other professions a rule that major segments of the legal profession consider to be in need of overhauling.
175. DiPiazza Comments at 4.
176. ABA Model Rule 5.3.
177. National Soc’y of Prof’l Eng’rs v. United States, 435 U.S. 679, 695 (1978); Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492 (1988).
178. Allied Tube, 486 U.S. at 509-10.
179. See Allied Tube, 486 U.S. at 502 (“[W]here, as here, the restraint is imposed by persons unaccountable to the public and without official authority, many of whom have personal financial interests in restraining competition, we have no difficulty concluding that the restraint has resulted from private action.”).
180. Id. at 506-07.
181. Id. at 501 (noting absence of “procedures that prevent the standard-setting process from being biased by members with economic interests in stifling product competition”); see also Deborah L. Rhode, “Why the ABA Bothers: A Functional Perspective on Professional Codes,” 59 Tex. L. Rev. 689, 720 (1981) (“No matter how well-intentioned and well-informed, lawyers regulating lawyers cannot escape the economic, psychological, and political constraints of their position”).
182. Letter to the Editor from Seth Rosner, N.Y.L.J. (Aug. 18, 1999).
183. The ABA’s actions can be directly challenged by the Justice Department or the Federal Trade Commission. The Supreme Court has recently clarified any lingering doubts that the FTC has jurisdiction over nonprofit associations. California Dental Ass’n v. FTC, 119 S. Ct. 1604, 1612 (1999).
184. Goldfarb v. Virginia State Bar, 421 U.S. 773, 781 (1975); see also American Column & Lumber Co. v. United States, 257 U.S. 377, 411 (1921) (holding that “business honor and social penalties” are “potent and dependable restraints” on economic actors); American Soc’y of Mechanical Eng’rs v. Hydrolevel Corp., 456 U.S. 556, 570-71 (1982) (delegation of standard-setting authority to agents by private association had “permit[ted] those agents to affect the destinies of businesses and thus give[n] them the power to frustrate competition in the marketplace”); Wilk v. American Med. Ass’n, 719 F.2d 207, 230 (7th Cir. 1983) (ethical opinions of medical association restrained doctors by their own force). But see Lawline v. American Bar Ass’n, 956 F.2d 1378, 1383-84 (7th Cir. 1992) (ethical opinions had no independent anticompetitive effect unless state supreme court agreed and enforced them).
Lawline illustrates that not all ABA activities in developing and preparing model rules will be subject to antitrust scrutiny at least insofar as the relevant injury derives from the states’ adoption of the proposed rule. What is more, ABA ethics rules can survive such scrutiny if their public benefits in fact outweigh their anticompetitive effects.
185. See American Bar Association, Compendium of Professional Responsibility Rules and Standards vii (1999 ed.) (ABA model rules constitute “models for ethical and professional conduct and standards for enforcing that conduct”).
186. American Bar Association, Center for Professional Responsibility, Standing Committee on Ethics and Professional Responsibility, available at www.abanet.org/cpr/scepr.html.
187. See In re Dresser Indus., Inc., 972 F.2d 540, 543 (5th Cir. 1992); In re American Airlines Inc., 972 F.2d 605, 610 (5th Cir. 1992); Cole v. Ruidoso Mun. Schs., 43 F.3d 1373, 1383 (10th Cir. 1994); McCallum v. CSX Transp., Inc., 149 F.R.D. 104, 108 (M.D.N.C. 1993).
188. Summary of the Testimony of Susan D. Gilbert Before the Multidisciplinary Practice Commission, Nov. 1998, available at www.abanet.org/cpr/gilbert1198.html (App. 23).
189. Robert Pitofsky, “Thoughts on ‘Leveling the Playing Field’ in Health Care Markets,” Remarks before the National Health Lawyers Association, February 13, 1997, at 1.
190 “The antitrust laws are intended to ensure that the marketplace remains competitive, so that a meaningful range of options is made available to consumers, unimpaired by practices such as price fixing or anticompetitive mergers. The consumer protection laws are then intended to ensure that consumers can choose effectively from among those options, with their critical faculties unimpaired by such violations as deceptions or the withholding of material information.” Neil W. Averitt and Robert H. Lande, “Consumer Sovereignty: A Unified Theory of Antitrust and Consumer Protection Law,” 65 Antitrust Law Journal 713, 714 (1997).
1. ABA Model Rule 5.4
Comments Received by ABA Commission
Comments from Individuals and Consumer Groups
Comments from Small Businesses
Comments from Large Business Concerns
Comments from the Legal Profession
Comments from the Legal Academics
Comments from the Accounting Profession
Comments from Lobbyists, Engineers, and Other Service Providers
Comments from Foreign Lawyers / Service Providers
Appendices reprinted by permission of the American Bar Association.
© The American Bar Association. All rights reserved.