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Task Force Recommendations to NCBA Board of Governors
The purpose of this memorandum is to summarize the work and recommendations of the Multi-disciplinary Practice ("MDP") Task Force concerning the multidisciplinary practice issues. For more information, please refer to the Report dated September 13, 2000 presented to the Board of Governors including particularly the three page report and Exhibit A which is the specific recommendation.
The MDP Task Force Recommendation is summarized as follows:
- The Task Force does not believe lawyers should practice law in fully integrated multidisciplinary practices because the core values of the legal profession cannot be adequately protected. Such values are independence, avoidance of conflicts of interest, confidentiality, competence, public service and officer of the court.
- The Task Force believes lawyers should be allowed to enter into strategic alliances with other professionals to provide professional services so long as there are adequate safeguards to preserve the core values of the legal profession.
- The Task Force believes the NCBA needs to be vigilant in its consideration of unauthorized practice of law and unethical practice by licensed attorneys.
The preceding recommendation is similar to the recommendation adopted by the House of Delegates of the American Bar Association in July 2000. While the ABA recommended that another committee study strategic alliances by lawyers, the NCBA MDP Task Force had already begun such a review and has some preliminary recommendations for changes to the Rules of Professional Conduct to preserve the core values in permissible strategic alliances. Unlike the ABA House of Delegates, the Task Force did believe that Rule 5.4 might be amended to permit limited fee splitting with other professionals so long as the involved law firm was independent, controlled by lawyers and subject to the lawyer ethics rules.
The following are hypothetical examples ("Example") of MDPs and their status ("Status") under the MDP Task Force Recommendation.
- Example: A large CPA firm hires a lawyer to draft legal documents to effectuate the merger and acquisition arrangements negotiated by the CPA.
Status: The Task Force does not believe the core values of the legal profession can be adequately preserved in such a fully integrated multidisciplinary practice and therefore recommends that the Rules of Professional Conduct (including Rule 5.4) not be revised to permit such practice of law.
- Example: A traditional law firm creates a separate legal subsidiary to provide word processing services for other law firms and businesses.
Status: RPC 238 already permits certain ancillary services by attorneys. The Task Force believes the core values of the legal profession can be maintained where a law firm has such an ancillary service. The Task Force does suggest disclosure to the public of such arrangements which disclosure might be embodied in a new Rule of Professional Conduct such as proposed Rule 5.7.
- Example: A law firm enters into a contract with a CPA firm to refer business to each other on a nonexclusive basis including referencing each other in their marketing brochures.
Status: Such contractual arrangements are developing. The Task Force believes contractual relations involving some professionals may be possible but there need to be significant safeguards to avoid such contracts turning into fully integrated MDPs. A preliminary draft of a Rule 5.8 is included in the Task Force's recommendation. Many lawyers regularly refer clients to other professionals with the knowledge that they will receive referrals. More formal variations on such referral patterns should be allowed only with safeguards for the core values of the legal profession.
- Example: A three-member law firm practicing elder law admits as a partner in the law firm a Medicare/Medicaid expert but the lawyers control the law firm in all ways and all partners must comply with legal ethics rules.
Status: The Task Force believes in narrow circumstances that such limit fee splitting might create partnerships beneficial to the public. The Task Force, while it recognized the possibility of such partnerships has not drafted a rule to allow them as no such generally accepted rule has emerged nationally. Until, and unless, a narrow Revised Rule 5.4 is crafted such MDPs should not be allowed.
- Example: A realtor and a lawyer split fees on selling and then closing real estate. They also provide credit life insurance for a commission to home buyers.
Status: The Task Force does not believe such arrangements preserve the core values of the legal profession and therefore should not be allowed.
The Task Force recommends clarifying some of the Rules of Professional Conduct and other laws and rules to permit additional practice forms for the provision of legal services to benefit both the public and the legal profession so long as any changes preserve the core values of the legal profession. The Task Force recommends guidance, clarification and enforcement of the laws surrounding the practice of law and the professional conduct of all lawyers. The Recommendation of the Task Force is attached at Exhibit A. Such Recommendation received the approval of the Task Force with one dissenting vote. That dissenting vote wanted Section 3.d. on Page 2 to be eliminated and with such change would vote for approval of the Recommendation.
Task Force Composition and Task
In Fall 1999, NCBA President John Jernigan appointed a Task Force to study and make recommendations concerning the issues referred to as Multidisciplinary Practice ("MDP"). Members of the Task Force represent a wide range of experiences and include lawyers, bankers, judicial representatives, CPA representatives and others. (See Exhibit B for 1999-2000 Task Force Members.)
The Task Force determined an Action Plan which includes this Report to the Board of Governors, education of members of the North Carolina Bar on MDP issues and external communications on the issue. (See Exhibit C for Action Plan.)
The Task Force determined three critical areas for study: Core Values, Demand and Unauthorized Practice. These issues were reviewed by separate subcommittees. Individual reports of the subcommittees are included below.
The Task Force met 8 times and had various speakers review the issues. (See Exhibit D for Minutes of Task Force.)
The Chair of the Task Force provided 3 reports prior to this final report to the NCBA Board of Governors. (See Exhibit E for such reports.)
Market Demand for MDPs
The Demand Subcommittee did two surveys to determine the demand for MDPs: first of the NCBA Corporate Counsel Section and second of North Carolina Citizens for Business and Industry members. The surveys indicate some demand for MDPs and limited opposition to them. (See Exhibit F for the two survey results.)
The Task Force recognizes that the demand reviews are not conclusive but also recognizes that extensive studies have been done by the ABA and others such that the work of the Demand Subcommittee is sufficient. (See ABA report excerpts at Exhibit G and New York State Bar Association Report Excerpts at Exhibit H.) The Task Force results indicate North Carolina has no unusual positions on the demand issue.
In summary, there is some demand for MDPs, but not overwhelming demand, in North Carolina.
The Core Values Subcommittee determined six core values of the legal profession: independence, avoidance of conflicts of interest, confidentiality, competence, public service and officer of the court.
The Subcommittee also reviewed the forms of legal practice which range from the status quo through outside equity ownership in an MDP.
The Subcommittee had Task Force members consider preservation of the Core Values in each of the practice models. (See Exhibit I for summary of Task Force review.)
The Task Force members generally believe the Core Values can be preserved in a variety of different business arrangements, though not in a fully integrated MDP. While North Carolina Rules already permit some practice forms, market trends will put additional emphasis on those practice forms so that the forms should be clearly defined with proper limitations to protect the public.
Therefore, the Task Force believes the Rules of Professional Conduct should permit various business practice forms (but not fully integrated MDPs) so long as there are adequate safeguards of the Core Values.
Unauthorized Practice of Law
The Subcommittee reviewed the North Carolina UPL statutes. (See Exhibit J)
The Task Force determined that the definition of the practice of law is not clear. Still, as a practical matter, pursuing legislative solutions to this issue may be unworkable.
The Task Force urges the North Carolina State Bar to provide further guidance on unauthorized practice of law and proper conduct by licensed lawyers under the Rules of Professional Conduct and actively to publish interpretive rulings and decisions to the general public.
The Task Force urges the State Bar to continue enforcement against the unauthorized practice of law in clear cases of violation.
The Task Force urges continued enforcement against violations of the Rules of Professional Conduct by licensed attorneys.
The recommendation of the Task Force, if adopted, will require changes to the Rules of Professional Conduct. Those specific changes must be prepared in a complete form once the concepts are determined. Those changes may involve changes to Rule 5.4 of the Rules of Professional Conduct to permit additional business practice models. Further the changes may involve adoption of a Rule 5.7 on Ancillary Services, perhaps along the lines of the Pennsylvania Rule. (See Exhibit K for Model Rule 5.7 and Pennsylvania Rule 5.7.) See also RPC 238 which is North Carolina ancillary services ruling at Exhibit L. Further the changes may involve adopting a Rule 5.8 on contractual arrangements involving professional services. The Recommendation of the Task Force includes some suggested changes to the Rules of Professional Conduct.
The Task Force recognizes the need to continue educating the legal profession on MDP issues. Pursuant to that need, the Task Force created a Speakers Bureau to educate members of the profession and public on the MDP issues. (See Exhibit M.) Further, the Task Force is planning a seminar for Spring 2001 to include the MDP issues.
The Task Force recognizes the need to permit broad based discussion of the MDP issue, including letting the many constituents voice their opinions. (Exhibit N is a summary of a survey of NCBA Estates Section.) Further, the Task Force unanimously recommends broad dissemination of this Report throughout the North Carolina Bar Association, including to each of the Sections.
The Task Force urges continued study of the MDP issues, including monitoring national and state activities on these issues. (Exhibit O is State summary and Exhibit P is the ABA’s current position.)
Remaining Work for North Carolina Bar Association
The Task Force suggests consideration by the NCBA of the multijurisdictional practice issue (MJP) with potentially needed revisions to the Rules of Professional Conduct.
The Task Force recommends continued study and refinement of the definition of the practice of law, including drafting an appropriate Model Act on the practice of law for consideration in North Carolina working in close conjunction with the North Carolina State Bar.
The Task Force recognizes the need for external communications on MDP issues but recognizes that work is outside the scope of the Task Force. The Task Force urges the NCBA to conduct further study and action in communicating to the public the service of the legal professional including the benefit to the public of preserving the core values of the legal profession.
Finally, the Task Force recommends continued vigilance by the North Carolina Bar Association on issues impacting practice by attorneys.
Jean Gordon Carter, Chair
Recommendation to Board of Governors
(September 13, 2000)
WHEREAS, the North Carolina Bar Association appointed a Task Force to study the issue referred to as "Multidisciplinary Practice" or "MDP" and that Task Force has concluded its review and is presenting its report to the North Carolina Bar Association Board of Governors;
WHEREAS, the Task Force determined that the core values of the legal profession benefit the public and should be preserved. Those core values are: (1) independence of professional judgment; (2) protection of confidential client information including preserving the attorney-client privilege; (3) loyalty to the client, including, but not limited to, the avoidance of conflicts of interest; (4) competence in the provision of legal services; (5) the lawyer’s duty to uphold high standards of professional conduct, including, but not limited to, service as an officer of the legal system; and (6) the lawyer’s role as a public citizen having special responsibility for the quality of justice;
WHEREAS, the Task Force determined that the market for the provision of legal services is changing, and that there is some demand by the public for lawyers to deliver legal services in additional business forms;
WHEREAS, the Task Force determined that there is confusion regarding the "practice of law" and limited enforcement against unauthorized practice of law and of the Rules of Professional Conduct.
RESOLVED, that the North Carolina Bar Association supports the following principles, concerning business forms for the practice of law including, if appropriate, amending the North Carolina Rules of Professional Conduct and other laws and rules governing lawyers consistent with the following principles:
- Any changes to the laws governing lawyers and the Rules of Professional Conduct must be implemented in a manner that protects the public and preserves the core values of the legal profession.
- No change should be made to the law that now prohibits lawyers and law firms directly or indirectly from transferring ownership or control to nonlawyers over entities practicing law except as provided below. Any further demand that exists for greater integration of legal services with those of other professions may be satisfied by permitting lawyers to enter into strategic alliances and other contractual relationships with nonlegal professional service providers, as well as by permitting lawyers to own and operate nonlegal businesses. Passive investment in a firm providing legal services should not be permitted.
- Lawyers should be allowed to deliver legal services in conjunction with nonlawyer professionals as long as the arrangement is one in which lawyers (who practice law) have the control and authority necessary to assure lawyer independence in the rendering of legal services and to assure compliance with ethical standards. The following non-traditional arrangements are examples of ones in which lawyers have sufficient control and authority:
a. Cooperative Model. Lawyers may employ nonlawyer professionals on their staffs to assist them in advising clients or work cooperatively with nonlawyer professionals whom they directly retain or who are retained by a client. To the extent that the nonlawyer professionals are employed, retained, or associated with a lawyer, the partners in a law firm and any lawyer having direct supervisory authority over a nonlawyer professional must take steps "to ensure that the person’s conduct is compatible with the professional obligations of the lawyer," especially with respect to the obligation not to disclose information relating to the representation.
b. Ancillary Business Model. Lawyers and law firms should be permitted to provide legal and nonlegal services to clients or other persons, directly or through affiliated entities, provided that the nonlawyer or nonlegal entity involved in the provision of such services does not direct or regulate the professional judgment of the lawyer or law firm in rendering legal services to any person. Specifically, a law firm may operate an ancillary business that provides professional services to clients. The law firm must take great care to assure that its clients understand that the ancillary business is affiliated with, but distinct from, the law firm and does not offer legal services. Lawyers and nonlawyer professionals may be partners in the ancillary business, sharing fees and jointly making management decisions. The lawyer-partners will provide consulting services not legal services to the clients of the ancillary business. No nonlawyer or nonlegal entity involved in the provision of such services should own or control the practice of law by a lawyer or law firm or otherwise be permitted to direct or regulate the professional judgment of the lawyer or law firm in rendering legal services to any person.
c. Contract Model. Lawyers and law firms should be permitted to enter into interprofessional contractual arrangements with nonlegal professionals and nonlegal professional services firms for the purpose of offering legal and other professional services to the public, on a systematic and continuing basis, provided no nonlawyer has managerial or supervisory right, power or position in connection with, the practice of law by any lawyer or law firm. Specifically, a professional services firm may contract with an independent law firm. A typical contract might include terms such as (1) the law firm agreeing to identify its affiliation with the professional services firm on its letterhead and business cards, and in its advertising; (2) the law firm and the professional services firm agreeing to refer clients to each other on a nonexclusive basis; and (3) the law firm agreeing to purchase goods and services from the professional services firm such as staff management, communications technology, and rent for the leasing of office space and equipment. The law firm will remain an independent entity controlled and managed by lawyers and accept clients who have no connection with the professional services firm. These arrangements must be non-exclusive and there must be full disclosure.
d. Modified Command and Control Model. Lawyers should be permitted to share fees and join with nonlawyer professionals in an entity that delivers both legal and nonlegal professional services provided that the lawyers (who practice law) have the control and authority over the entity necessary to assure lawyer independence in the rendering of legal services, which control must represent at least a 51% controlling interest, in law and in fact, in the entity. "Nonlawyer professionals" means members of recognized professions or other disciplines that are governed by ethical standards. Specifically, lawyers (who practice law) may form a partnership with a nonlawyer and share legal fees subject to certain clearly defined restrictions. The nonlawyer professionals must agree "to abide by the rules of professional conduct" and the lawyers with a financial interest or managerial authority must "undertake to be responsible for the nonlawyer participants to the same extent as if nonlawyer participants were lawyers under Rule 5.1." A significant purpose of the entity must be the provision of legal services. These conditions must be set forth in writing. This model will require changes to the Rules of Professional Conduct including Rule 5.4. Such changes must provide specific restrictions including direct supervision by the State Bar of such fee splitting arrangements.
- The North Carolina Rules of Professional Conduct should be revised to assure that there are safeguards in the Rules relating to strategic alliances and other contractual relationships with nonlegal professional service providers. Such changes should include provisions similar to the following:
Rule 5.7. Ancillary Services
(a) A lawyer who provides nonlegal services to a recipient that are not distinct from legal services provided to that recipient is subject to the Rules of Professional Conduct with respect to the provision of both legal and nonlegal services.
(b) A lawyer who provides nonlegal services to a recipient that are distinct from any legal services provided to the recipient is subject to the Rules of Professional Conduct with respect to the nonlegal services if the lawyer knows or reasonably should know that the recipient might believe that the recipient is receiving the protection of a client-lawyer relationship.
(c) A lawyer who is an owner, controlling party, employee, agent, or is otherwise affiliated with an entity providing nonlegal services to a recipient is subject to the Rules of Professional Conduct with respect to the nonlegal services if the lawyer knows or reasonably should know that the recipient might believe that the recipient is receiving the protection of a client-lawyer relationship.
(d) Paragraph (b) or (c) does not apply if the lawyer makes reasonable efforts to avoid any misunderstanding by the recipient receiving nonlegal services. Those efforts must include advising the recipient that the services are not legal services and that the protection of a client-lawyer relationship does not exist with respect to the provision of nonlegal services to the recipient.
Rule 5.8. Contractual Relationships Between Lawyers and Nonlegal Professionals
(a) A lawyer or law firm may enter into and maintain a contractual relationship with a nonlegal professional or nonlegal professional service firm for the purpose of offering to the public, on a systematic and continuing basis, legal services performed by the lawyer or law firm, as well as other professional services, provided that:
(1) The profession of the nonlegal professional or nonlegal professional service firm is a profession listed by the North Carolina Supreme Court pursuant to Rule 5.8(b); and
(2) The lawyer or law firm neither grants to the nonlegal professional or nonlegal professional service firm, nor permits such person or firm to obtain, hold or exercise, directly or indirectly, any ownership or investment interest in, or managerial or supervisory right, power or position in connection with, the practice of law by the lawyer or law firm except as otherwise provided in these Rules.
(b) For purposes of Rule 5.8(a):
(1) Each profession on the list maintained by the North Carolina Supreme Court shall have been designated by it, or shall have been approved by it upon the application of an individual or firm in this State, upon a determination that the profession is composed of individuals who, with respect to their profession;
(i) have been awarded a Bachelor’s Degree or its equivalent from an accredited college or university;
(ii) are licensed by this State; and
(iii) are required under penalty of suspension or revocation of license to adhere to a code of ethical conduct that is reasonably comparable to that of the legal profession.
(2) The term "ownership or investment interest" shall mean any such interest in any form of debt or equity, and shall include any interest commonly considered to be an interest accruing to or enjoyed by an owner or investor.
(c) Rule 5.8(a) shall not apply to relationships consisting solely of non-exclusive reciprocal referral agreements or understandings between a lawyer or law firm and a nonlegal professional or nonlegal professional service firm.
(d) Notwithstanding Rule 5.4(a), a lawyer or law firm may allocate costs and expenses with a nonlegal professional or nonlegal professional service firm pursuant to a contractual relationship permitted by Rule 5.8(a).
- The Rules of Professional Conduct should be further amended to permit the practice models described above which will include changes to Rule 5.4 and other changes to provide proper safeguards for the public in the provision of legal services.
- The North Carolina Bar Association should continue vigorous study of developing business practice forms nationally and internationally to assure that North Carolina lawyers can best provide legal services to meet the needs of the public.
RESOLVED, FURTHER that the North Carolina Bar Association supports the following principles concerning the practice of law by lawyers and others:
- The law governing lawyers was developed to protect the public interest and to preserve the core values of the legal profession, which values are essential to the proper functioning of the American justice system.
- All lawyers are members of one profession subject to the laws governing lawyers.
- The prohibition on nonlawyers delivering legal services and the obligations of all lawyers to observe the Rules of Professional Conduct should not be altered.
- North Carolina should retain and enforce laws that generally bar the practice of law by entities other than law firms and individuals other than lawyers.
- Regulatory authorities should enforce existing laws and rules and adopt such additional enforcement procedures as are needed to implement these principles concerning the proper practice of law to protect the public interest.
- Regulatory authorities charged with attorney discipline should reaffirm their commitment to enforcing the laws and rules governing lawyers that protect the public interest.
- Regulatory authorities should provide further guidance on the parameters of the unauthorized practice of law and proper interpretation of the Rules of Professional Conduct.
- To facilitate enforcement of statutes prohibiting the unauthorized practice of law, North Carolina should reevaluate and refine to the extent practical its definition of the "practice of law." For example, the North Carolina Bar Association should develop a Model Act on the practice of law in close conjunction with the North Carolina State Bar.
- The North Carolina Bar Association should continue to monitor developments concerning the unauthorized practice of law and its enforcement and enforcement of the Rules of Professional Conduct including educating its members on these developments.