Goal XI of the American Bar Association's mission statement charges the Association and its members:
To preserve the independence of the legal profession and the judiciary as fundamental to a free society. (Emphasis added.)
Why is it that a free society requires the independence of lawyers and judges? No democracy can survive unless someone stands between the individual and the abuse of authority. Within the separation of powers doctrine, that is what lawyers and judges do in this country. From Andrew Hamilton's representation of Peter Zenger, to Brown v Board of Education, to Watergate, lawyers and judges have stepped forward in times of crisis to preserve individual rights, equal protection, and the rule of law.
To effectively carry out this fiduciary responsibility, lawyers must be loyal and zealous as advocates for a client's cause. Loyalty demands independence from any competing influence, whether economic, political, or otherwise. This is the very reason for Rules 5.4 (prohibiting fee sharing) and 1.8 (prohibiting interference with lawyer's independent professional judgment by third party paying the fees) of the Model Rules of Professional Conduct adopted by the American Bar Association, recognizing that one who holds the purse string tends to dictate loyalties. Any lawyer who has handled insurance defense cases in recent years understands the reality of the purse strings as they impact the lawyer's "independent professional judgment."
The independence of the lawyer is just as critical as the independence of the judiciary. Under our system of government, lawyers are unique. We are special. We are in the Constitution. We are officers of the court. We are fiduciaries whose charge is to preserve the rule of law. We have kept the playing fields level and made sure that people were honest in the market place for over 200 years. We, lawyers and judges, have provided the glue that has held the fabric of this country together, and have contributed in great measure to the success of an economic system and a democratic form of government that is the envy of the world. We have literally been and are the guardians of this Republic.
So, we and the American public should become very nervous when anyone suggests that we blend this noble profession into a business unit as a profit center in a company controlled by nonlawyers, or shareholders in a publicly owned company, who hold the purse strings.
MDPs Impair Lawyers' Independence
How would the independence of the profession be compromised by MDPs in which lawyers work for a firm controlled by nonlawyers? Consider the concerns of Sidney M. Cone III, Professor of Law at the New York Law School, who suggested:
Nonlawyers ultimately responsible for business plans and mindful of promoting nonlegal profit centers might not find such goals consistent with legal rules governing conflicts of interests.
Nonlawyers responsible for the allocations of firm capital would view the practice of law less in professional terms than in terms of being one of several MDP profit centers, and investment in that profit center might be directed for purposes other than maximizing legal professionalism and fostering core values.
Competing budget requests under the control of nonlawyers would be influenced more by net income considerations than by involvement in public interest cases and pro bono work.
Ultimate economic power in the hands of the nonlawyers would form a constant reminder to the lawyers in that MDP of the economic goals of those in control. The threat is that compensation would be paid based on goal attainment, not on considerations of professional ethics and the exercise of independent professional judgment in the best interests of the client and the legal system.
The Arguments for MDPs
There are those who argue that there is a public need for "one-stop shopping" for auditing, financial, and legal services, that the public is demanding it, and that it is going on all around us right now. The argument is that, because it is a 'fact of life,' we should 'control' this improper and possibly illegal conduct with a new set of rules recognizing and attempting to 'regulate' the illegalities, so as to make them 'legal.' The belief is that lawyers can work within nonlawyer-controlled MDP firms, insulated from the concerns of divided loyalties and preserving the traditional confidential client relationships, by creating effective "firewalls" within the firm and requiring the firm and the lawyer to certify compliance periodically.
First, no one has made the case that the public is demanding "one-stop shopping." The Big Five might be demanding it, but there is no survey or poll known to this writer supporting the argument that Fortune 500 companies are marching in the streets for MDPs. In fact, a lawyer from the general counsel's office of Monsanto stated in the Atlanta ABA debates that her corporation rejected the concept of MDPs in favor of private attorneys who are absolutely loyal and without potential conflicts of interest. It would seem that every general counsel for every corporation would understand the value of the advice and support of outside, independent, loyal legal counsel (and should also understand that if the corporation used an MDP, it wouldn't need a general counsel).
Can we realistically expect those lawyers and nonlawyer firms now engaged in improper conduct, violating the rules of professional conduct and statutes prohibiting the unauthorized practice of law, to comply with a new set of rules that attempts to accommodate the misconduct? I think not. Those who believe that these same offenders would seriously invoke and honor "firewalls" to preserve confidentiality are not only misguided, but fail to recognize the requirement that all lawyers avoid even the appearance of impropriety.
Others suggest that unless we accommodate MDPs by rule amendments, the big players in finance and audit will use the power of the PACs to lobby Congress and/or state legislatures to "regulate" the practice of law to permit MDPs. However, any legislative attempt to regulate officers of the court would raise fundamental constitutional questions that strike at the heart of judicial independence. This constitutional issue would ultimately have to be resolved in the courts. It is difficult to believe that the courts would abdicate the regulation of its officers to the legislative branch.
Audit and Legal Mergers
The problems created by MDPs are particularly troublesome when considered in light of suggested mergers of accounting firms and lawyers. There is a fundamental and inherent conflict in such a merger that cannot be resolved by creative rule making. Specifically, the auditor's duty is to the public to disclose everything about the audited client, good and bad, even criminal conduct, so that lenders and investors will be able to make informed decisions regarding investments in those companies. This is in the public interest. The very foundation of our capital economy depends on the trust and confidence that lenders and investors place in the audit profession. The auditor must be independent and without financial interest in the audited client to preserve loyalty to the public and to maintain public confidence.
On the other hand, the attorney's duty is not to the public, but to the client. The lawyer must keep the client's affairs confidential, even if the public interest would require otherwise. This inherent conflict, between the duties of the auditor and the lawyer, is very apparent to the Securities and Exchange Commission, whose Director of Enforcement, Richard Walker, has said:
What do we say when lawyers in one part of a firm are ethically bound to advocate a client's interest and hold information in strict confidence; when accountants in another part of the firm are ethically bound to exercise skepticism in dealing with the client's management and to show allegiance to the public by disclosing damaging confidential information about the client; when consultants in another part of the firm are giving management advice, the results of which may be reviewed in the audit; and when others in the firm are trying to sell expensive new goods and services to the client?'1.
SEC Commissioner Norman S. Johnson, in an October 1, 1999, speech to the Corporate Bar Association expressed similar concerns. Specifically,
I find a more recent development especially troubling-the efforts by accounting firms to expand into the legal services area....An accountant-attorney relationship with a client simply cannot be reconciled with the appearance of independence....This country can be proud to have a financial reporting system-and a legal system-that are each the envy of the rest of the world. In my opinion, MDPs pose enough of a threat to both that we should all take a careful look at the issues involved before proceeding any further . . . .
Because of these concerns and others, the ABA, at its Annual Meeting in Atlanta, set a new standard for any MDP related changes to the ABA model rules of professional conduct by the adoption of the following resolution:
RESOLVED, That the American Bar Association make no change, addition or amendment to the Model Rules of Professional Conduct which permits a lawyer to offer legal services through a multidisciplinary practice unless and until additional study demonstrates that such changes will further the public interest without sacrificing or compromising lawyer independence and the legal profession's tradition of loyalty to clients.
This resolution recognizes that it is not the interest of the lawyer, the Big Five, or the market place that is central to our concerns; rather, it is the public interest that should dictate our response to this issue. The SEC has cautioned us that alliances between accountants and lawyers are not in the public interest. The unique and essential role of our profession, as guardians of this republic, requires that we maintain our independence in the public interest.
Some of the accounting firms are not waiting to see if they can sell MDPs to the legal profession. A new law firm recently formed in Washington, D.C., named McKee Nelson Ernst & Young, while reportedly organized and financed by Ernst & Young, is nevertheless represented to be 'separate' from the accounting firm. Messrs. McKee and Nelson are former partners in the King Spalding law firm.
What can we do to meet the challenges of MDPs? I offer four suggestions, not as the end of the analysis, but as a beginning:
Our profession should reaffirm its rules dealing with the core values of the profession, sending a clear message to offending attorneys that we expect every lawyer to respect our commitment to an independent legal profession.
State bars and state courts should be encouraged to vigorously enforce the rules of professional conduct and the unauthorized practice of law statutes with the active support of the ABA, The American Trial Lawyers Association, The Defense Research Institute, all of the organized bar, and state coalitions.
As a line in the sand, in response to any proposed rule changes, lawyers should retain control of any multi-service firm providing legal services to ensure the independence of the profession.
Continue to educate and remind the public of the importance to this country of an independent legal profession. All studies have shown that the more the public understands our legal system, the more it is respected.
It is disturbing that, in the interest of making more money, some would compromise the important constitutional role lawyers and judges have played and must play to make it all work in this country. Just as in Shakespeare's Henry VI, when the revolutionaries understood that the only way to overthrow the crown was to first "kill all the lawyer," so today, the surest way to put our democracy at risk is to compromise the independence and integrity of this great profession.
1.Commercial Lawyer, September 1999, American Lawyers.