May/June 2000

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Multidisciplinary Practice: Report and Recommendations By MSBA Multidisciplinary Practice Task Force Characterized by some as "the hottest issue to confront the legal profession in many years," multidisciplinary practice will be the lead item for discussion and action at this year’s MSBA Convention in Duluth, June 22-23.

What do MSBA members have to say about MDPs? View results of our Bench & Bar poll.

MSBA President Wood Foster formed the Multidisciplinary Practice Task Force (the "Task Force") in 1999 to conduct a broad study of multidisciplinary practice ("MDP") and make recommendations regarding the conditions under which lawyers should be permitted to engage in MDP arrangements. The Task Force is chaired by U.S. Magistrate Judge Arthur J. Boylan and Rebecca Egge Moos with Bassford Lockhart Truesdell & Briggs (click here for complete roster). The first section of this report provides background about MDP, the ABA’s efforts to address it, and the work of the Minnesota MDP Task Force. The second section of this report explains the issues considered and positions taken by the MDP Task Force. The third section of this report sets forth the specific recommendations of the MDP Task Force. I. Background Multidisciplinary Practice and Its Limitations The term "multidisciplinary practice" refers to arrangements whereby lawyers practicing law work with nonlawyers to help clients solve multifaceted problems. The Minnesota Rules of Professional Conduct (the "MPRC") currently permit many such arrangements. For instance, lawyers may make cooperative referral arrangements with other professionals so long as they do not receive or pay referral fees. Lawyers may themselves or through employees of the firm provide multidisciplinary services, such as accounting, financial planning and legal services, to clients. A few Minnesota law firms1 own consulting firms providing nonlaw services, and others are reported to be exploring this option. Lawyers retain ownership and control in all of the above arrangements, but there also appear to be permitted MDP arrangements in which nonlawyers have ownership interests and sometimes even managerial control. For instance, many lawyers work as in-house counsel providing legal services to corporate employers. In addition, numerous lawyers work for insurance companies and captive insurance defense firms providing legal representation to insureds.2 Although not "practicing law," some lawyers have formed mediation firms co-owned with other professionals, such as social workers. Nonetheless, the MPRC place significant limits on multidisciplinary practice involving ownership or control by nonlawyers. Specifically, Rule 5.4 prohibits: (1) sharing legal fees with a nonlawyer, with some exceptions (most notably for profit-sharing by nonlawyer employees as part of a compensation or retirement plan); (2) forming a partnership with a nonlawyer if any of the activities of the partnership consist of the practice of law; (3) permitting a person who recommends, employs, or pays the lawyer to render legal services for another to direct or regulate the lawyer's professional judgment in rendering such legal services; and (4) practicing with a for-profit law firm in which a nonlawyer owns any interest or possesses governance authority not permitted by the Minnesota Professional Firms Act or has the right to direct or control the professional judgment of a lawyer. Other rules limit collaboration between lawyers and nonlawyers. For instance, Rule 5.5 prohibits a lawyer from assisting a nonlawyer in the performance of activity that constitutes the unauthorized practice of law. Rule 7.2 forbids payment of referral fees to nonlawyers. Together, these and other rules clearly prohibit any nonlawyer ownership of a firm that practices law, limit other collaborative arrangements that might be construed to involve fee sharing or referral fees, and raise substantial doubt about whether lawyers may ethically provide legal services, whether as owner or employee, for clients of a multidisciplinary firm that is not owned and controlled by lawyers practicing law. Against this backdrop, client demand for a wider range of multidisciplinary law practice is growing. A number of trends seem to explain the push for expanded MDP, including: globalization of trade, which gives clients access to legal service providers around the world who are not subject to the constraints on MDP found in the U.S.; consolidation of industries and increasing regulatory complexity, which increase pressure for efficient and multifaceted problem-solving; and growing technological capacity and sophistication, which make it possible for large enterprises to manage the vast stores of information, as well as the conflicts, inherent in multidisciplinary firms. In addition, ABA Commission testimony and information provided to the Task Force reveals that those concerned about access to legal services see an opportunity to make access more affordable and user-friendly through "one-stop shopping." Given these trends, it is not surprising that multidisciplinary consulting firms, including the "Big Five" accounting firms, are hiring lawyers at a great rate to provide legal services to their customers and clients. Nonlaw organizations that provide such legal consulting services include large and medium-sized accounting firms, actuarial firms, human resources consulting firms, bank trust departments, brokerage firms, financial services firms, and insurance companies. These firms take the position that their lawyers are not practicing law when providing "consulting" services to a third party. Most draw the line at representation in court and drafting final documents.3

"client demand for a wider range of multidisciplinary law practice is growing"

ABA Commission Recommendations Recognizing the growing client demand for nontraditional, multidisciplinary delivery of legal services, ABA President Philip S. Anderson in August, 1998, appointed the ABA Commission on Multidisciplinary Practice (the "ABA Commission") to determine what changes, if any, should be made to the ABA Model Rules of Professional Conduct with respect to the delivery of legal services by professional services firms. In June of 1999, the ABA Commission issued a controversial report recommending that fee sharing with nonlawyers, as well as ownership and control by nonlawyers, be permitted in MDPs, subject to safeguards the Commission believed would protect clients and the core values of the profession. Key safeguards included prohibiting nonlawyers from practicing law, subjecting the MDP to firm-wide imputation of conflicts for purposes of applying the lawyers’ Rules of Professional Conduct, and requiring that MDPs controlled by nonlawyers certify compliance with lawyers’ ethical rules to, and submit to audit by, state supreme courts. Concerned about the threat to lawyers’ core ethical values and independence, the ABA House of Delegates in August, 1999, effectively tabled the Commission's recommendations and sent the Commission back to the drawing board. The House of Delegates adopted 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. After additional hearings and study, the ABA Commission recently indicated it will stand its ground on MDP, with some modifications designed to address concerns raised by commentators. It has indicated that it will recommend that lawyers be allowed to share ownership only with "professionals" and that lawyers be required to ensure control and authority necessary to ensure compliance with lawyers’ ethical obligations. It is reported to have dropped the recommendation for a state supreme court reporting and audit mechanism, which many charged was unworkable. Additional information about the work of the ABA Commission, including considerable testimony and commentary on all aspects of MDP may be found at the Commission’s Web page, located at http://www.abanet.org/cpr/multicom.html.

MSBA MDP Task Force Responding in part to the ABA Commission recommendations, but broadly charged to study all aspects of MDP, the MSBA’s MDP Task Force began its work in September of 1999. The Task Force conducted much of its preliminary research through four subcommittees: (1) Clients’ Interests, chaired by Lowell Noteboom, to study clients’ current and future needs and how the profession might address them; (2) Practice of Law, chaired by Bill Wernz, to determine which legal services are unique to lawyers and how "practice of law" might be defined; (3) Current Practices, chaired by Denise Roy, to examine current practices in MDPs, including those not permitted to engage in law practice, both in Minnesota and elsewhere; and (4) Legislative/Disciplinary, chaired by Leo Brisbois, to study the legislative and judicial system issues that are raised by expanding permitted MDPs. Through these subcommittees and otherwise, the Task Force studied current and potential multidisciplinary practice by: reading available materials, including the considerable testimony and written comments gathered by the ABA Commission on Multidisciplinary Practice, as well as news reports and scholarly articles4; meeting with Minneapolis Chamber of Commerce representatives to discuss clients’ interests, and gathering other written input about client perspectives; attending meetings and conferences discussing MDP, including ABA and Association of American Law Schools meetings, a University of Minnesota Law Review symposium, William Mitchell College of Law and Lawyers’ Professional Responsibility Board programs, and an HCBA/RCBA conference; meeting with MSBA section representatives, including members of the following sections: Business Law, Conflict Management and Dispute Resolution, Family Law, International Law, Probate and Trust Law, and Tax; meeting with individuals who have relevant expertise, including Ward Bower, an Altman Weil legal consulting firm partner and expert on MDP; Vanderbilt University law professor Harold Levinson, an attorney-CPA who is an expert on CPA business, ethics and culture; William Mitchell College of Law professor Daniel Kleinberger, one of the drafters of the Minnesota Professional Firms Act; Keith Halleland of Halleland Lewis Nilan Sipkins & Johnson, P.A., which owns Halleland Consulting Services; John James, who has practiced with the Gray, Plant, Mooty, Mooty & Bennett and Fredrikson & Byron law firms, served as Minnesota Department of Revenue commissioner and most recently was a partner at Deloitte & Touche; and Barbara Colombo, director of the Center for Health Law Policy at William Mitchell, for insights on the managed care analogy; meeting informally with attorneys working in accounting firms, insurance defense firms, financial services firms, managed health care corporations, and law firms to gather information about ethical challenges they face. After studying the issues and engaging in considerable discussion, the Task Force approved the recommendations in Part III of this report for the reasons set forth in Part II. For additional information not included in this report, see the MDP Task Force Subcommittee Reports.5

"client and public interests must be the paramount consideration in determining whether and how MDP options should be expanded."

"despite our initial concerns, we agree on two things: MDP serves client interests, and ethical legal practice can coexist with some level of fee sharing and co-ownership with nonlawyers."

II. Explanation of Recommendations Many Task Force members came to this task very skeptical about the need for expanded multidisciplinary practice by lawyers and concerned that expanding MDP would endanger the independence and core ethical values we believe essential to our role as professionals with obligations to the justice system and the public. We spent many hours following developments in the ever-changing market for legal services, studying the complex ethical and enforcement issues surrounding MDP, and listening to the concerns of clients and lawyers. In the end, despite our initial concerns, we agree on two things: MDP serves client interests, and ethical legal practice can coexist with some level of fee sharing and co-ownership with nonlawyers. In this section, we will share what we learned about client interest in MDP, detail the limitations on MDP that Task Force members believe necessary to protecting core values, and acknowledge the issues not resolved by our recommendations. Client Interests The Task Force believes that client and public interests must be the paramount consideration in determining whether and how MDP options should be expanded. After studying the available evidence and attempting to assess client interests in Minnesota, the Task Force concludes that there is ample evidence that some clients prefer to receive legal advice and counsel from lawyers practicing in a multidisciplinary context. Moreover, there is ample evidence that the interest is not limited to wealthy, sophisticated clients of Big Five accounting firms. More difficult to determine is the extent of client interest in obtaining lawyers’ services through a multidisciplinary firm, but the Task Force does not believe it is necessary to make this determination in light of the evidence that some clients see value in MDP, and that the number of such clients is growing. Evidence of client interest comes in many forms and from many quarters. Minneapolis Chamber of Commerce representatives told the Task Force that they were interested, while other client groups sent a similar message to the ABA Commission. Many clients already seek legal advice from lawyers working for a variety of consulting firms. Many lawyers in law firms are already responding to client interest by providing limited multidisciplinary services through referrals to, employment of, and contractual affiliations with nonlawyers. (About 20 percent of the Am Law 200 law firms own nonlaw affiliates.) Solo and small firm representatives testifying before the ABA Commission and providing information to the Minnesota Task Force have consistently shared the view that their clients could benefit from MDP. Consumer and public interest groups argue that MDP would be good for poor and middle-class clients, who otherwise face financial and logistical obstacles to obtaining lawyers’ services. For instance, the Task Force received a letter from Urban League President Clarence Hightower stating, We understand that making as many services as possible available "under one roof" is important to the successful resolution of the unique issues faced by those who are poor and disenfranchised ... . It’s clear that MDPs would more broadly and more effectively serve the legal needs of our constituency. Given the evidence of client interest, The Task Force believes that unnecessary barriers to multidisciplinary practice should be eliminated. Therefore, the Task Force recommends that lawyers be permitted to practice law in an entity at least partially owned by licensed professionals who are not lawyers. These nonlawyer professionals must be individuals, not firms, who are licensed and subject to promulgated codes of ethics and who are actively practicing their profession in the firm. The Task Force rejected a requirement that the firm have as its sole purpose the delivery of legal services on the ground such a limitation would be unnecessary and fundamentally inconsistent with the purpose of expanded MDP. For similar reasons, the Task Force rejected a limitation that would prohibit MDP firms from engaging in litigation-related representation. On the other hand, the Task Force recommendations specify that only licensed lawyers should be permitted to practice law to clarify that it intends no change in the prohibition on unauthorized practice of law by nonlawyers. While the Task Force believes that some expansion of permitted MDP is warranted by client interest, the Task Force also believes that there are a number of important constraints on the ethical delivery of legal services in a multidisciplinary setting. In fact, there is evidence that clients, including sophisticated clients, value the protections afforded by confidentiality, loyalty, independence, and other lawyer core values. At the same time, they seem unaware of the inherent challenges to core values presented by MDP, and their interests are not always aligned with public interests that lawyers are obligated to protect. Therefore, the Task Force is not confident that the market alone can be trusted to protect client and public interests.

Constraints Imposed by Ethical Obligations of Lawyers The preamble to the Minnesota Rules of Professional Conduct provides, "A lawyer is a representative of clients, an officer of the legal system and a public citizen having special responsibility for the quality of justice." The Task Force believes that lawyers practicing law, as professionals necessarily entrusted with a great deal of public confidence and ultimately responsible for the justice system, should be held to ethical standards of some kind and that those standards should be promulgated and enforced by the judiciary. Specifically, the Task Force believes that lawyers’ professional independence and the lawyers’ core ethical values of loyalty, confidentiality, and pro bono service serve important public interests and so should be preserved. While there is widespread agreement among Task Force members about the importance of core values, there is no consensus as to whether all lawyers providing legal services should be subject to them. A large majority of Task Force members believe that all lawyers practicing law should continue to be governed by the Rules of Professional Conduct, and that the "practice of law" for that purpose should be defined broadly. This view is reflected in the Task Force recommendations. However, a minority believes that lawyer independence, core values, and professionalism are essential only in the litigation context. They believe that in nonlitigation matters informed consumers should be free to choose representation by lawyers who are either subject to lesser ethical obligations promulgated by the judiciary or governed only by consumer protection laws promulgated by the Legislature. MDPs present special challenges for applying the Rules of Professional Conduct. Professionals with whom lawyers would be permitted to share ownership in an MDP might have very different obligations and practices about such matters as confidentiality, conflicts of interest, solicitation, and holding client funds. For instance, a certified public accountant’s duty to the public may conflict with a lawyer’s duty of loyalty. The obligation of a social worker, psychologist, or health professional to disclose child abuse under Minn. Stat. §625.556 may conflict with the lawyer’s duty of confidentiality. In addition, special care may need to be taken to prevent inadvertent waivers of attorney-client privilege. For the most part, the Task Force believes that these differences can be worked out or coexist without undermining the lawyers’ obligations or client interests. However, the Task Force recommends that conflicts of interest be imputed firm-wide, but solely for purposes of applying the lawyers’ ethical rules and not for the purpose of imposing any obligation on nonlawyers. The Task Force further believes that while some kind of disclosure would help clients understand the limits of lawyers’ ethical obligations in an MDP context, it is premature to develop such detailed requirements at this stage of the MDP discussion. The Task Force recommendations envision enforcement of the Rules of Professional Conduct by the Supreme Court against individual attorneys practicing within a permitted MDP entity and not against the entity itself or the nonlawyer professionals working within the MDP. However, the Minnesota Professional Firms Act may create limited recourse against the entity for interference with lawyers’ ethical obligations. Furthermore, the lawyers working in a permitted MDP must secure written assurances from nonlawyer owners that they will not interfere with the lawyers’ ethical obligations. The Supreme Court would have the authority only to require that the lawyer obtain the agreement and not to enforce compliance by a nonlawyer owner or the MDP itself. Constraints Imposed by Enforcement Considerations Most Task Force members believe that conditions under which lawyers practice law are critical to ensuring widespread adherence to the Rules of Professional Conduct and to engendering a spirit of professionalism. Therefore, the Task Force recommends that passive investment by nonlawyers be prohibited and that lawyers be allowed to practice in MDPs only with other professional individuals who are both licensed and subject to promulgated codes of ethics. Both of these limitations would help limit the economic pressures to act unethically. The Task Force believes that the experience other professionals have complying with their own ethical obligations will make it more likely they will support the lawyer’s obligation to act ethically. A majority of the Task Force present on the day the final vote was taken believes lawyer control over the MDP entity is the only practical means to prevent economic conflicts from overwhelming lawyers’ ethical obligations. The Task Force does not believe that it would be effective to rely on either individual honor and self-discipline or external policing and enforcement by the Supreme Court and the Lawyers’ Professional Responsibility Board. Furthermore, a majority of the Task Force remains unconvinced that there is sufficient means to ensure that lawyers retain the control and authority necessary to ensure adherence to the ethical rules in an entity owned or controlled mostly by nonlawyers. Therefore, the Task Force recommendations include a requirement that lawyers practicing law must hold a majority percentage ownership in permitted MDP entities. This requirement is bolstered by a requirement that lawyers practicing in an MDP must retain the control and authority necessary to assure lawyer independence in the rendering of legal services. These requirements are not intended to prohibit a lawyer who practices law in the entity from also providing nonlaw services. A substantial minority of the Task Force believes that majority lawyer ownership is unworkable and unnecessary and should not be required. In fact, the majority ownership requirement was rejected at one meeting of the Task Force. The issue was later reopened and the majority lawyer control requirement adopted at later meeting. Those opposed to the majority control requirement are concerned that it is a significant barrier to delivery of legal services in a truly "multidisciplinary" context. Practically, it means that the "multidisciplinary" firm will most likely be dominated by lawyers practicing law. If all professions were to insist on majority control, multidisciplinary practice at any level would be impossible. The requirement is a particular problem for small MDPs. For instance, while the Task Force recommendations permit formation of a two-person MDP, the nonlawyer owner would have to be willing to cede majority ownership to the lawyer owner. Those opposed to majority lawyer ownership believe that lawyers with a minority ownership interest could nonetheless ensure sufficient control and authority necessary to ensure adherence to lawyer ethical values. Constraints Imposed by Human Nature Lawyers and clients are accustomed to relying on the segregation of lawyers as a principal means of assuring ethical behavior. The Task Force is acutely aware of the law of unintended consequences. It is difficult to anticipate all the issues that may arise when lawyers attempt to combine their practices with other professionals subject to different ethical standards. It is therefore prudent to move incrementally toward the very different practice structure required, and ethical challenges created, by true "multidisciplinary" practice. Issues Not Addressed by Task Force Recommendations. The Task Force recommendations do not fully resolve all questions regarding provision of legal services by insurance company lawyers representing insureds or by lawyers providing legal consulting services to clients and customers of nonlawyer employers such as accounting firms, trust companies, investment firms, and banks. However, to the extent lawyer consultants are practicing law, the Task Force recommendations would allow such practice only within permitted multidisciplinary entities. The Task Force recommendations do not illuminate the situations in which contractual affiliations with nonlawyers may violate fee-sharing and other ethical obligations of lawyers. The Task Force recommendations do not include reforms to the unauthorized practice of law statute beyond that which would be needed to permit nonlawyer professionals to share ownership with lawyers in a permitted multidisciplinary entity.

"Professionals with whom lawyers would be permitted to share ownership in an MDP might have very different obligations and practices about such matters as confidentiality, conflicts of interest, solicitation, and holding client funds."

"the Task Force ... intends no change in the prohibition on unauthorized practice of law by nonlawyers."

III. Recommendation The MSBA Multidisciplinary Practice Task Force recommends that the MSBA Board of Governors adopt the following resolution: Resolved, that the Board of Governors recommends to the General Assembly that the Minnesota delegates to the ABA House of Delegates be encouraged to communicate the following position to the ABA House of Delegates and to take action consistent with such position in any ABA proceedings: 1. General Position. The Model Rules of Professional Conduct should be amended to permit lawyers to practice law in an entity at least partially owned by licensed professionals who are not lawyers, subject to the limitations set forth below. The limitations are intended to ensure that the multidisciplinary entity operates consistently with applicable Rules of Professional Conduct, as amended, and the core ethical values reflected therein, and with statutory prohibitions on unauthorized practice of law. 2. Definitions. (a) The ABA should amend the Model Rules of Professional Conduct to include a definition of "practice of law" to clarify which lawyers are subject to the Model Rules, including any limitations on multidisciplinary practice, and to clarify which services provided by a permitted MDP entity may only be provided by its lawyers. For instance, "practice of law" could be defined to mean: (1) rendering legal consultation or advice to a client; (2) appearing on behalf of a client in any hearing or proceeding or before any judicial officer, arbitrator, mediator, court, public agency, referee, magistrate, commissioner, or hearing officer unless the rules of the tribunal involved permit representation by non-lawyers; (3) appearing as a representative of a client at a deposition or other discovery matter; and (4) engaging in other activities that constitute the practice of law as provided by statute or common law. (b) "Professionals" means "individual licensed professionals who are governed by promulgated codes of ethical conduct." 3. Limitations on Permitted Multidisciplinary Practice. (a) The nonlawyer owners must be actively practicing their professions in the entity and may not be passive investors. Only lawyers may practice law within the entity. (b) A majority percentage of ownership in the entity must be held by lawyers licensed to practice law and practicing law in that entity. In addition, the lawyers practicing law in the entity must ensure that they retain the control and authority necessary to assure lawyer independence in the rendering of legal services. A substantial minority of the Task Force opposes this particular recommendation. (c) The lawyers practicing law in the entity in any state must be licensed to practice law in that state and abide by the Rules of Professional Conduct in effect in that state, including the rules governing client confidentiality and conflicts of interest. Conflicts will be imputed firm-wide for purposes of applying applicable Rules of Professional Conduct to lawyers practicing in a permitted MDP entity. No change is intended with respect to Rule 8.5 regarding application of the Rules of Professional Conduct to lawyers providing services outside of the state. (d) The lawyers practicing law in the entity must obtain an affirmative written agreement that there will be no interference with the lawyer’s independence of professional judgment or with the client-lawyer relationship. Notes 1 Fredrikson & Byron P.A., Halleland Lewis Nilan Sipkins & Johnson, P.A, Mackall Crounse & Moore P.L.C., and Moss & Barnett P.A. 2 Some believe that this kind of practice violates ethical and legal rules governing permitted practice of law. However, certain instances of it have been upheld in some courts; others have been struck down, and still others are currently in dispute. See ABA Commission on MDP Updated Background and Informational Report, December 1999, text accompanying note 16. Since this type of arrangement is not uncommon, we have included it among the forms of MDP that may be permitted under the current rules. In doing so, we do not intend to take a position on the ethical or legal status of these tripartite arrangements. 3 For additional information regarding client interests and about MDP in Minnesota, across the U.S. and worldwide, see the MDP Task Force Subcommittee Reports, attached as Exhibit B to the manuscript of this report, and available for review at the MSBA Office. 4 See Appendix C of the manuscript version of this report for a list of some of the resources consulted by the Task Force; a copy is available for review at the MSBA Office. 5 See supra, n. 3.

Cochairs
Magistrate Judge Arthur J. Boylan, U.S. District Court
Rebecca Egge Moos, Bassford Lockhart Truesdell & Briggs

Members
Judge G. Barry Anderson, Minnesota Court of Appeals
Suzanne Born
Leo I. Brisbois, Stich Angell Kreidler Brownson & Ballou
Edward J. Cleary, Office of Lawyers Professional Responsibility
Phillip A. Cole, Lommen Nelson Cole & Stageberg
Charlton Dietz
Frederick E. Finch, Bassford Lockhart Truesdell & Briggs
David F. Fisher
Michael J. Ford, Quinlivan & Hughes
Jerome A. Geis, Briggs and Morgan
Jeffrey S. Johnson, Barna Guzy & Steffen
Senator Ember Reichgott Junge, The General Counsel, Ltd.
Kathleen A. Knutson, The Musicland Group Inc.
Eric D. Larson, Dunlap & Seeger
Richard A. Nelson, Faegre & Benson
Lowell J. Noteboom, Leonard Street and Deinard
Dan C. O'Connell, Collins Buckley Sauntry & Haugh
Nicholas Ostapenko, Johnson Killen & Seiler
Denise D.J. Roy, William Mitchell College of Law
Clinton A. Schroeder, Gray Plant Mooty Mooty & Bennett
Oscar J. Sorlie, Jr., Pemberton Sorlie Rufer & Kershner
Vincent A. Thomas, Hamline University School of Law
Robert P. Webber, Oppenheimer Wolff & Donnelly
Rosemary Wells, Minnesota Lawyers Mutual
William J. Wernz, Dorsey & Whitney

Staff
Joni Fenner
Mary Grau