The Battle Against Non-Lawyer Involvement in Legal Practice

Here's what the ISBA is doing to fight efforts to allow non-lawyer ownership of law firms and fee sharing with non-lawyers.

At the Annual Meeting of the American Bar Association last August, the ISBA joined with a number of state bar associations and others across the country to challenge certain proposals coming from the ABA's Commission on Ethics 20/20. If put into practice, these proposals would result in greater non-lawyer involvement in the practice of law (and contravene ABA policy).

The ABA proposals

Described as "Choice of Law Issues Relating to Nonlawyer Ownership Interests in Law Firms," these potential Model Rules of Professional Conduct rule changes were first floated by the commission in December of 2011. At the same time, the commission offered a working group proposal - the commission later rejected it - that would permit non-lawyers to own portions of law firms not to exceed 25 percent.

The proposals still in play in August allowed intra- and inter-firm fee splitting with non-lawyers when the fee-dividing lawyers are governed by different rules on non-lawyer ownership - i.e., when one jurisdiction prohibits non-lawyer ownership while the second permits it. (The commission's proposals can be reviewed in detail at www.abanet.org/ethics2020.)

With the unanimous support of our Board of Governors, the ISBA's "challenge" took the form of a resolution we offered in the ABA House of Delegates calling upon the House to reaffirm the following ABA policy:

The sharing of legal fees with non-lawyers and the ownership or control of the practice of law by non-lawyers are inconsistent with the core values of the legal profession. The law governing lawyers that prohibits lawyers from sharing legal fees with non-lawyers and from directly or indirectly transferring to non-lawyers ownership or control over entities practicing law should not be revised.

The House ultimately postponed our resolution on procedural grounds. However, this did not take place until after much debate (within and beyond the House) making clear to the commission that permissive non-lawyer ownership and fee-splitting proposals would not be well received by the House. (The commission asked for comments on the draft proposals and it received them!)

The good news is that the commission reported in September that it would not move forward with the intra-firm fee-splitting proposal. And then, most recently, the commission announced in October that it would not recommend the inter-firm fee-splitting proposal to the House, instead referring it to the ABA's Standing Committee on Ethics and Professional Responsibility. This last announcement said the commission's decision was due to its conclusion that this issue was actually "narrow and technical," not "worthy of debate and consideration in the [ABA] House [of Delegates]," and not "capable of making a difference for the profession."

The case against non-lawyer involvement

While the tone of this last announcement was dismissive (remarkable, given the fanfare at the ABA meeting in August), the word on the street is that the commission's vote not to proceed to the ABA House was close. Thus, this battle is likely not over. Accordingly, it bears reviewing why non-lawyer involvement in the practice of law is such a bad idea - and does represent an issue "capable of making a difference for the profession," not to mention for our clients and system of justice.

Regulation. For the well-being of the public, the practice of law must be regulated, and society benefits greatly where this regulation is done comprehensively by the courts and free from the political influence of legislatures. Nationally, there is not uniformity in our courts' ability to do this as to non-lawyers.

Training. Lawyers are subject to rigorous training in the law. Not so for those outside the profession.

Ethics and accountability. Lawyers are subject to the highest ethical standards and are accountable when they do not meet them. This is not true of non-lawyers.

Impact on the justice system. Adherence to our profession's core values such as undivided loyalty to the client, competence, and confidentiality have been key to the success of our justice system - the envy of the world. Non-lawyers do not have this focus.

Conflicts of interest. When non-lawyer owners are involved in the practice of law (as is now permitted in the U.K. and Australia), there are competing duties to the client on the one hand and the shareholder on the other. Even if you try to prioritize these duties (placing the client first), there is an unavoidable tension that is contrary to the client interest. We are a profession and not a business - it is an entirely different set of values.

Independence and control. As officers of the court, lawyers must be independent and free from the influence of those who would compromise our ethics and the client interest. Non-lawyer involvement (including fee-splitting) would negatively influence this independence and control.

Those who want to relax our ethical standards by permitting greater non-lawyer involvement say it will increase law-firm profitability and make legal service more "consumer" friendly. They also claim these changes are necessary if U.S. firms are to compete with foreign legal service providers that permit these practices. We have seen similar efforts to water down our ethical standards in the past, and these types of changes would be anything but "consumer friendly."

Like the multi-disciplinary practice ("MDP") proposals of 12 years ago (which also emanated from an ABA commission), and for the reasons mentioned, the ISBA sees the reforms that have recently been discussed as serious threats to our profession and the public it serves. It is fair to say that the vast majority of lawyers in our country agree. Accordingly, we will continue to keep close watch on this debate.