The Multidisciplinary Practice Debate

The Multidisciplinary Practice Debate

Rule 5.4(b) of the Model Rules of Professional Conduct provides that a lawyer shall not form a partnership with a nonlawyer if any of the activities of the partnership consist of the practice of law.¹ The sections above took that command as fixed and taught how to decide whether an arrangement falls inside it or outside it. This section asks whether the command should read as it does. The question belongs to rule-writers, courts, and the profession, and it has a name: the multidisciplinary practice debate. A multidisciplinary practice combines legal and other professional services in one firm, with lawyers and other professionals as co-owners.

The debate explains the rule's shape and the pressure on its edges. Critics make serious arguments against the prohibition, and one jurisdiction has chosen a different course, yet the prohibition still governs in nearly every state as the earlier sections described. The first subsection sets out the case for reform. The second examines the District of Columbia, the exception that exists. The third follows what happened when the American Bar Association and a federal court were asked to change the rule.

On an exam, the debate leaves the analysis where it was. Unless the facts place the lawyer in a jurisdiction that has adopted a different rule, a partnership between a lawyer and a nonlawyer that engages in any law practice is forbidden, however persuasive the case for reform may be.²

The Case for Reform

Advocates begin with the experience of other countries. Elsewhere in the world, lawyers offer legal services through a variety of multidisciplinary practice forms, and major accounting firms play a substantial role in the legal market.³ The American answer stands in sharp contrast. Asked whether a lawyer may practice law in partnership with a nonlawyer, or through a corporation or other organization with a layperson as owner or director, nearly every state today answers with an emphatic no.⁴

Advocates for alternative structures, including shared control, partnership, and investment by nonlawyers, contend that more flexibility in how law firms are owned and managed would produce four benefits.⁵

• More people would obtain legal help, because a wider range of business models would reach clients the present models do not serve.
• Firms would gain easier access to available funding.
• Legal advice could be integrated with the other professional services a client's problem may involve.
• Together, those changes would yield services that are more cost-effective and of higher quality.

The funding and access arguments are easiest to picture where lawyers serve individual people, a segment to which Henderson's survey of the profession devotes its own discussion of challenges.⁶ A lawyer who needs capital or a skilled operator to reach more clients has no way to offer a stake in the practice itself. Rule 5.4(b) forbids the partnership,⁷ and Rule 5.4(d) forbids practice through a for-profit law entity in which a nonlawyer owns any interest or serves as a corporate director or officer.⁸

Defenders of the rule start from independence. A lawyer who practices where she is subordinate to a layperson, or must share managerial authority with one, may become subject to the control of a person who is not bound by the profession's ethical standards, and her independent professional judgment may be compromised.⁹ A nonlawyer with a financial stake in the lawyer's services may solicit or refer clients, interfere in the lawyer's relationship with them, or try to influence the lawyer's conduct, and those efforts to enlarge shared profits may violate limits on solicitation or the unauthorized practice of law.¹⁰ There is a regulatory point as well. Because the Rules do not apply to nonlawyers, the bar would have difficulty regulating the profession if nonlawyers outside law firms had an incentive to profit from the practice of law.¹¹

Both sides in the debate point to the same structural fact, the nonlawyer's stake in legal income. Advocates see capital and managerial skill kept out of the profession. Defenders see a profit motive attached to the handling of clients by someone outside the profession's ethical standards. They draw opposite conclusions about whether other safeguards could contain the danger that stake creates.

None of these arguments states current law. The Model Rules have not adopted them, and nearly every state still answers no to the question whether a lawyer may practice law in partnership with a nonlawyer.¹²

The D.C. Exception

The Model Rules answer the question of nonlawyer partnership with a flat prohibition, and the District of Columbia is the jurisdiction most often cited as a departure from it. Its rule permits a nonlawyer professional to hold a financial interest in a law firm or to exercise managerial authority in it.¹⁴ That makes the D.C. rule an exception in the strict sense: it is the law of one jurisdiction, while the Model Rules and nearly every state continue to give the answer taught earlier.¹⁵ Conditions also confine the permission, and a nonlawyer who falls outside them gains nothing from it.

The D.C. rule does not allow a law firm to offer nonlegal professional services other than those that assist in delivering legal services, and it requires the nonlawyer participants to be actively involved in the firm.¹⁶ Both conditions must be met, so a fact pattern under the exception can be tested with two questions:

1. Are the nonlegal services the firm offers limited to those that help deliver its legal services?
2. Is each nonlawyer participant actively involved in the firm's work?

Together the conditions preclude outside passive investment in a law firm by nonlawyers, even though nonlawyer ownership and management are allowed.¹⁷

Each condition does separate work. The limit on nonlegal services keeps the firm a legal practice that draws on other expertise only as a means of delivering legal services. That limit is why even this exception is narrower than the broader multidisciplinary proposals, under which a combined practice would sell legal and nonlegal services side by side. The active-involvement requirement answers the danger the earlier sections identified, that a layperson with a financial stake in legal services may solicit or refer clients, interfere in the lawyer's relationship with them, or try to influence the lawyer's professional conduct.¹⁸ An outside investor's only tie to a firm is the expectation of a return that grows with the firm's legal income. The profit incentive is present, and nothing in the investor's daily work connects it to the delivery of legal services. A nonlawyer who works inside the firm holds the financial interest as part of delivering those services.

On an exam, the question to ask about a nonlawyer who wants a stake in a D.C. firm is what that person does for the firm.

The first condition can also defeat the exception on its own. A D.C. firm that used its nonlawyer participants to run a general consulting business for the public would be offering nonlegal services that do not assist in delivering legal services, and the exception would not cover it even though every participant was actively involved.

Outside D.C., the full-time nonlawyer professional of the first scene fares differently. In a jurisdiction that follows Rule 5.4(b) as written, a nonlawyer who holds an owner's stake in a venture that does legal work is a nonlawyer partner in a practice of law, and the participant's active involvement does not change that.¹⁹ The D.C. rule changes the answer only where a jurisdiction has adopted it. A Model Rules question that never places the lawyer in D.C. is answered by Rule 5.4(b), and importing the D.C. conditions into that answer is a mistake.

Reform Efforts and Courts

Rule 5.4(b) still reads as it always has: a lawyer shall not form a partnership with a nonlawyer if any of the activities of the partnership consist of the practice of law.²¹ The text has survived because the efforts to change it, which ran through the American Bar Association and, in one instance, through a federal courtroom, have so far left the traditional ban in place. How those efforts fared is why an exam answer can treat the prohibition as the governing rule.

The most concrete attempt came from the ABA's Ethics 20/20 Commission. In 2011 it circulated a discussion draft of revisions to Rule 5.4 similar to the D.C. rule, with one addition: a percentage cap on nonlawyer participants, included so that lawyers would keep control of the firm.²² The cap shows what the drafters took the central objection to be. The independence concern is that a layperson with a financial stake in legal work may press the lawyer's conduct toward profit,²³ and a ceiling on the nonlawyer share answers it by keeping the lay owners in a minority. The Commission nevertheless decided not to move forward with the proposal, and the Model Rule stayed as it was.²⁴

The question was reopened a few years later. When the ABA Commission on the Future of Legal Services started to open the door again, opposition emerged and the door was quickly closed in 2016.²⁵ Earlier that same year, the ABA's House of Delegates had adopted a resolution on regulatory objectives for legal services that reaffirmed “existing ABA policy prohibiting non lawyer ownership of law firms.”²⁶ The multidisciplinary practice, in which lawyers and professionals in other disciplines join as equal partners or their equivalents in a combined practice, therefore remains unauthorized in the United States.²⁷

An abandoned proposal has no legal effect, and that is the point an exam stem is likely to test.

Only a jurisdiction that has actually adopted a rule like the D.C. rule changes that answer, and the D.C. conditions of limited nonlegal services and active involvement then govern.²⁸

The courts have not supplied a different answer. In Jacoby & Meyers v. Presiding Justices, a law firm and an affiliate asked a federal court in New York to declare New York's version of Rule 5.4 unconstitutional.²⁹ They argued that the bar on nonlawyer equity investment raises their capital costs and so limits their ability to expand low-cost legal services for people who cannot afford traditional lawyers.³⁰ The court dismissed the case on standing, and the reasoning shows why the decision says nothing about the merits. Rule 5.4 was not the only New York provision that blocked the equity investment the plaintiffs wanted. They therefore could not accept nonlawyer investment even if they won, and a ruling in their favor would have been the kind of advisory declaration that Article III forbids federal courts to issue.³¹

The opinion also states where the larger debate belongs. The court observed that permitting nonlawyer equity investment might broaden the availability of legal services and lower their cost without serious adverse consequences, but that it might instead prove to be a “deal with the devil,” as some have said of investment banks that went public.³² Those questions, it said, are for legislatures and the professional rule-setting bodies that govern lawyer conduct, at least in the first instance.³³ Because the court decided only that the plaintiffs lacked standing, the constitutional question stays open. The decision cannot be cited as upholding the ban or as striking it down.