Behind bars: are corporate counsel captive to state licensure?

• Author: Wickerham, Elizabeth A.
• Position: Case Note

INTRODUCTION

"[A]n English judge observed ... 'short of those heavy consequences which would attach to the greater and more heinous offences, I own I can conceive of no jurisdiction more serious than that by which a man may be deprived of his degree and status as a barrister.'" (1) In the United States, as in England, the "arduous profession" (2) of practicing law enjoys a level of esteem afforded few other occupations. As a prerequisite to entering the hallowed field, however, there is an obstacle: the bar exam. (3)

Administration of the bar system has historically been delegated to the fifty states and the District of Columbia. (4) Because each of these has its own unique set of procedural and substantive laws, it follows that each necessitates a comprehensive examination unique to that jurisdiction's intricacies. Budding attorneys, having completed law school, often take a professional preparatory class to master a state's law.

The system at its base seems simple: hopefuls should take the bar exam in the state where they hope to begin their legal career. In reality, however, the nature of state licensure is anything but straightforward. The essence of law practice is changing rapidly. With the growing ease of interstate travel, the expansion of large companies, a multitude of mergers, and the explosion of technology, the practice of law crosses more state borders than at any time in United States history.

Modern practice of law differs from its traditional, largely local foundations. The American Corporate Counsel Association, the leader in law organizations tailored to in-house counsel, cites three characteristics of modern practice that together signify a changing landscape: (1) most U.S. companies do business nationwide, and most large companies have a centralized legal department; (2) companies need to attract and retain good counsel, regardless of where those attorneys reside; and (3) a typical in-house attorney has but one client: his or her employer. (5) These developments have placed the traditional licensure scheme at a critical crossroads. The stark contrast between the idealistic foundation of state licensure and attorneys' real-world, multijurisdictional practice necessitates addressing whether the traditional licensure model should exist in today's dynamic environment.

The California case of Birbrower, Montalbano, Condon & Frank, P.C. v. Superior Court (6) brought this conflict to the forefront. In Birbrower, the California Supreme Court held that a New York law firm had engaged in the unauthorized practice of law when it aided a California client in the settlement of a contract dispute. (7) The court's ruling barred the law firm's recovery of more than one million dollars in attorneys' fees. (8)

The Birbrower decision immediately "stirred the pot" of an already brewing controversy over multijurisdictional practice. (9) In determining what constituted the unauthorized practice of law in the state of California, the court found unimportant the lawyers' physical presence in the state. Specifically, the court noted that the defendants' failure to actually enter California was not dispositive of whether they had practiced law in the state. (10)

Critics, supporters, and legal scholars have scampered to assess the implications of the Birbrower decision. Transactional law has been at center stage. To date, dozens of law review articles and journal analyses have examined Birbrower under the lens of transactional law. (11) After all, transactions in today's marketplace are largely multijurisdictional.

As attorneys across the board face the issue of practicing law in different geographic regions when they, for example, give advice or engage local counsel in arbitration or litigation, in-house counsel are in a unique position in their vigorous representation of their one corporate client. They are compelled to meet the needs of their employer in various regions, and their practice is often predominantly interstate.

This Note examines what has thus far been a secondary consideration for many scholars: the practice of in-house counsel. With respect to multistate work, the practice is distinguishable from that of outside counsel working in law firms or as sole practioners. Corporate counsels' work is, by its very nature, often multistate. This Note considers unauthorized practice of law doctrine and suggests that in-house counsel should be answerable to more flexible guidelines than their outside counterparts. In-house counsel and other counsel should be accountable to different definitions of "unauthorized practice of law," though the consequences of violating those parameters should remain the same for both groups.

Part I of this Note provides background on the unauthorized practice of law doctrines and multistate practice. After a brief introduction to the unauthorized practice law and its policy justifications, this Note explores the difficulties states have encountered in developing a common statutory definition. Of particular concern is the regulation of multistate practice, which at its core is diametrically opposed to the state-based system of licensure. In cases involving the several ways in which multistate practice occurs, courts have not been consistent in assessing whether activities constitute the unauthorized practice of law. This Note discusses the implications of the inconsistent employment of standards and their applicability to in-house counsel.

Part II discusses various states' approaches to corporate counsel activities. Some states classify the practice as unique and therefore deserving of different evaluation; others consider the practice to be the same as that of outside counsel and subject it to the same rules and regulations for violation of unauthorized practice of law provisions. The picture that develops from this analysis is blurred.

Part III relates a variety of suggestions for resolving inconsistencies among states regarding the unauthorized practice of law with respect to in-house counsel. The American Corporate Counsel Association and the American Bar Association (ABA) have each put forth solutions. Other proposals, including temporary licensure and pro hac vice admission, may also resolve the problem. Part III reviews each of these options and examines the feasibility of each in turn.

Part IV concludes that the ABA Ethics Commission's proposed changes to Model Rule 5.5 are the most practical of reasonable alternatives. The ABA proposal includes accommodations for in-house counsel but requires across the board enforcement for statutory violations. (12) It suggests that in-house counsel should be subject to the same disciplinary proceedings as outside counsel for disregarding the multistate rules (to which they need comply). As a result, although in-house counsel should have rules tailored to the unique nature of their practice, the enforcement for violation of those rules should parallel the enforcement of the rules for outside counsel--discipline should be uniform.

There is a pressing need for conformity in the unauthorized practice of law doctrine as applied to in-house counsel. States apply different standards to similar fact patterns that by nature often cross state borders, resulting in divergent results that cannot guide the practice of counsel to multistate corporations.

1. UNAUTHORIZED PRACTICE OF LAW VERSUS MULTISTATE PRACTICE

   1. Unauthorized Practice of Law

      Unauthorized practice of law statutes seek to implement public policy goals. The goal is to protect the public "against unlearned and unskilled advice and service in matters relating to the science of the law." (13) Unauthorized practice of law statutes may have originated to shield the public from unscrupulous lawyers and to control competition among corporations. (14) There is some fear that, in the absence of prohibitions on corporations practicing law, each business entity would perform its own services without resort to private attorneys.

      [E]xamples could be multiplied indefinitely. Ultimately most legal work, other than the trial of cases in the courthouse, would be performed by corporations and others not licensed to practice law. The law practice would be hawked about as a leader or premium to be given as an inducement for business transactions. (15) According to the New Jersey Supreme Court, "[t]he reason for prohibiting the unauthorized practice of the law by laymen [and those attorneys not licensed under state law] is not to aid the legal profession but to safeguard the public from the disastrous results that are bound to flow from the activities of untrained and incompetent individuals...." (16) Further, unauthorized practice of law doctrines protect independence of judgment. The idea is that unlicensed lawyers, who are effectively nonlawyers in states where they are not authorized to practice, may engage in multidisciplinary practices affecting their legal judgment. That is, if an attorney is providing legal services and nonlegal services to the same client, the extent and quality of the legal services may be affected by the profits received from the nonlegal services. This is inimical to the core values of the legal profession; among those values is independence of professional judgment. (17) Courts have concurred:

      The public interest therefore requires that in the securing of professional advice and assistance upon matters affecting one's legal rights one must have assurance of competence and integrity and must enjoy freedom of full disclosure with complete confidence in the undivided allegiance of one's counsellor in the definition and assertion of the rights in question. (18) The aforementioned changing landscape on the legal horizon, however, is causing tension between these goals and state statutes. (19)

      There is not just one statutory definition of the "practice of law," and neither statutory nor judicial definitions offer clear guidelines to national players, because these...