'Professionalism' as pathology: the ABA's latest policy debate on nonlawyer ownership of law practice entities.

Author:Schneyer, Ted
Position:P. 75-118

Introduction I. The Formation and Elaboration of the Idiom of Professionalism A. Julius Henry Cohen's Early Articulation of Key Elements B. The Bar's Treatment of Lawyers' Business Entanglements from Cohen's Time to ABA Adoption of the Model Rules in 1983 1. In-house Counsel 2. Bar Rules and Policies on Lawyers' Business Entanglements that the Supreme Court Struck Down in the 1960s and 1970s a. Defending the Ban on Lawyer Participation in Group Legal Services Plans b. The Bar's Defense of Minimum Fee Schedules c. The Bar's Defense of the Ban on Lawyer Advertising C. The ABA's Pre-20/20 Debates on Whether the Model Rules Should Permit Nonlawyer Ownership of Law Practice Entities and Lawyer or Law Firm Ownership of "Ancillary Businesses" 1. The Kutak Commission's ALPS Proposal 2. Rejection of Proposals to Permit Lawyers to Practice in MDPs 3. The Ancillary Business Debate i. The Precautionary Principle ii. A Preoccupation with Motive iii. No Sense of Duty to Support Their Opposition to Lawyer or Law Firm Ownership of Ancillary Businesses with Available Evidence II. A Critique of the Idiom-Based Arguments the Opponents of Nonlawyer Ownership Made to the 20/20 Commission A. Six Elements of the Idiom of Professionalism That Are Salient in the Opponents' Arguments Against Nonlawyer Ownership B. A Critique of the Opponents' Idiom-Based Arguments Against the Working Group's Proposal 1. Proponents of Nonlawyer Ownership Must Bear the "Burden of Proof" 2. A Biasing and Selective Approach to the Use of Empirical Evidence 3. The Imperative to Ban Nonlawyer Ownership Categorically Rather than Permitting but Regulating a Modest Form of Nonlawyer Ownership 4. The Slippery Slope Theory 5. Unsubstantiated Concerns that Nonlawyer Ownership Will "Compromise Core Values" 6. Any Suggestion that Allowing Law Firms to Have Nonlawyer Owners Might Promote Competition in the Legal Services Market Is Out of Bounds III. Two Problems with Continuing to Treat the Idiom of Professionalism as the "Official Language" for the Bar's Policy Debates on the Rules that Should Govern Lawyers' Business Entanglements Conclusion INTRODUCTION

In August 2009, then-ABA President Carolyn Lamm established the ABA Commission on Ethics 20/20 to review the Model Rules of Professional Conduct (Model Rules), to consider whether changes were called for in light of the "globalization" of law practice and rapid developments in law-practice technology, and to make appropriate recommendations to the ABA House of Delegates. (1) In May 2012, the Commission submitted for consideration by the ABA House of Delegates proposed changes in the Model Rules and their accompanying Comments on six topics, (2) and on August 6, 2012 the House adopted all six proposals. (3) This Article concerns a proposal the Commission decided not to submit to the House.

To facilitate its work, the Commission formed seven working groups consisting of commission members and representatives from the ABA and other bar entities. Each group was to study a particular subject and develop recommendations. (4) One of the subjects was Alternative Law Practice Structures (ALPS), (5) which are for-profit entities in which lawyers practice law but which, unlike traditional law firms, are owned at least in part by nonlawyers. I served as a commission member and as co-chair of the ALPS Working Group. (6) Our primary task was to consider whether the Model Rules should be amended to permit lawyers to practice law in ALPS.

For decades, American lawyers have been barred from (1) sharing legal fees with nonlawyers, (2) forming a partnership with nonlawyers if any of its activities constitute the practice of law, and (3) practicing law in a firm that is authorized to do so for profit, if a nonlawyer is a director or officer of the firm or has the right to direct or control a lawyer's exercise of professional judgment. (7) Today, Rule 5.4 of the ABA Model Rules of Professional Conduct, and analogous rules in every U.S. jurisdiction except the District of Columbia, continue to proscribe these activities. (8) But recent regulatory reforms abroad, most notably in Australia and the United Kingdom (U.K.), permit lawyers, under certain conditions, to practice in firms that have nonlawyer-owners. With those developments in mind, the key issue the ALPS Working Group was asked to consider was whether ALPS could operate in a manner consistent with the "core values" of the American legal profession. (9)

The Working Group studied the history of ABA policy on nonlawyer ownership, as well as the experience with ALPS in the District of Columbia and abroad. It identified five kinds of ALPS, all of which are now permissible in the United Kingdom and Australia. (10) They are (1) law firms (11) wholly or partly owned by passive investors (e.g., a department store chain); (2) law firms that raise capital by issuing stock to outsiders; (3) multidisciplinary practices (MDPs), i.e., firms that have lawyer- and nonlawyer-owners who are all active in firm operations, with the nonlawyers providing nonlegal services to their own clients; (4) law firms owned in part by nonlawyers whose role is limited to helping firm lawyers provide legal services; and (5) law firms owned in part by nonlawyers whose role is limited as in alternative 4, but with further restrictions. (12)

By June 2011, the Commission had rejected the first three alternatives (13) without looking closely at the novel measures the British and Australian authorities were taking to prevent nonlawyer-owners from interfering with the lawyers' exercise of professional judgment or otherwise putting core values at undue risk. (14) But, the Commission did ask the ALPS Working Group to draft for further consideration a version of Rule 5.4 that would follow the District of Columbia model, (15) but with two further restrictions: a percentage cap on nonlawyer ownership in order to maintain lawyer control, and a requirement that the law partners conduct a character inquiry to assess the capacity of prospective nonlawyer-owners to act in a manner compatible with the lawyers' duties. (16) The Working Group produced a Draft Resolution meeting these criteria, and a supporting Draft Report, which, in December 2011, the Commission circulated together as a Discussion Paper for comment. (17)

Altogether, the Commission received more than thirty written submissions on the ALPS issue, chiefly comments responding to the Working Group's Discussion Paper or earlier Issues Papery The Commission also took testimony at public hearings. (19) This input included some support for the Draft Resolution (20) and some criticism that it did not go far enough in liberalizing Model Rule 5.4. (21) But overall, the response was extremely negative, and categorically so; opponents wanted the Model Rules to continue to bar lawyers from practicing law in any firm owned in any form and to any degree by nonlawyers. (22) In their view, the substantial measures to protect core values that were built into the Draft Resolution did not distinguish it from earlier and more radical proposals to permit lawyers to practice in MDPs or law firms owned by outside investors. (23)

In the wake of this response, the Commission decided not to recommend to the House any change in the Model Rules that would permit lawyers to practice law in firms with nonlawyer owners. On April 16, 2012, Commission Co-Chairs Jamie Gorelick and Michael Traynor issued a press release announcing the decision. (24) Gorelick told the ABA Journal that the Commission made its decision "on the merits," and she and Traynor "indicated that the feedback [received] from other bar associations and individual members of the profession did not suggest a groundswell of support for revising the ABA Model Rules ... to permit a limited form of nonlawyer ownership." (25) The first statement is a matter of interpretation. And the two statements, taken together, suggest that, for the Commission, deciding against recommending the Draft Resolution on the "merits" meant heeding the profession's predominately negative attitude toward all forms of nonlawyer ownership of law practices. (26)

The nature of that negative reaction is revealed in the remarkably uniform rhetoric that opponents used to express their opposition. The opponents' rhetoric, rather than the merits of the Resolution, is the subject of this Article, which describes and criticizes that rhetoric. More broadly, it places the rhetoric in historical context by reviewing ABA and state bar policy and policymaking over time not only on the issue of nonlawyer ownership, but also on other issues concerning what Gary Munneke usefully called "business entanglements with nonlawyers." (27) And it suggests that the predominant bar discourse on "entanglement" issues over time reflects troubling weaknesses in bar policymaking and, consequently, in our system of "professional self-regulation," in which the mainstream bar and the state supreme courts, working in tandem, choose the ethics rules that govern law practice.

My historical review reveals constant reliance over time on virtually the same rhetorical tools that the opponents of the ALPS Draft Resolution used in expressing their views to the 20/20 Commission. I call those tools, collectively, the "idiom of professionalism." (28) This Article identifies and criticizes the main features of the idiom as it has evolved to date. It also shows that although the idiom has often won the day in internal ABA policy debates, those victories have become vulnerable to subsequent legal attack in external forums. Based on that analysis, this Article questions the capacity of idiom-based arguments to promote sound and stable policies on issues concerning lawyers' "business entanglements with nonlawyers." (29)

This Article proceeds as follows: Part I lays a foundation for a critical review of the rhetoric lawyers and bar entities used in opposing the Working Group's Draft Resolution on...

To continue reading