Ethics 20/20 Commission Suspends Campaign to Draft a Proposal on Nonlawyer Ownership of Law Firms

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The ABA Commission on Ethics 20/20 has decided that it will not develop a proposal for consideration by the association’s policy-making House of Delegates on whether nonlawyers should be allowed to have some form of limited ownership interest in U.S. law firms.

In a joint statement released today, co-chairs Jamie S. Gorelick and Michael Traynor confirmed that the commission agreed at its meeting last week in Washington, D.C., to shelve plans to submit a proposal on nonlawyer ownership for consideration by the House in when it convenes during February’s 2013 ABA Midyear Meeting in Dallas. Gorelick and Traynor indicated that 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 of Professional Conduct to permit a limited form of nonlawyer ownership. The Model Rules, which are the direct basis for professional conduct rules in all states except California, currently do not permit nonlawyer ownership.

“Since its creation in 2009, the commission has undertaken a careful study of alternative law practice structures,” Gorelick and Traynor said in their statement. “Based on the commission’s extensive outreach, research, consultation, and the response of the profession, there does not appear to be a sufficient basis for recommending a change to ABA policy on nonlawyer ownership of law firms.”

Gorelick is a partner at Wilmer Cutler Pickering Hale and Dorr in Washington, D.C. Traynor, of Berkeley, Calif., is a past president of the American Law Institute.

Alternative law practice structures are prohibited in every U.S. jurisdiction except the District of Columbia, which permits a limited form of nonlawyer ownership of law firms. Nonlawyer ownership is becoming more common, however, in foreign jurisdictions, notably the United Kingdom, Canada and Australia. American law firms doing business overseas are in a quandary over how to balance the more permissive rules on business structures in other countries and the more restrictive regulations in U.S. jurisdictions.

Those concerns have been expressed by members of the Ethics 20/20 Commission during its deliberations as well, and the commission never reached a consensus on whether to recommend some form of nonlawyer ownership. In December, the commission released for comment a discussion draft (PDF), which described a limited form of court-regulated, nonlawyer ownership of law firms that largely followed the District of Columbia model. But the draft went beyond the D.C. model by requiring that lawyers in a firm retain controlling voting rights and financial interests in the firm; and by requiring lawyers to make reasonable efforts to establish a nonlawyer’s professional integrity before that person may gain a financial interest in the firm. But the commission never went further than that before making its decision last week to pull the plug.

“The commission considered the pros and cons, including thoughtful comments that the changes recommended in the discussion draft were both too modest and too expansive, and concluded that the case had not been made for proceeding even with a form of nonlawyer ownership that is more limited than the D.C. model,” Gorelick and Traynor said in their statement.

The commission’s decision forestalls the possibility of a tough debate in the House on nonlawyer ownership. At previous meetings of the commission, some opponents expressed concern that a proposal to allow nonlawyer ownership would amount to a replay of the House debate in 2000 over a proposal to allow multidisciplinary practice at law firms. The House rejected that proposal. In March, the Illinois State Bar Association’s board of governors adopted a resolution that would call on the ABA House to reaffirm its position on MDP and to reject any future proposals that would allow nonlawyer ownership of law firms, Illinois Lawyer Now reported at the time.

In their statement, Gorelick and Traynor confirmed that the Ethics 20/20 Commission will continue working on draft proposals that would address choice of law issues that might occur in the context of fee-sharing arrangements between lawyers and nonlawyers in jurisdictions, including the District of Columbia, that do permit nonlawyers to have ownership interests in law firms. “The commission previously released draft proposals on these issues and will decide at its October 2012 meeting whether to submit formal proposals on to the ABA House of Delegates for consideration in February 2013,” Gorelick and Traynor said. “Meanwhile, the commission welcomes additional comments on the previously released drafts.”

Updated at 2:27 p.m. to add link to ABA statement and clarify Traynor’s title.

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