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New York this week became the first state in the country to directly address regulation of the multidisciplinary practice of law, when the state’s Appellate Divisions adopted several new provisions governing cooperative business relationships between lawyers and nonlawyers. The new rules, which take effect Nov. 1, allow for limited, strictly regulated business alliances between attorneys and nonattorneys and are constructed around two basic precepts: preservation of the core values of the legal profession and the best interests of the client. While recognizing that strategic ventures are here to stay, the Administrative Board of the Courts adopted an approach that leaves lawyers firmly and solely responsible for legal work, and categorically prohibits any interference by nonlawyers in the root values underlying the attorney-client relationship. “First and foremost, the new regulatory framework protects the interests of clients and preserves the core values of the legal profession — professional independence of judgment, undivided loyalty to clients and protection of confidential client information,” said Chief Judge Judith S. Kaye of the New York State Court of Appeals. The order released Tuesday by Chief Administrative Judge Jonathan Lippman adds two new sections to the Code of Professional Responsibility and several related amendments. It represents a collaborative effort between the state court system and the New York State Bar Association, and it keeps New York at the forefront of what has emerged as perhaps the major professional debate of the new century. Lippman said the issue is driven by globalization, rapid changes in the business nature of the profession and a number of alliances between attorneys and accountants. “These issues are so important to us that we felt it was necessary to clarify these kind of cooperative business relationships within the ethical landscape in New York,” Lippman said. “When you are dealing with nonlawyers, the ethical precepts are very different. Lawyers are unique. We expect certain secrecy and confidentiality in terms of what a client tells us. Other professions are not necessarily along those lines and may divulge those secrets. We have a loyalty to our client that is undivided. We avoid conflict of interest. Other professions are very weak in that regard. It is essential that the core values of our profession be preserved at all costs.” The major new provisions are as follows: � Disciplinary Rule 1-106, a new rule, makes clear that nonlawyers cannot direct or regulate the professional judgment of lawyers in rendering legal services or take any action that would compromise an attorney’s ability to protect client confidences. It explains the circumstances under which the Code of Professional Responsibility applies to a lawyer or law firms providing nonlegal services. “Where there is any doubt, any confusion, the burden is on the lawyer to make clear to the client that there is a nonlegal aspect,” Lippman said. � Disciplinary Rule 1-107: The new disciplinary rule is akin to a statement of philosophy that discusses and reiterates the necessity of preserving core values. It goes on to impose specific limitations on contractual relationships between lawyers and nonlawyers. Under DR 1-107, nonlegal professionals may not have any ownership or investment interest in a law practice or have any managerial or supervisory power over the practice; contractual relationships can be entered only with certain professions — a list will be forthcoming — approved by the Appellate Divisions; lawyers and nonlawyers may not share legal fees; lawyers are prohibited from giving any financial or other tangible benefit for giving or receiving referrals to or from nonlawyers; lawyers must disclose the existence of a contractual relationship to any client to whom nonlegal services are provided. “You are not going to have a relationship between a law firm and, say, bill collectors or auto body shops,” Lippman said. “You can see how that could demean the profession in certain ways.” � Part 1205 of the Joint Appellate Division Rules: This requires lawyers to provide clients with a “Statement of Client’s Rights in Cooperative Business Arrangements.” The statement, which must be signed by the client, explains in detail the client’s rights in connection with the lawyer-nonlawyer relationship. “Multi-disciplinary practice between lawyers and nonlawyers is incompatible with the core values of the legal profession and therefore a strict division between services provided by lawyers and those provided by nonlawyers is essential to protect those values,” the new rule states. Few, if any, professional debates in recent years have prompted the soul-searching that MDP has. The debate was triggered by some alliances or attempted affiliations between lawyers and major accounting firms. It ignited with full force nearly two years ago, when the American Bar Association floated a proposal that would have largely dismantled the traditional wall of separation between attorney and nonattorney ventures. In response to the ABA proposal, the New York State Bar Association’s Special Committee on the Law Governing Firm Structure and Operation drafted an extraordinary 388-page report. The report, “Preserving the Core Values of the American Legal Profession,” often called the “MacCrate Report” in recognition of committee chairman Robert MacCrate, called for a far more measured and temperate approach than the one under consideration by the ABA. Largely because of the MacCrate Report and the discussion it generated, the ABA essentially abandoned its initial stance and rejected the proposal backed by large accounting partnerships, corporate counsel organizations and the U.S. Chamber of Commerce. Last July, the ABA’s House of Delegates adopted, by a 3-1 margin, a resolution recommending that every state revisit and revise rules governing relationships between lawyers and nonlegal professionals. This week, New York became the first state to do so. “The bottom line from our perspective is that these relationships exist, we know we have to deal with it, we know we have to preserve the core values of the profession — and we are the first state in the country to come out and regulate these in our ethical standards,” Judge Lippman said. New York’s bar has been anything but unified on the issue. Some practitioners strongly opposed any liberalization of the rules on interdisciplinary linkages, while others would have eliminated virtually all the current barriers. Even among the organized bar there was dissension. For example, the Association of the Bar of the City of New York would have allowed lawyers and nonlawyers to form partnerships as long as the legal work was controlled by the attorneys. Additionally, when the New York State Bar Association adopted the concepts of the MacCrate Report last June, there was a spirited debate, focusing on the potential damage to the profession versus the potential harm to professionals in the Empire State if they could not enter into the kind of alliances necessary to compete globally. The MacCrate Report was finally adopted by the State Bar’s House of Delegates in November. Steven C. Krane, president of the State Bar and a key member of the MacCrate Committee, said Tuesday that the new rules strike an appropriate balance. He said the State Bar will be finalizing its statement of ethical considerations on the issue, and plans to release that document within several weeks. Krane said he intends to immediately contact the ABA’s Ethics Committee to request that it delay until February the adoption of amendments to the Model Rules of Professional Conduct so that the national organization can benefit from the State Bar’s work. “This is a drawing of a line between permissible coordination of legal and nonlegal services and impermissible,” Krane said. “These rules allow lawyers to provide clients with the benefits of coordinated professional services, allows them to work together on a systematic and continuing basis, but draws the line at having nonlawyers have any control over the way lawyers practice law.” Krane said he expects the MDP issue to continue to evolve. “We have seen some limit-testing already,” Krane said, “and I think you find lawyers trying to press to see how far they can push the rules before they step over the line. But these rules do give a fair amount of leeway to lawyers to interact with other professionals, to have business relationships with them that go beyond the informal ‘you refer things to me and I’ll refer things to you’ relationship that has gone on for hundreds of years.” Krane said the State Bar’s ethical considerations, which do not carry the force of law, will add commentary to the new regulations and “flesh things out a little bit.” He hopes to have the ethics statement out by September.

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