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Do you really need a J.D. to close a real estate loan? Are only professionals who sweat out the bar exam qualified to explain local smoke detector requirements? Such services could become the sole province of lawyers, federal regulators fear, if the American Bar Association’s proposed model definition of “the practice of law” is adopted. Further, regulators believe the ABA definition could cripple the online lending industry and prohibit the sale of will-writing and other legal software. In response, the Federal Trade Commission and the Antitrust Division of the Department of Justice have submitted a joint letter to the ABA warning that the initiative is anti-competitive and not in the public’s best interest. “The concern that the [FTC] and DOJ have with the ABA’s definition is its breadth and the possibility that the broad language could be interpreted to foreclose a great deal of pro-competitive and pro-consumer conduct,” says R. Ted Cruz, director of the FTC’s Office of Policy Planning. “When defining ‘the practice of law,’ the possibility of unintended consequences is significant and potentially quite harmful.” FTC staffers plan to testify against the draft definition at the ABA’s midyear meeting in Seattle on Feb. 7, when the seven-member task force charged with crafting the resolution will hold a public hearing. The final draft is due to be voted on by the House of Delegates in August, and would then be offered to state and local bar associations for adoption. Surprisingly, the ABA in its 125-year history has never adopted a formal definition of just what constitutes the practice of law. In recent years, the omission has become increasingly problematic, says ABA President Alfred Carlton Jr., as the organization has focused more on questions of multidisciplinary and multijurisdictional practice, access to legal services, and attorney-client confidentiality. “These issues are a four-way intersection, and where they collide is at what is the practice of law,” says Carlton, a partner at Kilpatrick Stockton in North Carolina. “Each and every policy discussion starts with a presumed or assumed assumption of what the practice of law is, but we do not have an informed definition.” Carlton stresses that the goal is not to reduce competition from nonlawyers, but to provide a bright line distinguishing what is and isn’t the practice of law. “Right now, there is a chilling effect for nonlawyers to provide allied legal services because they are afraid they’ll be called in for unauthorized practice of law,” he says. If the ABA makes the line clear, he continues, it will serve to “increase the American public’s access to legal services and allied legal services.” Under the draft definition, the “practice of law” is “the application of legal principles and judgment with regard to the circumstances or objectives of a person that require the knowledge and skill of a person trained in the law.” More controversial is the section spelling out when a person is “presumed to be practicing law.” According to the draft, practicing law includes “(1) Giving advice or counsel to persons as to their legal rights and responsibilities or to those of others; (2) Selecting, drafting, or completing legal documents that affect the legal rights of a person.” (Pro se representation is excepted because “for a person’s conduct to be considered the practice of law, there must be another person toward whom the benefit of that conduct is directed.”) In a Dec. 20 letter signed by FTC Chairman Timothy Muris and Acting Assistant Attorney General R. Hewitt Pate, the FTC and the DOJ argue that these provisions would “prohibit nonlawyers from offering a number of services that they currently provide in competition with lawyers to the benefit of consumers.” The agencies focus on the real estate industry to illustrate possible ramifications. Real estate agents, for example, often fill out and explain purchase and sale agreements, one of the first steps in buying a home. That would appear to violate the section on drafting documents. Real estate agents also often explain to sellers and buyers state law requirements for smoke detector certificates and termite inspection. Isn’t that giving advice or counsel about legal rights and responsibilities? The definition would also seem to bar laypersons from handling real estate closings, an area of ongoing interest to the FTC. The letter cites data from New Jersey showing that where nonlawyers compete with lawyers for closings, lawyers charge an average of $350 to $400 less than they do in other places. “The availability of alternative, lower-cost lay service providers typically restrains the fees that lawyers can charge,” wrote the FTC and the DOJ. Nor is there any evidence of consumer harm when real estate services are performed by nonlawyers, the agencies note. As Tom Lammert, general counsel of Pittsburgh-based National Real Estate Information Services testified before the FTC last fall, “I work every day with closers and abstracters who are far more qualified than I am, despite my nearly 20 years of practicing law and my three years of law school, to do those same tasks.” Agrees Bert Foer of the American Antitrust Institute: “This is what competition is all about, and what guilds have historically attempted to limit.” The ABA’s Carlton referred questions about the impact on real estate services to Kilpatrick Stockton colleague Dudley Humphrey, a member of the task force, who did not return a call for comment by press time. Nor is real estate the only area likely to be affected. The ABA definition could have an impact on e-commerce and on online lenders in particular, by requiring them to hire local attorneys for every transaction. “We have seen state licensing laws used by businesses and professional groups to frustrate the delivery of services over the Internet,” says Jeremiah Buckley, general counsel of the Electronic Financial Services Council and a partner in the D.C. office of Goodwin Procter. “Licensing laws provide an important protection for the public, but they can be construed or applied in ways which have no motivation other than limiting competition. The ABA really needs to address the potential impact of any definition it adopts on our emerging national e-commerce market.” The FTC and the DOJ note that the definition could also prohibit income tax preparers, accountants, investment bankers, and other business planners from offering advice to clients. And software that assists people with writing wills could also be banned. As the FTC’s Cruz notes, courts have allowed self-help books containing legal forms to be sold, but software or Internet services, where there is a give and take of information, might well run afoul of the definition. “It may be the requirement [to use a lawyer] is justified in some circumstances,” he says. “But given the rapidly changing marketplace, there should be a sound empirical basis before significant consumer choice is eliminated.”

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