Subsection (d) of Rule 5.4 (Professional Independence of a Lawyer) of the Rules of Professional Conduct is unambiguous and unequivocal: A lawyer shall not practice with or in the form of a professional corporation or association authorized to practice law for a profit if: 1) A nonlawyer owns any interest therein…. 2) A nonlawyer is a corporate director or officer thereof or occupies the position of similar responsibility in any form of association other than a corporation. 3) A nonlawyer has the right to direct or control the professional judgment of a lawyer.

Equally clear is the rationale for that prohibition found in the official commentary, which provides that “[t]his Rule . . . expresses traditional limitations on permitting a third party to direct or regulate the lawyer’s professional judgment in rendering legal services to another.”

In short, the lawyer owes complete loyalty to one party only — the client. And all the lawyer’s decisions and actions must be determined solely by that client’s best interests. Ownership of a law firm by nonlawyers, who are unencumbered by Rule 5.4 — or any other Rules of Professional Conduct, who are driven solely by the profit motive and their obligations to shareholders, and who are in a position to direct or control the employee lawyer in her representation of the client flies in the face of the attorney’s duty of loyalty and independence. But that principle has been abandoned in some other common law countries and the spectre of the same happening here has become a grave concern to some.

Bowing to the arguments that outside ownership of law firms would provide the resources necessary to increase the availability of legal services to those not otherwise able to afford them and to make law firms more competitive in the face of a high tech, globalized economy, Australia embraced nonlawyer ownership of law firms in 1994. The Australian legislation makes clear that the lawyer employee’s professional duty is still first to the court and then to the client and requires the appointment of a “Legal Practitioner Director,” who is responsible for the management of legal services. But the applicable law also permits the law firm to have external investors and to trade its stock on the Australian Stock Exchange. The firm of Slater & Gordon was the first to take advantage of the Australian law, and, after a public offering of its stock in 2007, which raised $35 million, it now controls 25% of all the personal injury legal work in the entire country.

England and Wales followed suit with the Legal Services Act of 2007, which permits nonlawyer ownership of law firms that are then regulated by the Solicitors Regulations Authority. Utilization of the Act by English solicitors has not been extensive thus far.

The profession on this side of the Atlantic, with the exception of the District of Columbia, has thus far refused to acknowledge that the alleged benefits resulting from nonlawyer ownership justify the sacrifice of the lawyer’s independence and client loyalty. That position reflects the bar’s long history of jealously guarding that independence. The Canons of Professional Ethics prohibited even partnerships with nonlawyers, let alone ownership, and the ABA Model Code of Professional Responsibility carried that prohibition forward when it was promulgated in 1969.

The ABA maintained its strong stand on this issue when its House of Delegates rejected the Kutack Commission’s recommendation in 1983 that the rules be revised to permit multi-disciplinary practices (“MDPs”) in which lawyers could pursue their profession in partnerships with accountants or engineers or other professionals. In 1998, under extensive lobbying by the Big Five accounting firms, the ABA Commission on Multi-Disciplinary Practice again recommended revision of the Model Rules to permit MDPs, and again the ABA House of Delegates rejected the recommendation, finding it was “inconsistent with the core values of the legal profession.”

In 2009, the ABA formed its Commission on Ethics 20/20 and charged it with proposing a “thorough revision of the ABA Model Rules in the context of recent advances in technology and global legal practice developments . . . so as to permit U.S. lawyers and law firms to participate on a level playing field in a global legal services marketplace.” In 2011, that Commission signaled its intent to recommend revisions along the lines of the District of Columbia rule, which permits nonlawyer ownership but with the requirement that all owners and managers acknowledge and abide by the Rules of Professional Conduct. But, in the face of strong opposition, that recommendation was stillborn and never made it out of the Commission.

The ABA Standing Committee on Ethics and Professional Responsibility now appears to have re-ignited the debate with its recent issuance of Opinion 464. Although this Opinion only permits a lawyer to divide a legal fee with a lawyer in a jurisdiction that would allow that lawyer to eventually distribute some portion of that fee to a nonlawyer, opponents of nonlawyer ownership of law firms see this as the camel’s nose under the tent and have sounded the alarm. Condemned as inconsistent with stated ABA policy and a transparent attempt to bypass the House of Delegates, Opinion 464 has come under withering fire. And if, in fact, that Opinion is a first, tentative step in the direction of nonlawyer ownership of law practices, the Standing Committee on Ethics of Professional Responsibility richly deserves the rebuke it is receiving.

The ABA House of Delegates has had this one right all along. Regardless of the lofty ideals of serving the public interest and making lawyers more competitive, which are supposedly advanced by the infusion of capital into law firms from outside sources, certain fundamental, indisputable facts remain: Hedge fund managers in Gucci loafers are not inculcated with the same respect lawyers have for their duty of loyalty to the client. Outside investors are not officers of the court, with all the obligations that title carries. They will not understand why one of their lawyer employees cannot drop a client in order to undertake a more lucrative client representation in the same case. They will not appreciate the inability to terminate representation when the client stops paying. In short, they are not lawyers, and they should never be allowed to own and manage law firms. For if and when that day comes, the legal profession will have suffered a serious blow from which it may never recover.•