Dan's World: A Free Enterprise Dream; An Ethics Nightmare

Business Lawyer

Volumn 55, Issue 4, 2000, Pages 1533-1563

  Fox, Lawrence J ^a  

^a NONE

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EID: 0034355951     PISSN: 00076899     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (86)

1. Though one does oppose Dean Fischel with some trepidation. See Karen Donovan, Milberg Weiss' $50M Mistake, NAT'L L. J., Apr. 26, 1999, at Al (describing how the law firm, rather than risk an outsized punitive damage award, settled with Dean Fischel for $5,000,000 more than the initial verdict in Fischel's lawsuit against Milberg Weiss alleging abuse of process).
2. MODEL RULES OF PROFESSIONAL CONDUCT Rule 5.4 (1998). Rule 5.4, Professional Independence of a Lawyer, states in part: (a) A lawyer or law firm shall not share legal fees with a nonlawyer, except that: (1) an agreement by a lawyer with the lawyer's firm, partner, or associate may provide for the payment of money, over a reasonable period of time after the lawyer's death, to the lawyer's estate or to one or more specified persons; (2) a lawyer who purchases the practice of a deceased, disabled or disappeared lawyer may, pursuant to the provision of Rule 1.17, pay to the estate or other representative of that lawyer the agreed-upon purchase price; and (3) a lawyer or law firm may include nonlawyer employees in a compensation or retirement plan, even though the plan is based in whole or in part on a profit-sharing arrangement. (b) A lawyer shall not form a partnership with a nonlawyer if any of the activities of the partnership consist of the practice of law. . . .
3. Elizabeth MacDonald & Michael Schroeder, Report by SEC Says Pricewaterhouse Violated Rules on Conflicts of Interest, WALL ST. J., Jan. 7, 2000, at A3 [hereinafter MacDonald & Schroeder].
4. Stephen Barr, Breaking Up the Big 5, CFO, May 1, 2000, at 43 [hereinafter Barr].
5. Elizabeth MacDonald, Accountant Faces Salvo From SEC, WALL ST. J., Feb. 28, 2000, at A3.
6. See MacDonald & Schroeder, supra note 3, at A3 (quoting a confidential letter to staffers from PricewaterhouseCoopers' Chairman, Nicholas Moore, and Chief Executive Officer, James Schiro).
7. Id. (quoting Kenton Sicchitano, PricewaterhouseCoopers' global managing partner of regulatory and independence issues).
8. Id.
9. See discussion infra at 1558.
10. See MacDonald & Schroeder, supra note 3, at A3.
11. See Barr, supra note 4, at 54.
12. Not long after these remarks, the rest of the Big 5 reversed an earlier decision not to fund a probe by the Public Oversight Board into their own stock ownership issues. Michael Peel & Adrian Michaels, "Big Three" in Probe Climbdown, FIN. TIMES, May 20, 2000, at 8.
13. Lawrence J. FOX, Accountants, The Hawks of the Professional World, 84 MINN. L. REV. 1097, 1101 (2000) [hereinafter Fox].
14. Elizabeth MacDonald, Pricewaterhouse Nears Final Plan For Restructuring, WALL ST. J., February 16, 2000, at C11.
15. John Tagliabue, Cap Gemini to Acquire Ernst & Young's Consulting Business, N.Y. TIMES, Mar. 1, 2000, at C1.
16. An advertisement in the June 2, 2000 New York Times suggests that the firms will not be totally independent from each other, for example, using the same name. N.Y. TIMES, June 2, 2000, at A11.
17. David Leonhardt, Anderson Split into Two Firms by Arbitrator, N.Y TIMES, Aug. 8, 2000, at A1.
18. KPMG Consulting in Filing Gives Details of Stock Offering, N.Y. TIMES, Aug. 8, 2000, at C22.
19. Ben Griffiths & Douglas Broom, Big 5 Launches SEC Fightback, ACCT. AGE, March 16, 2000, at 1.
20. Indeed, the SEC recently announced new proposed rules "[tightening] standards on what additional services accounting firms could sell to [those] whose books they audit." Floyd Norris, S.E.C. Proposes Stricter Accounting Rules, N.Y. TIMES, June 28, 2000, at C1.
21. For further thoughts on what may lie ahead for the Big 5, see Reed Abelson, After Andersen War, Accountants Think Hard About Consulting, N.Y TIMES, Aug. 9, 2000, at C1.
22. Some have predicted we may even see the Big Three in a few years. See Brent Shearer, Dealing With Rifts at Accounting Firms, M&A J., May 2000, at 6.
23. Hearings Before the Commission on Multidisciplinary Practice (Feb. 4, 1999) (written remarks of Lawrence J. Fox, Drinker Biddle & Reath LLP), available at 〈://www. abanet.org/cpr/fox1.〉; Hearings Before the Commission on Multidisciplinary Practice (Feb. 4, 1999) (oral testimony of Lawrence J. Fox, Drinker Biddle & Reath LLP), available at 〈://www.abanet.org/cpr/fox3.〉.
24. Hearings Before the Commission on Multidisciplinary Practice (Feb. 4, 1999) (written remarks of Lawrence J. Fox, Drinker Biddle & Reath LLP), available at 〈://www. abanet.org/cpr/fox1.〉; Hearings Before the Commission on Multidisciplinary Practice (Feb. 4, 1999) (oral testimony of Lawrence J. Fox, Drinker Biddle & Reath LLP), available at 〈://www.abanet.org/cpr/fox3.〉.
25. Daniel R. Fischel, Multidisciplinary Practice, 55 Bus. LAW. 951, 974 (2000) [hereinafter Fischel].
26. MODEL RULES OF PROFESSIONAL CONDUCT Rule 2.1 (1998).
27. Id.
28. MARY ANN GLENDON, A NATION UNDER LAWYERS 75 (Farrar, Straus & Giroux 1994). The quotation is usually attributed to Elihu Root.
29. See Barr, supra note 4.
30. Rule 1.16(a)(1) provides: "(a) Except as stated in paragraph (c), a lawyer shall not represent a client or, where representation has commenced, shall withdraw from the representation of a client if: (1) the representation will result in violation of the rules of professional conduct or other law. . . ." MODEL RULES OF PROFESSIONAL CONDUCT Rule 1.16 (1998).
31. Sheryl Stratton, Experts from E&Y's French Law Firm End Up on Both Sides of IBM Litigation, TAX NOTES TODAY, July 28, 2000, at 146-4.
32. International Business Machines v. United States, 95-828T (Fed. Cir. July 18, 2000), reprinted in TAX NOTES TODAY, July 28, 2000, at 146-47.
33. MODEL RULES OF PROFESSIONAL CONDUCT Rule 1.8 (1998).
34. Id. 5.4.
35. See, e.g., Alabama State Bar Disciplinary Comm'n, Op. RO-98-02 (Oct. 27, 1998) available in 〈://www.alabar.org/Ogc/formal/fopDisplay.Cfm?oneId=2〉; RES GESTAE, Indiana State Bar Ass'n Legal Ethics Comm'n, Op. 3 (August 1998), at 24 (both rejecting litigation guidelines).
36. See, e.g., Alabama State Bar Disciplinary Comm'n, Op. RO-98-02 (Oct. 27, 1998) available in 〈://www.alabar.org/Ogc/formal/fopDisplay.Cfm?oneId=2〉; RES GESTAE, Indiana State Bar Ass'n Legal Ethics Comm'n, Op. 3 (August 1998), at 24 (both rejecting litigation guidelines).
37. In re Rules of Professional Conduct and Insurer Imposed Billing Rules and Procedures, 2 P.3d 806 (Mont. 2000).
38. David Cay Johnston, New Questions About Block's Lucrative Tax Loans, N.Y. TIMES, July 2, 2000, Section 3, at 1.
39. Federal law prohibits tax preparers from making loans to clients, "a rule intended to prevent collusion between taxpayers and tax preparers." Id.
40. See id.
41. MODEL RULES OF PROFESSIONAL CONDUCT Rules 1.1 & 1.3 (1999).
42. Id. 1.8(a).
43. One ethics committee has written an opinion addressing this topic. The Committee on Prof 1 and Judicial Ethics, Association of the Bar of the City of N.Y., Formal Op. 1997-3: Lawyer's Right to Engage or Express a Personal Viewpoint Which is Not in Accordance with a Client's Interest, 52 REC. 874 (1997).
44. See Roswell B. Perkins, Call to Order by the President, 68 A.L.I. PROC. 10 (1991); Kenneth Jost, Business Lawyers Win Showdown Vote in ALI, LEGAL TIMES, May 18, 1992, at 2.
45. See Roswell B. Perkins, Call to Order by the President, 68 A.L.I. PROC. 10 (1991); Kenneth Jost, Business Lawyers Win Showdown Vote in ALI, LEGAL TIMES, May 18, 1992, at 2.
46. James A. Henderson, Jr. & Aaron D. Twerski, The Politics of the Products Liability Restatement, 26 HOFSTRA L. REV. 667 (1998).
47. Compare William T. Barker, Lobbying and the American Law Institute: The Example of Insurance Defense, 26 HOFSTRA L. REV. 573 (1998), with Lawrence J. Fox, Leave Your Clients at the Door, 26 HOFSTRA L. REV. 595 (1998).
48. Compare William T. Barker, Lobbying and the American Law Institute: The Example of Insurance Defense, 26 HOFSTRA L. REV. 573 (1998), with Lawrence J. Fox, Leave Your Clients at the Door, 26 HOFSTRA L. REV. 595 (1998).
49. See, e.g., David B. Wilkins, Who Should Regulate Lawyers?, 105 HARV. L. REV. 801 (1992); Charles W. Wolfram, Lawyer Turf and Lawyer Regulation - the Role of the Inherent-Powers Doctrine, 12 U. ARK. LITTLE ROCK L.J. 1 (1989).
50. See, e.g., David B. Wilkins, Who Should Regulate Lawyers?, 105 HARV. L. REV. 801 (1992); Charles W. Wolfram, Lawyer Turf and Lawyer Regulation - the Role of the Inherent-Powers Doctrine, 12 U. ARK. LITTLE ROCK L.J. 1 (1989).
51. RESTATMENT OF THE LAW, THE LAW GOVERNING LAWYERS §1, comment c (Proposed Final Draft No. 2 (April 6, 1998)) [hereinafter RESTATEMENT].
52. The legal profession's relative autonomy carries with it special responsibilities of self-government. The profession has a responsibility to assure that its regulations are conceived in the public interest and not in furtherance of parochial or self-interested concerns of the bar. Every lawyer is responsible for observance of the rules of Professional Conduct. A lawyer should also aid in securing their observance of the rules of Professional Conduct. A lawyer should also aid in securing their observance by other lawyers. Neglect of these responsibilities compromises the independence of the profession and the public interest it serves. MODEL RULES OF PROFESSIONAL CONDUCT Preamble (1999).
53. RESTATEMENT, supra note 46, at §1, comment c.
54. Compare Mississippi Bar v. McGuire, 647 So. 2d 706 (Miss. 1994) (striking down statute that excluded disbarment based on IRS violations as in conflict with lawyer code with no similar exception) with Heslin v. Connecticut Law Clinic, 461 A.2d 938 (Conn. 1983) (finding that Connecticut Unfair Trade Practices Act can be applied to the conduct of lawyers).
55. RESTATEMENT, supra note 46, at §1, Reporter's Note c.
56. The Preamble to the ABA Model Rules captures the point in another way. The legal profession is largely self-governing. Although other professions also have been granted powers of self-government, the legal profession is unique in this respect because of the close relationship between the profession and the processes of government and law enforcement. This connection is manifested in the fact that ultimate authority over the legal profession is vested largely in the courts. To the extent that lawyers meet the obligations of their professional calling, the occasion for government regulation is obviated. Self-regulation also helps maintain the legal profession's independence from government domination. An independent legal profession is an important force in preserving government under law, for abuse of legal authority is more readily challenged by a profession whose members are not dependent on government for the right to practice. MODEL RULES OF PROFESSIONAL CONDUCT Preamble (1999).
57. See IRS Restructuring and Reform Act, Pub. L. No. 105-206, 1998 U.S.C.C.A.N. (112 Stat.) 685. The ABA opposed the legislation, an amendment to the Interval Revenue Code, because, inter alia, any such change should go through the evidence rules committee, concerns about the application and scope of the new privilege, and the inconsistency between the accountants' auditing function and the concept of confidentiality. See letter from Jerome J. Shestack, President of the ABA, and House and Senate Committee Members, dated Mar. 23, 1998 (on file with The Business Lawyer, University of Maryland School of Law).
58. See IRS Restructuring and Reform Act, Pub. L. No. 105-206, 1998 U.S.C.C.A.N. (112 Stat.) 685. The ABA opposed the legislation, an amendment to the Interval Revenue Code, because, inter alia, any such change should go through the evidence rules committee, concerns about the application and scope of the new privilege, and the inconsistency between the accountants' auditing function and the concept of confidentiality. See letter from Jerome J. Shestack, President of the ABA, and House and Senate Committee Members, dated Mar. 23, 1998 (on file with The Business Lawyer, University of Maryland School of Law).
59. See, e.g., Commonwealth v. Stern, 701 A.2d 568 (1997) (striking penal statute that criminalized the conduct of lawyers as infringing Supreme Court's exclusive jurisdiction to regulate the professional and ethical conduct of lawyers).
60. Fischel, supra note 24, at 957.
61. Sam Di Piazza, Jr., Managing Partner, Tax Services-Americas PricewaterhouseCoopers LLP, Written Remarks to the American Bar Association Commission on Multidisciplinary Practice (Mar. 11, 1999) available in 〈://www.abanet.org/cpr/dipiazza.〉.
62. The Venture Law Group "insists on having an opportunity to buy in . . . at the idea stage . . . ." Richard B. Schmitt, Little Law Firm Scores Big by Taking Stakes in Clients, WALL ST. J., Mar. 22, 2000, at B1. Though investing in clients by lawyers does raise two concerns, objectivity and potential liability (See ABA Comm. On Ethics and Professional Responsibility, Formal Opinion 00-418 (July 7, 2000)), such investments can be accomplished consistent with lawyers' ethical obligations, a fact that is not true of those accountants who seek to invest in firms for which they act as auditors where pristine objectivity is the sine qua non of the engagement.
63. The Venture Law Group "insists on having an opportunity to buy in . . . at the idea stage . . . ." Richard B. Schmitt, Little Law Firm Scores Big by Taking Stakes in Clients, WALL ST. J., Mar. 22, 2000, at B1. Though investing in clients by lawyers does raise two concerns, objectivity and potential liability (See ABA Comm. On Ethics and Professional Responsibility, Formal Opinion 00-418 (July 7, 2000)), such investments can be accomplished consistent with lawyers' ethical obligations, a fact that is not true of those accountants who seek to invest in firms for which they act as auditors where pristine objectivity is the sine qua non of the engagement.
64. See, e.g., American Insurance Ass'n v. Kentucky Bar Ass'n, 917 S.W.2d 568 (Ky. 1996); Gardner v. North Carolina State Bar, 341 S.E.2d 517 (N.C. 1986).
65. Fischel, supra note 24, at 964, 967.
66. Congress has also mandated auditor disclosure totally inconsistent with the attorney-client privilege and the lawyer codes' injunctions against lawyer breaches of confidentiality.
67. KPMG, Garth Drabinsky Settle Litigation, Canada NewsWire, Ltd., July 14, 2000, available at 〈:www.newswire.ca/releases/July2000/14/c3565.〉; An Executive of Livent Settles Civil Lawsuit, N.Y. TIMES, July 15, 2000, at C4; Madhari Acharya, KPMG Settles, TORONTO STAR, July 15, 2000, Edition 1; Diane Francis, Drabinsky, KPMG Case Raises Questions, NAT'L POST, June 24, 2000, at D2.
68. KPMG, Garth Drabinsky Settle Litigation, Canada NewsWire, Ltd., July 14, 2000, available at 〈:www.newswire.ca/releases/July2000/14/c3565.〉; An Executive of Livent Settles Civil Lawsuit, N.Y. TIMES, July 15, 2000, at C4; Madhari Acharya, KPMG Settles, TORONTO STAR, July 15, 2000, Edition 1; Diane Francis, Drabinsky, KPMG Case Raises Questions, NAT'L POST, June 24, 2000, at D2.
69. KPMG, Garth Drabinsky Settle Litigation, Canada NewsWire, Ltd., July 14, 2000, available at 〈:www.newswire.ca/releases/July2000/14/c3565.〉; An Executive of Livent Settles Civil Lawsuit, N.Y. TIMES, July 15, 2000, at C4; Madhari Acharya, KPMG Settles, TORONTO STAR, July 15, 2000, Edition 1; Diane Francis, Drabinsky, KPMG Case Raises Questions, NAT'L POST, June 24, 2000, at D2.
70. KPMG, Garth Drabinsky Settle Litigation, Canada NewsWire, Ltd., July 14, 2000, available at 〈:www.newswire.ca/releases/July2000/14/c3565.〉; An Executive of Livent Settles Civil Lawsuit, N.Y. TIMES, July 15, 2000, at C4; Madhari Acharya, KPMG Settles, TORONTO STAR, July 15, 2000, Edition 1; Diane Francis, Drabinsky, KPMG Case Raises Questions, NAT'L POST, June 24, 2000, at D2.
71. Imputed disqualification, i.e. the notion that each lawyer in a practice setting is subject to the conflicts of every other lawyer, has already been discussed. See discussion supra at 1542-44.
72. Fischel, supra note 24, at 966. Anticipating Dean Fischel's argument, the Section of Business Law's Ad Hoc Committee on Ethics 2000 has presented the ABA Commission evaluating the Model Rules an extraordinary proposal that would abolish imputation, permit law firms to take positions directly adverse to current clients so long as different teams undertook the work, and limit loyalty to the lawyers actually working on the client's matters, a concept the Committee characterizes as consistent with "undivided" loyalty. See Letter from Ad Hoc Committee to Ethics 2000 Commission dated October 5, 1999 concerning proposed Rule 1.10 (on file with the Commission). It is a good thing the Committee did not ask any clients whether they shared this cramped view on loyalty.
73. Fischel, supra note 24, at 966.
74. Id. at 965.
75. Morgan, Lewis & Bockius, LLP, Guidebook, Integrated Legal Services available in 〈://www.Morganlewis.com/services.〉.
76. Fischel, supra note 24, at 966.
77. Stewart J. Schwab, Randall S. Thomas & Robert G. Hansen, Megafirms (Aug. 7, 2000) (unpublished manuscript on file with author).
78. Fischel, supra note 24, at 961.
79. "[W]hen a disinterested lawyer would conclude that the client should not agree to the representation under the circumstances, the lawyer involved cannot properly ask for such agreement or provide representation on the basis of the client's consent." MODEL RULES OF PROFESSIONAL CONDUCT Rule 1.7 cmt. 5 (1999).
80. ABA Formal Opinion 93-372, observed: Given the importance that the Model Rules place on the ability of the client to appreciate the significance of the waiver that is being sought, it would be unlikely that a prospective waiver which did not identity either the potential opposing party or at least a class of potentially conflicting clients would survive scrutiny. Even that information might not be enough if the nature of the likely matter and its potential effect on the client were not also appreciated by the client at the time the prospective waiver was sought. ABA Comm. On Ethics and Professional Responsibility, Formal Op. 93-372 (1993).
81. An agreement concerning the scope of representation must accord with the Rules of Professional Conduct and other law. Thus, the client may not be asked to agree to representation so limited in scope as to violate Rule 1.1 [the rule governing competence], or to surrender the right to terminate the lawyer's services or the right to settle litigation that the lawyer might wish to continue. MODEL RULES OF PROFESSIONAL CONDUCT Rule 1.2 cmt. 5 (1999).
82. "A lawyer shall not make an agreement prospectively limiting the lawyer's liability to a client for malpractice unless permitted by law and the client is independently represented in making the agreement. . . ." Id. 1.8(h).
83. The rule itself provides that a lawyer may not communicate with a person known to be represented in the matter "unless the lawyer has the consent of the other lawyer. . . ." Id. 4.2.
84. The rule's admonition is unequivocal. "A lawyer's fee shall be reasonable." Id. 1.5(a). Although a lawyer and client may have executed a written fee agreement, courts are always free to make their own inquiries about the reasonableness of legal fees as part of their inherent authority to regulate the practice of law. See Pfeifer v. Sentry Ins., 745 F. Supp. 1434 (E.D. Wis. 1990) (court has inherent power to review reasonableness of fees and to refuse to enforce any contract calling for excessive or unreasonable fees). ANNOTATED MODEL RULES OF PROFESSIONAL CONDUCT Rule 1.5 (1999) at 48.
85. The rule's admonition is unequivocal. "A lawyer's fee shall be reasonable." Id. 1.5(a). Although a lawyer and client may have executed a written fee agreement, courts are always free to make their own inquiries about the reasonableness of legal fees as part of their inherent authority to regulate the practice of law. See Pfeifer v. Sentry Ins., 745 F. Supp. 1434 (E.D. Wis. 1990) (court has inherent power to review reasonableness of fees and to refuse to enforce any contract calling for excessive or unreasonable fees). ANNOTATED MODEL RULES OF PROFESSIONAL CONDUCT Rule 1.5 (1999) at 48.
86. See, ABA Formal Opinion 93-372, supra note 70.