Wake Up ABA: CPA-Attorney Partnerships Are Coming.

Is a partnership with a lawyer in your accounting practice's future? The American Bar Association says no, but it's wrong.

California's Business and Professions Code Sec. 5079 allows CPAs to partner with lawyers and share fees. However, ABA Model Rule 5.4 prohibits lawyers from sharing legal fees and being co-owners in a law practice with nonlawyers.

Recently, for the second consecutive year, the ABA House of Delegates voted overwhelmingly (314-106) to reject its Commission on Multidisciplinary Practice's recommendations that would allow fee sharing and partnering with nonlawyers. The vote also dissolved the commission.

One anti-MDP delegate, analogizing to the medical profession's "patients' bill of rights," identified the ABA Model Rules as "our clients' bill of rights." An ironic analogy since the house ignored clients' concerns. The commission had gathered a mountain of evidence that demonstrated solid client support for MDPs. In fact, not once did a client urge the commission to maintain the status quo.

Consumer groups voiced support for "one-stop shopping" as a "time and cost efficient option for addressing complex needs." They also stressed that MDPs would allow more consumers to satisfy unmet legal needs. The belief is that an increased number of middle-income individuals would obtain legal advice if it was available through a lawyer in an MDP, which already was providing them with services. In effect, the marketplace is shouting for MDPs.

MDPs CURRENTLY EXIST

The house of delegates essentially rejected the fully integrated MDP model in which a single firm delivers seamless legal and nonlegal services, i.e., a firm owned by a practicing lawyer and a CPA. The existing model permits ancillary business ownership by law firms as long as legal services are not provided.

Numerous law firms have embraced this model, and most opt to conduct the ancillary nonlegal business through a separate entity. Duane, Morris & Hecksher LLP, a law firm with offices in 11 states, including California, is more direct. DM&H's tax accounting department provides services such as accounting, management advisory and financial planning. The tax accounting department's director is a CPA.

De facto lawyer-accountant MDPs are well known within accounting firms, particularly the Big Five. Lawyers in U.S. accounting firms (more than 5,000 according to the MDP Commission) perform tax accounting or consulting services. Such lawyers may be employees or owners, but cannot practice law. The bar has tried unsuccessfully to defeat such arrangements with lawsuits claiming unauthorized practice of law.

PRESERVING THE MONOPOLY

Opponents of the fully integrated MDP model argue that it will impair the legal profession's core values--confidentiality, attorney-client privilege and independent judgment. This argument is a smoke screen. For years, lawyers have worked in settings where they do not own or control the company, such as government law practices, legal aid organizations and in-house legal departments with the profession's core values fully preserved.

Lawyers' real concern, while fighting to maintain the status quo, is preservation of their right to keep legal fees--all of the legal fees. This is particularly apparent when opponents of the fully integrated model argue in favor of preserving the ancillary business model. Both are MDPs, but the latter assures that nonlawyers cannot reach legal fees while lawyers share all the profits. MDPs do not inherently preserve core values by virtue of all legal fees flowing to the lawyers.

FACE THE INEVITABLE

The ABA Model Rules, though influential, are not inherently binding and the ABA vote will be ignored by state bars that value satisfaction of marketplace needs.

In Arizona, the bar's board of governors already has approved fully integrated MDPs. According to Lynda Shely, Arizona State Bar director of lawyer ethics, Arizona will proceed with MDPs despite the ABA vote. Their only remaining hurdle is approval by the Arizona Supreme Court. The Colorado Bar also is moving ahead. Many state bars, like California's, are still studying the issue. However, once one state bar approves MDPs, a wave may follow. The pattern could resemble the rush by states to adopt LLCs following their creation in Wyoming.

To avoid becoming irrelevant, the ABA eventually will heed its own commission's advice, listen to the marketplace and lift the ban. Meanwhile, in the Wild West, two horses are escaping from the barn. A stampede may follow.

Gary R. McBride, JD, LLM, CPA, is executive director of the Center for Financial Reporting and Management at the UC Berkeley Haas School of Business. A consultant to the Silicon Valley CPA firm of Froshman Billings and Williams, McBride also is an Education Foundation instructor and ABA member.