ETHICS: UNAUTHORIZED PRACTICE OF LAW – … A. “Doc” Watson S HEEHY, L OVELACE & M AYFIELD,...

ETHICS:

UNAUTHORIZED PRACTICE

OF LAW –

CURRENT DEVELOPMENTS

Robert A. “Doc” WatsonSHEEHY, LOVELACE & MAYFIELD, P.C.

Waco, Texas

STATE BAR OF TEXAS22 Annual Advanced Real Estate Law Coursend

June 28-30, 2000 - Austin, TexasJuly 12-14, 2000 - Fort Worth, Texas

CHAPTER 18

ROBERT A. WATSONSheehy, Lovelace & Mayfield, P.C.

510 North Valley Mills DriveSuite 500

Waco, Texas 76710254/772-8022

FAX: 254/772-9297e-mail: [email protected]

EDUCATIONB.S., Baylor UniversityJ.D., Baylor University School of Law

PROFESSIONAL ACTIVITIESShareholder, Sheehy, Lovelace & Mayfield, P.C.Board Certified, Residential Real Estate Law and Commercial Real Estate Law, 1983-2003Sustaining Life Fellow, Texas Bar FoundationMember of the Board of Directors, State Bar of Texas, 1995-1998

(Member of Executive Committee, 1996-1997)Member, Unauthorized Practice of Law Task Force of State Bar of Texas, 1998-2000Board Advisor - Real Estate, Probate and Trust Law Section, 1995-1998Member, Council of Real Estate, Probate & Trust Law Section, 1998-2002Board Advisor - State Bar of Texas Real Estate Forms Committee, 1995-1998Member, State Bar of Texas Real Estate Forms Committee, 1998-2001Member, Texas Association of REALTORS Legal Panel, 1985-1998Chairman and Organizer, Unauthorized Practice of Law Subcommittee for District 8, 1990President, Waco-McLennan County Bar Association, 1993-1994Chairman of the Board, Texas Young Lawyers Association, 1985-1986President, Waco-McLennan County Young Lawyers Association, 1981-1982President, Heart of Texas Legal Services Corporation, 1982

LAW RELATED PUBLICATIONS, ACADEMIC APPOINTMENTS AND HONORSAdjunct Professor, Real Estate Finance and Property Law, Baylor University School

of Law, 1992-2000Speaker, State Bar of Texas Program - “Digging Into Real Estate,” 1995 and 1998Speaker, State Bar of Texas Advanced Real Estate Drafting Course, 1998 and 2000Speaker, State Bar of Texas Advanced Real Estate Course, 1998Speaker, The University of Texas School of Law William W. Gibson, Jr. Mortgage Lending

Institute, 1999Speaker, Southern Methodist School of Law, Real Estate Law: Transactions In-Depth, 2000

ETHICS: UNAUTHORIZED PRACTICE OF LAW – CURRENT DEVELOPMENTS CHAPTER 18

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ETHICS: UNAUTHORIZED PRACTICE OF LAW --


INDEX

I. UPL is a growing problem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

II. UPL is illegal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

III. UPL Enforcement Mechanisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

IV. The Practice of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

V. Common Defenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

VI. Aiding and Abetting UPL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

VII. Duties of courts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

VIII. Pro se practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

IX. Multidisciplinary Practice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

X. Real Estate Licensee Concerns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

XI. New Statutory Definition for the Practice of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27(Has not yet been approved by State Bar Board of Directors.)


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ETHICS: UNAUTHORIZED PRACTICE OF LAW --


I. UPL is a growing problem.

UPL = unauthorized practice of law

A. Unlicensed persons pretending to beattorneys

B. Persons who believe they have the right topractice law

1. "independent paralegals" 2. "public adjusters" 3. "immigration consultants"

C. Out of state lawyers

1. Resident in Texas 2. Fail to follow pro hac vice rules. See

Section. VII, infra.

II. UPL is illegal.

A. TEX. GOV'T CODE ANN. §§ 81.102(a), 83.001, et seq. [All citations are tothe Texas Government Code except asnoted.]

B. There are exceptions for out of stateattorneys and law students under rulespromulgated by the Supreme Court. §81.102 (b).

C. UPL is criminal in connection withpersonal injury practice. TEX. PENALCODE ANN. § 38.123. Also criminal tohold oneself out as an attorney forfinancial gain. TEX. PENAL CODEANN. § 38.122.

III. UPL Enforcement Mechanisms

A. Texas Supreme Court has authority overUPL. UPLC v. Cortez, 692 S.W.2d 47

(Tex. 1985) cert. denied, 474 U.S. 980(1985).

B. UPLC was created in 1979 by what isnow § 81.103.

1. 9 members - 6 attorneys, 3 public,appointed by the Supreme Court

2. UPLC has 5 regions andsubcommittees in most State BarDistricts.

C. Duties of UPLC are in § 81.104.

1. Investigate UPLC complaints;subpoena power

2. Prosecute civil actions in its ownname to stop UPL

3. Committee may not give advisoryopinions

D. Principal remedy is civil suit, requestingpermanent injunction with contempt forviolation.

E. Normal process.

1. Notification letter 2. Investigative hearing 3. Recommendation by UPLC

Subcommittee a. resolution by agreement, or b. recommendation of suit

F. UPLC acts on subcommitteerecommendation.

G. If suit authorized, pursued to judgment orsettlement.

IV. The Practice of Law

A. Statutory definition is in§ 8 1. I 01 (a).

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B. Courts can interpret - § 8 1. 101 (b). c. forms

C. Common areas of concern:

1. Insurance Generally, Federal courts andQuarles v. State Bar, 316 S.W.2d agencies license persons who may797 (Tex. Civ. App.--Houston [1st appear before them. This regulationDist.) 1958, no writ). cannot be interfered with by theRepresentation of non-lawyer on state. insurance matter is UPL. Bro" v. UPLC, 742 S.W.2d 34 (Tex. E. Inmate practice. App.--Dallas 1987, writ denied). Johnson v. Avery, 393 U.S. 483, 89Advising persons on insurance S.Ct. 747, 21 L.Ed.2d 718 (1968).claims is UPL. Appellant Brown Inmates may assist other inmates onwas pro se. legal issues if there is no effectiveGreen v. State Bar, 27 F.2d 1083 assistance of counsel available. The(5th Cir. 1994). Follows Brown U.S. Court of Appeals for the Fifthcase, holds that UPL regulation does Circuit has narrowly construed thisnot violate antitrust laws and UPLC exception. prosecutors have absolute immunityfrom claims under § 1983. F. Court administration issues.

2. Immigration 1. Advising persons of the rulesUPLC v. Cortez, 692 S.W.2d 47 or statutory information is not(Tex. 1985) cert. denied, 474 U.S. UPL. 980 (1985). Selection and filling outof INS forms is UPL. 2. Advising persons of a specific

3. Document preparation you...") is UPL.

a. realty instruments 3. If "how do I do" questions canHexter Title & Abstract Co. v. be answered by reference to theGrievance Committee, 179 rules or statutory requirements,S.W.2d 946 (Tex. 1944). TEX. it is not UPL. GOV'T CODE ANN. §83.001, et seq. 4. Assisting a person to fill out a

b. wills Palmer v. UnauthorizedPractice Committee, State Bar,438 S.W.2d 372 (Tex. Civ.App.--Houston [14th Dist.]1969, no writ). Fadia v. UPLC, 830 S.W.2d162 (Tex. App.--Dallas 1992,writ denied). Selling will kitswhich had not been preparedby an attorney was UPL.Appellant Fadia was pro se.

Cortez v. UPLC, supra.

D. Federal licensing.

course of action ("if I were

form is UPL.

V. Common Defenses.

A. 1st, 5th and 14th Amendments do not barUPL regulation.

B. Antitrust laws are inapplicable to UPL. Green, supra.







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VI. Aiding and Abetting UPL.

A. Disciplinary Rule 5.05 (b) speaks directlyto aiding and abetting. Enforced by bothUPLC and Grievance Committees.

B. Disciplinary Rule 5.03 speaks to duty tosupervise non-attorneys.

C. Disciplinary Rule 5.04 speaks to feesplitting and business associations withnon-attorneys.

D. Specific issues.

1. Review of documents,correspondence

2. Stationary (misidentification,unauthorized use)

3. Fee splitting - percentage tonon-attorney

VII. Duties of courts.

A. Court has responsibility and duty todetermine credentials of personsappearing before it. Bordon v. Wallace,570 S.W.2d 445 (Tex. Civ. App.--ElPaso 1978, writ dism'd).

B. Court has duty to monitor pro hac vicepractice and require its compliance.Admission to the Bar pro hac vice isgoverned by Rule XIX of the RulesGoverning Admission to the Bar. Prohac vice admission can only be properlysought by a non-resident attorney for aparticular proceeding. The applicant mustbe sponsored by a Texas attorney.

VIII. Pro se practice.

A. What is a pro se party?

1. Definition - (Lat.) "for himself." 2. Some persons may use "pro per",

which is short for "in propriapersona," meaning "in one's ownproper person."

3. Some persons use "sui juris", whichmeans not under any legal disability.This term is not appropriate since allit asserts is that the person is not achild or a mentally incompetent.

B. Civil rules

1. Permitted by TEX. R. CIV. P. 7. Acourt may not order a party to berepresented by counsel. Ayres v.Canales, 790 S.W.2d 554 (Tex.1990); Ex Parte Shaffer, 649S.W.2d 300 (Tex. 1983).

2. Permitted by 28 U.S. C. § 1654,FED. R. CIV. P. 4 (a), 11.

3. Rules only apply to natural persons.4. A pro se party is required to observe

all applicable rules as would a partyrepresented by counsel. Bailey v.Rogers, 631 S.W.2d 784 (Tex.App.--Austin 1982, no writ).

C. Criminal rules

1. Permitted by the Sixth Amendmentto the U.S. Constitution. Faretta v. California, 422 U.S. 806,95 S.Ct. 2525 (1975) holds that theSixth Amendment both requires thatcounsel be provided in criminalprosecutions and that a defendanthas the right to waive assistance ofc o u n s e l a n d h a v eself-representation. The right ofself-representation is also providedfor in 28 U.S.C. § 1654 and FED.R. CRIM. P. 44.

2. TEX CODE CRIM. PROC. ANN.art. 1.051 (f),(g) permits the writtenwaiver of the right to counsel. Therequirement for a written waiver wasdeclared to not be essential inBurgess v. State, 816 S.W.2d 424,(Tex. Crim. App. 1991).

3. "Hybrid" representation [where aparty wants to participate in a trial







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along with his attorney] is not a App.--Houston [1st Dist.]right. Garza v. State, 635 S.W.2d 1969, no writ). Rule 7 only644 (Tex. App.--Amarillo 1982, applies to natural persons. pet. ref’d).

4. Habeas Corpus. TEX. CODE Monifort Food DisttibutingCRIM. PROC. ANN. art. 11. 12 Co., 545 S.W.2d 49 (Tex. Civ.provides that any person may App.--Houston [14th Dist.]present a petition for a writ of 1976, no writ). Corporationhabeas corpus on behalf of anyone answers pro se at its peril. else. This provision has beenconsistently interpreted by the d. Dell Development Corp. v.UPLC to mean that while anyone Best Industrial Uniformcan be the applicant, if the applicant Supply Co., Inc., 743 S.W.2dis not an attorney, the applicant 302 (Tex. App.--Houstonmust have counsel. Since the [14th Dist.] 1987, writ denied).applicant is not the real party Corporations failure to beinterest, the rules relating to pro se represented by counsel is notpractice do not apply. grounds for a continuance,

D. Persons who are representatives cannot American Express cases,be pro se unless they are also an attorney. supra. Cf., Hawkeye Bank and

1. Power s of a t torney["attorneys-in-fact"] e. Electronic Data Systems

2. Next friends Corp. v. Tyson, 862 S.W.2d3. Receivers 729 (Tex. App.--Dallas 1993,4. Trustees no writ). This case cites Dell,5. Executors, administrators of probate supra, and holds that a

estates corporation is bound by the

E. Artificial persons cannot be pro se. litigation, which in this case

1. Corporations sanctioned.

a. The oldest U.S. case on this f. Moore v. Elektro-Mobilissue is Osborn v. United Technik GMBH, 874 S.W.2dStates Bank, 22 U.S. (9 324 (Tex. App.--El Paso 1994,Wheat.) 738, 830, 6 L.Ed. 204 writ denied). In this case a(1824), in which Chief Justice non-attrney (an insuranceMarshall wrote: "[a] adjuster) wrote a letter to thecorporation... can appear only court requesting certain relief.by attorney, while a natural Opposing counsel argued thisperson may appear for himself. constituted a general" appearance thus waiving

b. Globe Leasing, Inc. v. Engine the court had no personalSupply and Machine Service, jurisdiction over it. The Court437 S.W.2d 43 (Tex. Civ. of Appeals held that the action

c. American Express Co. v.

citing Globe Leasing and

Trust, infra.

acts of its attorneys during

caused the corporation to be

Elektro-Mobil's argument that




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of the non-attorney was not Kunstoplast of America, Inc.binding on the corporation and v. Formosa Plasticsthus its right to assert a special Corporation, USA, 937appearance had not been S.W.2d 455 (Tex. 1997). Thewaived. This case is cited as Supreme Court, whileauthoritative by the Texas approving the general rule thatSupreme Court in Kunstoplast a corporation must beof America, Inc., v. Formosa represented by a licensedPlastics Corporation, USA, attorney, citing Moore v.infra. Elektro-Mobil Technik

2. Partnerships, including limited non-attorney may perform thepartnerships ministerial duty of filing an

3. Exceptions

a. Small claims court. representation. TEX. R. CIV. P. 747a, TEX.PROP. CODE ANN. § 24.009. a. Documents filed by"Authorized agents" may non-attorney may be timelyrepresent corporations in small objected to by opposing party.claims court. American Express Co. v.

b. Garnishment. Co., supra. See, also, TEX. R.Gerhard Hardware Co. v. CIV. P. 57, which requiresTexas Cotton-Press Co., 26 pleadings of a party to beS.W. 168 (Tex. Civ. App. signed by the attorney of1894, no writ). Corporate record unless the party is proofficer could answer se, in which case the partygarnishment. must sign them. Impliedly, a

c. Bankruptcy Code § 341 thus has improperly signedhearings. pleadings which are a nullity. Under Federal law the initialmeeting of creditors, governed b. Corporation should be givenby § 341 of the Bankruptcy sufficient time to obtain properCode, are administrative representation. hearings and not legal Hawkeye Bank and Trustproceedings. Accordingly a National Association v.non-attorney may appear for Baugh, 463 N.W.2d 22 (Iowathe corporation at these 1990), 8 ALR 5th 991. On theproceedings. State day of trial the court ruled thatUnauthorized Practice of Law a closely held corporation mayCommittee v. Paul Mason & not be pro se, but refused theAssociates, Inc., 46 F.3d 469 corporation a continuance to(5th Cir. 1995). obtain counsel. The Iowa

d. Non-attorney may perfect holding that the corporationappeal. could not be pro se (a case of

GMBH, supra, holds that a

appeal bond.

4. Effect of lack of proper

Montfort Food Distributing

party which may not be pro se

Supreme Court reversed,

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first impression in Iowa at thetime) but the trial court abusedits discretion in refusing thecontinuance.

F. Pro se persons with documents preparedby non-attorney. If a pro se person uses documentsprepared by a non-attorney, that non-attorney has committed UPL.

FOR FURTHER READING:

Robert R. Ries, The Unauthorized Practice of Lawin Texas, 60 Tex. B. J. 37 (1997).

Propriety and Effect of Corporation's AppearancePro Se, Through Agent Who Is Not Attorney, 19ALR 3d 1073 (1968).

Thank you to James D. Blume, former State Chairof the Unauthorized Practice of Law Committee, forhis permission to use his work in this article.


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STATE BAR OF TEXAS TASK FORCE PRELIMINARY REPORT ON THE ABACOMMISSION'S MULTIDISCIPLINARY

PRACTICE PROPOSAL October 1999

Presidents PeÁia and Aycock have appointed multidisciplinary practice that would allow, for thethis task force to evaluate the State's regulation of first time in recent history, nonlawyers to have openthe unauthorized practice of law. The task force is in access as owners of firms providing legal services tothe process of preparing a wide-ranging report on the public. The proposal presents numerous explicitthat subject which will not be ready until sometime and implicit questions as to the legal profession'snext year. In the meantime, the debate concerning reason for being and as to whether the publicthe recent ABA Commission on Multidisciplinary interest, on balance, is being well-served. Practice Report has grown to the point where StateBar leadership has requested this task force's We offer the following as a preface to ourpreliminary views on whether the State Bar should preliminary report. While the task force representsendorse that proposal. Hence this interim report. many different viewpoints as to possible changes in

Executive Summary

The task force believes that the ABACommission's June 1999 proposal to allowmultidisciplinary practice groups to practice law hasnot been adequately justified. The task forcerecommends, for the reasons stated in theRecommendation at the end of this paper, that theproposal not be approved unless and until empiricalevidence is brought forward, the present proposal'sapparent deficiencies are addressed, and furtherstudy demonstrates that the public interest in factwill be furthered. The public interest includesproviding legal services consistent with a high,enforceable level of ethics, confidentiality, andloyalty to the client in a cost-effective manner for allthose needing legal services.

Introduction

The legal profession is now undergoing aprocess of self-examination that it has not faced inmodern times: who are we -- and are we really anydifferent from other trades and professions thatdispense advice? Some in society apparentlybelieve that we are not different and that a separatelegal profession is an anachronism, simply tooawkward and expensive to indulge any longer. Wefind ourselves at this juncture, addressing anAmerican Bar Association Commission proposal on

Texas' regulation of the practice of law, the task1

force members believe firmly that the practice oflaw should be a profession, dedicated to therepresentation of each individual client throughadvocacy and independent judgment guided by astrict code of professional responsibility. Implicit inthis commitment is the preservation of' clientconfidences and an oath to act as "officers of thecourt." The task force believes that the provision oflegal services should be made available to the publicin the most cost-effective manner possible, usingpersonnel and technology to minimize costs andproviding pro bono services directly and throughlegal clinics when clients cannot afford to pay.Hardly any other profession dedicates itself soexplicitly and completely to protecting theconfidences imparted to it and undertaking toprovide services to the poor without charge.

The task force includes a broad spectrum of1

preliminary viewpoints, including those who currentlybelieve that some form of multidisciplinary practice willserve the public interest, those who currently believe thatmultidisciplinary practice seriously jeopardizes ethicaland professional values, and/or those who currentlybelieve that changes in long-established rules governingthe practice of law should be made only when the futureeffects have been more carefully assessed.


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A disturbing aspect of the multidisciplinary practice. In June 1999, the Commission reported,practice ("MDP") debate is its implicit assumption recommending that the ABA Model Rules ofthat the practice of law must be viewed simply as a Professional Conduct be revised to allow MDPs tobusiness. A successful business is determined practice law. primarily by one indicator -- the amount of profitsit earns. This cannot be true of the legal profession The ABA Commission was faced with theif it is to meet its charged responsibilities. While a possibility of changing the rules as to the definitionlaw practice does depend on financial success to of the practice of law, fee-splitting, conflicts ofcontinue its existence, the legal profession's interest, and confidentiality. The Commissioncommitment and obligations over and above the addressed the second issue and left the rest to futureincentive for profit set it apart from many of the determination: trades and professions that would take advantage ofthe opportunities afforded by the ABA • "The legal profession should adopt andCommission's proposal. maintain rules of professional conduct that

If the market were the only regulator of the professional judgment, protection ofpractice of law, economic theory teaches that a confidential client information, and loyalty tominimum level of competence and ethics might be the client through avoidance of conflicts ofenforced, but only haphazardly, with enforcement interest, but should not permit existing rules tobeing principally a function of the relative financial unnecessarily inhibit development of newposition of the parties and the amount in structures for the more effective delivery ofcontroversy. The present system is intended to services and better public access to the legalensure that all those performing legal services do so system." competently and ethically. While the current systemof regulation may function imperfectly, it doesfunction in a much more even-handed way thanwould exist in an unregulated, laissez-faire world.

By imposing on those who practice law aprofessional duty to act as "officers of the court" thestate dramatically alters the behavior patternsotherwise to be expected in the absence ofregulation. The profession becomes aninstrumentality of the state, not only to educateclients on the substance of the law but also to induceclient compliance. The legal profession's rules, bychanneling the conduct of practitioners as theybecome familiar with their clients' circumstances,inherently serve the public interest by tending tochannel clients into compliance with the law as well.

Before the rules and traditions of the legalprofession are set aside, the value of those rules andtraditions should be seriously weighed.

The ABA Commission's MDP Report

In August 1998, the ABA Commission wasappointed to study the issue of multidisciplinary

protect its core values, independence of

• "A lawyer should be permitted to sharelegal fees with a nonlawyer. . ." 2

• "A lawyer should be permitted to deliverlegal services through a multidisciplinarypractice (MDP) . . ." • "Nonlawyers ... should not be

permitted to deliver legal services"• "A lawyer in an MDP who delivers legal

services to the MDP's clients should bebound by the rules of professionalconduct."

• "All rules of professional conduct thatapply to a law firm should also apply to anMDP."

• "In connection with the delivery of legalservices, all clients of an MDP should betreated as the lawyer's clients. . . ."

• ". . . the MDP should be required to give to thehighest court ... in each jurisdiction ... a writtenundertaking...."

Pertinent text in quotations is emphasized2

throughout this report by the use of boldface text.


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• "An MDP that fails to (a) In this chapter, the "practice of law" means thecomply with the preparation of a pleading or other documentwritten undertaking incident to an action or special proceeding orshall be subject to the management of the action or proceeding onwithdrawal of its behalf of a client before a judge in court aspermission...." well as a service rendered out of court,

At the August 1999 meeting of the ABA, the of any service requiring the use of legal skill orCommission's report was tabled pending further knowledge, such as preparing a will, contract,study. or other instrument, the legal effect of which

Current Regulation

Regulation of the practice of law in Texas isfounded primarily on statutes passed by theLegislature and disciplinary rules promulgated bythe Supreme Court.

Statutory Provisions

Chapter 81 of the Texas Government Code isthe most comprehensive statute defining andregulating the practice of law in Texas.

(a) Except as provided bySubsection (b), aperson may notpractice law in thisstate unless the personis a member of thestate bar.

(b) The supreme court maypromulgate rulesprescribing theprocedure for limitedpractice of law by: (1) attorneys licensed in another

jurisdiction; (2) bona fide law students; and (a) A person, other than a person described in(3) u n l i c e n s e d

graduate studentswho are attendingor have attended alaw schoolapproved by thesupreme court.

TEX. GOV'T CODE § 81.102.

including the giving of advice or the rendering

under the facts and conclusions involved mustbe carefully determined.

(b) The definition in this section is not exclusiveand does not deprive the judicial branch of thepower and authority under both this chapterand the adjudicated cases to determine whetherother services and acts not enumerated mayconstitute the practice of law.

(c) In this chapter, the "practice of law" does notinclude the design, creation, publication,distribution, display, or sale, includingpublication, distribution, display, or sale bymeans of an Internet web site, of writtenmaterials, books, forms, computer software, orsimilar products if the products clearly andconspicuously state that the products are not asubstitute for the advice of an attorney. Thissubsection does not authorize the use of theproducts or similar media in violation ofChapter 83 and does not affect theapplicability or enforceability of that chapter.

TEX. GOV'T CODE § 81.101 (as amended 1999).

A suite of other statutes overlap Chapter 81'sbasic framework for determining who may practicelaw in Texas. Some of these other statutes are penal.

Subsection (b), may not charge or receive,either directly or indirectly, any compensationfor all or any part of the preparation of alegal instrument affecting title to realproperty, including a deed, deed or trust,mortgage, and transfer or release of lien. (b) This section does not apply to:

(1) an attorney licensed in this state; (2) a licensed real estate broker or salesman

performing the acts of a real estate broker


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pursuant to The Real Estate License Act for property(Article 6573a, Vernon's Texas Civil damages orStatutes); or personal injury; (3) a p e r s o n

performing actsrelating to atransaction for thelease, sale, ortransfer of anymineral or mininginterest in realproperty.

TEX. GOV'T CODE § 83.001.

A person commits anoffense if, with intentto obtain an economicbenefit for himself orherself, the person exclusive right to select and retainholds himself orherself out as alawyer, unless he orshe is currentlylicensed to practice lawin this state, anotherstate, or a foreigncountry and is in goodstanding with the StateBar of Texas and thestate bar or licensingauthority of any and allother states and foreign Disciplinary Rules countries wherelicensed. Texas' Disciplinary Rules define the ethical

TEX. PENAL CODE § 38.122(a). Texas. Their scope reaches across all aspects of the legal profession. The pertinent rules are discussed

(a) A person commits anoffense if, with intentto obtain an economicbenefit for himself orherself, the person: (1) contracts with any

p e r s o n t orepresent thatperson withregard to personalcauses of action

(2) advises any person as to the person'srights and the advisability of makingclaims for personal injuries orproperty damages;

(3) advises any person as to whether or not toaccept an offered sum of money insettlement of claims for personal injuriesor property damages;

(4) enters into any contract with anotherperson to represent that person inpersonal injury or property damagematters on a contingent fee basis with anattempted assignment of a portion of theperson's cause of action; or (5) enters into any contract with a third

person which purports to grant the

legal counsel to represent theindividual in any legal proceeding.

(b) This section does not apply to a personcurrently licensed to practice law in this state,another state, or a foreign country and in goodstanding with the State Bar of Texas and thestate bar or licensing authority of any and allother states and foreign countries wherelicensed.

TEX. PENAL CODE § 38.123.

3

norms applicable to lawyers licensed to practice in

below.

Lawyers are prohibited from assisting anyonewho practices law in violation of the Texas statutes.

The Disciplinary Rules of Professional3

Conduct are reprinted in TEX.GOV'T CODE ANN.,tit.2, subtit. G, app. A, art. 10, § 9 (Vernon 1998).


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Rule 5.05 Unauthorized Practice of Law fees with a non-lawyer,A lawyer shall not:

(a) practice law in ajurisdiction wheredoing so violates theregulation of the legalprofession in thatjurisdiction; or

(b) assist a person who is not a member ofthe bar in the performance of activitythat constitutes the unauthorizedpractice of law.

Rule 7.03 prohibits paying referral fees tononlawyers.

Rule 7.03 Prohibited Solicitations and Payments(b) A lawyer shall not

pay, give, or offer topay or give anythingof value to a personnot licensed topractice law forsoliciting prospectiveclients for, orreferring clients orprospective clients to,any lawyer or firm,except that a lawyermay pay reasonablefees for advertising andpublic relationsservices rendered inaccordance with this form of a professional corporation orRule and may pay the association authorized to practice law for ausual charges of a profit, if: lawyer referral service (1) a non-lawyer owns any interest therein,that meets the except that a fiduciary representative ofrequirements of Article the estate of a lawyer may hold the stock320d, Revised Statutes. or interest of the lawyer for a reasonable

Similarly, the Disciplinary Rules forbid fee-sharingwith nonlawyers.

Rule 5.04 Professional Independence of a Lawyer (a) A lawyer or law firm

shall not share orpromise to share legal

except that: (1) an agreement by a lawyer with the

lawyer's firm, partner, or associate, or alawful ourt order, may provide for thepayment of money, over a reasonableperiod of time, to the lawyer's estate to orfor the benefit of the lawyer's heirs orpersonal representatives, beneficiaries, orformer spouse, after the lawyer's death oras otherwise provided by law or courtorder.

(2) a lawyer who undertakes to completeunfinished legal business of a deceasedlawyer may pay to the estate of thedeceased lawyer that proportion of thetotal compensation which fairlyrepresents the services rendered by thedeceased lawyer; and

(3) a lawyer or law firm may includenon-lawyer employees in a retirementplan, even though the plan is based inwhole or in part on a profit-sharingarrangement.

(b) A lawyer shall not form a partnership witha non-lawyer if any of the activities of thepartnership consist of the practice of law.

(c) A lawyer shall not permit a person whorecommends, employs, or pays the lawyer torender legal services for another to direct orregulate the lawyer's professional judgment inrendering such legal services.

(d) A lawyer shall not practice with or in the

time during administration; (2) a non-lawyer is a corporate director or

officer thereof; or (3) a non-lawyer has the right to direct or

control the professional judgment of alawyer.

Rule 7.01(a) prevents a lawyer in private practicefrom using a trade or nonlawyer name.


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Rule 7.01 Firm Names and Letterheads Rule 1.06 Conflict of Interest: General Rule(a) A lawyer in private

practice shall notpractice under a Rule from engaging in a particular conduct,trade name, a name no other lawyer while a member orthat is misleading as to associated with that lawyer's firm maythe identity of the engage in that conduct. lawyer or lawyerspracticing under suchname, or a firm namecontaining namesother than those ofone or more of thelawyers in the firm,except that the namesof a professionalc o r p o r a t i o n ,p r o f e s s i o n a lassociation, limitedliability partnership, orprofessional limitedliability company maycontain "P.C.,” "P.A.,”"L.L.P.," "P.L.L.C.," or (b) No lawyer in a firm with which a lawyersimilar symbolsindicating the nature ofthe organization, and ifotherwise lawful a firmmay use as, or continueto include in, its namethe name or names ofone or more deceasedor retired members ofthe firm or of apredecessor firm in acontinuing line ofsuccession. Nothingherein shall prohibit amarried woman frompracticing under hermaiden name.

The Disciplinary Rules take a very restrictive

approach in regulating conflicts of interest, with theaim of protecting a lawyer's duty of loyalty to aclient. One of the more formidable rules is the onewhich imputes a lawyer's conflict of interest to thelawyer's entire firm.

. . . (f) If a lawyer would be prohibited by this

However, former government lawyers enjoy aspecial exception to avoid the breadth of the broadimputation rule.

Rule 1.10 Successive Government and PrivateEmployment (a) Except as law may otherwise expressly permit,

a lawyer shall not represent a private clientin connection with a matter in which thelawyer participated personally andsubstantially as a public officer oremployee, unless the appropriategovernment agency consents afterconsultation.

subject to paragraph (a) i sassociated mayknowinglyundertake orcontinuerepresentation insuch am a t t e runless:

(1) The lawyer subject to paragraph (a) isscreened from any participation in thematter and is apportioned no part ofthe fee therefrom; and

(2) written notice is given with reasonablepromptness to the appropriategovernment agency.

(c) Except as law may otherwise expresslypermit, a lawyer having information that thelawyer knows or should know isconfidential government information abouta person or other legal entity acquired


-13-

when the lawyer was a public officer or interests areemployee may not represent a private client materially andwhose interests are adverse to that person or directly adverselegal entity. to the interests

(d) After learning that a of another clientlawyer in the firm issubject to paragraph(e) with respect to aparticular matter, a (2) reasonably appears to be or becomefirm may undertakeo r c o n t i n u erepresentation in thatmatter only if thatdisqualified lawyer isscreened from anyparticipation in thematter and isapportioned no partof the fee therefrom.

Rule 1.11 creates a similar exception for formerjudicial personnel.

Rule 1.06(a) flatly prohibits representation ofopposing parties in the same litigation. "A lawyershall not represent opposing parties to the samelitigation."

Rule 1.06(b) prohibits representationmaterially and directly adverse to another client orreasonably appearing to be adversely limited byrepresentation of another client, but the conflict iswaivable if it has no material effect and the affectedclients consent.

Rule 1.06 Conflict of Interest: General Rule ...(b) In other situations and

except to the extentpermitted by paragraph(c), a lawyer shall notrepresent a person ifthe representation ofthat person: (1) involves a

substant ia l lyrelated matter inwhich thatp e r s o n ' s

of the lawyer orthe lawyer'sfirm; or

adversely limited by the lawyer's orlaw firm's responsibilities to anotherclient or to a third person or by thelawyer's or law firm's own interests.

(c) A lawyer may represent a client in thecircumstances described in (b) if:(1) the lawyer reasonably believes the

representation of each client will not bematerially affected; and

(2) each affected or potentially affectedclient consents to such representationafter full disclosure of the existence,nature, implications, and possibleadverse consequences of the commonrepresentation and the advantagesinvolved, if any.

The Disciplinary Rules, in recognition of thespecial, privileged relationship between lawyer andclient, strictly protect the confidentiality ofinformation conveyed to the lawyer.

Rule 1.05 Confidentiality of Information (a) "Confidential information" includes both

"privileged information" and "unprivilegedclient information." "Privileged information"refers to the information of a client protectedby the lawyer-client privilege of Rule 503 ofthe Texas Rules of Evidence or of Rule 503 ofthe Texas Rules of Criminal Evidence or bythe principles of attorney-client privilegegoverned by Rule 501 of the Federal Rules ofEvidence for United States Courts andMagistrates. "Unprivileged client information"means all information relating to a client orfurnished by the client, other than privilegedinformation, acquired by the lawyer during thecourse of or by reason of the representation ofthe client.


-14-

(b) Except as permitted byparagraphs (c) and (d),or as required byparagraphs (e) and (f),4

a lawyer shall not consents afterknowingly: consultation or(1) R e v e a l

c o n f i d e n t i a linformation of aclient or aformer client to:(i) a person that for the advantage of the lawyer or of a

the client has third person, unless the client consentsinstructed is after consultation.not toreceive the Analysis of reasons for allowing MDPS information; Coordination of multiple disciplines or

(ii) anyone else,other thanthe client,the client'srepresentatives, or themembers ,associates,o remployeesof thel a w y e r ' slaw firm.

(2) Use confidentialinformation of aclient to thedisadvantage ofthe client unlesst h e clientconsents afterconsultation.

(3) Use confidentialinformation of aformer client tothe disadvantageof the former

client after therepresentation isconcluded unlessthe former client

the confidentialinformation hasb e c o m egenerally known.

(4) Use privileged information of a client

The substantive reason most often cited byproponents of the new MDP rule is to allow bettercoordination of services to a client ("one-stopshopping"). 5

A substantial level of coordination of multipledisciplines is available under existing rules. A clientoften retains accountants, business consultants,estate planners, economists, and numerous othertypes of professionals in conjunction with lawyers.Similarly lawyers and other professionals oftenretain one another to accomplish joint tasks forclients. Rule 5.04 only limits a nonlawyerprofessional from receiving a shared legal fee, beinga partner, officer, director, or owner in a law firm, ordirecting the lawyer's work for a client other than theprofessional.

Arrangements allowed under the current rulesare becoming increasingly regularized as formal"alliances." KPMG has recently entered into formalalliances with a number of law firms, includingMorrison & Foerster. Texas law has also been6

recently liberalized to encourage greater usageof computerized law-related programs by

Paragraphs (c), (d), (e) and (f) of the rule4

allow disclosure in circumstances involving express orimplied consent, a proceeding involving the lawyer as a See. e.g., Why MoFo Teams With KPMG,party, or criminal or fraudulent conduct by the client. NAT. LAW JOURNAL A12 (Aug. 23, 1999).

See, e.g., ABA Commission Reporter's Notes5

at 8.

6


-15-

nonlawyers, which should give consumersmore choices in finding answers to their legalproblems. 7

The task force has not yet seen persuasiveevidence indicating that the joint arrangements andalliances currently permissible are not adequate.8

The task force will continue to assess this situation.9

Economic control over the client

The issue which seems to be the mostsignificant in the analysis of the proposed MDP ruleis one which has been little analyzed in the debate --economic control over the client's business.

The prohibition of fee-sharing is the focus ofthe Commission's proposal. The disciplinary rule

(Rule 5.04) forbidding fee-sharing is the primaryrule which the Commission suggests be changed. .10

Rules 5.04 and 7.03(b) restrict the flow ofcompensation for legal work to the lawyers whoperform the work. But for the Rules, persons with11

control or influence over a client's selection ofcounsel could divert part of the legal fee to their ownbenefit. In those situations where a nonlawyer12

receives part of a client's fee without performingsubstantive work justifying such fee-sharing, the feesplit becomes the equivalent of a referral fee. Theeconomic effect of referral fees in the long runtheoretically would be either to increase fees paid byclients or reduce the quality of the services providedby lawyers -- all without any additional value toclients. The more inelastic demand is for the legal13

service in question, the greater would be the14

tendency for the price of the legal service to rise andthe referral fee to be passed on to the consumer.

Act of June 18, 1999, 76th Leg., R.S., ch. 799,7

§ 1, 1999 Tex. Sess. Law Serv. 3423 (to be codified atTEX. GOV'T CODE, § 81.101(c)). This new legislationappears to be directed at allowing consumers to preparetheir own legal documents, rather than nonlawyers to doso for others

Interestingly enough, a 1992 survey found that8

European corporate general counsel did not rate MDPsvery highly as a factor in "effectively and efficientlyimproving [a law firm's] representation” (an averagerating of only 2.55 where 5= "greatly improve" and 1="do not improve"). 1992 Gallup Survey of CorporateGeneral Counsels Outside of the U.S. (lexmundi.org). Asignificant question exists, however, as to whethergeneral counsels today would give different answers afterseven additional years of experience with MDPs.

One situation in which a jointly-owned MDP9

group might be more advantageous is in the developmentof proprietary work product or intellectual propertywhich is not made available generally to the public. It isunknown how often this situation arises and whether ateaming arrangement between independently-ownedentities acts as a disincentive to innovation. Certainlyintellectual property teaming arrangements are notunusual in today's business world. without losing any sales. Baumol, supra at 101-104.

The Commission does not address10

Rule7.03(b), presumably because a referral feepresupposes a nonlawyer separate and apart from thelawyer or law firm performing the client's legal work.

In some circumstances where the referring11

person has a fiduciary or other duty to the client (such asan officer or employee of a company or a trustee of atrust), the common law will also prevent the referral fee.

The Disciplinary Rules allow referral fees to12

be paid to lawyers, with the goal of encouraging thetransfer of legal work from a lawyer who, although legallylicensed to perform the work, is not as proficient orcapable as the transferee lawyer. See 28 A.L.R. 4 665th

(1984).

See, e.g., Baumol and Blinder,13

MICROECONOMICS PRINCIPLES AND POLICY 98-101,343-44 (5 Ed. 1991) (discussing the similar situation ofth

an excise tax); Samuelson, ECONOMICS 562 (6 Ed.th

1964) (discussing the theoretical effect oflower-than-market wages on job performance).

Demand is "inelastic" when an increase in14

price results in a lesser percentage decrease in demand.For example, if price increases by 10%, demand will beinelastic if it decreases by less than 10%. Demand wouldbe "perfectly inelastic" if providers could increase prices


-16-

Conversely, to the degree that demand is elastic, a consulting where they comprise five of the largestreferral fee would tend to divert income from six firms. lawyers; the work would become less attractive tolawyers and there would be a tendency for more Consulting Industrycapable lawyers to gravitate to other work, either 1998 Worldwide Data inside or. outside the profession. In the long run, areduction of lawyers' incomes would also tend toreduce the quality and availability of personsentering the profession. 15

Accounting firms and other nonlawyers, byreason of their large clienteles of audit and othertypes of clients whom they can serve without worryabout legal conflicts, would have leverage over theirclients' legal work if the Rules allowed referral feesor equivalent fee-splitting. In the case of Big 5accounting firms, that control could be formidabledue to the highly-concentrated nature of auditingwork. "[O]ver 90 percent of the companies listed onthe New York Stock Exchange (NYSE) and theAmerican Stock Exchange (ASE) were audited bythe Big 8. Law firms have much lower16

concentration rates. 17

The ability of the Big 5 to penetrate other linesof business is demonstrated by the dominance theyand their affiliates have achieved in management

Revenue No. of(millions $) Consultants

AndersenConsulting

7129 53416

PricewaterhouseCoopers

6000 40800

Ernst & Young 3870 16450

DeloitteConsulting

3240 19560

CSC 3000 20000

KPMG 3000 14094

McKinsey & 2500 5184Company

Cap Gemini 2261 n/aGroup

Mercer Consulting 1543 11304

Arthur Andersen 1368 9196

A. T. Kearney 1234 2880

Source: WetFeet.com analysis and ConsultantsNews/Kennedy Information (Sept. 1999).

The increased position of accounting firms inmanagement consulting is believed to be partiallyresponsible for the 67 % increase in revenuesachieved by accounting firms in the period1990-97. 18

See, e.g., Samuelson, supra at 70 (discussing15

the theoretical effect of a reduction of wages on thenumber of graduating electrical engineers); Baumol,supra at 433-34 (discussing the impact of incomeincentives on lawyer training).

Iyer and Iyer, Effect of Big 8 Mergers on16

Audit Fees: Evidence from the United Kingdom,AUDITING, 123, 124 (1996) (citing Tonge andWootton, Auditor Concentration and CompetitionAmong the Large Public Accounting Firms:Post-Merger Status and Future Implications, JOURNAL

OF ACCOUNTING AND PUBLIC POLICY 157 (1991)).

See, e.g., Who Represents Corporate Texas?,17

TEXAS LAWYER 8 (Aug. 23, 1999) (65 Texas corporateclients use 127 different law firms for their legal work);Curran and Carson, THE LAWYER STATISTICAL REPORT:THE U.S. PROFESSION IN THE 1990's 204 (1994) (therewere 71 law firms in Texas having 51 or more lawyers in1991); TEXAS LAWYER Annual Survey (Top 6 firm had 80]; see also U.S. Dept. of Commerce, STATISTICAL

53% of Top 25 Texas firms' gross revenues). ABSTRACT OF THE UNITED STATES 1998 at 780.

U.S. Census Bureau, SERVICE ANNUAL18

SURVEY: 1997 at 44-45, 76-77 (showing 1990-97increases in receipts of 67.2% for Accounting, Auditingand Bookkeeping Services [SIC 8721], 27.7% for LegalServices [SIC 81}, and 47.2% for Health Services [SIC


-17-

The ABA Commission recognizes the negativeimplications of a fee-split which is equivalent to areferral fee. Its Report states that "Ownership wouldbe limited to members of the MDP performingprofessional services. It would not be permitted foran individual or entity to acquire all or any part ofthe ownership of an MDP for investment or otherpurposes." This limitation seems unlikely to be19

enforceable. Presumably, if the legality of a MDPdepended on the participating nonlawyer doing some"substantive work," all nonlawyers would claim tobe doing so. Even if the disciplinary rules weredrawn to require some matching of the nonlawyer'seconomic return to the value of the nonlawyer'swork, policing such a rule would be impossible.Determining the economic value of the nonlawyer'swork would border on the subjective and be toodifficult a showing for effective enforcement.

The task force is concerned about the effect ofnonlawyer fee-splitting on the pricing and quality oflegal work.

Other economic effects

In some circumstances, a fee-splittingarrangement theoretically might be beneficial toclients if the arrangement creates efficiency or othercost-savings effects which outweigh any negativeeffects of referral fees. The Big 5, for example,conceivably might be able to offer legal services atlower overhead rates to the extent of whatevereconomies of scale they achieve by virtue of theirvery large organizational structures.

The task force was not able to conclude, for anumber of reasons, that MDPs would attain lowercosts than are currently available to law firms.Based on the limited data seen by the task .force,greater economies of scale are not apparent forlarge-size law firms. Smaller law firms often havelower cost structures than larger firms.

U.S. Average Per LawyerGross Receipts, Expenses and Income

F i r m No. Avg. Avg. Avg.s i z e of Gros Firm Firm(Lawy firm s Inco Incoe r s ) s Rece me me

ipts %

Avg. Avg.Tota Total lE x p Expense ense

%

Under 100 260, 137, 52.79 143 199 %

122, 47.3945 %

9 to 97 267, 150, 56.420 036 628 %

116, 43.6408 %

21 to 109 272, 154, 56.940 136 782 %

117, 43.1354 %

41 to 69 295, 168, 57.275 288 771 %

126, 42.8517 %

76 to 31 305, 168, 55.4150 152 911 %

136, 44.6241 %

Over 13 425, 230, 54.1150 062 084 %

194, 45.9978 %

Source: Altman & Weil, The 1999 Survey of Law FinnEconomics Executive Summary (1999).20

The task force also looked for, but did not find,reliable data on economies of scale for largeaccounting firms. If there are economics of scale,they do not appear to have resulted in the Big 5'soffering lower prices than other accounting firms."[M]uch of the focus of audit pricing studies hasbeen the premium paid by audit clients when theyengage one of these firms." 21

ABA Commission Report at 3. Eight price premium”).19

One must be careful not to conclude too much20

from this cost data due to geographic and work loaddifferences among different types of firms.

See Copley, An Assessment of the Potential21

Effect of Big Eight Firm Mergers on Competition in theMarket for Audit Services, 11 ADVANCES IN

ACCOUNTING 185, 196 (1993) (“Overall, the resultsconfirm the existence of a Big Eight firm price premium,but no evidence exists to suggest that audit fees areaffected by the level of intra-Big Eight competition.”);Francis and Simon, A Test of Audit Pricing in the Small-Client Segment of the U.S. Audit Market, 62 THE

ACCOUNTING REVIEW 145, 155 (1987) (“The evidencefrom this sample strongly supports the existence of a Big


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The task force also considered whether MDPs Another theoretical economic outcome of theare necessary for efficiencies to be shared. Although MDP proposal is the reduction of legal fees bycost-sharing arrangements between lawyers and virtue of increased competition. The task force doesnonlawyers are not forbidden under the current not find this rationale persuasive. The legalDisciplinary Rules, no such arrangement is known profession historically has been oversupplied withto have been tried in the United States. European lawyers. The provision of legal services to majorMDP arrangements exemplify overhead sharing, corporate clients is relatively unconcentrated. The22

but the task force is unable at this time to know how Disciplinary Rules, moreover, facilitate easy entrybeneficial those arrangements have been on the cost by new law firm competitors, by forbiddingside. Those European arrangements are reputed to noncompetition covenants for lawyers. Given thehave been successful. large number of competing law firms already in23

One of the many unanswered questions is leaving those firms, there seems little reason towhether existing law firms have already captured expect substantially lower fees simply due to MDPsmost or all of the efficiencies which a MDP could becoming additional competitors in the legalachieve. Similarly-sized law firms and MDP law marketplace.departments may not differ significantly in theeconomies of scale and scope available to each.

At this early stage of the task force's work, no Much attention has been paid to questionsreal conclusions can be drawn as to the likely concerning compliance by MDPs with the rulesefficiency gains, if any, to result from MDP regulating conflicts of interest and confidentiality.arrangements, except to say that the available data The task force believes those concerns to bedoes not clearly show such gains to be likely. partially supportable. 24

25

26

27

existence and the easy entry afforded to lawyers

Conflict of Interest/Confidentiality

28

Questions as to a MDP's ability to comply withthese rules seem a secondary consideration innon-adversarial situations where client consentunder Rule 1.06 would ordinarily not be needed orwould be readily given by affected clients. If theMDP were merely to advise on a client's corporateor tax structure, for example, other clients of theMDP ordinarily will have no interest in or concern

See ABA Commission Reporter’s Notes at 422

(describing the arrangement in Europe as being “topurchase goods and services from the professionalservices firms such as staff management, communicationstechnology, and rent for the leasing of office space andequipment.”).

See, e.g., ABA Commission Reporter’s Notes23

at 4; ABA Commision, Presentation of Dr. Hans-JürgenHellwig (Feb. 4, 1999 session).

The task force may consider the implications24

of substituting nonlawyers for lawyers as owner-managers of firms providing legal services. Theoretically,having lawyers as owner-managers may tend to overallocate older, more experienced lawyers to a client'sprojects. That theoretical tendency, however, tends to beoffset by law firms' widespread awareness thatprofitability is enhanced by increasing the ratio ofassociates (employees) to partners (owner-managers) ina firm. Moreover, even if lawyers were supplanted asowner-managers, their loss of income as equity ownersmight be largely offset economically by increases in theirsalaries as employees so as to maintain equilibrium with See, e.g., Written Remarks of Lawrence foxthe economic value of their legal work. to ABA Commission (June 2, 1999).

Novack, Let Them Eat Loans, FORBES (April25

22, 1996) ("According to the Washington-based NationalAssociation for Law Placement, less than 70% of theclass of 1994's 39,300 law school graduates had full-timelegal jobs six months -after graduation. This was downfrom 82% a decade ago."); National Association of LawPlacement, Employment Trends for Recent Graduates,1985-1997 (nalp.org 1999) (73.6% of 1997 law schoolgraduates were employed in full-time legal jobs).

See note 17 supra.26

Disciplinary Rule 5.06(a).27

28


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about that work. There also seems little reason to entity could effectively derive revenue from a MDPdoubt the ability of nonlawyer providers like major through a controlled person's or entity'saccounting firms to maintain a client's information participation in the MDP without subjecting theas confidential in this type of situation. controlling nonlawyer entity to MDP regulation, the29

Contested situations would present an entirely boon to nonlawyers. Fee-sharing by the controllingdifferent situation, given the broad firmwide entity could occur without any of the ethical andconflict-of-interest attribution provision in Rule regulatory oversight envisioned by the Commission.1.06(f). Even in those situations under Rule1.06(b) where a conflict could be waived by consentof the clients (i.e., a representation which reasonablyappears to be adversely limited by representation of One rationale running through the debate hasanother client), one of the clients might nonetheless been a belief that accounting firms and othersrefuse to give consent due to hostility between the possess the clout inevitably to legitimize MDPs andtwo clients. Rule 1.06, by itself, probably dooms the other forms of nonlawyer practice of law. TheABA Commission proposal as an effective means ABA Commission proposal seems to try to preemptfor the Big 5 and other large nonlawyer entities to this perceived political situation by allowing MDPS,practice law in adversarial situations. while preserving as much as possible the ethical30

One related issue which has not received much force does not comment now on this inevitabilityattention is the ability of nonlawyer entities to avoid rationale because the task force's initial mission is tothe impact of MDP regulation by interlocking determine if any rules changes in fact would benefitownership or control. For example, if a nonlawyer the public interest. The task force does believe that31

ABA Commission proposal could be a significant

The Inevitability Rationale

32

rules currently limiting the practice of law. This task

what are traditionally considered as legal servicesare being offered by those not presently allowed todo so, and that state of facts, if substantiated, callsfor either enforcement of the present rules or achange of the rules to bring them into accord withreality.

TEX. OCCUP. CODE § 901.457 (accountants29

are required to maintain client information confidentialexcept at required for financial reporting and court andother proceedings); 22 TEX. ADMIN. CODE § 501.31(same); 26 U.S.C. § 7525 (tax practitioner privilege fortax advice).

See, e.g., Remarks of Jerold Cohen, ABA30

Plenary Session (Aug. 7, 1999) ("There's not one of theBig 5 that can live with that [MDP] report" due to theconflict-of-interest rule).

Some form of indirect arrangement would31

seem to be necessary for accounting firms, given theSEC's limitation on auditing firms losing theirindependence by also doing legal work for audit clients.

A legal counsel entersinto a personalrelationship with a clientand is primarilyconcerned with thepersonal rights andinterests of such client.A n independent Multidisciplinary Practice, ALTMAN WEIL REPORT TO

accountant is precluded LEGAL MANAGEMENT 1, 2 (Aug. 1999) ("Worldwidefrom such a relationship market forces are much stronger than the ability of oneunder the securities acts nation's legal profession to hold those forces at bay").

because the role isinconsistent with thea p p e a r a n c e o findependence required ofaccountants in reportingto public investors.

SEC Codification of Financial Reporting Policies §602.02.e. See Matter of Charles E. Falk, Exch. Act Rel.No. 41426, AAE Rel. No. 1136,1999 SEC LEXIS1013,1999 WL 311802 (SEC) (May 19, 1999) (memberof accounting firm censured for having also acted ascounsel for an audit client).

See, e.g., ABA Stakes Out Its Position On32


-20-

The task force also does not comment at this participants in MDPs or have elsewhere beentime on the possibility that one or more other states participants in MDPs. The current legal system hasmay allow MDPS, which MDPs in turn may attempt been developed and perfected over many decades,to provide legal services to clients in Texas. The and before it is changed in as dramatic a way astask force's eventual report on the State of Texas' envisioned in the ABA Commission's report,regulation of the practice of law, however, may assumptions as to consumer welfare, ethics, andaddress that issue, when discussing current rules effectiveness of regulation should be founded on andaffecting multistate practice. tested by empirical data not now readily and

Recommendation

At this early stage, the task force's preliminary should also be addressed.report is noteworthy more for the questions forwhich there are not yet answers than for any The task force, in its continuing work, will bequestions answered. Serious questions, however, do focusing on the ability of lawyers under currentexist as to whether MDPs would benefit consumers. regulation to improve their efficiency throughThe addition of more firms providing legal services teaming arrangements with our professions, cost-appears unlikely to drive down legal costs, given the sharing, and more extensive use of computer expertslongstanding oversupply of lawyers, the absence ofsignificant increases in lawyer revenues in the1990's, and the absence of data suggestingcognizable efficiencies greater than those alreadybeing realized. On the other hand, the potential ofnonlawyers receiving the equivalent of referral feeswithout any corresponding contribution of addedvalue to the client poses risks of fee increases orquality-of-service decreases.

As to non-financial considerations, the taskforce is not yet aware of clients' having substantialneeds for multidisciplinary coordination whichcannot be achieved under the current rules.Significant questions abound as to the impact MDPswould have on the ethical delivery and regulation oflegal services, especially in adversarialrepresentations, and on the delivery of legal servicesto the poor.

A great deal of time and effort has already goneinto study of the Commission's proposal bynumerous persons and groups around the country.While the task force believes that more time andstudy is surely needed, there needs to be aqualitative shift in the effort. Not only should thebody studying the issue be broadened to includeexpertise and viewpoints outside the legalprofession, but significant effort should be made toobtain financial and other internal information fromthe various types of providers which would become

publicly available. Alternatives, such as redefining33

what constitutes the practice of law or evaluating34

reciprocal changes in other profession's rules,35

36

The Commission and its Reporter both33

acknowledge the lack of needed empirical data. ABACommission Report at 1; ABA Commission Reporter'sNotes at 4.

The task force's eventual report will be34

considering changes in the definition of the practice oflaw, as well as issues of regulation and enforcement.

Accountants in Texas have recently prevented35

any easing in the current requirement (TEX. OCCUP. CODE

§ 901.354) that accounting firms must be owned entirelyby accountants. See Owen, What Happened to thePublic Accountancy Act of 1999, TODAY'S CPA 14(May/June 1999).

Although the task force has analyzed the MDP36

proposal from the standpoint of consumer and societalwelfare, the debate eventually should explicitly take intoaccount the impact of MDPs on lawyers, not only as apolitical matter but also a matter of policy. While theimbedded investment made by the nearly 900,000lawyers in the country in education and infrastructureshould not defeat any changes which are shown to benefitsignificantly consumers and society, the extent of thatinvestment may counsel that any changes beaccomplished in such a way that the value of theinvestment is not imprudently jettisoned.


-21-

systems – changes which the legal profession shouldpursue whether or not MDPs become a reality.37

Walker ArensonAmanda G. Birrell

Jim BlumeGregg Cannady Keltner

Brent Clifton (chair) (a) A license or registration granted under theKelly Frels provisions of this Act shall be suspended or

Hon. Rodney Gilstrap revoked by the commission on proof that theGregory Huffman licensee or registrant, not being licensed and

Witcher McCullough III authorized to practice law in this state, for aDick Miller consideration, reward, pecuniary benefit,Lee Teran present or anticipated, direct or indirect, or in

Robert Valdez connection with or as a part of the licensee'sDoc Watson employment, agency, or fiduciary relationship

ex officio will, or other written instrument that may

Charles F. Aycock interest in land, except as provided in theLynne Liberato subsections below, or advised or counseled aDavid Keltner person as to the validity or legal sufficiency of

Antonio Alvarado an instrument or as to the validity of title toLinda Acevedo real estate.

TEXAS REAL ESTATE LICENSE ACTARTICLE 6573a

TEXAS CIVIL STATUTES

Section 16Unlawful Practice of Law; Texas Real Estate

Broker-Lawyer Committee

as a licensee, drew a deed, note, deed of trust,

transfer or anywise affect the title to or an

(b) Notwithstanding the provisions of this Act orany other law, the completion of contract formswhich bind the sale, exchange, option, lease, orrental of any interest in real property by aregistrant under Section 9A of this Act, a realestate broker, or a real estate salespersonincident to the performance of the acts of abroker as defined by this Act does notconstitute the unauthorized or illegal practiceof law in this state, provided the forms havebeen promulgated for use by the commissionfor the particular kind of transaction involved,or the forms have been prepared by an attorneyat law licensed by this state and approved bysaid attorney for the particular kind oftransaction involved, or the forms have beenprepared by the property owner or prepared byan attorney and required by the propertyowner.

(c) A Texas Real Estate Broker-LawyerCommittee is hereby created which, in additionto other powers and duties delegated to it, shall

See Final Report of Futures Committee to the37

Board of Directors of the State Bar of Texas (Sept. 9,1999).


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draft and revise contract forms capable of contract form as required by the commissionstandardization for use by real estate licensees pursuant to this section. and which will expedite real estate transactionsand reduce controversies to a minimum whilecontaining safeguards adequate to protect theinterests of the principals to the transaction.

(d) The Texas Real Estate Broker-LawyerCommittee shall have 12 members includingsix members appointed by the commission andsix members of the State Bar of Texasappointed by the President of the State Bar ofTexas. The members of the committee shallhold office for staggered terms of six yearswith the terms of two commission appointeesand two State Bar appointees expiring everytwo years. Each member shall hold office untilthe member’s successor is appointed. Avacancy for any cause shall be filed for theexpired term by the agency making the originalappointment. Appointments to the committeeshall be made without regard to race, creed,sex, religion, or national origin.

(e) In the best interest of the public thecommission may adopt rules and regulationsrequiring real estate brokers and salespersonsto use contract forms which have beenprepared by the Texas Real EstateBroker-Lawyer Committee and promulgatedby the commission: provided, however. that thecommission shall not prohibit a real estatebroker or salesperson from using a contractform or forms binding the sale, exchange,option, lease, or rental of any interest in realproperty which have been prepared by theproperty owner or prepared by an attorney andrequired by the property owner. For thepurpose of this section, contract formsprepared by the Texas Real EstateBroker-Lawyer Committee appointed by thecommission and the State Bar of Texas andpromulgated by the commission prior to theeffective date of this Act shall be deemed tohave been prepared by the Texas Real EstateBroker-Lawyer Committee. The commissionmay suspend or revoke a license issued underthe provisions of this article when it hasdetermined that the licensee failed to use a

THE RULES AND REGULATIONS OFTHE TEXAS REAL ESTATE

COMMISSION

TITLE 22 OF THE TEXASADMINISTRATIVE CODE

Chapter 537Professional Agreements and Standard

Contracts

§537.11. Use of Standard Contract Forms.[Adopted March 3, 1976; amended April 5, 1979;October 23, 1983; February 27, 1985; May 16,1985; May 15, 1986; October 5, 1990; September1, 1992; February 1, 1994; September 1, 1994;March 1, 1995; January 3, 1996; January 1,1998; September 1, 1998; and March 1, 1999]

(a) Standard Contract Form TREC No. 9-3 ispromulgated for use in the sale ofunimproved property where intended useis for one to four family residences.Standard Contract Form TREC No. 10-2is promulgated for use as an addendumconcerning sale of other property by abuyer to be attached to promulgatedforms of contracts. Standard ContractForm TREC No. 11-3 is promulgated foruse as an addendum to be attached topromulgated forms of contracts which aresecond or "back-up" contracts. StandardContract Form TREC No. 12-1 ispromulgated for use as an addendum tobe attached to promulgated forms ofcontracts where there is a VeteransAdministration release of liability orrestoration entitlement. Standard ContractForm TREC No. 13-1 is promulgated foruse as an addendum concerning newhome insulation to be attached topromulgated forms of contracts. StandardContract Form TPEC No. 15-3 ispromulgated for use as a residential leasewhen a seller temporarily occupies


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property after closing. Standard Contract a condominium resale certificate.Form TREC No. 16-3 is promulgated for Standard Contract Form TREC No. 33-0use as a residential lease when a buyer is promulgated for use as an addendum totemporarily occupies property prior to be added to promulgated forms ofclosing. Standard Contract Form 20-3 is contracts in the sale of property adjoiningpromulgated for use in the resale of and sharing a common boundary with theresidential real estate where there is all tidally influenced submerged lands of thecash or owner financing, an assumption state. Standard Contract Form TRECof an existing loan, or a conventional Form No. 34-0 is promulgated for use asloan. Standard Contract Form TREC No. an addendum to be added to promulgated21-3 is promulgated for use in the resale forms of contracts in the sale of propertyof residential real estate where there is a located seaward of the Gulf IntracoastalVeterans Administration guaranteed loan Waterway. Standard Contract Formor a Federal Housing Administration TREC No. 35-1 is promulgated for use asinsured loan. Standard Contract Form an addendum to be added to promulgatedTREC No. 23-2 is promulgated for use in forms of contracts as an agreement forthe sale of a new home where mediation. Standard Contract Formconstruction is incomplete. Standard TREC Form No. 36-0 is promulgated forContract Form TREC No. 24-2 is use as an addendum to be added topromulgated for use in the sale of a new promulgated forms in the sale of propertyhome where construction is completed. subject to mandatory membership in anStandard Contract Form TPEC No. 25-2 owners' association. Standard Contractis promulgated for use in the sale of a Form TREC Form No. 37-0 isfan-n or ranch. Standard Contract Form promulgated for use as a resale certificateTREC No. 26-2 is promulgated for use as when the property is subject to mandatoryan addendum concerning seller financing. membership in an owners' association.Standard Contract Form TREC No. 28-0 Standard Contract Form TREC Form No.is promulgated for use as an addendum to 38-0 is promulgated for use as a notice ofbe attached to promulgated forms of termination of contract. Standardcontracts where reports are to be obtained Contract Form TREC Form No. 39-0 isrelating to environmental assessments, promulgated for use as an amendment tothreatened or endangered species, or promulgated forms of contracts. wetlands. Standard Contract Form TRECNo. 29-0 is promulgated for use as an (b) When negotiating contracts binding theaddendum to be attached to promulgated sale, exchange, option, lease or rental offorms of contracts where an abstract of any interest in real property, a real estatetitle is to be furnished. Standard Contract licensee shall use only those contractForm TREC No. 30-1 is promulgated for forms promulgated by the Texas Realuse in the resale of a residential Estate Commission for that kind ofcondominium unit where there is all cash transaction with the following exceptions:or seller financing, an assumption of an (1) transactions in which the licensee isexisting loan, or a conventional loan. functioning solely as a principal, notStandard Contract Form TREC No.3 I -1 as an agent; is promulgated for use in the resale of a (2) transactions in which an agency ofresidential condominium unit where there the United States governmentis a Veterans Administration guaranteed requires a different form to be used;loan or a Federal Housing Administration (3) transactions for which a contractinsured loan. Standard Contract Form form has been prepared by theTREC No. 32-0 is promulgated for use as property owner or prepared by an


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attorney and required by the form, except that licensees shall addproperty owner; factual statements and business details

(4) transactions for which no standard desired by the principals and shall strikecontract form has been promulgated only such matter as is desired by theby the Texas Real Estate principals and as is necessary to conformCommission, and the licensee uses a file instrument to the intent of the parties.form prepared by an attorney at law A licensee shall not add to a promulgatedlicensed by this state and approved earnest money contract form factualby the attorney for the particular statements or business details for which akind of transactions involved or contract addendum, lease or other formprepared by the Texas Real Estate has been promulgated by the commissionBroker-Lawyer Committee and for mandatory use. Nothing herein shallmade available for trial use by be deemed to prevent the licensee fromlicensees with the consent of the explaining to the principals the meaningTexas Real Estate Commission. of the factual statements and business

(c) A licensee shall not practice law, offer, long as the licensee does not offer or givegive nor attempt to give advice, directly legal advice. It is not the practice of lawor indirectly; he shall not act as a public as defined in this Act for a real estateconveyancer nor give advice or opinions licensee to complete a contract formas to the legal effect of any contracts or which is either promulgated by the Texasother such instruments which may affect Real Estate Commission or prepared bythe title to real estate; he shall not give the Texas Real Estate Broker-Lawyeropinions concerning the status or validity Committee and made available for trialof title to real estate; and he shall not use by licensees with the consent of theattempt to prevent nor in any manner Texas Real Estate Commission. Contractwhatsoever discourage any principal to a forms prepared by the Texas Real Estatereal estate transaction from employing a Broker-Lawyer Committee for trial uselawyer. However, nothing herein shall be may be used on a voluntary basis afterdeemed to limit the licensee's fiduciary being approved by the commission.obligation to disclose to his principals all Contract Forms prepared by the Texaspertinent facts which are within the Real Estate Broker-Lawyer Committeeknowledge of the licensee, including such and approved by the commission tofacts which might affect the status of or replace previously promulgated formstitle to real estate. may be used by licensees on a voluntary

(d) A licensee shall not undertake to draw or requiring use of the replacement form. prepare documents fixing and definingthe legal rights of the principals to a (e) Where it appears that, prior to thetransaction. In negotiating real estate execution of any such instrument, theretransactions, the licensee may fill in are unusual matters involved in theforms for such transactions, using transaction which should be resolved byexclusively forms which have been legal counsel before the instrument isapproved and promulgated by the Texas executed or that the instrument is to beReal Estate Commission or such forms as acknowledged and filed for record. theare otherwise permitted by these rules. licensee shall advise the principals thatWhen filling in such a form, the licensee each should consult a lawyer of his choicemay only fill in the blanks provided and before executing same. may not add to or strike matter from such

details contained in the said instrument so

basis prior to the effective date of rules


-25-

(f) A licensee shall not employ, directly or (E) The name and address of theindirectly, a lawyer nor pay for the person or firm responsible forservices of a lawyer to represent an), developing the softwareprincipal to a real estate transaction in program must be legiblywhich he, the licensee, is acting as an printed below the border at theagent. The licensee may also employ and bottom of each page in no lesspay for the services of a lawyer to than six point type and in norepresent only the licensee in a real estate larger than 10 point type. transaction, including preparation of the (F) The text of the form must becontract, agreement. or other legal obtained from a proof of theinstruments to be executed by the form bearing a control numberprincipals to the transactions. assigned by the commission.

(g) A broker shall advise the principals that appear on all forms reproduced from thethe instrument they are about to execute proof. including forms reproduced byis binding on them. computer-driven printers.

(h) Forms approved or promulgated by the (j) Forms approved or promulgated by thecommission shall be reproduced only, commission must be reproduced on thefrom the following sources: same size of paper used by the(1) numbered proofs obtained from the commission with the following changes

commission; or additions only. (2) printed copies made from proofs (1) The business name or logo of a

obtained from the commission; broker, organization or printer may(3) legible photocopies made from such appear at the top of a form outside

proofs or printed copies; or the border. (4) computer-driven printers following (2) The broker's name may be inserted

these guidelines. in any blank provided for that(A) The computer file or program purpose.

containing the form text mustnot allow the end-user directaccess to the text of the formand may only permit the user toinsert language in blanks in theforms.

(B) Typefaces or fonts must appearto be identical to those used bythe commission in printedproofs of the particular form.

(C) The text and number of pagesmust be identical to that usedby the commission in printedproofs of the particular form.

(D) The spacing. length of blanks,borders and placement of texton the page must appear to beidentical to that used by thecommission in printed proofsof the form.

(i) The control number of each proof must


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This Preliminary Recommendation has not yet beensubmitted to, or approved by, the State Bar

Board of Directors

STATE BAR OF TEXAS TASK FORCE

PRELIMINARY RECOMMENDATION OF A NEW

STATUTORY DEFINITION FOR THE PRACTICE OF LAW

May 2000

Presidents W h i l ePeña and Aycock, at the request of the Supreme some issues within the definition of the practice ofCourt, have appointed this task force to evaluate the law may be capable of resolution by those withoutState’s regulation of the unauthorized practice of formal legal training, many are not. Somelaw. The task force is in the process of performing transactions are simple and may be handled easilya wide-ranging study on that topic. In October with forms, while other transactions may involve1999, the task force issued a preliminary report highly complex and individualized legal concepts.concerning the ABA Commission’s proposal to In some instances, only a highly capable practitionerallow nonlawyers to participate as owners of can identify which transaction is which.multidisciplinary practice groups in which lawyerspractice law. In the report being issued today, the There are also skills and knowledge required38

task force addresses a different subject – what for some parts of law practice which go beyondpersons other than lawyers should be allowed to knowledge of substantive law. A trial under theperform services which constitute the practice of rules of evidence and procedure can require verylaw. This report recommends that the Texas sophisticated interpersonal communication within aGovernment Code be amended to regulate more construct of highly technical rules.carefully and realistically this subject. In order toallow a full opportunity for public comment, the Successful regulation of the practice of lawtask force’s recommendation is being made on a depends in large part on licensure. The state limitspreliminary basis. After the task force has been able licensure to those who take steps to meet specifiedto review the comments received, a final proposal criteria in three areas: education, examination andwill be issued in October of this year. character. Once licensed, the state strives to ensure

Introduction

The public receives a higher quality of legal the attorney-client relationship gives an attorney.service to the extent practitioners are educated,trained and honest. Prohibiting the practice of law If the market were the only regulator of thoseby unqualified persons is designed to protect the providing legal services, economic theory teachespublic from those who lack the ability and integrity that competency and ethics would be haphazard, andneeded to represent clients in legal matters. controlled principally on the basis of cost.

minimum competency with ongoing education andconduct standards. These standards also seek toprotect clients and society from abuse of the power

39

See State Bar of Texas Task Force38

Preliminary Report on the ABA Commission’sMultidisciplinary Practice Proposal (October 1999),reprinted in 63 TEX. B. J. ff. 150 (Feb. 2000). to evaluate on an ex ante basis and is often hard to gauge

See Roger Blair & David Kaserman,39

Preservation of Quality and Sanctions Within theProfessions, in REGULATING THE PROFESSIONS 185, 186(Roger Blair & Stephen Rubin eds., 1980).The quality of professional services is generally difficult


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Licensure establishes a uniform set of minimum management ofcontinuing standards and eliminates the the action ordiseconomies which would be present if each client proceeding onhad to ascertain and deal individually with these behalf of a clientquestions. before a judge in

In some instances, however, licensure service renderedrequirements may need to be relaxed – where the out of court,legal service being provided can be readily including thedetermined to be of a simple nature and/or where giving of adviceothers have skills, training, and ethical standards or the renderingwhich provide some assurance of protection to the of any servicepublic. The task force’s goal has been to identify requiring the usethose areas where the public can be adequately of legal skill orserved by persons other than lawyers licensed by the knowledge, suchState of Texas and to allow for such in the proposed as preparing astatutory revision. will, contract, or

Current Regulation

There are several statutes currently regulating f a c t s a n dwho can practice law in the State of Texas. c o n c l u s i o n s

Chapter 81 of the Texas Government Code is c a r e f u l l ythe most comprehensive statute defining and determined.regulating the practice of law in Texas. (b) The definition in this section is not

§ 81.101 Definition under both this chapter and the(a) In this chapter, adjudicated cases to determine whether

the “practice of other services and acts not enumeratedlaw” means the may constitute the practice of law.preparation of a (c) In this chapter, the “practice of law” doespleading or other not include the design, creation,document incident publication, distribution, display, or sale,to an action or including publication, distribution,s p e c i a l display, or sale by means of an Internetproceeding or the web site, of written materials, books,

court as well as a

other instrument,the legal effect ofwhich under the

involved must be

exclusive and does not deprive thejudicial branch of the power and authority

forms, computer software, or similarproducts if the products clearly andconspicuously state that the products arenot a substitute for the advice of anattorney. This subsection does notauthorize the use of the products orsimilar media in violation of Chapter 83and does not affect the applicability orenforceability of that chapter.

TEX. GOV’T CODE § 81.101 (as amended 1999).

ex post. . . . Uncertainty about the quality of professionalservices has an adverse impact on the entire occupationalgroup. Consumers are forced to rely on some marketstatistic to judge the quality of prospective purchases ofservices. Each professional will have an individualincentive to reduce quality to save on costs because thereturns to high quality mainly accrue to the entire grouprather than to the individual seller. There are twoconsequences: (1) the average quality of professionalservices will fall, and (2) the size of the market isreduced.


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§ 81.102 State Bar Subsection (b),Membership Required may not charge or

(a) Except as receive, eitherprovided by directly orSubsection (b), a indirectly, anyperson may not compensation forpractice law in all or any part ofthis state unless the preparation ofthe person is a a legal instrumentmember of the affecting title tostate bar. real property,

(b) The supreme including a deed,cour t may deed or trust,promulgate rules mortgage, andprescribing the transfer or releaseprocedure for of lien.limited practice of (b) This section does not apply to:law by: (1) an attorney licensed in this state;(1) attorneys (2) a licensed real estatelicensed in broker or salesmana n o t h e r performing the acts of ajurisdiction; real estate broker(2) b o n a pursuant to The Realfide law Estate License Acts t u d e n t s ; (Article 6573a, Vernon’sand Texas Civil Statutes); or(3) (3) a person performing actsunlicensed relating to a transactiong r a d u a t e for the lease, sale, orstudents who transfer of any mineral orare attending mining interest in realor have property.attended alaw school TEX. GOV’T CODE § 83.001(a)-(b).approved bythe supreme § 38.122 Falsely Holding Oneself Out as a Lawyercourt. (a) A person commits an offense if, with

TEX. GOV’T CODE § 81.102. himself or herself, the person holds

A suite of other statutes overlap Chapter 81's he or she is currently licensed to practicebasic framework for determining who may practice law in this state, another state, or alaw in Texas. Some of these other statutes are foreign country and is in good standingpenal. with the State Bar of Texas and the state

§ 83.001 Prohibited Acts other states and foreign countries where(a) A person, other licensed.

than a persondescribed in TEX. PENAL CODE § 38.122(a).

intent to obtain an economic benefit for

himself or herself out as a lawyer, unless

bar or licensing authority of any and all


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§ 38.123 Unauthorized states and foreign countriesPractice of Law where licensed.

(a) A person commits an offenseif, with intent to obtain an TEX. PENAL CODE §38.123(a)-(b).economic benefit for himself orherself, the person:(1) contracts with any person

to represent that person The proposed revision would replace existingwith regard to personal sections 81.10l, 81.102 and 83.001 of the Texascauses of action for Government Code. The current statutoryproperty damages or framework on its face is overbroad and unrealistic inpersonal injury; certain respects. Laypersons who gratuitously

(2) advises any person as to comment on legal matters and in-house lawyersthe person’s rights and licensed in other states who advise their employersthe advisability of making are examples of this overbreadth. This overbreadthclaims for personal has been largely avoided in practice by theinjuries or property prosecutorial discretion of the Unauthorized Practicedamages; of Law Committee appointed by the Supreme Court.

(3) advises any person as to The proposed revision would eliminate thesewhether or not to accept apparent problems so that the statute would readan offered sum of money accurately on reality.in settlement of claims forpersonal injuries or The proposed revision would also allow non-property damages; lawyers to provide certain services within the

(4) enters into any contract definition of the practice of law, but would requirewith another person to in most such instances that those persons have therepresent that person in same responsibility to act competently and ethicallypersonal injury or as does a member of the State Bar.property damage matterson a contingent fee basis Explanatory comments are included in thewith an attempted footnotes.assignment of a portion ofthe person’s cause ofaction; or

(5) enters into any contractwith a third person whichpurports to grant theexclusive right to selectand retain legal counsel torepresent the individual inany legal proceeding.

(b) This section does not apply toa person currently licensed topractice law in this state,another state, or a foreigncountry and in good standingwith the State Bar of Texasand the state bar or licensingauthority of any and all other

Proposed Statutory Revision

40

§ 81.101 Definitions

A. “Legal advice” means the

interpretation and application of laws,

regulations, and other legal standards

on behalf of a client to determine or

The incorporation of present section 83.00140

into chapter 81 will eliminate much of the need for therest of chapter 83, with the exception of sections 83.003,83.004, and 83.005. Those three sections would beincorporated into Chapter 81, as described infra at nn.24,34 & 35.

The present Texas Penal Code provisionswould not be changed or moved, as they aredirected more at barratry than at regulating who canpractice law.


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advise as to the specific rights or 1. The definition of the practice of

obligations of one or more persons; law includes a) the preparation41

B. “Legal representation” means making or negotiation in whole or in part

an appearance to represent a client in of a will, trust, contract,

governmental proceedings to conveyance, pleading, or other

determine the specific rights or instrument to the extent such

obligations of one or more persons. preparation or negotiation is42

C. The “practice of law” means providing performed or offered explicitly or

legal advice or legal representation implicitly to provide legal advice

with the expectation that compensation or legal representation as

will be paid directly or indirectly on described herein, and b) those

behalf of a client for such advice or activities described in section

representation or that such 81.102B.

compensation, although ordinarily 2. A person preparing or

expected by the provider, will be negotiating a will, trust, contract,

waived for charitable or civic conveyance, pleading, or other

reasons. instrument for compensation from43

44

a client is presumed to be engaged

in the practice of law.45

3. A person who solicits or obtains

compensation from a client with

the representation that the person

is an attorney or lawyer is

presumed to be engaged in the

practice of law.46

The phrase “on behalf of a client” is used so41

as to exclude situations such as where a non-lawyerdiscusses the interpretation of laws or where governmentor court personnel address a specific legal situation. Thephrase “specific rights or obligations” is also used toexclude situations such as where a non-lawyer discussesgenerally the interpretation of laws.

“Legal representation” involves but is broader42

than “legal advice.” The appearance of lawyers in courtand administrative proceedings requires a detailedknowledge of procedural and evidentiary rules which go As used in the Government Code, “‘Includes’beyond a substantive analysis of a client’s specific legal and ‘including’ are terms of enlargement and not ofsituation. As used in this definition, “governmental limitation or exclusive enumeration, and use of the termsproceedings” do not include alternative dispute resolution does not create a presumption that components notproceedings, as those proceedings are intended to avoid expressed are excluded.” Tex. Gov’t Code §the rigors inherent in a court or administrative 311.005(13).proceeding.

Unlike the current section 81.101, the new from District of Columbia Court of Appeals Rule43

statute would not apply to gratuitous conduct except 49(b)(2). The presumption is designed to aid in thewhere a practitioner provides legal advice or legal enforcement of the statute.representation on a pro bono basis. Where commentsabout legal matters are made by a non-lawyer to a person Tex. Penal Code § 38.122(a) prohibitsin a gratuitous situation, the person seldom will accord representations by non-lawyers that they are lawyers.the comments any substantial weight. If such situations This parallel provision would create a presumption thatwere treated as the practice of law, there would be a such a person has engaged in the practice of law. Thedanger of chilling communications covered by the First presumption is designed to aid in the enforcement of theAmendment which present little danger to the public. statute.

44

The language of this presumption is derived45

46


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D. “Individual” means a human being.47

E. “Person” means an individual, § 81.102 Qualifications for the Practice of Law

corporation, organization, government A. Except as provided in subsection B, a

or governmental subdivision or person may not engage in the practice

agency, business trust, estate, trust, of law in this state unless the person is

partnership, association, and any legal a member of the state bar.

entity. B. The following additional persons may48

F. “Attorney” or “lawyer” means an engage in the practice of law to the

individual licensed and in good limited extents specified below:

standing to practice law in this state or 1. Individuals, to the extent they are

another state of the United States. acting pro se;49

G. The definition of the practice of law in 2. Attorneys who are continuing

this section is not exclusive and does employees of a person, to the

not deprive the judicial branch of the extent they are engaged in

power and authority to determine providing solely to their employer

whether other services and acts not

enumerated may constitute the

practice of law.50

51

52

The definition is derived from Tex. Penal47

Code § 1.07(26) (“‘Individual’ means a human beingwho has been born and is alive”).

The definition is derived from Tex. Gov’t.48

Code § 311.005 (“‘Person’ includes corporation,organization, government or governmental subdivision oragency, business trust, estate, trust, partnership,association, and any other legal entity.”).

The term “state” is defined in the Government49

Code, when referring to a part of the United States, toinclude “any state, district, commonwealth, territory, andinsular possession of the United States and area subjectto the legislative authority of the United States ofAmerica.” Tex. Gov’t Code § 311.005(7).

Same as Tex. Gov’t. Code § 81.102(b). The50

judiciary retains primary governance over the courts andinterpretation of the laws, and the legislature’s power toregulate the practice of law is only secondary and in aidof the judiciary’s power. See, e.g., UnauthorizedPractice of Law Comm. v. Cortez, 692 S.W.2d 47, 51(Tex. 1985); State Bar v. Gomez, 891 S.W.2d 243, 245 This subsection would carry forward current(Tex. 1994). See also Tex. Gov’t Code § 82.021 (“Only law. See, e.g., Tex. Const. art. 1, §10 (criminalthe supreme court may issue licenses to practice law in prosecutions); Tex. R. Civ. P. 7 (actions of a civilthis state as provided by this chapter. The power may not nature); 28 U.S.C. §1654 (all courts of the Unitedbe delegated.”) States).

The Texas Supreme Court exercised itsconstitutional power over the practice of law byissuing its own order following the passage of theState Bar Act of 1979, ratifying that statute andthereby eliminating possible discrepancies betweenthe court’s previous orders and the new legislativestatute. See Order, 583-584 S.W.2d (Texas Cases)XXXIII (Tex. 1979). A similar order could beappropriate if the Legislature enacts any significantrevision of chapter 81.

In addition to the categories of additional51

practitioners set forth below, one member of the taskforce believes that Chapter 81 should be amended toallow any person to practice law on behalf of a client ifthe client gives written consent after having beeninformed of the person’s background, experience, andlack of a license to practice law in this state. Such aprovision would be a dramatic departure from the currentregulatory scheme.

52




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and no one else legal advice but promulgated by and within the

not legal representation; scope of authority of such agency53

3. Attorneys licensed in another or body;

jurisdiction, bona fide law 6. Individuals representing a client

students, and unlicensed graduate within the jurisdiction of a court

students who are attending or or administrative agency of the

have attended a law school federal government, to the extent

approved by the supreme court, authorized by and within the

to the extent authorized by rules scope of authority of such court

promulgated by the supreme or agency;

court; 7. Individuals acting as arbitrators,54

4. Individuals representing a client mediators, or impartial third

within the jurisdiction of a justice parties, to the extent of

court of this state, to the extent accomplishing alternative dispute

authorized by rules promulgated resolution;

by the supreme court; 8. Persons authoring, publishing,55

5. Individuals representing a client and distributing written

within the jurisdiction of an

administrative agency of the state

or a subdivision of the state, to the

extent authorized by rules

56

57

58

This subsection would legitimize the current,53

widespread use in Texas of inhouse counsel licensed inother states as legal advisors to their corporateemployers.

A minority of the task force would replace“Attorneys who are continuing employees of aperson” with “Individuals employed by a person.”This would be an expansion beyond what theUnauthorized Practice of Law Committee’s currentprosecutorial policy is.

This subsection is substantially the same as54

existing Tex. Gov’t. Code § 81.102(b).

This subsection would carry forward current55

law. See Tex. Gov’t Code § 28.003 (corporations neednot be represented by attorneys in small claims court);Tex. R. Civ. P. 739 (allowing “the party aggrieved or hisauthorized agent” to file forcible entry and detainercomplaints in justice courts) & 747a (allowingrepresentation by “authorized agents” in forcible entry to being a lawyer); but compare Tex. Civ. Prac. & Rem.and detainer suits in justice courts); Tex. Property Code Code § 155.003 (“Any attorney currently licensed in the§ 24.011 (same); Op. Tex. Att’y Gen. No. JM-451 state may serve during the settlement weeks” described(1986) (section 24.011 applies only to individuals). in that chapter).

This subsection would clarify and carry56

forward current law. Compare Indus. Accident Bd. v.O’Dowd, 298 S.W.2d 657 (Tex. Civ. App. — Austin),rev’d on other grounds, 303 S.W.2d 763 (Tex. 1957)(implicitly approving Industrial Accident Board’sauthorization of non-lawyer representatives) with StewartAbstract Co. v. Judicial Comm’n, 131 S.W.2d 686 (Tex.Civ. App. — Beaumont 1939, no writ) (disapprovinginterpretation of State Board of Insurance’s regulations asauthorizing title insurers to practice law, as being outsidethe power of the Board). See also Op. Tex. Att’y Gen.No. H-974 (1977) (non-lawyer representation before theState Board of Insurance and Industrial Accident Boardfound to be permitted by each agency and hence deemednot the unauthorized practice of law).


law. See Sperry v. Florida, 373 U.S. 379 (1963) (federalregulations for the United States Patent Office preemptstate unauthorized practice of law statute).

This subsection generally would carry forward58

current law. See, e.g., Tex. Civ. Prac. & Rem. Code §154.052 (qualifications to be an impartial third partyappointed under that chapter do not include any reference






-34-

materials, books, forms, computer option, lease or rental of an

software, or similar products interest in real property;

incorporating legal advice, to the 10. Persons performing acts relating

extent of such authorship, to the lease, sale, or transfer of

publication, and distribution, if any mineral or mining interest in

the products clearly and real property, to the extent of the

conspicuously state that the preparation of legal instruments

products are not a substitute for affecting title to real property in a

the advice of an attorney licensed transaction involving such

in the state where the product is mineral or mining interest;

used; 11. Persons preparing and59

9. Persons acting as real estate negotiating a trust, contract,

brokers pursuant to The Real conveyance, or other transaction

Estate License Act (Article 6573a, instrument to which such person

Vernon’s Texas Civil Statutes), to is a party without compensation

the extent of completing forms for preparation of the instrument

promulgated pursuant to and

complying with section 16 of that

act to bind the sale, exchange,60

61

62

This section is derived from Tex. Gov’t. Code59

§ 81.101(c), except that this section has been expandedto include real estate transactions.

Tex. Rev. Civ. Stat. Ann. art. 6573a, § 16.60

Notwithstanding theprovisions of thisAct or any otherlaw, the completionof contract formswhich bind the sale,exchange, option,lease, or rental ofany interest in realproperty by aregistrant underSection 9A of theAct, a real estatebroker, or a realestate salespersonincident to theperformance of theacts of a broker asdefined by this Actdoes not constitute This section is derived from Tex. Gov’t. Codethe unauthorized or § 83.001(b)(3).

illegal practice oflaw in this state,provided the formsh a v e b e e npromulgated for useby the commissionfor the particularkind of transactioninvolved, or theforms have beenprepared by anattorney at lawlicensed by thisstate and approvedby said attorney forthe particular kindof transactioninvolved, or theforms have beenprepared by theproperty owner orprepared by anattorney andrequired by theproperty owner.

This section is derived from Tex. Gov’t. Code61

§ 83.001(b)(2).

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paid by the other party to the in Tex. Family Code § 85.022

instrument, to the extent of for the protection of any

completion of forms prepared and individual alleged to be a

approved for the particular kind victim of family violence;

of transaction by a member of the c. Legal advice relating to

state bar or by a person described claims made out-of-court for

in and to the extent allowed by benefits of less than

paragraphs 2, 3, or 8 of this $_______ pursuant to an

section. insurance policy for which63

12. Persons which have been the client is a named insured;

determined by the Internal and

Revenue Service to be entities d. ___________________;

described in Section 501(c)(3) of provided, however, such entity

the Internal Revenue Code and shall (1) maintain in force

have been listed in the Cumulative professional liability insurance

List of Organizations Described with limits of not less than

in Section 170(c) of the Internal $100,000 per incident to cover

Revenue Code of 1986, IRS liability as a result of acts, errors

Publication 78, to the extent such or omissions in the course of

entity provides without payment providing legal advice or legal

of compensation by the client: representation, and (2) obtain a

a. Legal advice or legal written declaration from each

representation relating to client, in the client’s native

divorces involving less than language if the client is not fluent

$_______ of property and in English, that the client64

not involving any dispute as understands that the employee

to the conservatorship or providing legal advice or legal65

support of any children; representation is not an attorney,66

b. Legal advice or legal or if applicable, is not an attorney

representation to obtain

protective orders described

67

68

This section would replace and be an63

expansion of Tex. Gov’t. Code § 83.003, which appliesonly to instruments affecting title to real property.

This blank will be filled in after receiving64

public comment.

See Chapter 153, Tex. Family Code.65

See Chapter 154, Tex. Family Code. such a provision.66

This blank will be filled in after receiving67

public comment.

This blank will be filled in or eliminated after68

receiving public comment. One possible additional areain which charitable entities might be allowed to practicelaw would be in drafting “wills devising less than$_______ of property at the time the will is drawn.” Thetask force chose not to recommend such a provision atthis time because of questions raised as to the need for


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licensed by the supreme court; C. All persons described in69

and subparagraphs 2, 3, 4, 5, 6, 8, and 12

13. Individuals employed by and of subsection B who engage in or

under the active and direct undertake the practice of law in this

supervision and review of an state shall be subject to the standards

attorney licensed in this state or a of care and ethics applicable to

person described in paragraphs 2, members of the state bar in similar

3, 4, 5, 6, and 12 above, to the circumstances and shall have the same

extent such employees are merely liability as would members of the state

assisting but not supplanting the bar.

person engaged in the practice of

law and the client understands D. Any administrative agency of this state

that the employee is not an or a subdivision of this state which

attorney, or if applicable, is not allows persons other than members of

an attorney licensed by the the state bar to engage in the practice

supreme court. of law within its jurisdiction may70

71

provide for an administrative

procedure to hear complaints as to the

conduct of such persons and to

discipline any such person found to

have violated the standard of ethics or

This exception does not currently exist under69

Chapter 81.


law allowing paralegals and others to assist lawyers in thepractice of law. See State Bar of Texas GeneralGuidelines for the Utilization of the Services of LegalAssistants by Attorneys, Guideline V, §§ B, C & D, 63TEX. B. J. at 280 (March 2000).

Guideline V:Except as otherwiseprovided by statute,court rule ord e c i s i o n ,administrative ruleor regulation,c o n t r o l l i n gauthority, TexasDisciplinary Rulesof ProfessionalConduct, or theseguidelines, anattorney may allowa legal assistantunder his or hersupervision anddirection to perform This section is new and would protect thedelegated services public from incompetent and unethical conduct by thosei n t h e non-lawyers who are allowed to engage in the practice ofrepresentation of law for other persons.

that attorney’sclients, provided:A. The services performed by the legalassistant do not require the exercise ofindependent professional legaljudgement; and,B. The attorney maintains a directrelationship with the client; and,C. The attorney directs and supervisesthe legal assistant in the performance ofdelegated duties; and,

D. The client understands that the legal assistant isnot an attorney; and,E. The attorney remains professionally responsiblefor such client and that client’s legal matters,including all actions taken or not taken inconnection therewith by the legal assistant, to thesame extent as if such actions had been taken or nottaken directly by the attorney.

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rules applicable to such person. Such threefold the amounts of such

procedure will be subject to the damages.

provisions applicable to contested B. This section does not limit or restrict any

cases in Chapter 2001, Government other remedy available at law.

Code.72

[Sections 81.103 to 81.106 would be unchanged,

after which a new section 81.107 would be added]

§ 81.107 Recovery

A. A person who provides or promises to

provide services prohibited by this

chapter may be sued by or on behalf of

a client other than the person’s

employer for:

1. Recovery of the compensation paid;

2. Economic and mental anguish

damages; and

3. Court costs and reasonable and

necessary attorney’s fees.

If the trier of fact finds that the

person’s conduct was willful or

flagrant, the trier of fact may increase

the recovery for economic and mental

anguish damages to no more than

73

74

This report will be disseminated in print and onthe State Bar’s website to members of the State Barand other interested persons. The task force doesnot purport to be familiar with the full range ofservices included in the practice of law or to be fullyprescient as to the future implications of theproposed changes. It is the sincere desire of the taskforce that those with additional or greater insightwill provide constructive comments on thisproposal. Comments should be submitted on orbefore August 15, 2000 in writing to UPL TaskForce, State Bar of Texas, P.O. Box 12487, CapitolStation, Austin, Texas 78711-2847.

Walker ArensonAmanda G. BirrellJim BlumeGregg CannadyBrent Clifton (chair)Kelly Frels

Hon. Rodney GilstrapGregory HuffmanWitcher McCullough IIIDick MillerLee TeranRobert Valdez

This section is new and would enable those72

bodies which allow non-lawyers to practice law withintheir jurisdictions to provide an administrative procedureto ensure that the public is not being subjected toimproper or unethical conduct by those practitioners.

Chapter 2001 provides, inter alia, for notice (Deceptive Trade Practices Act) and 15.21(a)(1) (Texas(§ 2001.051-.052), right to counsel (§ 2001.053), Free Enterprise and Antitrust Act) in which treblinga hearing (§ 2001.057), evidentiary rules (§ depends on a finding of willful, flagrant, or intentional2001.081-.086), cross-examination (§ 2001.087), conduct. The new section also incorporates the aspect ofdiscovery (§ 2001.091-.103), findings of fact and Tex. Bus. & Com. Code § 17.50(b) which allows bothconclusions of law (§ 2001.141), and judicial restitution of the compensation paid and recovery ofreview (§ 2001.171-.178). Unless otherwise stated damages.in the statute giving rise to the administrativeproceeding, judicial review will be under thesubstantial evidence rule (rather than trial de novo). Gov’t. Code § 83.004.

This section is derived from and replaces Tex.73

Gov’t. Code § 83.005, which applies only to thepreparation of instruments affecting title to real property.Section 83.005 currently provides for automatic treblingof the fee paid. The new section, however, adaptsapproaches used in Tex. Bus. & Com. Code §§ 17.50(b)

This section is derived from and replaces Tex.74


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Doc Watson

ex officio

Charles F. AycockLynne LiberatoDavid KeltnerAntonio AlvaradoLinda Acevedo

ETHICS: UNAUTHORIZED PRACTICE OF LAW – … A. “Doc” Watson S HEEHY, L OVELACE & M AYFIELD,...

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Transcript of ETHICS: UNAUTHORIZED PRACTICE OF LAW – … A. “Doc” Watson S HEEHY, L OVELACE & M AYFIELD,...