Alabama Law Scholarly Commons Articles Faculty Scholarship 2019 Black Market Law Firms Casey E. Faucon University of Alabama - School of Law, [email protected] Follow this and additional works at: https://scholarship.law.ua.edu/fac_articles Recommended Citation Casey E. Faucon, Black Market Law Firms, 41 Cardozo L. Rev. 2283 (2019). Available at: https://scholarship.law.ua.edu/fac_articles/617 This Article is brought to you for free and open access by the Faculty Scholarship at Alabama Law Scholarly Commons. It has been accepted for inclusion in Articles by an authorized administrator of Alabama Law Scholarly Commons. BLACK MARKET LAW FIRMS Casey E.Faucont In business and in competition, value exists in strikingfirst. Accountants, the so- called hawks of the professional world, have made the first move. In September 2017, the global accountinggiant PwC opened a law firm in Washington, D.C. called ILC Legal. ILC Legal not only provides legal services on non-domestic matters, but also acts as a multidisciplinaryprovider (MDP) and offers other professional services, such as tax-planning, business consulting, and marketing, throughout its ninety-country network. In June 2018, Deloitte quickly followed suit, the second of the Big Four accountingfirms to enter the U.S. MDP market, partneringwith a U.S. immigration law firm in San Francisco. With accountants now having the 'first mover" advantage, the legal profession must respond. Restricting any competitive response are the legal profession's current ethical rules. Two weaknesses in the legal profession's integrity system-the self-regulatory market monopoly over legal services and the ethical treatment of all lawyering acts under a unified profession of law-have restricted collaborativeinnovations between lawyers and non-lawyers. No more pronounced are larger impacts of these weaknesses to the overall competitiveness of the legal profession than when viewed through the exemplar of Model Rule of Professional Conduct Rule 5.4, which protects the professional independence of a lawyer through prohibiting non-lawyer ownership of law firms. This rule has not stopped accountants, however, from hiring lawyers en masse to deliver legal services to their business and tax clients; nor has the rule stopped enterprising lawyers from collaboratingwith non-lawyer professionals in an attempt to keep pace and to provide more holistic and comprehensive legal services to clients. t Casey E. Faucon is an Assistant Professor and Director of the Entrepreneurship & Nonprofit Clinic at the Hugh F. Culverhouse Jr. School of Law at the University of Alabama. The author would like to thank Patience Crowder, Kevin Lynch, Janet Goode, Erik Franklin Amarante, Matthew Rossman, Susan Jones, Courtney Cross, Allyson Gold, Ron Krotoszynski, Nicole Godfrey, Rachel Moran, Timothy Estep, Laura Rovner, Tamara Kuennen, Nantiya Ruan, and Lindsey Webb for providing feedback on previous drafts and presentations. 2283 2284 CARDOZO LAW REVIEW [Vol. 41:2283 This Article calls for recognition and regulation of MDPs because the legal profession must now overcome the accountants'firstmover advantages. Despite this initial competitive setback, the legal profession is also now in a position to leverage its current self-regulatorymonopoly over legal services to market higher quality,ABA and state ethics board-accreditedMDP services to clients. This Article then proposes a regulatoryframework for recognizing and regulatingMDPs based on a classification scheme which categorizes MDPs based on the potential risk that the ownership and control structure could undermine a lawyer's independent judgment. This novel classification scheme categorizes MDPs as either white, gray, or black market lawfirms depending on the percentage of non-lawyer majority ownership and control of the MDP. Based on those categories, this Article argues that we should revise Rule 5.4 to allow for unlimited associationalformsbetween lawyers and non-lawyerprofessionals but prohibit lawyers from providing legal services in black market MDPs, or MDPs which are majority owned and controlled by non-lawyers. TABLE OF CONTENTS IN TRO D U CTIO N .............................................................................................................. 2286 I. THE LEGAL PROFESSION'S INTEGRITY SYSTEM FAILURES .................................... 2293 A. The Legal M arket M onopoly ..................................................................... 2294 1. Self-R egulation ............................................................................... 2295 a. H istory and Justification ................................................... 2295 b . Effects .................................................................................. 2297 2. Self- Regulatory Competition + Risk- Based and Outcomes- Based R egulation ....................................................................................... 2298 B. Regulatory Conflation ............................................................................... 2302 1. U nified Profession of Law ............................................................ 2303 a. U nited States ....................................................................... 2303 b. Civil Law Countries ........................................................... 2305 2. Democratic and Economic Functions of Law and Quasi-Legal R oles ................................................................................................ 2 30 5 3. Im pact on Codes of Ethics ............................................................ 2309 C. Market Responses and Developments...................................................... 2310 1. C orporate Innovations .................................................................. 2311 2. Sm all Firm Innovations ................................................................ 2312 3. Continued Need for Innovation and Empirical Research ....... 2314 2020] BLACK MARKET LAW FIRMS 2285 II. MULTIDISCIPLINARY PROVIDERS .......................................................................... 2315 A. MDPs: A Primer......................................................................................... 2317 1. Definition and Description .......................................................... 2317 2. P rototypes ....................................................................................... 232 1 a. The Cooperative Model .................................................... 2321 b. The Ancillary Business Model ......................................... 2321 c. The Contract or Strategic Alliance Model ..................... 2322 d. The Command and Control Model ................................ 2322 e. The Fully Integrated Model .............................................. 2322 B. Regulation of MDPs ................................................................................... 2323 1. The 1990s-2010s ............................................................................2324 2. R u le 5.4 ............................................................................................ 2326 a. No Fee-Sharing .................................................................. 2326 b. No Partnerships ................................................................. 2327 c. Maintain Professional Independence ............................. 2328 d. For Profit Professional Law Practice Restrictions ......... 2329 3. D .C . R ule 5.4 ................................................................................... 2330 C. CurrentMDP Debate ................................................................................ 2331 1. For Continued Ban ........................................................................ 2332 a. Professional Independence of a Lawyer ......................... 2332 b. Duty of Confidentiality ..................................................... 2333 c. Duty to Avoid Conflicts of Interest ................................. 2333 d. Protection of the Legal Profession ................................... 2334 2. For Recognition and Regulation .................................................. 2334 3. Call to Recognize and Regulate .................................................... 2339 III. BLACK MARKET LAW FIRMS: A REGULATORY MODEL ....................................... 2341 A. Regulatory Models ..................................................................................... 2342 1. Classification Schemes and Regulatory Approaches ................ 2343 2. Analysis of Classification and Regulatory Schemes .................. 2347 B. Gray and Black Market Law Firms.......................................................... 2350 1. D efinition ........................................................................................ 2350 2. A pplication ..................................................................................... 2351 a. Ownership or Control ....................................................... 2352 b. Non- Considerations: Non- Integration, Non-Profit Statu s ................................................................................... 2 354 C. ProposedRegulatory Approach ................................................................ 2355 2286 CARDOZO LAW REVIEW [Vol. 41:2283 1. N on- Proscriptive Ethical Rule ..................................................... 2356 2. Limitations- Regulating for Risks and Outcomes ................... 2358 a. Exem pted MD Ps ................................................................ 2358 b. Gray M arket Law Firm