FOR YOUR INFORMATION.......................March 27, 1991
FTC STAFF SAYS LAW FIRM DIVERSIFICATION CAN BENEFIT CONSUMERS
Law firm diversification can offer consumers "one-stop shopping" for legal services, and can provide other significant benefits to consumers, the Federal Trade Commission's Bureau of Competition staff has said in comments to the American Bar Association ("ABA") on proposed amendments to the ABA's Model Rules of Professional Conduct. For these reasons, rules addressing specific problems associated with the provision of ancillary (or non-legal) services by law firms should be narrowly tailored to avoid broad limits on the service options available to consumers.
The FTC staff comments respond to an invitation from George Kuhlman, Counsel to the ABA's Standing Committee on Ethics and Professional Responsibility.
Many ABA members have concern that law firm diversification poses potential problems, such as conflict of interest, loss of client confidentiality, encouragement of the unauthorized practice of law, and customer confusion as to the lawyer's role.
The Standing Committee recommends extending of the Model Rules' protections to a new class of consumers: customers of a diversified law firm's ancillary businesses. The Model Rules aim to guide the states in their adoption of rules that educate lawyers as to their ethical responsibilities to their clients.
- more - ABA-Model--3/27/91)
Examples of law firm ancillary businesses include investment banking, real estate and economic consulting. Under the Standing Committee's proposal, the customer purchasing only non-legal services would receive the same protections as legal clients, wherever possible. For example, to assure that a lawyer exercises independent professional judgment on behalf of a client, the Model Rules generally prohibit firms from simultaneously representing clients whose interests conflict. The Standing Committee proposes that customers purchasing ancillary services receive similar protections so that a law firm could not provide legal services to clients whose interests conflict with customers of the firm's ancillary businesses. Moreover, the firm's ancillary business could not represent customers whose interests conflict with those of other customers or clients, although a customer could waive these restrictions in certain circumstances.
The FTC staff comment supports the Standing Committee's approach of adopting narrowly tailored rules that preserve the specific benefits associated with the provision of ancillary services by law firms.
According to the FTC staff, diversified law firms may provide several specific benefits to consumers.
- First, such law firms can offer "one-stop shopping" and thereby reduce the cost to the client of searching for and receiving a variety of professional services.
- Second, diversified law firms can offer a distinct approach to solving legal problems. A diversified law firm may be able to analyze a client's problem from a variety of different perspectives and blend them into a comprehensive and integrated solution.
The staff concluded that while it could not offer a definitive evaluation of the ethical and professional challenges of diversification, or the effectiveness of the proposed solutions to them, it believes that prohibiting law firms from providing ancillary services to persons who are not legal clients would reduce the benefits to consumers substantially. The staff comment concludes that the Standing Committee's approach "would appear to preserve the benefits of diversification while protecting consumers from the risk of harm."
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The staff comments are the views of the FTC's Bureau of Competition. They are not necessarily the views of the Commission or any individual Commissioner.
Copies of the letter are available from the FTC's Public Reference Branch, Room 130, 6th St. and Pennsylvania Ave., N.W., Washington, D.C. 20580; 202-326-2222; TTY 1-866-653-4261.
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MEDIA CONTACT: Brenda A. Mack, Office of Public Affairs, 202-326-2182
STAFF CONTACT: Randall Marks, Bureau of Competition, 202-326-2571