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."
- more -
ABA Model--3/27/91)
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.
# # #
MEDIA CONTACT: Brenda A. Mack, Office of Public Affairs,
202-326-2182
STAFF CONTACT: Randall Marks, Bureau of Competition,
202-326-2571
(ABA-Model)