f/k/a archives . . . real opinions & real haiku

July 5, 2003

One Blogger’s UPL is Another Blogger’s Consumer Choice

Filed under: pre-06-2006 — David Giacalone @ 1:38 pm

Earlier this week, I complained about ethics actions in Arizona and North Carolina that limit the ability of consumers to choose and use nonlawyer providers of law-related services.  At the same time (July 3, 2003), Stuart Levine was using his TaxBiz blog Tax & Business Law Commentary to praise an Ohio Supreme Court decision, Columbus Bar Assn. v. Verne that enjoined a CPA “from preparing legal documents that constitute the unauthorized practice of law.” (May 15, 2003)

Here are the only facts stated in the Verne Court’s decision:

“Respondent, Leonard P. Verne Jr., is a certified public accountant (“CPA”). In 1997, two men who were operating a power-washing company discussed with respondent how best to structure their business. Although respondent has never been admitted to the practice of law in Ohio or any other jurisdiction, he drafted articles of organization, using forms available from the Secretary of State’s office as a baseline, to establish the business as a limited liability company (“LLC”).

“In early 2000, after the partners had a falling out, one of the them consulted an attorney who was also a CPA about how to structure the company’s future business transactions. The attorney reviewed the documents of organization that respondent had prepared and filed. He discovered that no operating agreement had been executed between the two partners, an omission that commentators caution against.” [emphases added] 

Stuart offers some thoughtful commentary, stating: “In fact, as the opinion reveals, Verne’s sins that caused his clients serious harm were not found in the simple document that he drafted, but in the complex document that he didn’t even think about. Verne failed as a lawyer because he apparently did not even attempt to explain to his clients the importance of addressing and memorializing the various elements of their deal.”

Stuart also brings up another important issue: “Going one step further, however, a more difficult issue underlies this case. What should it cost to form a relatively simple business deal? . . . In forming a business, lawyers face the problem of how detailed an operating agreement (or shareholders’ agreement or partnership agreement or lease or etc.) needs to be in order to meet the needs of the client and, to cover all of their bases, there is a tendency to “overlawyer” a deal.

We don’t have enough facts here to do the “public interest” balancing of potential harms and benefits to consumers that the FTC and DOJ have suggested should be used when deciding what activity constitutes the practice of law (discussed in our posting  of July 3rd). There are things we need to know before deciding whether the Verne decision is pro-consumer or merely pro-lawyer:

  1. did the clients know CPA Verne was not a lawyer?
  2. did Verne suggest that they see a lawyer or consider issues such as having an operating agreement drawn up? Despite Stuart’s assumption, the Court does not tell us.
  3. in that community, would two guys putting together a “power-washing” business usually seek a full-service, bells-and-whistles package of incorporation services and documents? or just the simplest and cheapest form of incorporation possible?
  4. in that community, would the typical attorney be likely to peform any more services than Verne did (using the same off-the-shelf form) as the basis of setting up a business similar in size and complexity to this power-wash business?
  5. what did Verne charge them and what would an attorney have charged for comparable services?
  6. did Verne’s clients stress their tiny budget and limited needs when asking for his help?
  7. did Verne’s clients ask their new lawyer to file the grievance complaining of unauthorized practice, or was that done on the lawyer’s initiative?

If Verne never held himself out as being an attorney and he reminded his clients that they might want to consider getting legal advice or having additional documents drafted for their business, he may have been giving them just what they wanted and needed — and chose — given their situation and their willingness to risk future problems.  Calling what Verne did “the unauthorized practice of law” rather than the “lawful provision of law-related services” might be doing a great dis-service to every tiny business hoping to stretch each of its start-up dollars. What the Verne decision will surely do is to help maintain or increase the level of lawyer fees in Ohio.

Update (2:30 PM, 7/5/03)Stuart Levine responded quickly and thoughtfully at Tax & Business Law Commentary to this posting [talk about overlawyering, why aren’t we both doing something more likely to result in the “pursuit of happiness” on this holiday weekend?].  Here are his remarks: 

More on Verne
 David Giacalone at ethicalEsq has offered some comments on my posting Putting Strains on My Friends about the Verne opinion. Although I agree with most of what he has to say (he does a good job, for instance in detailing most of the salient facts that were not presented in the opinion), I have one area of disagreement.

Specifically, Dave states that “[i]f Verne never held himself out as being an attorney and he reminded his clients that they might want to consider getting legal advice or having additional documents drafted for their business, he may have been giving them just what they wanted and needed — and chose — given their situation and their willingness to risk future problems.” (Emphasis is Dave’s.) I’m not at all certain that this clears Verne under the circumstances.

One of the lessons I learned in law school is that it is less important to know the answer to a question than it is to know the correct questions to ask. Theoretically at least, lawyers are by training supposed to be able to ask the right questions. Accountants, as to the majority of issues that go into operating agreements, for instance, simply do not have this training.

I think that Dave is on the right track when he suggests various elements of cost benefit analysis that should go into the decision as to whether Verne should be penalized for his actions or omissions. However, in many cases, even highly skilled and experienced counsel do not have the knowledge to make the appropriate cost benefit analysis. By way of example, assume that most small businesses, such as Verne’s clients, typically rely on a form LLC operating agreement that does little more than restate the default provisions in the state’s LLC act. Is the lawyer who prepares such a document (i) underlawyering, (ii) overlawyering, or (iii) getting it just right. As I suggested in my first post, I really don’t know the answer to this question.

Asking the right questions is indeed at the core of stumbling toward the right answers (my major piece of work at the FTC was entitled “The Right Questions”).  But, sometimes the client has the answer already and the lawyer needs to abide by it (with appropriate c/y/a disclaimers).  If a client says “I only have enough money for the barebones form LLC, and I will take the risk of any underlawyering,” the lawyer should be allowed and willing to undertake that simple service and assignment.   

Just like the consumer who can only afford the cheap used car or can’t afford extended warranty coverage on a new computer, consumers needing econo-legal services should be able to make that “choice” in the marketplace — using lawyers or other providers competent to meet their limited demands.   

Too often, the bar seems to have only One Question in mind when deciding on the definition of the practice of law (or any other rule of conduct):  “How will this affect the profession’s pocketbook?”   ethicalEsq? is going to keep on asking: “How does this affect the overall interests of the consumer of legal services?”   Of course, I don’t pretend to always have the correct (nor the only) answers.

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