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.

3 Comments

  1. Hi David:

    Thanks for joining the discussion of Verne where the bright line between all that CPAs do and the practice of law. My late brother, both a CPA and a lawyer, said that line for CPAs was best drawn between giving “accounting, tax and business” advice and [as Verne seems to prove] doing the documents.

    Here is what I posted to the LNET-LLC discussion where, as I have noted, the inter-weblog discussion began:

    —–Original Message—–
    From: John DeBruyn [mailto:jdebruyn@debruyn.com]
    Sent: Sunday, July 06, 2003 11:31 AM
    To: lnet-llc@yahoogroups.com
    Subject: [lnet] Ohio CPA, LLCs in the News

    The Verne case–unauthorized practice of law by a CPA in Ohio who formed an LLC for his clients–is the subject of some debate between weblog
    proprietors, Stuart Levine whose TaxBiz weblog, covers business and tax law, and David Giacalone whose ethicalEsq? weblog focuses on lawyer ethics, stressing the interests of the average consumer-client.

    I would commend Stuart’s write up of the Ohio unauthorized practice of law case and his interaction with David for a quick read on whether the CPA damaged his clients at the time he filled out the super-simple articles of organization for their LLC.

    I have posted a sample of the official form that was in use in Ohio at the time in the LNET-LLC files area and you may take a quick look via

    http://tinyurl.com/g49w

    It is almost as simple as “state your name, rank and serial number.” Not
    unlike the streamlined forms now used in many states, Ohio asks of every
    LLC: what is your company name, at what address may an interested person
    obtain a copy of your operating agreement or bylaws, for what period of time is the LLC organized and that is all that is required to form an LLC.

    Both Stuart and David point out that what injury there may have been to the lients was not the consequence of CPAs filing out the rather abbreviated orm that the Ohio Secretary of State provides for the formation of an Ohio LLC. As Stuart points out the problem that the members ran into latter when their deal fell apart was their failure in the formation of the LLC to document what there deal was.

    They would have had the same problem or worse if the CPA was not involved
    and they just starting doing business together without any professional
    advice so that they would have formed:

    –a totally undocumented entity, a partnership by default, with the same
    problems plus no limited liability as owners;

    –a corporation with limited liability for the owners and, I assume a
    correspondingly simple, and not particularly informative set of articles; or

    –an LLC with limited liability for the owners and without the potential
    adverse tax consequences of having a corporation to unwind when their deal fell apart.

    I am thinking that the CPA did good by steering them to a limited liability company where they enjoyed limited liability as owners and a more of less income tax neutral arrangement enjoyed by partnerships and LLCs. However, as David observes we don’t know enough to know whether the CPAs involvement was on the whole good or bad for the owners.

    You can read more, what both Stuart and David have to say at

    http://tinyurl.com/g5a2

    which is a good place to begin with Stuart’s most recent article where he
    replies to David and includes links David’s article, the text of the case
    and Stuart’s earlier article that David picked up on in the first place.
    The news of the Ohio case began here and then traveled over the internet as follows:

    –John Cunningham began a discussion of the case here in LNET-LLC which, I surmise, gave Stuart the idea for an article that he could write for his weblog,

    –Stuart ventured out on to the web to find the text of the case on the Ohio Supreme Court’s web site,

    –Stuart writes his first article which he posts on his weblog on the web, via the URL above, for all who drop by his weblog site to read,

    –the weblog generates an email edition which I and others subscribed to
    receive articles as they are posted to Stuart’s weblog (this is what got my interest so that I read the case using the link that Stuart included in his article and decided to post this message here directing your attention to Stuart’s weblog),

    –the weblog also generates an item about the article that goes out via an RSS feed, fairly complicated to explain, but to make a long story short, both Stuart and David, subscribe to each others RSS feed and use something called a news aggregator to shift through the items that are posted to as many different weblogs as they choose to subscribe to.

    –David posts his article that replies Stuart had to say and Stuart posts
    his response, a bit like pleading a case, so there may be yet more
    commentary from David after he sees Stuart’s latest at the URL above.

    As you may have surmised I am into how news and other information moves over the web, email and other modes of communication via the internet.

    I am thinking about having Stuart add our LNET-LLC discussion to the email subscription list for his weblog so that his TaxBiz blog articles, not more than one a day, would come through to all of us for discussion here in LNET-LLC. They all relate to either business or tax law and most of us have a foot in one camp or the other, business or tax, if not both.

    Please let me jdebruyn@debruyn.com know by private email whether you thing that is a good idea. And I am, of course, interested in any other
    suggestions that you may have for the integration of what we have going here with other forms of communication and applications like our LNET-LLC state pages at

    http://c2.com:8000/LnetStatePages

    Thanks,

    John,
    co-moderator,
    LNET-LLC

    John DeBruyn, Denver CO USA jdebruyn@debruyn.com

    P.S. Just in via email from Stuart: There is now ongoing a three way
    discussion of Verne and its implications on my blog (TaxBiz at
    http://taxbiz.blogspot.com/), Dave Giacalone’s at ethicalEsq
    (http://blogs.law.harvard.edu/ethicalesq/), and Carol Elefant’s at
     myShingle.com (http://www.myshingle.com/).

    P.S.S. The reference to “in the News” in the subject line of this message is to the “news” as the articles–from from the various weblogs circulating over the internet–are called by those like Stuart, Dave and Carol who are ay into this phenomena. J

    The foregoing message is in the group’s archives at:

    http://groups.yahoo.com/group/lnet-llc/message/4675

    Comment by John DeBruyn — July 6, 2003 @ 2:56 pm

  2. Hi David:

    Thanks for joining the discussion of Verne where the bright line between all that CPAs do and the practice of law. My late brother, both a CPA and a lawyer, said that line for CPAs was best drawn between giving “accounting, tax and business” advice and [as Verne seems to prove] doing the documents.

    Here is what I posted to the LNET-LLC discussion where, as I have noted, the inter-weblog discussion began:

    —–Original Message—–
    From: John DeBruyn [mailto:jdebruyn@debruyn.com]
    Sent: Sunday, July 06, 2003 11:31 AM
    To: lnet-llc@yahoogroups.com
    Subject: [lnet] Ohio CPA, LLCs in the News

    The Verne case–unauthorized practice of law by a CPA in Ohio who formed an LLC for his clients–is the subject of some debate between weblog
    proprietors, Stuart Levine whose TaxBiz weblog, covers business and tax law, and David Giacalone whose ethicalEsq? weblog focuses on lawyer ethics, stressing the interests of the average consumer-client.

    I would commend Stuart’s write up of the Ohio unauthorized practice of law case and his interaction with David for a quick read on whether the CPA damaged his clients at the time he filled out the super-simple articles of organization for their LLC.

    I have posted a sample of the official form that was in use in Ohio at the time in the LNET-LLC files area and you may take a quick look via

    http://tinyurl.com/g49w

    It is almost as simple as “state your name, rank and serial number.” Not
    unlike the streamlined forms now used in many states, Ohio asks of every
    LLC: what is your company name, at what address may an interested person
    obtain a copy of your operating agreement or bylaws, for what period of time is the LLC organized and that is all that is required to form an LLC.

    Both Stuart and David point out that what injury there may have been to the lients was not the consequence of CPAs filing out the rather abbreviated orm that the Ohio Secretary of State provides for the formation of an Ohio LLC. As Stuart points out the problem that the members ran into latter when their deal fell apart was their failure in the formation of the LLC to document what there deal was.

    They would have had the same problem or worse if the CPA was not involved
    and they just starting doing business together without any professional
    advice so that they would have formed:

    –a totally undocumented entity, a partnership by default, with the same
    problems plus no limited liability as owners;

    –a corporation with limited liability for the owners and, I assume a
    correspondingly simple, and not particularly informative set of articles; or

    –an LLC with limited liability for the owners and without the potential
    adverse tax consequences of having a corporation to unwind when their deal fell apart.

    I am thinking that the CPA did good by steering them to a limited liability company where they enjoyed limited liability as owners and a more of less income tax neutral arrangement enjoyed by partnerships and LLCs. However, as David observes we don’t know enough to know whether the CPAs involvement was on the whole good or bad for the owners.

    You can read more, what both Stuart and David have to say at

    http://tinyurl.com/g5a2

    which is a good place to begin with Stuart’s most recent article where he
    replies to David and includes links David’s article, the text of the case
    and Stuart’s earlier article that David picked up on in the first place.
    The news of the Ohio case began here and then traveled over the internet as follows:

    –John Cunningham began a discussion of the case here in LNET-LLC which, I surmise, gave Stuart the idea for an article that he could write for his weblog,

    –Stuart ventured out on to the web to find the text of the case on the Ohio Supreme Court’s web site,

    –Stuart writes his first article which he posts on his weblog on the web, via the URL above, for all who drop by his weblog site to read,

    –the weblog generates an email edition which I and others subscribed to
    receive articles as they are posted to Stuart’s weblog (this is what got my interest so that I read the case using the link that Stuart included in his article and decided to post this message here directing your attention to Stuart’s weblog),

    –the weblog also generates an item about the article that goes out via an RSS feed, fairly complicated to explain, but to make a long story short, both Stuart and David, subscribe to each others RSS feed and use something called a news aggregator to shift through the items that are posted to as many different weblogs as they choose to subscribe to.

    –David posts his article that replies Stuart had to say and Stuart posts
    his response, a bit like pleading a case, so there may be yet more
    commentary from David after he sees Stuart’s latest at the URL above.

    As you may have surmised I am into how news and other information moves over the web, email and other modes of communication via the internet.

    I am thinking about having Stuart add our LNET-LLC discussion to the email subscription list for his weblog so that his TaxBiz blog articles, not more than one a day, would come through to all of us for discussion here in LNET-LLC. They all relate to either business or tax law and most of us have a foot in one camp or the other, business or tax, if not both.

    Please let me jdebruyn@debruyn.com know by private email whether you thing that is a good idea. And I am, of course, interested in any other
    suggestions that you may have for the integration of what we have going here with other forms of communication and applications like our LNET-LLC state pages at

    http://c2.com:8000/LnetStatePages

    Thanks,

    John,
    co-moderator,
    LNET-LLC

    John DeBruyn, Denver CO USA jdebruyn@debruyn.com

    P.S. Just in via email from Stuart: There is now ongoing a three way
    discussion of Verne and its implications on my blog (TaxBiz at
    http://taxbiz.blogspot.com/), Dave Giacalone’s at ethicalEsq
    (http://blogs.law.harvard.edu/ethicalesq/), and Carol Elefant’s at
     myShingle.com (http://www.myshingle.com/).

    P.S.S. The reference to “in the News” in the subject line of this message is to the “news” as the articles–from from the various weblogs circulating over the internet–are called by those like Stuart, Dave and Carol who are ay into this phenomena. J

    The foregoing message is in the group’s archives at:

    http://groups.yahoo.com/group/lnet-llc/message/4675

    Comment by John DeBruyn — July 6, 2003 @ 2:56 pm

  3. Hi David:

    Thanks for joining the discussion of Verne where the bright line between all that CPAs do and the practice of law. My late brother, both a CPA and a lawyer, said that line for CPAs was best drawn between giving “accounting, tax and business” advice and [as Verne seems to prove] doing the documents.

    Here is what I posted to the LNET-LLC discussion where, as I have noted, the inter-weblog discussion began:

    —–Original Message—–
    From: John DeBruyn [mailto:jdebruyn@debruyn.com]
    Sent: Sunday, July 06, 2003 11:31 AM
    To: lnet-llc@yahoogroups.com
    Subject: [lnet] Ohio CPA, LLCs in the News

    The Verne case–unauthorized practice of law by a CPA in Ohio who formed an LLC for his clients–is the subject of some debate between weblog
    proprietors, Stuart Levine whose TaxBiz weblog, covers business and tax law, and David Giacalone whose ethicalEsq? weblog focuses on lawyer ethics, stressing the interests of the average consumer-client.

    I would commend Stuart’s write up of the Ohio unauthorized practice of law case and his interaction with David for a quick read on whether the CPA damaged his clients at the time he filled out the super-simple articles of organization for their LLC.

    I have posted a sample of the official form that was in use in Ohio at the time in the LNET-LLC files area and you may take a quick look via

    http://tinyurl.com/g49w

    It is almost as simple as “state your name, rank and serial number.” Not
    unlike the streamlined forms now used in many states, Ohio asks of every
    LLC: what is your company name, at what address may an interested person
    obtain a copy of your operating agreement or bylaws, for what period of time is the LLC organized and that is all that is required to form an LLC.

    Both Stuart and David point out that what injury there may have been to the lients was not the consequence of CPAs filing out the rather abbreviated orm that the Ohio Secretary of State provides for the formation of an Ohio LLC. As Stuart points out the problem that the members ran into latter when their deal fell apart was their failure in the formation of the LLC to document what there deal was.

    They would have had the same problem or worse if the CPA was not involved
    and they just starting doing business together without any professional
    advice so that they would have formed:

    –a totally undocumented entity, a partnership by default, with the same
    problems plus no limited liability as owners;

    –a corporation with limited liability for the owners and, I assume a
    correspondingly simple, and not particularly informative set of articles; or

    –an LLC with limited liability for the owners and without the potential
    adverse tax consequences of having a corporation to unwind when their deal fell apart.

    I am thinking that the CPA did good by steering them to a limited liability company where they enjoyed limited liability as owners and a more of less income tax neutral arrangement enjoyed by partnerships and LLCs. However, as David observes we don’t know enough to know whether the CPAs involvement was on the whole good or bad for the owners.

    You can read more, what both Stuart and David have to say at

    http://tinyurl.com/g5a2

    which is a good place to begin with Stuart’s most recent article where he
    replies to David and includes links David’s article, the text of the case
    and Stuart’s earlier article that David picked up on in the first place.
    The news of the Ohio case began here and then traveled over the internet as follows:

    –John Cunningham began a discussion of the case here in LNET-LLC which, I surmise, gave Stuart the idea for an article that he could write for his weblog,

    –Stuart ventured out on to the web to find the text of the case on the Ohio Supreme Court’s web site,

    –Stuart writes his first article which he posts on his weblog on the web, via the URL above, for all who drop by his weblog site to read,

    –the weblog generates an email edition which I and others subscribed to
    receive articles as they are posted to Stuart’s weblog (this is what got my interest so that I read the case using the link that Stuart included in his article and decided to post this message here directing your attention to Stuart’s weblog),

    –the weblog also generates an item about the article that goes out via an RSS feed, fairly complicated to explain, but to make a long story short, both Stuart and David, subscribe to each others RSS feed and use something called a news aggregator to shift through the items that are posted to as many different weblogs as they choose to subscribe to.

    –David posts his article that replies Stuart had to say and Stuart posts
    his response, a bit like pleading a case, so there may be yet more
    commentary from David after he sees Stuart’s latest at the URL above.

    As you may have surmised I am into how news and other information moves over the web, email and other modes of communication via the internet.

    I am thinking about having Stuart add our LNET-LLC discussion to the email subscription list for his weblog so that his TaxBiz blog articles, not more than one a day, would come through to all of us for discussion here in LNET-LLC. They all relate to either business or tax law and most of us have a foot in one camp or the other, business or tax, if not both.

    Please let me jdebruyn@debruyn.com know by private email whether you thing that is a good idea. And I am, of course, interested in any other
    suggestions that you may have for the integration of what we have going here with other forms of communication and applications like our LNET-LLC state pages at

    http://c2.com:8000/LnetStatePages

    Thanks,

    John,
    co-moderator,
    LNET-LLC

    John DeBruyn, Denver CO USA jdebruyn@debruyn.com

    P.S. Just in via email from Stuart: There is now ongoing a three way
    discussion of Verne and its implications on my blog (TaxBiz at
    http://taxbiz.blogspot.com/), Dave Giacalone’s at ethicalEsq
    (http://blogs.law.harvard.edu/ethicalesq/), and Carol Elefant’s at
     myShingle.com (http://www.myshingle.com/).

    P.S.S. The reference to “in the News” in the subject line of this message is to the “news” as the articles–from from the various weblogs circulating over the internet–are called by those like Stuart, Dave and Carol who are ay into this phenomena. J

    The foregoing message is in the group’s archives at:

    http://groups.yahoo.com/group/lnet-llc/message/4675

    Comment by John DeBruyn — July 6, 2003 @ 2:56 pm

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