ABA Section of Business Law

Examples 2-5 are clearly multijurisdiction transactions. It is not clear, however, whether these transactions implicate any state's UPL laws.

State UPL statutes and rules present problems, not just for the wholly unlicensed, but also for lawyers licensed in other jurisdictions. Sanctions for violations of UPL provisions — whether they occur in criminal or civil statutes or court rules — subject lawyers to potentially serious penalties such as criminal sanctions (about 40 jurisdictions) or contempt citations (about 26 jurisdictions). See a joint study from the ABA Standing Committee on Lawyer's Responsibility for Client Protection and the ABA Center for Professional Responsibility, Survey and Related Material on the Unauthorized Practice of Law/Nonlawyer Practice (1996).

In California, for example, lawyers engaging in UPL face increased penalties including up to one year in jail or a $1,000 fine. (On Sept. 6, 2002, the California legislature approved SB 1459 that amended Section 6126 of the Business and Professions Code to include UPL by lawyers admitted in other jurisdictions.)

In addition to direct enforcement, UPL provisions may be used indirectly in disciplinary proceedings, in disqualification motions and in legal malpractice actions. Some jurisdictions have more than one enforcement method.

Some UPL statutes may even prevent the lawyer from collecting a fee. In some cases, the client uses the UPL statutes as a defense to a claim for unpaid fees. Again, this is not a concern for litigation lawyers admitted pro hac vice in another jurisdiction, but it is particularly disconcerting for the transactional lawyer because the states have no formal mechanism for admitting out-of-state lawyers for legal services that do not involve courtroom or other tribunal appearances.

In 1998, the California Supreme Court's decision in Birbrower, Montalbano, Condon & Frank, P.C. v. Superior Court, 949 P.2d 1 (1998) sent a shock wave through the legal profession, blasting the commonly held belief that states rarely enforced UPL restrictions against lawyers admitted in another jurisdiction.

The underlying matter in Birbrower involved a contract dispute between ESQ Business Services Inc. and Tandem Computers Inc., a California company. The contract was based on California law (out-of-state law). ESQ hired Birbrower, a New York law firm (out-of-state lawyer) to recover damages from Tandem. Lawyers from Birbrower made several trips to California to conduct negotiations, scheduled an arbitration and advised ESQ. ESQ was a California subsidiary of a New York company for whom the Birbrower firm had provided legal services (out- of-state client). Birbrower had no offices in California and no lawyers admitted in California.

ESQ was not satisfied with the services it received from Birbrower and sued for legal malpractice and release from its contract to pay Birbrower more than $1 million in lawyers' fees. Although there was no finding that the Birbrower firm committed malpractice, the California Supreme Court ruled that the firm's activities in California constituted UPL regardless of where the services were delivered and denied fees for that portion of their work done "in California."

Whether an activity constituted the practice of law "in California" depended on several factors. The court held that physical presence in the state of California was relevant but not necessarily a dispositive factor, and the practice of law in California could also include "virtual practice" or advising a client by phone, fax or computer.

The difficulty in applying Birbrower was defining the "practice of law in California." In part, the court's reasoning was quantitative — there must be "sufficient contact with the California client to render the nature of the legal services a clear legal representation" and mere fortuitous or attenuated contacts are not enough. The court's reasoning was also part qualitative since the test does not a fortiori depend on the physical presence of the lawyer admitted in another state.

Under Birbrower, a virtual presence may be enough and may lead to a UPL violation. In other words, advising a California client on California law in connection with a California legal dispute from another jurisdiction by phone, fax, computer or other modern technology, may violate the law. See also Spivak v. Sachs, 211 N.E. 2d 329, 331 (N.Y. 1965) (New York court denied recovery of fees to a California lawyer who was contacted by a New York resident for assistance on a divorce and custody matter in Connecticut).

In light of Birbrower's ruling that, among other things, a physical presence in the state is not required for a UPL violation, unless a state approves UPL legislation or rules like those of Michigan, Virginia or Colorado, transactional lawyers represent their clients with MJP needs at their peril.

To address the concerns over the regulation of UPL fueled by Birbrower, the ABA formed a separate Commission on Multijurisdictional Practice in 1998. The MJP Commission issued its final Report in August 2002 to the ABA House of Delegates recommending changes to Model Rule 5.5, among other rules. The House of Delegates adopted the MJP Commission's recommendations. Model Rule 5.5 as amended (see the sidebar) purports to, among other things, identify instances in which a lawyer admitted in one jurisdiction may practice law in another jurisdiction.

For litigators, the amended rule formally includes alternative dispute resolution mechanisms such as arbitration and mediation and pre-trial, discovery and other ancillary work for pending or prospective litigation. Thus, litigators can easily avoid the consequences of UPL by pro hac vice admissions.

Nonlitigators, however, have no tribunal or forum from which to obtain temporary admission to jurisdictions in which they are not admitted. Especially for transactional lawyers, the amended rule is therefore designed to focus on permitted interstate activity, rather than a list of exceptions to UPL.

Subsection (c) of Model Rule 5.5 as adopted recognizes the realities of modern practice and that forcing clients to hire a local lawyer in each state may not be in their best interests. Specifically, Model Rule 5.5(c) (4), which is applicable to transactional lawyers, states that a lawyer, who is not disbarred or suspended from practice in any jurisdiction, "may provide legal services on a temporary basis … that…arise out of or are reasonably related to the lawyer's practice in a jurisdiction in which the lawyer is admitted to practice."

New Subsection 5.5 (c) (4) of the Model Rules is too ambiguous and leaves too much room for interpretation to serve as an effective guidepost for transactional lawyers concerning UPL. Model Rule 5.5(c) (4) contains two elements: (1) nonlitigation work on a temporary basis that (2) is reasonably related to the lawyer's practice in the home jurisdiction. By definition, what constitutes authorized MJP depends on the definition of its key terms — the practice of law on a "temporary basis" that is "reasonably related" to the lawyer's practice in the home jurisdiction. Model Rule 5.5(c)(4) as adopted is problematic since neither the rule nor the MJP Commission's Report 201B adequately defines these terms.

The MJP Commission's conservative approach to defining "temporary basis" fails to clarify between UPL and authorized MJP. The comments section to Rule 5.5 as amended notes that there is no single test to determine if a lawyer is providing legal services on a "temporary basis" and that legal services may be temporary even though the lawyer provides services in the host jurisdiction on a recurring basis or for an extended period of time, such as when the lawyer is representing a client in a single lengthy litigation.

The commission's report states: "[A]lthough the line between the 'temporary' practice of law and the 'regular' or 'established' practice of law is not a bright one, the line can become clearer over time as Rule 5.5 is interpreted by courts, disciplinary authorities, committees of the bar and other relevant authorities."

This conservative approach to what might be "reasonably related" to a lawyer's practice is unfortunately the same. Report 201B recognizes that forcing a client to hire a local lawyer in each jurisdiction is not necessarily in their best interest. "[I] n general, clients are better served by having a sustained relationship with a lawyer or law firm in whom the client has confidence." See Report 201B, n. 9.

Report 201B states "[i]n the context of determining whether work performed outside the lawyer's home state is reasonably related to the lawyer's practice in the home state, as is true in the many other legal contexts in which a 'reasonableness' standard is employed, some judgment must be exercised."

Report 201B clearly brings Model Rule 5.5(c) (4) closer to the approach of Section 3(3) of the Restatement (Third) of the Law Governing Lawyers. (The provision is drawn from § 3(3) of the Restatement (Third) of the Law Governing Lawyers.)

Section 3(3) of the Restatement Governing Lawyers permits transitory work by a lawyer licensed in another jurisdiction that is reasonably related to the lawyer's practice and lists in comment (e) some factors to consider in making that determination. But, unlike the Restatement, the Model Rule as adopted falls short of providing definitive guideposts.

Transactional lawyers whose work leads them to a state where they are not admitted do so at their own risk. Nevada, for example, recently added reporting and registration requirements for out-of-state lawyers who handle transactional matters for Nevada clients. Like Model Rule 5.5(v)(4), the Nevada rule, as adopted, fails to define what are ambiguous terms such as "substantially related" and gives a broad definition of "Nevada clients" that might sweep under its authority transactions that Nevada does not have an interest in regulating.

Before Birbrower, transactional lawyers relied on custom and the reluctance of state bar counsel to prosecute lawyers admitted in other jurisdictions for UPL. Birbrower fueled the concerns of lawyers who handle multijurisdictional transactions when, simultaneously, it was becoming increasingly unclear what actions implicated a state's UPL provisions.

Charles Wolfram, author of Sneaking Around in the Legal Profession: Interjurisdictional Unauthorized Practice by Transactional Lawyers, and chief reporter for the Restatement (Third) of the Law Governing Lawyers, characterizes the situation this way, writing that the "[l]awyer will, of course accompany her client [to a jurisdiction where the lawyer is not admitted], but if fully informed on the issue, will do so with justifiable anger and anxiety that the law only uncertainly authorizes the lawyer to do what every transactional lawyer considers to be useful, even essential, client service." 36 S. Tex. L. Rev. 665, 671 (1995).

This "sneaking around" is risky business. Without definitive guideposts around UPL like those provided for the litigation lawyer, transactional lawyers proceed at their peril. Clearly the message is that MJP transactional lawyers risk being the "test case" for UPL prosecution.

The commercial borders of our clients are redefining themselves in the face of a global Internet world. The practice of law is following suit. The market for legal services is calling for MJP: The rules that protect the public and govern lawyers and the practice of law must adapt. States, though, are more entrenched in preserving the status quo. The ABA does not have regulatory authority but its positions have historically persuaded states to make changes in their ethical rules, among others. Logically, Model Rule 5.5 as adopted should strike the necessary balance on behalf of all lawyers.

Model Rule 5.5 unfortunately offers little guidance for transactional lawyers. Model Rule 5.5(c) (4) is too broad and ambiguous to adequately define what MJP activities by transactional lawyers would not be considered UPL by a lawyer admitted in another jurisdiction.

The devil is in the details. Specific exceptions defining the duration, frequency and scope of permitted MJP activity are needed.

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McAuliffe is a partner, and Voss an associate, at Snell & Wilmer in Phoenix. McAuliffe's e-mail is dmcauliffe@swlaw.com and Voss' e-mail is tvoss@swlaw.com.