Can an e-discovery or document-review vendor that practices law in D.C. be owned in whole or part by passive nonlawyer investors?

Plain-English summary

Opinion 362 (published June 2012) addresses discovery service vendors, including e-discovery companies that supply temporary attorneys, software management, review centers, and document production. The inquirer noted that some such vendors are owned entirely by attorneys, some partly by attorneys, and some by corporations or other nonlawyers, and asked whether the latter arrangements are consistent with Rule 5.4's prohibition on passive nonlawyer investment in entities that practice law.

The opinion concludes that the threshold question is whether a given vendor is "practicing law," which the D.C. Rules do not define. The Committee defers to the District of Columbia Committee on Unauthorized Practice of Law, which in its Opinion 21-12 (January 12, 2012) analyzed when discovery service companies engage in the practice of law under D.C. Court of Appeals Rule 49. The Committee accepts that opinion's conclusions. If a vendor follows the UPL Committee's guidance and does not practice law, then its activities and the lawyers who work for it are consistent with Rule 5.4(b).

The opinion concludes that the combination of practicing law in the District of Columbia and having passive nonlawyer ownership is not consistent with Rule 5.4(b). The Rules of Professional Conduct do not reach the nonlawyer owners, who are not subject to bar discipline. They do reach lawyers who create, own, or manage such a vendor in conjunction with passive nonlawyer investors; they may also reach lawyer employees who know of facts that constitute a Rule 5.4(b) violation and lawyers who, with similar knowledge, retain such a vendor. The opinion further concludes that a lawyer who partially owns a law-practicing discovery vendor with passive nonlawyer ownership assists in the unauthorized practice of law in violation of Rule 5.5(b), and that lawyers who knowingly work for or retain such an entity may also violate Rule 5.5(b). Rule 5.7 may separately apply where a lawyer provides discovery services that are "law-related services" rather than the practice of law.

In practice

Under the D.C. rules as they stood at the time of the opinion, whether a discovery service vendor may have passive nonlawyer ownership turns on whether the vendor practices law, a question the opinion routes to the UPL Committee's Opinion 21-12 and Court of Appeals Rule 49. The opinion concludes that a vendor that does not practice law may operate consistently with Rule 5.4(b), but a vendor that both practices law in the District and has passive nonlawyer owners does not.

The opinion concludes that the Rules reach the lawyers connected to such a noncompliant vendor rather than its nonlawyer owners: lawyers who own or manage the vendor with passive investors, and potentially lawyer employees or lawyers who retain the vendor who know the relevant facts. It concludes those lawyers may also assist the unauthorized practice of law under Rule 5.5(b). Because the opinion predates later rule developments, verify the current D.C. rules before relying on specific requirements.

Common questions

Q: Can an e-discovery vendor that practices law in D.C. take passive nonlawyer investment?

A: The opinion concludes no. The combination of practicing law in the District of Columbia and passive nonlawyer ownership is inconsistent with Rule 5.4(b).

Q: How do I know whether a discovery vendor is "practicing law"?

A: The opinion concludes that the D.C. Rules do not define the practice of law and defers to the UPL Committee's Opinion 21-12 and Court of Appeals Rule 49, which set out when discovery service companies engage in the practice of law in the District.

Q: Are the nonlawyer owners subject to discipline?

A: The opinion concludes no. The Rules of Professional Conduct do not reach nonlawyer owners of discovery service organizations; they reach the lawyers who own, manage, work for, or retain such a vendor.

Q: Can a lawyer who owns or uses such a vendor violate the unauthorized-practice rule?

A: The opinion concludes yes. A lawyer who partially owns a law-practicing vendor with passive nonlawyer ownership assists the unauthorized practice of law under Rule 5.5(b), and lawyers who knowingly work for or retain such an entity may also violate Rule 5.5(b).

Background and rules framework

The opinion interprets D.C. Rule 5.4(b) (professional independence; the bar on nonlawyer ownership of, and passive investment in, entities that practice law), Rule 5.5(b) (assisting the unauthorized practice of law), Rule 5.7 (responsibilities regarding law-related services), Rule 5.2 (subordinate lawyers), and Rule 8.4(a) (misconduct through the acts of another). Because the practice of law is defined by D.C. Court of Appeals Rule 49 rather than the Rules of Professional Conduct, the opinion relies on the UPL Committee's Opinion 21-12 for that threshold determination.

Citations and references

Rules of Professional Conduct:

• D.C. RPC 5.4(b) / Model Rule 5.4 (professional independence; nonlawyer ownership)
• D.C. RPC 5.5(b) / Model Rule 5.5 (unauthorized practice of law)
• D.C. RPC 5.7 / Model Rule 5.7 (law-related services)
• D.C. RPC 5.2 / Model Rule 5.2 (subordinate lawyers); D.C. RPC 8.4(a) / Model Rule 8.4 (misconduct)

Other authority:

• D.C. Committee on Unauthorized Practice of Law, Opinion 21-12 (Jan. 12, 2012): when discovery service vendors practice law under D.C. Court of Appeals Rule 49

See also

• ABA Formal Op. 499: Passive Investment in an ABS
• ABA Formal Op. 91-360: Nonlawyer Partnerships Across States
• ABA Formal Op. 464: Fee Division Across Jurisdictions

Source

• Landing page: https://www.dcbar.org/for-lawyers/legal-ethics/ethics-opinions-210-present/ethics-opinion-362