Is it the unauthorized practice of law in Illinois for a nonlawyer to represent a party in a FINRA arbitration, and what must a lawyer-arbitrator do about it?

Plain-English summary

A lawyer chairing a FINRA arbitration panel in a dispute between a securities dealer and three customers learns that the claimants' representative is a nonlawyer employee of a company (not a law firm) that regularly represents customers in FINRA arbitrations, and who plans to submit a legal brief if needed. FINRA Rule 12208 lets a party be represented by a nonlawyer "unless state law prohibits such representation," and FINRA's FAQ warns that nonlawyer representation may be unauthorized practice in some jurisdictions. The lawyer-arbitrator asks whether the nonlawyer's representation is the unauthorized practice of law in Illinois and, if so, what the arbitrator's ethical obligations are.

The opinion holds the analysis turns on Illinois law, not FINRA's rule: only the Illinois Supreme Court may define and regulate the practice of law, so no agency or private body can authorize a layperson to practice law (Downtown Disposal, Sudzus). The opinion distinguishes the multijurisdictional question (an out-of-state lawyer may represent a party in an Illinois arbitration under Rule 5.5(c)(3)) from the harder question of a nonlawyer licensed nowhere. Reviewing Illinois law, it notes the practice of law covers out-of-court services requiring legal knowledge or skill (Howard, Goodman), and that the character of the act, not its location, controls. While Colmar relied on the nonlitigation nature of arbitration in permitting an out-of-state lawyer to appear, the opinion questions whether that reasoning would extend to nonlawyers, and observes that Rule 5.5 sets conditions for out-of-state lawyers without authorizing nonlawyer arbitration representation, and that Rule 1.0(m) treats a binding arbitration as a "tribunal."

The opinion concludes that a party representative's actions in a typical FINRA arbitration (knowledge of securities law, filing pleadings, exchanging documents, possible discovery, motions, legal briefs, and examining and cross-examining witnesses in an adversarial evidentiary hearing) constitute the practice of law, so a nonlawyer doing them is engaged in unauthorized practice. On the arbitrator's duties under Rule 5.5(a) (a lawyer must not assist another in unauthorized practice), the opinion holds that merely presiding does not by itself aid unauthorized practice, but once the arbitrator knows of the nonlawyer representation some duty arises: the arbitrator should inform FINRA and, if necessary, notify the ARDC (which has jurisdiction over unauthorized practice under Supreme Court Rule 752). The opinion adds that an arbitrator who takes those steps would not be assisting unauthorized practice merely by continuing to serve if the steps do not stop the representation.

In practice

The opinion holds that a nonlawyer's representation of a party in a typical FINRA arbitration generally constitutes the unauthorized practice of law in Illinois, because the representative's work is the practice of law regardless of the forum and FINRA's rule cannot authorize it where Illinois law does not. It holds that a lawyer-arbitrator who learns of such representation should inform FINRA and, if necessary, notify the ARDC so as not to assist the unauthorized practice under Rule 5.5(a), but is not required to withdraw as arbitrator if those measures do not end the representation. The opinion limits its conclusion to FINRA arbitrations, noting other arbitral bodies may differ.

Common questions

Q: Can a nonlawyer represent a party in a FINRA arbitration in Illinois?

A: Generally no. The opinion concludes the representative's work in a typical FINRA arbitration is the practice of law, so a nonlawyer doing it engages in the unauthorized practice of law in Illinois.

Q: Does FINRA's rule allowing nonlawyer representatives settle the question?

A: No. The opinion holds only the Illinois Supreme Court can define the practice of law, so FINRA Rule 12208 cannot authorize nonlawyer representation that Illinois law treats as unauthorized practice.

Q: What should a lawyer-arbitrator do when a party uses a nonlawyer representative?

A: The opinion holds the arbitrator should inform FINRA and, if necessary, notify the ARDC, the body with jurisdiction over unauthorized practice under Supreme Court Rule 752.

Q: Must the lawyer resign as arbitrator if the nonlawyer keeps appearing?

A: No. The opinion concludes an arbitrator who has taken those steps is not assisting the unauthorized practice and need not withdraw if the steps do not result in the representation ending.

Background and rules framework

The opinion interprets Illinois Rule 5.5 (unauthorized and multijurisdictional practice; Model Rule 5.5), including the Rule 5.5(a) prohibition on assisting unauthorized practice and the Rule 5.5(c)(3) allowance for out-of-state lawyers in arbitration, and the Rule 1.0(m) definition of "tribunal" (which includes a binding arbitration). It applies Illinois case law on the scope of the practice of law and on who may authorize it, and Supreme Court Rule 752 on ARDC jurisdiction over unauthorized practice.

Citations and references

Rules of Professional Conduct:

• Illinois RPC 5.5(a), (c)(3) (unauthorized/multijurisdictional practice) / MR 5.5
• Illinois RPC 1.0(m) (definition of "tribunal") / MR 1.0

Cases:

• People ex rel. Chicago Bar Ass'n v. Goodman, 366 Ill. 346, 8 N.E.2d 941 (1937), character of the act, not place, determines practice of law
• In re Howard, 188 Ill. 2d 423, 721 N.E.2d 1126 (1999), practice of law includes out-of-court legal services
• Colmar, Ltd. v. Fremantlemedia North America, Inc., 344 Ill. App. 3d 977, 801 N.E.2d 1017 (1st Dist. 2003), out-of-state lawyer in arbitration
• Downtown Disposal Servs., Inc. v. City of Chicago, 407 Ill. App. 3d 822, 943 N.E.2d 185 (1st Dist. 2011), only the Supreme Court defines the practice of law
• Sudzus v. Dep't of Employment Security, 393 Ill. App. 3d 814, 914 N.E.2d 208 (1st Dist. 2009), distinguishing informal benefits hearings

Other opinions cited:

• ISBA Opinions 93-15, 90-19, 90-20, 91-10, 94-01

See also

• ISBA Ethics Op. 12-17: Out-of-State Lawyers in Illinois Grievance Arbitration
• NY State Bar Op. 809: Aiding the Unauthorized Practice of Law
• NY State Bar Op. 1091: Reporting an Out-of-State Lawyer's Unauthorized Practice

Source

• Landing page: https://www.isba.org/ethics/opinions/1303