TEXAS LAWYERS' INSURANCE EXCHANGE

Preliminary Proposal: Authorized "Practice of Law"

On August 2, comments were received in a public hearing held at the Texas Law Center in Austin, regarding the State Bar of Texas Task Force Preliminary Recommendation of a New Statutory Definition for the Practice of Law.¹ The hearing was scheduled to last two hours. However, the public forum continued throughout the noon hour, finally concluding after nearly five hours. Some 75 or more attorneys from cities across the State attended.

Task Force members attending included State Bar President Lynne Liberato (Haynes & Boone - Houston), Executive Director Antonio Alvarado (Austin), UPL Task Force Chair R. Brent Clifton (Locke, Liddell & Sapp - Dallas), and committee members Robert A. (Doc) Watson (Sheehy, Lovelace & Mayfield - Waco), Walker Arenson (Arenson & Spears - Austin), Richard T. "Dick" Miller (State Bar Director - San Saba), Gregory S.C. Huffman (Thompson & Knight - Dallas), Terry W. Conner (Haynes & Boone - Houston), and Mark T. Witcher (AT&T - Austin).²

The Task Force was appointed in early 1999 (at the request of the Texas Supreme Court) by former State Bar Presidents, Richard Peņa and Charles F. Aycock, to evaluate the State's regulation of the unauthorized practice of law. Since then, the UPL Task Force has worked toward the drafting and presentation of the State Bar preliminary proposal, which the Board of the State Bar is due to consider in September prior to issuing its final proposal in October.

Effective June 19, 1999, House Bill 1507 amended Section 81.101 of the Government Code by adding (c), which redefined the scope of the practice of law to allow non-attorneys to sell legal forms and kits to non-attorneys, including software, with the exception of real estate documents governed by Chapter 83 of the Government Code.³ The existing real estate documents exception would be removed by the preliminary proposal to allow the sale of real estate forms and kits by non-attorneys. Section 81.101 (c) imposed a requirement that forms and kits state clearly and conspicuously that the product is not a substitute for the advice of an attorney, and that those marketing such legal services (via the Internet or otherwise) not hold themselves out as a licensed attorney in violation of Sec. 38.122, TEX. GOV''T. CODE.

The preliminary proposal for statutory revision in the 2001 legislative session would revamp existing Sections 81.101, 81.102, and 83.001 of the Government Code, allowing persons not licensed by the Supreme Court of Texas to provide certain legal services. Most of the situations in which the draft would allow such law practice are embodied in current Texas law or court orders, but a few new categories would be created.

Section 81.107 as proposed would allow civil suits by clients based on unauthorized practice of law violations, but provides an exemption not currently allowed by Texas law that would bar suits against in-house counsel providing legal advice to an employer-client. Also, the preliminary report would permit the preparing of forms or negotiating transactions if the person is a party to the transaction and they receive no compensation. In addition, non-lawyers working through a 501(c)(3) organization would be permitted to provide legal services without compensation in certain "simple" divorces, to obtain protective orders in domestic violence situations, and to settle low dollar insurance matters out of court. The draft indicates that additional services might be added to the 501(c)(3) exception after public comment.

In most instances these non-attorneys providing legal services would be ". . . subject to the standards of care and ethics applicable to members of the state bar in similar circumstances and shall have the same liability as would members of the state bar." Proposed Section 81.102 (C). However, under Sec. 81.102 (B) 7, 9, 10, and 11, non-attorneys would not be subject to this provision if acting as an 1) arbitrator, mediator, or impartial third party in ADR matters; 2) a licensed real estate broker; 3) a land agent preparing legal instruments regarding the lease, sale, or transfer of mineral or mining interests in realty; or 4) a person who prepares or negotiates a transactional instrument (such as a trust, contract, conveyance, etc.) without receiving compensation, in a matter to which they are a party. Section 81.107 as proposed would impose remedies similar to those under the Deceptive Trade Practice Act for knowing violations by non-lawyers providing legal advice or services, including recovery of compensation paid, economic and mental anguish damages (and potential punitive damages for up to three times for such damages), court costs and reasonable attorney's fees.

Among 20 or more of those who registered to speak before the Task Force panel were the Chair of the Family Law Practice Section (Jack W. Marr, Marr, Meier & Hartman - Victoria); the Chair-Elect of the Real Estate, Probate & Trust Section (Jerry F. Jones, Ikard & Golden - Austin); the Chair-Elect of the Austin chapter of the Texas Organization of CPA's (Gary McIntosh); and State Bar Directors Claude E. DuCloux (Austin) and Timothy M. Sulak (Morris, Craven & Sulak - Austin).

A significant number of speakers, including Mr. Jones, argued that the changes would permit mortgage companies to draft real estate documents, to the disadvantage of consumers. The real estate attorneys argued that it protects the borrower's rights to have a Texas licensed attorney draft loan documents, even if the attorney represents the lender. Non-Texas attorneys might not understand the constitutional limitations on equity mortgages against homestead property, leading to protracted litigation that would hurt small borrowers, and potentially increasing lending rates in Texas. One attorney argued that the preliminary proposal would ruin her mortgage practice.

The proposed language allowing non-licensed legal assistants to provide limited family law legal services for clients aided by 501(c)(3) tax-exempt entities drew several critical comments. As written, the proposal would appear to broaden the availability of legal services to persons financially unable to pay for them at conventional billing rates. However, some criticized that approach as being unacceptable and contrary to the public interest considering the highly prejudicial effect on those clients represented by a non-lawyer spokesperson in mediations or protective order matters, when faced with an opponent represented by a licensed attorney. A concern was raised that violation of protective orders can result in criminal violations, and that failure to have attorneys draft such orders could indirectly violate individual rights in Suits Affecting the Parent Child Relationship. Jack Marr, the Chair of the Family Law Practice Section, urged expansion of pro bono representation as a superior alternative.

Mr. DuCloux, a former prosecutor of unauthorized practice of law matters, observed that the preliminary proposal of 81.101(c) would provide a loophole for those who provide services without compensation. He opposed the current wording, citing a potentially negative impact on the quality of advice or services, and a possible cause of disruption to court processes. He noted that a number of prosecutions of unauthorized practice have been against individuals who are quite willing to take on a case for no compensation because of their dislike of the legal system. In those instances, the persons prosecuted had caused harm to their "clients." Mr. Sulak agreed in concept with the attempt by the Task Force to draft a proposal that would help address some unmet legal needs, but raised concerns about requiring liability insurance for non-lawyers providing legal services under the proposed 501(c)(3) exception, without also requiring liability insurance for licensed attorneys.

Mr. McIntosh argued that the definition of the practice of law should not include consulting services provided by the accounting profession. The UPL Task Force recently rejected proposals that would allow multidisciplinary practice with other professionals such as accountants.

The tenor of comments from various speakers who appeared ranged from the calmer, "come let us reason together" approach, to the more forceful, "mad and not going to take this anymore" stance. Some commented that the preliminary proposal went so far as to abdicate the State Bar's oversight role as the protector of the public interest in assuring an acceptable quality of legal services. Others acknowledged the need for further drafting in light of the positions urged during the hearing, and at the same time, commended the efforts devoted by the Task Force in its drafting of the preliminary proposal, which has been in progress for the past two years.

The UPL Task Force indicated that it would consider the comments and affirmatively agreed to work with a number of the persons expressing concerns. The period for public comment on the preliminary proposal expired August 15.4 The Task Force met on September 13; the Board of the State Bar is expected to consider the proposal and comments further, prior to issuing the final proposal in October. The pre-filing period for proposed legislative bills will begin on Monday, November 13, and continue until March of 2001.

¹ The preliminary proposal would redefine the practice of law as enacted in the Texas Government Code. Apparently, the preliminary proposal was not available in time for consideration in the meetings held by the various practice sections during the Annual Meeting in June, although it was published in the June, 2000 Texas Bar Journal. It can also be found at http://www.texasbar.com/attyinfo/upl/defrpt.pdf.

² In addition to those members of the Task Force identified above, other members include: Amanda G. Birrell (Austin), former chair of the State UPL Committee James D. Blume (Blume & Stoddard -Dallas), Gregg R. Cannady (Carrington, Coleman, Sloan & Blumenthal - Dallas), Kelly Frels (Bracewell & Patterson - Houston), Hon. J. Rodney Gilstrap (County Judge - Marshall), F. Witcher McCullough, III (Sheinfeld, Maley & Kay - Austin), Lee J. Teran (St. Mary's University School of Law - San Antonio), and Robert Valdez (San Antonio). Ex officio members serving with the Task Force are: Immediate Past President Charles F. Aycock (Aldridge, Aycock, Actkinson & Rutter - Farwell), Board of Directors Chair David E. Keltner (Jose, Henry, Brantley & Keltner - Fort Worth), and Linda A. Acevedo (SBOT - Austin).

³ HB 1507 specified that under Chapter 81, "[T]he 'practice of law' does not include the design, creation, publication, distribution, display, or sale, including publication, distribution, display, or sale by means of an Internet web site, of written materials, books, forms, computer software, or similar products if the products clearly and conspicuously state that the products are not a substitute for the advice of an attorney."

4 Contents of the final report were not available at Advisory press time.