Thursday, July 03, 2003

Putting Strains On My Friends

While some of my best friends are accountants, I may be straining our friendship with this posting.

The Ohio Supreme Court, in the case of Columbus Bar Assn. v. Verne, recently enjoined an accountant from "preparing legal documents that constitute the unauthorized practice of law." Verne, the accountant in question, had formed an LLC on behalf of two of his clients by drafting and filing articles of organization with the Secretary of State. The articles used, as a baseline, forms that were available in the secretary of state's office.

In the real world, the practice of law by accountants, insurance agents, stock brokerage houses, and banks is rampant. A few good lawsuits resulting in liability might encourage a reduction in the unlicensed practice of law.

The opinion correctly focuses on the types of advice that clients need that are particularly within the province of attorneys, namely those issues that ought to be reflected in an operating agreement. However, in its conclusion, the Court focuses on the one area in which Verne’s transgression was relatively benign: the drafting of the articles of organization. Thus, the order merely enjoins him from "preparing legal documents."

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. The order does not focus on this problem. And, perhaps, it cannot. After all, it would come dangerously close to an infringement on free speech rights to block Verne from opining, to clients or prospective clients, as to the relative merits of different types of entities and the issues that should be addressed in organizing a business.

Going one step further, however, a more difficult issue underlies this case. What should it cost to form a relatively simple business deal? In this sense, law faces the same economic problem that medicine faces. In medicine, doctors often order or perform too many tests in order to reduce their exposure to malpractice claims. 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.

Of course, "overlawyering" is in the eyes of the beholder.

Although no facts as to this are set forth in the opinion, I'm willing to bet that Verne's clients' business involved little initial capital and they were operating on a shoestring. How much upfront capital should they be willing to spend to draft the "appropriate" documents addressing all of the "pertinent" issues? Appropriateness and pertinency are, after all, fluid concepts. Maybe the default provisions in the Ohio LLC statute were sufficient for their purposes. Of course, Verne probably lacked the training (and certainly lacked the appropriate license) to give his clients the requisite information that would have allowed them to make a knowing choice with respect to these matters. Thus, his real crime was not the document he drafted, but the document he didn't draft.

Two other points about the opinion.

First, I had not previously been to the Ohio Supreme Court's website. The opinions give not only the "book" official citation (that is, a citation to the hard bound volumes of published opinions) but an official "cyber" citation as well. All courts should emulate this practice.

Second, the Court's opinion cited as authority Henning & McQuown, Ohio Limited Liability Company: Forms and Practice Manual (December 2001). A disclaimer: I have a slight (very slight) financial interest in that publication, but (and?) I was happy to see it relied upon as authority.

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