Member Article

Modernizing Texas’ Foreign Legal Consultant Rule By Larry B. Pascal Introduction Texas law firms depend on cross-border work for a growing percentage of their revenue. Numerous Texas-based law firms have opened offices outside of the US including offices in Mexico, Europe, Russia and the surrounding Eurasian states, the Middle East, and Asia. According to the Texas Lawyer’s 2003 listing of the largest Texas firms, eleven (11) Texas-based law firms had a total of twenty-three (23) offices abroad. These and other Texas firms have also hired foreign lawyers to work in their Texas offices in order to better meet the needs of their US and foreign clients. But cross-border work is getting more common, if not indispensable for all Texas practitioners, and even small and mid-size law firms are putting more emphasis on and investing more resources in their cross-border practice. Globalization Trends Of course, the trends we are seeing are not reserved to Texas. In fact, globalization has had a large impact on the legal field. For the period from 1979 to 2004, the number of foreign lawyers employed at the largest 250 US law firms increased from 615 to 10,000. In short, American law firms have invested heavily in international expansion. World Trade Organization (“WTO”) members, recognizing the growing importance of cross-border services have signed the General Agreement on Trade and Services (“GATS”), which established a framework for regulation of cross-border services. In coming years, GATS is scheduled to complete a comprehensive global agreement on cross-border services. As a large exporter of legal services, the US is currently negotiating to liberalize global rules relating to legal services. These developments reflect the modern reality that lawyers in one country often wish to (or are asked by their clients to) open offices in other countries and that thousands of lawyers from the United States regularly visit other countries to perform legal work there on behalf of home, host, or third party country clients. Current US System for Regulation of Foreign Lawyers However, the US’ ability to negotiate a liberalization in this area (and by implication its existing investment in these markets) may be compromised by the regulation of foreign lawyers and law firms in the US. Due to the practice of law being primarily regulated at the state level, the US system is a patchwork of rules. To date, twenty-three (23) states and the District of Columbia have rules governing foreign lawyers working in the US as “foreign legal consultants” or “FLCs.” Although these rules vary widely, in general, there are three common elements: 1. FLCs must be admitted to the bar and be in “good standing” in their home country. 2. FLC applicants must have practiced law for a minimum period of time in the years just prior to applying for an FLC license. 3. FLCs must refrain from advising on particular areas of host country (state and federal) law, including matters relating to real estate, divorce and child custody, estates and trust, and appearing before any local court. “Summit” at Atlanta ABA Meeting At the recent ABA meeting in Atlanta, representatives of the ABA, state bar associations, and the European Council of the Bars and Law Societies (“CCBE”) attended a “summit” meeting to explore the possibility of an agreement liberalizing the legal services sector, either as part of the current round of the GATS or as a bilateral mutual recognition agreement. Among other things, the CCBE announced that it was prepared to accept US foreign legal consultants working in the EU with no prior home country practice requirement. One difficulty in reaching an agreement on the liberalization of legal services is that while the EU Trade Commissioner may negotiate on behalf of EU nations, the United States Trade Representative Office (“USTR”) is not in a similar position and must work closely with the state bar associations and state supreme courts to develop a position. Because the USTR may not bind each of the fifty states, reciprocity may be used so that US law firms from states that have not adopted a liberal FLC regime friendly to their nationals may not enjoy the benefits abroad extended to firms from conforming states. Texas Foreign Legal Consultant Rule Texas adopted its FLC rule in 1992. Unfortunately, the Texas FLC rule is more restrictive than the ABA Model Rule, does not reflect professional practices or needs, and has failed to attract foreign law firms to the state (despite the presence of the largest energy center in the world and a large border with Mexico), thereby resulting in less cross-border legal work for Texas law firms. According to a recent inquiry with the Texas Board of Law Examiner, Texas has one registered foreign legal consultant and to the knowledge of this author, no major foreign law firm has opened an office in Texas. In contrast, New York was a pioneer in recognizing the professional and economic benefits of attracting foreign lawyers and foreign law firms to the state, adopting its first FLC rule in 1974. New York currently has approximately 300 registered FLCs, working for foreign law firms, US law firms, and other organizations. In fact, approximately 50 major foreign law firms from all corners of the globe including North and South America, Europe, Asia, and the Middle East have offices in New York. Moreover, according to figures cited at the Atlanta summit, approximately 3,000 foreign lawyers sit for the New York bar exam each year. Nor is New York the only state that has cultivated this area. Illinois and California have also attracted foreign lawyers and law firms. Pennsylvania and Georgia have recently adopted more friendly international practice rules. Florida (primarily Miami), taking more of a regional approach, has worked to establish itself as a center for alternative dispute resolution for Latin American investors who are attracted to the existence of abundant bilingual lawyers (foreign and US qualified) and Latin friendly cultural environment. Texas could receive more of this coveted value-added cross-border legal work if its regulatory framework more suited the needs of foreign law firms and the legal market. ABA Model Rule on Foreign Legal Consultants In August 2002, the House of Delegates of the American Bar Association (the “ABA”) adopted the report of the Commission (the “Commission”) on Multijurisdictional Practice (“MJP Report”), which included two proposals for amendments to the ABA’s Model Rules of Professional Conduct (the “Model Rules”). The purpose of these two proposals was to modernize states’ regulation of the international cross-border provision of legal services. Hence, the MJP Report provides an excellent blueprint for states wishing to both attract foreign law firms and additional international cross-border work and align their existing rules with GATS principles. The principal focus of the MJP Report was on rules allowing lawyers admitted to practice in one US state to engage in legal services in another US state. It called for a significant relaxation of state rules that now prevent a lawyer’s “temporary” presence in a state of non-admission or “FIFO Practice.” For instance, it sets forth standard rules for pro hac vice admission before other states’ courts and uniform, less onerous, rules for admission without examination for lawyers moving permanently from one state to another. Although not its main focus, the MJP Report explicitly addressed two issues related to cross-border legal services. 1. It urged each state to adopt, with minimum departure from the original text, the Model Rule on Foreign Legal Consultants approved by the ABA in 1993. 2. It also proposed a rule for “Temporary Practice by Foreign Lawyers,” similar to the domestic FIFO concept. Comparison of ABA Model Rule and Texas FLC Rule There are four fundamental areas where the ABA Model Rule on FLCs and the Texas FLC rule differ – (1) Scope of practice; (2) qualifications for FLC certificate; (3) permitted relations with local lawyers; and (4) privileges. In each instance, the Texas rule is more restrictive. a. Scope of Practice The Texas FLC rule restricts the scope of advice that an FLC can provide to the law of his/her home country. The FLC may not advise on the law of a third country (regardless of the level of experience with that law) and may not even advise on Texas or US law “on the basis of advice from a person duly qualified and entitled,” as contemplated under the ABA Model Rule. b. Qualifications for FLC Certificate A key obstacle to a foreign legal consultant registering in Texas is the requirement under Texas rule XIV(a)(i) that the applicant has “engaged in the practice of law in that country for a period of not less than five of the seven years immediately preceding the date of Application . . .” This requirement overlooks the reality that foreign lawyers often come to the US for their Masters in Law in their early years and that lawyers with five to seven years of experience often already have an established practice, making it harder to forego existing clients for a new career in a foreign land and for which significant personal expense and sacrifice often must be incurred. c. Permitted Relations with Local Lawyers The Texas FLC rule also does not define the nature of permitted relationships with Texas lawyers and law firms (i.e. employee, partner, etc.). In contrast, the ABA Model Rule provides more certainty, affirming that a foreign legal consultant may be employed by a local law firm or be a partner in a local law firm. d. Privileges The Texas FLC rule does not specify that FLCs are entitled to important professional privileges such as the attorney-client privilege and the work product privilege. In contrast, the ABA Model Rule recognizes these concepts. Non-Lawyers Who Provide Legal-Type Services Questions also arise as to whether non-lawyers who provide what US lawyers regard as “legal services” but are not licensed members of a local bar may enjoy the benefits under these two international Model Rules. These questions arise out of the reality that other cultures define the “practice of law” in a more narrow vein to encompass only those who appear in court. In many foreign countries, those people who advise on taxes, contracts, intellectual property, and other issues that US lawyers regard as the “practice of law” but who do not appear in court are not perceived, defined, or regulated as lawyers. They are “legal consultants” (and hence the derivative of the “foreign legal consultant” concept that we often use in the US to cover a foreign lawyer not licensed in a US jurisdiction). The ABA Model Rule on FLCs makes clear that only a “member in good standing of a recognized legal profession in a foreign country” is eligible for the protection under this rule. Foreign Lawyer Admission to Bar The MJP Report does not address the issue of the requirements for a foreign lawyer to sit for the Texas bar. Of course, as previously mentioned, New York is the leader in this area as well, allowing foreign lawyers who have graduated from an ABA accredited LLM program to sit for the New York Bar. Growing Movement in Texas There is a growing recognition in Texas that the state must modernize its foreign legal consultant rule and other international practice rules. In February of this year, the International Law Section of the State Bar of Texas adopted a resolution calling for the state to modernize its international practice rules and adopt the ABA Model Rule for Foreign Legal Consultants. Subsequently, in June 2004, at the Annual Meeting of the State Bar of Texas in San Antonio, a similar resolution was also adopted. Conclusion Texas should modernize its foreign legal consultant rule to adapt to changing times. Texas would benefit in numerous ways, including (a) more affordable international legal services for Texas consumers, (b) improved international legal services that become more “seamless” as law firms of all sizes are able to advise Texas clients more thoroughly, (c) an improved regulatory framework for foreign lawyers that would make their presence more transparent to the Bar, and (d) additional legal work and trade generated between Texas and the world by virtue of the presence of foreign lawyers in Texas. Moreover, Texas may be placed at a competitive disadvantage vis-à-vis its peer states if a legal services accord is reached that depends on reciprocity. In many areas, Texas has taken steps to become more internationally competitive – excellent transportation infrastructure, low costs, and fine academic institutions, to name a few. It is time to become more competitive in this important, but often overlooked area. August 2004

 

Footnotes: Larry B. Pascal, the former chair of the International Law Section of the State Bar of Texas, is a partner and head of the Americas Practice Group at Haynes and Boone, LLP (Dallas). The author would like to acknowledge the assistance of Robert E. Lutz and Carole Silver for their comments to this article. The opinions expressed herein are the author’s own. “Supersonic Lawyers,” The American Lawyer, May 2004, p. 87. The article calculated that US law firms have 2,867 lawyers in London, 1,022 attorneys in Paris, 625 in Hong Kong, 543 in Frankfurt, 422 in Brussels, 389 in Tokyo, and 355 in Rome and Milan. “Year-in-Review (2003):Transnational Legal Practice,” International Lawyer, Fall 2003, Robert E. Lutz, Philip von Mehren, Peter Ehrenhaft, Carole Silver, and Laurel Terry. This risk of countries restricting their legal marketplace is not as remote as it seems. In 1999, as part of a review of the legal services schedule to NAFTA, Mexico attempted to alter its rules governing professional association for attorneys in such a manner that it would have forced the five US law firms with Mexican offices to close or drastically restructure their operations. The affected US law firms petitioned the US Trade Representative Office and the initiative died after the incompatibility of the proposed reforms to NAFTA were brought to light. See “Year-in-Review (2003):Transnational Legal Practice.” These states are Alaska, Arizona, California, Connecticut, the District of Columbia, Florida, Georgia, Hawaii, Illinois, Indiana, Louisiana, Massachusetts, Michigan, Minnesota, Missouri, New Jersey, New Mexico, New York, North Carolina, Ohio, Oregon, Texas, Utah, and Washington. Id. Under the rule of certain states, this practice experience must be obtained in the home jurisdiction of admission. Other states have adopted the more liberal ABA Model Rule and simply require the foreign legal consultant to have practiced the law of that home country, regardless of where he/she was physically located when doing it. Two jurisdictions, Utah and the District of Columbia, do not require any practical experience. Id. See Texas Rule of Court XIV. Texas law firms have numerous foreign lawyers in their offices. However, the restrictive rules, including the home country practice requirement, do not permit registration with the Bar. The registered number of FLCs in NY may not be an accurate representation of how many are currently working in New York as there is no de-listing mechanism in the state. Nevertheless, it is unquestioned that New York has the most vibrant foreign legal community in the US and comparable to the other major international legal centers in the world such as London, Paris, Hong Kong, and Brussels. Texas has several major law schools with recognized Masters in Law (LLM) programs for foreign lawyers such as SMU, UT, and UH. Many foreign lawyers from around the world enroll in an LLM program in Texas. Other foreign lawyers come to Texas for a shorter international law program such as the Center for American International Law (“CAILA”)(formerly called the Southwest Legal Foundation) offered in Dallas. “FIFO” stands for “fly in, fly out.” See http://www.abanet.org/cpr/mjp/20lh.doc. Texas Rule of Court XIV(g). See ABA Model Rule on Foreign Legal Consultants, Section 4(e). With respect to the qualification issue, there are other more onerous differences including but not limited to a residency requirement, proof of compliance with immigration laws regarding the right to work, and a requirement to notify the Board in the event of a law suit brought against an applicant based on legal services being rendered. See Texas Rule XIV(b)(1)-(7). This is one reason why US law firms were left unregulated for many years in Europe. Their business consultancy work and drafting work was not viewed as the “practice of law,” under local bar regimes, particularly when carried out in English in a non-English speaking country and with little or no reliance on local law. Over the years, European bar associations re-considered this narrow definition as the success of these US firms became more pronounced.