Wild Wild West Coast Bar Associations: Developments in Regulating Nonlawyer Ownership of Legal Businesses
“Now let me welcome everybody to the Wild Wild West
A state that’s untouchable like Eliot Ness”
Is the practice of law in west coast states really untouchable?
Rules on law firm ownership and nonlawyer ability to provide legal delivery services could be changing in some western American states, ushering in possibilities of industry-shaking changes to the practice and the business of law.
Utah, California, Arizona, and Washington have each made headlines in recent weeks as task groups begin to critically rethink ethic rules that have traditionally limited ownership in law firms to lawyers and regulated who can provide legal advice. Much of this comes in the wake of the rapid advancement in legal technology, challenging the “guild” notion reserving the practice of law exclusively to barred attorneys.
The Utah Work Group on Regulatory Reform released a report proposing a “regulatory sandbox” for experimenting with new models of “nonlawyer ownership of legal businesses and nonlawyer investment in law firms.” This regulatory sandbox would allow for testing and collaboration between lawyer and nonlawyer parties. The report proposes a new oversight entity over the sandbox before granting permanent legal services licenses. The report also calls for modifications to the ethics restrictions on lawyer advertising, fee sharing and referral payments with nonlawyers, and the unauthorized practice of law. Utah previously approved licensed paralegal practitioners (LPPs) to practice law without legal supervision in specific areas.
Utah isn’t alone. The State Bar of California Task Force on Access Through Innovation of Legal Services has made available for public comment proposals that would allow changes such as letting legal technicians offer legal advice and nonlawyers have a financial interest in law firms. Proposed changes include opening up opportunities for state businesses to provide legal services via technology solutions, loosening ethics rules that ban fee sharing with nonlawyers, and modifying long-firm restrictions on the unauthorized practice of law. The proposals arrive roughly a year after the task force’s July 2018 report on the legal market landscape, which concludes that the current ethics framework was hampering the industry’s ability to innovate and best offer legal service. The comment period runs from July 23 to September 23.
Similarly, Arizona’s Task Force on Delivery of Legal Services is preparing similar recommendations designed to improve access to justice and making legal services more affordable, specifically allowing alternative business structures formed by lawyers and nonlawyers, as well as with regard to state’s certified “legal document preparers,” who can give limited assistance to unrepresented people in legal matters outside of providing actual legal advice. The task force has an October 1, 2019 deadline to provide its proposals to the Arizona Judicial Council.
And then there’s Washington. The state has limited practice officers (LPO) and limited license legal technicians (LLLT), whose presence in the state bar is expanding. The state’s Practice of Law Board is similarly working on revisions to expand what the practice of law will encompass. There is, however, pushback in the state. Jordan Couch, a Washington-based attorney notes, the Washington Supreme Court denied an initiative increasing fees available to LPOs and LLLTs, and suspended state bar association activities.
“I think these are all momentous occurrences” tweeted legal market analyst Jordan Furlong in a thread chronicling the status of these states’ progress. Furlong has been chronicling legal marketplace disruption in this vein since 2012. Australia, Canada, and the United Kingdom have already adopted deregulation of their legal industries. If U.S. states follow suit, the Artificial Lawyer blog observes it could be “the biggest changes to legal market regulation in American history.”
Washington, D.C. was the first jurisdiction to remove the ban on non-lawyer ownership of law firms. Other states, including New York, Massachusetts, and Maryland, have been the site for budding interest and baby steps towards rethinking the ethics rules around nonlawyer ownership in legal businesses, albeit often rebuffed. But, the task forces and proposals made in the western states represent, as Furlong calls it, “a tipping point in legal services regulation.”
Not everyone shares this sentiment. When the American Bar Association’s Commission on the Future of Legal Services asked lawyers in 2016 if it should relax its own opposition to non-lawyers investing in law firms, only one of the 43 who commented thought positively of the idea. Since California opened its proposals for comments in July, the overwhelming majority of responses have been negative. Some worry that allowing nonlawyers to provide legal advice will open up law firms for increased risk of malpractice suits due to nonlawyers lacking adequate knowledge and training. Vocal negative response from solo and small law practitioners has been noted on social media and email listservs, and David B. Sosin, President of the Illinois State Bar Association has called the proposal “a disaster.” Some lawyers worry it will disrupt their practice, as attorneys in process-intensive practices like personal injury or real estate perform many tasks that technology solutions are designed to target.
Some fear this fully opens the door for the Big 4 consulting firms to make further inroads into the U.S. legal market. D.C.’s 2017 decision paved the way for PwC’s launch of its new law firm, ILC Legal, in the District in 2017. Since then, each of the Big 4 have announced strategic legal alliances with law firms or legal businesses. In a 2019 Alternative Legal Service Providers Study published by Thomson Reuters, about 23 percent of large law firms said they competed for and lost business to the Big Four within the past year.
But, despite criticism, the market trends may be too great to overlook. With over $1.6 trillion invested in legal technology in 2018, and increasing market cap for Alternative Business Structures (ABS) and Alternative Legal Services Providers (ALSPs), new legal service models are disrupting the legal business regardless of existing rules. Access to justice, the cost of legal services, and the appetite for innovation in the industry are among the priorities named by the task forces looking at state ethics rules. Access to justice advocates especially laud these proposed changes. As Couch puts it: “lawyers believe that because we are so successful (financially and in keeping out competitors), we must be doing a tremendous job serving the public. But the numbers tell a different story.”
New business solutions and new pathways to legal services leveraging legal technology continue to be a growth area being closely watched by clients and lawyers, as shown by the increased interest in reforms from US state bar associations.
Peter Colin is a technical client manager at Thomson Reuters. The views expressed are his own.