The American Bar Association is pouring cold water on efforts to loosen restrictions on who can own law firms, including measures that could open up firms to new corporate competition.
The group’s House of Delegates on Tuesday passed a nonbinding resolution discouraging changes to state rules prohibiting the sharing of legal fees with nonlawyers. But it has also encouraged state bars to explore innovations designed to increase access to justice by making legal services more affordable.
“In reaffirming our core value of the independence of the legal profession and the prohibition of non-lawyer ownership, the ABA House’s action today is a huge victory for all lawyers,” Stephen said. Younger, associate of Foley Hoag, former president of the New York State Bar Association. .
“Lawyers across the country have come together to agree that we should not allow investment firms and technology companies to buy out our law firms and thereby influence our independent legal judgment,” Younger continued. .
The resolution, passed at the ABA’s annual conference in Chicago, comes as states like Arizona and Utah have already eased restrictions on law firm ownership. Others, like California, Michigan and North Carolina, are considering a similar tinkering.
The changes are often presented as access to justice measures. But they could also allow law firms to seek outside investors and allow the Big Four accountants and other for-profit companies like litigation funders to compete to provide legal services in the United States. .
State bar groups routinely follow the ABA’s lead when considering revising specific legal ethics rules.
The new resolution sends a mixed message to states considering changes to law firm ownership rules.
The ABA reaffirmed a two-decade-old policy that supports the existing model ethics rule, prohibiting ownership by non-lawyers. But Tuesday’s resolution was tweaked ahead of the vote to also express at least some support for states testing new types of legal businesses.
This leaves the likely impact of the ABA’s decision uncertain.
“Over the next five to 10 years, we’re going to live in a mixed environment” with different states sticking to the old rules or testing new kinds of ownership models, said longtime member Lucian Pera. ‘ABA, partner of Adams and Reese in Memphis, Tennessee. “And that’s fine.”
A resolution issued by the ABA in 2000 said that sharing law firm ownership or legal fees with non-lawyers is “inconsistent with the core values of the legal profession”.
Arizona has already dropped its version of Ethics Rule 5.4, which prevented attorneys from sharing fees with non-attorneys. Utah, meanwhile, has created a regulatory “sandbox” to test the operations of new models, a model some in California want to replicate.
“The key is to enable reform,” said Andrew Perlman, dean of Boston’s Suffolk Law School and an advocate for reform. The new ABA resolution, he said, “does not change the call for regulatory innovation. This is an important result here.
So far, most of the new legal operations licensed or tested in Arizona and Utah are much smaller than the juggernauts that could shake up the legal industry. As efforts have gained momentum in these states, speculation has grown about the potential impact.
Some industry leaders expect changes in major states to prompt the big four accountants like Deloitte or EY to acquire regional law firms to compete directly in the legal services industry, as they are already doing in other countries.
Last November, executives from two major litigation finance firms, Longford Capital Management LP and Burford Capital Ltd., said Revised legal industry regulations in Arizona allowed them to become co-owners of law firms in the state. As other states consider similar actions, they said it makes sense for legal partners to increasingly consider changes in firm structure.
The California legislature is pushing the state bar to impose restrictions on a proposed new regulatory sandbox experiment similar to the one in place in Utah. A final vote by the national assembly could take place by the end of August.