Trial Magazine

Debates continue to swirl in the legal community about how to increase access to legal services. In 2020, in recognition of an “access to justice crisis,” and after intense debate, the ABA House of Delegates passed Resolution 115 to encourage U.S. jurisdictions to consider “regulatory innovations.”¹

Two states have already approved one option—nonlawyer-owned entities providing legal services known as alternative business structures (ABS). And other states have considered deviating from the ABA’s Model Rule of Professional Conduct 5.4, which largely prohibits lawyers from sharing legal fees or forming partnerships with nonlawyers. Here’s an overview of how various states and the ABA are grappling with this shift in the practice of law.

ABA Resolution 115 notes that most people below the poverty line—as well as many middle-class Americans—‘lack meaningful access to effective legal services.’

The ABA Weighs In

Model Rule 5.4 states that “a lawyer or law firm shall not share legal fees with a nonlawyer” with limited exceptions. It prohibits lawyers from “form[ing] a partnership with a nonlawyer if any of the activities of the partnership consist of the practice of law” and “practic[ing] with or in the form of a professional corporation or association authorized to practice law for a profit” if a nonlawyer “owns any interest,” “is a corporate director or officer,” or “has the right to direct or control the professional judgment of a lawyer.”

But in 2020, the ABA House of Delegates passed Resolution 115, which does not delineate specific innovations. Instead, it noted that most people below the poverty line, as well as many middle-class Americans, “lack meaningful access to effective legal services.”² It called for reform to improve “accessibility, affordability, and quality of civil legal services” but left the details to the individual jurisdictions.³ Resolution 115 specifically disclaimed recommending changes to Rule 5.4, but some states are choosing to experiment with fee sharing anyway.

In September 2021, the ABA’s Ethics Committee issued Formal Opinion 499.⁴ The opinion addresses lawyers’ ethical duties when passively investing in an ABS. It provides that lawyers in traditional Rule 5.4 jurisdictions may passively invest in an ABS in another jurisdiction so long as “the investing lawyer does not practice law through the ABS, is not held out as a lawyer associated with the ABS, and has no access to information protected by Model Rule 1.6 without the ABS clients’ informed consent or compliance with an applicable exception to Rule 1.6 adopted by the ABS jurisdiction.”⁵ This effectively puts lawyers on the same foot as nonlawyers when investing in an ABS.

In early 2022, the ABA House of Delegates considered Resolution 607, which would have updated the Model Rules Governing Lawyer Referral and Information Services.⁶ However, questions were raised regarding the rule’s application to a for-profit, nonlawyer-owned referral service seeking a percentage-based fee for a referral. Resolution 607 was later withdrawn. Then in August 2022, the ABA delegates voted in favor of Resolution 402—reaffirming the ABA’s general bar on nonlawyer firm ownership and Resolution 115’s call for innovation at the state level.⁷

States Paving the Way

A few states now permit nonlawyer ownership—in a limited capacity, through a regulatory sandbox, or in a more permanent capacity.

District of Columbia. The district’s efforts predate Resolution 115—since 1991 it has allowed nonlawyers and lawyers to jointly own a firm that provides legal services. However, D.C.’s Rule 5.4 requires that any nonlawyer owner of a law firm “performs professional services which assist the organization in providing legal services to clients.”⁸ In early 2020, D.C. considered relaxing requirements to allow for business structures where both lawyers and nonlawyers provide legal and nonlegal services—but has not adopted those changes to date.⁹

Arizona has eliminated its Rule 5.4—the first jurisdiction to do so—and instead established a licensing process for ABS.

Arizona & Utah. In 2020, Arizona and Utah moved forward with their own versions of legal services regulatory innovation. Arizona eliminated its Rule 5.4—the first jurisdiction to do so—and in addition established a licensing process for ABS that include nonlawyers with “an economic interest or decision-making authority in a firm” that provides legal services.¹⁰

Utah took a different approach and established an Office of Legal Services Innovation to oversee a regulatory sandbox for nontraditional legal services—allowing for live, time-bound testing of new approaches including legal practice entities that are owned jointly or partially by nonlawyers and those that use technology platforms or nonlawyer service providers to practice law.¹¹ Utah also eliminated its Rule 5.4 but has backstepped on this, noting ethical challenges with paying referral fees to nonlawyers.¹²

Arizona approved 40 entities as of January.¹³ One entity, Elevate, claims to be “the first non-lawyer-owned law company . . . in the United States with an integrated law firm” after Arizona approved its application in late 2021.¹⁴ Meanwhile, Utah has 48 regulatory sandbox participants as of January.¹⁵ Entities are offering a range of services, including immigration and estate planning software, debt advising, and workers’ compensation and veterans benefits services. Entities also include personal injury and mass tort firms with nonlawyer partners.

The Utah legislature, amid concerns of inappropriate referral activities, passed a law in spring 2022 prohibiting kickbacks and bribes in return for referrals for goods or services relating to “any insurance claim or a claim for damages.”¹⁶ Under the new law, violations constitute a third-degree felony.¹⁷

Other States’ Efforts

No other jurisdictions have adopted reforms allowing nonlawyer ownership of for-profit firms. But a few states, including California, Georgia, and Massachusetts, have taken small steps by relaxing fee-sharing rules. California’s revised Rule 5.4 allows legal fees arising from a settlement or other resolution to be shared with or paid to a nonprofit.¹⁸ Georgia’s Rules 5.4(e) and (f) allow Georgia lawyers to work with an ABS in another jurisdiction and share fees for that work.¹⁹ And Massachusetts’ Rule 5.4(a)(4) allows lawyers to share certain fees with a “qualified legal assistance organization” with the client’s consent.²⁰

Broader reform proposals have been floated in several states, including California, Florida, Illinois, Michigan, and Oregon. A task force created by the State Bar of California recommended exploring the development of a regulatory sandbox in 2020. In response, the bar formed a Closing the Justice Gap Working Group to make specific recommendations on sandbox creation, structure, and governance.²¹ The working group’s recommendations are due in 2023—but the state legislature has pushed back and narrowed the working group’s focus considerably.²² Then in 2022, the California legislature passed a law requiring the state bar to prepare a report on its regulatory sandbox expenditures and requiring any future sandbox planning to prioritize access to justice for those “who qualify for legal assistance,” among other requirements.²³

Last year the Florida Supreme Court declined to adopt most of the recommendations of its Special Committee to Improve the Delivery of Legal Services, including recommendations on nonlawyer ownership, fee splitting, and expanded scope of paralegal work.²⁴ The court followed in the steps of the Florida Bar Board of Governors, which unanimously opposed the recommendations in the fall of 2021.²⁵ But the state high court amended Florida Rule 4-5.4 in 2022 to allow nonprofit legal service providers to organize as corporations—with nonlawyers serving on their boards of directors.²⁶

In 2020, the Chicago Bar Foundation issued a task force report calling for a new “intermediary entity” model to connect potential clients with business and administrative services and a “licensed paralegal” model to provide “more efficient and affordable services in high volume areas of need.”²⁷ And Michigan’s Justice for All Commission, established in 2021 with the goal of ensuring 100% access to the civil justice system, has explored how to help courts serve pro se litigants, as well as improving the debt collection process and summary proceedings.²⁸ The committee issued reports on justice in debt collection²⁹ and on state legal aid services³⁰ in fall 2022.

“It is well-documented that quality and affordable legal services are out of reach of most Americans, particularly in the areas of divorce and custody, landlord/tenant, and debtor’s rights,” noted South Jordan, Utah, attorney Rachel Sykes. “In recent years, many states have studied whether the relaxation or elimination of rules governing fee-sharing, advertising, and nonlawyer ownership of law firms can increase the affordability and availability of legal services to consumers who otherwise may not be able to obtain those services. ABS and alternative legal providers have been offered as a way to increase access to justice.”

U.S. jurisdictions can be expected to continue exploring how best to expand access to legal services while maintaining quality and restricting inappropriate referrals.³¹ And lawyers working across jurisdictions will need to determine best practices and ethical limitations when coordinating with various nontraditional legal services providers.

Maureen Leddy is an associate editor at Trial.

Notes

1. Res. 115 (Am. Bar Ass’n 2020), https://www.americanbar.org/groups/centers_commissions/center-for-innovation/Resolution115/.
2. Id.
3. Id.
4. ABA Standing Comm. on Ethics & Pro. Resp., Formal Op. 21-499 (2021), https://tinyurl.com/z27nzcwd.
5. Id.
6. Proposed Res. 607 (Am. Bar Ass’n 2022) (withdrawn), https://www.americanbar.org/content/dam/aba/directories/policy/midyear-2022/607-midyear-2022.pdf.
7. Res. 402 (Am. Bar Ass’n 2022), https://www.americanbar.org/content/dam/aba/directories/policy/annual-2022/402-annual-2022.pdf.
8. D.C. Rules of Pro. Conduct r. 5.4, https://www.dcbar.org/For-Lawyers/Legal-Ethics/Rules-of-Professional-Conduct/Law-Firms-and-Associations/Professional-Independence-of-a-Lawyer.
9. Debra Cassens Weiss, DC Bar Considers Relaxing Its Already-lenient Rules to Allow Nonlawyer Ownership of Law Firms, ABA J., Jan. 27, 2020, https://www.abajournal.com/news/article/dc-bar-considers-relaxing-its-already-lenient-rules-to-allow-nonlawyer-ownership-of-law-firms.
10. Ariz. Jud. Branch, Alternative Business Structures, https://www.azcourts.gov/Licensing-Regulation/Alternative-Business-Structure.
11. Utah Sup. Ct., Off. of Legal Servs. Innovation, What We Do, https://utahinnovationoffice.org/about/what-we-do/.
12. Utah Cts., Supreme Court Regulatory Reform—Revised—Effective August 31, 2020, Sept. 1, 2020, https://legacy.utcourts.gov/utc/rules-approved/2020/09/01/supreme-court-regulatory-reform-revised-effective-august-31-2020/.
13. Ariz. Cts., Alternative Business Structure Program, Dec. 14, 2022, https://www.azcourts.gov/Portals/26/ABS%20Directory%20-%201-17-2023.pdf.
14. Elevate, Elevate Becomes First-Ever Law Company to Receive an Alternative Business Structure (ABS) License in the U.S., Jan. 13, 2022, https://elevateservices.com/news/elevate-becomes-first-ever-law-company-to-receive-an-alternative-business-structure-abs-license-in-the-u-s/.
15. Utah Sup. Ct., Off. of Legal Servs. Innovation, Authorized Entities, https://utahinnovationoffice.org/authorized-entities/.
16. Utah Code §76-10-3201.
17. Id.
18. Cal. Rules of Pro. Conduct r. 5.4, https://www.calbar.ca.gov/Portals/0/documents/rules/Rule_5.4.pdf.
19. Ga. Rules of Pro. Conduct r. 5.4(e) & (f).
20. Mass. Rules of Pro. Conduct r. 5.4(a)(4).
21. State Bar of Calif., Closing the Justice Gap Working Group, https://www.calbar.ca.gov/About-Us/Who-We-Are/Committees/Closing-the-Justice-Gap-Working-Group.
22. Ian Ross, In Response to Legislative Concerns, the State Bar of California Board of Trustees Approves Recommendations to Clarify the Scope and Composition of the Closing the Justice Gap Working Group, Consumer Prot. Pol’y Ctr., Univ. of San Diego (Apr. 4, 2022), https://tinyurl.com/52vsc2f3.
23. 2022 Cal. Legis. Serv. 419 (West), https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=202120220AB2958.
24. Mark D. Killian, Supreme Court Declines to Adopt Recommendations on Nonlawyer Ownership, Fee Splitting, and Expanded Paralegal Work, Fla. Bar News, Mar. 8, 2022, https://tinyurl.com/ywybmes6.
25. Gary Blankenship, Board of Governors Unanimously Opposes Nonlawyer Firm Ownership, Fee Splitting Ideas, Fla. Bar News, Nov. 10, 2021, https://www.floridabar.org/the-florida-bar-news/board-of-governors-unanimously-opposes-non-lawyer-firm-ownership-fee-splitting-ideas/.
26. Mark D. Killian, Court Amends Rules to Allow Legal Service Providers to Organize as Corporation, Fla. Bar News, June 3, 2022, https://tinyurl.com/2p9v24s8.
27. Chicago Bar Found. Task Force on the Sustainable Prac. of Law & Innovation, Task Force Report, Sept. 28, 2020, https://chicagobarfoundation.org/pdf/advocacy/task-force-report.pdf.
28. Mich. Cts., Justice for All Commission, https://www.courts.michigan.gov/administration/special-initiatives/jfa/.
29. Mich. Just. for All Comm’n, Advancing Justice for All in Debt Collection Lawsuits, Nov. 2022, https://tinyurl.com/5fy8u592.
30. CSACO Cmty. Servs. Analysis LLC, Michigan Legal Aid SROI Report 2019 & 2020, Oct. 2022, https://www.courts.michigan.gov/4a9445/siteassets/court-administration/resources/mi_sroi_final-opt.pdf.
31. AAJ is tracking these developments and working closely with state trial lawyer associations as this issue arises. For more information, contact AAJ Senior State Affairs Counsel Daniel Hinkle at daniel.hinkle@justice.org. To access a November 2022 webinar on the topic from AAJ Education and the National College of Advocacy^®, email education@justice.org.