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California Bar Panel Weighs Legal Service Delivery Experiments

Jan. 15, 2021, 12:03 AM

The legal industry needs new ways to deliver services in California that are more affordable and accessible to consumers, speakers told a state bar working group at its first hearing Thursday.

The state should test alternative models, including those with nonlawyer investment or ownership, and then analyze the data and weigh the possibility of expanding them, the speakers said.

“The current ways of regulating are not really working” for lawyers, said Crispin Passmore, a U.K.-based legal industry consultant and member of the working group. “It stifles their creativity and innovation.”

Rule reform in California could speed the entry of the Big Four accounting firms—PwC, EY, KPMG, and Deloitte—into the American legal market. Such a scenario has made some Big Law leaders anxious because of the accountancies’ multi-billion dollar revenue streams and their strong tech focus.

A number of states, including New York and Illinois, are considering whether to loosen their regulatory regimes. The broadening effort has turned what was a western regional trend in states like California, Utah and Arizona into something closer to a national movement.

California’s Closing the Justice Gap Working Group is exploring the possibility of developing a “regulatory sandbox” similar to an experiment in Utah. Such a test in could have an outsize impact, given the state’s size, reach, and importance to the legal industry.

“California is such an important state because it’s a leader in so many ways, and because it’s huge,” said Rebecca Sandefur, a professor with Arizona State University and an access to civil justice expert.

The working group also will explore amendments to the Rules of Professional Conduct—including Rule 5.4, which in most states limits the ability of lawyers to share fees with nonlawyers. Arizona scrapped its Rule 5.4 last year in an effort to boost access to justice.

Passmore said loosened legal regulations in the U.K. since 2011 have allowed for a wide range of alternative business structures, including nonlawyer legal service ownership.

A number top alternative legal service providers—including several based in California—are able to thrive at higher levels in the U.K. because of the relaxed rules, he said.

Consumer-facing providers like Rocket Lawyer and LegalZoom, as well as other prominent ALSPs such as Elevate, Axiom, and United Lex, “are able to do things in England and Wales that they’re not able to do in their home country and their home state,” Passmore said.

Utah’s two-year sandbox pilot, which took shape last August, is proceeding as planned, said John Lund, chair of Utah’s Office of Legal Services Innovation and a partner with Salt Lake City-based Parsons Behle & Latimer.

So far, 34 applications have been received by the Utah program, said Lund, also a member of the California working group, out of which 16 have been authorized.

Last September, Rocket Lawyer was the first big-name legal services provider to announce it was taking part in the Utah pilot.

Through the program, Rocket Lawyer customers in Utah have access to its independent attorney network, and to a new group of in-house staff attorneys, Charley Moore, the company’s founder and CEO, said at the time. Several other smaller consumer-facing legal providers also have joined the program.

The Utah sandbox program made a minor course adjustment last month when it limited the types of businesses that could participate, over concerns about companies that earn revenues by collecting referral fees, compensation paid to nonlawyers for the sole purpose of ensuring the referral of legal work.

Program administrators concluded that the business model presents potential ethical challenges for lawyers. They decided to stop considering potential sandbox participants that use the model until the issue is studied further.

To contact the reporter on this story: Sam Skolnik in Washington at sskolnik@bloomberglaw.com

To contact the editors responsible for this story: Chris Opfer at copfer@bloomberglaw.com;
John Hughes in Washington at jhughes@bloombergindustry.com

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