California has taken a step towards altering the role of lawyers after a state bar task force last week advanced controversial proposals for new ethics rules that would allow non-lawyers to invest in law firms and tech companies to provide limited legal services.
The new rules could open up Big Law firms, at least in California, to greater competition from “New Law” providers and the Big Four accounting firms that have been so far limited from practicing law in the U.S. They could also provide an avenue for law firms to receive outside investors to foster spending on tech or new business lines.
The proposed rules are sure to spark a debate between legal market traditionalists and those looking to change the system last seen on a national scale in 2016 when an American Bar Association working group scrapped proposals to allow outside investment in law firms or so-called alternative business structures.
Still, California’s efforts are one of the first possible steps toward a U.S. legal market that looks more like the U.K. and Australia’s. Those countries allow non-lawyers to own legal service providers and have scaled back traditional protections for work that must be handled by lawyers.
“We can look to those markets to see that the sky hasn’t fallen,” said Dan Rodriguez, a former dean at Northwestern University Pritzker School of Law who wants California’s proposals to become the new rules. “We need natural experiments.”
The proposals face a series of votes and potential lobbying before becoming effective. They arose from a task force convened last year by the California State Bar to increase access to justice.
Arizona and Utah also have initiated task forces in recent months to study similar issues because of concerns over access to justice.
One of the most controversial proposals in the California set would amend ABA Model Rule 5.4 to permit law firms to share fees with non-lawyers in what the California committee proposing the rules said would create “a major shift” to solve a growing access to justice problem.
Other rules would create licenses for non-lawyers to “provide legal advice and services” and would allow “technology-driven delivery systems to engage in authorized practice of law activities.” New regulatory bodies could be created to oversee those new providers, the rules suggest.
The proposed exception allowing tech-driven delivery systems is “a form of legitimization” to alternative legal service providers like Elevate and UnitedLex, said Michele DeStefano, a law professor at the University of Miami School of Law and founder of the nonprofit group LawWithoutWalls, an education program for lawyers and law students designed in part to help create legal tech innovations.
“They’ve been in an uphill battle” to sell their services and products in the United States, said DeStefano. “But this change would make it easier for them to enter this space.”
The way that California rule is currently written is a disincentive to legal industry entrepreneurs, DeStefano added. But by allowing new legal tech businesses to sprout up, a rule change could benefit “both David and Goliath”—meaning both individual citizens and large corporations—by promoting the creation of legal solutions that are cheaper and of higher quality.
Mark Cohen, a law firm business consultant who has been critical of restrictions against non-lawyer ownership in the past, said the California proposals could go beyond allowing new staffing models and technologies, specifically by defining the tasks that make up “the practice of law,” and would therefore require lawyers.
“This is all a footnote to law’s kicking-and-screaming transformation from a lawyers-only profession to an industry where lawyers are just part of the delivery process,” Cohen said.
California’s proposed rules will be released for a 60-day comment period if they pass a vote by the State Bar of California board of trustees on July 11. Joanna Mendoza, an elected trustee, said she expects that vote to pass the 13-member board. The comment period will help shape a final report due to the board in December with recommendations for final rules proposals.
“Lawyers are typically conservative and they don’t like change,” Mendoza said. “So we are putting these recommendations together based on what we think needs to happen and not on what we think will happen. And we hope it pushes things in the right direction.”
Increased Odds of Passage
U.S. state bar associations and the lawyers they represent have in the past lobbied against the types of changes proposed by California’s task force.
But California’s bar association underwent major reforms in recent years that might give the state’s regulators a better chance of passing new proposals. The bar association in January 2018 was split to separate its regulatory function from its lawyer trade association function.
The state bar’s regulatory body now has a board of trustees that counts seven lawyers and six non-lawyers on its roster. But Mendoza, a lawyer and potential swing vote, said she is in favor of the non-lawyer ownership rules, which she thinks will help lower the cost of legal services.
The California Supreme Court will also be a key player in the debate since it oversees the regulatory body. Mendoza said the trustees likely would not adopt proposals that it knew the court would shoot down.
A court spokesperson said the Supreme Court doesn’t comment on potential rules changes. The court receives rules proposals for consideration and can approve, amend, deny or take other actions, the spokesperson noted.
“I would like to think that the current board is not protectionist and really understands the regulatory body is there for the consumer of legal services, and not for lawyers,” Mendoza said. “I don’t trust that yet, but I hope it is true that they will focus on what is right for the consumers and not lawyers.”
With assistance from Sam Skolnik
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