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Give Non-Lawyers a Bigger Legal Role, Utah Report Proposes (1)

Aug. 26, 2019, 9:27 PMUpdated: Aug. 27, 2019, 9:54 PM

Utah should significantly loosen, or even repeal, a state bar rule prohibiting law firms and other legal services operations from sharing fees with non-lawyers, a task force on lawyer regulatory change proposes.

The recommendation to ease or gut state bar Rule 5.4 was included in a 71-page report highlighting suggestions for wide-ranging legal system changes, which the Utah Work Group on Regulatory Reform recently sent to the state’s Supreme Court.

"(W)e view the elimination or substantial relaxation of Rule 5.4 as key to allowing lawyers to fully and comfortably participate in the technological revolution,” the report found. “Without such a change, lawyers will be at risk of not being able to engage with entrepreneurs across a wide swath of platforms.”

The recommendations follow similar proposals by bar associations in California and Arizona aiming to allow technology companies and other non-traditional legal service providers to enter the market. The imperative broadly is to improve access to justice for middle- and lower-income residents who can’t afford private attorneys in civil and family court matters.

Proponents of these types of changes anticipate efficiency gains in the slow-to-change U.S. legal industry. But proposed changes to Rule 5.4 have spurred concerns from Big Law and others that they could let the Big Four accounting firms gain a foothold in the U.S. legal market where they are not now permitted to operate.

The American Bar Association and other legal industry groups have resisted such changes. They argue that the professional independence of lawyers in the U.S. needs to be maintained as a hedge against unscrupulous practices.

The U.K. and Australia have embraced the concept, allowing non-lawyers to own legal service providers, and scaling back traditional protections for work that must be handled by attorneys.

The Sandbox Approach

The Utah panel, co-chaired by State Supreme Court Justice Deno Himonas and immediate past president of the Utah State Bar John Lund, also recommended the simultaneous creation of a regulatory agency that’s independent of the bar to oversee the provision of legal services.

New providers would be allowed to test their services in a “regulatory sandbox” through which data would be gathered and proposed innovations would be tested further and revised before permanent legal service licenses were granted.

Any regulations the sandbox develops would be evaluated based on risks to consumers and in relation to the legal service options currently available, among other factors, the report found.

Scenarios in which non-lawyers could operate or share fees in new legal companies include everything from consumer-facing legal services apps, to new law firm-type operations co-owned by big box stores.

Each of the three state task forces note that increasing access to justice is a key driver for reform. They cite, in part, state and national studies showing how often citizens need legal help with everything from child custody cases to landlord-tenant disputes.

Yet a need also remains to ensure that rules protect litigants against incompetent or fraudulent service providers, critics of change to existing bar rules have noted.

“Technology, especially online legal services, exponentially increases the potential to improve access to justice,” the Utah report found. “But it also simultaneously increases the risk of legal and practical harm to users if those services are not of sufficient quality.”

The full Utah Supreme Court received the report on Aug. 23 and agreed to its public release. It could weigh in by late September, Himonas said.

If the court backs the recommendations, the task force would decide on precise changes, including whether Rule 5.4 should be reformed or scrapped, and begin to implement them. The panel also would establish a regulatory office to determine when and how non-lawyers could provide legal services.

Himonas, who said the access to justice issue was his “passion,” added that it’s impossible for a judge to preside over a court of general jurisdiction and not quickly see the “palpable” need for system-wide change.

The access to justice issue has picked up steam in Western states.

An Arizona task force in July recommended that its version of Rule 5.4 be revoked, and voted unanimously to allow lawyers and non-lawyers to form new legal services businesses known as “alternative business structures”—as the Utah report likewise recommends.

A similar panel in California in June offered a sweeping series of access to justice-related proposals, including two different suggestions regarding its Rule 5.4. One of that state bar’s options would revise its current rule, and another would dismantle it.

(Clarifies to include a more detailed description of the proposed new agency, paragraph 8.)

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

To contact the editors responsible for this story: Jessie Kokrda Kamens at jkamens@bloomberglaw.com; John Crawley at jcrawley@bloomberglaw.com

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