Arizona officials have taken the next step toward becoming the first state to scrap law firm ownership rules in an effort to increase access to justice.
A Jan. 30 petition to the Arizona Supreme Court from Dave Byers, a member of the Arizona Task Force on the Delivery of Legal Services, proposes “substantial” rule changes led by the proposed elimination of a rule forbidding non-lawyer ownership stakes in law firms and legal services operations.
Arizona, California, and Utah are each considering changes to their law firm ownership rules, as well as to those that define the unauthorized practice of law. But Arizona may be the first state to effect changes—and its changes could do the most to shake up the system.
Getting rid of Arizona’s Ethical Rule 5.4 could make legal services more affordable to the many civil and family court litigants who cannot afford legal representation, studies have shown.
But others have expressed concern about loosening such rules, which exist in states across the U.S. A major sticking point is that such changes could allow alternative legal service providers like the Big Four accountancies to move in on law firms’ turf.
The Arizona task force, which filed its report last October, made it clear it believed opening up the state’s legal system would bring more benefits than risks.
“This petition proposes that ER 5.4 be eliminated because no modern compelling reason for maintaining the rule exists,” wrote Byers, director of Administrative Office of the Arizona Courts, in the Jan. 30 petition.
The proposed rule changes will be considered at a rules conference in August. That will be preceded by a public comment process.
The proposed rules changes could take effect as early as Jan. 1 of next year.
Because the regulation today primarily exists as a wedge against entrepreneurial relationships with nonlawyers, Byers wrote, “it has been identified as a barrier to innovation in the delivery of legal services and contributing to the justice gap.”
ABA Model Rule 5.4, on which states’ versions are based, including Arizona’s, prevents lawyers from sharing legal fees with nonlawyers, or from forming partnerships with nonlawyers if any of the activities of the partnership consist of the practice of law.
Eliminating the rule could result in a professional nonlawyer administrator in a law firm having an ownership interest, Byers wrote, or a Fortune 500 company becoming a passive law firm investor.
It also could mean that—as has been the case in Washington, D.C. with its unique version of Rule 5.4—law firms could attract technologists, marketers, and other nonlawyers by giving them equity in the firm.
Yet if Arizona does move forward to scrap Rule 5.4, it will need to make other concurrent changes, Byers wrote, to help ensure the core values of “professional independence, confidentiality of client information, and conflict-free representation.”
That means in part, he wrote, that any new “alternative business structures” that are created be required to identify a compliance attorney responsible for establishing policies and procedures to assure that nonlawyer owners and managers comply with the Arizona ethical rules.