Happy Friday! I sat in on a four-hour meeting on Arizona alternative business structures so you didn’t have to.
On Tuesday, the committee that oversees Arizona’s non-lawyer-owned law firms recommended two rule changes aimed at referral law firms. The proposed rules would require firms to provide legal services — not just make referrals — and devote at least part of their business to serving people in Arizona.
Since 2021, Arizona has allowed non-lawyers to own law firms, a practice barred in most states. Many of the approved law firms are in the mass tort and personal injury space, aggregating cases and referring them out nationwide.
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Investors like Benefit Street Partners and Fortress Investment Group have stakes in legal operations there. Big Four accounting firm KPMG opened a law firm there last year.
The rule changes are open for public comment and will be reviewed in March by the Arizona Judicial Council, the primary policy-making body for the state’s court system.
‘Loan to Own’ Scheme
I also wrote a story this morning about a lawsuit filed by a plaintiffs’ firm against Ellington Financial, ICG Investments, and Stifel Financial.
The Smith Law Firm alleged that the funders misrepresented the availability of funds for a second tranche of a multi-million-dollar loan and conspired to gain control of the firm and its talcum powder litigation.
In the complaint, the firm called it a “loan to own” scheme, saying the funders knew the fraud would most likely cause the firm to default, and that they could then take over the cases.
The firm says it has been involved in the talcum powder litigation for nearly 17 years. The loans funded the firm’s operations and supported its involvement in long-running litigation against Johnson & Johnson alleging its baby powder was tainted with cancer-causing asbestos.
What I’m Reading
- Speaking of alternative business structures, The Arizona Republic has a fascinating two-part series on the subject. The first part looks at consumer complaints against firms in the program, and the second delves into the loopholes that allow ABS firms to operate nationwide.
- Senators Chuck Grassley, Thom Tillis, John Kennedy, and John Cornyn introduced the Litigation Funding Transparency Act on Wednesday. The legislation requires parties to publicly disclose litigation funding in mass tort and class action suits. It also prohibits litigation funders from influencing litigation strategy.
- Insurance Business published a piece about how insurance carriers believe 2026 will be a turning point for litigation finance. Katie Evans, executive vice president and chief legal officer at CSAA Insurance Group, told the trade magazine that the industry will put out a more coordinated effort for regulation this year.
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