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ABA Committees Urge States to Reexamine Law Firm Ownership Rules

Nov. 25, 2019, 8:24 PM

Reformers within the American Bar Association want more state-led experiments to open up rules on who can own law firms and provide legal services.

The ABA’s Center for Innovation and four standing committees, including one that studies ethics and professional responsibility, have put forth a report and a resolution to the ABA House of Delegates, and are seeking a vote by the policy group in February.

The proposal aims to add to momentum for access to justice reform, which aims to provide less expensive legal service options to the poor. It urges states to engage in more “courageous experimentation” and to collect data to support those efforts.

Change is already being debated by state bars in California, Utah, and Arizona, and could spur dramatic side effects by allowing the Big Four accountancies and other alternative legal service and tech providers more regulatory latitude to compete directly with the biggest U.S. law firms. Bar rules currently disallow such companies from opening their own legal operations, or from joining forces with existing law firms.

“The legal profession cannot solve these problems alone,” the report said. “The public needs innovative models for delivering competent legal services, and such models require the knowledge and expertise of other kinds of professionals, such as technologists and experts in the design of efficient and user-friendly services.”

Increased Need

The need for change has only increased in recent years, the ABA report found. Three out of four civil matters in 10 major urban areas, for example, had at least one self-represented, or pro se party, according to a 2015 report.

At the same time, “traditional” solutions like civil legal aid and pro bono work “have not come close to fixing the problems that exist. In fact, the problems are becoming more severe,” the report found.

The resolution doesn’t request that the ABA change its Model Rules. But it could help lay the groundwork for more direct reform proposals in the future by encouraging more U.S. jurisdictions to consider innovative approaches to alleviating the problem—and collect and analyze data regarding the effectiveness of different possible solutions “to ensure that changes are data driven and in the interests of the public.”

In general, the report notes that states have sought reform in three ways—by seeking to authorize new categories of legal service providers; to loosen or do away with their versions of Bar Rule 5.4, which prohibits nonlawyers from co-owning law firms or sharing fees with attorneys; and to reformulate what constitutes the unauthorized practice of law.

The Big Four—Deloitte, EY, KPMG, and PwC—have found several ways to sell individual legal services in the U.S. over the years, including by offering legal tech solutions for firms looking for more efficient ways to review documents, for example. But state rules have stopped them from opening full-fledged law firms, including legal advisory functions, as they have in scores of other countries.

‘We Want Allies’

Center for Innovation Chairman Daniel Rodriguez said he’s hoping for additional ABA committees to sign on to the proposal before the House of Delegates meets in February.

“We want allies,” he said.

He said it was important to note that the proposal aims to ensure that public protections are maintained. Rule 5.4 and related regulations were introduced decades ago to try to safeguard lawyer independence, and to protect citizens from fraudulent actors.

Over the years, opponents of change—who recently made a show of force in California during that state’s public comment period—have blocked amendments to Model Rule 5.4 that would have permitted different types of alternative business structures.

Yet to those who have been working on access to justice issues for a long time, the momentum that’s been developing for reform “has been fascinating and exciting to see,” said Rodriguez, a professor at the Northwestern University Pritzker School of Law.

State Obligations

While the ABA isn’t a regulatory body, changes to its Model Rules could have a significant impact given that they often serve as a trusted template for many state bar groups not interested in devising their own rules from scratch.

It would be “wonderful” to have the ABA’s endorsement for change, said Gillian Hadfield, a member of Utah’s task force on legal regulatory reform—yet “states have an obligation to push forward regardless,” she said.

Hadfield said she found the proposal encouraging, but was reluctant to get her hopes up regarding the House of Delegates, “because they have consistently fought vigorously against proposals for change.”

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; Rebekah Mintzer at rmintzer@bloomberglaw.com; John Crawley at jcrawley@bloomberglaw.com

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