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California Bar Trustees Move Toward New Regulatory ‘Sandbox’

May 14, 2020, 9:50 PM

The State Bar of California Board of Trustees have voted resoundingly to keep alive the possibility of legal system changes that could include nonlawyer co-ownership of law firms in the state.

The 9-2 vote taken Thursday was a big step toward the formation of a temporary regulatory “sandbox” designed to gauge the effectiveness of programs meant to promote access to justice. And it brings reformers one step closer to their goal of making the basic services more accessible and affordable to middle-income and poorer citizens often priced out of the civil legal system.

“Very excited to announce that the @StateBarCA Board of Trustees voted (by a large majority!) to move forward with pursuing a regulatory sandbox that will eventually be able to increase access to legal services in California!” tweeted Andrew Arruda, a member of the California Task Force on Access Through Innovation of Legal Services, and chief executive officer of the legal tech company ROSS Intelligence.

“Thank you #A2J warriors! The future is bright!” Arruda said.

Rule reform in California also could speed the entry of the Big Four accounting firms—KPMG, Deloitte, PwC, and EY—into the American legal market. That scenario has made some Big Law leaders anxious, given the accounting companies’ massive revenue streams, their fast growth in legal markets in many other global regions, and their strong tech focus.

“This is a significant step and I think it will lead to an exciting future,” said board Chairman Alan Steinbrecher, a partner with the Los Angeles-based business litigation firm Steinbrecher & Span, just after the vote.

Steinbrecher was one of two members of the 13-person board who did not vote; trustee board chairs typically do not. The other was Renee LaBran, a partner with a private equity firm based in Pasadena, Calif., who recused herself.

The main issue in question was whether to vote for what became known as “Option 1,” a task force proposal to form a “Working Group on Closing the Justice Gap” to explore the development of the so-called sandbox—and to allow for all possible reforms to remain on the table, including loosening or scrapping state bar rules that only allow lawyers to own or co-own legal service operations, or share their fees.

Option 2 would have specifically disallowed the working group from considering the relaxation “of rules and laws regarding nonlawyer ownership of traditional law firms.”

Supporters of Option 1 prevailed.

The two votes for Option 2 came from Board Vice Chair Sean SeLegue, a partner with Arnold & Porter Kaye Scholer in San Francisco, and Brandon Stallings, a Kern County, Calif. prosecutor.

According to SeLegue, allowing a working group to debate issues like nonlawyer ownership would be giving them “too much to chew on.” Even with that option off the table, he argued, a sandbox could still lead toward “revolutionary” changes to the system.

Justice Gap

The sandbox concept is described in the ATILS report as a roughly two-to-three-year program through which evidence and data can be gathered to gauge benefits to consumers—as well as harms that could result if prohibitions on nonlawyer ownership, fee sharing, or unauthorized practice of law are loosened or scrapped.

The program would include a process for evaluating different types of legal services delivery systems, including consumer-focused apps that provide legal research, advice and services to clients at different income levels.

Utah already has a similar sandbox in the works.

Reform proponents at the meeting included Jason Solomon, executive director of the Stanford Center on the Legal Profession, who recently co-authored a white paper on the benefits of repealing the main bar rule 5.4, which limits law firm ownership.

Several commenters at the Zoom telemeeting spoke out against the sandbox proposal on the grounds that it could open the door to an increased number of fraudulent actors such as the so-called “notarios,” consultants who offer translation services and immigration assistance but who aren’t licensed to practice law.

Other critics have argued that changing law firm ownership rules could remove safeguards designed to ensure that licensed attorneys remain subject to stringent ethical oversight and discipline.

But the arguments of the pro-reform contingent, led by the ATILS task force chairwoman, Justice Lee Smalley Edmon of the Los Angeles-based Second District, Division Three of the California Court of Appeals, proved persuasive. She said it seemed shortsighted to take any of the reform options off the table before the sandbox’s formation could even be debated.

“Why take away any of the tools” the sandbox could utilize? she asked.

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

To contact the editors responsible for this story: Tom P. Taylor at ttaylor@bloomberglaw.com; Andrew Harris at aharris@bloomberglaw.com

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