As part of an initiative to increase low- and middle-income consumers’ access to legal services, Arizona in January 2021 became the first U.S. state to allow non-lawyer law firm ownership. Lawyers may split fees with non-lawyers, and nonlawyers can own, have an economic interest in, manage, or make decisions in an “Alternative Business Structure” (ABS) that provides legal services.
More than a year later, the state’s ABS directory boasts seventeen licensed businesses, most of which appear to be specialized and local to Arizona or surrounding states. Some ABS owners, on the other hand, are quite large.
LegalZoom, a publicly traded online legal technology company that helps customers create legal documents without necessarily hiring a lawyer, availed itself of the Arizona framework to become the first company with ABSs in both the U.S. and the U.K. The company says it aims to democratize law by combining attorney expertise and support with technology, process efficiencies, and affordable access to legal services. Critics, however, accuse LegalZoom of circumventing unauthorized practice of law rules both by selling form legal documents to the public and by employing US lawyers through its English ABS. In its application for Arizona ABS licensing, the company indicated that it planned to provide legal services only in Arizona and before the US Patent and Trademark Office.
Rocket Lawyer, LegalZoom’s lead competitor in the U.S. is already part of a legal services experiment being piloted in Utah and has also reportedly applied for an Arizona ABS license.
Large-scale litigation funders are also considering non-attorney ownership stakes in law firms. In what would represent a sea change to law firm structure and management, funder ABS owners would weigh in on how firms spend money and which cases they take, instead of just investing in individual lawsuits. Funders believe that their relational capital and insight into business management can drive positive change in law firms, including reduced legal fees, better top-level (non-lawyer) managers, and sustained investment in innovations like legal technology.
Funder ownership stakes in law firms could be problematic for firms. Although litigation finders urge that profit motives and financing would not threaten lawyer independence or ethical obligations to clients, lawyers have their doubts. And while mid-size firms and litigation boutiques looking to improve how they deliver legal services may be willing to cut litigation funders in as owners, larger firms with offices in multiple states would need to create a separate entity in Arizona to avoid problems in states that prohibit non-lawyer ownership. Therefore, large-scale litigation funders may hold back on law firm co-ownership until more jurisdictions change their rules.
With regulatory modifications being considered in California, New York, Illinois, Michigan and North Carolina, funders are hopeful that law firm ownership opportunities will swell and that they will be poised to seize them.
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