April 2016 has brought another iteration of a seemingly, endless, (yet kind of potentially pointless unless you think the politics of the situation will somehow play out differently from the past) debate: whether some entity within the ABA is attempting to usher into reality a world in which people other than lawyers will be allowed to have ownership interests in law firms?
The raising of the mere possibility of outside investment in law firms by people who are not lawyers incites debate and inflames passion among lawyers immediately. Not all lawyers of course. Some just go to work, represent their clients, get stuff done, go home, lather, rinse & repeat. But lawyers who are active in state bar associations certainly get pretty revved up, as do many ethics nerds like me.
The ABA Commission on the Future of Legal Services put out an issues paper on April 8, 2016 for comment that has stirred this topic up again. You can read it here. The deadline for comments (if you are so inclined) is tomorrow. About a week before putting out the paper discussing Alternative Business Structures, the same Commission put out an issues paper focused on the world of “unregulated” entities operating as legal service providers. That issues paper also makes for interesting reading and you can get it here.
It should be no surprise that these two topics are being addressed in close proximity by the ABA Commission because they are relatively intertwined in the minds of many people. (And, for clarity, I have put “unregulated” in quotes because what the ABA Commission means when it uses that term is not regulated by courts in the way that lawyers practicing law are regulated. Entities that provide legal services but that are owned and operated by people other than lawyers are, of course, regulated to some extent by agencies such as the Federal Trade Commission.)
Unlike the comment deadline on the Alternative Business Structures paper, the comment deadline on the paper regarding what to do about unregulated LSPs has passed. I’ve spent a bit of time reading some but not all of the comments, and you can find links to all of the comments here.
For those who don’t want to go read all of the original source material, I think a fair description/takeaway/summary of the two ABA issues papers is:
- The ABA Commission is likely thinking pretty strongly about trying to propose that courts, through entity regulation and using the Model Regulatory Objectives approved by the ABA House of Delegates in Resolution 105, attempt to exert some control over entities such as Legal Zoom and Avvo and others that provide services that would certainly be treated as the practice of law if performed by a lawyer.
- The ABA Commission is certainly trying to spur another conversation about whether business models presently prohibited because of RPC 5.4 throughout the U.S. (other than Washington, D.C.) might be a worthwhile endeavor. And, the Commission’s issues paper has managed to lay out the potential benefits and risks of doing so in a pretty fair, even-handed manner.
For those that cannot remember off the top of their head, ABA Model Rule 5.4 is the ethics rule which (a) generally prevents lawyers from sharing fees with those who are not lawyers; (b) prohibits lawyers from being in partnerships with nonlawyers if any of the partnership’s activities involve the practice of law; (c) mandates that a lawyer who is letting someone other than their client pay them cannot let that other person “direct or regulate the lawyer’s professional judgment in rendering such legal services,” and (d) prevents lawyers from practicing law in certain business entity forms if a nonlawyer has an ownership interest or serves in certain roles. [N.B. – sorry, I tried. Once I started talking about this specific rule, “nonlawyer” as a term became unavoidable.]
I’m not sure that my thoughts on these issues are fully-baked as of yet, but I think that each of the following six positions are reasonable ones to have:
- Maintaining independence of professional judgment is a core principle of the legal profession, but that doesn’t mean that the conditions in which lawyers work have to be sanitized so as to try to free lawyers from temptations. We already allow quite a few things under the ethics rules that can create temptations for lawyers to allow others to control or interfere with their professional judgment or that, at minimum, place severe negative economic pressure on the exercise of independent professional judgment. We let lawyers be hired by, and paid by, insurance companies for the purpose of representing policyholders. Those insurance companies establish guidelines for how those lawyers are supposed to go about handling the litigation; they scrutinize and reject bills if the right billing codes are not used by the lawyers; and they ultimately place the pressure on lawyers who think the guidelines and restrictions go too far to exercise their independent professional judgment to do what is necessary to represent the client’s interests even if it sometimes means they end up not getting paid for time and effort that needed to be done. Our ethics rules have no problem with lawyers being employed as in-house counsel even though they are constantly at risk of having their employer (and only client) potentially pressure them to set aside their professional judgment and do things that help drive profits. Our ethics rules have long allowed lawyers to handle cases on a contingent fee basis. Our ethics rules do not prohibit law firms from imposing requirements on how many billable hours must be logged to stay employed. Sometimes the strongest principles are those that survive despite temptations.
- Allowing people other than lawyers to invest in law firms or otherwise be owners or stakeholders in law firms is not going to increase access to justice among those who cannot afford legal services. It’s just not, and people should just stop already with the effort to claim that the reason it should be considered is because of how it will help as an access to justice initiative.
- Expanding on the Washington, D.C. approach to allow people other than lawyers to be partners in law firms or to have a minority ownership interest in the firm as long as they agree to abide by the lawyer ethics rules will neither create Armageddon, nor create any more economic pressure on lawyers than already exists from items discussed in point #1.
- If you aren’t a lawyer, there is a fairly compelling logic to the notion that the limit of regulation that should be imposed by courts or by lawyers as officers of courts on “unregulated” LSPs should be that such entities and the people involved with them cannot hold themselves out as if they were a lawyer.
- On the other hand, if you are a lawyer, it is reasonable to believe that the restriction identified in #4 alone is not sufficient. There has to be some line over which LSPs cannot cross. This is true if for no other reason than that the regulations lawyers have to endure are significantly more restrictive than the regulations imposed by agencies like the FTC and similar state regulatory agencies, and those more restrictive regulations render competition in certain legal services entirely unfair.
- It is silly for RPC 5.4(d)(2) to only allow someone who is not a lawyer to be an officer or have a position of similar responsibility (i.e. Chief Marketing Officer, or CFO, or COO) in a law firm if the law firm is organized as a corporation. I cannot think of any legitimate reason that a law firm organized as a PLLC or an LLP can’t have an accountant serving as CFO but a law firm organized as a Professional Corporation should. (And, for this last thought I owe Lynda Shely thanks for reminding me while we were in Austin that the rule actually says this.)
What do you think? Are any of these six positions above not reasonable ones to have? I almost never solicit input in the comments, but have at me if I’ve lost the plot.