Things I don’t understand… Atrium LLP

You may, by now, have read an article or two about the launch of a “technology-focused law firm” by the name of Atrium LLP.  Its headquarters are in California.  Having now read several articles about it – and how it has come to be and how it will operate – I simply don’t understand it.

I get what a technology-focused law firm might be, of course.  What I don’t get is how in the world any of the lawyers involved with the venture can think that they can do this and comply with the ethics rules.

I kept reading more and more about it to figure out what I was missing that would not cause this arrangement to be a violation of the rules prohibiting sharing of fees with nonlawyers and prohibiting investment by non-lawyers in law firms.  I could still be missing the explanation, but I haven’t found it yet.

Here – through a series of snippets – is the situation as it has been reported.

Let’s start with information from an ABA Journal article as a base:

With $10.5 million, serial entrepreneur Justin Kan is about to take on Big Law….Atrium LLP will compliment, but is separate from, Atrium Legal Technology Services, also operated by Kan. Atrium LTS will develop the technologies and processes that automate repetitive tasks and manage the firm’s operations….While Kan is not an attorney, the firm’s founding partners are. Augie Rakow is a former partner at Orrick, Herrington & Sutcliffe, while Bebe Chueh is an attorney and founded AttorneyFee.com, which sold to LegalZoom in 2014. The other co-founder and Atrium LTS chief technology officer, Chris Smoak, is a serial entrepreneur and software engineer. Kan is the founder of live-streaming sites Justin.tv and Twitch.tv, selling the latter to Amazon for nearly $1 billion in 2014.

[snip]

While separate entities, the financial relationship between Atrium LTS and Atrium LLP is inextricable. Atrium LTS provided the firm a loan to cover all startup costs, and Atrium attorneys are being paid through options in Atrium LTS or a salary for advising the technology company.

[snip]

In June, Atrium LTS closed a Series A funding round worth $10.5 million, which was led by General Catalyst, a venture capital firm focused on early stage investments.

Let’s sprinkle in a few more salient details from Bob Ambrogi’s interview and post with affiliated folks at his Law Sites blog:

What is launching today is a law firm, Atrium LLP, that is separate and apart from Kan’s technology company Atrium LTS, but that is symbiotically connected to it. Atrium’s lawyers will focus exclusively on practicing law, while Atrium LTS (the LTS is for Legal Technology Services) will handle all operations for the firm, even including marketing, and develop and operate software to streamline the firm’s workflows.

[snip]

Atrium LTS is paying all the start-up costs for the law firm, structured as a loan. Atrium attorneys receive stock or options in Atrium LTS and some receive salaries from Atrium LTS for serving as advisors.

Now, a bit more from the Atrium website itself:

To solve this, Augie teamed up with successful lawyer-turned-entrepreneur Bebe Chueh to found Atrium, a technology-first law firm. They partnered with Justin and Chris Smoak to also create Legal Technology Services, a legal technology company with a world-class engineering team to build tools for that firm.

Strikingly absent from anything I have been able to find and read about the rollout of Atrium is how it isn’t just outright flouting California’s ethics rules that prohibit non-lawyer ownership in law firms and that prohibit people who aren’t lawyers from being partners in a law firms.  Although California does not yet have rules tracking the Model Rules in many areas (so they don’t for example have all of the provisions of ABA Model Rule 5.4), it does have Rule 1-310 that pretty much tracks Model Rule 5.4(b).

Rule 1-310 Forming a partnership With a Non-Lawyer

A member shall not form a partnership with a person who is not a lawyer if any of the activities of that partnership consist of the practice of law.

Discussion:

Rule 1-310 is not intended to govern members’ activities which cannot be considered to constitute the practice of law. It is intended solely to preclude a member from being involved in the practice of law with a person who is not a lawyer.

It also has a rule that imposes other restrictions on sharing fees with nonlawyers, Rule 1-320

Now, I noticed from one of the articles the idea that Atrium LTS (the tech company) is only “loaning” the start up costs to Atrium.  I mean there are lots of places where that concept seems vulnerable to analysis, but throw in the point that the way the attorneys for the Atrium law firm are getting paid is either stock or stock options in Atrium the tech company or salaries paid by Atrium the tech company for being advisors to the tech company and … just … come on. That really doesn’t pass any laugh test.  Does it?

So, really, what am I missing about this?  Assume the things being done by Atrium the tech company as part of launching Atrium the law firm were being done by an actual bank, wouldn’t everyone immediately recognize that the lawyers involved were violating the ethics rules?

Don’t get me wrong, I’m a huge believer in the benefits of moving away from the billable hour and innovation in the delivery of legal services and embracing technology, but the Atrium model sounds very much like something that can only be done in California (or just about any other U.S. jurisdiction besides D.C.) if, first, the ethics rules are revised to permit it.

Is this just an effort by an entity with lots of resources to do it and dare someone to stop them?

One thought on “Things I don’t understand… Atrium LLP

  1. The rationale is that the primary financial relationship between the entities is debtor/creditor and not partner/partner. From a strictly regulatory viewpoint, Rule 1-310 is not be as pliable as you might suppose. The Review Dept. of the State Bar Court found no Rule 1-320 in In the Matter of Bragg (Review Dept. 1997) 3 Cal. State Bar Ct. Rptr. 615 (1997 WL 215942) where PI attorney Bragg split fees with non-attorney adjuster Hickman because there was no evidence showing “indicia of partnership” as formerly defined in the Corporations Code; no showing that they shared profits and losses although Bragg clearly split fees. Closer to the mark, during the Loan Mod Wars (circa 2012) discipline prosecutors charged lawyers who entered into “outsourcing agreements” with non-attorney entities to provide management services with violating Rule 1-310, alleging that the outsourcing agreement was disguised partnership but those charges never resulted in culpability as far as I can determine. It seems unlikely that Atrium’s business model will be to the test, at least the State Bar of California discipline test. Atrium’s clients don’t seem like the kind who will complain to the State Bar.

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