Nonlawyer Ownership of Law Firms: Coming to a Jurisdiction Near You? by Christian Milde
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raditionally, the only place to seek legal advice in the U.S. has been at a firm owned and run by one or more lawyers. Change, though, may be on the horizon. A few states have loosened the rules that enforce this norm, and several more are considering it. This shift is hardly seismic—at least, not yet—but, if larger jurisdictions adopt similar changes, these liberalizations may well begin to shift the national landscape.
The Current Rule With a few inapposite exceptions, ABA Model Rule 5.4 bars lawyers from sharing legal fees with nonlawyers and forbids law firms from having nonlawyer owners or officers. The rule is intended to safeguard lawyers’ professional independence by insulating them from the supervision of nonlawyers who might prioritize profit over duty to clients. One practical effect of the rule is that law firms generally do not provide services outside of law, because any nonlawyers providing those services could never advance to become partners or hold supervisory authority over a firm’s lawyers. The prohibition on nonlawyer ownership also prevents law firms from offering equity to entice nonlawyer employees and from raising outside capital to fund major expansions or innovations. Some commentators suggest that these limitations have the effect of preventing law firms from expanding, innovating, and finding ways to offer more economical services to a larger segment of the market. Others have suggested that allowing firms to form multidisciplinary practices (“MDPs”) that could offer legal services alongside other complementary services would positively affect the quality and cost of legal advice for clients. Globally, restrictions on nonlawyer ownership have likely contributed to keeping large law firms smaller than their counterparts in other professional services industries, such as accounting and consulting. Until recently, all 50 states followed some version of Rule 5.4, with the only significant outlier being the District of Columbia. D.C.’s rule has allowed nonlawyer ownership
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Attorney Journals San Diego | Volume 215, 2021
since 1991, and a small minority of D.C. firms have one or more partners who are lobbyists or public relations professionals, rather than lawyers. However, ABA Formal Opinion 360 prevents those firms from expanding into jurisdictions that follow Model Rule 5.4.
The Beginnings of Change The idea of changing Rule 5.4 is nothing new. When the ABA’s Kutak Commission was first formulating the Model Rules in the early 1980s, the Commission’s proposed version of Rule 5.4 permitted the splitting of fees with nonlawyers. The Model Rules adopted in 1983 did not, however, follow that proposal, but instead reinforced the longstanding restriction on fee splitting. Subsequent attempts to change the rule failed to gain significant traction. Changes have occurred internationally, especially in the past 15 years. In 2007, an Australian personal injury firm became the first publicly traded law firm, and in 2012, U.K. regulators issued the first licenses for law firms to convert to “Alternative Business Structures,” which can have nonlawyer owners and provide services beyond legal advice. The current push for looser regulations in some U.S. jurisdictions appears to be driven by concerns over access to justice. In states that have adopted or are considering more permissive rules, the changes are often framed as an effort to encourage the development of legal business models and technologies that will reduce the oftenprohibitive cost of legal representation. That said, some regulators also seem to recognize that changes to Rule 5.4 may lead to outside investment in, and even ownership of, law firms by large corporations.
Major Shifts in Utah and Arizona In August of 2020, Utah created a time-limited pilot program allowing entities, including those owned by nonlawyers, to apply to the state’s newly created Office of Legal Services Innovation for permission to provide legal services. The program was initially planned to run
