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The ABA Model Rules of Professional Conduct, including Rule 5.4 (Professional Independence of a Lawyer), prohibit lawyers sharing equity interest with “nonlawyers” in any business engaged in the practice of law.
Critics say Rule 5.4 limits the amount and quality of collaboration between lawyers and allied professionals when making business decisions, which affects the bottom line by restricting the capital available to grow the business, lower costs, and improve the delivery of legal services.
Several common law jurisdictions, including England and Australia, have lifted the prohibition on nonlawyer ownership and there has been a steady drumbeat to relax the ethics rule in the U.S. Three states — Arizona, California and Utah — are studying revising the rule.
In 2018, the State Bar of California created a task force to study the current state of the legal services market. Its approach, however, wasn’t to ensure that Big Law could compete with the Big Four accounting firms encroaching on their turf. Rather, it was to investigate if amending the rule could increase consumer access to lawyers by lowering costs, thus increasing the number of consumers who can afford legal services, and in that way grow the pie for solos and small firms.
I recently attended a discussion on this topic at the Legal Marketing Association’s annual conference in Atlanta featuring William D. Henderson, Professor of Law at Indiana University Maurer School of Law, and Scott Westfahl, Professor of Practice and Faculty Director, Harvard Law School Executive Education.
Last year, Henderson was asked to write a report for the California bar detailing the legal market landscape. In it, he notes that while the cost of traditional legal services is going up, access to legal services is going down, the growth rate of many law firms is flat, and lawyers serving ordinary people are struggling to earn a living. Moreover, private investors are successfully pushing the boundaries of the ethics rules by funding new technologies and service delivery models, which eat into the traditional legal market.
Here, according to Henderson and Westfahl, are five advantages solos and small firms will see if the ethics rules are lifted or modified, allowing them to collaborate more fully with allied professionals.
Ethics attorney Megan Zavieh of Zavieh Law agrees that for small to midsize firms, there is a bright future ahead: “I’m hopeful — California is long overdue for change. If we’re going to grow or create DIY products, we need more money to make these things happen. Lawyers will be able to create new products with different types of firms and ways of doing business.
“Lifting or modifying the rules allows lawyers to serve more clients, do more, and scale in ways we have never been able to before,” says Zavieh.
As the report concluded, some U.S. jurisdiction “needs to go first. Based on historical precedent, the most likely jurisdiction is California.”
The California bar task force’s final report is due by December 31, 2019.
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Mary Juetten checks in with Kevin Almeroth, principal and leader of the LegalShield division of Deming, Parker, Hoffman, Campbell & Daly, LLC, in Georgia.June 12, 2019 0 0 0