It’s time for more jurisdictions to seriously consider authorizing nonlawyer ownership of law practices.
There are strong public policy rationales for change—the access-to-justice crisis and the need to try to fix the broken legal services market.
But I’d like to focus on the powerful argument that the traditional ban makes no policy sense anymore, considering our experience as a profession. Our independent professional judgment as lawyers—the important value the ban on nonlawyer ownership is supposed to protect—has been shown to be resilient even in the face of more powerful threats.
Lawyers practice today in a time of greater change for the business and profession than in a century.
We lawyers are terrible students of history. We often forget that the entire architecture of our current world dates from a period running from the last decades of the 19th century through the first decades of the 20th.
That era saw the creation of the whole structure of the legal profession that has governed the American legal profession and the business of law. Those foundational institutions included law schools, law firms, bar associations, statewide admission to practice, national legal ethics standards—these all date from that period. It’s no surprise that the current bans on fee-sharing with nonlawyers and nonlawyer ownership of law practices date from this period, too.
For years now, the twin forces of economics and regulatory reform have powerfully reshaped our world. (For more on this, see my article in the South Carolina Law Review, “Ethics, Lawyering, And Regulation in a Time of Great Change: Field Notes from the (R)Evolution.”)
Over the last two decades, powerful economic forces including technology and globalization have roiled the legal services marketplace, just as they have disrupted other businesses before ours. Nothing can hold these forces at bay.
Separately, a wave of regulatory reform—changes in the ways that lawyers and legal services are regulated—has been building. At least seven jurisdictions have already authorized nonlawyer professionals, including paralegals and community justice workers, to directly deliver legal help to consumers. More than a dozen others are in various stages of serious consideration of this reform. (For details, see the Institute for the Advancement of the American Legal System’s Allied Legal Professionals Knowledge Center.)
Arizona has repealed the traditional ban on fee-sharing for all its lawyers.
Many states are actively pondering the implications of nonlawyers using generative artificial intelligence (GenAI) to directly deliver legal help in light of the traditional law barring the unauthorized practice of law (UPL).
A few changes to the traditional ban on nonlawyer ownership of law practices have also been enacted. Since 1991, D.C. Rule of Professional Conduct 5.4(b) has permitted individual nonlawyers who participate in the work of a law firm to own an interest in a law firm. As of 2021, Arizona has permitted the authorization of nonlawyer-owned law firms, called alternative business structures (ABSs) by its Supreme Court. In August 2020, the Utah Supreme Court authorized the approval of nonlawyer-owned law practices within a special regulatory “sandbox.” The 48 other U.S. jurisdictions maintain the traditional ban.
That last reform—permitting nonlawyer ownership of law firms—has become the most controversial. I’d like to offer a few thoughts on why this reform is worth considering, and why the long-standing ban lacks rational support as good public policy.
Without delving deeply into the access-to-justice rationale for change, a few material facts are undisputed:
Lawyers and regulators who study up on the origin story of the prohibition on nonlawyer ownership, so closely intertwined with the ban on fee-sharing, will see that client and public protection were never the true motives of those who pushed for these laws.
But today, let’s skip reviewing this deep history, or even the dire current need for market reform. Instead, as a practicing ethics lawyer, I’d like to ask readers and regulators to consider concrete examples and the alleged public policy supporting banning nonlawyer ownership.
For a long time, I have guided law firms and law departments through the implications of all sorts of business relationships concerning their operations. I also have had recent intense experience with nonlawyer-owned firms in D.C. and Arizona. It has become clear to me that the primary rationale asserted to support the ban on nonlawyer ownership—protection of the professional independence of lawyers—is weaker today than it ever has been.
Over the last several generations, we have seen all sorts of business relationships between lawyers, law firms and nonlawyers that have the potential to threaten the professional independence of lawyers. To list a few:
Read through that list again and consider whether any of these give you concerns about the professional independence of the lawyers in these law firms. I’ll wait right here.
All these arrangements exist today. All of them are entirely ethical and permissible and comply with the ethics rules and the law—a deep and broad consensus of ethics authorities so holds. All of them carry risks for lawyer independence.
At the same time, all of them can nevertheless exist and operate in a way that is perfectly ethical and that preserves the professional independence of the lawyers involved. And all of them have existed in an environment less regulated than Arizona or Utah’s establishment of nonlawyer-owned law firms. We—the profession and our regulators—have learned that, in truth, the risks presented to professional independence, while real, are risks that can be identified, protected against, managed and mitigated.
The burden is on those who would maintain the traditional ban on nonlawyer ownership to explain why the ownership of a law practice by a person or business who is a not a lawyer could not be placed on that list above as a situation whose risks to lawyer professional independence cannot be comfortably identified, protected against, managed and mitigated.
Not many know that three decades of experience in D.C., and three years of experience in Utah and Arizona, have shown that these three different approaches to nonlawyer ownership have caused virtually no instances of misconduct or concerns arising from nonlawyer ownership.
The Arizona Supreme Court’s thoughtful and measured approach to nonlawyer ownership has taught me that nonlawyer ownership can come with enhanced, calibrated regulation addressed to the very specific risks of nonlawyer ownership.
This approach requires applications of all those individuals and entities who have decision-making roles in nonlawyer-owned law firms, requiring regulatory investigation and due diligence on all such applicants, regulatory oversight of those nonlawyers as well as lawyers, requiring the special position of an identified and approved individual compliance lawyer in each nonlawyer law firm, and special additional rules and regulations designed to address the specific challenges presented by nonlawyer ownership of a law practice. In my view, that new regulation also maintains (and even enhances) the enforceability of the existing rules of professional conduct on lawyers practicing in this new setting.
Contrast this Arizona approach with the bare-bones nonlawyer ownership regime set out in D.C. Rule of Professional Conduct 5.4(b), which requires no application or special licensure—indeed, D.C. does not even require registration. Still, despite this loose touch, there are no known instances of lawyer disciplinary issues associated with the nonlawyer ownership of law firms in D.C. Those who so vehemently warn of the dangers to clients and the public of nonlawyer ownership should explain how such dangers could exist and never manifest in more than thirty years.
It’s time to realistically evaluate nonlawyer ownership and to build a new model of protection for lawyer independence. The Arizona experience provides a credible model for other jurisdictions to consider.
