Until recently, some form of ABA Model Rule of Professional Conduct 5.4, which addresses the professional independence of lawyers, applied to lawyers practicing in all 50 states. Key provisions of the rule include a general prohibition on lawyers sharing legal fees with nonlawyers, as well as the prohibition on lawyers forming partnerships with nonlawyers if any part of that partnership consists of the practice of law.
However, with a recent order from the Arizona Supreme Court, that state became the first to entirely eliminate its version of Model Rule 5.4. The change follows a similar opening of the profession to nonlawyers in Utah. Both states have enacted these broad regulatory changes in the name of access to justice.
Ethics Rules Amended
Previously, Rule 31 of the Rules of the Supreme Court of Arizona provided, among other things, that with certain limited exceptions, practicing law in the state required active membership in the Arizona State Bar. The Arizona Supreme Court’s August 27, 2020, order abrogated Rule 31 and replaced it with new Rules 31, 31.1, 31.2, and 31.3.
Among other changes, the updated rules eliminate the prohibitions on fee sharing and on nonlawyers having economic interests in law firms, and they create a new entity (alternative business structure or ABS). An ABS may include nonlawyers who have an economic interest or decision-making authority and may also employ lawyers to provide legal services to third parties. These entities must be licensed and must employ at least one active member in good standing of the State Bar who “supervises the practice of law[.]”
The Arizona Supreme Court further explained that under the new rules, nonlawyers (called legal paraprofessionals) will be allowed to “provide limited legal services to the public, including being able to go into court with their client.” Legal paraprofessionals will be “affiliate members” of the bar and therefore subject to regulation and discipline under the same rules governing attorneys. In addition, like attorneys, affiliate members will be required to disclose whether they are covered by professional liability insurance.
The court approved changes to certain ethics requirements in Rule 42. For example, revised Ethics Rule 5.3 now provides that “[w]hen a firm includes nonlawyers who have an economic interest or managerial authority in the firm, any lawyer practicing therein shall ensure that a lawyer has been identified as responsible for establishing policies and procedures within the firm to assure nonlawyer compliance with these rules.”
Among the specific regulatory objectives driving the recent changes were “promoting access to legal services” and “advancing the administration of justice and the rule of law.” A newly created committee that reviews applications for an ABS license must specifically consider those factors, along with “protecting and promoting the public interest,” “encouraging an independent, strong, diverse, and effective legal profession,” and “promoting and maintaining adherence to professional principles,” in deciding whether to license an ABS.
Creating a Pilot Program for Partnerships with Nonlawyers
Similarly, the Utah Supreme Court approved a pilot program permitting fee-sharing arrangements between lawyers and nonlawyers. Utah’s previous Rule 5.4 followed the language of Model Rule 5.4. Its revised version of Rule 5.4, however, specifically provides that a lawyer or law firm may share legal fees with a nonlawyer and that a lawyer may practice with nonlawyers or in a partnership in which a financial interest is held or managerial authority is exercised by nonlawyers.
In considering whether and what changes to enact, the Utah Supreme Court concluded that “we will never volunteer ourselves across the access-to-justice divide and . . . what is needed is market-based, far-reaching reform focused on opening up the legal market to new providers, business models, and service options.” With the changes it ultimately approved, the court aimed to “shrink the access-to-justice gap by fostering innovation and harnessing market forces” while simultaneously “protecting consumers of legal services from harm.”
To achieve those goals, the court created the Office of Legal Services Innovation (Innovation Office) to oversee and regulate “nontraditional legal service providers and the delivery of nontraditional legal services.” The Innovation Office is charged with administering Utah’s pilot program, called the Sandbox, which allows nontraditional legal services to be offered “using novel approaches and means, including options not permitted by the Rules of Professional Conduct and other applicable rules.” In doing so, the Innovation Office is guided by a single regulatory objective: “To ensure consumers have access to a well-developed, high-quality, innovative, affordable, and competitive market for legal services.”
Any entity seeking authorization to offer services in the Sandbox must submit an application to the Innovation Office, which then determines whether the applicant’s proposed service (1) furthers the regulatory objective and (2) does not present an “unacceptable risk of consumer harm.” Approved participants in the Sandbox include LawPal, Rocket Lawyer, 1Law, AGS Law, Blue Bee Bankruptcy Law Firm, and Estate Guru. These entities provide a variety of services including preparation of forms and court filings, tort consultations, divorce and custody guidance, and bankruptcy advice. Many of the entities plan to use software to at least partially automate the process of delivering legal services.
All of the Sandbox participants are jointly owned by lawyers and nonlawyers. Ultimately, if a Sandbox participant can demonstrate that its legal services are “safe” (meaning they “do not cause levels of consumer harm above threshold levels established by the Innovation Office”), they may be approved to exit the Sandbox and be granted a license to practice law. At the conclusion of the two-year pilot program, the court will decide whether to continue the changes based on data collected during the program.
Changes May Be Part of a (Slow) Growing Trend
The recent and far-reaching changes in Utah and Arizona beg the question of whether other states will follow suit. David B. Seserman, Denver, CO, cochair of the ABA Litigation Section’s Solo & Small Firm Committee, expects this to be a “growing trend” nationwide. “For-profit businesses have been studying moving into the legal field for a while, and the biggest barrier is Rule 5.4,” he explains. He expects such businesses across the country to support similar changes.
On the other hand, J. Dalton Courson, New Orleans, LA, cochair of the Litigation Section’s Access to Justice Committee, expects that other states will take a “wait and see approach.” “We just don’t know whether these changes will actually increase access to justice,” he adds. In light of the uncertainty, “I think a lot of states will be looking at what Arizona and Utah are doing with interest,” he concludes.
Changes Respond to Overwhelming Need, But Effects Remain to Be Seen
The overarching goal behind the changes in both Utah and Arizona is to improve access to justice. “If the status quo is not working, we need to change something to make legal services available at a lower cost,” agrees Courson.
Unfortunately, however, these changes “probably will not cure access to justice issues because there is such a tremendous need for lower cost legal service providers,” Courson cautions. “The widest gap in access to justice is for legal services for low-income and middle-income Americans, and I don’t know that allowing nonlawyers to co-own law firms and share fees is going to increase the availability of legal services to those groups,” Courson opines. “The widest gaps are often not the most profitable areas of law, and I am not sure that investor nonlawyers will be focused on increasing access in the areas where the need may be greatest,” he adds.
On the other hand, “if nonlawyers can be trained to provide routine legal services, they should be able to do so at a lower cost and that should increase access to justice,” counters John M. Barkett, Miami, FL, cochair of the Section’s Ethics & Professionalism Committee. “This is an experiment in real time that may lead to changes elsewhere if the desired goals are met,” he explains.
The overarching goal behind the changes in both states is to improve access to justice.
Potential to Close Gap in Several Areas of Law
Section leaders agree there is a clear need for creative thinking. “There continue to be unfilled needs for the provision of legal services among those who cannot afford it,” acknowledges Seserman. While pro bono work is “strongly encouraged” as part of professionalism for lawyers, “it doesn’t go far enough,” he asserts.
“If there are opportunities to have nonlawyers provide some basic level of services, that can help,” notes Seserman. Real-world evidence suggests that it will. “Currently, legal aid groups seek out private practitioners to assist them in handling cases because the local legal aid groups do not have the capacity,” Barkett explains. This “suggests that involving nonlawyers in handling things like landlord-tenant disputes, for example, will increase access to justice,” he predicts. Seserman notes that certain family law matters, such as an uncontested divorce or child custody matter, may also be appropriate areas for nonlawyers to assist clients.
“Nonlawyers could be specialists in particular areas who could do amazing jobs,” emphasizes Courson, citing certain family law and workers’ compensation matters as examples. “Where a nonlawyer has that type of specialized knowledge, there may not be any greater risk to the client in having the nonlawyer handle the matter than in having a lawyer handle it,” he adds. And the nonlawyer will likely be able to handle it at a significantly lower rate. However, the risk-benefit analysis “does get fuzzy when the case becomes more complicated,” Courson cautions.
Benefits Do Not Come Without Risks
The obvious risk to the public is “if legal services are delivered incompetently and, in turn, the profession is tainted by the actions of nonlawyers,” Barkett warns. While there are clearly a lot of positives, “what happens if you have bad behavior by someone who is not a lawyer who is now allowed to provide some level of legal services?” questions Seserman. The key question, he identifies, is: “How do we protect the public?”
“Lawyers, of course, continue to be bound by a code of ethics,” Courson agrees. “Presumably lawyers will be supervising nonlawyer legal service providers, so the public is protected in that sense,” he explains. However, the changes are so recent that “we just don’t have a feel for whether lawyers will always be supervising these providers,” he points out.
When nonlawyers, such as paralegals and other staff, interact with clients, “the current protection for the public is the supervising lawyer having malpractice insurance in place and being under a duty to act professionally,” Seserman notes. “State bars can mandate that lawyers carry malpractice insurance or at least advise clients if they do not,” he continues. But, “if you have a nonlawyer in some fashion practicing law and that standard is not there,” an aggrieved client may be left without recourse.
Presumably, “these non-attorney legal service providers will also be susceptible to malpractice claims—they will get sued just like attorneys,” Courson opines. “It will be interesting to see what position the malpractice carriers are taking,” he muses. While not all states currently require attorneys to carry malpractice insurance, Courson hopes that ultimately “all non-attorney legal service providers will be required to have that type of coverage.”
Attorneys “must pass both the bar exam and an ethics examination, and, as lawyers, we are mandated to have continuing education—a portion of which is ethics,” stresses Seserman. It is currently unclear if there is “a way to mandate legal ethics compliance by nonlawyers,” he remarks. The recent changes in Arizona do create, among other things, a “Creed of Professionalism of the State Bar of Arizona,” which, unlike the Oath of Admission to the Bar, applies to both lawyers and legal paraprofessionals. The effects, of course, remain to be seen.
Given this tension, there “needs to be a balance” between the benefits of access to justice and the potential risks to the public, Seserman asserts. “States have to carefully implement these programs, study them, and get real feedback. There will be some shortcomings, but also some real benefits,” he predicts. Other states that are considering similar changes will have the benefit of observing the effects in Utah and Arizona before deciding what changes to implement.
Overall, “what we all should care about is competent delivery of legal services, whoever is providing them,” Barkett declares. “If legal services can be provided at a lower cost by nonlawyers who act as competently as a lawyer would, then the public should benefit,” he concludes.
Impact on Pro Bono Efforts Uncertain
The impact these changes will have on lawyers’ pro bono efforts also remains unknown. “When you have nonlawyers who may not be governed by the same aspirational pro bono rules as lawyers, and the lawyer and nonlawyer are now co-owners in the firm, that lawyer now has fiduciary obligations to his or her partner that might conflict with some of those pro bono goals,” Courson details. This could lead to a decrease in the amount of pro bono work on the part of the lawyers. “On the other hand, corporate America often values pro bono and charitable work, so it is possible these changes will actually increase pro bono efforts,” he counters.
“I hope these new changes don’t dissuade lawyers from doing pro bono work. For many of us who go into the practice of law, there is a sense of professionalism and a commitment to community service,” offers Seserman. For example, “there tend to be a disproportionate number of lawyers who serve on nonprofit boards, in part because the importance of community service is drilled into us as lawyers, and because the practice of law attracts people who have that kind of commitment. Lawyers all have a skill set that puts us in a position to help people at times—we all have the ability to help people think and analyze,” he expounds. He hopes lawyers will continue to put those skills to use in pro bono work, regardless of any changes to Rule 5.4.
Changes to Firm Structures
These changes may also impact law firm structures, at least for smaller firms. Removing Rule 5.4’s barriers “may portend a radical change, if the firm is engaged in legal services that can easily be performed by properly trained nonlawyers,” explains Barkett. But it is unlikely that “large firms with sophisticated practices are going to be affected in the way that they operate,” he comments.
While the changes are not likely to “undermine the foundations of the legal profession,” Barkett notes that he and others “will be watching what happens in Arizona and Utah to find out.” “This arena is coming,” affirms Seserman, “but it is critically important that it be implemented methodically and carefully.”
C. Thea Pitzen is an associate editor for Litigation News.
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- Lyle Moran, “How Utah’s judicial and state bar officials worked together for regulatory reform,” ABA J. (Nov. 5, 2020).
- Lyle Moran, “Rocket Lawyer is among the first applicants approved to join Utah’s regulatory sandbox program,” ABA J. (Sept. 8, 2020).
- Lyle Moran, “Arizona approves nonlawyer ownership, nonlawyer licensees in access-to-justice reforms,” ABA J. (Aug. 28, 2020).
- “ABA approves measures to expand access to justice, voting rights,” ABA News (Feb. 17, 2020).
- Debra Cassens Weiss, “DC Bar considers relaxing its already-lenient rules to allow nonlawyer ownership of law firms,” ABA J. (Jan. 27, 2020).
- Dennis A. Rendleman, “Meditation on Model Rule 5.4,” YourABA (Dec. 2018).
- Report on the Future of Legal Services in the United States, ABA Commission on the Future of Legal Services (2016).
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