Nonlawyer Ownership of Law Firms: A Recurring Debate

Nonlawyer ownership, aka "alternative business structures," threatens the professional independence of lawyers, and the ethics rules forbidding it should not be changed.

The ISBA has long stood against proposals that would allow nonlawyer ownership and control of law firms or fee splitting with nonlawyers. In 2011, the ABA 20/20 Commission brought up the these issues and the ISBA filed a resolution with the House of Delegates of the American Bar Association seeking to reaffirm American Bar Association Policy that

[t]he sharing of legal fees with non-lawyers and the ownership or control of the practice of law by non-lawyers are inconsistent with the core values of the legal profession. The law governing lawyers that prohibits lawyers from sharing legal fees with non-lawyers and from directly transferring to non-lawyers ownership or control over entities practicing law should not be revised.

The ISBA proposal garnered the support of other bar associations and the ABA resolution was postponed indefinitely. However, in April of this year, the American Bar Association's Commission on the Future of Legal Services released for comments an "Alternative Business Structures Issues Paper." Dozens of comments to the paper oppose the idea and very few support it (view the paper and the comments at http://bit.ly/1WDc3SR).

Professional independence

Though the U.K., Australia, and the District of Columbia allow nonlawyer ownership of law firms, most U.S. states remain strongly opposed. Ontario considered allowing it in 2015 but chose not to. A former president of the Ontario Trial Lawyers Association said, "We analyzed the ABS models in the U.K and Australia and we found nothing supportive that would lead to improve access to justice." Etienn, Neil. "ABS report: Majority non-lawyer ownership off the table." Law Times (http://bit.ly/1TKpCu7). Ontario's analysis contrasts with the claims of ABS supporters that the change would allow greater access to justice to middle and lower-class Americans.

The proposed changes have caused many to voice concerns that ethical violations would increase in the environment the ABA has proposed. Currently, Illinois Rule of Professional Conduct 5.4 forbids a lawyer from sharing fees or forming law-practice partnerships with nonlawyers or from practicing in a corporation that has nonlawyer owners or directors. It also prohibits lawyers from permitting a person who recommends, employs, or pays the lawyer to render legal services or regulate the lawyer's professional judgment.

As Comment [1] to the rule notes, the limitations are in place to protect lawyers' professional independence. It recognizes the reality that it can be hard to say "no" to those who hold the purse-strings.

The question of independence was addressed by the Southern District of New York in Jacoby & Meyers, LLP v. Presiding Justices, 2015 WL 4279720 (S.D.N.Y. July 15, 2015). Jacoby & Meyers filed a constitutional challenge to New York Rule of Professional Conduct 5.4, which, like ABA Model Rule of Professional Conduct 5.4, prohibits nonlawyer investment in law firms. Jacoby & Meyers alleged the rule violated the First and Fourteenth Amendments and the dormant Commerce Clause by prohibiting nonlawyer equity investment.

The court strongly rejected those arguments and refused to accept that prohibiting nonlawyer ownership of law firms infringed on any fundamental rights. The ruling went so far as to call Jacoby & Meyers attempts to find Constitutional infringements "woefully misguided."

Profits versus pro bono?

It is not unreasonable to assume that nonlawyer owners of law firms may focus more on profits and less on ethics and access to justice. As Past-President Umberto Davi stated in the ISBA's comment to the ABA issues paper, "The pressure will be to ensure an appropriate return on investment, or generate greater profit, that may not be consistent with a lawyers best judgment of what may be the most appropriate service for a client" (view the entire letter at http://bit.ly/1UwPfRf).

Investors are likely to put their money where they will see the greatest return, not necessarily where they can do the most good. Investors have little incentive to promote pro bono work or increase access to justice when those projects do not reap financial rewards.

In fact, in the United Kingdom in 2013, 33.53 percent of alternative business structure firms entered the personal injury sector while only 11.96 percent were working in the social welfare sector. Nick Robinson, When Lawyers Don't Get All the Profits: Non-Lawyer Ownership, Access, and Professionalism. The change to Illinois Supreme Court Rule 13 that allows limited scope representation has a greater potential to reduce the cost of legal services than nonlawyer firm ownership. The limited-scope rule allows clients to pay for only the services they need.

In addition, allowing nonlawyer ownership in law firms could create a myriad of ethical problems stemming from fiduciary responsibilities and confidentiality. Lawyers are obviously bound by Rule 1.6 when it comes to confidentiality. If a nonlawyer owner were to keep tabs on cases or overhear conversations in the office, that could risk compromise attorney-client privilege. Integrating nonlawyers who are not supervised by lawyers into firms also increases the likelihood of the unauthorized practice of law and raises other concerns.

Strong evidence has yet to emerge that indicates nonlawyer ownership is having a positive or substantial impact on access to justice. In the absence of such evidence, given the potential risks of nonlawyer ownership, the Rules of Professional Conduct's prohibitions on nonlawyer ownership remain valid.

BaIley Cunningham is assistant counsel for the ISBA.

bcunningham@isba.org