Lawyers remain deeply skeptical of non-lawyers investing in law firms

May 9, 2016

(Reuters) – More than 40 individual lawyers took the time to respond to a request for comments from a working group of the American Bar Association’s Commission on the Future of Legal Services, which is contemplating whether the ABA should relax its longtime opposition to non-lawyers investing in law firms. Of the 43 attorneys and law students who submitted their own comments, exactly one thinks it would be a good idea for the legal profession to allow alternative business structures.

Claude Ducloux of Austin, Texas, argued that by expanding law firm ownership models, the legal profession will be able to provide services to more people and jobs for more lawyers. “If we continue thoughtless opposition, lawyers are closing our eyes to the undeniable truth: The legal services industry is in huge transition,” he wrote. “We are creating lawyers with no jobs burdened with nearly unpayable student loans and we are continuing to crawl toward two extremes: Only the very rich and the extremely poor will find themselves being served by lawyers. I am sure that this is not the legal profession that the majority of us intended to be a part of.”

But judging by the responses the working group received from lawyers, state and local bar associations and even other ABA groups, Ducloux is part of a small minority. In general, lawyers and organized legal groups remain unpersuaded that law firms can retain core professional principles if they are partly owned by non-lawyers. “Unlike the potential benefits, the core value and risks to the practice  are real and not hypothetical,” wrote the ABA section on tort, trial and insurance practice. “The core value of the independence of the profession would be severely challenged by the dual allegiances owed to clients and demanded by investors, shareholders and managers. No man (or) woman can serve two masters.”

As I told you last week, the Future of Legal Services’ working group on regulatory opportunities issued a paper last month analyzing the latest developments in jurisdictions that permit non-traditional law firm ownership structures. In the U.S., only the Washington, D.C., and, to a limited extent, the state of Washington allow non-lawyers to hold an ownership stake in law firms. Those arrangements are, however, becoming more common around the world, including in the U.K., Australia, Singapore, Australia, New Zealand and parts of Canada.

The ABA has previously debated and rejected changes to the model rules that would permit non-lawyers to hold a stake in law firms, most recently in a heated 2011 inquiry that spilled over into 2012. More than a few commenters asked why the new working group chose to kick the same old hornet’s nest. “On behalf of the Section of Family Law, we pose the following question: WHAT PART OF ‘NO!’ DO YOU NOT UNDERSTAND?” wrote one ABA group, adding, perhaps unnecessarily, that it is still “unalterably opposed to these repeated, previously failed efforts to foist ABS upon our profession or our ethics.”

In a rare show of unity, the Texas Trial Lawyers Association joined the Texas Association of Defense Counsel to oppose any rule change. The state bars of Illinois, Texas, New York, New Jersey and Missouri all registered their opposition.

A few groups did say they were open to the idea of alternative business structures. “There is a clear recognition that changes are in the wind and that it would be a disservice to our profession and the public to not provide for a structure for change,” wrote the ABA Business Law Section, though it also called for more study of the implications of permitting non-lawyers to own a majority interest in law firms. The ABA’s standing committees on professionalism and on professional discipline said the latest evidence casts doubt on reflexive rejection of alternative business structures.

“The paradox of the professionalism challenge facing the bar today is that preservation of our profession’s traditional core values will require taking ownership of, rather than resisting, the disruptive forces of change sweeping our profession and our world,” wrote the committee on professionalism. “An isolationist approach to the work and the place of the legal profession can only be self-defeating in the face of that disruptive change.”

Amidst the mostly theoretical comments, I found two letters discussing Washington, D.C.’s real-world experience with non-lawyer partners to be particularly interesting. One comment was from Zuckerman Spaeder, which said it has represented many firms that have taken advantage of the local bar rule allowing non-lawyers an ownership stake in law firms. According to Zuckerman partner Graeme Bush, these arrangements are not as rare as the working group’s paper suggested – and have not created a crisis of confidence in the legal profession. To the best of his knowledge, Bush said, no disciplinary proceeding in Washington has been rooted in a non-lawyer’s joint ownership of a law firm.

“The apparent belief expressed by those opposing ABS – that lawyers will be disproportionately prone to violate their ethical obligations if they have a non-lawyer partner – is unfounded,” Zuckerman’s letter said. “It is time to move beyond the unsupported fears and implement an  alternative that enables U.S. lawyers to deliver significant benefits to clients.”

But Bernard DiMuro of DiMuroGinsberg, a former member of the ABA’s House of Delegates and a former president of the Virginia State Bar, questioned whether alternative business structures are being misused by legal marketers. DiMuro represents a plaintiffs’ personal injury firm that was concerned rival firms were setting up offices in Washington, D.C. in order to partner with non-lawyers who specialize in generating personal injury cases. (I’ve previously reported on one such network.) In May 2015, DiMuro requested an opinion on law-and-marketing hybrids from the D.C. Bar’s ethics committee, asserting that such partnerships misused bar rules to allow improper fee-splitting. He was informed the committee planned to issue a formal opinion but it has not yet done so.

Many of last week’s letter writers complained about the short timeframe imposed by the ABA working group, which allowed less than a month between the release of its paper and the deadline for comments. Given the depth of mistrust in the letters the ABA received, I don’t think we’ve heard the last on this topic.

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