The Time Is Now for CA Lawyers to Voice Their Opinions on Nonlawyer Ownership in Law Firms

Members of the State Bar of California’s Closing the Justice Gap working group are split over how broad to make the state’s trial of regulatory changes. The board of trustees approved the working group, which is tasked with considering changes in nonlawyer ownership and fee sharing, in May 2020. Its SCOPE subcommittee is currently debating whether or not the organizations allowed to participate should be limited to those serving low-income individuals.

The program stems from the state bar’s Access Through Innovation of Legal Services (ATILS) task force, with the initial aim of making legal services more affordable and accessible to residents in the low-to-middle income brackets. Some members of the group, including law professor Bridget Gramme, argue that findings from similar regulatory changes in countries like the UK have suggested that “to promote innovation, it makes the most sense to keep the structures as open as possible, ‘especially at the beginning.’” Others counter that allowing nonlawyer ownership in legal entities that serve businesses would not “have as much chance at downward assistance,” as put by OneJustice Volunteer Of Counsel Toby Rothschild.

Depending on how the state bar and ultimately the California Supreme Court decide, ownership and investment in law firms could be shared by organizations including the Big Four accounting firms and venture capital firms, as well as tech companies like Rocket Lawyer, which was among the first entities allowed into a similar regulatory scheme in Utah.

Utah’s situation is instructive. The program was initially created on a two-year basis but recently extended for a total of seven years. Of 22 authorized entities reported so far by the Utah Supreme Court’s Office of Legal Services Innovation, several fall into the categories of “lawyers employed/managed by nonlawyers” or “non-lawyer provider w/ lawyer involvement.” The long-term repercussions of more generous regulatory changes are not yet apparent, with Arizona making one of the more drastic moves just last summer when it completely eliminated the ethics rule barring nonlawyer ownership.

It’s difficult to overestimate the significance of these current and proposed changes, but attorneys in California still have time to make their voices heard. If you are part of the legal services industry in California, now is the time to get involved, attend the meetings, and voice to representatives of the state bar your support for or opposition to these shifts. With the working group due to make recommendations to the State Bar of California’s board of trustees next September, the coming year will have an enormous impact on the future of the legal profession in the state. According to Bloomberg Law, the SCOPE subcommittee will meet again June 4, with the full working group meeting June 18.

The Biggest Change to the Legal Profession Lawyers Might Be Missing

The makeup of a task force assembled last year by the State Bar of California is a cause for concern for many of the bar’s members. Created to address potential regulatory changes that could improve the accessibility of legal services, the group includes a number of tech industry insiders who stand to benefit financially from the proposed shifts.

Six of the committee’s twenty-two members are current or former executives for legal technology companies – see details below.

Andrew Arruda – CEO & co-founder, ROSS Intelligence (legal research platform using artificial intelligence)

Dan Rubins – CEO & co-founder, Legal Robot (automated legal analysis of documents)

Joshua Walker – co-founder, Lex Machina (legal analytics); author, On Legal AI

Simon Boehme – COO & co-founder, Disputly (security deposit recovery in California)

Johann Drolshagen – CTO/CIO, Level Playing Field Solutions (case management and administrative tools)

Allen Rodriguez – former director of attorney services, LegalZoom (connection to legal services through independent attorneys)

While some attorneys argue this is not substantially different from lawyers overseeing their own regulatory body, others worry the guidance offered by the task force is biased by conflicts of interest and not purely presented in service of its stated mission.

The sixteen recommendations issued by the committee this past summer included “allowing non-attorneys to own or have financial interests in legal entities,” as explained by ABA Journal. In response, attorney Carolin Shining of Culver City asked the panel on October 7th for “a pledge… to not profit, take salaries or any kind of benefit from entities that arise from the result of [its] work.”

The State Bar maintains that the task force is not subject to conflict-of-interest provisions because it is only providing advice. The diversity of backgrounds represented in the group, according to a statement from the organization, will result in recommendations that are better-informed and broader in perspective.

Regardless of whether or not members of the bar approve of the direction, this move toward involving non-lawyers in the industry could signify the beginnings of an enormous shift in the power structure of the legal profession. Changing the financial incentives of those who provide legal services has the potential, in the case of non-lawyer ownership, to result in the status and compensation of lawyers declining dramatically as client relationships transfer from attorneys to corporations and these companies seek to eliminate costs.

It appears that the committee’s recommendations are based on the assumption that for-profit tech companies can help increase access to justice by reducing costs associated with running a law firm.  But pursuing justice is at best an imperfect market good or service.  It is, therefore, far from clear that allowing non-lawyers to own and invest in law firms and the resulting reduction in lawyer power and economic clout will actually increase access to justice.  By contrast, it’s easier to trace how the regulatory changes being considered by the task force will economically benefit legal tech companies. Lawyers who ignore the work of the task force do so at their own peril.