Colorado moves to ban fee sharing with nonlawyers and alternative business structures

 As you probably know, the rules of professional conduct in most states ban lawyers from sharing fees with non-lawyers and also ban non-lawyers from owning an interest in law firms.  However, in recent years, there has been a strong trend against these types of rules and some states and Puerto Rico have amended them or abandoned them entirely, with others seriously considering doing so too.

I thought this trend was decidedly (although slowly) moving in the direction of recognizing alternative business structures in most states.  But maybe I was wrong.  After some conflicting reports on whether the experiments in Arizona and Utah turned out to be a positive move (see here and here), maybe the trend has slowed down.  And now comes news that in Colorado, the idea appears to have been rejected outright.

The ABA Journal is reporting that Colorado has passed a bill that bans fee sharing with nonlawyers. Under the bill, known as the Colorado Legal Practice Integrity and Fee-Sharing Prohibition Act, lawyers and law firms in the state are prohibited from sharing legal fees or revenues with nonlawyers or alternative business structures, which are legal entities that are controlled or managed by nonlawyers.

The bill is based on the proposition that “[f]inancial arrangements that provide nonlawyers with an economic interest in law firms and their fees, revenues or case outcomes, however structured, threaten a lawyer’s duties of loyalty to their client, confidentiality and professional independence.”  This proposition is, as you would expect, challenged by those who support changing the system to allow alternative business structures.

It will be interesting to see if the bill is signed into law and, more importantly, whether it will influence the discussion of the issue in other jurisdictions.

For all my posts on issues related to alternative business structures, go here and scroll down.

New report on Arizona program on alternative business structures does not paint a pretty picture

 Long time readers of this blog may remember that I have posted several comments on whether the regulatory changes in some jurisdictions allowing lawyers to share their practice with non-lawyers in so-called “alternative business structures” has resulted in their supposed goal: to provide better and more affordable access to legal representation. The data I have seen over the years has not been very supportive of this conclusion.  What I have read about the subject always suggested that allowing “innovative” ways to fund the practice of law has resulted in innovation in the practice of law (and with it, in more profits for those involved), but not necessarily in more, better or more affordable access to representation for those who need it.

This was the conclusion in a 2022 report about the effects of the 2020 changes in Arizona and Utah by the Stanford Center on the Legal Profession.  See here. The publication of a 2025 report by the Institute for the Advancement of the American Legal System (IAALS) has been delayed, but the most recent published study has reported even more troubling results.

This new study, published in Arizona just recently, has found that the Arizona program has attracted profit-focused investors whose firms have generated a trail of consumer complaints (claiming harm to clients, violation of consumer protection laws, etc), financial conflicts of interest and inadequate oversight – essentially the types of dangers that those who originally opposed proposals to open the practice of law to non-lawyer investors feared would result from the experiment.  See here.

These results clash with some of the conclusions in the Stanford study, which found low rates of consumer complaints and which concluded that concerns about non-lawyer ownership compromising legal quality or professional standards had not materialized in any systematic way.  

But, as Robert Ambrogi explains in a comment on both studies, the different conclusions may be explained by looking at the methodology used to reach them.  While the Stanford study focused primarily on formal complaints filed through official channels, while the newer study in Arizona used more traditional techniques of interviewing affected consumers, reviewing court records and examining business practices in detail.

You should read Ambrogi’s very informative article carefully for more detail and links to more information; and we should all look forward to the upcoming publication of the IAALS report to compare the results.

IAALS evaluates Utah's "regulatory sandbox"

In 2020, the Utah Supreme Court launched the nation’s first legal regulatory sandbox, arguably designed to open the door to new kinds of legal service providers and business structures and with the overall goal of expanding access to legal services while still protecting consumers.

Five years later, the Institute for the Advancement of the Americal Legal System (IAALS) is starting to publish its findings as an independent evaluator of the Sandbox.

The current version of their report is being published across a four-part report series.  The reports will be released on a rolling basis.  The first two are now available here, and it looks like the next two will also be posted to this same page, so bookmark it if this is something you are interested in.

Utah Announces Alternate Licensing Path

 This week, Utah announced that it will formally introduce an alternate pathway to licensure to allow prospective lawyers to skip the bar exam ritual altogether and earn their license through a combination of formal education, supervised professional experience, and a tailored, skill-based exam. 

Above the Law has the full story here.

Report on regulatory reform in Arizona and Utah after five years

LawSites has just published a detailed summary of a new report by Stanford Law School’s Deborah L. Rhode Center on the Legal Profession on the state of regulatory reform five years after Arizona and Utah launched groundbreaking reforms to liberalize legal services regulation.  

You can download or read the full report as a pdf document here or you can read LawSites summary here.

Utah considers plan to allow law graduates to practice without having to take the bar exam

Above the Law is reporting (here) that the Utah Supreme Court recently released a plan to allow graduates of American Bar Association-accredited law schools to practice in the state after completing 240 hours of practice under the supervision of an experienced attorney, along with other requirements.  This would open the door for graduates to avoid taking the bar exam.  The ABA Journal has more on the story (and some links) here.

Washington considering following Utah and Arizona in allowing "alternative business structures" for the practice of law

As posted in the Washington Bar Association's website:  

As proposed, the pilot program on entity regulation would allow entities to provide legal and law-related services in Washington under time-bound, limited exemptions from the otherwise applicable rules and statutes governing entities practicing law. If approved by the Court, among U.S. jurisdictions, Washington would follow only Utah and Arizona in executing a plan to determine how the delivery of legal services by entities can be regulated in a manner that protects consumers and promotes broader access to legal services. Under the proposal, participating entities would be required to abide by a Supreme Court authorizing order detailing conditions on their participation, including adherence to rules of ethics and regular reporting of data and information relating to their delivery of services to the public.

You can provide feedback to the WSBA and Practice of Law Board during the next Board of Governors meeting Sept. 6-7 or via email at entityregulationpilot@wsba.org.

Go here for more information.

Following Vermont's example, Utah adds a comment to rule on competence to remind lawyers to be mindful of their wellness

I have written about the notion of "wellness" before, including about a report on the negative effects of the practice of law and the fact that Vermont has adopted a comment [9] to its rule on competence which states that maintaining mental, emotional, and physical well-being necessary for practice is important aspect of competence.  

Today I want to let you know that, earlier this month, the Supreme Court of Utah approved an amendment to the comments of Rule 1.1 of its Rules of Professional Conduct to add language about the mental, physical, and emotional health of attorneys.  Here is the language of the new paragraph in the comment:

[9] Lawyers should be aware that their mental, emotional, and physical well-being may impact their ability to represent clients and, as such, is an important aspect of maintaining competence to practice law and compliance with the standards of professionalism and civility. Resources supporting lawyer well-being are available through the Utah State Bar.

New article on whether it is a good idea to allow nonlawyers to have ownership roles in law firms

A few days ago, the Yale Law Journal online published a short essay on whether it is a good idea to allow nonlawyers to have ownership roles in law firms.  Here is the abstract:

Whether nonlawyers should have ownership roles in law firms has been and remains a hotly debated topic. The debate concerns potential reforms to Rule 5.4 of the American Bar Association’s Model Rules of Professional Conduct, which sets guidelines for maintaining the professional independence of lawyers, as well as the impact of those revisions on the legal profession. Although advocates for such reform argue that nonlawyers must be allowed ownership roles in law firms in order to foster innovation and increase access to legal services, many lawyers have raised significant concerns about the impact that nonlawyer ownership would have on the independence of lawyers. Lawyers have concerns about allowing nonlawyers—who have not sworn to uphold the ethical obligations that attorneys promise to uphold when becoming members of the bar—to have decision-making authority in the day-to-day practice of law. There is also no evidence that nonlawyer ownership actually improves access to justice for the needy. This Essay argues against rewriting Rule 5.4 to allow nonlawyer ownership of law firms. It concludes that nonlawyer ownership not only fails to solve the problems that advocates of reform promise it will address but in fact creates meaningful risks for the legal profession.

You can read the article here. 

New report on the effects of regulatory reforms in Utah and Arizona

Long time readers of this blog know that one of the most debated issues in the past few years involves the question of whether the regulation of the profession should be reformed to allow lawyers to provide services in alternative business structures and whether to allow non-lawyers to provide some types of legal services.  

You also know that the ABA continues to hold the position that lawyers should not be allowed to partner with non lawyers for the provision of legal services and that Utah and Arizona recently decided to take measures to depart from this traditional view.

What we do not yet know very well, however, is what effect have the regulatory changes in those states have had as it relates to the goal of providing more, better and more affordable access to legal representation.

Well, for those of you interested on the topic, more information is now available.  Stanford Law School’s Rhode Center on the Legal Profession has drafted a report on the issue.  The report, Legal Innovation After Reform: Evidence From Regulatory Change, is available here. 

The report concludes, among other things, that the regulatory changes in Utah and Arizona are generating innovation in the ownership structure of legal services providers, which is not surprising since that was the idea to begin with.  

This is a good thing, but on whether the other important goal has been met, the information is not so clear, nor consistent between the two states.  

The main argument for broad regulatory reform is always that it will lead to more and better "access to justice", by which we really mean access to legal representation.  But the experience in other states has shown that for varied reasons, the economics of the matter don't always lead to this result.  Regulation that has opened the door to more service providers does not always result in lowering costs, and by extension, to more access to representation for those who can't afford it.

The new report has some data that suggests that the regulatory changes in Utah has resulted in more access than the changes in Arizona, and it is not clear (to me at least) that either has resulted in significantly more access to poor individuals.  

None of this is to say that the regulatory changes should be rejected; I am only saying that we may need to think more about ways to achieve the goal of access to affordable representation.

You can read a comment on the report here.

Podcast on Utah's program that allows lawyers and other professionals to own legal service providers

Not too long ago, Lex Blog started posting links to a new Podcast called Legal Ethics Now & Next, and just a few days ago, the second episode became available.

This episode covers the so-called Utah's “regulatory sandbox," which they describe as a program that allows lawyers and other professionals to own legal service providers.  The episode covers how the program works and what it might mean for the future of legal regulation.

You can listen to the program by going here.

Here's an example of the new types of services allowed in Utah

Over the past year I have reported news about the important changes in Utah regarding the approach to the regulation of the practice of law, which include recognizing alternative business structures and the provision of certain legal service by people who are not lawyers.  (Go here for all the posts on Utah.)

Along those lines, here is a short news item describing one of those new services.  As the article explains, "[f]or individuals who cannot afford or otherwise don’t want to hire a lawyer, domestic violence victim advocates are now able to tell victims which protective order to apply for, how to correctly fill out forms, and what they should expect in court."  Before Utah’s regulatory sandbox was adopted, these types of services could only be provided by lawyers.

Go here for the full story (which includes more links).

A Paralegal's Perspective on the Proposed California Paraprofessional Program

One of the most important stories of the last couple of years has been the debate over instituting changes to the regulatory regimes among the states.  Washington stated abandoned its program of legal technicians while Utah and Arizona adopted significant changes allowing alternative business structures, non-lawyer services, and/or partnerships with non-lawyers.  Other states, including California and Illinois have been considering proposals that include similar plans.

In that context, it is worth taking a look at a short article submitted to the State Bar of California in support of a proposed Paraprofessional Program which would authorize paraprofessionals to provide legal advice in areas such as family, consumer debt, landlord/tenant, employment/income, and collateral criminal cases, as well as represent parties in court (excluding jury trials).  The article is called A Paralegal's Perspective on the Proposed California Paraprofessional Program and you can read it here.

Florida Supreme Court finds that company that provided help with traffic tickets engaged in unauthorized practice of law -- UPDATED

October 17, 2021 (Updates at the end)

Back in 2018, I wrote about a couple of complaints filed in Florida that I argued could challenge the very notion of professional regulation.  In one of them a law firm argued that a technology company was practicing law, while in the other the company challenged the notion of the regulation of the profession under antitrust laws. This second lawsuit (the anti-trust lawsuit) was dismissed, but the Florida Supreme Court just decided the first case.  My original post about this topic is here, and I wrote an update here.

In my original post I explained that "TIKD is a company that promises consumers to take care of their traffic tickets (with a money back guarantee).  The consumer pays a fee to the company and the company takes care of everything, including hiring a lawyer to represent the consumer.   Based on this business model, a law firm in Florida filed a complaint with the Florida Bar alleging that TIKD was practicing law without a license."

At some point between then and now, the company went out of business apparently, but the case continued and in a 4 to 3 opinion issued on October 14, the Florida Supreme Court found that the company did engage in the unauthorized practice of law.  You can read the full opinion here.  The Legal Profession Blog has a good summary here.  Faughnan on Ethics has a comment here.

The court provided a number of reasons to support its conclusion, but, to me, this is the more interesting one:  "an inherent conflict and corresponding risk to the public arises whenever a nonlawyer like TIKD controls and derives its income from the provision of legal services. Like any other business entity, TIKD is motivated by a desire to maintain and increase profitability. When coupled with the provision of legal services to the public, there is a risk that such motives will eventually give rise to a conflict between the profit demands of the nonlawyer and the professional obligations of attorneys to act in the interests of a client. . . .  TIKD is not subject to the Bar’s jurisdiction and, other than Bar discipline proceedings against individual attorneys, there is no means by which to protect the public or guard against such conflicts."

As you can see, this is the "traditional" argument in favor of banning lawyers from forming partnerships with non-lawyers for the provision of legal services.  It is also the argument used against adopting new regulatory schemes such as the ones recently adopted in Utah and Arizona.  A company like the one at issue here probably would be allowed to provide legal services as an alternative business structure in those jurisdictions today.  (This is why I said back in 2018 that the issues raised by the case in Florida went to the core of the regulation of the practice of law.)

But, evidently, a slim majority of the Florida Supreme Court justices are not ready for such regulatory changes and imposed a permanent injunction.

In contrast, Justice Couriel offered a different view in dissent, arguing in part that TIKD did not practice law because it did not provide any legal services to the consumer.  It merely provided a "portal" through which consumers could get (and pay for) legal services provided by Florida lawyers.  

I understand this argument and it makes sense, but it does not quite address the issue of whether the connection between the lawyers and TIKD somehow created a relationship which allowed a non-lawyer to participate with the lawyer in the provision of legal services.  

In the end, I think the question is more complicated than what the dissenters make it sound because of the limiting regulatory scheme within which lawyers in Florida are allowed to practice.  

The question to address is not really whether this case is correctly decided -- it may very well be given the rules that apply now.  The question is whether those rules should be changed.  And the answer to THAT question is playing out in Arizona and Utah.  

UPDATE 10/27/21:  Lawyer Ethics Alert Blog has a comment here.

UPDATE 10/28/21:  The Legal Ethics Advisor Blog has a comment on the decision here.

Data regarding regulatory changes in Utah shows promise according to new report

As I am sure you know, last year Utah and Arizona adopted significant changes to their approach to the regulation of the practice of law.  Chief among these changes was the elimination of the ban on partnerships of lawyers and non-lawyers for the provision of legal services.  The debate over measures like this one and over allowing "alternative business structures" for providing legal services has been going on for years, and much of the debate was based on data obtained by studying similar programs in the UK and Australia.

Now, about a year into the new era of regulation in Utah and Arizona, it is time to start looking at the date from the US.  The Institute for the Advancement of the American Legal System (IAALS) is leading the way and in its initial report regarding Utah it says that numerous businesses and collaborations are up and running, providing a wide range of much-needed legal services.  Of the 30 entities that have been approved by the Utah Supreme Court, 13 are considered as moderate risk, and one as high risk (considering both the likelihood of harm—as well as the degree of harm—that they might pose to consumers), but the IAALS considers the overall data so far to be very positive.

According to the recent report, "Utah’s sandbox has opened up a world of possibilities when it comes to how to practice law, and demonstrates how innovation, technology, and professionals who aren’t lawyers can work alongside attorneys and ensure consumers have real access to the entire spectrum of legal needs" and the report concludes that 

We still have a long way to go and a lot of data to collect, but what we’ve seen so far does suggest that re-regulation has the potential to meaningfully increase access to justice and, importantly, the data shows that these kinds of innovations can be done safely. In just nine months, more than 2,500 people have received help with housing, immigration, healthcare, discrimination, employment, and a gamut of other issues. Lawyers are partnering up with other professionals to create new types of businesses, and technology is enabling them to do their jobs more efficiently. Instances of harm are rare—and, when they do occur, are being monitored and utilized by the Office of Legal Services Innovation to continually improve. As more states look to re-regulation as a means to increase access to legal services, the data from Utah’s sandbox—and the real people’s lives it is impacting—should be a strong push in that direction.

You can read more about the IAALS evaluation in their website. 

ABA issues new opinion on lawyers passive investment in law firms that include non-lawyer owners -- UPDATED

The ABA's Standing Committee on Professional Responsibility and Ethics recently issued a new Ethics Opinion on whether lawyers may invest in law firms with non-lawyer owners. The opinion's summary reads as follows:  

A lawyer may passively invest in a law firm that includes nonlawyer owners (“Alternative Business Structures” or “ABS”) operating in a jurisdiction that permits ABS entities, even if the lawyer is admitted to practice law in a jurisdiction that does not authorize nonlawyer ownership of law firms. To avoid transgressing Model Rule 5.4 or other Model Rules and to avoid imputation of conflicts under Model Rule 1.10, a passively investing lawyer must not practice law through the ABS or be held out as a lawyer associated with the ABS and cannot have access to information protected by Model Rule 1.6 without the ABS client’s informed consent or compliance with an applicable exception to Rule 1.6 adopted by the ABS jurisdiction. The fact that a conflict might arise in the future between the investing lawyer’s practice and the ABS’s work for its clients does not mean that the lawyer cannot make a passive investment in the ABS. If, however, at the time of the investment the lawyer’s investment would create a personal interest conflict under Model Rule1.7(a)(2), the lawyer must refrain from the investment or appropriately address the conflict under Model Rule 1.7(b).

You can read the full opinion (Formal Opinion 499) here. 

You can read more about the opinion in LawSites and the ABA Journal.

UPDATE 9-19-21:  

Faughnan on Ethics has a comment here.

The San Diego County Bar Association has a comment here.

UPDATE 10/10/21

Legal Ethics Advisor has a comment here.

Comments on recent developments in the regulation of the profession

 As I am sure you know, one of the (if not the) hottest topics in Professional Responsibility today is the development of new approaches to regulation of the profession, including the significant changes approved in Utah and Arizona.  The topic continues to be debated and here are two good sources of information.

In a short article published by the solo practitioners division of the ABA, the authors argue that Model Rule 5.4 is unnecessary because it causes more harm than it provides benefits to the profession and the public.  

The article is one of several published in the magazine on subjects related to regulation reform, and Law Sites hosted a podcast in which five of the articles published in the magazine discuss their articles and ideas.  You can listen to the podcast here or click on the play button below.  The panelists discuss, among other things, Model Rule 5.4, whether lawyers should be allowed to share fees and partner with non-lawyers, the regulatory changes in Utah and Arizona, and the now abandoned Legal Technicians program in Washington state.

Arizona and Utah continue to approve entities to provide some legal services as "alternative business structures"

As I am sure you know by now, Utah and Arizona recently became the first two states to make changes to their regulatory structure to allow, among other things, lawyers to partner with non-lawyers, non-lawyer ownership of law firms and alternative business structures.  For my previous comments on this go to the section of the blog on news from Utah and the one for Arizona and scroll down for lots of stories.

In one of those stories I reported that Utah had approved the first non lawyer owned law firm in the state back in March, and that Arizona had approved some alternative business structures.

Today I am reporting that the Arizona Supreme Court has approved three entities to be licensed as alternative business structures, enabling businesses owned by non-lawyers to deliver legal services.

The first two, approved back in March are Trajan Estate, LLC, a legal service provider focused on estate planning and Payne Huebsch, PLC, a firm that provides transactional legal services combined with tax and accounting advice.

The most recent entity, approved on April 22, is Arete Financial LLC. which will provide accounting and tax services, and legal services in the areas of trust, probate and corporate transactional.

Law Sites has more details.

It is interesting to note that the main argument to allow for alternative business structures is always that it will result in better/more access to legal services to those whose needs are not met. Yet, if you look at all the alternative business structures created so far, it really does not sound that any of them are dedicated to do that.  They all seem to be boutique firms to provide services for wealth management (ie, clients with wealth).   

Meanwhile, Utah seems to be taking a different approach.  There, two non-profit pilot programs secured approval this week under Utah’s regulatory sandbox to provide non-lawyer legal assistance to individuals with medical debt.  That sounds more like providing access to justice.

Lawyer in Utah files lawsuit challenging mandatory bar association membership

One recurring story last year was the number of lawsuits filed throughout the country challenging the authority of states to mandate membership in bar association groups in order to be allowed to practice law.  Go here and scroll down for the stories I posted on this topic.  Typically, the claims are based on the fact that the bar association supports causes the individual complaining member would rather not.

Well, it happened again.  Courthouse News Service is reporting that a Utah attorney has sued the state bar association claiming it spent mandatory dues on political and ideological speech she disagrees with in violation of her First and 14th Amendment rights.

At last count, I have heard of current challenges filed in Texas, Oklahoma, Oregon, Wisconsin, Louisiana, Washington and Michigan.  The Wisconsin challenge was defeated and the Supreme Court denied cert.  The Oregon case was recently remanded by the Court of Appeals.  I do not know the status of the others.

Article on regulatory changes in Utah and Arizona

 As you probably know, last year Utah and Arizona adopted new rules to fundamentally change the way the practice of law is regulated, including allowing lawyers to partner with non lawyers to practice law and allowing certain non lawyer owned entities to provide legal services.  For more on this go here, and here.

I am writing about this again today because Law360 just published a short comment on the situation in Utah, where . . . "the group of approved participants includes LawPal, an entity planning to offer a "TurboTax-like" platform for divorce and eviction disputes, and 1LAW, which helps clients complete court documents and offers related legal advice through tech including chatbots. A pro bono service provider in Utah is also seeking approval to permit domestic abuse victim advocates to give legal advice while filling out protective order requests. . ."