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ABA Panel Says No to an Outside Law Firm Ownership
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An American Bar Association commission is considering recommending that the nonlawyers be allowed to take an equity stake in law firms for which they work while urging that an existing ban be maintained on the kind of outside investment in US firms that is now possible in the United Kingdom and Australia.

If the panel’s recommendation moves forward, the move to let the nonlawyers own a piece of firms that employ them would not become an ABA model rule for more than a year, and would still need to be adopted by individual states. While all 50 states currently ban such nonlawyer ownership of the law firms, Washington D.C. has allowed it for more than two decades.

  
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At the same time, the ABA’s Commission on Ethics 20/20 came out firmly against any move that would open the door to law firms becoming either publicly traded entities or multidisciplinary practices designed, for an example, to serve as one-stop shops accounting and legal needs.

Formed in 2009 to address how technological advances and globalization are affecting the regulation of law firms and lawyers, the commission released a new draft paper (PDF) Friday that lays out the panel’s views and seeks input from members of the legal community. Any formal proposals that are adopted, after the comment period, will not go to the ABA’s decision-making body until February of 2013.

The commission’s recommendations aren’t going far enough for Thomas Gordon, legal and policy director for Responsive Law, which is a year-and-a-half-old nonprofit in Washington, D.C., that advocates on behalf of what the group cities as the 80 percent to legal representation.

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”There needs to be much more openness to outside involvement in the legal professional for consumers to benefit,” says Gordon, who submitted comments to and testified before the commission earlier this year. ”In any service industry, consumers will benefit where there’s innovation.”

Paul Paton, who is a profession at Pacific McGeorge School of Law in Sacramento, who also serves as reporter to the 20/20 commission, says that the panel considered the entire spectrum of alternative business structures found elsewhere in the world, discussed at length in an issues paper (PDF) in the month of April, but ”decided there were certain practices mapped out…that weren’t appropriate for adoption in the US at this time.”



The ownership model suggested in the draft report would allow firms to give the nonlawyers they employ a financial interest in the firm and a share in its profits. Among all the professionals cited as potentially qualifying to take such a stake: architects, social workers, engineers or investigators who assist in such practice areas as, respectively, land use, intellectual property, family law, or personal injury.

The commission does suggest placing some conditions on opening law firm ownership to nonlawyers, including: requiring lawyers to investigate the professional reputation of anyone considered for an equity stake; ensuring that a firm’s lawyers maintain a controlling financial interest and voting rights in the enterprise; and prohibiting nonlawyer owners from having their own clients or offering any services to firm clients outside of legal needs.



 

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