The ABA creeps sideways on non-lawyer ownership

Larry Ribstein —  7 December 2011

The ABA is considering loosening the bar on non-lawyer ownership of law firms (HT Law Blog).  Here’s the discussion paper.

For those who are thinking that this move is meaningful, forget about it.  The ABA proposal (which would still have to be approved by the ABA and then by individual states) would permit non-lawyer ownership only if the firm provides only legal services, the lawyers have control, and the lawyers are responsible for the non-lawyers’ integrity and compliance with ethical rules.   The ABA is not considering publicly traded law firms, passive outside investments, or firms (as under the UK’s new “Tesco” law) that offer both legal and non-legal services.  

The ABA’s continued resistance to non-lawyer ownership of law firms is misguided on policy grounds.  Keep in mind that eliminating the ban would not permit non-lawyers to render legal services.  It would simply change the ownership structure of the firms in which lawyers practice.  The idea behind the rule is that non-lawyer owners would emphasize bottom-line profits over proper concern for the client.  But firms, whether or not they practice law, can’t profit by stomping on their customers and sullying their brands.  And who really believes that law as it’s practiced today, in lawyer-owned firms, isn’t a business?  Or that the law business should be protected from competition by other business models? For more on these issues see my conversation with Mitt Regan and Bruce MacEwen.

More important is what the ABA move would do about the cost of legal services: nothing.  The non-lawyer ownership ban has been enacted and maintained by and for lawyers as a way of banning lower-cost provision of legal advice.  Under current rules, many middle class consumers have no reliable reasonably priced way of getting basic legal advice.  The UK rule permitting law practice by alternative business structures was promoted by consumers.  It lets consumers buy legal services from the same businesses (e.g., Tesco) whose brands they trust for many other products and services.  It is a way of bridging the huge current divide between supply and demand for legal services by ordinary non-corporate consumers.

In any event, as discussed in my Death of Big Law and my and Kobayashi’s Law’s Information Revolution, big changes are coming to legal services as a result of significant technological developments and global competition.  The responsible position by the profession would be to try to manage these developments in ways that protect consumers, as in the UK and Australia.  The ABA’s decision to go no further than reconsidering modest proposals it rejected twenty years ago is basically one to bury its collective head in the sand and let the changes happen without the bar’s involvement.  This is not only unwise but irresponsible.

Larry Ribstein

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Professor of Law, University of Illinois College of Law

3 responses to The ABA creeps sideways on non-lawyer ownership

  1. 

    Our law firm is in Thailand, where there are few practical restrictions on non-lawyers owning or operating a law firm. In fact, there a number of law firms in Thailand those operate under the control of non-lawyers. Most of these law firms are owned by Western residents and provide services to other “expats” residing in Thailand.

    Based on my first-hand experience, there is a substantial difference in firms owned and operated by licensed lawyers and those run by non-lawyers. I have observed that non-lawyer operated firms are much more apt to “push the envelope” in terms of false and misleading marketing claims. Non-lawyers, as employers, are more likely to assign lawyers to handle cases that that they are not qualified to handle. Non-lawyers operating law firms are more likely to engage in conflicts of interest such as acting as an agent for a seller and a buyer in the same transaction. Many of these non-lawyers also attempt to perform cases themselves often with disastrous consequences.

    Moreover, there are a number of criminal individuals for whom the “cover” of a law firm allows them to engage in furthering criminal activities.

    The law is not an easy profession. There is a reason why it is tough to get into law school, tough to graduate and tough to pass the bar exam. A law license is an asset that helps to ensure ethical and professional standards. Non-lawyer ownership debases the professional standards of the profession and harms the consumer. Regarding the argument that, as a business, non-lawyer owned firms must perform well, or lose clients: In reality, an unqualified law firm, just like a crooked politician, can exist for years harming clients.

  2. 

    It is extremely disappointing to see that the ABA is not receptive to passive non-lawyer investment in law firms. My experience has been that law firms are definitely businesses who would be thrilled to have access to such a source of capital. Oh well, maybe in another 20 years the idea will be reconsidered in a more positive light.

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