Law Firm Ownership: Non-Lawyers In Utah

In most US states, non-lawyers cannot own a law firm. However, in a growing trend, some states are relaxing their regulations. In 2020, Utah instituted a regulatory sandbox to oversee non-traditional firms with non-lawyer ownership. This two-year pilot program has since been extended to seven years. The Utah model allows for the licensing of traditional law firms with non-lawyer ownership, as well as non-lawyer-owned entities employing lawyers to practice law.

Non-lawyer ownership of law firms in Utah

In most US states, non-lawyers cannot own a law firm. However, Utah is one of the few states that has recently allowed non-lawyers to own law firms under certain conditions.

In August 2020, Utah launched a time-limited trial program that allows non-lawyers to own law firms. This program was initially scheduled for two years but has since been extended to seven. The Utah model allows for the licensing of traditional law firms with non-lawyer ownership, as well as non-lawyer-owned entities that employ lawyers to practice law. The state's Supreme Court unanimously approved a slate of reforms that permit non-lawyer ownership or investment in law firms and allow legal services providers to try new ways of serving clients.

Utah's program was established in response to efforts by a Work Group on Regulatory Reform and a subsequent Implementation Task Force on Regulatory Reform, co-chaired by Utah Supreme Court Justice Deno Himonas and former Utah State Bar President John Lund. The program aims to increase access to legal services and bring innovation to the legal services industry. It also seeks to address the access-to-justice crisis by opening up the legal market to new providers, business models, and service options.

Utah's program has created a regulatory "sandbox" to oversee non-traditional firms with non-lawyer ownership. The Utah Office of Legal Services Innovation was established to license and regulate ABSs (alternative business structures) and ALPs (alternative legal providers) within the state. This structure allows for multiple types of services to be provided to each client, increasing competition and improving access to capital and business plans.

While Utah's program has been well-received, it is important to note that the American Bar Association (ABA) has resisted modifications to Rule 5.4, which states that "a lawyer shall not form a partnership with a nonlawyer if any of the activities of the partnership consist of the practice of law." However, Utah's reforms include changes to Rule 5.4, allowing attorney fee-sharing with non-lawyers as long as there is written notice to the client.

Rule 5.4 alterations

The American Bar Association's Model Rule 5.4, subsection (a), states that " [a] lawyer or law firm shall not share legal fees with a nonlawyer". Subsection (b) of the same rule states that " [a] lawyer shall not form a partnership with a nonlawyer if any of the activities of the partnership consist of the practice of law". These restrictions were considered essential for preserving lawyers' independence in their legal advice and preventing non-lawyer owners from prioritising profits over duties to clients.

Despite this, in 2020, Utah instituted a regulatory "sandbox" to oversee non-traditional firms with non-lawyer ownership. This was initially a two-year pilot program that has since been extended to seven years. The program created the Utah Office of Legal Services Innovation to license and regulate ABSs and alternative legal providers (ALPs) within the state. The Utah model allows for the licensing of traditional law firms with non-lawyer ownership, as well as non-lawyer-owned entities employing lawyers to practice law.

Utah's Rule 5.4 alterations permit individual lawyers or law firms to enter into business or employment relationships with non-lawyers, whether through non-lawyer ownership or investment in a law practice, joint venture, or through employment by a non-lawyer-owned entity. In each instance, the non-lawyer-owned entity must be approved by the Utah Supreme Court for authorisation under Standing Order No. 15.

Furthermore, a lawyer or law firm may share legal fees with a non-lawyer if the fee to be shared is reasonable, the lawyer or law firm provides written notice to the affected client, the written notice describes the relationship with the non-lawyer, and the lawyer or law firm provides the written notice before accepting representation or before sharing fees from an existing client.

While Utah has made these alterations to Rule 5.4, it is important to note that most other jurisdictions in the United States have not followed suit, and some remain explicitly opposed to non-lawyer ownership of law firms.

Regulatory sandboxes

The sandbox has seen success, with 39 entities operating under it as of June 2022, and has not resulted in a spike in consumer complaints. The entities fall into five broad categories: traditional law firms with non-lawyer equity ownership or investment; law companies with non-lawyer ownership; non-law companies that have expanded into legal services; intermediary platforms connecting consumers to lawyers; and new entities that rely on technology and non-lawyers to practice law.

Utah lawyers can practice in these new entities, but they must ensure they comply with professional responsibility requirements and the Rules of Professional Conduct. The sandbox is not a way to circumvent multijurisdictional practice rules, and lawyers from other states or countries must apply as non-lawyers or Alternative Legal Providers.

The Utah regulatory sandbox has sparked interest from other jurisdictions, with British Columbia and Ontario instituting similar sandboxes, and other states considering regulatory reform. This trend towards liberal policies and lighter regulations aims to increase access to justice and spark legal innovation, allowing for new legal models and technologies that reduce the financial barriers to legal counsel.

Non-lawyer investment in law firms

In the United States, the majority of states have historically prohibited non-lawyers from owning law firms, with rules based on the American Bar Association Rule 5.4, which seeks to protect the "Professional Independence of a Lawyer". However, in recent years, several states have relaxed these requirements, with non-lawyer ownership of law firms now permitted in the District of Columbia, Arizona, and Utah.

Utah has been at the forefront of these reforms, with the Utah Supreme Court approving a slate of reforms that allow for non-lawyer ownership or investment in law firms as part of broad access-to-justice reforms. The court established a regulatory "sandbox" to oversee non-traditional firms with non-lawyer ownership, creating the Utah Office of Legal Services Innovation to license and regulate ABSs (alternative business structures) and ALPs (alternative legal providers) within the state. This model allows for the licensing of traditional law firms with non-lawyer ownership, as well as non-lawyer-owned entities employing lawyers to practice law. The initial two-year pilot program has since been extended to seven years.

Utah's reforms have been driven by a desire to increase access to legal services, particularly for low-income individuals and families, and to spark legal innovation in the form of new legal models and technology that would reduce the expensive barrier to legal counsel. By allowing non-lawyer investment and ownership of law firms, there is also an expectation of increased competition, which will bring innovation to the legal services industry.

Other states have taken more modest steps toward allowing non-lawyer-owned firms, with California and Massachusetts amending their rules to permit greater fee-sharing with non-attorney-owned organizations under specific circumstances.

Outside of the United States, several other common-law jurisdictions have also allowed non-lawyer ownership of law firms. Australia became the first to do so when the state of New South Wales passed authorizing legislation in 2001, followed by the United Kingdom in 2011, and Canada in 2020, with both British Columbia and Ontario instituting regulatory sandboxes similar to the Utah model. These countries have seen increased innovation, competition, and improvements in access to capital within their legal industries.

Non-lawyer practice of law

In most US states, non-lawyers cannot own a law firm. However, Utah is one of the few states that has approved non-lawyer ownership of law firms. In 2020, Utah instituted a regulatory "sandbox" to oversee non-traditional firms with non-lawyer ownership. This was initially a two-year pilot program that has since been extended to seven years. The program created the Utah Office of Legal Services Innovation to license and regulate ABSs and alternative legal providers (ALPs) within the state. The Utah model allows for the licensing of traditional law firms with non-lawyer ownership and non-lawyer-owned entities that employ lawyers to practise law.

Utah's regulatory sandbox aims to increase access to legal services and make them more affordable. Tech companies like Legal Zoom and Rocket Lawyer are now permitted to market affordable legal services, providing more options for those seeking legal counsel. The state has also approved licensed paralegal practitioners who can practise law without legal supervision in three areas, although they are not allowed to represent clients in court.

While Utah's program has sparked interest in other states, it is not without its challenges. One of the primary concerns is maintaining the professional independence of lawyers and protecting client confidentiality. Rule 5.4(b) of the American Bar Association (ABA) states that "a lawyer shall not form a partnership with a nonlawyer if any of the activities of the partnership consist of the practice of law." This rule, aimed at vouching for the "Professional Independence of a Lawyer," has seen fierce resistance to any modifications. However, some states have started to relax their Rule 5.4 requirements, and countries like Australia, the United Kingdom, and Canada have already adopted alternative business structures that allow for non-legal ownership of law firms.

The success of alternative business structures in other countries and the growing recognition that non-lawyer ownership may not be harmful have influenced the trend towards more lenient regulations in the US. This shift aims to spark legal innovation, reduce barriers to legal counsel, and improve access to justice for all. As a result, several states are considering or implementing changes to their ownership rules, and Utah's pioneering program will likely influence the future of legal services in the country.

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