Law Firm Takeover: Can State Bar Seize Control?

State bars have the power to take over law firms in certain situations, such as when attorneys disappear or are transferred to disability inactive status. State bar associations can also enforce strict marketing guidelines for law firms, with violations potentially resulting in professional censure or suspension of the license to practice law. Notably, the State Bar of California previously pushed for corporately-owned law firms, but this was banned by a new state law in 2022. Understanding state regulations and marketing guidelines is crucial for law firms to maintain compliance and avoid penalties.

State Bar of California's main mission

The State Bar of California's main mission is to license and discipline attorneys. It is an administrative division of the Supreme Court of California and is responsible for managing the admission of lawyers to the practice of law, investigating complaints of professional misconduct, prescribing appropriate discipline, accepting attorney-member fees, and financially distributing sums paid through attorney trust accounts to fund nonprofit legal entities.

The State Bar maintains licensee records and a searchable database of attorney profiles for the public on its website. It collects licensing fees that fund its operations and sends out annual fee statements to collect these fees. It also officially certifies legal specialists in 11 different practice areas under the supervision of the Board of Legal Specialization.

The State Bar's statutory mission involves activities to protect the public, increase access to legal services, and increase diversity in the legal profession. It administers the biannual bar examination for law students, processes complaints about attorney misconduct and unauthorized practice of law, disciplines attorneys, and works with the California Supreme Court to consider and draft the Rules of Professional Conduct for California lawyers.

In recent years, the State Bar has faced criticism and reform efforts due to its pursuit of corporately owned law firms and attempts to deregulate the practice of law. A new California law, Assembly Bill 2958, was passed to enact statutory limitations on the State Bar, including prohibiting efforts to pursue corporate ownership of law firms and prioritizing increased access to legal services for low-income individuals and small businesses.

State Bar's pursuit of corporately-owned firms

The State Bar of California's primary role is to license and discipline attorneys. However, in recent years, it has made controversial efforts to deregulate the practice of law. This includes pursuing corporately-owned law firms, which has raised concerns among legislators and legal professionals.

The State Bar has advocated for allowing corporations to own law firms, share legal fees, and even practice law directly. To advance this agenda, they have allocated significant resources, including staff time, contracts with consultants, lobbyists, and online advertisements. These actions have been criticized for their potential conflicts of interest and the risk of prioritizing shareholder interests over those of legal clients.

In response, Assemblymember Stone and Senator Umberg introduced amendments to Assembly Bill 2958, the annual State Bar dues bill. These amendments were designed to curb the State Bar's pursuit of corporate ownership of law firms and protect consumers. The amendments included requirements for the State Bar to disclose specific information about their spending on these efforts, explicitly prohibit any proposed changes to restrictions on the unauthorized practice of law, and prioritize increasing access to legal services for low-income individuals and small businesses.

The State Bar opposed these amendments, arguing that their mission extends beyond discipline to increasing access to the legal system. However, their proposals were rejected, and AB 2958, with the amendments, was ultimately approved by both houses and signed into law by Governor Newsom. This new law represents a significant shift in the landscape of legal practice in California, placing limitations on the State Bar's ability to pursue corporately-owned law firms and prioritizing consumer protection and access to justice.

While the State Bar of California case is a notable example, it is worth noting that state bars generally have the authority to intervene in law firm operations under specific circumstances. For instance, in the State Bar of Nevada, practice takeover appointees can be assigned to close the practices of attorneys who are no longer able to continue their work due to various reasons, including death or disability. In such cases, the appointees manage client file retention, handle cases, and facilitate the transfer of cases to substitute counsel.

State Bar's role in licensing and disciplining attorneys

State Bars are responsible for licensing and disciplining attorneys in their respective states. In most states, the State Bar association manages the licensing or regulatory agency for attorneys. This typically involves maintaining a database of licensed attorneys, including their contact information, education, area of practice, and disciplinary records. The public can access these databases to verify an attorney's license status, disciplinary history, and whether they are in good standing.

The State Bar's role in licensing attorneys includes setting the requirements for obtaining a license to practice law in the state. This may include educational qualifications, passing the state bar exam, and meeting character and fitness standards. State Bars also have the power to revoke or suspend an attorney's license for misconduct or ethical violations.

In addition to licensing, State Bars play a crucial role in disciplining attorneys who engage in unethical or unlawful conduct. The public can file complaints against attorneys through the State Bar, which then investigates the allegations and takes disciplinary action if necessary. Disciplinary measures can range from public reprimands to suspension or disbarment, preventing the attorney from practicing law in that state.

For example, the State Bar of California, with its highest priority being the protection of the public, licenses, regulates, and disciplines over 250,000 attorneys in the state. Similarly, the State Bar of Nevada has a practice takeover program, where appointees volunteer to close the practices of attorneys who are no longer able to continue their work due to death, disability, or other reasons. These appointees ensure the protection of clients' interests by handling client file retention, notifying clients, and distributing case files as directed.

While the primary role of State Bars is to license and discipline attorneys, there have been instances where State Bars have pursued other initiatives. For example, the State Bar of California faced criticism for its efforts to authorize non-lawyers to practice law and allow corporations to own law firms. This led to the passage of a new law, AB 2958, which imposed limitations on the State Bar's ability to pursue corporate ownership of law firms and prioritized increasing access to legal services for low-income individuals and small businesses.

State Bar's marketing guidelines

State Bars have various marketing guidelines that law firms must adhere to. These guidelines vary from state to state, and it is important for law firms to be aware of the specific rules in their state. For example, in Texas, the Disciplinary Rules of Professional Conduct prohibit the use of actors to portray clients in advertisements, while in California, attorneys can advertise past results but must include clear disclaimers. Law firms in Washington have a wide range of advertising methods available to them, including podcasts and video content, while Colorado allows attorneys to describe themselves as "experts" based on their experience.

It is worth noting that the American Bar Association considers a law firm's website to be advertising and has guidelines that must be followed. Law firms must also be mindful of restrictions on attorney advertising and ensure that their websites comply with state-specific regulations. For instance, Illinois and Wyoming require law firm websites to display the name and address of at least one attorney or the law firm itself as responsible for the site's content.

In addition to these state-specific guidelines, there are federal laws that relate to legal marketing, including rules around contingency fees, client testimonials, and legal certifications and specializations. Law firms must also be cautious about the potential for risks in this area, as any content posted on their website or social media accounts may be considered advertising.

State Bars also play a role in practice takeovers, where appointees volunteer to close the practices of attorneys who are no longer able to do so. This involves responsibilities such as client file retention, handling cases directly, and notifying clients to obtain substitute counsel.

Practice Takeover Appointees

The responsibilities of a Practice Takeover Appointee can include client file retention, directly handling cases, notifying clients of the need to obtain new legal representation, and distributing case files as instructed. They may also be granted access to the attorney's client trust account to address any financial matters, such as taking inventory of missing funds, disbursing funds to clients, or collecting fees from clients who choose to continue their legal services with the appointee.

Attorneys who wish to become Practice Takeover Appointees can submit an application to the State Bar. Qualified applicants are then submitted to and approved by the Board of Governors. This process ensures that the appointees have the necessary qualifications and integrity to take on the responsibilities of closing another attorney's practice.

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