Gavin Howe
The State Bar of California's primary role is to license and discipline attorneys. However, in recent years, the State Bar has made controversial efforts to deregulate the practice of law, including proposals to allow non-lawyer paraprofessionals to practice unsupervised and enable corporate ownership of law firms. These proposals have sparked intense debates within the legal community, with some arguing that they compromise consumer protection and create conflicts of interest, while others support them as a means to increase access to justice. As of 2022, a new California law has banned the State Bar's pursuit of corporately-owned law firms, underscoring the ongoing tensions between expanding legal services and maintaining ethical standards in the legal profession.
| Characteristics | Values |
|---|---|
| Can state bar associations take control of a law firm? | Yes, in certain circumstances. For example, in the case of attorney disappearance or death, the state bar association may appoint a volunteer to close the practice and handle client files and cases. |
| State bar association's role | To license and discipline attorneys. |
| State bar association's stance on corporate ownership of law firms | Some state bars, like California, have banned corporate ownership of law firms due to potential conflicts of interest and consumer protection concerns. |
| State bar association's position on non-lawyer paraprofessionals | Some state bars, like California, have recommended allowing non-lawyer paraprofessionals to practice law and split fees with attorneys, despite opposition from legal aid groups and attorneys. |
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What You'll Learn
California bans state bar pursuit of corporately-owned law firms
In California, the State Bar's primary mission is to license and discipline attorneys. However, in recent years, the State Bar has been taking aggressive steps to deregulate the practice of law. Specifically, they have been pushing to authorise non-lawyer paraprofessionals to offer legal services and allow corporations to own law firms, share legal fees, and practice law.
In response to these efforts, the California Legislature recently passed a bill that bans the State Bar from pursuing corporately-owned law firms. The bill, known as AB 2958, includes several amendments that aim to protect consumers and ensure the State Bar focuses on its core mission. These amendments require the State Bar to:
- Provide detailed information on the funding spent on their efforts to deregulate the practice of law since 2018;
- Prohibit any attempts to pursue corporate ownership of law firms and splitting legal fees with non-lawyers;
- Prioritize increasing access to legal services for low-income individuals, small businesses, and eligible individuals from legal services organizations;
- Explicitly prohibit any proposed changes to the restrictions on the unauthorized practice of law.
The bill was passed as an urgency measure and went into effect immediately after being signed by Governor Newsom. This statutory language permanently blocks the State Bar's "sandbox" activities and freezes any paraprofessional proposals until January 2025.
The State Bar's push to deregulate the practice of law raised concerns about consumer protection and conflicts of interest. Corporations are driven by profits and returns to shareholders, which could undermine the ethical duties and regulatory oversight that attorneys are subject to. Despite opposition from legal aid groups and attorneys, the State Bar continued to pursue its agenda, leading to legislative action to protect consumers and maintain the integrity of the legal profession.
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Non-lawyer paraprofessionals practicing law
In recent years, several US states have taken steps to allow non-lawyer paraprofessionals to practice law in a limited capacity. This development is driven by a desire to increase access to justice for low- to moderate-income citizens.
In 2016, the Board of Governors established the Oregon State Bar Futures Task Force ("OSBFTF") to examine how the bar could best serve the public and support the professional development of lawyers, given the evolution of legal services. The OSBFTF recommended creating a limited-scope license for paralegals to address the access to justice gap. This recommendation was implemented in 2022, with the Oregon Supreme Court approving a limited-scope license for paralegals to provide legal services in family law and landlord-tenant law.
Similarly, Arizona created a Task Force on the Delivery of Legal Services, which led to the modification of the Arizona Code of Judicial Administration in 2021. This modification established the Limited License Legal Practitioner, now known as a Legal Paraprofessional ("LP"). LPs in Arizona can provide legal services in family law, limited jurisdiction civil, criminal law, and administrative law. As of November 2021, there were 22 licensed LPs providing legal services in the state.
The State of Arizona now allows non-lawyers to obtain an LP license and provide legal services in a limited capacity. The Sandra Day O'Connor College of Law at Arizona State University offers a Master of Legal Studies (MLS) program that prepares students for the LP license exams. Once licensed, legal paraprofessionals can provide legal advice, assist clients, and represent them in court within the permitted practice areas.
California has also shown interest in allowing non-lawyer paraprofessionals to practice law. In 2021, the paraprofessional working group released a report recommending that non-lawyer paraprofessionals be allowed to practice law and split fees with attorneys. However, this proposal faced significant opposition from legal aid groups, bar associations, and individual attorneys due to concerns about potential conflicts of interest and infringement on the duties owed to clients. Despite the opposition, California has continued to explore the idea of limited licensure for licensed paraprofessionals, forming a working group to develop recommendations and rules.
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Corporate ownership of law firms
Traditionally, law firms have been owned by lawyers, with partners acting as joint owners and business directors of the legal operation. Associates are employees of the firm with the potential to become partners, and there are also staff employees who provide paralegal, clerical, and other support services. In the United States, there is a rule that only lawyers may have an ownership interest in, or be managers of, a law firm. This is known as Rule 5.4 of the American Bar Association's Model Rules of Professional Conduct, which specifies that non-lawyers cannot partner with or share legal fees with lawyers and cannot hold ownership interests in law firms.
However, there have been recent developments and ongoing debates about allowing non-lawyer ownership of law firms. Some states in the US, like Utah, Arizona, and Florida, have considered or implemented changes to Rule 5.4, with Florida permitting minority ownership in law firms by non-lawyer firm employees. Internationally, Australia and several European countries have already implemented changes to allow outside ownership of law firms. Proponents of these changes argue that non-lawyer ownership will increase innovation, create new service offerings, and allow for the injection of fresh capital by outside investors. Additionally, it could attract new talent with the prospect of equity stakes and enhance the implementation of new technology and more efficient business processes.
On the other hand, opponents of non-lawyer ownership in law firms raise ethical concerns. They argue that corporations are driven by profits and demands for returns to shareholders, which could undermine consumer protection and create inherent conflicts of interest that infringe on the duties attorneys owe to their clients. Additionally, non-lawyer ownership may affect the professional judgment of lawyers and create issues with regulatory oversight. As a result, some states, like California, have passed laws banning the State Bar's pursuit of corporately-owned law firms.
While the debate continues, it is clear that the landscape of law firm ownership is evolving, and the traditional model of lawyer ownership may be subject to change in the future.
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Splitting legal fees with non-lawyers
The concept of splitting legal fees with non-lawyers is a highly debated topic within the legal profession. While some argue that it can provide benefits such as easier access to skilled non-lawyer professionals and more affordable legal services for consumers, others raise ethical concerns about potential conflicts of interest and threats to the integrity of the legal profession.
Proponents of splitting legal fees with non-lawyers suggest that it can make it easier for law firms to retain skilled non-lawyer professionals. This includes individuals such as mental health professionals, medical doctors, economists, lobbyists, accountants, and executive directors. Additionally, it is argued that such an arrangement could lead to cheaper and more convenient access to legal services, especially for smaller law firms. By generating more business and raising capital, law firms can better cover their overhead costs.
On the other hand, critics argue that fee-splitting with non-lawyers could "interfere with a lawyer's independent professional judgment," which may ultimately harm the client. They contend that the practice of law is a profession, and the prohibition on sharing fees with non-lawyers is crucial for maintaining lawyer professionalism and independence. Furthermore, critics worry about the potential impact on the market for traditional law firms, as non-lawyer ownership could introduce more competition to the already saturated industry.
In the context of California, there has been recent legislation passed to address this issue. The State Bar of California had been pushing for deregulation, which included proposals to allow non-lawyer paraprofessionals to offer legal services, permit corporations to own law firms, and enable the sharing of legal fees. However, this prompted opposition from various legal organizations and individuals, who expressed concerns about consumer protection and conflicts of interest. As a result, a new law was enacted, specifically banning the State Bar's pursuit of corporately owned law firms and fee-splitting with non-lawyers.
While the debate surrounding fee-splitting with non-lawyers continues, it is important to note that there are existing rules and exceptions that address this topic. For example, a lawyer or law firm may include non-lawyer employees in compensation or retirement plans, even if they are based on profit-sharing arrangements. Additionally, a lawyer can share court-awarded legal fees with a nonprofit organization that employed, retained, or recommended their services. Nevertheless, lawyers and law firms must be cautious to avoid partnerships or arrangements that might compromise their professional independence and ethical obligations.
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Regulatory oversight of attorneys
In recent years, the State Bar of California has been at the centre of a controversy regarding its attempts to deregulate the practice of law. Specifically, the State Bar proposed allowing non-lawyer paraprofessionals to practice law and share legal fees with attorneys, as well as permitting corporate ownership of law firms. These proposals were met with significant opposition from legal aid groups, bar associations, and individual attorneys, who raised concerns about potential conflicts of interest and the infringement of attorneys' duties to their clients. Despite the opposition, the State Bar initially continued to pursue these initiatives.
The State Bar of California's primary mission is to license and discipline attorneys, and it has taken an oath to protect the public and enhance the administration of justice. However, its recent actions have been seen as contradictory to this mission. In 2018, the State Bar formed a task force to study regulatory changes, and it subsequently released a study that was deemed misleading by critics. This study led to the formation of two working groups, one of which was tasked with creating a "regulatory sandbox" to permit the corporate practice of law.
In response to the State Bar's actions, a new California law was passed in 2021, explicitly banning the State Bar's pursuit of corporate ownership of law firms. This law, known as AB 2958, was approved by both houses and signed by Governor Newsom, demonstrating the seriousness of the matter and the need to protect the public interest. The passage of this law ensures that the State Bar cannot implement its proposals regarding corporate ownership and the practice of law by non-lawyer paraprofessionals without addressing the concerns raised by the legal community and the public.
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Frequently asked questions
No. In California, a new law bans the State Bar from pursuing corporate ownership of law firms. This means that the State Bar cannot authorize non-lawyer paraprofessionals to practice law or allow corporations to own law firms.
State bar associations are not allowed to take control of a law firm due to concerns about consumer protection. Allowing corporations to own law firms could create inherent conflicts of interest that infringe on the duties that attorneys owe to their clients. Corporations are driven by profits and demands for returns to shareholders and do not have the same ethical duties as attorneys.
The State Bar of California's primary mission is to license and discipline attorneys. However, in recent years, the State Bar has been criticized for attempting to deregulate the practice of law by allowing non-lawyer paraprofessionals to practice and permitting corporate ownership of law firms.
