The Law Firm Disrupted: Still Looking for the Gold Rush
Changes in Arizona have yet to cause a real shakeup, but there's one type of law firm that sees promise in the possibilities unleashed by the 2021 reforms.
It's been a while since we've dropped in on Arizona's deregulated market for legal services, and there's a reason for that.
Over the past several years, I've periodically explored the possibilities opened up by the Arizona Supreme Court’s move at the start of 2021 to eliminate prohibitions against non-lawyer ownership of law firms.
And while later that year, I quoted an Arizona law firm leader likening what was happening in his state to the California gold rush of 1849, one expert in a recent forum was emphatic. “There’s isn’t the gold rush that one might have expected,” said Boston University School of Law professor Maya Steinitz at a webinar on the economics of law firm ownership hosted last month by the Law & Economics Center’s Civil Justice Academy at the Goerge Mason University Antonin Scalia Law School.
As of the beginning of July, just over 50 legal-related entities have been licensed as alternative business structures. In the mix are a few names that might be broadly recognizable to those who pay attention to new modes of legal service delivery: Axiom, Legal Zoom (through its LZ Legal Services LLC unit), and Elevate. There are some less familiar names doing novel things. But what’s standing in the way of some more brand-name licensees?
For Arthur Burger, who teaches professional responsibility at GMU law school, there’s a constitutional impediment, highlighted in two ethics opinions from the American Bar Association’s Standing Committee on Ethics and Professional Responsibility.
“If a single state bar were to permit non-lawyer ownership…that would not immunize lawyers in multi-jurisdictional firms and lawyers that are members of other state bars, which do have a prohibition—in rule 5.4—from participating in a law firm that has non-lawyer ownership,” he said.
That’s just one part of the reason why risk-adverse Big Law is steering clear. No one is interested in courting disciplinary action for being on the bleeding edge. But general conservatism in approach is part of the story too. Who needs to share record profits with an additional set of hands? And yet, given the increasing professionalization of the C-suite in so many firms, maybe there’s a case for it. Wouldn’t firms serious about installing business-savvy top brass—individuals who don’t necessarily have a J.D.—be intrigued about the fresh prospects for recruitment? “Stick around, and we can give you an equity share.”
For now, that seems more like a thought experiment than anything else.
But according to William Large, president of tort reform group Florida Justice Reform Institute and a participant in the GMU forum, there is one group of firms that are taking the prospects of a broader regulatory change seriously.
“There’s a lot of very big, lucrative personal injury firms in Florida that are extraordinarily profitable. And they can only sell their shares to other Florida lawyers. Potentially that firm would be much more valuable to other investors,” he speculated.
Florida’s own regulatory reform process came up short in late 2021. But scroll down the list of those Arizona licensees and Large is onto something. Names like National Mass Tort & Class Action Law Firm PLLC and Bad Drug Law Firm PLLC don’t leave much to the imagination. The incentives might only apply to a limited set of players – not enough for a gold rush – but non-lawyer ownership clearly makes sense for some.