This article originally appeared in the Trial Lawyer’s Journal Vol. I. To request a complimentary copy, sign up at www.triallawyersjournal.com to access all the articles.

The ability of a lawyer to maintain their professional independence is critical to protecting and serving the public effectively. To this end, the American Bar Association passed Model Rule 5.4 in 1983, restricting an attorney’s ability to share fees and go into business with nonlawyers. The ABA maintained that allowing attorneys and nonlawyers to do business together would naturally create tension between the client’s interest and that of the company.

In recent years, access to justice barriers have become more apparent, and attorneys are struggling to keep pace with the surge in demand and competition. Instead of attorneys, DIY service providers are arriving on the scene to fill in the gaps, often with little to no attorney involvement and without being held to the same ethical standards as attorneys. Because of this, many states and the ABA are taking a second look at Model Rule 5.4 to see if it might be time for a change.

The Benefits and Burdens of Restricting Nonlawyer Ownership in Firms and Fee Sharing

Throughout the years that the current ABA Model Rule 5.4 has existed, many heated debates have arisen around its efficacy and necessity. From the time of the rule’s passage in 1983 to today, the legal profession was far from uniform in its opinion surrounding the ABA’s decision to keep nonlawyers out of the business of law. As the years have gone on, the debate is still steady, but there are shifts in the tide.

Protects a Lawyer’s Professional Judgment and Independence

Attorneys owe ethical duties to their clients, obligating them to provide competent legal services and sound legal advice tailored to the client’s interests and situation. Having a rule that prohibits nonlawyers and lawyers from sharing legal fees or owning businesses together helps to accomplish this goal.

In the absence of Model Rule 5.4, attorneys would inherently be influenced by the financial and professional incentives of the partnership with the nonlawyer. This would put the public at risk of being manipulated and misled by unscrupulous attorneys. Furthermore, even well-intentioned attorneys would be subject to the inherent influences of a business relationship with a nonlawyer.

Keeps Conflicts of Interest at Bay

As the Illinois Bar Journal pointed out in 2013, the legal profession is a profession, not a business. When providing clients with legal advice and counsel, the attorneys must not feel pressure because of business relationships and financial partnerships. They should be able to fully and freely advise their clients without considering their obligations to shareholders or other parties.

If lawyers and nonlawyers own businesses, some inherent pressures and obligations come with those structures. Attorneys would also risk having a conflict of interest between what is best for their client and what is profitable for their business and the shareholders. This is a disservice to the attorney, the client, and the public.

Addresses Regulatory Inconsistencies as to Nonlawyers

Regardless of what the tabloids may say about the profession, attorneys are held to the highest standard of ethics and professional responsibility. Those who fail to meet these rigorous standards are rooted out and penalized by the highest state court. This is essential to maintaining the profession’s integrity and protecting the public’s perceptions of and trust in attorneys.

Nonlawyers are not subject to the same regulatory and ethical standards nationwide or within each state. Moreover, the courts do not have the same authority over nonlawyers as they do lawyers. Because of this, it impedes the court’s ability to regulate and address nonlawyer activity that would otherwise be unethical or present a violation of an attorney’s professional responsibilities.

Arguments against ABA Model Rule 5.4

Those who favor a change to the rule argue that the profession’s insular nature renders it irrelevant and its services costprohibitive in modern times. They also maintain that the legal field must adapt to modern technologies to stay relevant and not be overtaken by tech companies like LegalZoom.

Current Rules Make Legal Services Cost-Prohibitive

The current rules restrict the profession’s ability to grow, thus perpetuating a cost-prohibitive billing system for consumers. Allowing lawyers and nonlawyers to share fees would increase
revenue streams for firms throughout the country. The effect would be a reduction in the cost of legal services and an increase in the number of competitive firms.

Modernizing the Rules Would Increase Access to Justice

According to the September 2021 report released by the Institute for Advancement of the American Legal System (IAALS) and The Hague Institute for Innovation of Law (HiiL), America’s crisis of access to justice permeates the nation.

Approximately 66% of the 10,058 who participated in the study had experienced at least one legal problem in the past four years. About 51% of those legal problems went unresolved
during that time.

If the rules allowed attorneys to share fees with nonlawyers, attorneys could partner with companies like LegalZoom and others to provide affordable legal services. In the absence of these changes, the public must fend for itself or put their faith in DIY services that do not fully advise them on their rights.

The Legal Profession Must Keep Pace with the Changing Landscape

With DIY software companies that offer legal services flooding the market, it is not a stretch to say that the walls are closing in on attorneys, and the profession must decide soon or risk becoming irrelevant. Allowing alternative business structures (ABS) between lawyers and nonlawyers can enable attorneys to stay relevant and participate in a landscape that threatens the survival of the legal profession.

With DIY software companies that offer legal services flooding the market, it is not a stretch to say that the walls are closing in on attorneys, and the profession must decide soon or risk becoming irrelevant.

How do the states feel about fee-sharing and ownership of law firms by nonlawyers?

Many states have at least considered the possibility of changing the rules surrounding nonlawyer fee-sharing and business partnerships with lawyers. Not every state agrees that allowing nonlawyers to work or share fees with attorneys is the answer, but some have decided to change with the times.

Arizona – On August 27, 2020, the Arizona Supreme Court unanimously voted to eliminate Rule 5.4, which prohibited nonlawyer ownership and fee sharing with attorneys. Arizona allows organizations, such as law firms, to apply for an Alternative Business Structure (ABS) license if they meet specific requirements. Under Arizona rules, only attorneys and authorized legal professionals can provide legal services to the public.

Arizona created this monumental rule change to respond to the public’s rising interest in allowing lawyers and nonlawyers to form partnerships. The licensing requirement helps increase access to justice while allowing the Arizona Supreme Court to regulate and monitor the profession.

California – California was slated to join states like Arizona to modernize its current rules and allow nonlawyers to share fees and operate businesses with lawyers. That all changed when the California legislature, which regulates the State Bar of California and attorneys, passed legislation expressly forbidding the practice on September 18, 2022.

Even so, the bill encourages the State Bar to explore ways to provide limited licenses to practice law to law students, and also to use technology to increase access to justice. For now, however, the question of nonlawyers and lawyers sharing fees or ownership in businesses is off the table.

District of Columbia – DC stands alone in that it has, since 1991, allowed nonlawyers and lawyers to form businesses together while still restricting the ability of nonlawyers to receive payment for legal services. But DC’s rules are not without limits: the business relationship between lawyers and nonlawyers must solely or primarily be the provision of legal services. Furthermore, nonlawyers who want to go into business with lawyers must agree to follow DC’s ethical standards and professional responsibility rules for lawyers.

Florida – Florida also took up the question of whether to change its rules and allow nonlawyers to form business partnerships and share fees with lawyers. The answer? A resounding, unanimous “no” in March 2022.

The Florida Supreme Court did agree with one recommendation of its Special Committee to Improve the Delivery of Legal Services: to allow not-forprofit legal service providers to form a corporation and to allow nonlawyers to serve on the board of directors. Nonetheless, the Florida Bar Association acknowledges that something needs to change in the legal profession to improve access to justice. They are committed to discovering what those changes should be.

Georgia – Georgia declined to allow its attorneys to share legal fees or form partnerships with nonlawyers. That said, the Georgia Supreme Court opened the doors for licensed Georgia attorneys to do business with authorized ABS organizations in other jurisdictions if it is legal in that other jurisdiction. Additionally, the fee arrangement between the Georgia attorney and the ABS must not otherwise violate the Georgia ethics rules.

Illinois – In Illinois, the Chicago Bar Association and Chicago Bar Foundation formed a Task Force on the Sustainable Practice of Law & Innovation. The Task Force sought to uncover areas where the legal profession is falling behind, and to develop ways to help the public access legal help when needed. After much deliberation, they issued a report on September 28, 2020, that made recommendations to encourage a more sustainable, modern, and equitable legal profession.

Despite widespread support and acknowledgment of the underlying assertions of the Task Force, the Illinois State Bar Association rejected the Task Force’s recommendations to explore ways to allow lawyers to “responsibly partner with other disciplines.” Instead, the Illinois State Bar Association drafted the proposed resolution, eventually adopted by the American Bar Association, reaffirming ABA Model Rule 5.4.

Massachusetts – Like many other jurisdictions, Massachusetts has resisted efforts to allow nonlawyers to have an ownership interest in businesses engaged in the practice of law. Where Massachusetts stands apart is its rules surrounding fee sharing between nonlawyers and lawyers.

Massachusetts’s ethics rules allow a qualified legal assistance organization to share in specific legal fees earned by an attorney for legal work provided to a client referred to the attorney by that organization. This arrangement is permissible if the client is aware of this at the onset of representation and gives informed consent.

New Mexico – The New Mexico ethics rules allow lawyers and specific non-profit organizations to share in court-awarded legal fees. The rules allow this fee-sharing arrangement if the non-profit organization “employed, retained, or recommended” the lawyer’s services in the matter.

New Mexico seeks other ways to expand access to legal services. For example, in 2019, the New Mexico Supreme Court began studying the possibility of allowing nonlawyers to provide legal aid to clients in limited circumstances.

Utah – Task forces within Utah have been studying ways to increase access to justice and modernize the legal profession since August 2018. The hard work and dedication of those groups paid off in August 2020 when the Utah Supreme Court created the Office of Legal Services Innovation. The Innovation Office oversees the regulatory sandbox initiative, where lawyers and nonlawyers find new and creative ways to serve the public’s legal needs.

Organizations apply with the Innovation Office to form a business providing legal services to the public. The Innovation Office reviews the application and assesses, among other things, the risk level involved in the provision of the named legal services. If the application is approved, that organization can provide legal services to the public and must maintain its registration with the Innovation Office.

In 2020, the first law firm founded by nonlawyers opened with permission from the Innovation Office. Law on Call allows clients to pay a low-cost monthly subscription fee to have 24/7 access to lawyers via telephone, subject to the terms of the subscription.

Washington – Washington has certainly taken steps to encourage access to justice and modernize the legal profession. In 2012, the Washington Supreme Court authorized the creation of Limited License Legal Technicians (LLLTs) to provide affordable legal services to people in limited types of cases. The Washington Supreme Court did not alter its rules prohibiting nonlawyers from sharing fees or owning a legal business with lawyers.

In 2020, however, the Washington Supreme Court decided to sunset the LLLT program because it did not believe it had the desired outcome. As a result, it is imposing a June 2023 deadline for new LLLT applicants to meet the requirements for a license and take the exam. Time will tell if Washington State decides to revisit this program.

The Waves of Change Have Begun To Make an Impact

The states are taking different paths to address access to justice barriers and modernize the legal profession. While not every jurisdiction agrees with its neighbor about how to address these issues, recent events make it clear that everyone agrees the challenges are a priority. Regardless of where everyone falls in the debate surrounding Model Rule 5.4, what matters is that the profession continues to find practical and innovative ways to advocate for the public.

Michael Abdan is a licensed attorney in the state of New York and Florida and Partner at CloudLex.