Arizona Becomes First State to Allow Non lawyer Ownership of Law Firms
On Aug. 27, 2020, the Arizona Supreme Court approved a ruling that gives nonlawyers the right to co-own law firms. The move, designed to boost access to legal services, takes effect on Jan. 1, 2021.
Arizona is now the first state to permanently eliminate Rule 5.4 of the Rules of Professional Conduct. Lifting these restrictions allows for the licencing of new types of legal businesses. These new lawyer-nonlawyer “alternative business structures” will be licensed through a new regulatory framework and application process.
In a statement, Arizona Supreme Court Chief Justice Robert Brutinel explained that the changes “make it possible for more people to access affordable legal services and for more individuals and families to get legal advice and help. These new rules will promote business innovation in providing legal services at affordable prices.”
The regulatory ruling allows for the creation of new legal paraprofessionals. Known as “LPs,” they will practice as affiliate members of the state bar while upholding and being subject to the same disciplinary and ethical rules as lawyers. In theory, Arizona’s LPs will have greater capabilities than similar licensees in other states.
While Arizona is the first state to permanently eliminate Rule 5.4, other states and jurisdictions, such as Utah, California and the District of Columbia, are working toward similar goals. The previous rules are increasingly being seen as too restrictive.
Utah recently established a two-year pilot of a regulatory “sandbox,” operating under the oversight of the Supreme Court. The sandbox allows for new nontraditional legal services to explore creative ways to practice law and test new business models. Unlike Arizona, however, Utah has not eliminated the ban on nonlawyer ownership outside the sandbox.
Another item worth noting is how the Arizona Supreme Court ruling is likely to lead to a further blending of services offered by the Big Four accounting firms – Deloitte, PricewaterhouseCoopers, Ernst & Young, and KPMG. Recently, Deloitte announced the launch of a new U.S. legal business services practice, and Ernst & Young plans to double its legal managed services revenues during the next year.
Not to be outdone, big law firms such as Ropes & Gray and Paul Hastings have formed consultancies that offer similar services to those provided by the Big Four, such as education, data analysis and regulatory compliance.
Ultimately, Arizona’s decision to eliminate Rule 5.4 will bring more competition, in particular allowing the Big Four to compete directly with law firms. In the end, consumers should win because the ruling brings greater choice and opportunity in what has previously been a relatively limited market.
