First Alternative Business Structures approved in USA

The first two fully licenced alternative business structures (ABSs) have been approved by the state of Arizona. On the 17th March 2021, two businesses, Trajan Estate LLC and Gilbert and Payne Huebsch PLC received their ABS license after the State Supreme Court approved their bids. Trajan Estate is a legal service provider focused on estate planning while Payne Huebsch provides transactional legal services paired with tax and accounting advice.

Last year Arizona became the first state to fully allow alternative business structures and non-lawyer ownership in law firms,  revoking state professional conduct rule 5.4 which barred nonlawyers from fee-sharing and holding an interest in law firms. The change came into effect in January 2021, allowing business to begin the approval process.

The licenses follow the approval of the first non-lawyer owned law firm in Utah, as part of the state’s two-year regulatory sandbox. Law on Call opened at the beginning of March 2021, allowing consumers unlimited over the phone access to lawyers, in a business entirely owned by non-lawyers. The business will however be subject to license reviews, as per the conditions of the sandbox.

Read more about the Arizona licences here, or the Utah licences here.

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California Closing the Justice Gap Working Group holds first public meeting

A California State Bar working group established to study access to justice innovations held its first public meeting on the 14th January 2021. The State Bar’s Closing the Justice Gap Working Group, created by the Board of Trustees to carry on with important recommendations from the State Bar’s Task Force on Access Through Innovation of Legal Services (ATILS), has been established with the objective of:

  • Investigating the development of a regulatory sandbox to foster experimentation with innovative systems for delivery of legal services
  • Exploring amendments to the Rules of Professional Conduct regarding the ability of lawyers to share fees with nonlawyers
  • Examining the addition of rule 5.7 to the Rules of Professional Conduct addressing the delivery of nonlegal services by lawyers and businesses owned or affiliated with lawyers
  • Considering amendments to the Certified Lawyer Referral Service statutes and Rules of the State Bar to enhance efforts to expand access to legal services.

The task force chair Justice Alison M. Tucher, Associate Justice of the California Court of Appeal, First Appellate District, Division 4, in San Francisco has said “The immense challenges of the past year have only heightened the needs that this group’s work is intended to address. Fortunately, meeting virtually enables us to bring together a truly remarkable working group, all of whom are volunteering their expertise to help California move forward. We are honored and excited to get started.”

The working group is made up of 20 state, national, and international experts an is expected to submit recommendations to the Board of Trustees no later than September 2022. Each recommendation is expected to balance the dual goals of public protection and increased access to justice.

Read more about the meeting here. 

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Law Society of British Columbia to Widen Access to Legal Services

On September the 10th the Law Society of British Columbia elected to make changes suggested by a task force on modernisation established this January.

The task force cited ongoing changes in the legal market, which have been accelerated by the ongoing COVID-19 pandemic, as well as the pace of change in other jurisdictions, as to why change was needed.

Recommendations include:

  • evaluate how existing and emerging technologies can better support legal services and address regulatory impediments that exist in permitting their use
  • move to amend regulatory structures to allow for innovation in legal service delivery and alternative business structures while protecting the public
  • re-evaluate current regulations and restrictions on law firm ownership and investment, as well as multi-disciplinary practice and partnership structures to ensure they are not inhibiting innovation
  • advance its initiative on the regulation of licensed paralegals to improve access to legal services
  • regularly reach out to and develop resources to support in-house counsel and government lawyers
  • continue work on Indigenous legal services by understanding where more support is needed and listen to and work with Indigenous peoples to address that need
  • re-consider the accreditation process for lawyers in British Columbia, with special consideration given to how to incorporate more skills-based training into that process

The task force was set up with the following mandate: “Recognizing that significant change in the legal profession and the delivery of legal services is expected over the next five to 10 years, the Futures Task Force will identify the anticipated changes, consider and evaluate the factors and forces driving those changes, assess the impact on the delivery of legal services to the public, by the profession and on the future regulation of the legal profession in British Columbia, and make recommendations to the Benchers on the implications of the anticipated changes and how the Law Society and the profession might respond to the anticipated changes.”

And began the recommendations by saying: “Change is constant in all aspects of our lives, and this is true in the practice of law as well. Client expectations, competition among lawyers and with other professionals, technology, generational expectations, and societal norms all affect what lawyers do and how they carry out their practice in important ways. Society’s expectations of what lawyers do and how they should do it also change. How lawyers keep up with these changes is very important for the availability of efficient and affordable legal services and for the confidence that the public has in the legal profession as a whole, and equally important for the sustainability of their practices and their personal well-being. A legal profession that is incapable of achieving outcomes that resonate with what society expects is one in which the public will eventually lose confidence. ”

Read the full recommendations here (PDF). 

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Arizona to Allow Non-Lawyer Ownership

The Arizona Supreme Court has approved rule changes allowing for non-lawyer ownership of law firms in the state. The rule change comes in the wake of the two-year sandbox announced in Utah, however, the Arizona courts went one step further, opting to make the changes permanent.

The recommendations for the rule change were first proposed by the court’s Task Force on the Delivery of Legal Services, have focused around improving public access to affordable legal services and promoting legal innovation. The changes in state’s rules are set to become effective as of January 1st 2021. The changes include the removal of ER 5.4 the rule barring nonlawyers from fee sharing and barring nonlawyers from having an economic interest in a law firm. As well as this the changes also allowed for the licensing of legal paraprofessionals, as well as changes to lawyer advertising rules.

Arizona Supreme Court Chief Justice Robert Brutinel said of the development, “The Court’s goal is to improve access to justice and to encourage innovation in the delivery of legal services. The work of the task force adopted by the Court will 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. I thank and commend the Task Force and its chair, Vice Chief Justice Timmer for their groundbreaking work.

Read the full report from the Arizona Supreme Court. 

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Accountancy Body to Hand Designated Legal Regulatory Powers to CILEx

The Association of Chartered Accountants (ACCA) in England and Wales is to withdraw from legal services regulation in a UK first. The legal activities that are exercised by its members will now be regulated in a new partnership by CILEx Regulation (CRL), the regulatory body for Chartered Legal Executives. Under the Legal Services Act 2007 (LSA), probate was listed as a reserved legal activity, meaning that regulators who administered the right to provide probate services could be approved as legal service regulators, by the overarching regulator, the Legal Service Board.

The ACCA was approved to regulate probate in 2009, but only began actively regulating in 2018. Under the LSA, there has always been the option for any of the regulatory bodies to regulate multiple different professions, however, the transfer to regulation by CRL, which will take place over the coming months, marks the first time this will have happened in practice. This transfer will allow the 52 ACCA accredited firms to continue to practice, however, it will not affect the 300 firms regulated by the ICAEW.

The move came in the light of new governance rules that have been put in place by the LSB, as well as the fact that the ACCA was not licensed to regulate alternative business structures, and obtaining the licence would ultimately prove too costly. They, therefore, stated that “Against that backdrop and that the provision of legal services sits as an adjunct to general practice, we believe partnering with another legal services regulator provides a pragmatic and cost-effective way to support practitioners to diversify their service offerings”.

Carilyn Burman, chief executive of CILEx Regulation, said she was confident that it could offer “a number of benefits, including an opportunity for ACCA probate practitioners to join forces with other legal and non-legal professionals as ABSs, which will further encourage competition and diversity within the legal services market”.

Dr Helen Phillips, chair of the LSB, has said: “Enhancing regulatory independence has been a long-term strategic priority for the LSB and I am pleased the regulators are now able to confirm they have the appropriate separations in place between regulatory and representative functions. This is a significant achievement and means consumers can have increased certainty that decisions made by regulators are independent.”

Read more about the decision or see more about the regulatory structure in England and Wales

 

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Utah to be First US State to Trial Non-Lawyer Ownership

Utah has become the first state in the US to allow non-lawyer ownership of legal services providers. This month the State Supreme Court unanimously voted in favour of approving a 2-year sandbox programme which would licence new forms of legal services ownership.

The move has come about in the face of continued concerns over access to justice, particularly in the face of the ongoing COVID-19 pandemic. The courts have cited the reasoning that regulation should focus primarily on serving the consumer, and acting in their best interests, with Utah Supreme Court Justice Deno Himonas saying “changes will enable individuals and entities to explore creative ways to safely allow lawyers and non-lawyers to practise law and to reduce constraints on how lawyers market and promote services. New forms of providers could include partnerships, corporations and companies and non-profit organisations partnering with other entities to offer legal services.”

Whilst the Utah profession is comparatively small, with 26 lawyers per 10,000 residents compared with 92 in New York and 43 in California, the result of the sandbox will be closely watched by other state bars, particularly in the light of similar moves being discussed in California, and calls by the ABA for other states to follow suit.

Read more about the decision or view the standing order.

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California Bar moves towards regulatory sandbox

The Board of Trustees of the State Bar of California took a 9-2 decision on the 14th May 2020 to form a working group to look into forming a regulatory sandbox in which innovative legal service providers would be subject to fewer regulations. This could include limiting unauthorised practice of law rules, as well as removing limits on fee sharing and partnership between lawyers and non-lawyers.

The decision is a major step forward in a potential move towards innovative business structures in California, following a vote to delay the decision by the Board in March, with board members saying they needed more time to consider the proposals.

Following the board meeting, which was held over Zoom, Chairman Alan Steinbrecher (who as Chairman did not vote) said: “This is a significant step and I think it will lead to an exciting future,”.

For more information see:

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CMA releases report and recommendations on Scottish legal services

On the 24th March, the Competition and Markets Authority (CMA) released its review and recommendations on the legal services market in Scotland.

One of the key recommendations put forward in the report is that an independent body should be set up to regulate the profession, separating representative and regulatory functions. The CMA has suggested that  “Separating regulation from representation will increase trust in this sector and result in better regulation.”

The report also included recommendations that the Law Society of Scotland should carry out a review of price and service transparency guidance, with possible mandatory rules in order to increase public confidence in pricing and to implement rules to allow ABSs to establish, following legislation allowing them a decade ago.

Andrea Coscelli, the CMA’s CEO said:

“It is important that people in Scotland have access to high-quality and good value legal services. In addition to increasing transparency of information, our recommendations are intended to introduce greater liberalisation that could foster growth and innovation in the delivery of legal services which would help the sector grow.”

The full report is available here.

The recommendations are available here.

The Law Society of Scotland’s response is available here.

 

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Arizona set to become first state to allow ABSs

Arizona has become the first state in the US to formally file for the introduction of Alternative Business Structures (ABSs) in the US. The Arizona task force on the delivery of legal services has filed a petition with the Arizona Supreme Court which suggests eliminating rules which prevent fee sharing with non-lawyers and entering into a partnership with non-lawyers.

The petition is quoted as saying “Eliminating the rule would mean, for example, that a professional nonlawyer administrator in a law firm could have an ownership interest or that a Fortune 500 company could be a passive investor. It also could mean that a law firm could attract nonlawyer talent… by providing equity in the firm”.

The petition has also suggested introducing limited license legal practitioners to the state, filling a gap for lower-cost legal services and helping to bridge the justice gap in the state.

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Norwegian Ministry of Justice and Public Security publishes analysis of changes in lawyer regulation

Following the March 2015 report submitted by the Advokatlovutvalget (the Lawyer Commission), which suggested changes to the regulation of lawyers in Norway (Report in Norwegian available here), the Norwegian Ministry of Justice and Public Security has decided to further evaluate the recommendations.

The Ministry has commissioned research consultancy Copenhagen Economics to provide further analysis on two of the proposed changes: 1) the regulation of the right to provide legal services, and 2) the ownership regulation for law firms.

The report has suggested that the current competitive climate for legal services in Norway is relatively good, with no signs of a decline in competition and good competition between smaller firms and larger firms, especially for less complex cases. The report also suggested that increased liberalisation of legal activities, particularly non-court based activities would prevent a monopoly forming around legal services, and would allow new entrants to enter the market. The report also recommended that ownership regulations should not be tightened. Currently, anyone in Norway can hold a stake in a law firm, provided they spend a “significant part” of their professional activity in the firm’s service. The Lawyer Commission had proposed only allowing lawyer ownership of firms. The report has suggested that this is not appropriate as it stifles innovation and capital investment, and therefore competition.

Copenhagen Economics English language summary of the report is available here.

The full report in Norwegian is available here.

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