Arizona Court Says Non-Lawyers Can Invest in Law Firm

Many states are making changes to business ethics that impact lawyers. Arizona approved its first ABS or Alternative Business Structure for a law firm last month. The changes approved by the Arizona Supreme Court last year became effective on January 1, 2021. 

For lawyers and other professionals, the changes in the ethics rules were substantial. The changes in the ethics rules are intended to make access to legal services easier and more affordable for the public. The changes were recommended by the Arizona Task Force on the Delivery of Legal Services

Non-Lawyer Ownership or Investment in Law Firms

Arizona is only the second state to amend its ethics rules to allow non-lawyers to own or invest in a law firm. 

Just before Arizona took that step, the Utah Supreme Court approved reforms that included non-lawyer ownership or investment in law firms. The two-year pilot program in Utah began on August 14, 2020. Legal providers must seek approval if they wish to try new ways of providing legal services to clients. 

Unlike the regulatory sandbox approach used by Utah, the state of Arizona requires non-traditional legal businesses to go through a rigorous application process. They must obtain approval before they can begin operating. The ABS must also have an internal compliance attorney to comply with the code of conduct required for an ABS.

The task force argued that allowing alternative business structures would allow more access to the legal system by promoting competition in a free market. It would also allow legal service providers to form practices with other professionals, which could benefit the public in many ways. For example, there could be ABS models that provide less expensive legal services than hiring an attorney traditionally.

The changes allow attorneys who practice in other professions to combine their practices. For example, an attorney with a business degree may offer both business consulting services and legal services by creating an ABS. A tax accountant and a lawyer could create an ABS to offer a variety of professional and legal services related to tax law. 

Creation of Legal Paraprofessionals

The Arizona Supreme Court also modified the rules of practice to create Legal Paraprofessionals or LPs. These individuals are non-lawyers authorized to provide limited legal services to the public. LPs may also go to court with their client on matters related to their services. 

LPs practice as affiliate members of the state bar. They are subject to the same discipline process and ethical rules as attorneys. LPs may offer legal services related to several areas of law, including family law, landlord-tenant disputes, administrative law, debt collection, and other limited criminal and civil matters.

To become an LP, a person must:

  • Meet specific education requirements
  • Have a certain level of experience
  • Pass a professional examination 
  • Pass a fitness and character process 

LPs would be similar to a Nurse Practitioner in the medical field. Arizona LPs will be able to provide more legal services than LPs in other states. The goal is to provide the public with affordable legal services to ensure a greater number of people have access to legal services. 

Questions Exist About the New Changes 

Many people support the changes in Arizona’s ethics laws that allow for alternative business structures and LPs. However, some opponents argue against the changes. 

The group that reviewed the changes believes that lawyers have an ethical duty to ensure the public has access to legal services. If the rules hampered access to legal services, there is an ethical responsibility to change those rules. 

Vice Chief Justice Ann Scott Timmer chaired the task force. In a statement, vice Chief Justice Timmer said she was excited to see the launch of the first ABS entities. She stated that she was confident the arrangements would benefit the public and the legal community. 

However, Court of Appeals Division One Chief Judge Peter Swann strongly disagreed with removing the rule. Chief Judge Swann also served on the task force. He stated that addressing the systemic issues that make access to the courts expensive would be a better approach to reform. 

Chief Judge Swann argued that the attorney-client relationship is a sacred fiduciary relationship. Sharing that relationship with investors might be a conflict. He wrote that getting rid of the ethics rule and adding non-lawyers would make Arizona “a leader in the race to the bottom of legal ethics.”

Only time will reveal whether these changes benefit individuals and the legal system. You can find more information about legal service reforms in Arizona on the Arizona Judicial Branch’s website

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