Will Non-Lawyers Soon Be Able To Own U.S. Law Firms?

In the US, there is a rule of the legal profession that prohibits non-lawyers from owning law firms.  Generally, this rule is based on the rationale that commingling lawyer with lay owners in law firms will result in a lack of adherence to legal ethics designed to protect clients.

But is there a logical – or even historical – basis for this prohibition?  Should non-lawyers be allowed to own law firms?  During my recent attendance at Virtual LegalTech, I learned about an interesting – and potentially disturbing – development in the UK pertaining to non-lawyer ownership of law firms.  If this development –  and a related one already in place in Australia indicate a trend – US law firms may soon be arguing for non-lawyer ownership and other rights traditionally denied law firms.

In the first of a three-part article here at Cyber-Esq., I will be writing about these overseas developments, the history of US rules prohibiting non-lawyer ownership of law firms, and the pro’s and con’s of relaxing our rules (particularly ABA Model Rule 5.4).  I will also be discussing how any changes in the US might affect virtual lawyers.

UK Adopts “Alternative Business Structures” For Law Firms

In England and Wales, lawyers are regulated by an agency known as The Legal Services Board (LSB).  Recently, the LSB approved the launch of “alternative business structures” for law firms, which means – in plain English – that non-lawyers will be able to own law firms in England and Wales as soon as October 2011.  According to a spokesperson for the LSB, the “Alternative Business Structures proposal “guarantee[s] that lawyers adhere to their professional principles (this is effected through a combination of detailed statutory requirements and strong regulation).”

Australia Now Allows Publicly-Traded Law Firms

Australia has made even greater allowances for its law firms.  Australia permits its law firms to be publicly traded, and at least one law firm has gone public since 2007.

Should The US Follow Suit:  ABA Model Rule 5.4 and Multi-Disciplinary Practices?

From 1999-2001, the ABA looked at modifying Rule 5.4, entitled “Professional Independence of a Lawyer.”  In one form or another, Rule 5.4 has been adopted by every US jurisdiction, and is considered one of the core rules governing the legal profession. Rule 5.4 was under scrutiny as a result of the development of so-called “Multi-Disciplinary Practices.”

The MDP movement was spear-headed primarily by large accounting firms like Deloitte & Touche, Price Waterhouse Coopers, Ernst & Young and KPMG.  You can read more about these firms and their work by linking to this Wikipedia article discussing them.

At the time the ABA considered changes to Rule 5.4, proponents of allowing non-lawyer ownership generally focused on the efficiency and expertise presented by “one-stop shopping” operations.  They argued that a law firm that can also provide financial planning or accounting advice, perhaps real estate or other investment skills, or maybe even insurance services is better equipped to meet its clients’ needs quickly and expertly in a global economy.

By contrast, the rationale against relaxing these rules focused on a number of concerns, including among others the concern that non-lawyer managers of law firms would exert undue influence over the firm and not adhere to principles of legal ethics.

Ultimately, the ABA declined to make any significant changes or otherwise relax any rules that would permit non-lawyer ownership of law firms. This prohibition has remained basically the same, even though large accounting firms have continued to gobble up traditional law firms and exert influence in areas typically considered the practice of law.

Next Time:  The Pro’s & Con’s Of Non-Lawyer Ownership Of Law Firms

For the next installment in this series, I will explore some of the main pro’s and con’s asserted around the issue of non-lawyers owning law firms.  This will include arguments raised for and against the issue in the UK as well as some more specific arguments that have been raised in the US.

Until the next installment, however, I welcome any comments any of you may have on this topic.