Opinion: New rules in Arizona allow non-lawyers to practice law and invest in a lawfirm. There may be benefits but also plenty of unintended consequences.
And like all broad reforms, it has possible unintended consequences.
The new rules allow nonlawyers to invest in and manage Arizona law firms structured as “Alternative Business Structures” — business entities that provide legal services and include nonlawyers with economic interests or decision-making authority.
Nonlawyer economic interests or decision-making authority must be disclosed to a special committee and both the Alternative Business Structure and its investors are subject to various licensing and ethics requirements.
These requirements are meant to ensure that the clients’ interests in their legal outcomes will take precedence over the competing interests of investors in maximizing financial returns.
Reforms could help reduce costs
Additionally, lawyers in these new business structures are allowed to offer services at entities like big-box retail stores or banks as well as join with accountants, psychologists, or others to offer multiple professional services under one roof.
These changes normalize law firms as businesses by allowing them to obtain capital from any disclosed source. The hope is that lifting the restrictions on sources of finance will reduce firms’ costs and, correspondingly, the fees paid by clients.
The way law firms are structured, owned and managed will also change, and they will end up looking more like corporations than antiquated partnerships. This may ameliorate the well-documented adverse effects that the current typical law firm structure has on the retention and advancement of women and minorities.
What if investors and clients disagree?
Many worry that when the interests of the investors and the client diverge – on the questions of whether, when and for how much to settle a case, for example – lawyers’ will subordinate their judgment to the desires of their investors. Additionally, investors may not be socialized as lawyers are to serve the courts, guard the rule of law and provide pro bono services.
It is quite likely that investors from other states and around the world will flock to Arizona, eager to invest in the legal sector. Many will adhere to the new requirements, but some may try to circumvent them, for example, through undisclosed investments.
Lawyers from other jurisdictions may also devise creative ways to “offshore” operations in Arizona in order to secure Arizona-based financing for their branches elsewhere.
Additionally, nonlawyer legal paraprofessionals (LPs) can now assist Arizonans in relatively simple legal matters such as uncontested divorces, obtaining temporary restraining orders, drafting wills, contesting traffic tickets and more.
We could have 2 classes of legal work
In simple civil and criminal cases, litigants who once had no choice other than self-representation will now be able to hire legal paraprofessionals. LPs are not required to hold a law degree or even a college degree, so their services are expected to be significantly cheaper than lawyers, thereby creating price competition.
Certain educational courses, licensing examinations and law-related experience are required to qualify for an LP license. Legal paraprofessionals are also subject to similar ethical requirements as lawyers.
This new market for inexpensive legal services for relatively unsophisticated legal work, however, may lead to two types of “second class citizenship.” One type will be for parties who can only afford an LP but will be facing well-resourced parties able to afford attorneys who have more extensive training and expertise.
— are more likely to become legal paraprofessionals, namely less prestigious and less remunerated members of the profession.
Further, the truncated educational requirements may mean that LPs are not as fully immersed in legal ethics and may be less able to serve as guardians of the rule of law compared to attorneys.
All this will present Arizona’s judiciary and bar with unprecedented scenarios. The interpretation and enforcement of the state’s new regulations will greatly impact clients and lawyers, as these changes reshape the legal services sector in the Grand Canyon State and beyond.
Maya Steinitz is a professor of law and Bouma Family Fellow at the University of Iowa College of Law. Victoria Sahani is associate dean of faculty development and professor of law at Arizona State University Sandra Day O’Connor College of Law. Reach them at email@example.com and firstname.lastname@example.org.