April 17, 2012 6:27 PM

ABA Panel Abandons Nonlawyer Ownership Proposal

Posted by Sara Randazzo

Four months after soliciting feedback from the legal community on the subject, an American Bar Association panel is no longer considering whether to allow limited nonlawyer ownership of law firms.

The ABA’s three-year-old Commission on Ethics 20/20 released a draft paper in December suggesting that nonlawyers employed by a law firm could hold minority financial interests in the firm and share in its profits. As of now, Washington, D.C., is the only jurisdiction that allows such an ownership structure.

Commission cochairs Jamie Gorelick and Michael Traynor said in a statement released Monday that after three years of discussing the idea with the group’s members and others in the profession “there does not appear to be a sufficient basis for recommending a change to ABA policy on nonlawyer ownership of law firms.”

The decision represents the latest setback for those eager to shake up the way law firms in this country are funded and managed. Outside the U.S., the less-than-year old Legal Services Act in the United Kingdom has opened the door to investment in law firms by parties other than lawyers.

As of last June, the ABA panel had already ruled out proposing changes that would allow broader forms of nonlawyer ownership, including publicly traded law firms, passive investment in law firms by outsiders, and practices that mix legal services with other professional services like accounting. 

The New York Bar Association has also take a stand against nonlawyer-owned law firms, releasing an opinion in late March saying that an attorney employed by an out-of-state firm that allows nonlawyer owners may not practice in New York. (Read more at sibling publication New York Law Journal.)

That opinion came days after a federal judge rejected a constitutional challenge to New York’s ban on nonlawyer equity ownership of law firms brought by personal injury firm Jacoby Meyers. The firm is still pressing lawsuits to overturn similar rules in New Jersey and Connecticut.

Thomas Gordon, legal and policy director for Washington, D.C., nonprofit Responsive Law, says he is disappointed with the ABA’s decision.

“We’re sitting here well into the twenty-first century, and the ABA has decided not to even bring the business of the practice of law to the 1980s,” Gordon says. “They will not even adopt proposals D.C. has had in place for well over a couple of decades.”

Gordon argues that many Americans can’t afford the high cost of legal representation, and that the industry needs to reform itself to ensure people have access to lawyers.

“I think people in the establishment of the bar are afraid of change,” he says. “It’s tough for all those folks out there coming up with innovative ways to practice, to be stopped by ethics restrictions that do little to benefit consumers but that help protect the lawyer monopoly.”

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