Arizona’s Sweeping Rule Changes Permit More Non-Lawyer Involvement in Legal Services

This article was originally published September 9, 2020.

When your child (or grandchild) asks you which state is most forward-thinking about the future of our profession, and has made the most sweeping efforts to reshape it, you will answer: “Funny you should ask! The answer is: Arizona.” “Arizona?”, your child (or grandchild) will respond. “You’re kidding, right?” And you will say: “Stop laughing. It’s absolutely true.”

How is it possible that the land of John McCain and Joe Arpaio, border walls and border patrollers, and (at least until recently) Republican majorities, got out so far ahead of other states? More on that later. But first, let’s summarize what Arizona did, and why it matters. Pursuant to two orders of the Arizona Supreme Court dated August 27, 2020 (available here and here), Arizona made the following changes, among others:

•Eliminated Rule 5.4, thereby permitting fee-splitting between a lawyer and a non-lawyer;
•Created a certification and licensing program, administered under the auspices of the Arizona court system, for so-called “Alternative Business Structures” or “ABSs”, which are defined as “a business entity that includes nonlawyers who have an economic interest or decision-making authority in the firm and provides legal services. . . .”;
•Created a committee to develop rules and procedures for regulating ABSs, and authorized the State Bar of Arizona to investigate and/or discipline ABSs and those who participate in them;
•Eliminated Rule 7.2, thereby allowing lawyers to pay non-lawyers to recommend their services; and
•Amended Rule 1.5(e) to ease the restrictions on fee sharing among lawyers.

In short, while California creates a committee to look at the future of legal services, Utah develops a “regulatory sandbox” to test proposed alternative legal services models, and most states sit on their hands shouting about “core values,” Arizona has gone much further. It has gotten rid of two of what many consider the main pillars of our professional independence: the rule against fee-splitting with non-lawyers and the rule against paid-for recommendations. The first poses the risk that non-lawyers will control what lawyers do; and the second threatens to turn lawyer selection into a bidding war.

So why do this? Partly, we’re sure, because other common-law jurisdictions, from Canada to Australia, from England to New Zealand, have made similar changes over the past 15 years, and their legal systems continue to survive and thrive. But more importantly, it is because the current system is not working for many – even most – Americans. Sure, maybe it works for rich folks, who can afford good lawyers. And maybe it works for personal injury plaintiffs, or victims of discrimination: there are plenty of contingency lawyers willing to take their cases. But for the average Jane or Joe the legal options are few and far between. According to some studies, 60-90% of legal problems that those folks experience are not addressed with lawyers, who are perceived as too expensive and inaccessible. See, e.g., New York County Lawyers’ Association Report on For-Profit Online Legal Referral Services, February 2020 at 15-30 (citing studies). Lawyers who service that market struggle to find clients, and lack the resources or knowledge to develop technological or other solutions which will help. Id.

The individual consumer market is voting with its feet. If a working class person writes a will at all, they do it out of a “how-to” manual, or buy one from LegalZoom or a similar service. If they have a dispute with a landlord, they go to court themselves to handle it (in some jurisdictions, 90% of landlord-tenant matters are handled pro se, with results much worse than when lawyers handle similar cases). And is there any lawyer who can handle a commercial case or a matrimonial dispute worth $250,000 or less cost-effectively? Again, members of the public too often handle these pro se, when they choose to address them at all.

So how will allowing fee-splitting and ABSs help? Because it will make it easier for lawyers and law firms to attract investors to their practices, allow technology companies to collaborate better with lawyers in introducing new products, and allow lawyers and nonlawyers alike to explore new ways to collaborate and provide affordable, enhanced legal services to members of the public. If most people currently cannot afford a lawyer, let’s find a way to use technology to provide them with affordable legal services. If most people can’t find a lawyer, let’s encourage technology companies to invest in referral services to match lawyers and clients. If law firms want to give valued non-legal employees like office managers and comptrollers a stake in their businesses so they won’t leave, let’s allow them to do it.

None of this is sure to work. There is more than enough bad history, from non-lawyers who operated cut-rate “legal corporations” which prized volume over quality, to “runners and cappers” attracting personal injury clients in hospital rooms, to Avvo’s infamous “pay-to-play” legal referral model. See NYSBA Ethics Op. 1132 (2017) (Avvo gave higher rating to those who agreed to “adopt” their profile). But all of these problems can be addressed by other Rules and careful regulation. As lawyers, we are justifiably concerned about giving away our control to those who are not bound by our professional responsibility rules – rules designed to protect the public. Yet the numbers don’t lie: by keeping our current regulatory structure in place, we are losing ground. The folks in Arizona recognize that, and have taken leadership, with their eyes wide open to the risks. The rest of us should watch, learn and, as soon as possible, follow.