Despite Likely Opposition, ABA Commission Considers Allowing Outside Investment in Law Firms

Written by Morgan Newell
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The American Bar Association (ABA) Commission on the Future of Legal Services recently published an issue paper addressing whether alternative business structures (ABS) would benefit consumers in the United States. ABS allows non-lawyers to own and invest in law firms. Currently, practically every U.S. jurisdiction restricts non-lawyers from investing in law firms. The Commission requested responses and data on the benefits and risks of ABS.
 

​Responsive Law has repeatedly urged the bar to permit the broadest possible range of outside investment in law practices.  In our recent testimony to the Commission, we take the same position. Utilizing investments from non-lawyers would allow greater access to legal services for consumers. ABS could close the justice gap between the number of people in need of legal help and the small subset who can afford it.
 
Current restrictions on outside ownership are preventing the creation of mass-market lawyer services. However, mass-market lawyer services would be comparable with tax services through companies like H&R Block. That company offers standardized national services to help navigate the tax system while remaining affordable and accessible throughout the entire U.S. Similarly, a legal version of H&R Block could provide standardized services nationwide on common legal matters such as wills, landlord-tenant disputes, divorces, and employment matters. However, the prohibition on outside investment means that lawyers can’t raise the capital to start such a firm, and a businessperson cannot create such a firm.
 
The Commission’s description of potential risks associated with ABS is overstated. The risk that outside investment might threaten lawyers’ core values is a frequent argument made by the bar, but is not supported by evidence. Lawyers, the argument goes, would face pressure from non-lawyer owners and investors to prioritize profits over their clients’ needs. Pressures placed on lawyers to make money is hardly a new concept, though. This argument ignores the fact that lawyers already face pressures from firm partners to prioritize firm profits, as any associate required to bill 2300 hours a year would confirm.
 
The Commission gave several examples of other countries with their own ABS programs, including the U.K. and Australia. The ABS programs set up in both countries have been overwhelmingly successful and consumers are being helped at an amazing rate. The ABS program was so successful in New South Wales that all other Australian jurisdictions have developed a program for their consumers.
 
Despite what we expect to be strong opposition from the ABA House of Delegates, we urged the Commission to recommend that the U.S. allow a wide-range of ABS. You can read our full comments to the Commission here.
 
Morgan Newell is a Responsive Law intern.