Arizona Becomes First State to Approve of Nonlawyer Law Firm Ownership

Through the new Alternative Business Structures law established at the beginning of the year, Arizona becomes the first state to embrace several changes to the practice of law in regards to structure and delivery of legal services.
Nonlawyer investment into the field of Legal Services

 Effective January 1, 2021 The Arizona Supreme court adopted changes to its rules to eliminate Ethics Rule 5.4, allowing nonlawyers to partner with lawyers through an Alternative Business Structure [ABS] to provide legal services. This enables nonlawyers to invest and partner with firms that provide legal services and allows lawyers to split their legal fees with nonlawyers as well. The new changes are very clear that it is still only lawyers and licensed individuals who are permitted to provide the legal services, but the management of the entity can now be partnered with a nonlawyer.

Increased Accessibility to Legal Services

The revised rules promote access to legal services and encourage a strong legal profession while still adhering to professional principles. These types of businesses are not new, having been introduced in Australia in 2001 and England and Wales since 2007, but Arizona will be the first state to adopt them in The US.

Recently the first two licenses were issued for this type of business. One going to a traditional firm that seeks to have 50% noon-lawyer ownership, and a tax practitioner that seeks to add some legal services to his businesses offerings. While this concept is new there is an understandable anticipation to see how the nonlawyer investment will change the field, and what innovations the new business structure will provide to the larger legal services industry.

Creation of the “Legal Paraprofessional”

  Amongst these rule changes one of the most obvious changes is the creation of the group “Legal Paraprofessionals” that are capable of performing legal services to a limited extent. These Legal Paraprofessionals can help assist lawyers with the filing of documents and even tax-related matters if they are a properly authorized practitioner.

There is the ability for the Legal Paraprofessional to serve as legal representation in justice and municipal courts as well as general adjudication and administrative hearings in a very limited manner. The requirements to qualify as representation are as follows:

“(A) the person is an officer, partner, member, manager, or employee of the entity [ABS] ; 

 

(B) the entity [ABS] has specifically authorized the person to represent it in the proceeding;

 

(C) such representation is not the person’s primary duty to the entity, but is secondary or incidental to other duties relating to the entity’s management or operation; and 

 

(D) the person is not receiving separate or additional compensation for representing the entity [ABS] (other than receiving reimbursement for costs).”    Rule 31.3 -Exceptions to Unauthorized Practice of Law

Major Rule Changes

One of the big challenges addressed in these rule changes is ensuring a clear understanding of the lawyers ethical requirements throughout the ABS entity. A non-inclusive list of provisions were created to establish a starting point to ensure that all ethical requirements are being met. Licenses must be applied for through the Arizona State Supreme Court with a strict application process and specific organizational rules for the companies to follow once granted the license.

Rule ER 5.3 was revised to redefine the responsibilities of Attorneys relating to Nonlawyers within the firm. These new rules outline specific considerations lawyers must take into account when working with Nonlawyers. The rules focus on means of maintaining professional integrity of the attorney in ways such as retaining their independent professional judgment and ensuring that nonlawyers conduct is compatible with the obligations of the lawyer.

 

“(d) When a firm includes nonlawyers who have an economic interest or managerial authority in the firm, any lawyer practicing therein shall ensure that a lawyer has been identified as responsible for establishing policies and procedures within the firm to assure nonlawyer compliance with these rules.” Rule ER 5.3 – Responsibilities Regarding Nonlawyers, Ariz. R. Sup. Ct. ER 5.3

 

The way that these ABS are structured there will be at least one licensed attorney in a supervisory role over the nonlawyers within the firm to ensure that all professional standards are being met.

Potential Conflicts with USPTO

The USPTO has not yet issued guidance as to how these laws would affect their jurisdiction. The ABA had adopted a rule conforming to the choice-of-law provision where that an attorney’s conduct is subject to the jurisdiction in which the tribunal sits. Under current guidance from the USPTO patent and trademark practitioners are bound by the ethics rules of the USPTO even when performing work in other jurisdictions. This could lead to instances where an attorney would be breaking the USPTO code of ethics on an issue completely related to intellectual property matters. Until there is further guidance from the USPTO intellectual property practitioners are left unsure with how to deal with these new changes.

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