CBA Record March-April 2021

legal services and include nonlawyers with economic interests or decision-making authority.” The column continues: “These changes normalize law firms as businesses by allowing them to obtain capital from any disclosed source.” There are benefits to the Rule changes – but also unintended consequences. On the one hand, the changes might create large, efficient, and well-managed providers that can serve the currently underserved public at affordable prices. On the other hand, they may force the sole practitioner or small firm to join with the well-capitalized institutions or risk being to the margins of the business. The current alternatives facing small medi- cal practices are an example. Time will tell what will happen – but we can be sure that the growing need for capital to fund the financial needs of legal service providers will lead to change.


Financing Legal Services: NewDevelopments A n internet search for “Alternative Legal Service Providers” or “ALSPs” will disclose a burgeoning area of

to create captive ALSPs, individual lawyers and small firms are frozen out of the market – often to their detriment and the detriment of the underserved community. Many states and bar associations (includ- ing The Chicago Bar Foundation) are engaged in studies on how to modify the Rules to better provide legal services to the underserved community. Perhaps none has gone as far as Arizona, which effective Janu- ary 1, 2021, along with other significant changes to the Rules, eliminated Rule 5.4. In doing so the court stated: “The Court’s goal is to improve access to justice and to encourage innovation in the delivery of legal services. The work of the [Arizona Task Force on the Delivery of Legal Services] adopted by the Court will make it possible for more people to access affordable legal services and for more individuals and families to get legal advice and help. These new rules will promote business innovation in providing legal services at affordable prices.” The Task Force stated in its report: “The legal profession cannot continue to pretend that lawyers operate in a vacuum, surrounded and aided only by other lawyers or that lawyers practice law in a hierarchy in which only lawyers should be owners. . . . Nonlawyers are instrumental in helping lawyers deliver legal services, and they bring valuable skills to the table.” The introduction of investment capital into the legal profession is likely a game changer. As stated in a recent opinion column in the Arizona Republic (February 6, 2021, pg. 15A): “The new rules allow nonlawyers to invest in andmanage Arizona law firms structured as ‘Alternative Business Structures’ – business entities that provide

the law business outside of the traditional practice. A recent article published in Lexology – a service provided by the CBA – entitled Acceleration in the Adoption of Innovative Legal Service Delivery by Osler Hoskkin & Harcourt LLP stated: “Optimizing more routine service delivery, where appropriate, through lower cost, higher efficiency platforms allows legal professionals to better align their interests with those of their clients.” The article also stated that “35% of the largest law firms in the United States now have a captive ALSP, with a large majority of these ALSPs offering at least one service in addition to e-discovery.” ALSPs also offer their services directly to the public, which benefits the underserved community. A significant issue in forming and running an ALSP is getting the necessary capital. Computers, software, and trained staff do not come cheaply. This is an area materially impacted by the Rules of Profes- sional Responsibility, specifically Rule 5.4 – Professional Independence of a Lawyer. While too long to reprint here, Rule 5.4 basically says that a lawyer cannot engage in a business endeavor with a non-lawyer in the practice of law for profit. Rule 5.4 is often raised as an objection to internet providers connecting clients to lawyers for a fee, but it also prohibits private capital from investing with a lawyer in a service provider. While large profitable law firms may be able John Levin is the retired Assis- tant General Counsel of GATX Corporation and a member of the CBARecord Editorial Board.

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