When Worlds Collide: Mapping the Collision Between Lawyer Regulatory Regimes

Nora Freeman Engstrom

In Ethics, Lawyering, and Regulation in a Time of Great Change: Field Notes from the (R)evolution, Lucian Pera depicts a profession caught in a storm of transformation, both driven by—and driving—the “twin factors” of economic and regulatory change. (P. 802.) In the midst of this rapidly shifting environment, and as some states (most notably, Utah and Arizona) relax their legal practice regulations while most others cling to the traditional rules, the two modes of regulation will invariably collide. In a timely and accessible piece, Pera maps this collision, unearths under-explored complexities, and offers tentative thoughts on a possible path forward.

At the center of Pera’s contribution is the alternative business structure (ABS), variously called nonlawyer ownership (NLO), corporate law practice, or multidisciplinary practice (MDP). Whatever term or abbreviation is used to describe it, in this arrangement, a nonlawyer-owned or nonlawyer-controlled entity offers legal services to consumers or customers. This form of practice flourished in the 1920s in the United States (until it was snuffed out by the bar), and it has been around for a while in the U.K. and Australia.¹ But it is viewed skeptically (to put it mildly) in most states.

These days in the U.S., except in three jurisdictions, per ABA Model Rule 5.4(d), it is a no-no for nonlawyers to even partially own entities that deliver legal services.² This absolute prohibition on nonlawyer ownership, many say, is necessary to safeguard a lawyer’s professional independence. Without it, the thinking goes, lawyers “will sell out their clients, divulge client confidence, represent clients ineptly…and disregard their public obligations.”³ Or, in the stern words of ABA House of Delegates Resolution 402, which recently doubled down on Rule 5.4(d): “[T]he ownership or control of the practice of law by non-lawyers [is] inconsistent with the core values of the legal profession.”

Perhaps not surprisingly then, in recent years, when a couple of states have toyed with efforts to relax Rule 5.4(d), they’ve encountered fierce resistance. As Florida considered such a move in 2021, the State Bar’s Board of Governors weighed in to “unanimously reject[]” the reform. The Board of Governors centered its opposition on the fact that the change was vocally and roundly opposed by lawyers, as well as its view that “allowing nonlawyers to own interests in law firms inevitably would compromise the independence of the self-regulated legal profession.” A similar story played out in my home state of California. Here, in 2019, the California bar asked a high-profile working group to consider responsible ways to relax the thicket of rules that govern law practice. But then, after the working group spent two years carefully studying potential reforms, the California legislature—under pressure from lawyer organizations—unceremoniously shuttered the effort.

Yet in two jurisdictions—D.C. and Utah—Rule 5.4(d) has been limited (although not entirely discarded).⁴ And Arizona, the third and most recent jurisdiction to enact reform, has gone a step further. In 2021, the Arizona Supreme Court totally scrapped the ban on nonlawyer ownership in what it described “as a “generational advance in access to justice” after the Court’s Task Force on the Delivery of Legal Services determined that the ban “has been identified as a barrier to innovation in the delivery of legal services.”⁵ “[L]awyers have the ethical obligation to assure legal services are available to the public,” the Task Force reasoned, and “if the rules of professional conduct stand in the way of making those services available, then the rules should be changed.”

Reform opponents frame all the above as a war between the altruistic, ethical class of lawyers and the profit-motivated, corrupt interests of corporate America.⁶ And in this particular war, unanswered questions abound.

One key question is: What will these ABSs look like? Will they resemble traditional law firms, now simply owned in whole or in part by nonlawyer investors? Or will an entirely new form of legal service delivery take root?⁷

Another open but vital question revolves around client identity. Who are these new ABSs apt to serve? Are they going to serve mostly middle- and low-income Americans, as some supporters hope?⁸ Or are they simply going to expand the legal services available to the “have’s” in society?

Yet a third open question centers on the quality of ABS services. Are clients of ABSs going to be served with competence, care, and fidelity? Or, compared to clients at conventional law firms, are they more likely to be sold out or shortchanged?⁹

Yet another set of thorny questions relates not to the ABSs themselves but, rather, to these firms’ interaction with more traditional law firms—including in states where ABSs aren’t permitted. It is here, surfacing “the hard fact of a mixed regulatory environment,” that Pera digs in. (P. 813.) In so doing, he rolls through a range of provocative questions.

For example, picture a co-counsel arrangement between an Arizona lawyer working at an ABS and a lawyer in a jurisdiction that retains Rule 5.4(d). Could the Arizona lawyer appear in court (pro hac vice) outside of Arizona on behalf of their mutual client?

What about multijurisdictional practice? While an Arizona ABS cannot open an office in California or Nevada (two neighboring jurisdictions that retain Rule 5.4(d)), could that same ABS lawyer live and work remotely from California or Nevada? These kinds of practices are increasingly recognized, assuming of course that the remote lawyer is not practicing the law of the remote jurisdiction.

Pera argues that the above questions aren’t just tricky in their own right. Instead, he says, the questions are important because they spotlight a broader uncertainty—and this uncertainty, he says, is a problem. Unsure what is and isn’t permitted, lawyers and state regulators are likely to trim their sails for fear of running afoul of state requirements. He convincingly contends that, given that impulse, far more clarity is needed to guide lawyers in ethical yet flexible law practices—and further, that in creating clear rules, “respecting the dignity and public policy decisions of other jurisdictions should be a mandate.” (P. 819.)

Now stepping back, a fair question is whether recent reforms have really created new multijurisdictional questions or simply illuminated longstanding challenges with the checkerboard nature of our country’s system of lawyer regulation.¹⁰ In a profession that’s increasingly nationalized—particularly given that so many lawyers’ practices routinely cross state lines—does it make sense for different lawyers to be subject to different licensing requirements? Perhaps the core issue is not the uncertainty that Pera identifies but rather the fact that these key inconsistencies from jurisdiction to jurisdiction persist in spite of an ongoing social and economic transformation.¹¹

But even so, Pera is right to focus our thinking on the many questions that do not yet have clear answers. As ABSs come online, we ought to be analyzing what they do and who they serve carefully. We ought to see the tension between the decisions made by Arizona’s regulators and those that guide attorney regulation in other states. And we also ought to be attuned to the fact that, at least so long as the checkerboard nature of state attorney regulation persists, and at least so long as some states try new things while other states hew to familiar approaches, we are going to inhabit a world where different modes of attorney regulation inevitably collide.

1. For how such practices once flourished in the United States, see Nora Freeman Engstrom & James Stone, Auto Clubs and the Lost Origins of the Access-to-Justice Crisis, 134 Yale L.J. (forthcoming 2024) (available on SSRN). For the U.K. and Australia, see Harv. Law Sch., Ctr. on the Legal Prof., Under New Management: Early Reform in the United Kingdom and Australia, The Practice (Jan./Feb. 2021).
2. Rule 5.4(d) contains a carve-out for nonprofit entities, and the Rule does not apply if the lawyer is merely offering legal services to the entity itself (e.g., as its general counsel).
3. Bruce A. Green, Disciplinary Restrictions on Multidisciplinary Practice: Their Derivation, Their Development, and Some Implications for the Core Values Debate, 84 Minn. L. Rev. 1115, 1117 (2000) (capturing, although critiquing, this line of argument).
4. In D.C., only individual nonlawyers (not corporate entities) are permitted to hold a financial interest in law firms. D.C. Rules of Prof’l Conduct R. 5.4(b). In Utah’s regulatory sandbox, authorized entities can leverage a nonlawyer ownership model, but these entities must demonstrate that they are aiming to reach underserved legal consumers. Information for Interested Applicants, Utah Office of Legal Serv. Innovation, (last visited May 27, 2024).
5. Arizona also enacted other reforms, in addition to its abolition of Rule 5.4(d). For discussion, see David Freeman Engstrom et al., Legal Innovation After Reform: Evidence from Regulatory Change (2022).
6. Sam Skolnik, Firm Ownership Debate Rages Amid ABA Innovation Leader Change-Up, Bloomberg L., Aug. 25, 2023.
7. For an answer to this question, at least as of 2022, see Engstrom et al., supra note 5, at 23–34.
8. As Pera rightly notes: “the advocates of regulatory reform have rhetorically staked a great deal on the potential benefits—the increase in access to justice that could result from such reforms.” (P. 812.)
9. For detailed discussion of these and other questions, see generally Engstrom et al., supra note 5.
10. In early 2022, the Association of Professional Responsibility Lawyers sent a letter to the ABA highlighting many of these regulatory uncertainties and proposing a new approach to multijurisdictional practice. Letter from Brian S. Faughnan, President, Ass’n Prof’l Responsibility Lawyers, to Reginald M. Turner, President of the ABA (Apr. 18, 2022).
11. For a discussion of a more ambitious reform idea, see David Freeman Engstrom & Daniel Rodriguez, Our Bar Federalism in Rethinking the Lawyers’ Monopoly (David Freeman Engstrom & Nora Freeman Engstrom eds., forthcoming 2024). For further discussion, see generally Eli Wald, Federalizing Legal Ethics, Nationalizing Law Practice and the Future of the American Legal Profession in a Global Age, 48 San Diego L. Rev. 489 (2011); Eli Wald, Resizing the Rules of Professional Conduct, 27 Geo. J. Legal Ethics 227 (2014).