US debate on whether to allow ABSs heats up

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16 May 2016

Washington: form of ABS allowed for over 20 years

Washington: form of ABS allowed for over 20 years

More than two decades’ experience of alternative business structures (ABS) has shown lower rates of complaint against lawyers than in traditional firms, a law firm headquartered in Washington DC, which allows non-lawyer ownership, has argued.

Responding to a American Bar Association (ABA) ‘issues’ paper revisiting the subject, 41-partner Zuckerman Spaeder was a lone voice among US law firms in speaking up for ABSs, a form of which have been permitted in DC since 1991. This allows individual non-lawyers to have ownership of a firm whose sole purpose is providing legal services.

The firm, which has a “substantial” legal ethics practice that includes providing advice to clients on ABS issues, said the risks to the “adherence to ethical standards” claimed by US lawyers as being posed by ABSs had been “overstated”.

It continued: “We are not aware of any disciplinary proceeding arising out of a firm organised under DC rule 5.4 or any other form of ABS in DC that is attributable to the fact that lawyers and non-lawyers jointly own a law firm or other legal services provider…

“Our experience is [of] a lower complaint rate against lawyers practising in an ABS compared to in traditional structures for legal services”.

Zuckerman Spaeder also challenged the ABA’s assertion that “very few” ABSs were operating in DC, saying it believed the description “may well understate the number of ABS firms”.

In general, the responses to the ABA’s discussion paper provided a re-run of repeated attacks by American lawyer organisations on ABS, which centre on concerns expressed about independence and suspicion of profit-making non-lawyer entities entering the profession.

Marshall J Wolf, section delegate to the ABA’s family law section was unequivocal: “On behalf of the Section of Family Law, we pose the following question: WHAT PART OF ‘NO!’ DO YOU NOT UNDERSTAND? We remain unalterably opposed to these repeated, previously failed efforts to foist ABS upon our profession or our ethics.”

The Association of Defense Trial Counsel, which claimed to represent about 600 lawyers, said: “It is not all about the all-mighty dollar, but in a truer sense it is about upholding the honour of the law and our system of justice.”

The ABS’s tort trial and insurance practice section said: “The core value of the independence of the profession would be severely challenged by the dual allegiances owed to clients and demanded by investors, shareholders and managers.”

However, pro-ABS views were expressed by a number of legal businesses. Litigation funder Burford Capital, while making no mention that it has an ABS licence in the UK, said a shift to allowing ABS in the US was “much needed” and that “permitting non-lawyers to own equity in law firms facilitates equity financing that can better position law firms to relieve their clients of risk and expense and to offer alternative billing arrangements that make good business sense”.

Meanwhile, online legal services provider LegalZoom gave a lengthy and passionate defence of ABSs and attacked widespread criticism by state bar associations. It said that its UK ABS was “aiming to put into effect a nationally-branded, technologically-enhanced, efficient, flat-fee and ethically-compliant conveyancing service that will… make consumer legal services more accessible and friendly to the masses that need them”.

It commented that “the ABS topic seems to bring out the most unsettling set of conflicted arguments” among US lawyers.

It added: “Faced with the idea of non-lawyer investment, we see repeated theatrical performances by individuals entrusted with regulating a profession that both scream about lack of evidence of the benefits of ABSs out of one side of their mouths while flatly ignoring evidence regarding the lack of risks that ABSs bring with the other, often going so far as to bemoan the inevitable fall into moral turpitude of any lawyer unlucky enough to find oneself employed by such a firm.”

LegalZoom concluded: “Whether we like it or not, law IS a business AND a profession. Let’s let the professionals do their part and solve professional-level problems, and let business solve the business problems. Let’s look seriously not at just the potential for harm, but the massive potential for good.”

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