Arizona: Firm founder touts national ambitions
A personal injury law firm in Arizona has launched a management services organisation (MSO) with a $125m (£94m) investment from an unnamed private equity backer.
The deal values the MSO, Rafi Law Services, at approximately $450m. It was created by Rafi Law Group.
It follows a similar deal done in January [1] between Louisiana-based Dudley DeBosier Injury Lawyers and Uplift Investors, but that did not specify the amount invested.
The MSO model has been touted as a way to get around the bans in most US states on non-lawyer ownership of law firms and fee sharing with non-lawyers.
Rafi Law Group was set up in 2015 and has 26 attorneys and around 250 support staff in seven offices across Arizona. It has reportedly acted for around 100,000 clients in that time.
Rafi Law Services will house the firm’s non-legal operations, including technology, marketing and administration. Rafi Law Group will remain the legal practice and the announcement stressed that the move preserved lawyer independence and ethical governance.
But the investment will support “expansion into new markets”, investment in technology and infrastructure, and potential partnerships with “aligned” personal injury firms nationwide that could also use the MSO.
“This structure allows us to modernise how we operate without changing who we are,” said founder Brandon Rafi, who has retained majority control of the MSO.
“Our mission remains the same: deliver outstanding results for clients. What’s changing is our ability to scale that mission responsibly. This isn’t disruption for disruption’s sake. It’s modernisation with clear guardrails that keep clients and ethics first.”
Andy Halaby, chief legal officer of Rafi Law Services, said: “Capital can support efficient delivery of legal services while ensuring independence of legal decision making.
“This structure ensures that lawyers retain sole authority over client representation, while giving us the operational strength to expand access to justice.”
Mr Rafi said personal injury firms were at the forefront of a broader shift toward consolidation in the legal sector. Transparency and governance were “essential” and he intended to play a “visible leadership role” in shaping best practices for ethical growth.
“As the legal industry evolves, firms have a choice about how they grow,” he added. “It’s about building a sustainable structure that puts clients first, supports lawyers, and is prepared for the future of the legal profession.”
Meanwhile, a newly published academic paper [2] has warned about a “governance gap” in the operation of MSOs.
“The MSO model is predicated on the fragile assumption that ‘legal practice’ and ‘business operations’ can be clearly and durably separated to preserve professional independence despite the firm’s near-total dependence on an investor-controlled platform,” wrote Lev E Breydo, assistant professor of law at William & Mary Law School in Virginia.
“The problem is not the structure per se, but the lack of institutional infrastructure required to ensure that separation. Without guidance, ex ante review, or ongoing oversight, the private ordering equilibrium will predictably track investor preferences rather than broader policy considerations.”
Neither the American Bar Association nor state bar associations have issued comprehensive standards for law firm MSOs, he noted, and no court has adjudicated on the boundary conditions.
Mr Breydo said healthcare’s three decades of MSO experience showed a pattern of “control creep”, where “formal separation deteriorates toward de facto control over professional decisions”.
He acknowledged that investors have strong incentives to support robust governance, given the impact disciplinary or regulatory action could have on the business.
“The problem is that even as deal templates standardise, market participants lack a baseline understanding of what robust ‘governance’ requires in the law firm MSO context.”
As a minimum, the academic recommended structural and contractual safeguards in the management services agreement, and requiring that each of the law firm and the MSO should have separate boards, with law firm representation on the MSO board but not vice versa.
“Ideally, law firm MSO boards should be composed of a majority of independent directors, consistent with public company requirement and best practices for regulated entities. Given sponsor constraints, however, the bare minimum should be at least one independent director that serves as chair.”
The MSO board should have an independent director-chaired standing ethics and professional independence committee, to which a dedicated chief compliance officer should report. The MSO should also engage independent outside ethics counsel to conduct an annual compliance review.
Mr Breydo concluded: “As the accounting experience shows, alignment of interests between investors and target firms can drive rapid proliferation – transforming a sector in the process. That trajectory makes governance urgent…
“While closing the governance gap does not mean banning MSOs, it does require governance beyond paper separation.”