America poised to embrace LDPs – but go no further towards ABSs

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By Legal Futures

5 December 2011

Reform: US influenced by success of LDPs in England and Wales

America last week moved a major step closer to introducing a version of legal disciplinary practices (LDPs), while ruling out multi-disciplinary practices.

The latest discussion document from the American Bar Association’s Commission on Ethics 20/20 noted the “remarkable” growth of LDPs in England and Wales and that they had not caused any disciplinary problems.

The commission has been examining whether and to what extent non-lawyers should be allowed to have an ownership interest in law firms, and had already ruled out flotation, external investment and in the summer did the same for multi-disciplinary practices.

Instead it narrowed its focus to a model that already exists in the District of Colombia – the only US state that allows non-lawyer ownership – where there is no cap on non-lawyer ownership, or to one where there is a cap that ensures majority lawyer ownership, similar to LDPs. It has now recommended the latter.

Three US firms are registered with the Solicitors Regulation Authority as LDPs, the commission noted, adding that “the growth in the number of firms seeking approval [as LDPs] is remarkable, as is the fact that the LDPs with non-lawyer principals are – like the Washington, DC law firms that have non-lawyer partners – primarily small firms”.

There are now nearly 500 LDPs in England and Wales since they were introduced in March 2009.

While recognising concerns about any non-lawyer ownership, the commission said that “in the absence of empirical evidence from the District of Columbia or elsewhere that lawyers cannot meet their professional obligations in any firm that has even a single non-lawyer owner, there is no clear justification for protecting lawyers in traditional law firms from having to compete with lawyers who believe that the kind of alternative law practice structures the resolution would permit can improve client service, as long as the ethical values and protections at the heart of the US legal profession’s traditions are preserved”.

It continued: “Consumer demand for inexpensive and Internet-accessible solutions to legal problems has grown rapidly. But simply downloading legal forms without the benefit of personalized legal advice can be unhelpful or, worse, misleading. Encouraging law firms to innovate, especially by harnessing new technologies, can respond to the accelerating demand while affording clients the benefit of fully qualified and regulated lawyers.”

The working group looking at the issue heard anecdotal evidence that law firms, and small law firms in particular, are “increasingly interested in having non-lawyer partners”. It said: “These firms believe that there is or will be client demand for the legal services that firms with non-lawyer partners are well-positioned to provide.”

There was also anecdotal evidence that small firms believe they can better recruit technology experts if they can offer them partnership.

Under the proposed model, the firm could engage only in the practice of law, while non-lawyers would be limited to a 25% ownership stake and would have to undergo a ‘fitness to own’ test.

The final recommendation for a rule will not be made until 2013, after which it will need to be approved by the ABA’s ruling House of Delegates. US lawyers are regulated by the highest court in each state, which often do, but are under no obligation to, adopt the ABA’s model rules of conduct.

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One Response to “America poised to embrace LDPs – but go no further towards ABSs”

  1. I am a practising barrister of 27 years in Hong Kong where the traditional safeguards and system are still (just) in place. LDPs with non professional owners pose an horrific threat for the ethics of the legal profession. Even if ownership were presently capped at 25% this is the thin end of the wedge. In time economic pressures will inevitably increase the proportions. Also, as in the wider commercial world, the larger LDPs will swallow the smaller firms with consequent diminution of competition and choice for the consumer, which will result in increased fees.
    The concept is designed to benefit the giants and squeeze out the smaller independents – a thoroughly bad development.

  2. John Wright on October 2nd, 2012 at 9:19 am

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