Why hasn’t the market offered more solutions to serve individuals and small businesses who can pay something for legal services, but not upwards of $200 per hour? One significant reason – as explained [in this report] – is that regulations on legal service providers limit the ability to create solutions. The American Bar Association’s (ABA) Model Rule of Professional Conduct 5.4, Professional Independence of a Lawyer, includes several provisions: “A lawyer or law firm shall not share legal fees with a nonlawyer;” a “lawyer shall not form a partnership with a nonlawyer;” and a lawyer shall not practice law for profit if “a nonlawyer owns any interest therein.” The Rule aims to protect the “professional judgment of a lawyer” but is both a poor fit for that task and has negative consequences for the legal services market.
Under this rule, “[l]egal services must be provided by a law firm that is owned, managed, and financed exclusively by lawyers.” Yet forbidding outside ownership and investment in legal services providers contributes to the low innovation and high cost of services that characterize the U.S. legal market today. In short, the rule is a “major contributing factor” to America’s access to justice problem. Indeed, countries that allow lay investment in or ownership of legal service providers consistently rank ahead of the United States in access to and affordability of legal services. Without the ability to offer equity stakes to business leaders or investors – or to have a diverse, independent board of directors through the corporate form – legal service providers are not able to enlist the best business expertise.
For these reasons, there has long been a consensus among both legal ethics scholars and experts on the legal services market that Rule 5.4 should be repealed. Leaders of the bar are increasingly voicing this view as well. In February 2020, the ABA’s House of Delegates passed a resolution calling for “regulatory innovations that have the potential to improve the accessibility, affordability, and quality of civil legal services.”