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ISBA House of Delegates rejects proposal for non-lawyer ownership of law firms

October 5, 2016
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Jim Riley, chair of the Future of the Provision of Legal Services Committee, presents the committee’s recommendations to the ISBA House of Delegates Sept. 30. (Photo/Indiana State Bar Association)

After a 30-minute discussion about the potential ramifications of a recommendation to allow non-lawyers to hold equity investments in law firms, the Indiana State Bar Association House of Delegates overwhelming voted against the recommendation at its meeting Sept. 30.

The vote came after Jim Riley, chair of the Future of the Provision of Legal Services Committee, appealed to the delegates to pass the recommendation on the basis that doing so would give attorneys more opportunities to access financial resources. If passed, the measure would have allowed non-lawyers to own no more than 49 percent of a law firm, and that ownership would be non-voting.

Riley told the delegates that there were options to keep the recommendation flexible and ensure that the core values of the legal profession — competence, independence with professional judgment, attorney-client privileged communications, protection of confidential client information and undivided loyalty to clients through the avoidance of conflicts of interest — were maintained. For example, non-lawyer ownership could have been limited to individuals rather than corporations, or to law firm employees.

The legal profession has always been tasked with resisting conflicts of interest or other influences that could undermine the core values, and allowing non-lawyer ownership of firms would not change that, Riley said.

The committee chair pointed to law firm debt as an example of that task. If a firm is struggling to pay back a bank loan, it could be tempted to work more than necessary on a case to generate more revenue to pay off the loan, he said.

“Nothing is risk-free,” Riley said.

The final decision on the appropriate balance between maintaining the core values and providing attorneys with opportunities for financial resources would rest with the Indiana Supreme Court and its rules committee, Riley said, so he encouraged the delegates to pass the recommendation as a first step toward finding that balance.

delegates-img-94492-15col.jpg Members of the ISBA House of Delegates listen to outgoing President Carol Adinamis during their meeting Sept. 30. (Photo/Indiana State Bar Association)

But the vast majority of delegates disagreed with Riley’s rationale, saying approving the recommendation could severely compromise law firms’ independence and client loyalty.

Among the vocal opponents was Floyd County attorney J. Todd Spurgeon, who noted that a similar recommendation had been brought before the American Bar Association House of Delegates multiple times and was met with resounding opposition each time.

If passed, the measure would have allowed companies such as Avvo and Legal Zoom — legal businesses that aren’t governed by the Indiana Supreme Court’s rules of conduct and that are creating growing competition with licensed attorneys in the legal field — to invest up to 49 percent in one or more law firms, Spurgeon said.

Conversely, Spurgeon pointed to the example of Washington, D.C., where there is an aversion to non-lawyer ownership. In D.C., rules regarding non-lawyer investments do not permit corporations that are not performing professional services within the law firm to share in the profits, Spurgeon said. That rule prevents companies such as Avvo and Legal Zoom from having ownership in a firm, he said.

Spurgeon also pointed out that the non-voting requirement for non-lawyer investors seemed to be an illusion. Even if those investors could not physically vote on law firm decisions, they could vote with their money by choosing to invest in firms that acted in ways they agreed with, he said.

After he was finished, Spurgeon’s comments were met with a round of applause from the House.

David Miranda, past president of the New York State Bar Association, urged similar caution during a panel discussion on Sept. 29 at the ISBA annual meeting, when he broached the subject of non-lawyer ownership.

“Be very careful of that,” Miranda said. “Now you’re not beholden to your client solely. Now you have a duty to your investors.”

Miranda said investors, for instance, might not see the value of providing pro bono service or representing clients of modest means at a reduced fee, a concern Spurgeon also mentioned in his comments.

If non-lawyers are allowed to own up to 49 percent of practices, Miranda said, “I think you can say goodbye to the profession.”

Other delegates who spoke out against the recommendation voiced similar concerns about attorney independence and loyalty to clients, as well as their fears of providing a way for companies such as Avvo and Legal Zoom to pose greater competition.

But former Indiana Supreme Court justice Frank Sullivan, a Marion County delegate and member of the committee, said Avvo and Legal Zoom have access to capital like what Indiana attorneys would have access to if the measure were passed, which helps them grow their businesses and create stiffer competition.

Further, in speaking in favor of the measure, Sullivan said the recommendation would not have forced any law firms to allow non-lawyer ownership, and that it would not negatively impact attorney independence or obligation to clients.

When it came time for a vote, only a handful of delegates voted in favor of the non-lawyer equity investments recommendation, and the measure was killed by the overwhelming majority.

The House of Delegates also declined to pass the committee’s recommendation to assign pro se coordinators to courthouses across the state to advise litigants considering moving through court without representation of the benefits of hiring an attorney. Rather than voting on that recommendation, delegates chose instead to table the issue for one year.

The errors that pro se litigants can make place an unfair burden on courts and judges, Riley said, so under the pro se coordinator recommendation, lawyers or certified legal interns would be on staff in courthouses to encourage attorney consultations and provide direction on legal proceedings without giving actual legal advice.

Two of the committee’s recommendations did receive approval from the delegates.

The first approved recommendation was for the coordination of a public education campaign. The campaign would be designed to inform members of the public of the benefits of hiring licensed attorneys to help them with their legal proceedings and to help them understand the importance of the core values of the legal profession.

Delegates also approved a measure to create an ISBA law practice management staff position. The person hired for that position would be tasked with helping ISBA members learn more about new legal technologies and tools that could improve their practices as well as teach members how to use them.

After the votes, Riley thanked the House for its willingness to engage in discussion about the future of the legal profession and for asking tough questions.•
 

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