US law firms should look to the future and embrace non-lawyer ownership

By Michael Angelides, Managing Shareholder, Simmons Browder Gianaris Angelides & Barnerd

The advent of alternative business structures (ABSs) in the UK has inspired much debate in the US over non-lawyer ownership of law firms. While the machinations over ethical implications are necessary, I foresee only one logical resolution to the conversation: non-lawyers will eventually be allowed to invest in US law firms.

As an American lawyer and shareholder in a 200-person plaintiff’s law firm, I bring a somewhat unique perspective to this debate. Unlike my US counterparts tied to the billable hour, my firm represents individuals and businesses on a contingency basis.

Debate surrounding the issue has, for the most part, focused chiefly on ethical pitfalls, conflicts of interest and preserving the integrity of our profession. As a result, early reception of it has been tepid.

In March, there were two rulings in New York against non-lawyer ownership. In the first, the New York Bar Association ruled that attorneys cannot primarily practise law in New York if they are employed by an out-of-state or foreign firm owned by non-lawyers. The opinion was prompted by lawyers interested in starting a New York office for a UK-based firm that includes non-lawyer owners.

In the other, a Manhattan federal judge dismissed a lawsuit contesting a New York ethics rule prohibiting non-lawyers from retaining ownership in a law firm. In the suit, Jacoby & Meyers LLP v Presiding Justices of the First, Second, Third and Fourth Dept’s, SDNY, the New York-based personal injury law firm, argued that its “ability to raise the capital necessary to pay for improvements in technology and infrastructure, and to expand its offices and hire additional personnel” was restricted.

The judge found the court lacked subject matter jurisdiction because the '¨firm only challenged the ethics rule '¨against non-lawyer ownership and not '¨other New York laws preventing private equity investors.

Despite these early setbacks, similar cases challenging ownership are already underway, and the real debate is just getting started. I cannot help but wonder, in all our focus on the risks, are we failing to recognise the rewards? Moreover, does the US really even have a choice?

The proliferation of ABSs in the US is inevitable. If US law firms are to thrive in the global marketplace, they must seize the opportunity of ABSs or stall as competitors from around the world speed ahead. If we do not adapt, our legal industry may '¨be poised to suffer a fate similar to '¨US manufacturing.

And what of the ethical concerns? While they are certainly legitimate, I do not accept the argument that non-lawyer ownership will spawn an environment where callous lawyers abandon their duty to put clients first. A lawyer’s reputation is and always will be his most critical asset in developing and maintaining a strong client base and, ultimately, his practice.

As a comparison, consider non-physician ownership of medical facilities where a similar debate has existed. Certainly we would not summarily suggest that doctors who work at such facilities do not put their patients first? The doctor’s first duty is to the practise of medicine, just as the lawyer’s first duty will remain the practise of law.

The healthcare industry actually supports and enforces the argument that non-lawyer equity partnerships may be a better model of business organisation. For instance, the shift from physician-owned hospitals to non-physician and corporate-owned hospitals has led to the growth of retail-based clinics. These clinics service uninsured and underinsured patients with vital emergency care and medications. In short, they make healthcare more affordable and accessible to a large number of disadvantaged people.

Similarly, the UK’s ABS model is poised to facilitate lower costs and better efficiency to a large base of consumers in need of legal services. With this structure in place, clients seeking legal help will have greater access to what they need at affordable prices.

When I think of non-lawyer investment, I think of growth. I think of the tens of thousands of solo and small firm practitioners flush with talent but low on cash. I think of the countless cases that deserve to have their day in court but never will because they are too economically risky.

Outside investment, whether by venture capital firms, corporations or individual business executives, could level the playing field for thousands of lawyers throughout the US. More importantly, it could give individuals and businesses greater access to quality legal representation.

Increased access to capital, as well as the business experience of non-lawyers, could revolutionise the infrastructure, technology and advertising capabilities of the US legal market.

US law firms would no longer be limited by the size of their partners’ pocketbooks. Rather, the quality of the lawyers, the clients and the merits of a case will become the key factors and assets that drive the firm’s – and the clients’ – ultimate success.

mangelides@simmonsfirm.com