Legal Business Blogs

Down this road before: State bars fiercely oppose ABA’s US innovation push

The American Bar Association (ABA) suggested yesterday (17 February) that American states consider ‘innovative approaches to the access to justice crisis’ before quickly facing resistance from influential state bars strongly opposed to alternative business structures (ABSs).

The recommendation came through a resolution proposed before a meeting of the ABA’s biannual ruling House of Delegates in Austin, Texas. The original resolution encouraged bars to gather data to assess regulatory innovations to ensure changes that are effective in increasing access to legal services.

However, following fierce criticism from state bar associations from New Jersey, Illinois, Ohio, Pennsylvania and Delaware the resolution was amended to state: ‘Nothing in this resolution should be construed as altering any of the ABA Model Rules of Professional Conduct, including Rule 5.4, as they relate to non-lawyer ownership of law firms, the unauthorized practice of law, or any other subject.’

Unlike the UK, legal regulation in the US is a state matter overseen by the supreme courts of individual states, with many state bars being heavily protectionist. However, states including Utah, New Mexico and California are all at varying stages of sandboxing more liberal legal regulatory approaches which would enable outside ownerships and ABS models.

‘The ABA has been down this road many times over the last 20 years but the moment it gets close the ABA blocks it,’ former executive director of the Solicitors Regulation Authority Crispin Passmore told Legal Business. ‘In some ways it’s not that significant but in many ways this time it’s very different in that the ABA is following the states rather than trying to lead them. Utah and Arizona are already doing a regulatory sandbox which has finished its consultation and is with the Supreme Courts. California is attempting to do the same.’

UK law firms were first allowed to pursue such models after the introduction of the Legal Services Act in 2007, a change which has seen a number of law firms pursue alternative methods of raising capital. Most notably, Gordon Dadds, Keystone and DWF made the decision to list on the stock market in recent years, while Reed Smith landed its ABS licence in November last year.

Though influential states within the US remain opposed, Passmore says that when they see outside capital flowing into firms, it will be difficult to resist: ‘Once the big wall of protectionism is broken capital will pour through and how will the New York bar be able to survive?’