Tennessee Supreme Court
KNOXVILLE, Tenn. – Tennessee will not let non-attorneys own shares of law firms, closing – for now – the question of whether doing so would help residents obtain legal services or whether it would cause more harm than good.
Investors owning law firms has become an increasingly hot topic that has required legislators and court officials to decide if it should be allowed. Recently, lawmakers in California decided no, choosing not to follow the leads of neighboring states Arizona and Utah.
The Tennessee Supreme Court received comments this year on several questions and released its findings Oct. 2.
“At this time, the Court has not identified sufficient need or support for reforms related to non-lawyer ownership of law firms or fee-sharing with non-lawyers,” it wrote. “The Court may revisit this topic in the future as additional data regarding the success of these reforms becomes available.”
Only Arizona, Utah and D.C. allow so-called alternative business structures (ABS) for law firms, with critics warning against upsetting the ethics of legal professionals with profit-driven investors.
Comments in Tennessee warned that money will only flow toward personal injury and mass tort cases, while rural residents promised access to justice will still struggle to find lawyers willing to work on more mundane, common matters like estate planning, divorce and landlord-tenant disputes.
“If anything, there is a tremendous risk of reducing access to justice among the most affected populations,” John Harris of Schulman, LeRoy & Bennett in Nashville wrote to the Tennessee Supreme Court. “Private-equity investment has led to widespread closures of rural hospitals in favor of consolidation in metropolitan areas.
“The same economic incentives would predict similar outcomes in the legal profession, as investors seek scale, efficiency, and higher margins, often at the expense of rural and low-profit communities. The poor would find it even more challenging to obtain cost-effective legal representation as investors chase the most profitable cases, not the least profitable ones.”
There are more than 150 ABSs in Arizona but far less in Utah, and the idea has been outright rejected in several states. Tyler Brown, a personal injury lawyer on the Utah Supreme Court’s ad hoc committee on regulatory reform, encouraged Tennessee to implement the program to encourage even more investment in legal tech nationwide, while arguing the rules in place for lawyers don’t serve the public.
And consumers have not been damaged in Utah, as “it turns out that non-lawyers are at least as ethical as lawyers,” he said.
Reporting in the Arizona Republic, however, showed the focus of those participating in Arizona is personal injury cases. Rather than simply operating as call and referral centers, changes made earlier this year to the program require ABSs to actually provide legal services.
This came in response to complaints that clients had felt “scammed.” The Republic reported loopholes, lack of oversight and financial conflicts of interest plagued the program, and that half of the state’s ABSs do business in other states.
“Reports out of Arizona are not particularly flattering,” the Chattanooga Bar Association said. “Consumer complaints seem to have increased with complaints of lack of supervision and oversight and conflicts of interest.”
Numbers from a court fight in California show what types of cases some firms prefer. The mass tort firm Wisner Baum took advantage of Arizona allowing non-lawyer ownership to establish Eleos Law there. Wisner Baum litigates the cases while Eleos Law, whose ownership is 46% non-lawyer, focuses on client services and other matters.
Among Eleos’ workload are 9,400 cases over Zantac and 8,450 over alleged contamination of baby food. It is funded by 5% of the attorneys fees recovered by Wisner Baum.
Wisner Baum dropped its challenge to California’s rules after a federal judge refused to block them.
