There is a bill pending in North Carolina that would allow non-lawyers to buy interests in law firms, up to 49% of the total. This violates the age old prohibition on sharing legal fees with non-lawyers, and is one hell of a lousy idea. First, read the short piece by Dan Fisher @ Forbes on the bill, then come back.
Welcome back. Now here is the problem from my perch in the personal injury field. If non-lawyers profit from the legal business then there is an incentive for them to “help” their investment by finding cases to refer to the firm. In other words, it is an invitation for private “investigators” to troll for clients. We have legalized ambulance chasing, bringing more disrespect to the profession and our justice system since the non-lawyers aren’t bound by the ethics rules. And the lawyers who get the cases may simply choose to turn a blind eye as to how the cases are coming to the firm, or worse, give equity in the firm to the investigators without asking the critical questions of how the clients were obtained.
When the disciplinary committee comes a callin’, they will profess to be shocked, just shocked, at how their firms’ names were given to potential clients.
Let me show you how this works in the real world. This past weekend there was a horrific bus crash in the Bronx that killed 15 people. And attorneys are prohibited under New York’s 30-day anti-solicitation rules from approaching any of the injured victims or next of kin.
So how can lawyers work around this? By using marketing firms to launder their ethics.
Other firms, such as this one and this one, run “blog” posts about the accident that merely regurgitate the facts from a news article and then follow up with a call to action (If you or someone you know…). I discussed this problem back in 2007 after the new anti-solicitiaton rules went into effect (see: Attorney Solicitation 2.0: Is it ethical?)
So what will happen if non-lawyers have a financial interest in the firm? You can bet your last dollar the situation will worsen.
Larry Ribstein asks why non-lawyers shouldn’t be allowed to own shares of firms, under the theory that the restrictions limit the market for legal skills in the business world. But I don’t think he has given enough thought on how that plays out among other fields of the law.
Elsewhere:
Legal Services Act comes to US (Legal Transformation: The Changing Legal Profession)
Are ABSs coming to America? They may be in North Carolina (Legal Futures)
Lay Ownership Share In Law Firms Proposed in North Carolina (Law Forward)
Good post! As a North Carolina personal injury lawyer, I’m still not sure which side of the fence I fall on with this issue. I’m still burned up and consumed over the new med mal tort reform bill SB33 which is being pushed through. One benefit I would see this having for some lawyers is the ability to infuse investment monies into cash-strapped firms and bring investors with solid business knowledge aboard. Most attorneys don’t know (or want to know) diddly about ROI, strategic plans or other business principles. In this economy, I’m sure there are a lot of firms out there who would love this type of help. Will be interesting to see how this plays out.
Well said! This seems to be one of those classic risk/benefit analysis situations. I hear what Beth Noble is saying in her comment. There’s no doubt that my firm – which represents people injured by medical malpractice – would love to have some third-party financing for the ridiculous costs we encounter in having to prosecute these cases; however, your point, Eric, how this could easily lead to “work-around” abuse is well taken. Maybe some strict, common sense rules/guidelines to avoid the pitfalls yet permit capitalization (to lower to pain of the expenses) would be a safe Solomon-like remedy. Your thought?
Maybe some strict, common sense rules/guidelines to avoid the pitfalls yet permit capitalization (to lower to pain of the expenses) would be a safe Solomon-like remedy. Your thought?
I agree.
On the common sense rules: Only lawyers can have equity in a firm and they bound by the ethics rules.
On financing: Get a line of credit from the bank.
To take a contrarian view: hogwash! It’s past time for the legal profession to drop the veneer and stop pretending this is a gentleman’s game with rules that aren’t dictated by the marketplace. It’s business, pure and simple.
At some point, the bar associations will be forced to stop being so paternalistic and have a little confidence in the consumer to know when someone’s trying to sell something. The only reason anyone objects to this sort of thing is because of an outdated paradigm that we’ve accepted as immutable. And like most paradigm shifts, the change has started in Europe and will get here sooner or later. The sooner the American legal profession recognizes this, the better off we’ll all be.
[stepping off of soapbox]
At some point, the bar associations will be forced to stop being so paternalistic and have a little confidence in the consumer to know when someone’s trying to sell something.
Nonsense. It isn’t only about a bereaved person being hounded by slimy lawyers and their agents. It’s also about the jury and respect for a justice system. When all lawyers are seen as ambulance chasing charlatans, then all of those seeking justice lose out because the society (and the jury) has become so cynical. It’s bad enough already, and the idea of legalizing ambulance chasing (which is what would happen) is an abomination that should be stopped dead in its tracks.
I presume that you would be okay with lawyers not being allowed to hold an interest in accounting firms, medical practices, diagnostic centers and chiropractic enterprises.
I presume that you would be okay with lawyers not being allowed to hold an interest in accounting firms, medical practices, diagnostic centers and chiropractic enterprises.
I agree with that for the practice of medicine, to the extent it may conflict with their own ethics rules. I wouldn’t want my own doc to order tests because some investor (not bound by ethical principles) wants to make more money. You can see the problem with that with large healthcare insurers that deny procedures to people as not medically necessary when their docs think the procedures should be done. The insurance company is looking at their bottom line while the doctor is looking at the patient’s health. Instead of a doctor-patient decision you have a doctor-patient-insurer decision.
(And this problem would present itself with the so-called Neurologically Impaired Infant’s Fund that is currently being proposed in New York. Patients would have to fight to get treatment instead of just ordering the treatment on their own in conjunction with their doctors. The fund in this example, or the insurer in the above, holds a veto card to play for treatment.)
As to accounting firms, I don’t know, having never given that issue sufficient thought.
@Avenger –
I belive that lawyers should not be allowed to have interests in the organisations stated by you. This is becasue their personal interest can cause issues with their own job at hand. This can even lead to cognitive disonance and cognitive disonance can cause major issues.
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I disagree. I think we can hold lawyers accountable for what third parties do on their behalf. The non-investor did something unethical? That would be imputed to the lawyer. As long as the score in that regard was clear from the outset, I think it is a little naive and self-referential to pretend that lawyers can balance these things out but businessmen can’t. For profit hospitals survive this type of conflict. So do drug companies and a zillion other professions.
Then again, I could be completely wrong about this. I have not given it a ton of thought. Why am I even commenting?