Q&A Lawyer Liability and Ethics: California Not Ready for Alternative Legal Structures

by Joseph Brophy for the Maricopa Lawyer, a publication of the Maricopa County Bar Association 

Two years ago, Arizona was the first jurisdiction in the nation to eliminate Rule 5.4 to allow legal practices to experiment with alternative business models (including the utilization of non-lawyers) in the hopes that increased efficiencies will reduce the cost of legal services.  Although Arizona was the first jurisdiction to do so, the idea did not start there.  It started in California.  Perhaps you are wondering where California is on this issue?  Read on.

In July 2018, Professor William Henderson of Indiana University delivered to the Board of Trustees for the State Bar of California a landscape analysis of the current state of the legal services market.  The trustees asked for the report to facilitate their goal of enhancing access to justice with an eye towards making regulatory changes to allow new business models for delivering legal services.  In response to Professor Henderson’s report, the State Bar of California formed a task force to examine the issues raised by the report, including allowing outside ownership of law firms.
The proposed changes to California’s ethical rules received significant blowback for all of the reasons one would expect – concerns over the ethical implications of allowing nonlawyers to either participate in law firm ownership or to perform legal services normally reserved to lawyers.  Or, as the Supreme Court of Arizona concluded, good old-fashioned protectionism from the California legal industry.  Nevertheless, the trustees for the State Bar of California persisted and submitted to the California legislature proposed reforms similar to those adopted by Arizona and recommended by Professor Henderson.

In September of this year, California Governor Gavin Newsom signed a bill blocking the California bar from moving forward with the reforms it recommended.  Why did California reject the very reforms advanced by a movement of which California was in the vanguard?  The ostensible reason (and I am not making this up) was that the California legislature concluded that the California State Bar is so horrible at attorney regulation, that the legislature does not believe the bar to be capable of handling the additional burden of regulating non attorneys or alternative legal organizations.

The legislature cited a report dated April 14, 2022 from the California State Auditor stated that: (1) the State Bar prematurely closed cases that warranted further investigation and potential discipline; (2) found one attorney who was the subject of 165 complaints over seven years, many of which the State Bar dismissed outright or closed after a mere letter to the attorney while never imposing any discipline on the attorney; and (3) the State Bar relied too much on nonpublic measures, such as private letter, that do not provide sufficient deterrence for misbehaving attorneys.  In one particularly egregious example, the State Bar closed multiple complaints alleging that an attorney failed to pay clients their settlement funds.  When the State Bar finally examined the attorney’s bank records, it found that the attorney had misappropriated nearly $41,000 from several clients.

Additionally, the auditor found that the State Bar had not consistently identified or addressed the conflicts of interest that exist between its own staff members and the attorneys they investigate.  In more than one-third of the cases the auditor reviewed, the State Bar did not document its consideration of conflicts before it closed cases in which potential conflicts existed.  The State Bar also failed to proactive seek out information regarding disciplinary actions in other jurisdictions, instead relying on either attorneys or other jurisdictions to provide information regarding out of state disciplinary action.

There is no reason to disbelieve the conclusions of the California State Auditor that the California State Bar struggles to pick up on patterns of behavior with certain attorneys, among other problems.  In fact, the State Bar largely agreed with the auditor’s conclusions!  But one must question the convenience of the timing of the auditor’s report, which allowed the California’s legislature and governor to avoid upsetting the many large California firms who oppose an Arizona-style approach to alternative legal organizations and positions, and who also make significant political donations. Given California’s purported “leadership” in this area, it calls to mind St. Augustine’s famous prayer: “O Lord make me chaste, but not yet.”

Ruben Duran, the chair of the California State Bar’s board of trustees, who is either a fan of St. Augustine or just great an impressions, assured everyone that “when the time is right, we look forward to California focused conversations and movement to harness the creativity, public-service mindset and innovation that runs through many sectors in this state, including practicing lawyers, the judiciary, and others dedicated to ensuring everyone who needs it can access and afford competent, ethical and effective assistance for their legal problems.”  When the time is right, but not yet.

About Joseph. A. Brophy

Joseph Brophy is a partner with Jennings Haug Keleher McLeod in Phoenix. His practice focuses on professional responsibility, lawyer discipline, and complex civil litigation. He can be reached at jab@jhkmlaw.com.

The original article appeared in the December 2022 issue of Maricopa Lawyer and can be viewed here: