In 2020, the Arizona Supreme Court established its Alternative Business Structure (ABS) program which allows nonlawyers to have an economic interest or decision making authority in a law firm. According to the 2019 Task Force on the Delivery of Legal Services report which recommended the creation of the ABS program, there is a decline in the representation of individuals in the “people law” sector. The report claims that this is partially attributable due to the existing ethics rules.
Around that time, courts in some states, including California and Utah, set up task forces to study amending their professional ethics rules to address the “access to justice” problem. Specifically the lack of legal services for low-income individuals and rural communities. In addition to establishing ABS ownership models, these committees considered establishing nonlawyer practitioners who would practice exclusively in underserved practice areas.
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But skeptics argued that the proposals mentioned above would either not change anything or at best marginally reduce legal fees mainly because of overhead. Also, there was concern that venture capitalists or tech startups would use this opportunity to set up business structures where lawyers’ professional judgment would be compromised despite promises otherwise.
A few days ago, the Big Four accounting firm KPMG applied for Arizona’s ABS license. While the ABS committee initially approved their request, the Arizona Supreme Court has put the application on hold until KPMG responds to the court’s request for additional information.
If approved, KPMG is likely to use this opportunity to augment its existing practice areas such as tax, audit, business consulting, and mergers and acquisitions. It is unlikely they will expand into new practice areas such as immigration, family law, criminal defense, debt collection, and eviction matters.
Looking at the court’s ABS directory, the large number of these ABS firms since the program’s inception in 2020 may suggest that the program is successful. However, only a few firms listed their contact information and website. And some of these firms based on their name alone suggests that they handle personal injury or product liability cases. Of the few ABS firms that have posted their websites, most are injury firms. It is unclear how many ABS firms practice in the “People Law” areas the task force report expressed concern about.
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Why are a large number of injury firms operating as an ABS? Some of these firms probably have office managers, administrators, or other nonlawyers who effectively ran the firm. Being in an ABS system would allow them to have greater control and legally get a share of the firm profits as opposed to performance bonuses.
But the more pertinent question is whether allowing nonlawyers to own law firms will bridge the access to justice gap. The task force report doesn’t provide an answer. Instead, it simply states that the current ethics rules are terrible and doing something is better than doing nothing. The basic problem is that if most of your clients are good people who don’t have money, your law practice will not last long. And now, student loan servicers will start collecting and defaulters will risk wrecking their credit score, or worse, face a lawsuit.
It’s been five years since Arizona started its ABS program. While it was designed to improve access to justice for low-income people with legal problems, it seems to have increased access to justice for car accident or tort victims. And if KPMG gets its approval, the other three of the Big Four and other large accounting firms will likely follow suit, thus ensuring that Fortune 500 companies have better access to M&A tax advice.
Steven Chung is a tax attorney in Los Angeles, California. He helps people with basic tax planning and resolve tax disputes. He is also sympathetic to people with large student loans. He can be reached via email at [email protected]. Or you can connect with him on Twitter (@stevenchung) and connect with him on LinkedIn.