So Why Can't I Own a Law Firm?

I know, I know, because I'm not an attorney and the rules say so, that's why. I know, but why?????????

I have a few reasons for my curiosity. First, an associate received the dreaded letter from the Florida Bar stating that her company may be engaging in the unauthorized practice of law. The apparent red flag: stated on her website is that she has an attorney on her team. Her site also states that they do not provide legal advice or representation; and that her company focuses on document preparation for family law matters and divorce mediation services. I'm not sure what the word "team" means, but the Florida Bar thinks it might lead consumers to believe that they could receive legal advice as part of her company's services. Perhaps. But why is that a problem? I mean an attorney offering legal advice doesn't sound sinister.

Then I wondered, how is this any different from Legal Zoom putting the law on my side in their national advertising campaign with Attorney Robert Shapiro of OJ Simpson fame as spokesperson? I have absolutely no argument with Legal Zoom, and believe they have done a great job in educating the public. However, isn't Shapiro's smiling face similarly misleading?

In Florida, as in most parts of the United States, nonlawyers are prohibited from owning law firms. The exception is Washington DC where its allowed, and has been since 1980.

Published on Mar 19, 2014

Mar. 19, 2014 (Mimesis Law) -- Mike McDevitt, CEO for Tandem Legal Group, is not a lawyer, but thanks to an obscure rule in Washington, D.C.'s code of ethics for lawyers he is able to have an ownership interest in the law firm he runs. But that doesn't mean he's advising clients on legal matters. "My level of knowledge on law is not that high, so I'm not going to get involved in legal decisions for our organization," he tells Lee Pacchia [in a you tube interview]. "My job as CEO is to help our organization run an efficient and effective firm."

Tandem Legal Group's business model is refreshing and reminiscent of an era when businesses sought out legal advice, before a crisis erupted. The business theory of Tandem is to help their clients grow their businesses - together - in tandem. Great concept.

The U.K. and Australia allow nonlawyers to own and operate legal firms, apparently without damage to consumers. An article by Attorney Robert Denney, "The Newest Big Issue: Non-Lawyer Ownership or Investment in Firms" (1/13) discusses the issue.

According to Denny, 23 years ago the U.K. passed the Courts and Legal Services Act of 1990 (CLSA) breaking the monopoly that attorneys had over legal services. This act allowed non-lawyers to enter the legal market by the creation of "Alternate Business Structures" and allowed lawyers and non-lawyers to work together to deliver legal services and also solicit outside investments.

After that, a major personal injury firm in Australia, filed a public stock offering. And, in 2007 the U.K., passed the Legal Services Act, succeeding the 1990 act. The motive behind these developments was to increase consumers’ access to legal services and to increase competition in the legal profession.

Since the 2007 UK law passed various types of business structures and ownerships of law firms have emerged; including publicly traded personal injury and, real property law firms. In March 2013, British regulators allowed an organization that runs grocery stores, and also offers banking and insurance services to provide legal advice on divorce and other family law matters to its seven million members.

Imagine, having your divorce documents prepared through Sam's Club!

One of the recurring arguments from the bar associations against allowing nonlawyers to own law firms, is that it would dilute the integrity of the legal profession. Lawyers are professionals, and having nonlawyers as law firm owners would sacrifice the quality of legal advice in favor of pure monetary gain. [Lions and tigers and bears - oh my.] And that nonlawyers making legal decisions would damage consumers. There is some truth to that statement; and its simple enough to solve by dividing duties to prevent that situation. Lawyers make legal decisions; business owners make business decisions.

I don't have to be a doctor to have an ownership interest in a medical clinic. Good, bad, or indifferent, the corporate practice of medicine is alive and well in the United States.

      Florida law does not prohibit the corporate practice of medicine, but does prohibit "fee-splitting" by health care professional. .. However, there is no prohibition on a health care provider's forming and operating his or her medical practice as a regular business corporation (usually designated by the abbreviation "Inc.") or as a regular limited liability company ("LLC"). Click Here to Read More.

Fee splitting is also prohibited between lawyers and nonlawyers.

1. The origin of fee splitting prohibitions in Florida are founded on certain core principles which are fundamental to the legal profession's proper function.

2. These principles include the protection of a lawyer's duty of loyalty to a client, the lawyer's duty of independence in making decisions which are in the best interest of the client and no other, including the lawyer; the lawyer's duty to hold client confidences inviolate; the lawyer's duty to act free of impermissible conflicts and the lawyer's duty of competence.

Rule 4-5.4 of the Rules Regulating The Florida Bar and ABA Model Rule 5.4 have long prohibited the sharing of fees generated by the rendition of legal services with non lawyers because of the lawyer's duty of independence and the lawyer's duty to exercise loyalty to the client over and above any duty to the lawyer or to the organization employing the lawyer. www.FloridaBar.org

In 2011, The Florida Bar News, published an article posing the following question:

"When is fee-splitting OK?"

"Should lawyers be allowed to split fees with private lawyer referral services or at least pay a flat 
fee per referred case?"

As it is now, lawyer referral services are only allowed to charge a subscription fee for attorneys to receive referrals, but may not charge a flat fee, or percentage, per referral. Many nonlawyers would happily refer to attorneys if they could. As it is, there is nothing to gain for a nonlawyer document preparer to refer a customer to an attorney. The attorney is not allowed to pay a referral fee, and many attorneys would prefer that nonlawyer document preparers didn't exist to begin with. Why, then, would a document preparer refer a paying client to an attorney? Answer is, for the good of the client. And that's fine, and fair enough.  

However, many document preparers have been unable to cultivate any sort of relationship with any attorney, as there is all too often an uneasy coexistence between lawyers and non. After all, it is difficult for a nonlawyer document preparer to see his way clear to refer to any attorney when it is often attorneys who complain to the Florida Bar about nonlawyers possibly engaging in the unauthorized practice of law. Some individual nonlawyer document preparers and some individual attorneys exchange referrals for no fee; but these arrangements are exceptions and not the norm. A more frequent scenario is that when a nonlawyer document preparer realizes that the consumer needs legal advice rather than document preparation, the consumer is simply turned away, with no referral to anyone or any resource. How does this help consumers? Answer is, it doesn't.   

In the previously mentioned article - "When is fee-splitting OK?", former Board of Governors member D. Culver “Skip” Smith , who raised the question during the Special Committee on Lawyer Referral Services, stated "it could be seen as hypocritical that Bar rules prohibit sharing or splitting fees with nonlawyers in all cases except one — with nonprofit lawyer referral services approved by the Bar. Essentially those are programs run by area voluntary bars, plus the statewide program run by the Bar. (If a lawyer takes a referral from one of these services, a percentage of the final fee, typically 10 or 15 percent, reverts to the service to help fund its operations. The services also collect a small up-front fee from the callers who accept a referral.)"

and, Smith continued:

“For-profit referral services, it seems to me, are not going to stay in business charging an annual subscription fee or an annual membership fee. They want their money per case,” Smith said. “I believe that a per case flat fee is not fee-sharing. . . . Lawyers expect to pay something per case for these referrals in this day and age. Obviously, you don’t pay a percentage like half of the fee, but a flat fee that’s not based on the size of the fee.”

However, "Bar Ethics Counsel Elizabeth Tarbert explained to the committee why the Bar disagrees.

“The reasons that we prohibit fee-sharing with nonlawyers generally are to stop a nonlawyer from having control over the lawyer’s independent professional judgment in representing clients and providing active counsel and good competent advice to their clients,” she said. “Generally, the control follows the money, and if the nonlawyer has the money, the nonlawyer is the one calling the shots.”

With the local bar-run programs, the Bar has direct control and can revoke a program if it violates Bar rules, Tarbert said, eliminating the risk the service will meddle in how a case is handled."

And there you have it.

Follow the money. The Florida Bar is concerned that the nonlawyer will call the shots. And, I completely agree that legal decisions should be left to the legal professional. Just as when someone who is not a doctor operates a medical facility, medical decisions must be left to the medical professional. However, having someone who is not an attorney make the business decisions may be the best thing that could ever happen to attorneys. In the best of all possible worlds, the day to day business activities - marketing, customer service - and long term business planning could be done by a business professional. Attorneys could focus on giving legal advice and litigation.

As it is, I have no doubt that business decisions that attorneys make on a daily basis affect their independent judgment in providing active counsel and good competent advice to their clients.