Originally posted on 2/18/2020 (reformatted).
ABA Model Rule 5.4 is not an enforceable rule of professional conduct, but a model rule that many states have adopted. ABA Model Rule 5.4, prohibits an attorney from sharing fees with a nonlawyer and prohibits a nonlawyer from having an ownership interest in a law firm. During the American Bar Association Midyear Conference, the Association for Professional Responsibility Lawyers also had meeting and events. APRL, has been researching whether to offer suggestions to update the Model Rules of Professional Conduct and is considering whether to change Rule 5.4. The focus is on whether to abolish the prohibition against fee sharing and to allow nonlawyers to invest in law firms and form what is known within bar associations and in Australia and the UK as an alternative business structure or ABS.
The interest of lawyers and bar associations in sharing fees with nonlawyers has arisen partly in response to multiple bar associations publishing ethics opinions which have stated that certain legal websites, like Avvo, have run afoul of that state’s form of Rule 5.4. Avvo offered a service that would connect a client with a legal issue to a lawyer for a flat and transparent fee. The client paid Avvo the fee, Avvo took a portion of that fee, and paid the lawyer. The bar associations, in sum, found multiple issues with this, such as prohibited fee sharing with a nonlawyer and collecting a fee prior to providing services to a client. Michigan was one of those states and issued State Bar of Michigan, Ethics Opinion R-25. What Michigan failed to acknowledge is the fact that lawyers regularly share fees with nonlawyers in many situations such as: credit card processing fees, insurance defense (individual pays insurance premiums and insurance company takes those premiums and pays a lawyer), and prepaid legal insurance (offered by some unions and employers where an individual pays a premium to receive insurance for possible legal issues; premiums frequently include estate plans). It is baffling as to why the bar associations have come across so harshly against an easy way for solo and small firms to provide legal assistance to individuals. The bar associations could have chosen instead to consider crafting an exception that would allow services, like Avvo, to operate ethically in connecting clients with lawyers.
Alternative Business Structures are allowed in the United Kingdom and Australia. On the panel was Frank Maher, an attorney from the United Kingdom. He said that the ABS system was forced upon the bar by Parliament. In that system, individuals who want to invest in a law firm must undergo the same background checks as a lawyers and are held to the same ethical obligations. If the individual owner disobeys the ethics rules, the individual is prohibited from ever owning a law firm. Since ABS has been implemented, complaints against law firms have gone down, but law firms still fold as they have done in the past and the big 4 accounting firms have grown their legal offerings. To me, the biggest benefit of the ABS system, is the ability of a law firm to join with another profession, such as CPAs, to offer clients holistic services (tax and legal services at the same time), but also to diversify the risk by a single company by offering different services to the public (if a company’s tax services are not performing well – the company’s legal services could gain business to support the organization).
Amy Krieg
Habitat for Humanity of Huron Valley
Ann Arbor, MI
Inter Alia 