Texas Non-Atty Ownership Plan Fizzles As Justice Gap Fix

By Lynn LaRowe | January 19, 2024, 4:21 PM EST ·

closeup of state flag

The Texas Access to Justice Commission recently voted not to recommend the implementation of a plan to allow non-attorney ownership of entities providing legal services. While advocates say such a system could help expand the number of entities serving low- and middle-income residents, attorneys have warned it could result in a troubling profit motive on the part of investors. (iStock.com/Rawf8)

As the legal industry struggles to find ways to bridge the wide gap between those who can afford civil legal services and those who cannot, a proposal in Texas to allow non-attorney ownership of firms providing low- or no-cost services faces an uncertain future following opposition from lawyers who say it would create an ethical quagmire.

The much-debated plan came in response to an October 2022 request from the Texas Supreme Court asking the state's Access to Justice Commission to develop recommendations on how to better ensure that middle-income residents — those who may earn too much to qualify for representation from legal aid groups but who may still be unable to afford a lawyer — get the legal counsel they need.

While similar proposals have been allowed to move forward in Utah and Arizona, the idea has faced stiff pushback in Texas, with lawyers saying it would introduce a worrisome profit motive on the part of would-be non-attorney owners.

"Profits over people — that's exactly what it is," Stephen Younger, a former New York State Bar Association president and senior counsel at Nixon Peabody LLP, told Law360 Pulse. "The difficulty with non-lawyer ownership, at its core, is that it turns the keys to the legal profession over to corporate America."

Younger was among a long list of attorneys and judges who spoke out against the proposal at a December meeting of the Texas Access to Justice Commission. At the end of the Dec. 15 meeting, the 14-member commission rejected the proposal in an 8-6 vote. At the same time, however, the commission gave its blessing to a separate plan that would allow paraprofessionals to provide a range of basic legal services in the Lone Star State.

The Texas Access to Justice Commission's Legal Services Working Group report, including proposals for limited use of paraprofessionals and NLOs, is now in the hands of the Texas high court, which asked the commission for a detailed study last year.

Texas Supreme Court Justice Brett Busby, who serves as the liaison between the court and the Texas Access to Justice Commission, told Law360 Pulse that "inaction is not an option" when "90% of Texans aren't able to access civil justice."

"We need to do something to address that justice gap," he said.

Justice Busby added that "the court will examine the report and decide whether to move forward."

"One of the things the commission did was look at the areas where we're seeing low-income people self-represented," Justice Busby said. "We identified landlord and tenant issues, family law, consumer debt and wills and trusts" as areas where people need lawyers but cannot afford them, he said.

Justice Busby pointed out that the approach the commission was asked to take is unique from other models, because it specifically targets services for low-income or indigent people. He said the court intends to offer more opportunities for public comment in the future.

The problem the proposal looks to address is a serious one: On a national index prepared by the National Center for Access to Justice in 2022 examining laws, rules and practices related to the accessibility of the legal system across all 50 states, Texas ranked 46th, according to a commission report.

The proposal, which was drafted by a subcommittee of the commission's working group, would allow for-profit entities to begin offering legal services in the state as long as they agree to provide some of their services at reduced or no cost to low-income and indigent Texans. According to the commission's report, the regulatory reform would increase access to civil justice by bringing investment money and innovation into the Texas legal system.

Additionally, under the proposal, non-lawyers would be allowed to own or have a financial stake in organizations — known as NLOs, or alternative business structures — that provide legal services.

Opponents, however, noted that the proposal did not recommend a minimum percentage of services that NLOs would have to provide to low-income clients, and argued that it would result in a two-tiered system of justice that would perpetuate the justice gap, open the door to predatory activities for the most vulnerable, and put the interests of shareholders above those of clients.

Jonathan Bates, a family law attorney with Kinser & Bates LLP in Dallas who currently serves as president of the Texas chapter of the American Academy of Matrimonial Lawyers, served on the commission's scope of practice subcommittee regarding paraprofessionals and spoke against NLO at the December meeting.

Allowing non-attorney ownership in law firms or other entities providing legal services is a "cataclysmically bad idea," Bates recently told Law360 Pulse.

"If there were businesses out there that want to help low-income people access civil legal services, they would be giving to legal aid organizations," Bates said. "I don't understand the suggestion that there are dollars being kept on the sidelines. The only ones on the sidelines are those with a profit motive that are trying to replace lawyers in a way that would be destructive for our system. No good can come of it."

Bates added that he would prefer a significant expansion of resources and funding for existing nonprofit legal aid organizations.

"We have the infrastructure," he said.

According to Bates, putting a divorce or custody matter in the hands of someone who is beholden to a corporate owner rather than a lawyer who has taken an oath to put their client's interests first could have devastating results.

"Sometimes you have to go to the courthouse to resolve disputes, but a lot of times, experienced and skillful lawyers, including family lawyers, can cut through the emotion and resolve things in a productive manner," Bates said. "It is foreseeable that for-profit entities would fan the flames rather than explore options for resolution that would result in lower legal fees, which is what good lawyers do every day."

Bates said he doesn't see a "nexus between non-lawyer ownership and helping low-income Texans," adding that "we don't need legal services set up in a Walmart as a big-box lawyer group" that would "squeeze out" small firms and solo practitioners.

"If we were to do this, I would recommend that 100% of what a for-profit legal services firm does must serve low-income [clients]," Bates said. "But we're told that if you focus exclusively on low-income, then they will fail."

However, Harriet Miers, a Locke Lord LLP partner in Dallas and chair of the commission, told Law360 Pulse that "the charge to the commission was to study how entities could exist serving the low-income population, but be enabled to serve others beyond that level."

"One obvious reason I voted to approve the recommendation was that I have confidence in our Supreme Court to effectively address a lack of access to justice in a wise and effective manner," Miers said. "I'm proud of our Supreme Court for trying to address this in a meaningful way, and the court made sure the commission knew that they wanted a proposal that would not interfere with a lawyer's professional independence — they want that protected and preserved."

Miers agreed that there would be no incentive for non-lawyer ownership if the entities they own or invest in were only permitted to serve low-income clients.

Arizona and Utah, which have smaller populations than Texas, have embraced regulatory changes since 2020, including allowing non-attorney ownership of legal entities. Those frameworks, however, do not impose any requirements when it comes to serving a certain proportion of low-income clients.

Rebecca Sandefur, professor and director of the T. Denny Sanford School of Social and Family Dynamics at Arizona State University, said law firms in her state were "still making money" despite the loosening of regulations for legal services. In addition to her scholarship, Sandefur is also the co-founder of Frontline Justice, a group that advocates for a non-attorney justice worker workforce to bridge the access to civil justice gap nationwide.

"Americans have around 120 million unresolved civil justice problems per year," Sandefur told Law360 Pulse.

However, "it's not clear yet how much alternative business structures increase access to justice," and "there is no market benefit in producing things for people who can't pay," she added.

Sandefur said that allowing non-attorneys to provide legal services at more affordable rates than lawyers is an important step in closing the civil justice gap.

But Younger disagreed that NLOs are addressing the lack of access to civil justice in the U.S. In an October 2022 article he penned for the Yale Law Journal, Younger noted that non-lawyer entities in Arizona and Utah are focused largely on transactional, financial or business services; for instance, the first non-lawyer-owned entity to launch in Utah provides registered agent and filing services and help setting up LLCs.

David Chamberlain, a defense attorney with the civil litigation firm Chamberlain McHaney PLLC and a former president of the Austin, Texas, chapter of the American Board of Trial Advocates, told Law360 Pulse that "the focus on the poor will get shoved to the back" if potential non-attorney owners like private equity firms, hedge funds and other for-profit entities get a foothold in the Texas legal system.

"This could perpetuate the justice gap," Chamberlain said. "It's not that there aren't enough lawyers out there; what we're not doing well enough is funding legal aid organizations. We need to bolster the existing infrastructure."

Chamberlain said law students, who are hungry for experience, could be better utilized in law clinics and other settings to provide legal help at low or no cost. He pointed out that the Florida Bar, after receiving pushback from lawyers in the state, recently rejected a proposal that would have permitted Sunshine State attorneys to have an ownership interest in an alternative business structure doing business in another state.

Chamberlain also questioned whether allowing NLOs in the state would be legal without legislative changes, given that the State Bar Act and the statute creating the Board of Law Examiners require that law be practiced by licensed attorneys.

Younger likewise said the concept of NLOs also conflicts with an American Bar Association resolution passed in 2022 finding non-attorney ownership of law firms to be "incompatible with core values of the legal profession."

Other critics of the proposal who spoke at the December meeting expressed concerns about attorney-client privilege and data privacy on the part of NLOs, which could have a financial incentive to mine and sell client information.

One thing that both sides agree in is that two decades after the Texas Supreme Court created the state's Access to Justice Commission to help put legal counsel in reach for low- and middle-income residents, finding solutions has been a long struggle — and one that is surely to persist, Miers said.

"It's been a concern for a long time. When we began working on the Supreme Court's request for proposals, everything was put on the table," Miers said. "Everyone sees the justice gap as a serious issue, but moving the needle is difficult."

--Editing by Alanna Weissman.

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