Businesses owned by nonlawyers can now deliver legal services in Arizona. This spring, the Arizona Supreme Court approved three organizations to be licensed as alternative business structures, a new type of entity defined in an August 27, 2020, court order that overhauled rules regulating the practice of law in the state.
According to LawSites, in March and April 2021, the Supreme Court approved the applications of:
- Trajan Estate, LLC, a legal service provider focused on estate planning. The two principles are Kent Phelps, an Arizona lawyer since 1996, and Jeffery B. Junior, CEO of Trajan Wealth, a company that provides financial services to consumers. (Court order)
- Payne Huebsch, PLC, a firm that provides transactional legal services combined with tax and accounting advice. It’s owned by Payne Law PLC and Huebsch Financial LLC, which are controlled by Michael Payne, a lawyer and CPA, and Chad Huebsch, respectively. Payne Huebsch will be adding legal services to its accounting and tax services offerings. (Court order)
- MLR Professional Tax Services LLC, which was formed in 2014 to provide accounting and tax services. MLR will add legal services in the areas of trust, probate, and corporate transactional, and operate under the new name Arete Financial LLC. Two of the company’s three owners are lawyers. (Court order)
Prior to approval, the Committee on Alternative Business Structures reviewed the licensing applications and submitted its recommendation to the Court.
The Committee, which includes 11 Court-appointed members, was instituted as part of the August 2020 court order to ensure alternative business structure applicants meet the regulatory, governance, and policy requirements laid out in Rule 33.1 and ACJA § 7-209.
Far-reaching changes in Arizona
Arizona Supreme Court Rule 31.1 defines an alternative business structure as the following:
“An entity that includes nonlawyers who have an economic interest or decision-making authority as defined in ACJA 7-209 may employ, associate with, or engage a lawyer or lawyers to provide legal services to third parties only if: (1) it employs at least one person who is an active member in good standing of the State Bar of Arizona under Rule 32 who supervises the practice of law under ER 5.3; (2) it is licensed pursuant to ACJA § 7-209; and (3) legal services are only provided by persons authorized to do so and in compliance with the Rules of Supreme Court.”
The change in licensing requirements was the result of recommendations from the Arizona Supreme Court’s Task Force on the Delivery of Legal Services, which examined regulatory reform to increase innovation in the delivery of legal services.
Additional rule changes, which were effective January 1, 2021, include the licensing of nonlawyer legal paraprofessionals to provide limited legal services and the elimination of the rule prohibiting fee sharing and nonlawyers from having economic interests in law firms.
The rule changes made Arizona the first state to completely eliminate Rule 5.4 of the Rules of Professional Conduct, according to LawSites.
“The work of the task force adopted by the Court will make it possible for more people to access affordable legal services and for more individuals and families to get legal advice and help,” said Arizona Supreme Court Chief Justice Robert Brutinel in a press release. “These new rules will promote business innovation in providing legal services at affordable prices.”
Innovation in Illinois
In 2019, the Chicago Bar Association and the Chicago Bar Foundation launched the Task Force on the Sustainable Practice of Law & Innovation to explore the market failure in the consumer and small business legal services market, where lawyers are struggling while many clients are unable to afford legal services and are going to court alone.
After a 9-month study and a public comment period, the Task Force submitted a report and 11 recommendations for regulatory reform to the Illinois Supreme Court on October 2, 2020.
After submitting the report, the Task Force requested that the Court defer consideration of Recommendation #11 (further study of Rule 5.4 on law firm ownership) based on the developments in Arizona and Utah on law firm ownership.
“We essentially have a live experiment in Arizona and Utah that we all can watch over the next several years and then reevaluate next steps in Illinois,” said Chicago Bar Foundation Executive Director Bob Glaves.
Internal Supreme Court Committees have been tasked with providing further input and developing plans to execute the Task Force’s other proposals by early fall, though, the Court deferred consideration of Task Force recommendations #5 (Licensed Paralegal) and #6 (Advertising Rules) for now.
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