The Utah Supreme Court has quickly moved ahead on regulatory reform. On Wednesday, August 28, the Court unanimously approved a work group report that lays out recommendations for narrowing the access to justice gap by reimagining lawyer regulation.
The report, which was received by the Court less than a week before approval, is focused on “optimizing regulation in a manner that fosters innovation and promotes other market forces so as to increase access to and affordability of legal services.”
Other states, including Arizona, California and Illinois, are evaluating similar legal regulation proposals. Utah, however, was the first to act.
Increasing Access to Legal Services
The report lays out sobering, and yet all too familiar, statistics on the civil access to justice gap in the U.S. and in Utah specifically. The justice gap is defined as the difference between the legal needs of ordinary Americans and the resources available to meet those needs.
To narrow this gap, the work group outlined a new structure for regulating legal services by: 1) loosening the ethical restrictions on lawyers in the Rules of Professional Conduct and 2) creating new regulations for companies and others providing some legal services.
The report recommends amendments to Rules restricting lawyer advertising, as well as Rules prohibiting lawyers from fee sharing with non-lawyers or allowing non-lawyers to have ownership or investment interest in law firms.
Specifically, the report asserts that lawyers should be able to pay for referrals (which are currently prohibited under Utah Rule of Professional Conduct 7.2, similar to proscriptions in effect in most states). It also states that lawyers should be able to form new legal services businesses with professionals who aren’t lawyers. This is currently prohibited under Model Rule 5.4, which has been adopted in virtually all U.S. jurisdictions.
The report says:
“We view the elimination or substantial relaxation of Rule 5.4 as key to allowing lawyers to fully and comfortably participate in the technological revolution. Without such a change, lawyers will be at risk of not being able to engage with entrepreneurs across wide swaths of platforms.”
A New Regulatory System
The regulatory system envisioned in Utah is driven by policy objectives and regulatory principles, uses state-of-the-art regulatory tools (e.g., licensing, data, monitoring), and is guided by the assessment, analysis and mitigation of consumer risk. The core policy objective is “to ensure consumers access to a well-developed, high-quality, innovative, and competitive market for legal services.”
The new regulatory framework will proceed in two phases. During Phase 1, the Utah Supreme Court will establish a task force to: 1) obtain funding for the regulator, primarily through grant applications, 2) recommend necessary rule changes to the Court, 3) create and operate a Phase 1 regulator responsible for overseeing a legal regulatory sandbox for non-traditional legal services, 4) gather and analyze data and other information in order to evaluate and optimize the regulatory process, and 5) prepare a final report and recommendation to the Court regarding the structure of the Phase 2 regulator.
During Phase 1, legal entities with consumer-facing innovations will be allowed to develop new products and offerings in a regulatory sandbox. This will enable innovations that could benefit the public, while generating and sharing data that will inform the appropriate level of regulation when it comes to consumer risk.
John Lund, former president of the Utah State Bar Association, and Utah Supreme Court Justice Deno Himonas will continue on as co-chairs of the Phase 1 task force, Lund said. Lund and Justice Himonas co-chaired the Utah Work Group on Regulatory Reform. This Phase 1 pilot is expected to last approximately two years and will include a public comment period.
Phase 2 is even more broadly envisioned as “some form of an independent, non-profit regulator with delegated regulatory authority over some or all legal services.” The regulator will be independent from management or control by lawyers, but answerable to the Utah Supreme Court. This would involve the Court creating and directing a new regulator of non-traditional legal services that’s currently not authorized under Utah’s practice of law and professional conduct rules.
The Court hasn’t issued a written order regarding its vote. However, Justice Himonas told LawSites that he expects the Court to announce further details this week. How this all shakes out remains to be seen.
Update: The Utah State Supreme Court issued a press release on regulatory changes on Thursday, August 29.
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