State Bar Task Force on Access Through Innovation of Legal Services (ATILS)

CLA submitted extensive comments expressing concerns about the State Bar proposal that would, among other things, allow nonlawyers to provide legal advice and services under certain circumstances; permit nonlawyers to own or have a financial interest in a law practice; and permit lawyers to share fees with nonlawyers under certain circumstances. This proposal is still under consideration and CLA continues to be actively engaged in the process.

Options for Regulatory Reforms to Promote Access to Justice

September 23, 2019

Angela Marlaud
Office of Professional Competence, Planning and Development
State Bar of California
180 Howard Street
San Francisco, CA 94105
E-mail: atils-pc@calbar.ca.gov

Dear Ms. Marlaud:

On behalf of the California Lawyers Association (CLA) and in response to the State Bar of California’s request for public comment, we respectfully submit this letter on the options for regulatory reform being considered by the Task Force on Access Through Innovation of Legal Services (ATILS). The Task Force has set out tentative recommendations and concepts that could significantly change the provision of legal advice and services. We greatly appreciate all the work the Task Force has done. CLA is acutely aware of the justice gap and has a keen focus on improving access to justice. Our comments below are aimed at ensuring that an appropriate balance is struck between the dual goals of public protection and increased access to justice as consideration of the tentative recommendations moves forward.

POTENTIAL CHANGES REGARDING THE UNAUTHORIZED PRACTICE OF LAW (UPL)

1.0 – THE TASK FORCE DOES NOT RECOMMEND DEFINING THE PRACTICE OF LAW

One of the ATILS tentative recommendations is not to define the practice of law. Whereas we acknowledge that defining the practice of law with precision can be difficult, and that it is often fact-based, we suggest considering whether there should be a codification of factors to consider when evaluating whether a particular activity may be considered the practice of law. A natural starting point for this would be Rules of Professional Conduct, rule 5.3.1, which provides circumstances under which a disbarred, suspended, resigned, or involuntary inactive lawyer may and may not provide services. Offering guidelines, rather than a hard definition, may strike the proper balance between the issues that ATILS identified and a decision on whether to provide a definition. Providing some guidance to potential providers would allow them to better predict whether their services would constitute the practice of law, while still maintaining agility to address a myriad of potential scenarios. If nonlawyers will be permitted to provide specified legal advice and services, as discussed below, it will be important to set out the specific tasks they are permitted to perform.

2.0 – NONLAWYERS WILL BE AUTHORIZED TO PROVIDE SPECIFIED LEGAL ADVICE AND SERVICES AS AN EXEMPTION TO UPL WITH APPROPRIATE REGULATION

The Task Force charter provides, in part: “Each Task Force recommendation should include an explanatory rationale that reflects a balance of the dual goals of public protection and increased access to justice.” We believe this tentative recommendation presents the greatest challenge in terms of striking the appropriate balance as between these dual goals. The key question here, as we see it, is how best to strike this balance as this tentative recommendation potentially moves from a broad concept to implementation of day-to-day, real world activities.

We believe this tentative recommendation is worthy of further exploration in greater depth as a potential means of increasing access to justice. At the same time, we urge caution prior to implementing any changes, as there are numerous details relating to this tentative recommendation that will require careful consideration.

We are concerned that if the appropriate balance is not struck, permitting nonlawyers (or nonlawyer entities) to provide legal advice or services may result in greater harm than good for consumers. Our concerns are not merely theoretical. Many of our members have seen problems created for consumers in various areas, including immigration (immigration consultants and notaries), bankruptcy (petition preparers), loan modifications (foreclosure and loan modification consultants), general civil and family law matters (paralegals and legal document assistants), and probate (trust mills and document preparation services). This often results in devastating injuries to consumers, sometimes caused by scam artists, but often the result of poor legal advice provided by individuals who were simply not qualified to provide that advice. Sometimes the problems that have been created cannot be fixed. When they can, significant resources may be required to remedy the harm caused by the nonlawyer who provided the initial legal advice. In many instances this results in additional costs to clients who are obligated to pay a second time, ultimately resulting in services that are far more costly. Often it is those who can least afford to pay for the services of a lawyer who are the most susceptible to the potential harm caused by nonlawyers giving legal advice.

We appreciate that the Task Force has prepared this and other tentative recommendations as options under consideration. As noted in the Task Force materials, some of the proposals would require that a subsequent implementation body evaluate and plan implementation strategies and details. It is particularly difficult to fully evaluate the implications of this tentative recommendation in the absence of specific details. As an example, the ATILS material notes that the Task Force “carefully considered public protection in developing the proposed concept options by [l]imiting the new UPL exceptions to only those providers who meet eligibility qualifications and become regulated.” The precise confines of these limitations are key. If this tentative recommendation does move forward, numerous variables would have a significant impact on any actual implementation, including 1) required education and training; 2) required qualifications; 3) licensing and regulatory oversight; 4) discipline; 5) continuing education requirements; 6) approved practice areas; and 7) permissible scope of activity. We highlight some of the more significant issues and questions below.

Training is key. To the extent nonlawyers may be permitted to provide legal advice or services, they must be adequately trained in the substantive tasks or services they will perform so they can provide the services competently. We believe that any training should also include an ethics component. Many of the lawyers’ ethical duties may not be obvious but serve important client protection purposes. It is possible current training programs for paralegals or legal secretaries could be modified to serve this purpose, but other models could be explored.

Training, education, qualifications, and licensing raise a host of interrelated issues and questions, including:

• What would be the actual educational requirements, and what level of degree would be needed?
• Would there be a set curriculum? If so, what entity would establish the curriculum and what would the curriculum be?
• Would a license be required?
• If a license is required, what entity would create and administer any examination that is required to obtain the license?
• What regulatory agency would set the licensing and other standards for the nonlawyers, as the State Bar does for lawyers?
• Will there be an experience requirement that must be met prior to licensing?
• Would continuing education be required in order to maintain a license?
• What level of lawyer supervision or oversight, if any, would be required if a nonlawyer is authorized to provide specified legal advice and services?

Ongoing regulatory oversight is also key. Thus, if any changes are made that would permit nonlawyers to provide legal advice and services, we emphasize the necessity of regulating the practice of law by nonlawyers. California’s Rules of Professional Conduct were implemented “to protect the public, the courts, and the legal profession; protect the integrity of the legal system; and promote the administration of justice and confidence in the legal profession.” (Rules Prof. Conduct, rule 1.0; see also Bus. & Prof., § 6001.1 [providing “protection of the public” is “the highest priority” of the State Bar Act].) The regulation of lawyers and nonlawyers must be coordinated to ensure there are no gaps in these protections. As examples, a lawyer’s duty of loyalty and duty of confidentiality are cornerstones of a lawyer’s duties and, for the protection of the public, should also be cornerstones of any legal services provided by nonlawyers.

One of the main responsibilities of a regulator is to discipline those who violate their duties. We believe it is important that there be consistency in disciplinary enforcement and decisions, both so that those providing legal advice (whether lawyer or nonlawyer) understand the expectations and also so the public maintains its trust in the legal services industry. If nonlawyers are subject to the same standards as lawyers, we think this coordination will be difficult if there is a regulatory agency separate from the State Bar of California that governs nonlawyers who are practicing law. If, on the other hand, different standards apply to the nonlawyers, regulation by a separate regulatory agency may be appropriate.

The permissible areas of practice and scope of activities also raise questions. In light of our concerns raised above, we urge the Task Force to explore whether there are limited areas of law where nonlawyers could be authorized to provide legal advice and services, to address a demonstrated need, and whether the benefits of having nonlawyers practice in these limited areas would outweigh the possible harm to consumers.

As part of our analysis of this issue, we have reviewed the experience in other states that have considered or adopted “limited license” models. We considered the work in Washington and Utah (which have adopted rules permitting limited practice of law by nonlawyers) as well as Colorado, Illinois, Montana, Oregon, and Virginia (which considered but have so far declined to adopt such rules). We also note the State Bar’s prior work looking into the issue of legal technicians and limited licenses, including in 1988, 1990, 1993 and 2013. A consistent theme emerges from all of this work, and the fundamental balancing question remains the same. As noted in the June 17, 2013 Agenda Item from State Bar Staff to Members of the Limited License Working Group:

The significant potential of harm to the public by both unscrupulous and well-intentioned but untrained providers of legal services cannot be ignored. Potential harm can include outright fraud; inadequate and imprecise advice; missed issues, defenses and remedies, exemptions.

Regulation offering licensure, disciplinary standards and consequences, codes of conduct, education, training, and financial responsibility can provide greater access to legal services while at the same time limiting potential harm to the public. [Report of the State Bar of California Commission on Legal Technicians (July 1990)].

2.0 – 2.6 – PERMITTING ENTITIES TO PRACTICE LAW

Regarding permitting entities to practice law, we are concerned that it will be difficult for regulatory oversight to keep up with technological developments, and we would suggest consideration of a significant level of lawyer involvement, whether as an owner or in some other capacity, to ensure the technology is maintaining compliance with ethical duties as the technology evolves and is otherwise in a position to substantively engage in the practice of law without harming consumers. The concerns expressed above (potential changes regarding UPL) and below (potential changes to the Rules of Professional Conduct) also apply here.

POTENTIAL CHANGES TO THE RULES OF PROFESSIONAL CONDUCT

To account for some of the potential changes to how legal services are provided, the ATILS tentative recommendations include potential changes to the Rules of Professional Conduct. While we acknowledge that some changes to the rules will be necessary to accommodate and support any recommendations that may ultimately be adopted, we have concerns as discussed below.

3.0 – ADOPTION OF A NEW COMMENT [1] TO RULE 1.1

The proposed language for new Comment [1] mandates that lawyers keep abreast of benefits and risks associated with relevant technology. We believe that the proposed comment does not accurately reflect the rule. That is, it is possible for a lawyer to provide competent services even though the lawyer is not fully aware of all benefits and risks of particular technologies. The rule expressly sets the threshold at the learning and skill “reasonably necessary for the performance of” legal services.

3.1 – ADOPTION OF A PROPOSED AMENDED RULE 5.4 [ALTERNATIVE 1] AND 3.2 – ADOPTION OF A PROPOSED AMENDED RULE 5.4 [ALTERNATIVE 2]

Before proposing that nonlawyers should be able to participate in fee-sharing, or otherwise share in the profits or ownership of entities that deliver legal services, we believe much greater consideration should be given to whether these approaches are likely to foster better access to justice or other advances in law firms without resulting in harm that does not exist today.

We are concerned that it will be difficult for any regulator to enforce either proposed version of rule 5.4 against savvy lawyers or nonlawyers, who may not leave a paper trail and may set up operations in which lawyers do not independently control the provision of legal services. We are not suggesting that lawyers will violate their own ethical obligations as a result of the influence of nonlawyer business partners. Rather, we believe the central question that needs to be addressed is how this would be effectively regulated.

Our concerns are based in part on what we have already seen under existing law. In one notorious case, Terry Bollea (professionally known as Hulk Hogan), sued Gawker Media for invasion of privacy after it published a sex tape, and a Florida jury awarded Hogan $140 million. What the jury—and the public—did not know at the time was that Silicon Valley billionaire Peter Thiel was secretly bankrolling the lawsuit. As reported in the New York Times, a series of previous articles about Mr. Thiel and his friends “drove Mr. Thiel to mount a clandestine war against Gawker. He funded a team of lawyers to find and help ‘victims’ of the company’s coverage mount cases against Gawker.” (Peter Thiel, Tech Billionaire, Reveals Secret War With Gawker https://www.nytimes.com/2016/05/26/business/dealbook/peter-thiel-tech-billionaire-reveals-secret-war-with-gawker.html).

Mr. Thiel was simply funding this litigation. To that extent, this was not the typical litigation funding situation, where an outside entity funds litigation in exchange for an interest in the proceeds of any ultimate recovery. Litigation funding by outsiders raises potential ethical issues. Of significance here is the possible move to situations where an “outsider” would become an “insider.” Any such change raises new concerns and requires a much different evaluation as to what the potential outcomes might be.

If nonlawyers (individuals or entities) can profit directly from the legal business in which they are partners, there would necessarily be an incentive for them to “help” their investment. This is potentially problematic if the nonlawyers are not bound by the same ethical standards as the lawyers. And even if the intent is for the nonlawyer business partners to be bound by these same standards, they would not be licensed by or subject to the regulatory or disciplinary jurisdiction of the State Bar. Thus, the State Bar would have no remedy available for a nonlawyer’s violation of the standards.

Issues are likely to arise in the context of the advertising and solicitation rules and other areas. Would the lawyers who get cases simply choose to turn a blind eye as to how the cases are coming to the firm or fail to ask their nonlawyer business partners critical questions about how the clients were obtained? Would the nonlawyer investors potentially ask the lawyers to sue a competitor of theirs for a competitive advantage without disclosing key facts to the lawyers that would not be discovered in the course of the lawyers’ ordinary due diligence? If large public companies start investing in law firms, would shareholder interests drive the agenda? Would inevitable tensions be created between the fiduciary duties that lawyers would owe to their nonlawyer partners and the fiduciary duties that lawyers owe to their clients?

As to the first more limited approach to modifying rule 5.4, we are concerned with subsection (b), which permits nonlawyers to be owners of firms if: “(1) the firm’s sole purpose is providing legal services to clients; (2) the nonlawyers provide services that assist the lawyer or law firm in providing legal services to clients; (3) the nonlawyers have no power to direct or control the professional judgment of a lawyer; (4) the nonlawyers state in writing that they have read and understand the Rules of Professional Conduct, the State Bar Act and other laws regulating lawyer conduct and agree in writing to undertake to conform their conduct to the Rules, the State Bar Act and other laws regulating lawyer conduct; (5) the lawyer partners in the law firm are responsible for these nonlawyers to the same extent as if the nonlawyers were lawyers under rule 5.1; and (6) compliance with the foregoing conditions is set forth in writing.”

Although (b)(1) and (b)(2) of this rule limit the services to be provided by law firms with nonlawyer partners, we wonder whether nonlawyers will provide services that we often think of as being outside the scope of the practice of law, such as investment advice, because it arguably assists a lawyer in its advice to a client. The outside boundaries of the rule are not at all clear. It is possible this issue could be resolved by a comment to explain what it means to “assist the lawyer or law firm in providing legal services to clients.”

As to subsection (b)(3), there is no restriction on the percentage of ownership the nonlawyers can have in the firm. A lawyer’s independent professional judgment could be influenced by the control of the law firm being in the hands of nonlawyers. Although we agree the ABA’s approach in (b)(5) of its Ethics 20/20 version is cumbersome, if this tentative recommendation is pursued we suggest considering a cap on nonlawyers’ ownership percentage of, and financial share, in the firm. As to subsection (b)(4), we believe any rules on nonlawyers must subject the nonlawyers to discipline. Therefore, any change to Rule 5.4 that would impose obligations on nonlawyers must be done in conjunction with a regulatory framework being applied to nonlawyers. Although subsection (b)(5) imposes a supervisory duty on lawyers, the public would be better protected if a nonlawyer’s conduct is directly regulated. Also, the oversight required of lawyers under subsection (b)(5) might be difficult where the nonlawyer is engaged in services that are highly specialized and not within the purview of the lawyer’s expertise, such as may be the case in a highly technological service, or where the nonlawyer holds the power or financial leverage in the relationship with the lawyer.

The second approach to modifying rule 5.4 would permit fee-sharing with nonlawyers, with restrictions that are similar to the restrictions on fee-sharing among lawyers under Rules of Professional Conduct 1.5.1 and 1.8.6. We understand this alternative is meant to create a major shift and would allow fee-sharing and partnerships between nonlawyers and lawyers so long as the consumer approves of the fee-sharing arrangement. We have the same concerns we raised above with the first alternative, but also are concerned that consumers might be misled, pressured, or may not adequately understand the ramifications of the fee-sharing arrangements they approve, which could be intricate and complex. We also are concerned that the managers of nonlawyer-owned entities that provide legal services will not be aware of or understand the importance of lawyers’ obligations, and will not have client protection in mind when operating the entity. We do not see how to resolve the major issues raised by this rule draft, and would not suggest moving forward with this version.

3.4 – ADOPTION OF REVISED CALIFORNIA RULES OF PROFESSIONAL CONDUCT 7.1–7.5

We note that the proposed changes to rules 7.1 through 7.5 will need to be coordinated with any changes to rule 5.4. Although we have concerns about fee-sharing with nonlawyers, as noted above, we appreciate the effort to address what kind of fee-sharing is permitted with for-profit lawyer referral sources, and whether this could result in an imbalance in certain areas where only lawyers who were able to pay significant premiums were able to get clients from referral services. We think further study should examine whether for-profit referral services actually increase access to justice, and if so, whether and how to allow fee-sharing with these service providers. The current proposals to rule 7.1 through 7.5 provide much needed guidance on newer marketing methods, but do not change the status quo of fee-sharing with advertisers.

OTHER APPROACHES TO INCREASING ACCESS TO JUSTICE

While possibly not within the purview of the Task Force, we encourage consideration of other alternative means to try to increase access to legal services. Many of these approaches have been pursued for years, but efforts in the following and other areas could potentially be enhanced: creating incentives for lawyers to provide bono services; expanding opportunities to provide pro bono services; expanding the use of limited-scope representation; and expanding the judiciary. These options would not necessarily replace all of the tentative recommendations, but they would avoid the potential harm to consumers we have addressed above.

Separately, we would encourage consideration of whether social purpose corporations or benefit corporations (Corp. Code, §§ 2500-3503, 14600-14631) could serve as alternatives for promoting access to justice. These structures have a purpose of serving the public in the manner defined by such corporation’s charter. These corporate forms have only been permitted in California for the past eight years and so we are not aware that they have become common, or have increased access to justice. However, these forms might serve the dual purpose of allowing innovation through the ability of the owners to make a profit while requiring the entity to have an access to justice purpose.

We appreciate the opportunity to submit these comments. We remain available to assist and provide ongoing input as the ATILS Task Force moves forward with this process.

Sincerely,

Heather Linn Rosing, President
California Lawyers Association