In recent years, we have experienced the relaxation of rules governing ownership of law firms in a small number of states, beginning with Utah in 2020 and Arizona in 2021. However, despite these developments, there has yet to be a wider adoption of Alternative Business Structures (ABS), with industry commentators suggesting that resistance to change among law firms stems from an unwillingness to divert from the traditional partnership model.
An LFJ Conversation with Michael Kelley, Partner, Parker Poe
In recent years, we have experienced the relaxation of rules governing ownership of law firms in a small number of states, beginning with Utah in 2020 and Arizona in 2021. However, despite these developments, there has yet to be a wider adoption of Alternative Business Structures (ABS), with industry commentators suggesting that resistance to change among law firms stems from an unwillingness to divert from the traditional partnership model.
A new article from The American Lawyer provides an overview of the current attitude towards ABS adoption in the U.S., highlighting both the resistance within the current leadership of law firms and the lack of regulatory unity within the country. Allen Fagin, senior adviser to Validity Finance, argues that control is the determining reason behind law firms’ hesitancy to changing ownership models, and that the possibility of partners losing their individual financial returns to outside investors is a major stumbling block.
Despite the ongoing opposition to the practice from many law firms, litigation funders are looking for opportunities to make such investments, with Validity’s CEO Ralph Sutton stating that these align with the industry’s overall goal, which is to provide the capital needed to widen access to justice.
Burford Capital has already made one such investment in PBC Litigation in the UK, with Burford’s co-founder Jonathan Molot pointing out that funders and law firms are really “natural partners”. However, the lack of regulatory cohesion between states in the U.S. will no doubt continue to present issues, and David Perla, co-COO at Burford, suggests that it will take time for all parties to become more comfortable with the new regulatory structure before there is wider adoption.
