Far-Reaching Changes to the Practice of Law in Arizona, Part II of III
Lawyers, Get Ready for “Alternative Business Structures”
For decades, only lawyers have been allowed to own law firms. Only lawyers have been able to make management decisions in firms. Only lawyers could share in legal fees resulting from specific cases.
That all changes in Arizona in 2021.
Beginning next year, a massive conglomerate that owns big-box retail stores, insurance companies and fast-food restaurants also could own an Arizona law firm or, at the other end of the spectrum, the non-lawyer-spouse of a sole practitioner could become the lawyer’s law partner.
Get ready for alternative business structures (“ABSs”).
The Supreme Court’s Task Force on the Delivery of Legal Services – I served it as an expert consultant – last year proposed that the court adopt ABSs. If you haven’t read the task force’s report, get it here. If you haven’t read the rule-change petition and other documents that arose out of the task force’s report, read them here.
The Supreme Court adopted the ABS program as part of its rule changes in August. Here’s the order.
The nuts and bolts about ABSs, such as how to go about becoming one, don’t appear in the Supreme Court rules but are contained in the Arizona Code of Judicial Administration. The Arizona Judicial Council, which is a policy-making body that oversees the judicial system in Arizona, adopted new ACJA § 7-209 at its October 22, 2020, meeting. The AJC approved the proposal, with one change (to § 7-209(E)(4), to provide that ABS applications are public records. (The Court later amended new Rule 33.1 to accord with this.) On November 4, 2020, the Supreme Court adopted (here) the new AJCA section.
The Supreme Court’s rule changes and the new ACJA section take effect January 1, 2021. Because ABSs will be licensed, the new process no doubt will take time to get up and running, so we don’t know when the first license will be issued.
Here are some questions (many posed to me by lawyers) and answers about ABSs. This does not purport to discuss everything related to ABSs nor provide specific legal advice to anyone. Before taking any action, review the source documents and consult with legal counsel.
What does “alternative” mean? “Alternative” to what?
It’s broader and more intrinsic than simply the form of business. Think of an ABS entity as a different mechanism for providing legal services.
To understand where we’re going, look at where we’ve been.
Our current Ethical Rule (“ER”) 5.4 in general bars lawyers from sharing legal fees with non-lawyers or forming a business entity with a non-lawyer if the entity provides legal services. That non-lawyer could be someone who works in the firm or a passive investor.
Arizona has had the same rule as the American Bar Association’s Model Rule 5.4. That rule reflects the nearly-century-old general prohibition on non-lawyers owning any interest in a law firm. ABA Model Rule 5.4 and its predecessor rules as far back as the 1928 Canons of Professional Ethics have been rooted in what essentially has been economic protectionism: to keep corporations (namely banks) from providing legal services to the public. As one scholar has written, there was “no evidence that the corporations then supplying lawyers to clients were harming the public, and the transparent motivation behind the legislation was to protect lawyers’ business.”
Until now, only one U.S. jurisdiction has allowed non-lawyers to have an ownership interest in law firms. Since 1991, the District of Columbia has allowed non-lawyers within a law firm to have financial interests or managerial authority.
The ABA Model Rule and Arizona rule also have prohibited sharing legal fees with non-lawyers. This has meant that law firms can’t give their non-lawyer staff a percentage of revenue from specific legal cases.
Eliminating ER 5.4 (effective January 1, 2021) is the cornerstone of ABS.
Why would Arizona eliminate ER 5.4 to allow non-lawyers to own law firms? Are we just following what everyone else doing?
Actually, we’re not following; we’re leading.
Arizona has gone further than any other jurisdiction. Utah has approved a two-year experimental “sandbox.” Many other jurisdictions, including the District of Columbia and California, are studying the issue. (For more information on what other jurisdictions are doing, go to the ABA’s Center for Innovation, whose governing council is chaired by Arizona’s own Don Bivens, of Snell & Wilmer.
As for why Arizona made these changes (and others, such as adopting the legal-paraprofessional licensing program) Arizona Supreme Court Chief Justice Robert Brutinel, in the August 27, 2020, press release announcing the court’s action, said:
“The Court’s goal is to improve access to justice and to encourage innovation in the delivery of legal services. 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. These new rules will promote business innovation in providing legal services at affordable prices.”
Vice Chief Justice Ann Scott Timmer chaired the Task Force on the Delivery of Legal Services.
I’ve been practicing law for a million years. This ABS idea is absolutely crazy. Only lawyers should be able to own and operate law firms. Who in their right mind might would even want to become an ABS?
Maybe:
A sole practitioner who wants to add their non-lawyer spouse as a partner;
A law firm that wants to give an ownership interest to a non-lawyer professional who works in the firm;
Lawyers and non-lawyers who want to form an entity to become a “one-stop shop” for people who need multi-disciplinary services;
A big law firm that wants to give management decision-making to a non-lawyer, such as a firm administrator;
A conglomerate that wants to own a law firm as an investment; or
A tech company that thinks it can build a better way to practice law or otherwise serve legal clients.
This means that a massive conglomerate that owns big-box retail stores, insurance companies and fast-food restaurants will be able to practice law if it owns a law firm, right? Just imagine this coming out of a fast-food drive-through’s speaker: “Would you like fries and an estate plan with that burger?” Ha ha ha!
No, no, no!
Only lawyers, and anyone else the Arizona Supreme Court authorizes, may practice law. The ABS rule changes don’t authorize an ABS entity to practice law.
If a conglomerate – let’s call it Massive Inventory of Stuff Corporation (“MISC”) – buys a law firm, neither MISC or its non-law-firm subsidiaries will be able practice law. MISC may be an ABS license holder, but only the lawyers who work for MISC can practice law.
Is “ABS” defined?
Rule 31.1(c), Ariz. R. Sup. Ct., provides the authority for non-lawyer ownership:
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.
Then ACJA § 7-209 defines “alternative business structure” as a business “that includes nonlawyers who have an economic interest or decision-making authority in the firm and provides legal services in accord with Supreme Court Rules 31 and 31.1(c).”
As these rules show, the ABS entity itself can’t practice law. It must employ an active lawyer to supervise the practice of law and only persons authorized by Supreme Court rules can provide legal services.
By the way, if you go looking in the current Supreme Court rules for Rule 31.1, you won’t find it. It resulted from reorganizing and clarifying the existing Rule 31, and doesn’t take effect until January 1, 2021.
In those provisions, what does “economic interest” mean? Doesn’t everyone who works for a law firm have an “economic interest”?
“Economic interest” is a key concept, defined in ACJA § 7-209:
“Economic interest” means (1) a share of a corporation’s stock, a capital or profits interest in a partnership or limited liability company, or a similar ownership interest in any other form of entity, or (2) a right to receive payments for providing to or on behalf of the entity management services, property, or the use of property (including software and other intangible personal property) that is based, in whole or in part, on the firm’s gross revenue or profits or any portion thereof. Notwithstanding the foregoing, “economic interest” does not mean employment-based compensation pursuant to a plan qualified under the Internal Revenue Code of 1986, as hereafter may be amended, or any successor rule, or discretionary bonuses paid to employees.
Note the last sentence of this definition, which is intended to exclude salaries and bonuses.
So yes, everyone who works in a firm has an economic interest, but not an “economic interest” as defined for ABS purposes.
What about “decision-making authority”?
ACJA § 7-209:
“Decision-making authority”: the authority, by operation of law or by agreement, to directly or indirectly:
1. Legally bind the ABS;
2. Control or participate in the management or affairs of the ABS;
3. Direct or cause the direction of the management and policies of the ABS; or
4. Make day-to-day or long-term decisions on matters of management, policy, and operations of the ABS.
It’s shorthand to say that eliminating ER 5.4 will mean non-lawyers will be able to own law firms, but the concept of alternative business structures is broader.
Note the disjunctive in Rule 31.1(c): an entity that includes non-lawyers “who have an economic interest or decision-making authority” must be licensed as an ABS. If a non-lawyer may legally bind, control the management, “direct … management and policies” or “[m]ake day-to-day or long-term decisions on matters of management, policy, and operations,” the entity must be an ABS.
What’s this “compliance lawyer”?
The compliance lawyer must take “all reasonable steps” to ensure that
the lawyers in the ABS comply with their ethical and professional responsibilities;
the ABS’s authorized persons perform all duties and functions in a matter ethically required of a lawyer; and
the ABS’s authorized persons and others employed, associated with, or engaged by the ABS do not cause or substantially contribute to a breach of the regulatory requirements of the ABS code of conduct or the ethical and professional obligations of lawyers.
[ACJA § 7-209(G)(3)(b)(1)-(3)]
In addition, the compliance lawyer needs to be prepared to report the ABS entity — the compliance lawyer’s employer — for breaches. The compliance lawyer must:
Ensure that a prompt report is made to the State Bar of “any facts or matters reasonably believed to be a substantial breach” of the code or the ethical and professional obligations of lawyers, and
Ensure that the State Bar is promptly informed of “any fact or matter that reasonably should be brought to its attention” so it may investigate whether a breach of regulatory or ethical requirements has occurred.
[ACJA § 7-209(G)(3)(b)(4), (5)]
I’m a sole practitioner, and my spouse, who isn’t a lawyer, works as my assistant. We might be interested in becoming an ABS. How would we do that?
Potential ABSs will have to apply and show all sorts of qualifications – a kind of a character-and-fitness evaluation – to become licensed.
An ABS applicant will need to show that its business meets what are called “regulatory objectives”:
(A) protecting and promoting the public interest;
(B) promoting access to legal services;
(C) advancing the administration of justice and the rule of law;
(D) encouraging an independent, strong, diverse, and effective legal profession; and
(E) promoting and maintaining adherence to professional principles.
[Rule 33.1(b); ACJA § 7-209(G)(1)(h)]
An ABS applicant also must designate a compliance lawyer, an active State Bar member who will be responsible for ensuring that the ABS complies with all the rules. The compliance lawyer must be a manager or employee of the ABS and “possess credentials and experience in the legal field to ensure that ethical obligations, protection of the public, and standards of professionalism are adhered to.” [ACJA § 7-209(G)(3)(a)]
Other requirements include disclosing all “authorized persons,” who must submit indemnification and conflict-of-interest statements. An “authorized person” means a person with an economic interest in the ABS equal to or more than 10% of all economic interests in the ABS or someone who has the legal right to exercise decision-making authority on behalf of the ABS. Examples of those with decision-making authority: sole proprietor, LLC manager, corporation officer, general or limited partnership general partner.
The Administrative Office of the Courts’ certificate and licensing division, along with a new ABS committee, will vet applications.
In addition to considering whether an ABS applicant meets the regulatory objectives and other requirements, the ABS committee will decide whether an ABS applicant has “adequate governance structures and policies” in place to ensure that
(A) lawyers providing legal services to consumers act with independence
(B) the ABS maintains proper standards of work;
(C) the lawyer makes decisions in the best interest of clients;
(D) confidentiality is maintained; and
(E) any other business policies or procedures do not interfere with lawyers’ duties and responsibilities to clients.
[Rule 33.1(b)(2); ACJA § 7-209(E)(2)(a)(2)]
The ABS committee will make recommendations on applications to the Supreme Court, which will make the final decision on whether an ABS is licensed. [Rule 33.1(a)(5)]
If my spouse and I decide to become an ABS, we don’t want to have to hire another lawyer. What do we do about a compliance attorney?
Nothing prohibits a lawyer who already works for the firm from also serving as the compliance lawyer. The lawyer would, however, have to meet the compliance lawyer qualifications of possessing “credentials and experience in the legal field to ensure that ethical obligations, protection of the public, and standards of professionalism are adhered to.”
Will ABS license applications be confidential?
As adopted, new Rule 33.1(e) made ABS committee proceedings and records of ABS applications confidential, similar to how bar admission applications are confidential. An emergency rule-change petition (R-20-0043) has been filed asking the court to amend new Rule 33.1(e) to make applications open to the public, pursuant to Rule 123, Ariz. R. Sup. Ct. The Arizona Judicial Council also adopted a version of ACJA § 7-209 that provides that records are public.
Why might my ABS application be denied?
The ABS committee may recommend that an ABS application be denied based on grounds including that the ABS applicant or any authorized person in the ABS:
Had made a material misrepresentations;
Has a felony conviction;
Has a misdemeanor conviction, if reasonably related to the practice of law or the delivery of legal services;
Has been disbarred from, or denied admission to, the practice of law;
Is currently suspended from the practice of law; and
Has had any professional or occupational license or certificate denied, revoked, suspended or subject to any disciplinary action.
[ACJA § 7-209(E)(2)(d)]
How much will it cost me to become an ABS? Also, will lawyers be subsidizing this system? Massive conglomerates that want to buy law firms for investment should pay their way.
ABS applicants will pay hefty licensure fees, based on the size and type of entity. The fees are set out in ACJA § 7-209(J).
If MISC -- the conglomerate that owns big-box retail stores, insurance companies and fast-food restaurants – wants to be an ABS and has locations outside of the United States, it would fall into the “international” category and pay $12,000 as an initial licensing fee.
Non-law firms will pay $10,000 or $6,000, depending on size. Non-profits will pay $5,000 or $2,000, the lesser amount for Arizona-based entities.
A traditional law firm that wants to become an ABS just to have non-lawyer economic interest holders will pay $6,000.
Applicants also might pay more. ACJA § 7-209(E)(1)(b) allows additional fees to be charged if the licensing investigation becomes costly.
Once licensed, ABSs have to renew every year and pay renewal fees.
That all looks too involved. I’ll just make my spouse a partner without doing the ABS thing.
A lawyer must do the ABS thing if the lawyer wants to make a non-lawyer a partner. A lawyer who provides legal services through an unlicensed ABS is at the very least engaging in the unauthorized practice of law. [ER 5.3, comment [1]]
OK — I’ll do the ABS thing. Then what?
ABSs must keep all records of anyone receiving legal services confidential. [ACJA § 7-209(G)(2)(d)] For a law firm that is elevating an existing employee to owner status, keeping client information confidential should be second nature. But MISC, which just wants to be a passive owner for investment, may have a hard time with this concept, considering it owns other businesses that could benefit from new marketing leads.
ABSs also must comply with a code of conduct, set out in ACJA § 7-209(K), that instructs ABSs in part that they:
May not allow representation if it would result in a conflict of interest;
May not “take any action or engage in activity that interferes with the professional independence of lawyers or others authorized to provide legal services”;
May not “take an action or engage in any activity that misleads or attempts to mislead a client, a court, or others, either by the ABS’s own acts or omissions, or those of its members or employees, or by allowing or being complicit in the acts or omissions of others”;
Must “maintain effective governance structures, arrangements, systems, and controls…..”;
Must “monitor financial stability and business viability”;
Must “hold property of legal services clients separate from the property of the ABS”; and
Must “assure that all authorized persons and employees, in matters pertaining to legal services, perform all duties and functions in the manner ethically required of a lawyer.”
What if a licensed ABS violates the code of conduct or that confidentiality provision?
The State Bar will investigate and, if necessary, prosecute complaints against ABSs and anyone involved with an ABS. The current lawyer disciplinary system will handle those complaints. [ACJA § 7-209(H)]
Possible sanctions against the ABS entity include
Revocation or suspension of license
Restitution or disgorgement of fees
Civil fine up to $1 million
[ACJA § 7-209(H)(2)]
Up to now, only individual lawyers have been subject to discipline, even if the misconduct involved systemic or firm-wide problems. This is the first time Arizona has had any kind of professional legal-entity regulation.
In addition, all of the authorized persons, managers, economic interest holders, and decision-makers are “individually responsible for compliance by the ABS with this code of conduct,” subject to discipline for failures or breaches.
The compliance lawyer is individually responsible for compliance by the ABS and all authorized persons. In fact, the compliance lawyer may be placed on interim suspension for failing to comply with their ABS-related obligations. [ACJA § 7-209(H)(2)]
I’m an in-house counsel for MISC. Even if MISC doesn’t buy a law firm, do these changes mean MISC must be an ABS because it employs lawyers?
In-house counsel typically provide legal services only to their employer, not to third parties. If those in-house lawyers provide legal services to third parties, then they would seem to fall within the Rule 31.1(c) definition of needing to be licensed as an ABS.
Let’s assume my law firm becomes an ABS. What does that mean for the lawyers in our firm?
New ER 5.3(d) requires that lawyers who work in an ABS make sure the ABS has the compliance lawyer:
When a firm includes nonlawyers who have an economic interest or managerial authority in the firm, any lawyer practicing therein shall ensure that a lawyer has been identified as responsible for establishing policies and procedures within the firm to assure nonlawyer compliance with these rules.
Plus, conflicts may arise. See below for examples.
If MISC owns my law firm, could MISC mine my firm’s client files for information to use in marketing for its big-box retail stores, insurance companies and fast-food restaurants?
No. MISC isn’t supposed to mine the law firm’s client files to get marketing info. Records regarding anyone receiving legal services must be kept confidential. [ACJA § 7-209(G)(2)(d)]
What if, instead of MISC owning my firm, my firm just has a non-lawyer real-estate agent as a partner? Could that person use law client information for their real-estate marketing?
No, for the same reason MISC can’t. Also, unlike MISC, that non-lawyer partner probably is in the office and is privy to information about cases and clients. The comment to ER 1.6 (confidentiality) has been amended to make clear that non-lawyers in a firm must keep client information they learn confidential:
[5] Except to the extent that the client's instructions or special circumstances limit that authority, a lawyer is impliedly authorized to make disclosures about a client when appropriate in carrying out the representation in some situations, for example, a lawyer may be impliedly authorized to admit a fact that cannot properly be disputed or, to make a disclosure that facilitates a satisfactory conclusion to a matter. Lawyers in a firm may, in the course of the firm's practice, disclose to each other, and nonlawyers in the firm, information relating to the legal representation of a client of the firm, unless the client has instructed that particular information be confined to specified lawyer . Any such shared information shall be subject to requirements of confidentiality.
What if MISC owns my law firm and the opposing counsel owns shares in MISC? Isn’t that a conflict for opposing counsel? In a weird way, my law firm and opposing counsel would be members of the same ownership.
New ER 1.7(c) anticipates problems like this. It prohibits representation if “the same person or entity holds an ownership interest, directly or indirectly, of 10 percent or more, or has managerial authority comparable to that of a partner, in the lawyer’s firm and the other firm.”
If there’s not “effective control” – the ownership or management thresholds in ER 1.7(c) – then the general conflict provisions of ER 1.7 apply. [ER 1.7, comment [34]]
If opposing counsel has effective control in the opposing law firm and MISC, then opposing counsel would have a conflict.
Assume MISC owns my law firm. What if MISC also owns stock in the opposing party in one of my cases? Or worse, my client is suing one of MISC’s subsidiaries? The entity that owns my law firm also owns the opposing party!
The new comment to ER 1.7 addresses this:
[W]here a lawyer or other owner of a firm has a financial interest in an opposing party, the interest will ordinarily be considered a “personal interest” as that term is used in ER 1.10(a) that may not be imputed to other lawyers in the firm, unless that personal interest would materially limit the other lawyers’ independent professional judgment. Even though the personal interest conflict will not be imputed to other members of the firm, the lawyer must disclose the interest to the firm’s client and obtain their informed consent confirmed in writing, to proceed with the representation.
[ER 1.7, comment [34]]
If MISC owns two shares of the opposing party, that wouldn’t probably materially limit a MISC lawyer’s independent judgment (unless the opposing party has only issued a few shares of stock). But the lawyer would still have to disclose MISC’s ownership to the client and get the client’s informed consent.
If the opposing party is one of MISC’s subsidiaries, however, that would be a straight-up, non-consentable conflict. That would be no different from a law firm that currently owns a law-related business wanting to represent a client adverse to that law-related business.
If MISC owns my firm, could my client buy insurance from one of the insurance companies MISC owns? Or a TV from one of its big-box retail stores? Or lunch from its fast-food restaurants?
The Ethical Rules now explicitly define what is and is not a business transaction. A “standard commercial transaction between a lawyer and a client for products or services that the client generally markets to others and over which the lawyer has no advantage with the client” is not a business transaction. [ER 1.0(n)(2)] For example, a lawyer who represents a fast-food restaurant – even a mom-and-pop business – can patronize it, just like any other customer does.
In the same way, a law-firm client could patronize MISC-owned companies.
However, if the lawyer knows, for example, that the law-firm client needs insurance and refers the client to the MISC-owned insurance company, then that would be a business transaction. [New ER 1.0(n)(1)(ii) (“’Business transaction,’ when used in reference to conflicts of interests … includes but is not limited to … a lawyer referring a client to nonlegal services performed by others within a firm or a separate entity in which the lawyer or the lawyer’s firm has a financial interest…”)] The lawyer would have to comply with ER 1.8(a), the business-transaction rule.
I practice family law; my spouse is a real-estate agent. If we become partners and get licensed as an ABS, can I represent someone against one of my spouse’s real-estate clients? I don’t have anything to do with my spouse’s real-estate clients.
If your spouse were a lawyer and you were law partners but you never had anything to do with your spouse’s law clients, could you represent a client against one of them? Of course not – you and your spouse are part of the same firm. Your spouse’s clients would be your clients, for conflict purposes.
The same applies to a non-lawyer spouse’s clients if the lawyer and the non-lawyer spouse are partners in an ABS.
ER 1.10(a) has been amended to make this clear:
While lawyers and nonlawyers are associated in a firm, none of them shall knowingly represent a client on legal or nonlegal matters when any one of them practicing alone would be prohibited from doing so by ERs 1.7 or 1.9, unless the prohibition is based on a personal interest of the prohibited lawyer or nonlawyer and does not present a significant risk of materially limiting the representation of the client by the remaining lawyers and nonlawyers in the firm.
I practice family law. My clients often need to sell real estate. My spouse is a real-estate agent. I often refer my clients to my spouse for real-estate services. If we become partners and get licensed as an ABS, can I continue to refer my legal clients to my spouse for real-estate services? Wouldn’t I then be doing business with a client because I’ll benefit from my non-lawyer spouse partner providing real-estate services?
Aren’t you already benefitting by referring your family law clients to your spouse without being an ABS? Better check that out.
If a lawyer becomes partners with the lawyer’s real-estate-agent spouse, the lawyer would indeed benefit from referring family-law clients to the partner-spouse for non-legal services. This would be a business transaction. [New ER 1.0(n)(1)(ii) (“’Business transaction,’ when used in reference to conflicts of interests … includes but is not limited to … a lawyer referring a client to nonlegal services performed by others within a firm or a separate entity in which the lawyer or the lawyer’s firm has a financial interest…”)]
New ER 1.8(m) then requires that
A lawyer wishing to engage in a business transaction with a client must comply with both ER 1.7 and 1.8(a) if:
(1) the client expects the lawyer to represent the client in the transaction; or
(2) the lawyer’s financial interest otherwise poses a significant risk that the lawyer’s representation of the client will be materially limited by the lawyer’s financial interest in the transaction.
Our law firm employs many non-lawyer staffers. They do a great job bringing in clients. We like the idea of giving them a percentage of fees from those cases as bonuses. I understand that eliminating ER 5.4 means we could do that. But then would we have to become an ABS?
Eliminating ER 5.4 does indeed result in law firms being able to share fees from specific cases with non-lawyer staff. A law firm doesn’t have to become an ABS, however, because merely giving bonuses to the non-lawyer staff doesn’t mean the staff have the kind of economic interest that triggers application of Rule 31.1(c). The definition of “economic interest” excludes “employment-based compensation … or discretionary bonuses paid to employees.”
This is too complicated. I just want to continue practicing law as I’ve always practiced law. No non-lawyer partners, no sharing of legal fees with non-lawyers. Do I have to do something as a result of these rule changes?
If a law firm of any size doesn’t want to become an ABS, it doesn’t have to. The rule changes allow lawyers to include non-lawyers as owners, but doesn’t require that all lawyers make changes. And a lawyer is not obligated to share legal fees with non-lawyers.
You can just keep doing you, if that’s what you want.
Do I have an obligation to know if opposing counsel’s firm is an ABS?
No rule explicitly requires a lawyer to ask about the ownership structure of a law firm. But consider the question above about MISC owning a law firm and opposing counsel owning shares of MISC. Lawyers will need to know if they have ER 1.7(c) conflicts.
I don’t want to be an ABS and don’t care about them. Can’t I just ignore that ABSs exist?
All lawyers should know about ABSs in general because this is such an important change.
Also, new ER 8.3(c) imposes an expanded reporting obligation on lawyers:
A lawyer who knows that a legal paraprofessional or certified Alternative Business Structure entity has committed a violation of the applicable codes of conduct that raises a substantial question as to the person or entity’s compliance with the codes shall inform the appropriate authority.
As a result, lawyers will need to pay attention to ABSs (and legal paraprofessionals) and their requirements in the event lawyers come across ABS entities and LPs that have acted unethically or violated their codes of conduct.
This is similar to how lawyers need to know enough about the Code of Judicial Conduct to know if a judge is violating the code. [ER 8.3(b) (“A lawyer who knows that a judge has committed a violation of applicable rules of judicial conduct that raises a substantial question as to the judge's fitness for office shall inform the appropriate authority”)].
Post updated 01/04/21 to include the Court’s order R-20-0043 amending Rule 33.1(e) to provide that ABS records and proceedings are not confidential but are governed by Rule 123.
Post updated 11/05/20 to include final ACJA § 7-209 adopted by the Court.
Next up: Far-Reaching Changes to the Practice of Law in Arizona, Part III of III: Other Ethical Rule changes