Arizona Vice Chief Justice Ann Timmer gives an overview of the state’s reforms allowing lawyers and non-lawyers to share fees.
The Digital Edge
Vice Chief Justice Ann A. Scott Timmer was appointed to the Arizona Supreme Court in 2012 by...
Sharon D. Nelson, Esq. is president of the digital forensics, managed information technology and cybersecurity firm Sensei...
Director of the Oklahoma Bar Association’s Management Assistance Program, Jim Calloway is a recognized speaker on legal...
In hopes of encouraging growth in their legal community in a variety of ways, Arizona has removed barriers preventing lawyers and non-lawyers from sharing fees. To learn more about what this change could mean for the profession as a whole, hosts Sharon and Jim talk with Arizona Vice Chief Justice Ann Timmer about the positive impacts they hope this new reform will bring. Along with hopes of helping law firms improve entrepreneurial success, the main driver behind this reform was to increase access to justice by encouraging creativity and innovation in legal service delivery.
Vice Chief Justice Ann A. Scott Timmer has served on the Arizona Supreme Court since her appointment in 2012.
Special thanks to our sponsors, Clio, Scorpion, Blackletter Podcast, Alert Communications.
The Digital Edge
Arizona First State to Approve Non-Lawyer Ownership of Law Firms
Intro: Welcome to The Digital Edge with Sharon Nelson and Jim Calloway, your hosts, both legal technologists, authors, and lecturers invite industry professionals to discuss a new topic related to Lawyers and Technology. You’re listening to Legal Talk Network.
Sharon Nelson: Welcome to the 154th edition of The Digital Edge: Lawyers and Technology. We’re glad to have you with us. I’m Sharon Nelson, president of Sensei Enterprises, an information technology, cyber security, and digital forensics firm in Fairfax, Virginia.
Jim Calloway: And I’m Jim Calloway, director of the Oklahoma Bar Association’s Management Assistance Program. Today, our topic is Arizona is the first state to approve non-lawyer ownership of law firms.
Sharon Nelson: But first, we’d like to thank our sponsors. Thanks to our sponsor Clio. Check out Clio’s Daily Matters Podcast for the latest on legal in the COVID-19 air. Listen to Daily Matters at Clio.com/daily or subscribe wherever you get your podcasts. We’d like to thank Alert Communications for sponsoring this episode. If any law firm is looking for call intake or retainer services available 24/7, 365, just call 866-827-5568.
Jim Calloway: We’d also like to thank our sponsor, the Blackletter Podcast, a show dedicated to making law exciting and fun with informative interviews and advice from esteemed guests. Thanks to Scorpion. Scorpion is a leading provider of marketing solutions for the legal industry, with nearly 20 years of experience serving attorneys, Scorpion can help you grow your practice. Learn more at scorpionlegal.com. Our guest today is Vice Chief Justice Ann A. Scott Timmer, who was appointed to the Arizona Supreme Court in 2012 by Governor Janice K. Brewer. Prior to her appointment to the Arizona Supreme Court, Justice Timmer was a judge on the Arizona Court of Appeals from 2000 to 2012, serving three years as chief judge. Notably she chaired the court’s Legal Services Task Force, which recently recommended removing barriers for lawyers and non-lawyers to share fees. She also chairs the court’s Attorney Regulation Advisory Committee as a member of the National Conference of Bar Examiners Board of Trustees and has been elected as a member of the American Law Institute. Recently, she has been elected to serve on the Board of Trustees of the Appellate Judges Education Institute. Justice Timmer earned a bachelor’s degree from the University of Arizona, a J.D. Magna Cum Laude from Arizona State University, and a master’s in judicial studies from Duke University Law School. Thanks for joining us today, Justice Timmer.
Ann A. Scott Timmer: Thank you very much, Jim. I’m delighted to be here.
Sharon Nelson: Justice Timmer, you chaired the Arizona Supreme Court’s Legal Services Task Force, which recommended removing barriers for lawyers and non-lawyers to share fees. How did this issue come before the Task Force and when did its deliberation start?
Ann A. Scott Timmer: The issue came before the Task Force in January of 2019, which was the first month the Task Force, met and the purpose of the Task Force was to examine a number of issues as directed by our then Chief Justice Scott Bales, including whether we should allow lawyers and non-lawyers to share fees. So, right from the get-go, that was one of the tasks that the Task Force was to look at.
Jim Calloway: Ultimately, the Task Force recommended in favor for removing barriers for lawyers and non-lawyers to-share fees. How long did it take for the Task Force to make that recommendation, and were there any dissenting views?
Ann A. Scott Timmer: Well, our Task Force moved very quickly. We met from January of 2019 through September that year and it culminated with a written report with ten recommendations to the Supreme Court which we sent to the court in October of that year. So, you can see it was a very fast-paced discussion that happened in the Task Force. So, it took about nine or ten months to digest it, have speakers, have work groups, have public input, and it moved very quickly. We did have — ended up having one dissenting view. Actually, all of us I think when we started out thought, “Well, this is just crazy. We can’t we can’t eliminate ER 5.4 and allow lawyers and non-lawyers to share fees. It’s never been done that way.” So, a number of us came from that place, myself included, but eventually in talking to—
–people in different countries who have allowed this for years and having presentations and really discussing it and looking at the origins for the ER and its necessity in today’s market, everyone on the commission save one person ultimately concluded that was the way to go. So, we did have one dissent, but the vast majority agreed with it.
Sharon Nelson: So, Justice Timmer, the recommended regulatory reforms were adopted unanimously by the court in late August and if I can read my notes here, they became effective, or they will become effective on January 1, 2021. Is that correct?
Ann A. Scott Timmer: That’s correct.
Sharon Nelson: And I understand there is now a framework to license these new businesses called alternative business structures, and also that the court instituted a new licensure process that will allow non-lawyers, called Legal Paraprofessionals, to begin providing limited legal services including being able to go into court with clients. How do you think these changes will positively impact the legal profession?
Ann A. Scott Timmer: Well, we’re hopeful that it will positively impact the legal profession in a number of ways. First, with what I think most lawyers are very interested in and this is this alternative business structure, what we hope it will do is it provide additional capital to be infused in legal firms, which in turn will allow for greater technological innovations in the delivery of legal services to the public. So, right now, you might put money into your law firm to, “Let’s have the latest technology,” that kind of thing, but at this point if you’re in private law firms, at least the feedback we got most often, people aren’t looking down the line 10, 20 years. They think they want to have a lot of their profits taken out now and aren’t really looking that far into the future. So, with an infusion though of capital from someone who’s able to invest, maybe in the long-term you can have more technology and partnering with technologists with a stake is anticipated to result in more innovation than just hiring someone to put technology into an existing practice. So, that’s one thing. Also, we’re hoping that it would allow firms to attract the best and the brightest non-lawyer partners, as they also desire equity in a firm that they’re putting their time, sweat, and tears into.
So, this happens in the Washington D.C. market now to a limited degree. So, they might allow for example PR people or lobbyists to have equity interest in the firms, and that attracts the best and the brightest because if they know they can have a stake in the firm, that’s something that that they would like to invest in as well. Also, it’ll allows smaller-scaled, maybe one-stop shopping to provide legal and non-legal services to a client, and it will also help hopefully people who right now primarily use do-it-yourself platforms to be able to get greater services as well. So, for example, if you might have a LegalZoom or one of those who sell forms and such, they have the ability then — they have a lawyer there to say, “Well, you direct people in using the correct form.” For example, you don’t need a guardianship form. You maybe need a conservatorship form, that kind of thing. With the legal paraprofessionals, this was simply intended to provide more avenues for legal assistance in areas where we’re just not seeing lawyers currently. So, for example in the administrative hearings, criminal proceedings, and limited jurisdiction courts that don’t involve incarceration and very small dollar cases and family court matters, with the exception of family court matters, you really don’t see lawyers in the other areas and in family court, you don’t see lawyers in the vast majority of cases. So, it will help with certainly the clientele. The people in the community who need legal services can get them from legal paraprofessionals, but as far as lawyers go, lawyers can also hire legal paraprofessionals and expand their practices. Lawyers in the family law practice for example can lower their costs by deploying these people and having a greater quantity in their practice, and also for — just it’s always worth throwing out that it will reduce the number of pro per litigants, especially in the family law area, which is a huge benefit to the court system.
Sharon Nelson: Well, I asked you an awful lot of questions in one question, so thank you for that that extensive answer. You know, the funniest part to me was you reference lawyers not necessarily looking 10 to 20 years down the road and wanting to take money out but one of the very strange benefits of the pandemic has been that they’ve been investing in technology like never before, and they have moved themselves 10 years or more down the road because of that investment, but they were forced into it by the pandemic so that was kind of a curious benefit, don’t you think?
Ann A. Scott Timmer: It has been, and you could see it during the pandemic that at least in Arizona and—
–I’m sure elsewhere where you saw great use of like telemedicine for example, even in the legal industry of Rule 11 hearings and such done with that kind of technology in place, because of course the medical profession has gone down this road 50 or 60 years ago, allowing for these kinds of things. We saw it more in the pandemic and I think people saw the value of being able to use technology to enhance their practices.
Jim Calloway: Well, I know in other states, and notably Utah and California, have considered similar regulatory reforms and instead decided on a sandbox approach, a trial approach. Can you tell us about their progression down the same path and why you believe they weren’t willing to flatly adopt these regulatory reforms in the way that Arizona did?
Ann A. Scott Timmer: Well, of course I can’t speak definitively for them but I can speculate a bit and I have had discussions with the Utah folks in particular and somewhat with the California people as well. We too considered the sandbox approach originally. So, after you got us all off the diamond thinking, “Well, we can’t possibly do this,” into the realm of, “Well, this is possible. Maybe we should do it as a sandbox approach,” it does have the benefit of dipping your toes so to speak in a new regulatory regime, and then withdrawing quickly if that regime is not desirable, if the water is too cold or too hot. It also has the advantage of building the regime after determining how the test cases have fared. So, I’m assuming that that, it’s a more measured approach and I’m assuming that’s why Utah and California probably went that way, and it’s a reasonable way to go. We ended up rejecting the approach, mostly because we feared that people, entities, firms wouldn’t want to invest a lot of time and capital into constructing something when there was a chance that we might pull the plug in a couple of years. Instead, we drew on the experiences that the U.K. has had in regulating entities and in our own experience, frankly in regulation the court regulates, we already regulate entry entities, fiduciary entities. For whatever reason in Arizona, we regulate defensive driving schools and the like. And so, we have some of those experiences so instead, we just went ahead and drafted the rules that entities would have to follow, and then we’ll know to apply for licensure.
Oddly enough, I’ve looked at Utah, at least in some depth, their sandbox approach and in effect, our systems really are not all that different from each other, in both a committee stillness that the application — the application still has in both systems regulations behind them and rules and things that must be provided, and a recommendation must be made to the Supreme Court in both states who ultimately have the final say, and then in Utah if you’re in, you’re in. You’re grandfathered in even if they decide the program should be sunsetted, so it’s not that different in the end, but there are two different approaches to get to the same place.
Jim Calloway: Very interesting. Before we move on to our next segment, let’s take a quick commercial break.
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Sharon Nelson: Welcome back to The Digital Edge on the Legal Talk Network. Today, our subject is Arizona first state to approve non-lawyer ownership of law firms. Our guest today is Vice Chief Justice Ann A. Scott Timmer, who was appointed to the Arizona Supreme Court in 2012 by Governor Janice K. Brewer. Prior to her appointment to the Arizona Supreme Court, Justice Timmer was a judge on the Arizona Court of Appeals from 2000 to 2012, serving three years as chief judge. Notably, she chaired the court’s Legal Services Task Force, which recently recommended removing barriers for lawyers and non-lawyers to share fees. Justice Timmer, what do you see as the strongest driver for these regulatory reforms?
Ann A. Scott Timmer: The strongest one has to be the widening civil justice gap. According to the World Justice Project, the U.S. is presently tied for 99th—
–out of 126 countries in terms of access to and affordability of civil justice, and if I’m writing, throw out a couple other statistics that 86 percent of civil legal matters reported by Americans with low incomes received no or inadequate legal help, and 76 percent of cases involve at least one self-represented party. In those cases as well, if they’re money cases, the medium judgment is only 2,441 dollars, and the average is just a bit over 5,000. So, these are not cases that most lawyers would consider worth their time, but they’re still important to the litigants. So, I think that everyone knows it anecdotally, that people for the most part aren’t able to get their legal needs met in the civil arena, and that’s why they’re going outside of our regulatory framework of the legal profession. They’re simply going around us through looking for legal help in different arenas, so I think that was the biggest driver of the reforms.
Jim Calloway: As you know, there’s been considerable opposition to the elimination of Ethics Rule 5.4. In fact, the ABA House of Delegates has had some very vigorous debates on the topic. Could you outline for our listeners what the opponents of such reforms typically argue?
Ann A. Scott Timmer: Well, I’ve heard of course of many, many arguments and I think they all go into three categories, at least as I’ve seen them. Most of the arguments center around concerns that elimination of ER 5.4 will adversely affect lawyer independence. In other words, non-lawyers will be pressuring the lawyers into violating the rules of ethics, client confidentiality, and conflicts of interest. Those are the three big arenas that our people are most concerned with, having non-lawyers moving into partnership with lawyers.
Sharon Nelson: So, how would you answer those arguments of the opponents? Because I know one of the things we hear all the time is that what Arizona did is a great boon to the big four accounting firms, and obviously for you this really is an access to justice issue, but I would love to hear your answer to their arguments.
Ann A. Scott Timmer: Oddly enough, we didn’t hear one thing from the big four accounting firms or about the big four accounting firms, in all of the Task Force work and all of the rules — rule agenda forums that the Supreme Court conducted in deciding this. The only time we ever even heard about the big four was from the media, the national media law media that would call up saying, “What about the big four accounting firms? Aren’t you doing just as you said, giving them a great boon?” One of our Task Force members who’s in a large firm and has contacts with the big four contacted a friend there who said, “We have no interest in Arizona. We’re just two small potatoes.” So, that could be why. We just we just didn’t hear anything. Nobody cares about us. So, it was very interesting, however.
So, how do I answer the arguments of the opponents? Well, first of all, to answer how non-lawyer investors are going to pressure lawyers to violate their rules, those pressures exist now. Firms exist to profit. They have — a lot of the big ones have CFOs that will put pressure, partners that will put pressure for others to be profitable, so maybe take shortcuts in some of your discovery that you don’t need to or try to get rid of this case. You have lenders, you have clients. Now, all of those put pressure on lawyers yet somehow, we manage to follow our ethical responsibilities. We have captured law firms from insurance companies but somehow, again, they’re able to competently and ethically represent their clients regardless. Risk will always exist that that pressure can cause lawyers to violate their ethical rules. However, what we did as well is we took our other ethical rules and tightened up in the areas that I just mentioned, of independence, client confidentiality, and conflicts of interest. So, those rules will be toughened up.
Another thing is that in order to allow this, we decided that ABSs will have to be regulated as an entity. Currently, the court only regulates lawyers, not entities, not law firms but if you’re going to partner with a non-lawyer, then you will be an ABS and you will have to submit yourself to regulation by the Arizona Supreme Court. I always wonder if the big four people are worried about maybe that’ll be an impediment. Maybe they simply wouldn’t want to submit themselves to yet another set of regulators, which they would have to. That regulation will follow more of the traditional route that we do with lawyers, so there’s an ethical code, there’s consequences for a violation including, not only sanctioning the lawyers, but also pulling the plug on licensing of the entity and imposing a monetary fine so there are certainly—
–disincentives for violating any of the ethical rules or causing the lawyers to do that. I think we also shouldn’t assume that non-lawyers are motivated to cause lawyers to violate their ethical rules. I mean, they they’re there to be successful and to make a buck and because there would be a consequence to violations including pulling their license, it wouldn’t be good for business to have that go on. And finally, we’ve seen that the information coming from the U.K. and Australia showed us that complaints against lawyers did not increase when lawyers started partnering with the non-lawyers. In other words, the non-lawyers simply did not make the lawyers more unethical. As far as the client information, will that be safeguarded? Well, that goes on now, because certainly law firms don’t employ just lawyers. You employ people in the mailroom, you employ people to be secretaries, paralegals, all kinds of things, and yet there’s obligations that the lawyers have to ensure that the client information will be kept confidential. That shouldn’t change with allowing non-lawyer partnership in the law firm.
Sharon Nelson: You know, all of your answers, it was fascinating there but the most interesting part to me was that I took this question about the big four accounting firms directly out of the media reports I had read.
Ann A. Scott Timmer: Yeah. It’s the media that’s focused on this, and as I said, I haven’t heard it from — we didn’t hear it, and you would think that you would have at least the big firms in Arizona would be distressed and would have come forward, and we had big firm representation on our Task Force, and they like didn’t bring it up. It wasn’t an issue.
Jim Calloway: Well, I think a lot of the solo and small firm lawyers are concerned because for some of them, they do a lot of the same things that the paraprofessionals are going to get to do but I think they’re already competing with lawyers, and they’re going to have to adjust. We’re hoping to improve the system, so how do you think the practice of law will evolve in Arizona in light of these reforms, Justice Timmer? And how fast do you expect progress to be?
Ann A. Scott Timmer: Well, if I had a crystal ball, I would think that the practice is really going to see very little change at first, and that’s mostly because one, information doesn’t get out quickly about these types of things, and two lawyers are slow to change anything. We had an experience a few years ago. We changed our ethical rules to allow for unbundling of services, and you would think that people would, especially the small firms and solo practitioners, would take advantage of that but we found that they didn’t. It took probably four or five years for people to start even realizing the rules had changed and what that means, and people are just slow to do that. I think what will happen is the first people to take advantage of the new ABS rules will be law firms. I’ve heard already, mid-sized law firms are already starting to explore that. They’ve hired lawyers who typically advise law firms in their ethics and their practices to start asking questions about this and what does it mean, and what could we do. And so, they’re starting to — some firms at least are starting to try to be more innovative, how can we take advantage of this to increase our practice, and I think what will happen is you’ll have some of the first brave people that will try it in the first year or so, and then word will filter out if it’s successful. Other firms will start thinking about joining in. If it’s not successful, of course they won’t. I don’t know if any of the national firms like the LegalZooms and such will come into Arizona. I think that’s certainly distinctly possible. I know that one of those platforms is going into Utah, so perhaps people will be watching that to see if it works. If it works, people will follow. That’s just how it is.
I do know that one thing that I hadn’t mentioned that was also a somewhat, I don’t want to say a driver but a secondary factor that we’re very well aware of, and that is that lawyers aren’t all thriving in the legal profession. And I saw that one of your sponsors is Clio and I recall reading a survey that Clio did have about 60,000 of its clients, lawyer clients, who are small and solo firms using their software asking a number of questions about how much time they’re spending, billing time, and how much they’re collecting and charging, et cetera, and it’s very surprising to see the results of that, that if I recall the average that people are making is a little — about 105,000 a year assuming a two-week vacation, and that’s before paying overhead, so lawyers aren’t thriving. A lot of lawyers aren’t, and they’ve been — the solos and the smalls in particular have been squeezed over the years with the proliferation of online forms and do-it-yourself, and that kind of thing. So, they’ve had — it has become a more competitive business and somewhat, we thought what defines the legal market has been the ethical rules.
And ER 5.4 is one that has really restrained lawyers from competing in a number of areas that, as I say, has simply gone around our regulatory framework. So, I would think and what I would hope is that eventually, hopefully within the next 10 years, people will innovate more, it will give opportunities for small and solos to have more thriving practices and eventually, we could have something like the multi-tier system that the medical profession has with the different types of practitioners at different levels, and have more tech and such like the telemedicine with Tele Law, that will not only serve the public better but also serve the needs of lawyers as well.
Jim Calloway: Well, we will all see how things proceed. Before we move on to our next segment, let’s take a quick commercial break.
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Welcome back to The Digital Edge on the Legal Talk Network. Today, our subject is Arizona first state to approve non-lawyer ownership of law firms. Our guest today is Vice Chief Justice Ann A. Scott Timmer, who was appointed to the Arizona Supreme Court in 2012. Justice Timmer, after you had adopted these reforms, what kind of feedback did you get?
Ann A. Scott Timmer: Well, most of our feedback was really before we adopted it, and that’s simply because the way Arizona does it is that we have a very active public comment period in the nine months or so before we vote on whether to adopt a rule, so most of it came beforehand, and we also — because this is such an important reform, we also affirmatively reached out to public town halls, public opinion polls, and lawyers as well to try to get a full picture of what’s needed. After we adopted it, that was just this past August, we didn’t think of it much. I don’t know if people are scared of us or what, but I’ve heard from other lawyers that represent lawyers that do it, the ethics lawyers, that they got a lot of feedback. Some people were very distressed we’re changing everything, you know cats and dogs will live together, all that kind of thing. And so, some people are very distressed. Other people said it’s about time things have to change and this is the way to move forward in a measured, contemplative way. I think most people that I’ve heard are simply watchful, want to see how this happens and how things will unfold, and they’re well aware of course that we can always make changes here and there. That’s the great thing about being on the court.
Jim Calloway: Well, you commented about the District of Columbia having a set of rules, but Arizona is the first state to have these kinds of rules. So, what’s your prediction about what the rest of the states will do about non-lawyer ownership of law firms over time?
Ann A. Scott Timmer: Well, I think that you’re going to see more and more people looking at it. I know that a number of states are looking at it because they’ve invited me to talk to their Task Force that they’ve had, so I think there’re about 10 states that are actively looking at the issue. I believe that what they’ll probably do is, “Let’s wait. While we’re talking about it, let’s wait and see how Utah and Arizona do and California if they adopt it because that will give us a better idea if this is a good idea or a bad idea, and we can learn from their mistakes and we can take the best of what they’ve done and move forward if it’s something that we would want to do.” So, I think things will change in the country, particularly if we’re successful in these two states.
Sharon Nelson: Well, we certainly do thank you for joining us today, Justice Timmer, and I suspect you will be successful. You certainly have studied all the various positions on this, and I must say as a former president of the Virginia State Bar and having been through this issue ad infinitum—
–with lawyers, I hope that a lot of them will listen to this podcast because you do a really good job of explaining all the positions and why certain things maybe don’t matter as much as we thought they did, but we know your time is valuable and we’re so grateful that you were with us today.
Ann A. Scott Timmer: Well, thank you so much for asking me as they’re important issues and I’m happy to get the word out about it, and I will say that we even — I think I was very proud that we did get our Bar Board of Governors ultimately to vote in favor of this. So, I thought, “Wow, people were good at keeping an open mind.”
Sharon Nelson: They sure were. And that does it for this edition of The Digital Edge: Lawyers and Technology. Remember, you can subscribe to all the editions of this podcast at legaltalknetwork.com or on Apple Podcasts, and if you enjoyed our podcast, please rate us at Apple Podcasts.
Jim Calloway: Thanks for joining us. Goodbye, Ms. Sharon.
Sharon Nelson: Happy trails, cowboy.
Outro: Thanks for listening to The Digital Edge, produced by the broadcast professionals at Legal Talk Network. Join Sharon Nelson and Jim Calloway for their next podcast covering the latest topic related to Lawyers and Technology. Subscribe to the RSS feed on legaltalknetwork.com or in iTunes.
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|Published:||October 22, 2020|
|Podcast:||The Digital Edge|
|Category:||News & Current Events|
The Digital Edge
The Digital Edge, hosted by Sharon D. Nelson and Jim Calloway, covers the latest technology news, tips, and tools.