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Arizona ends fee sharing ban

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New rules also allow ‘legal paraprofessionals’

Vice Chief Justice Ann A. Scott TimmerThe Arizona Supreme Court has amended that state’s lawyer rules to allow attorneys to share fees with nonlawyers and permit “legal paraprofessionals” to give legal advice in four areas.

Arizona Vice Chief Justice Ann Timmer reviewed those changes on November 9 with The Florida Bar’s Special Committee to Improve the Delivery of Legal Services. The special committee is charged with studying “whether and how the rules governing the practice of law in Florida may be revised to improve the delivery of legal services to Florida’s consumers and to assure Florida lawyers play a proper and prominent role in the provision of these services.”

Timmer, who headed the task force that recommended the changes, said the main alterations were to eliminate its Ethics Rule 5.4, which prohibited lawyers from sharing fees with nonlawyers and allowing the new legal paraprofessionals to offer legal assistance and advice in family law, administrative, minor criminal cases that do not include incarcerations, and small civil cases such as small claims or landlord/tenant actions.

The eliminating of the fee-sharing provision will allow alternative business structures where lawyers can be in partnerships with other professionals to provide joint services, Timmer said.

Since 2005, Arizona has had licensed document preparers, who can help Arizonians fill out legal paperwork, but cannot provide legal advice, Timmer said, so providing a new level of nonlawyer assistance has some precedence.

“We commissioned a poll on the legal service provider issue and the alternative business structure issue and it got overwhelming support from the public, particularly for the new tier of paraprofessional. People really want that kind of thing,” Timmer told the committee.

Timmer said she initially had the same reservations as many lawyers about fee sharing and its potential to undermine lawyer independence, allow conflicts of interest, and endanger client confidentiality.

“We took some of the ethical rules and beefed them up to make it crystal clear those three things have to be preserved,” Timmer said. “The recommendation was the court regulate entities, so any new entity that was formed for the fee-sharing rule would have to submit itself to the jurisdiction of the court and agree to abide by an ethical code and a disciplinary code that we would set up.”

The businesses also must have a compliance attorney to ensure the company conforms with the ethical requirements. Businesses that break the rules could lose their license, have their license suspended, or be fined, Timmer said. Licenses must be renewed annually.

She also said Arizona tried to walk a line of encouraging innovation without putting a straitjacket on how it should happen, including getting advice from other states that had gone through a similar process.

“They said to resist the temptation to over regulate because when you’re doing something new and you want innovation, if you just turn around and slap [on] a bunch of new constraints you’re not going to get what you’re hoping for,” Timmer said. “We took that to heart and tried to resist that temptation and just set up what we think is necessary for protection of the public and then let’s just see what people come up with.”

The Arizona task force also looked at the “regulatory sandbox” concept, which allows business, law firms, and others to make experimental proposals that require rules adjustments that would apply specifically to those experiments to see if they provide services without harming the public. Timmer said the committee decided to reject that idea because “we were concerned that people would not want to spend a lot of money and effort to put something together that might not get final approval.”

Eliminating the fee-sharing rule will provide the necessary flexibility, she said, without fear the rules could be changed.

Committee chair and immediate past Bar President John Stewart asked Timmer how Arizona proponents addressed concerns that changes would undermine the profession’s core principals without any corresponding benefit, such as improved access to justice.

“I do think the impetus for the task force was…access to justice and the idea being that the more you have innovation the more people will find there’s a great market for this, and if there’s a market, people will try to serve that market,” Timmer said.

“This is not a mutually exclusive proposition, having ABS [alternative business structures] and lawyers making money,” she continued.

Many people now turn to unregulated online services for such things as wills and simple business incorporations instead of going to lawyers, Timmer said, adding, “If you give more opportunities for lawyers to change their practice and increase where they can go, then I think they will benefit as well.”

On the legal paraprofessionals, Timmer said the system initially will allow those who meet experience or education standards to apply. They will have to pass character and fitness reviews and a test for each of the four areas they want to practice in.

The state already has 600 to 700 licensed document preparers and Timmer said she hopes there will eventually be that many licensed paraprofessionals. She said the Arizona rules are not as stringent as the state of Washington program that allows limited licensed legal technicians.

No new LLLT licenses will be issued in Washington after July 31, 2022, and Timmer said the requirements there were so strict and expensive that only a few people became LLLTs. That small number didn’t justify the expense of running the program, she said.

Timmer said her task force began its work in January 2019 and issued a report the following October. That was reviewed by the Arizona Judicial Council, which advises the Supreme Court on policy matters, and then filed with the court.

On August 27, the court adopted the general rules on fee sharing/alternative business structures and the legal paraprofessionals. On November 4, the court adopted the amendments, effective January 1, to the Arizona Code of Judicial Administration to implement both programs.

Links to the actions can be found on the Arizona Supreme Court’s website:

The Special Committee to Improve the Delivery of Legal Services has set up subcommittees to look at issues including fee sharing and the regulatory sandbox, lawyer advertising, lawyer referral services, and on getting input from lawyers and the public.

Stewart noted the committee, set up by a Supreme Court administrative order last year, has not made any decision on any issue, but is scheduled to submit its final report to the Supreme Court and the Board of Governors in June.