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Special Committee to Improve the Delivery of Legal Services suggests legal labs and relaxing fee splitting rules

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John Stewart

John Stewart

Acknowledging that some may take issue with its ideas, a special committee created and appointed by the Florida Supreme Court is recommending further study on allowing some nonlawyers to have an ownership interest in law firms, fee splitting with non-lawyer entities, and creation of a legal “lab” to allow testing of innovative ways of providing legal services.

The final report from the court’s Special Committee to Improve the Delivery of Legal Services also recommends looking at permitting Registered Florida Paralegals to provide more services within a law firm setting and a streamlining of Bar advertising rules.

The report was released on June 28 and submitted to the Florida Supreme Court, which created the special committee in November 2019, and to the Bar Board of Governors.

Former Bar President John Stewart, chair of the special committee, said the report is a recognition that the legal marketplace is changing and an attempt to allow the legal profession to help design and control those changes, which it now is largely unable to do.

“This committee and this report is part of the profession and the Bar being the architect of the changes that are happening in the legal profession and the legal services marketplace, before outside forces dictate changes we may not want,” Stewart said.

“We don’t think change should happen for the sake of change or because people think there should be change. We think change should happen because of data.”

That led to the recommendation for the legal lab, where different ways of providing services can be tested. It also means lawyers will be competing on a level playing field since any entity, whether controlled by a lawyer or nonlawyer, will be regulated to protect the public.

“There’s a significant underground legal services market that’s happening and it’s happening because it’s needed. Some of it should not be happening because it’s bad actors taking advantage of the public,” Stewart said. “We need to bring more of these legal services players into the fold so that they’re regulated to protect the public and lawyers are on a level playing field.”

During committee meetings, members discussed that their efforts were not just aimed at low-income consumers, but a broad swath of low and middle-income people and small businesses that cannot afford civil legal services.

“This is beyond legal aid, this is for all the persons who are underserved who have problems that can be solved in creative ways,” said committee member Sarah Sullivan at the committee’s June 17 meeting.

Stewart said figuring out effective ways to meet those needs drove the committee’s actions.

“The criticisms that people who are looking at these changes get, including our committee, are that there’s no data to suggest the proposed changes will be effective,” he said. “We can argue whether that’s true or not, but the data right now that is without question shows that the current practices are failing.

“We know that doing nothing is failing. So, something has to change. I think doing it in a controlled environment [in the proposed legal lab] allows us to get data to guide the change.”

The court specifically ordered the committee to “study into 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.”

The court asked that the committee look at “lawyer advertising; referral fees; fee splitting; entity regulation; regulation of online service providers; and regulation of nonlawyer providers of limited legal services.”

The committee’s only firm recommendation for change was that the legal lab be created, but its proposed structure was conceptual, as were all its other suggested proposals.

Stewart repeatedly said the panel is seeking the Supreme Court’s guidance on its ideas with the request that the court refer back to the committee any ideas it likes for detailed proposals or rule amendments.

The report reflected an underlying tension of the special committee’s work: overwhelming evidence that low and moderate-income people as well as small businesses cannot afford or don’t have access to basic civil legal services, offset by a reluctance from lawyers to significantly change Bar rules or the legal system.

The report cited the most recent Bar member survey that showed that 65% oppose allowing online tech companies that match clients with lawyers to keep part of the consumer’s fee; 81% oppose allowing nonlawyer employees who directly support a law firm to have an ownership interest in the firm; and 84% oppose passive ownership in a firm (which the committee also opposed).

“Unfortunately, the reality is that the current rules are not addressing ‘the challenges facing Florida lawyers, and the difficulties that many Floridians encounter in securing legal services,’” the report said. “This fear of change is likely more fear of the unknown — how will relaxing the rules on firm ownership, fee splitting, and nonlawyer practice affect the practice of law. While this is understandable, it is no reason to keep the status quo when the status quo is not working.”

The special committee’s recommendations, all conceptual except on setting up the legal lab, include:

• Creating the legal lab, sometimes referred to as a regulatory sandbox. The lab, tentatively titled the Law Practice Innovation Lab Program, under the committee’s conceptual outline would be overseen by a commission reporting to the Supreme Court and run for at least three years. It would be based on a similar program in Utah. Ontario, British Columbia, and the United Kingdom also have legal lab programs that are reviewed by committees.

“A lab, or regulatory sandbox, is a mechanism whereby the Court, or a body appointed by the Court, permits entities that may be different from a traditional law firm to offer new and innovative methods, ideas, and types of legal services without a wholesale amendment of the rules,” the report said.

Programs approved for the lab would be closely monitored with data collected on their performance and for any public harm. The report said the data would provide objective evidence about the efficacy of innovative legal programs.

The special committee said some of its other conceptual recommendations, if ultimately approved, should be initially tested in the lab. A report footnote said nothing in the proposal would allow a lawyer licensed in another state to practice in Florida without going through the Bar admissions process.

• Allowing nonlawyer employees who directly support the firm to have an ownership interest in a law firm. The report said this could be nonlawyer firm administrators, a nurse who reviews records in medical malpractice cases, or an employee who provides technical support. Under the proposal, nonlawyer owners could never have a majority interest in the firm, would be bound by Bar rules, and lawyers would be responsible for the actions of nonlawyer partners. It would be up to each law firm whether to offer equity interest to nonlawyers, and the rule would make it clear the arrangement would not affect the lawyer’s obligation to exercise independent professional judgment for clients.

The recommendation would require an amendment to Bar Rule 4-5.4.

The special committee opposed allowing passive ownership by nonlawyers, such as might be made by outside investors who do not work for the firm. While that might provide investment for firms, committee members worried about conflicts of interests and possible effects on a lawyer’s independent judgment.

• As part of the legal lab, testing a program that eliminates the Rule 4-5.4 restrictions on sharing fees with nonlawyers.

“The benefits include opening up new ways that lawyers can work with technology companies or other nonlawyer companies and individuals to provide more innovative ways to deliver services, and in some cases, provide consumers with more information useful to the selection of legal counsel,” the report said. “An innovation that is hindered by the current rule could include an arrangement between a technology company and law firm to streamline referrals, the engagement process, or case flow for situations where the client wants extra help. By not allowing a revenue share between others and the law firm, these types of relationships are inhibited.”

That could also affect how referral fees are calculated and the report said some changes might be allowed, such as a fixed fee per case accepted, and others banned, such as a fee based on the perceived value of a case. Referral restrictions might also be based on case type.

Testing changes in the lab “would allow the Court and The Florida Bar the flexibility to respond to issues and concerns that arise during the pilot program and to collect data around these types of relationships. A pilot or lab program also permits the drafting of a final regulatory scheme based on empirical data rather than anecdotal observations and conjecture,” the report said.

• Allowing, again as part of a test program in the legal lab, for “Florida Registered Paralegals to provide limited legal services in specific areas and within a law office.” Allowed services, under the conceptual outline, would include assistance in filling out and filing legal forms, limited information about the client’s legal matter, and ministerial assistance on court proceedings such as scheduling court appearances. The supervising lawyer would be professionally responsible for the paralegal’s work.

The report said that Washington State in 2012 allowed enhanced independent paralegal-type services and other states have adopted rules to allow nonlawyers to provide some legal services. Utah in 2018 established a program for Limited Paralegal Professionals, and New York since 2014 has allowed nonlawyers to act as court navigators. A New York committee last year recommended allowing social workers to provided limited legal services and advocacy, a proposal that is pending.

• Allowing nonprofit law firms. That would amend rules to allow the existing practice of many legal aid offices, including having nonlawyers on their boards of directors.

• Streamlining advertising rules by eliminating obsolete sections, moving some of the details to rule comments, and maintaining the core goal of prohibiting false and misleading advertisements. One possible change would be eliminating the requirement that lawyers submit ads before publication or airing that contain more than basic information to the Bar for review, instead allowing lawyers to voluntarily submit their ads if they want assurances they comply with the rules.

While its recommendations for changes, aside from setting up a legal lab, are only conceptual, the special committee did make final recommendations on three other issues, none of which requires any rules actions.

Those include:

• The Bar should promote a better understanding of Bar Rule 4-1.2(c), which allows limited scope representation by lawyers and which the special committee said is being underutilized.

• Chapter 8 of Bar rules, which covers lawyer referral services, should not be changed.

• Advertising Rules 4-7.17, Payment for Advertising and Promotion, and 4-7.22, Referral, Directories and Pooled Advertising, should not be amended, although the rules may need to be revisited if amendments to Rule 4-5.4 or other advertising rules are made.

The special committee’s report cited recent studies showing that only a fraction of the civil legal needs for low and moderate-income people as well as small business are now being met.

One study estimated it would take $40 billion annually — almost 30 times that spent on legal aid — or 200 hours of pro bono work by every attorney in the country to provide one hour per year for each of those unmet legal problems.

Stewart said those statistics underscore the need for improvements.

“The Florida Bar has been a national leader for a long time. Now these things are happening, and we need to continue to be leaders,” he said. “What it does mean is we have to guide that change for Florida and…the change will be designed in a way and managed in a way that works for Florida. I think a big chunk of the nation will follow Florida’s lead.”

Utah and Arizona have already made major changes to their practice rules, including Arizona eliminating fee sharing restrictions in Rule 4-5.4 and Utah adopting a regulatory lab where changes can be tested. New York, California, and Illinois are, like Florida, studying changes.

The committee heard from officials from Utah, Arizona, the United Kingdom, and California on their reform efforts, and a subcommittee heard from a British Columbia official.

Overall, the committee met 16 times and its various subcommittees met 45 times, since it began work in earnest in the spring of 2020.

Appendices to the report include its conceptual redrafting of Rule 4-5.4, Professional Independence of a Lawyer; the committee’s suggested streamlining of advertising rules; an outline for how enhanced services from Florida Registered Paralegals could work; and a conceptual prospectus of how the recommended legal lab would be organized and operate. All the rules matters are submitted as concepts and are not being proposed as amendments.

Reports and other information collected by the special committee, as well as its minutes and other information, are posted on its webpage on the Bar’s website.

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