Loosened lawyer regulations show promise in Utah, Ariz., Stanford study says

Lawyers walk with their briefcases towards the federal court house in San Diego, California June 22, 2015. REUTERS/Mike Blake
  • There are 58 legal service providers operating under Utah and Arizona's legal "sandboxes"
  • They have not produced a flood of consumer complaints, as opponents feared

(Reuters) - Regulatory reform programs in Utah and Arizona are yielding "substantial" innovation in the delivery of legal services without producing a spike in consumer complaints, according to a new study released Tuesday by Stanford Law School.

The reform initiatives — dubbed regulatory "sandboxes" in both states — could serve as a roadmap for other jurisdictions that want to make legal services more affordable for low- and middle-income residents, researchers with Stanford Law’s Deborah L. Rhode Center on the Legal Profession said in the report.

Michigan, Washington and North Carolina are among the states currently weighing new regulatory rules, while officials in California and Florida recently blocked or postponed similar programs.

The Stanford study claims to be the first data-driven examination of regulatory sandbox programs in the United States. Utah in 2020 launched a pilot program that suspended ethics rules to allow for non-lawyer ownership of legal services providers and let non-lawyers apply for a waiver to offer certain legal services. Arizona in 2021 changed its regulatory rules to allow for non-lawyer ownership.

“The evidence thus far suggests that lawyers, far from being displaced by newly configured entities and new service delivery models, will instead face a host of new opportunities to extend their reach via a mix of conventional service delivery, nonlawyer assistance, and software that were not possible previously,” the report said.

But some in the legal industry still worry that the innovations promoted by such reforms will cater to clients who are willing and able to pay, rather than those who need them most, the study notes. Critics also claim corporate ownership of legal services providers could prioritize profits over quality representation.

The Stanford researchers set out to identify the types of businesses and entities that have emerged from the reforms, and who they are serving. They found 39 entities operating under Utah’s sandbox as of June, and 19 in Arizona.

They fell into five board categories: traditional law firms that have given non-lawyers equity ownership or allowed non-lawyer investment to fund expansions; law companies with non-lawyer ownership such as LegalZoom; non-law companies such as accounting firms that have expanded into legal services; intermediary platforms that connect consumers to lawyers; and new entities that rely on technology and non-lawyers to practice law.

The vast majority of those entities (84%) support consumers or small businesses and offer services in a wide array of legal areas, the study found. And 89% have taken on non-lawyer ownership, investment or partnership of some kind, while 61% involve some form of technological innovation.

Researchers also found that the entities operating under these regulatory reforms have not produced a “substantially higher number” of consumer complaints than traditional lawyers, which has been a frequent critique by reform opponents.

Utah has received just one consumer complaint per 2,123 services delivered, while Arizona had received none, according to the report.

Read more:

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New legal services rules make waves in Arizona and Utah as other states weigh reforms

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Karen Sloan reports on law firms, law schools, and the business of law. Reach her at karen.sloan@thomsonreuters.com