Don’t Just Check “Yes” or “No”: The Need for Broader Consideration of Outside Investment in the Law
Heather A. Miller | 2010 U. Ill. L. Rev. 311
This Note analyzes the controversial issue of outside investment in law firms. Motivated by concerns of promoting professionalism and independent judgment within the legal community, the ABA Model Rules of Professional Conduct currently prohibit nonlawyer investment, effectively preserving the traditional partnership model of ownership. As increasing competition, explosive global growth, and technological advances have challenged the demand for client-driven relationships in the delivery of legal services, and in light of recent legislation in Australia and the United Kingdom allowing outside investment in law firms, the author determines that the time has come to take another look at the prohibition in the United States.
Recognizing that outside investment has potential benefits and con-sequences, this Note argues that determining whether to allow outside investment is more than a simple “yes” or “no” question. To this end, the author analyzes five investment models, which represent the spectrum of possible vehicles. The first is the traditional ownership model, illustrated by publicly traded Australian law firm Slater & Gordon. A second possibility is a holding company, which the Note explores through the experiences of another Australian firm, Integrated Legal Holdings Limited. More moderate proposals include a minority ownership model and the creation of a legally related derivative security. Finally, the Note considers an alternative to outside investment in law firms—outside investment in individual lawsuits. Against the backdrop of these different models, the author urges the legal community to embrace a broader perspective in further investigating and evaluating the opportunities of outside capital. The author concludes by recommending that the ABA commission an independent study to analyze whether and, if so, how to modify the Model Rules to capture the benefit of outside investment while minimizing ethical concerns.