Goodbye Rule 5.4: Legal Ethics Change in Arizona

By Joel Truett

At the beginning of this year Arizona Ethics Rule 5.4 formally ended. The Arizona Supreme Court announced the elimination of the rule last year, and has since gone into effect on January 1, 2021. The rule prohibited partnerships between lawyers and non-lawyers working together where any part of their services involved the practice of law.

In the United States, model ethics rules for lawyers are proposed by the American Bar Association, but the laws governing lawyers are enacted on a state-by-state basis. This means that the rules about how lawyers can behave change from one state to the next. The provisions enacted in Rule 5.4, however, were uniformly accepted in every state until this year. This makes Arizona the first state to cast off its restrictions on attorney/non-attorney partnerships.

The American Bar Association’s Model Rule 5.4 cites the protection of a lawyer’s professional judgement as the justification for the rule. The idea being that if a lawyer is working with a non-lawyer in providing legal services, the lawyer should ideally be making decisions based on the best interests of their client, without interference from any outside actor that could negatively influence the advice the lawyer gives.

While that may sound reasonable at first, the rule may at best be considered an unwieldy attempt to prevent bad behavior that is already illegal apart from the rule. At its worst, the rule serves as an artificial barrier restricting competition in the field of law in a self-serving scheme that benefits established lawyers while harming clients looking for new services. For those reasons, Arizona was right to eliminate the rule, and other states should follow suit.

To be charitable, Rule 5.4 takes a heavy-handed approach to solving a problem that could be addressed by other means. In its current form, as worded on the ABA’s website, the rule is an absolute prohibition on partnerships between lawyers and non-lawyers in business activities that involve the provision of legal advice. Instead of allowing for the punishment of wrongdoing when or where it occurs, the rule instead elects to completely prevent potentially beneficial forms of economic activity on the mere possibility that some nondescript harm may result from it.

While a state bar may have very legitimate reasons for wanting to prevent obstructions to lawyer’s professional judgement, a rule completely banning partnerships, as does rule 5.4, makes for an over-restrictive means to achieve that end. The rules already have plenty of guidelines about how a lawyer must behave when giving legal advice. These guidelines serve the stated purposes of 5.4 without imposing such burdensome restrictions. For example, lawyers must act in the fiduciary interest of their clients, and already have duties to place client interests above their own. The elimination of Rule 5.4 does nothing to prevent the enforcement mechanisms present in other ethical rules from applying. Consequently, if a lawyer in Arizona working under the law as it is today happens to place the business interests of their non-lawyer partner above their client’s interests, that lawyer will be in violation of ethical rules, and will be subject to state penalties. The law therefore continues to operate as it should.

Moreover, Rule 5.4 reduces client options when selecting legal and consulting services. There are significant potential benefits available to clients in the provision of legal services by a firm that combines the skills of lawyers with those of non-lawyers. While lawyers are (hopefully) well-educated and capable individuals, no person can embody perfection in all the multitude of skills that a client may want when receiving a consultation. Professionals in other fields have valuable insights that may be usefully amplified if used in conjunction with legal services. Easing Rule 5.4 will allow for the creation of new businesses to provide these insights, while also increasing public access to legal resources overall.

Lastly, the elimination of Rule 5.4 does not mean the end of regulation of legal practice in Arizona. Business entities providing joint services must still apply for a license to do so in the state. The Supreme Court of Arizona approved its first two applicants this March.

At its best, the elimination of Rule 5.4 will provide Arizonans with access to new and unique legal services that can’t be replicated in any other state in the nation. While Arizona may be the first state to eliminate Rule 5.4, it is not alone in the country or in the world in doing so. Washington D.C. permits non-lawyer ownership of law practices, and England has allowed the same since 2007. It is a welcome sight to see Arizona join those jurisdictions in removing restrictions on legal partnerships.

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