Under generally accepted ethics rules, lawyers are barred from partnering with non-lawyers for the provision of legal services. But earlier this year, Arizona discarded its ethics rule on non-lawyer firm ownership, becoming the first state to challenge this ethical paradigm. Although framed as a means to increase access to legal services and incentivize innovation and convenience, Arizona’s more liberal approach may have an unanticipated dark side for medical innovation and patient access to the care they need. Utah previously enacted a more limited two-year trial program (a “regulatory sandbox”), and other states are poised to follow Arizona’s lead.
Firms that partner with non-lawyers, also known as Alternative Business Structures (ABSs), permit non-lawyers to share ownership, profits, and decision-making responsibilities. However, non-lawyers are not allowed to stray into the provision of legal services. Individuals or organizations with at least ten percent economic interest or legal decision-making authority are supposed to complete certain publicly available disclosures, but those with lesser interests may not need to be disclosed.
Non-lawyer firm ownership poses particular risks to the medical device industry and the patients & care givers medtech innovators serve every day.
Deregulation of ownership invites litigation finance companies to take the reins of plaintiff firms, influence case selection and development, and perpetuate the trend of speculative claim-generation cash-grabs. The last several years have shed light on the practices of some litigation financing ventures, including those that facilitated surgeries outside the course of normal medical care in an effort to increase the value of a lawsuits in which the financer now had stakes. More broadly, a calculated decision to fund an entire litigation, starting with a wave of advertising, can help create a litigation out of whole cloth, increasing the cost of doing business, the burdens on the court system, and the risk of medical decisions being driven by litigation interests. Courts have slowly started to require disclosure of such interests, given that the financers will ultimately have a say in settlement (among other things). And litigation financers are already lining up at Arizona’s door.
Driven by business interests, rather than ethical obligations, non-lawyer owners may have different motives and exercise control over firm and case strategy. Although lawyers are still bound by other ethics rules, unscrupulous non-lawyer owners and managers—whose identities may or may not be disclosed—might incentivize lawyers to test ethical boundaries.
Allowing litigation financing is problematic enough, but how much worse could it be if they own a stake in the law firms that pursue the litigation they finance? How will court disclosure requirements work to make sure courts and defendants are aware of who is really pulling the strings?
If the prosecutions in the Eastern District of New York are any guide, then mixing financers with law firms will not increase the fairness of litigation against medical device manufacturers.
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