NY Balances Tradition and Innovation in Legal Services Regulation

Here is my recent Daily Record column. My past Daily Record articles can be accessed here.

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NY Balances Tradition and Innovation in Legal Services Regulation

Traditionally, ethics rules prevented non-lawyers from practicing law or having ownership interests in law firms. However, over the past few years, a few jurisdictions have experimented with Alternative Business Structures (ABS) and other models that broaden the delivery of legal services beyond those with a law license.For example, Arizona permits alternative business structures (ABS) with nonlawyer ownership of legal service entities, while Utah is testing new models through a regulatory sandbox that allows nonlawyers and technology providers to offer limited legal services under supervision. 

Likewise, Washington has launched an entity-regulation pilot for certain businesses and nonprofits, Colorado has expanded the role of licensed legal paraprofessionals in family law matters, and Illinois is considering a program that would allow trained nonlawyers to provide limited legal advice under attorney supervision.

Against this backdrop, a New York lawyer recently asked the New York State Bar Association Committee on Professional Ethics whether it was permissible to have involvement with an Arizona-based law firm operating under ABS rules. 

In Opinion 1291, the inquiring New York lawyer, who was considering retirement, wanted to restructure his practice by forming an Arizona ABS law firm that would be owned by family trusts. The ABS firm would be managed by his son, a lawyer licensed in New York and New Jersey who is seeking admission to the Arizona bar. (Online: https://nysba.org/wp-content/uploads/2026/02/Opn-1291-with-new-letterhead.pdf).The Arizona firm would work with the lawyer’s existing New York firm and a New Jersey firm as contractor firms providing legal and administrative services that received compensation, including referral fees. The trusts would hold ownership interests but would not participate in legal decision-making, which would remain entirely with licensed attorneys.

The inquiring attorney sought to understand whether the ethical rules would be violated by this arrangement. Specifically, he wondered whether a lawyer admitted in New York could: 1) “hold a financial interest in an ABS in a state where the ABS is permitted to practice law, 2) “manage an ABS located in a state where such structures are permitted?”, and 3) “have a contractual relationship with an ABS located in a state where such structures are permitted, whereby the New York lawyer shares fees that the ABS receives on account of legal work performed in New York?”

Not surprisingly, the Committee’s rather lawyerly answer was: it depends. It depends on whether the lawyer is practicing law through the ABS, how the referral fees are handled, and which jurisdiction is impacted by the legal services.

According to the Committee, it is perfectly ethical for an attorney to hold a financial interest in an ABS in a state in which the lawyer is not licensed, as long as “the lawyer is not practicing law through the ABS and is merely a passive financial investor.”

Regarding the question of the lawyer’s son’s participation in managing the ABS, the Committee explained that so long as the legal services provided through the ABS do not have a predominant effect in New York. However, if the “‘predominant effect’ of such practice is ‘clearly’ in New York, New York’s Rules would apply” and he would be subject to professional discipline in New York.

Finally, regarding the fee-sharing issue, the Committee concluded that, even though the fees are collected pursuant to Arizona law, they must be divided in accordance with Rule 1.5(g) of the New York Rules. Because the inquiring attorney is admitted in New York only,  “and the legal work for which he would receive a portion of AZ Law’s fees would be performed in New York…he would thus need to comply with New York Rule 1.5(g).”

As more states experiment with alternative business structures and other changes to the delivery of legal services, some degree of regulatory elasticity and flexibility is necessary. Opinion 1291 reflects an effort to strike a workable balance. It preserves New York’s core professional responsibility rules while recognizing that New York lawyers may interact with entities operating under different regulatory models. In that sense, the opinion provides guidance that allows New York lawyers to navigate and prosper in a rapidly changing regulatory environment.

Nicole Black is a Rochester, New York attorney, author, journalist, and Principal Legal Insight Strategist at 8am, the team behind MyCase, LawPay, CasePeer, and DocketWise.She is the nationally-recognized author of "Cloud Computing for Lawyers" (2012) and co-authors "Social Media for Lawyers: The Next Frontier" (2010), both published by the American Bar Association. She also co-authors "Criminal Law in New York," a Thomson Reuters treatise. She writes regular columns for Above the Law, ABA Journal, and The Daily Record, has authored hundreds of articles for other publications, and regularly speaks at conferences regarding the intersection of law and emerging technologies. She is an ABA Legal Rebel, and is listed on the Fastcase 50 and ABA LTRC Women in Legal Tech. She can be contacted at niki.black@mycase.com.