A new California bill (A.B. 931) seeks to block law firms and lawyers in the state from sharing legal fees with out-of-state alternative business structures (ABS), such as those licensed in Arizona. This move directly impacts firms like KPMG, which recently gained approval to open an ABS law firm in Arizona. The legislation is currently before the California Senate Judiciary Committee and the bill's primary stated aim is to regulate consumer legal funding, but it also includes a provision effectively barring California lawyers from fee-sharing with out-of-state ABS firms — a detail that has sparked significant concern.
Boris Ziser, partner at Schulte Roth & Zabel and co-head of the firm's finance group, has been instrumental in forming ABS entities in Arizona. Speaking to Bloomberg Law he expressed criticism of the bill, highlighting its potential ripple effects across state lines.
"There is always a risk that when one state, particularly a big state, passes a law, other states will look at it. That's one of the unfortunate byproducts of a bad law."
Boris also pointed to the seemingly buried nature of the ABS-related provision within the bill's broader consumer legal funding focus.
"95% of the words are around consumer litigation funding and then this piece is sort of stuck in there almost like an afterthought."
Opponents, including minority business groups and mass tort firms, argue the bill could restrict access to affordable legal services and stifle competition from smaller or innovatively structured firms. Boris' critique underscores broader concerns that California's move could discourage legal innovation, interfere with lawyers' representation of their clients and set a precedent for restrictive regulation beyond its borders, hurting California consumers and lawyers within and outside of California.
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