Reimagining SCR 3.130(5.4): A Look at Jurisdictional Approaches to Non-Lawyers in Law (Ethics Episode)

Episode 14: Louisville attorneys Rob Mattingly and Kevin C. Burke are happy to provide an opportunity for 1 hour of ethics for Kentucky continuing legal education credit. Rob and Kevin are joined by Lauren Byrn and attorney Nina Couch. Nina teaches professional responsibility at the Brandeis School of Law. She also has a private practice. This is her first time on a podcast! Editor’s Note: If you are an attorney and would like CLE credit for this episode, visit the Kentucky Justice Association website, click the Education and Training tab and look for the podcast. TODAY’S LEGAL QUESTION: Lauren asks, “One of the national, legal listservs had a lot discussion about nonlawyers owning law firms. Does Kentucky have a rule on this?” Kevin comments how this is a fascinating topic and one that will be greatly discussed in the future. Rob asks Nina to provide some brief information about herself and then explain Kentucky’s Rule 5.4. Nina was an accountant before going to law school. She’s taught professional responsibility at UofL’s Brandeis School of Law a couple of times. She was a visiting assistant professor, teaching professional responsibility and property. Now she’s there part-time in current capacity, having also taught mediation. Her private firm is Couch Law Office, PLLC, in Louisville. She focuses primarily on consumer protection and personal injury claims. Nina explains that the ABA model rule Rule 5.4 prohibits nonlawyers from sharing in attorney fees with lawyers. It also precludes nonlawyers from having any ownership interest in a law firm. Kentucky has a similar Rule 5.4, however, in very limited circumstances, such as a lawyer death and the transfer of a law firm. It could also be allowed in the purchase of a law practice, in accordance with Rule 1.17. There’s also a provision for a profit-sharing plan, as long as it’s not tied to a per-case attorney fee. The History of Rule 5.4 It’s to protect the lawyers independence and judgement. It’s also a safeguard to protect the core values of our legal profession. The ABA adopted Rule 5.4 in 1983. Nina points out that it actually goes back to 1908 when the ABA codified its first set of cannons. The law has changed over the years, most recently with the significant advances in technology including AI. There has been conversation focused on modernizing 5.4 and access to justice to underserved, potential clients. Adding nonlawyers might assist in addressing the issues. Law firm capital and innovation are also influencing the conversation. Law firms are prohibited from raising capital from venture capital firms, private equity or nonlawyers. Rob and Kevin comment on how different the practice of law has become, even since they both started practicing. Business and commerce has also changed. Hedge funds and other investors see an opportunity make money, if they were allowed to invest in law firms. The Conversation Has Started Nina notes the ABA has tended to resist changes to Rule 5.4. In 2022, it adopted Resolution 402, noting the inconsistency with core values, were nonlawyers to share in the legal fees or ownership/control of the practice. It cites to the core principles of the practice of law including loyalty, competence and confidentiality. The Association of Professional Responsibility Lawyers, in December of 2024, wrote a letter to the ABA. They advocated from a modernization of Rule 5.4. They view the involvement of nonlawyers as being inevitable, in legal delivery systems, while maintaining regulations protecting consumers. The conversation has definitely started. Arizona entirely eliminated its Rule 5.4. Utah has also looked at this issue. Rob comments on the adage: Those who fail to plan, plan to fail. It seems like the inevitability stated in the December letter, seems quite plausible. Kevin notes leaving the rule as is, is a decision. As technology and other key, societal factors evolve, the legal world is going to change, based only on technology. The decision to update the rule or leave it as is, is a choice that brings consequences. The Current Landscape We’re transitioning into a segment dealing with how various states are proceeding. Lauren also suggests we include a discussion on how AI comes into play. Speaking of AI, we’re joined by ChatGPT. Nina begins by noting the District of Columbia was the first to change Rule 5.4, in 1991. It was a limited change. In 2013, the ABA issued formal opinion 464, Division of Legal Fees With Other Lawyers Who May Lawfully Share Fees With Nonlawyers. It clarified that a lawyer practicing in a model rule state didn’t violate 5.4 if they shared fees with a DC lawyer. In 2020, the landscape changed regarding 5.4. Utah and Arizona both made changes to their Rule 5.4. Arizona eliminate the fee-sharing prohibition and allowed nonlawyers to own law ...