Unshackling Nonlawyer-Owned Law Firms: An Old ABA Ethics Opinion Needs Revision

Almost four years ago now, Arizona and Utah joined D.C. in authorizing nonlawyers to own law firms.

But a 1991 American Bar Association (ABA) ethics opinion, long since made obsolete by changes to the rules, still shackles them, preventing them from many operations in almost every other jurisdiction.

It’s time to change that.

The new world

As of early 2025, the Arizona Supreme Court had approved 117 alternative business structure (ABS) law firms, Arizona’s name for law firms owned, in whole or in part, by nonlawyers. Utah’s regulatory “sandbox” has also approved nonlawyer ownership of law firms on a case-by-case basis. For many years, D.C. has permitted individual nonlawyers who participate in the work of a law firm to own an interest in the firm, but no one keeps track of how many such firms there are.

Those three are the only jurisdictions that permit nonlawyer ownership. Every other jurisdiction has adopted a version of ABA Model Rule of Professional Conduct 5.4(d) that retains the traditional ban on nonlawyer ownership.

This mixed regulatory environment has led to anomalies. One is that nonlawyer-owned Arizona, Utah, and D.C. law firms are seriously limited in their ability to practice outside their home jurisdictions. In an age of otherwise dramatically increasing practice by lawyers across state lines, that seems strange.

For traditional law firms, with no nonlawyer ownership, there are very few restrictions on the ability of a law firm from one jurisdiction to set up shop in another. The restrictions that do exist are rare and easily overcome for multistate firms. A few jurisdictions require registration as a law firm, or some form of local involvement or ownership. But as a practical matter, American law firms can branch and operate fairly freely all over this great land. Not so nonlawyer-owned firms. Why?

Back to the dawn of time

It all dates back to 1991 and ABA Formal Opinion 91-360.

That opinion intended to clarify how a lawyer could—and could not—ethically practice in multiple jurisdictions if the lawyer was licensed both in a jurisdiction that permitted nonlawyer ownership (then only D.C.) and in a second jurisdiction—one that banned nonlawyer ownership.

This 1991 opinion said a dual-licensed lawyer could only practice with a D.C. nonlawyer-owned firm in D.C. under their D.C. license. They couldn’t handle matters outside D.C for their D.C. nonlawyer-owned firm. Why? Because that would violate the second jurisdiction’s ban on nonlawyer ownership. Nor could they use their non-D.C. second law license to handle any non-D.C. matters for their D.C. nonlawyer-owned firm. With this conclusion, a wall went up for nonlawyer-owned law firms (then only in D.C.) confining them to their home jurisdiction.

The ABA Opinion framed this conclusion in a quaint 1991 way: D.C. nonlawyer-owned firms may not have “branch offices” in any jurisdiction that bans nonlawyer ownership. That essentially means that no lawyer licensed outside a jurisdiction that allows nonlawyer-owned law firms (now, D.C., Arizona, and Utah) can practice with a nonlawyer-owned law firm that is lawfully organized in its home jurisdiction.

Other states have followed this interpretation in lockstep since 1991, right through the 2021 Arizona and Utah rule changes. Thus, nonlawyer-owned firms are, to some extent, “landlocked” or barred from full-scale operations and offices in 48 U.S. jurisdictions. (In fact, Arizona ABSs are barred even from having offices in Utah and D.C., and vice versa, too.)

Time to reconsider

It’s time to revisit this 1991 conclusion, and not just because of the reforms in Arizona and Utah.

What few have realized until recently is that the law and rules that answer this question—including the very text of the ABA Model Rules of Professional Conduct—have changed significantly since 1991. ABA Opinion 91-360 no longer accurately reflects either the current language ABA Model Rules or the realities of the legal profession.

The rules have changed

Most importantly, when the 1991 Opinion was issued, there was essentially no law at all on choice of law for legal ethics. The ABA Model Rules were silent, and there was virtually no case law on this subject.

When the ABA adopted its Model Rule 8.5(b) on choice of law a few years later in 1993, that fundamentally changed the way the Rules handle jurisdictional conflicts. Most of us didn’t realize the impact of this change on the analysis of the 1991 opinion until quite recently.

Consistent with other law on the choice of law, Rule 8.5(b) says that the rules governing a lawyer’s conduct should be, for conduct in litigation, the rules adopted by the tribunal. But for all other conduct, the rules that apply are those of the jurisdiction where the conduct occurs or where the predominant effect of the lawyer’s conduct is felt.

Among other things, this straightforward choice-of-law rule was designed to accommodate the realities of multi-jurisdictional practice. Yet ABA Opinion 91-360, issued before the adoption of Rule 8.5(b), does not reflect this approach. How could it? Rule 8.5(b) didn’t exist.

New ABA Opinion 504 clarifies

What has recently made the effect of the adoption of choice of law rules on the 1991 conclusion so clear is that in 2023 the ABA ethics committee issued ABA Formal Opinion 504. It’s a very good opinion on how Rule 8.5(b) on choice of law works in several important scenarios. One involves pro hac vice admission of a lawyer practicing with a lawfully nonlawyer-owned law firm to handle a case in a jurisdiction that forbids nonlawyer ownership.

Of course, a lawyer seeking pro hac vice admission has to comply with the requirements of the pro hac vice rule in question. And those virtually all say that they have to agree to abide by that jurisdiction’s ethics rules in their conduct in the case.

But the 2023 ABA opinion concludes that, if the tribunal’s jurisdiction has adopted ABA Model Rule 8.5(b)—and most have—then this choice of law rule points to the ethics rules of the lawyer’s home jurisdiction as the rules that govern the lawyer’s business relationship with their law firm. And that home jurisdiction, in this scenario, expressly allows nonlawyer ownership.

Consistent with virtually all pro hac vice rules and ABA Model Rule 8.5(b), the opinion simultaneously concludes that, as to conduct directly in the litigation, the lawyer admitted pro hac vice must abide by the tribunal’s ethics rules.

New ABA Opinion 504 teaches that ABA Model Rule 8.5(b) means that the pro hac vice lawyer’s conduct in practicing with a nonlawyer-owned firm—the lawyer’s relationship with the law firm and the structure of the lawyer’s firm—is not “conduct in connection with a matter pending before a tribunal,” and thus not governed by the tribunal’s ethics rules. Instead, the “predominant effect” of that conduct is in the pro hac vice lawyer’s home jurisdiction; the home jurisdiction’s rules apply under the test in Rule 8.5(b); and the home jurisdiction’s rules permit nonlawyer ownership. An elegant and straightforward application of the Rule.

The question ABA Opinion 504 raises

The serious current question this analysis raises is this: if you apply the language of ABA Model Rule 8.5(b), and the analysis of 2023 ABA Opinion 504, to the question posed in the 1991 ABA opinion, where’s the predominant effect of the conduct?

Seems like it would be the lawyer and law firm’s home jurisdiction, both for the pro hac vice-admitted lawyer and the lawyer admitted and practicing full-time in that same host jurisdiction. After all, why would it be any different? That conclusion would reverse the result of the 1991 ABA Opinion and unshackle nonlawyer-owned law firms.

Can’t we all just get along?

But the 1991 ABA opinion’s analysis is not only at odds with the plain language of ABA Model Rule 8.5(b) and recent ABA Formal Opinion 504. It’s also incompatible with ordinary principles of federalism and the decentralized regulation of the U.S. legal profession.

The choice-of-law analysis in Opinion 504 tracks nicely with lawyer regulatory federalism by providing that the rules of the tribunal govern the conduct of the pro hac vice-admitted lawyer, while the rules of that lawyer’s home jurisdiction govern their business relationship with their law firm back home. This seems like a division of regulatory responsibility consistent with state-by-state regulation under a federalist constitutional framework.

Indeed, shouldn’t the host- or tribunal-state regulator be essentially agnostic as between how it would treat a pro hac vice-admitted lawyer and a lawyer who is a partner or associate in an out-of-state firm?

What about comparing how the host or tribunal state treats a lawyer who joins, on the one hand, a traditional, lawyer-owned out-of-state law firm and, on the other hand, a host-state lawyer who joins a lawfully organized, nonlawyer-owned, out-of-state law firm? Is there any regulatory justification for “reaching into” that other state to control how its firms do business under its law?

Time to apply today’s rules to the 1991 opinion

The time has come for a rethink.

The ABA and Model Rules jurisdictions should address the following key question: Can a lawyer licensed in a Model Rules jurisdiction ethically practice with a nonlawyer-owned law firm from Arizona, Utah, or D.C.? In answering this question, the ABA and jurisdictions following the Model Rules must apply the principles of Model Rule 8.5(b) and recognize that the jurisdiction allowing nonlawyer ownership its own perfectly legitimate interest in regulating the lawyer’s conduct.

Answering this question in the affirmative, and permitting this form of multi-state practice, would respect the sovereignty of each state’s legal regulatory system and provide clearer guidance for lawyers navigating today’s mixed regulatory environment, while protecting each jurisdiction’s sovereign right to regulate its own lawyers.

The result would be a more coherent and constitutionally sound framework for legal ethics, better suited to the realities of modern law practice.

Lucian T. Pera is a partner in the law firm of Adams and Reese LLP. He represents lawyers, law firm, clients, and others who work in the legal services marketplace.