Gavin Newsom signed AB 2305 on Sunday, which means California now has a blunt statutory answer to the question of what private equity is allowed to do once it has bought its way into a law firm’s back office.
The law bars business entities from interfering with or attempting to “influence the professional judgment of a licensed attorney or litigant regarding any substantive litigation decision.” That means which cases a firm takes, which clients it signs, and when it settles. Violators, including the attorneys on the receiving end of the outside money, face statutory damages of $10,000 per violation, or three times whatever the client actually lost, whichever is greater, plus fees and costs. It covers contracts entered starting January 1, 2027. Consumer Attorneys of California, the trade group that pushed the bill, said Monday that the state is “setting the standard for the rest of the country to follow.”
Colorado and Illinois already have similar measures. California is just the largest legal market to do it, and it lands at the moment the richest firms in the country started taking the meetings.
Trisha Rich, a Holland & Knight partner whose team has closed more than 30 legal industry MSO deals this year, told Reuters the new law does not “change a single thing,” because the attorney professional conduct rules already guard against outside influence on legal decision-making. She noted that the Illinois and Colorado versions haven’t slowed MSO dealmaking in those states, and that no one has brought an enforcement action under those provisions.
All of that is accurate, but pardon me if I am just the teeniest bit skeptical that MSO advocates aren’t touting a system that exerts indirect, but meaningful control. Earlier this month, we covered Holland & Knight attorneys — Rich among them — pitching the MSO as a workaround for the ethics rules that bind law firms. In that specific example Rich, et al., were arguing that an MSO could allow firms to circumvent the ethical bar on non-competes. Rich may not think that this is a “legal control” issue, but the reason we have that rule is — in part — to allow a lawyer to move to a different firm if it’s in the best interests of a client. That feels at least “legal decision adjacent.”
Plus there’s still an optics issue when on one hand you’re saying ethics rules are a sufficient safeguard against outside money influencing legal judgment but also that the MSO structure can get be a workaround for other ethics rules.
There’s also a gap AB 2305 was written to close. The professional conduct rules bind lawyers, and the entity writing the checks is, by design, not a lawyer. California’s law skips the argument about which hat anyone is wearing and attaches a number to the conduct itself.
Rich is right that Illinois and Colorado haven’t produced an enforcement action yet, but PE’s infestation of legal is still young.
Earlier: Private Equity Investment In Law Firms Floated As One Neat Trick To Get Around Ethical Obligations
Private Equity Found A Law Firm That Said Yes
The Richest Law Firms Are Looking At Private Equity Cash Because I Guess They Don’t Have Enough Money
Private Equity Has Its Eyes On Biglaw’s Second Hundred Firms
Kathryn Rubino is a Senior Editor at Above the Law, host of The Jabot podcast, and co-host of Thinking Like A Lawyer. AtL tipsters are the best, so please connect with her. Feel free to email her with any tips, questions, or comments and follow her on Twitter @Kathryn1 or Bluesky @Kathryn1
The post California Tells Private Equity To Keep Its Hands Off Litigation Decisions appeared first on Above the Law.
Gavin Newsom signed AB 2305 on Sunday, which means California now has a blunt statutory answer to the question of what private equity is allowed to do once it has bought its way into a law firm’s back office.
The law bars business entities from interfering with or attempting to “influence the professional judgment of a licensed attorney or litigant regarding any substantive litigation decision.” That means which cases a firm takes, which clients it signs, and when it settles. Violators, including the attorneys on the receiving end of the outside money, face statutory damages of $10,000 per violation, or three times whatever the client actually lost, whichever is greater, plus fees and costs. It covers contracts entered starting January 1, 2027. Consumer Attorneys of California, the trade group that pushed the bill, said Monday that the state is “setting the standard for the rest of the country to follow.”
Colorado and Illinois already have similar measures. California is just the largest legal market to do it, and it lands at the moment the richest firms in the country started taking the meetings.
Trisha Rich, a Holland & Knight partner whose team has closed more than 30 legal industry MSO deals this year, told Reuters the new law does not “change a single thing,” because the attorney professional conduct rules already guard against outside influence on legal decision-making. She noted that the Illinois and Colorado versions haven’t slowed MSO dealmaking in those states, and that no one has brought an enforcement action under those provisions.
All of that is accurate, but pardon me if I am just the teeniest bit skeptical that MSO advocates aren’t touting a system that exerts indirect, but meaningful control. Earlier this month, we covered Holland & Knight attorneys — Rich among them — pitching the MSO as a workaround for the ethics rules that bind law firms. In that specific example Rich, et al., were arguing that an MSO could allow firms to circumvent the ethical bar on non-competes. Rich may not think that this is a “legal control” issue, but the reason we have that rule is — in part — to allow a lawyer to move to a different firm if it’s in the best interests of a client. That feels at least “legal decision adjacent.”
Plus there’s still an optics issue when on one hand you’re saying ethics rules are a sufficient safeguard against outside money influencing legal judgment but also that the MSO structure can get be a workaround for other ethics rules.
There’s also a gap AB 2305 was written to close. The professional conduct rules bind lawyers, and the entity writing the checks is, by design, not a lawyer. California’s law skips the argument about which hat anyone is wearing and attaches a number to the conduct itself.
Rich is right that Illinois and Colorado haven’t produced an enforcement action yet, but PE’s infestation of legal is still young.
Earlier: Private Equity Investment In Law Firms Floated As One Neat Trick To Get Around Ethical Obligations
Private Equity Found A Law Firm That Said Yes
The Richest Law Firms Are Looking At Private Equity Cash Because I Guess They Don’t Have Enough Money
Private Equity Has Its Eyes On Biglaw’s Second Hundred Firms
Kathryn Rubino is a Senior Editor at Above the Law, host of The Jabot podcast, and co-host of Thinking Like A Lawyer. AtL tipsters are the best, so please connect with her. Feel free to email her with any tips, questions, or comments and follow her on Twitter @Kathryn1 or Bluesky @Kathryn1
