The Law Firm Modernization Act: A New Era For Colorado Law

In an exclusive interview with M. David Johnson, CEO of Modern Family Law, and Caroline Germano, Marketing & Communications Manager, we delve into a groundbreaking proposal aimed at amending the Colorado constitution. This amendment seeks to revolutionize law firm ownership by allowing non-lawyers to hold stakes, fostering innovation and improving client services. Johnson outlines the necessity, implications, and visionary benefits of this legislative change, shedding light on how it can transform the legal landscape in Colorado.

Understanding The Amendment

Caroline: Can you tell me more about the amendment that you are proposing and what specific issues it aims to address?

Dave: What we want to propose is a change to the Colorado constitution, that removes the regulation of law firm ownership from the jurisdiction of the Colorado Supreme Court, and gives it to the legislature. Because it is a change between two branches of the government we are doing it by a constitutional amendment, otherwise, it just is a law that the legislature would have jurisdiction over, and the Supreme Court could keep it. We thought about doing it as a citizens initiative, where we go out and get signatures and get it to the ballot. But we’re going to do it through the legislature, get sponsors to do a push to get it, what’s known as a referred ballot initiative, where the legislature itself puts it on the ballot by a majority vote.

The initiative itself is designed to fix the problem of law firm ownership. The law right now is that only lawyers can own any interest in a law firm. Even more, only practicing lawyers can own an interest in law firms. So, retired lawyers have to sell, if they can. The reason that we want to change that is because it’s not good for the lawyers, it’s not good for the firms, it’s not good for the clients, and it’s not good for the profession, to lock up ownership only to lawyers. It kills innovation, it kills creativity, and it kills professionalism. Lawyers try and manage their practice in between dinner and when they put the kids to bed. So, they essentially have very little time to take care of marketing, human resources, or finance.

They don’t have the expertise. They just are trying to meet the client’s needs and keep the boat floating whenever they can get time to do it. They’re just not set up to run a business. Some people do. They manage it because they stay up all night. Or they get to a size where they don’t have to take cases anymore and they can begin full management of it. But even then, that’s what I’m doing and I have no background in marketing or human resources, or especially finance. Lawyers, with few exceptions, should not really be the ones who are moving the practice forward. So, bringing in outside ownership, outside money, brings in the expertise, the financial, the marketing, the HR, etc. It just really brings in people who know what they’re doing to the firm. Outside ownership will demand that and they will hold them accountable for productivity. They will hold them accountable for creative solutions to management problems.

So, in my mind, the law must open up its ownership the way that every other business, every other field does it. There are some limitations, that various industries have on regulating ownership, but nothing that prohibits ownership or investors outside of the group of lawyers who are sworn in.

Rationale Behind The Change

Caroline: In what ways did you feel or see the need for this amendment?

Dave: Well, it’s always been in the back of my mind, what do I do with my practice when I retire? Or how do I capitalize on this incredible business that I’ve built up? So, I can’t say when I first started, but it’s become more urgent over the last couple of years as this business, my business has grown. Like most monopolies, they’re not good for anyone. They may make people money temporarily, but they collapse under their own weight. Particularly in law, when we’re confronted with all of these challenges like AI. It’s going to change everything, and how is the law going to adjust to that if it doesn’t have the nimbleness to make changes, it’s going to become ineffective.

Caroline:  Do you think this amendment would impact clients or lawyers?

Dave: Most definitely. For clients, law firms are going to have to get their act together and offer highly competitive services to clients. They’re going to have to innovate. With AI on the horizon, you’ve got to innovate or die. So, the law firms, the lawyers are going to have to innovate new solutions for the clients, designed to make the clients happier. That means less cost, more accessibility, and a more understandable process. I see it as helping clients access justice because 75% of people who need lawyers can’t afford lawyers. You’d think that that means lower-income people. It’s the vast majority of middle-class people can’t afford lawyers. That’s not right. So, you’ve got to do something to fix that dynamic. You can band-aid it with this, that, and the other thing, but fundamentally, the real fix is to open up the profession, kill the monopoly, and let new people come in and start innovating.

What will it do to the lawyers? I think that lawyers don’t realize how bad this rule is for them. Imagine you build up a practice with your partner, and you’ve got four lawyers and you’ve put your life’s work into this business and it’s time to retire. What happens? You have to sell it for pennies because you can’t cash it out to somebody who’s got money. Your partner probably doesn’t have money to buy you out. Why invest in a law practice if, in the end, it’s going to be worthless because you can’t sell it to anybody?

Comparative Insights

Caroline: Have you heard of other states or locations where they proposed something similar?

Dave: Yeah, for sure. Australia and the UK both allow people to own law firms who are not lawyers, and it works great. Ask anybody in the UK. So, we’re catching up with them. Utah and Arizona have alternate business structures, ABSs, and those structures are tests to see what happens when non-lawyers own part of a law firm. So, you have to get a special license to own one of those ABSs, but it’s a test to see what happens there. Texas is looking at it. California is an odd duck because the legal profession is regulated by the legislature here, not the Supreme Court. So, when they wanted to change this, there was great hope and the polls all supported it, and it was on its way to approval that non-lawyers could own law firms, but it didn’t happen.

But people are talking about it. So, I think it’s going to happen.

Addressing Concerns & Safeguarding Integrity

Caroline:  Can you think about any risk associated with allowing non-lawyers to own law firms and how would you mitigate them?

Dave: Well, the primary complaint against doing this is conflict.

But there are so many other rules that require the lawyer to put the client’s interest first, no matter what. So, forget about ownership. If you’re a lawyer, you have to follow the rules of the Code of Professional Conduct and you have to treat that client first and do what that client wants, within the scope of professionalism.

The other risk is that you would bring in the wrong investor, the wrong purchaser. But that’s a risk in business and that is definitely a risk in law already. What if you bring in the wrong partner? It happens when you get somebody who’s there to liquidate. Well, you could bring in a non-lawyer partner who’s there to liquidate too. You could bring in somebody unethical, but you could bring in a lawyer who’s unethical too. So, you run the same risks with somebody buying your business or bringing them in as an equity shareholder, as you might bring in the wrong person or firm.

Caroline: With this amendment, how will it protect the integrity and confidentiality of legal services?

Dave: As I said, the biggest complaint is usually over conflict. Good lawyers are going to always do what they’re required to do under the Code of Professional Responsibility. So, integrity is still there and the independence of the lawyer is still there.

The Role Of Non-Lawyers In Law Firm Innovation

Caroline: How do you think people who are not lawyers could contribute to innovation in law firms?

Dave: They are the innovators. They’re the ones you want to bring in. They’re the ones that are trained in areas that lawyers don’t know. The innovators are the ones that you want to bring in to teach us how to serve our clients better, how to bill them better, how to do finance better, and how to do marketing better. It’s the outside people, the people who have the real experience and education in these other areas, they’re the innovators.

You can hire these experts in your firm. It’s more expensive. But that’s not the way the rest of the world works.

Caroline:  How do you think non-lawyers could bring compassion to law firms?

Dave: People are people, and you want to try and hire compassionate people in our firm anyway, regardless of their position. Because we all interact with clients or potential clients in some way. So, I don’t think that lawyers are particularly more compassionate than anybody else. I think that you just have to instill in people that recognition, that walk-a-mile-in-my-shoes type of mentality. We do that by asking people, “Have you ever had the worst day of your life?” Of course, everyone has, and this caller probably is having that right now. How would you want to be treated if you were having your worst day? When you had your worst day so far, how would you want to be treated? That’s what we should do.

Future Steps & Public Education

Caroline:  What steps do you want to take to educate the public about this amendment?

Dave: Well, I am not sure what we will do to educate the public about it. I don’t know what route that will go. I feel very strongly that it will pass in a public vote by a large margin. I think the public will mostly be shocked that only lawyers can own law firms.

The public is sick and tired of being charged too much, of waiting too long to get a callback, of taking months and months for something that should have been done already.

Conclusion

As Colorado stands on the brink of a significant constitutional change, M. David Johnson’s vision for inclusive and innovative law firm ownership holds the promise of transforming the legal profession. By advocating for this amendment, Johnson not only challenges the status quo but also paves the way for a more dynamic, client-centered, and efficient legal system. This initiative reflects a broader movement towards modernization and accessibility in legal services, aligning Colorado with global trends and making justice more attainable for all. As the discussion progresses, it becomes increasingly clear that this change is not just necessary but inevitable for the evolution of legal practices in today’s fast-paced world.