What happened: Burford Capital, a well-established third-party litigation funder, is exploring opportunities to further partner with U.S. law firms by investing in firms through Arizona’s alternative business structure (ABS) program and via managed service organizations (MSOs).

Tell me more: While ethical rules in most states prohibit non-lawyers from owning U.S. law firms or receiving a percentage of their fees, MSOs and ABS structures provide workarounds. For instance, under an MSO model, a law firm’s billing, IT and marketing may be split off into a separate MSO entity. The MSO, which is funded by outside investors, provides these services to the law firm for a fee. 

• The outside investors are making money through the provision of the MSO’s services to the law firm without sharing in the firm’s profits, thereby sidestepping rules and regulations regarding non-lawyer ownership of a law firm. 

Why it matters: MSOs, ABS structures and the increasing influence of third-party investors in lawsuits raise serious ethical concerns. California and other states recently halted or rejected ABS programs much like Arizona’s due to concerns that clients’ interests could be compromised. As investor influence continues seeping into litigation, the desire to obtain a sufficient return on investment could supersede the objective of obtaining fair compensation for an injured individual. 

TLR Thoughts: Litigation is becoming more commercialized and detached from the actual needs of injured parties. By tracking these developments, lawmakers and advocates can better target reforms to prevent abuse and keep courts focused on fair outcomes rather than financial windfalls.

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