California Enacts Ban on Contingent Fee Sharing with Alternative Firms

What's Happening?

California Governor Gavin Newsom has signed a bill into law that prohibits attorneys and firms in the state from sharing contingency fees with out-of-state alternative business structures (ABS), which are law firms owned by non-lawyers. This legislation, known as A.B. 931, specifically targets contingent fee arrangements, commonly used by mass tort and personal injury law firms. The law aims to prevent partnerships between California lawyers and firms in jurisdictions like Arizona, Utah, Puerto Rico, and DC, where non-lawyer ownership is permitted. The bill was amended to allow fixed fee arrangements and flat fee sharing for specific dollar amounts, but imposes fines for violations starting January 1, 2026.

Why It's Important?

The new law represents a significant shift in California's legal landscape, potentially affecting the operations of litigation firms that rely on ABS partnerships. By restricting fee sharing, the law could limit the financial flexibility and growth opportunities for California-based firms, impacting their ability to compete with firms in states that allow non-lawyer ownership. This decision may also influence the broader legal industry, as firms reassess their business models and strategies in response to regulatory changes. The law's impact on consumer access to legal services and the competitive dynamics between traditional and alternative firms will be closely watched.

What's Next?

As the law takes effect, legal firms in California will need to adjust their practices to comply with the new regulations. Firms may explore alternative fee arrangements or seek partnerships within the state to maintain their competitive edge. The legal community will likely monitor the implementation of the law and its impact on the industry, potentially advocating for further amendments or challenging the restrictions. Stakeholders, including legal professionals and business investors, will assess the long-term implications of the law on the state's legal market and its influence on national trends in legal practice.