THOMAS PUDAS—Arizona has once again positioned itself as a pioneer in legal reform, this time by approving a license for KPMG, one of the world’s largest accounting firms, to practice law in the state. This decision comes as part of Arizona’s broader effort to modernize legal practice by allowing non-lawyers to own and operate law firms under the state’s Alternative Business Structure (“ABS”) model. However, the move has sparked debate on whether such changes will enhance access to legal services or threaten the integrity of the legal profession.
The ABS model began making its way into the U.S. legal market in 1991, when the District of Columbia modified ABA Model Rule 5.4 to allow lawyers to form partnerships with non-lawyers, so long as the sole purpose of the relationship was to provide clients with legal services, and all managers or individuals with a financial interest in the firm abided by the Rules of Professional Conduct. For nearly three decades following the D.C. modification, every other U.S. jurisdiction maintained a strict prohibition on non-lawyers sharing fees or having an economic interest in a law firm. However, in 2021, Arizona became the first state to modify its ethics rules to allow non-lawyers to have management and economic rights in a law firm.
The rule change stemmed from calls for regulatory reform seeking to “improve access to justice and to encourage innovation in the delivery of legal services.” In order to operate under the new model, firms or individuals apply through the state’s ABS licensing program, where a committee reviews applications for approval or denial. Since the new regime took effect on January 1, 2021, the committee has approved more than 100 applications.
The new model has attracted significant interest from hedge funds and private equity firms, with up to forty percent of newly approved entities receiving backing from these financial groups. The new rule has also piqued the curiosity of several states, with Washington launching a non-lawyer ownership pilot project and at least six other states considering similar reforms.
However, the ABS model has yet to receive widespread approval across the United States. Both Florida and California, for example, have rejected non-lawyer ownership proposals, with critics citing potential conflicts of interest and a lack of evidence that such ownership improves access to justice.
The debate over the efficacy of non-lawyer ownership in law firms and access to justice was rekindled when the Arizona Supreme Court approved a request from KPMG to establish a law firm in the state.
KPMG, one of the “Big Four” accounting firms, currently operates in 145 countries and territories with a global revenue of $38.4 billion in 2024. Although KPMG’s approval to practice law in Arizona marks its first entry into the U.S. legal market, the firm is well-established in the global legal industry, providing legal services in nearly eighty countries worldwide. The firm plans to use the approval to offer technology-enabled legal services through the firm’s Digital Gateway platform, primarily targeting the legal technology market.
KPMG, like all accounting firms that audit publicly traded companies in the United States, is subject to the Sarbanes–Oxley Act (the “Act”), which prohibits auditors from providing certain non-audit services to audit clients. The list of prohibited non-audit services includes “legal services and expert services unrelated to the audit.” To ensure that KPMG remains in compliance with the Act, the Arizona Supreme Court conditioned the firm’s approval to practice law in the state with a prohibition against the firm from providing legal services to any companies it audits. Additionally, the firm will be required to have an internal compliance watchdog, who must file compliance reports with the state twice a year.
Despite the technological focus of the new law firm and the Arizona Supreme Court’s prohibition against providing legal services to audit clients, the decision to grant large multinational corporations access to the state’s legal market has reignited the debate surrounding the expansion of ABS, conflicts of interest, and the ethical and professional rules governing the practice of law.
Supporters of the ABS model argue that the previous ban on non-lawyers having an economic interest in a law firm was superfluous, acting as an artificial barrier to prevent unwanted behavior that was already regulated by a number of other ethics rules. Other supporters reference the new regime’s well-intentioned origins, aiming to boost funding for underrepresented litigants, advance technological developments within the field, and increase access to legal markets.
Opponents of the model, particularly in relation to the acceptance of large firms like KPMG, are concerned about large multinational corporations using the ABS model to overtake small law firms through pricing models that will lower rates for small business owners. Other critics cite a lack of evidence that the ABS model has achieved its goal of increasing access to legal markets, instead opening the industry to ethical concerns based on investors prioritizing profits over client interests. These concerns come after nearly thirty entities partaking in a similar ABS regulatory sandbox program in Utah announced that they were leaving the state for Arizona after Utah adopted rules requiring participants to show that their services would reach consumers currently underserved by the legal market. Skeptics also point to the ambiguity surrounding the unlicensed practice of law across state lines as a potential ethical and legal concern. To address these concerns, KPMG has stated that it will operate outside Arizona “within each state’s ethics rules” and will co-counsel with other law firms as necessary.
As Arizona continues to embrace the ABS model, the legal industry will be closely watching the impact of KPMG’s move. While proponents see this as a step toward modernizing legal practice and increasing competition, opponents warn of potential threats to legal integrity and client protections.
With other states exploring similar reforms, the success or failure of Arizona’s experiment could shape the future of the legal profession in the United States. Whether this shift will lead to greater access to justice or a corporate takeover of the legal field remains to be seen.
