Smart Money in Bed With Lawyers? Why Wall Street Is Investing in Arizona Law Firms
Arizona launched a program to expand access to legal services for people who can’t afford or find lawyers. Three years later, the program is catching Wall Street’s eye. In most states, the owners of law firms need to be attorneys.
But the Arizona Supreme Court lifted that barrier, and since 2021, nonlawyers can apply to open firms known as Alternative Business Structures to provide legal services in the state. Hedge funds, private equity groups and other investors are exploring Arizona’s unusual opportunity to have an equity stake in law firms. “Every other business is allowed to take growth capital to pay their expenses," said Ted Farrell, who runs Litigation Funding Advisers, which consults in the legal finance market.
“The question is, how much smart money wants to get in bed with lawyers?" It turns out, plenty. As much as 40% of the legal businesses approved as Alternative Business Structures are backed by private equity or hedge funds, according to an estimate by a program committee member. Charles Platt, chief executive of Cartiga, an investment firm that funds civil litigation, said he created an Arizona business to make the process of partnering with law firms more efficient.
His firm works with lawyers around the country. “We thought, ‘Is there some way to enhance and measure the value of what a lawyer delivers in what we think is an overly long process?’" Platt said. “Having nonlawyer ownership would advance the ability to get to the bottom of the question." A new model Arizona’s nascent program is potentially the tip of the spear, testing what would be a paradigm shift in how to structure law firms.
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