By Mike Scarcella
WASHINGTON, Feb 27 (Reuters) - Two law firms have withdrawn a federal lawsuit that challenged a new California law restricting attorneys from sharing fees with out-of-state firms in which non-lawyers hold ownership or have decision-making authority. Wisner Baum and Eleos Law on Thursday voluntarily dismissed their lawsuit in federal court in Los Angeles without explanation.
The two firms and the California attorney general’s office did not immediately respond to requests for comment. California’s state bar declined to comment. The new state law, which took effect in January, generally bars California lawyers from sharing fees directly or indirectly with out-of-state alternative business structures.
It was enacted following moves in Arizona and other states to loosen regulations prohibiting non-lawyer ownership of law firms. Arizona has gone the furthest, approving
more than 100 alternative business structures including personal injury firms and legal technology companies. Last year, KPMG opened a law firm subsidiary in the state. Pending legislation in Illinois would limit attorneys in that state from sharing fees with out-of-state alternative business structures unless the Illinois attorney is licensed where the ABS is approved, and the fees are for work performed in that state. In the California litigation, Wisner Baum and Eleos Law called the California law an “unconstitutional restriction on the ability of California lawyers and out-of-state law firms to practice law and represent injured people.” Eleos is an Arizona-based ABS.
Chief U.S. District Judge Dolly Gee in Los Angeles in December rejected a bid from Wisner Baum and Eleos Law for an order temporarily barring the new law from taking effect. “Plaintiffs do not challenge the legitimacy of California’s interest in prohibiting non-lawyer ownership in California law firms,” Gee wrote. “AB 931’s prohibition on fee sharing with out-of-state ABS firms closes a loophole to protect that very interest.”
The lawyers in the case last month told Gee they were discussing the next steps after her ruling and asked for more time to allow those discussions to continue.
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