HB5487: LAW FIRM OWNERSHIP

HB5487 Enrolled LRB104 20746 JRC 34250 b 1 AN ACT concerning civil law. 2 Be it enacted by the People of the State of Illinois, 3 represented in the General Assembly: 4 Section 5. The Attorney Act is amended by adding Section 5 13 as follows: 6 (705 ILCS 205/13 new) 7 Sec. 13. Protection of clients. 8 (a) As used in this Section: 9 "Allied legal staff" means persons who are not licensed as 10 attorneys and may have access to attorney-client and 11 work-product privileged information in their work, including, 12 but not limited to, paralegals and legal assistants. 13 "Alternative business structure" means any entity that 14 provides legal services and allows persons who are not 15 licensed as attorneys to have ownership or decision-making 16 authority. "Alternative business structure" does not include 17 nonprofit organizations. 18 "Management services organization" means an entity that 19 provides management and administrative support services in 20 exchange for ownership of a law firm's assets or payments. 21 (b) The provisions of this Section apply only to: 22 (1) a licensed attorney or law firm operating in 23 Illinois with annual global revenue from that licensed HB5487 Enrolled - 2 - LRB104 20746 JRC 34250 b 1 attorney's or law firm's provision of legal services that 2 is less than $300,000,000; in determining a licensed 3 attorney's or law firm's revenue for purposes of this 4 paragraph (1), the determination shall be: 5 (A) made by taking into account the global revenue 6 of any partnership or law firm affiliated with the 7 licensed attorney or law firm, whether or not the 8 affiliated partnership or other law firm is domiciled 9 in Illinois; and 10 (B) based on publicly-available information; and 11 (2) a licensed attorney or law firm that regularly 12 represents clients on a contingent fee basis, where the 13 fee is based on the resolution or outcome of actual or 14 threatened private litigation, and that has derived more 15 than 50% of the attorney's or law firm's revenues from the 16 contingent fee arrangements in each of the preceding 3 17 calendar years; in determining a licensed attorney's or 18 law firm's revenue for purposes of this paragraph (2), the 19 determination shall be made by taking into account the 20 gross global revenue of the attorney or law firm, together 21 with any partnership or law firm affiliated with such 22 attorney or law firm, whether or not such affiliated 23 partnership or other law firm is domiciled in Illinois. 24 Upon request of the Attorney Registration and Disciplinary 25 Commission or another governmental authority or agency charged 26 with administering or enforcing the provisions of this HB5487 Enrolled - 3 - LRB104 20746 JRC 34250 b 1 Section, or upon order of a court of competent jurisdiction, a 2 licensed attorney or law firm shall be permitted to provide a 3 self-certification attesting, under oath, to the fact that (i) 4 the licensed attorney's or law firm's annual global revenue is 5 more or less than $300,000,000, (ii) the licensed attorney or 6 law firm regularly represents clients on a contingent fee 7 basis, as that term is used in this subsection, and derived 8 more or less than 50% of the licensed attorney's or law firm's 9 revenues from contingent fee arrangements in each of the 10 previous 3 calendar years, as determined in accordance with 11 this subsection, or (iii) both (i) and (ii). 12 (c) Any attorney or law firm subject to this Section that 13 is party to an agreement with a management services 14 organization must disclose in all attorney-client contracts 15 that the attorney or law firm is party to such an agreement and 16 the material terms of the agreement. Failure to comply with 17 this duty will subject the lawyer or law firm to the provisions 18 of subsection (g). 19 (d) An entity owned, operated, or controlled in whole or 20 in part by persons not licensed as attorneys, including 21 management services organizations, that is involved with a law 22 firm's or attorney's practice may not do any of the following: 23 (1) interfere with the professional judgment of 24 attorneys in representing clients; 25 (2) exercise control over or be delegated the power to 26 do any of the following: HB5487 Enrolled - 4 - LRB104 20746 JRC 34250 b 1 (A) to reveal, own, or determine the content of 2 client records or to reveal any attorney-client 3 communications; 4 (B) to select, hire, or terminate attorneys or 5 allied legal staff; or 6 (C) to set competency, productivity, or 7 proficiency parameters for attorneys or allied legal 8 staff; 9 (3) charge any fee to the attorney or law firm that is 10 directly or indirectly based on the attorney's fees, 11 revenues, or profits of the attorney or law firm. 12 The prohibition in paragraph (3) of this subsection does 13 not apply to the repayment of a loan or extension of credit the 14 attorney or law firm is obligated to repay if that the amount 15 of the borrower's obligation is not contingent upon or 16 calculated on the basis of the borrower's attorney's fees, 17 revenues, profits, or other financial performance. 18 (e) Any contract involving management of a law firm or an 19 attorney's practice with any entity owned, operated, or 20 controlled by persons not licensed as attorneys, including 21 management services organizations, may not limit an attorney 22 or allied legal staff member from: 23 (1) competing with that law firm or its practice in 24 the event of termination or resignation; or 25 (2) disparaging or commenting on that law firm or 26 practice as to any issues involving quality of services, HB5487 Enrolled - 5 - LRB104 20746 JRC 34250 b 1 ethical or professional challenges in the practice of law, 2 or revenue-increasing strategies employed by an entity 3 owned, operated, or controlled in whole or in part by 4 persons not licensed as attorneys. 5 (f) An attorney licensed or otherwise authorized to 6 practice in this State may not share legal fees directly or 7 indirectly with an out-of-state alternative business structure 8 unless all the following apply: 9 (1) The attorney is also licensed in the state in 10 which the alternative business structure is approved. 11 (2) The fees are compensation for providing legal 12 services in that state. 13 (3) The law of that state is controlling under Rule 14 8.5 of the Illinois Rules of Professional Conduct or any 15 successor rule. 16 (g) A violation of this Section may constitute cause for 17 the imposition of discipline by the Attorney Registration and 18 Disciplinary Commission and subject the attorney, the 19 management services organization, and the alternative business 20 structure to the following penalties: 21 (1) statutory damages of $10,000 per violation or 3 22 times the actual damages incurred by the client, whichever 23 is greater; 24 (2) attorney's fees and costs; and 25 (3) injunctive or declaratory relief. 26 (h) This Section does not apply to any arrangement for the HB5487 Enrolled - 6 - LRB104 20746 JRC 34250 b 1 sharing of legal fees if both of the following conditions are 2 satisfied: 3 (1) The arrangement for the sharing of legal fees was 4 ordered or approved by a court or tribunal of competent 5 jurisdiction, including, but not limited to, the 6 establishment or distribution of a common benefit fund in 7 coordinated, consolidated, or multidistrict litigation. 8 (2) The manner by which legal fees are to be allocated 9 is subject to judicial or tribunal oversight and 10 determined by the court to be fair, reasonable, and 11 necessary for the administration of justice. 12 (i) This Section applies only to contracts entered into on 13 or after the effective date of this amendatory Act of the 104th 14 General Assembly. 15 Section 99. Effective date. This Act takes effect upon 16 becoming law.