Trial lawyers back new bills targeting misconduct, private equity influence

A quest by plaintiffs' attorneys to better regulate their own profession continued with the introduction of two new bills this week.

The measures, sponsored by the Consumer Attorneys of California, target familiar foes for the group. AB 2039 would require disbarment for lawyers convicted of illegal client solicitation. AB 2305 targets corporate influence, banning private equity and other investors from controlling legal decisions. Both bills were in print on Monday, announced on Tuesday, and are scheduled to be heard by the Assembly Judiciary Committee on March 24.

"It is clearer by the day that private equity is working overtime to infiltrate the legal profession," CAOC President Doug Saeltzer, also a shareholder with Walkup, Melodia, Kelly & Schoenberger, said in an email. "You don't have to look further than Arizona to see how harmful those investments can be on outcomes for victims and survivors. Under no circumstance should anyone -- least of all private investors -- have a say in what happens between an attorney and their client. These insidious financial relationships have been illegal for years in California, we're taking it a step further with AB 2305 to make sure there are real consequences for attorneys who bite the poisoned apple."

The bill was written by Assembly Judiciary Committee Chair Ash Kalra, D-San Jose. It "would prohibit a corporate investor involved in any litigation practice" from "substantive" input in litigation decisions and ban any contracts that would effectively allow such entities to have input. This is a response to reports that the burgeoning litigation funding industry, or through management services organizations, provides support in areas like marketing and technology.

AB 2305 would utilize the State Bar's control over attorneys by requiring it to discipline attorneys who violate these rules. It follows another Kalra bill signed into law last year. AB 931 created strict new rules around legal funding and authorized civil actions against companies that violated them. That law has only been in effect since Jan. 1, though some attorneys have already complained they would like to see the bar use it more aggressively.

"We are providing technical assistance on the bill but do not have a position," State Bar spokesman Rick Coca said in an email.

In 2020, the Arizona Supreme Court approved major changes to the rules of professional conduct to allow nonlawyers to have ownership stakes and decision-making power in law firms. Around the same time, the Utah Supreme Court approved a pilot project to allow non-lawyer investment and new fee-sharing arrangements.

A November study by David Freeman Engstrom, Natalie A. Knowlton, and Lucy Ricca with Stanford Law School found that in the years since, Arizona's more aggressive approach has led to rapid changes.

"While Arizona continues to add new ABS [Alternative Business Structure] entities at a rapid clip--growing from 19 entities in 2022 to 136 in the first quarter of 2025, over a six-fold increase--the Utah sandbox has shrunk substantially over the same period. ... Critics of Arizona's entity-focused reforms have also raised concerns that liberalized rules have enabled private equity's entry into Arizona's legal services marketplace," they wrote.

The other bill, AB 2039, would strengthen enforcement against attorney misconduct. It would require mandatory disbarment for lawyers convicted of illegal client solicitation, known as "capping," and expand protections for whistleblowers who report wrongdoing.

"Attorneys are fundamental players who protect consumers, safeguard our rights and seek justice in our legal system," said the bill's author, Assemblymember Rick Zbur, D-Hollywood. "Our system of justice depends on lawyers conducting themselves with integrity and in accordance with the rules."

Both bills fit with a larger effort by CAOC and other legal industry groups to clean up the profession. This is a reaction to several years of embarrassing news stories from the profession, from attorney Tom Girardi's theft of millions of dollars from clients to State Bar and Los Angeles County District Attorney's Office investigations of a Los Angeles Times article alleging a law firm allowed clients to make false claims in the $4 billion county sex abuse settlement.

"We need stronger measures to hold bad actors accountable, including potential criminal penalties," Mike Arias, managing partner of Arias Sanguinetti Wang & Team LLP and a former president of CAOC, said in an interview this week. "Losing a license isn't always enough."

Arias added, "It's difficult at this stage of my career to see our profession being criticized so broadly because of a few bad actors."

But Brian Kabateck, founding partner of Kabateck LLP in Los Angeles, was skeptical.

"I'm not sure more legislation is necessary," he said. "There are already statutes in place addressing things like paying non-lawyers for cases or making fraudulent claims. If there is criminal conduct, people should be prosecuted--not just clients, but also those facilitating it."

Associate Editor Laurinda Keys contributed to this report.