Recent changes in Arizona law allow private equity investors to invest in your personal injury case without you even knowing.
A lawyer allowing a private investor to have a financial stake in a client’s case would, until recently, immediately lead to disbarment of the lawyer. Now, suddenly, such conduct by a lawyer is permissible!
The question is—who do these changes in Arizona law help: you, your lawyer, or the secret investors?
Here is a hint. Not you.
Recent Changes in Arizona Law
In 2020, the Arizona Supreme Court implemented sweeping reforms, allowing private equity investors to own shares in law firms under a model called Alternative Business Structures (ABS).
The private equity investors who own shares in law firms profit from the firm’s cases—they have a financial stake in the cases.
Previously, Arizona lawyers risked disciplinary action for permitting nonlawyers to have a financial stake in a case. Now, private equity investors, who generally are not disclosed to clients, have a secret financial interest in many personal injury cases.
Private equity significantly affects the workings of a law firm—much like malware on a computer. Just as malware secretly funnels resources to people unknown to you, private equity investors secretly funnel resources to themselves. Here is what you need to know to protect yourself.
Secret Investors Fund Hugely Expensive Advertising Campaigns
Many personal injury firms that dominate billboards, buses, and television ads are backed by private equity investors. These outside parties supply the financial resources needed for aggressive marketing campaigns, which are essential to maintaining a high volume of cases. However, these campaigns create high overhead costs for the firms.
To maintain profitability and satisfy their investors, these firms often hire junior lawyers to handle excessive caseloads for lower pay. In addition, much of the work is delegated to staff members without law degrees, such as paralegals and administrative assistants, reducing the level of direct attorney involvement in each case. While this may create more profit for the lawyer and the private investor, it compromises the level of attention and care that the client receives.
There Is No Requirement That the Law Firm Inform the Client About Secret Investors
Arizona law does not require that law firms disclose the involvement of private equity investors to their clients. This lack of transparency means that many clients are unaware of the potential influence these investors have on the handling of their cases. Without the knowledge of the client, decisions about the time, effort, and resources dedicated to a case might be made with investor profits in mind, rather than the best interests of the client.
Divided Loyalty
Lawyers who work with private equity investors may claim that safeguards exist to protect client interests. However, the fact remains that lawyers in these firms must answer to two groups: their clients and their investors. The relationships with the investor are ongoing, while the relationships with the clients are typically short-term. This setup encourages lawyers to have greater loyalty to the private equity investors than to their clients.
A lawyer owes an undivided loyalty to a client. The addition of secret outside investors undermines that loyalty. Naturally, investors expect a return on their investment. There is pressure on the lawyer to meet the expectations of the investors.
Firms with high caseloads may focus on volume rather than quality, leading to rushed settlements that serve the bottom line of the secret investors and the law firm but that do not serve the client well. Clients deserve better.
The Committee that Regulates the Secret Investors Has No Accountability to the Public
Arizona law now designates a “Committee” that chooses who may secretly invest in your case.
However, if the “Committee” makes a bad call, and allows investors to work to your disadvantage, they have no accountability to you.
The new statute that allows the secret investors says that “the Committee, and the members, staff, employees, and agents thereof, are immune from all civil liability for conduct and communications occurring in the performance of their official duties relating to the licensing of applicants seeking to be licensed as an alternative business structure.”
Where Is the Good Guy in the White Hat?
Personal injury lawyers were once known as champions of the injured, battling against insurance companies and corporate giants. However, firms with private equity involvement have adopted a business model that resembles the corporations they are supposed to fight on your behalf.
Law firms with private equity investors are incentivized to process cases quickly, and to prioritize speed over justice. Investors may pressure the firm to settle cases faster and cheaper, even when pursuing litigation might yield a better outcome for the client. Despite any “safeguards” set up by the unaccountable “Committee” that decides who may secretly invest in your case, you are left vulnerable to a system that provides greater benefits to private equity investors than it does to you.
What You Should Do
If you are considering hiring a personal injury lawyer, especially one who advertises heavily, you should ask whether the firm has private equity investors. While the firm may not volunteer this information to you, they are required to disclose it if you ask directly.
Better yet, choose a lawyer who does not allow private equity involvement in their firm. By hiring a lawyer who is free of the pressures caused by private equity investors, you can ensure that your lawyer’s sole focus is on your best interest. This freedom allows the lawyer to invest the time and resources necessary to achieve the best possible outcome without pressure from outside investors.
In my law practice, I do not allow private equity investors. I believe in a client-first approach, and I work with a full commitment to achieving full justice for those I represent. I have no outside interests influencing my decisions—just a dedication to fighting for the best outcome for my client.
If you have been injured and want an attorney who puts you first, contact me today. Let’s discuss your case and how I can help you secure full and fair justice for your injuries and losses.
John Evans Injury Law
