AB 2305: Attorneys: corporate legal funders.

Existing law, the State Bar Act, provides for the licensure and regulation of attorneys by the State Bar of California (State Bar), a public corporation governed by a board of trustees. Existing law makes it a misdemeanor for a person who is not a member of the State Bar, or authorized to practice law, to practice law in this state.

Existing law regulates, among other things, fee agreements, legal advertising and referral services, the sale of financial products to a client, and the allowable forms of organization of a law practice, including a law corporation. Existing law, until January 1, 2030, prohibits an attorney licensed or otherwise authorized to practice in the state from sharing legal fees directly or indirectly with an out-of-state entity that provides legal services while allowing nonlawyer ownership or decisionmaking authority, except as specified. Existing law authorizes the board of trustees, with the approval of the Supreme Court to formulate and enforce rules of professional conduct on all licensees. A violation of these provisions may result in disciplinary action against a licensed attorney or other remedies.

This bill would make a corporate legal funder interfering with a substantive litigation decision or exercising control over a litigation function, an unauthorized practice of law. The bill would prohibit a litigation practice from contracting with a corporate legal funder for specific terms, including restricting an attorney or client from withdrawing from representation in the event of a nonlawyer engaging in the unauthorized practice of law under these provisions.

This bill would prohibit a corporate legal funder, or an entity it controls, from entering into any contract, agreement, or arrangement with a litigation practice if the contract would constitute an unauthorized practice of law under these provisions, and would further prohibit and void a contract or terms that would permit or facilitate an unauthorized practice of law under these provisions, as specified.

This bill would provide that these provisions shall not be construed to prohibit the practice of nonrecourse litigation finance and that the practice of nonrecourse litigation finance shall not constitute impermissible fee sharing under the above-described provisions or the rules of professional conduct, as provided. The bill would deem a violation of these provisions by an attorney as grounds for the imposition of discipline by the State Bar and subject an attorney and the corporate legal funder to statutory or actual damages, attorneys fees and costs, and other relief, as specified. The bill would define terms for these purposes.

This bill would exempt violation of its provisions from the criminal prohibitions.

This bill would specify that its provisions only apply to contracts entered into on and after January 1, 2027.