5 years after Arizona and Utah launched groundbreaking reforms to liberalize authorized companies regulation, a brand new complete examine from Stanford Legislation Faculty’s Deborah L. Rhode Middle on the Authorized Career reveals each the promise and the complexities of regulatory innovation within the authorized sector.
The report, Legal Innovation After Reform: Five Years of Data on Regulatory Change, is an replace to a report the Rhode Middle revealed in 2022, which provided the primary actual evidence-based evaluation of the Arizona and Utah applications. In an episode of my LawNext podcast that yr, I mentioned the report with its authors, David Freeman Engstrom, co-director of the Rhode Middle, and Lucy Ricca, government director of the Rhode Middle. On this newest replace, they’re joined as authors by Natalie A. Knowlton, affiliate director for authorized innovation on the Rhode Middle.
Whereas this five-year report extends most of the constructive findings of the sooner report – equivalent to that liberalization has spurred innovation and benefitted shoppers and small companies – it additionally finds a regarding divergence between the 2 applications, with Arizona experiencing explosive development whereas Utah has undergone substantial contraction, partly resulting from political pressures.
Backdrop: A Disaster in A2J
To grasp the importance of the Arizona and Utah reforms, you will need to take into account the magnitude of the access-to-justice disaster that prompted them. The normal authorized companies market has lengthy operated underneath two elementary restrictions: unauthorized observe of legislation (UPL) guidelines that restrict who can present authorized companies, and Mannequin Rule 5.4, which restricts who can personal legislation corporations and share authorized charges.
These laws have successfully created what many – together with the Stanford researchers – describe as a “attorneys’ monopoly” that has stymied innovation and left tens of millions of Individuals with out significant authorized assist.
It’s a stark image. Based on the report, tens of millions of Individuals every year face authorized challenges with probably severe penalties – foreclosures, eviction, household disputes, debt assortment, office discrimination – but most by no means search assist from a lawyer or formal authorized authority. In high-volume litigation areas like eviction and debt assortment, roughly 75% of instances contain a minimum of one unrepresented occasion.
“Thousands and thousands of Individuals every year can not get significant assist with authorized points impacting their lives,” the report says. “Priced out of the marketplace for attorneys and left to navigate a posh and even Byzantine authorized system alone, they typically face dangerous and even devastating penalties for themselves, their households, and their communities.”
Similar Downside, Completely different Approaches
In 2020, Arizona and Utah every launched pioneering however distinct approaches to deal with these challenges. Arizona selected an “ABS-only” method, eliminating Rule 5.4’s restrictions on nonlawyer possession and fee-sharing whereas sustaining conventional unauthorized observe of legislation limitations. This allowed the creation of Various Enterprise Buildings (ABSs) – legislation corporations that may be owned by nonlawyers and funded by exterior capital.
Utah took a extra expansive “ABS+UPL” method by its regulatory sandbox program. This allowed entities to hunt waivers from each possession restrictions and unauthorized observe of legislation guidelines, probably enabling nonlawyers and even software program to supply authorized companies underneath acceptable oversight.
To grasp the forms of innovation rising from these reforms, the Stanford researchers developed their very own taxonomy. They recognized 5 classes: conventional legislation corporations adapting their construction, legislation corporations (like LegalZoom) getting into the market, non-law corporations increasing into authorized companies, middleman platforms connecting purchasers with attorneys, and entities utilizing nonlawyers and expertise to observe legislation.
Divergent Trajectories
Maybe essentially the most putting discovering of the five-year examine is how dramatically the 2 states’ applications have diverged. Arizona has skilled explosive development, increasing from 19 approved entities in 2022 to 136 as of April 2025 – a greater than six-fold enhance. Utah, conversely, has undergone substantial contraction, shrinking from 39 entities in 2022 to simply 11 by April 2025, representing a 72% lower.
This divergence displays completely different regulatory philosophies and political pressures. Arizona’s Supreme Court docket has largely stayed the course regardless of dealing with criticism from enterprise pursuits and the organized bar. Utah’s Supreme Court docket, nonetheless, has considerably narrowed its sandbox program, citing numerous considerations and implementing what it calls “Part 2” necessities that emphasize serving underserved Utah shoppers and require extra substantial innovation.
The Utah courtroom’s determination significantly impacted ABS-only entities – these searching for solely possession reform with out unauthorized observe of legislation waivers. Many such entities had been terminated from the sandbox, although some obtained partial Rule 5.4 waivers permitting them to proceed working underneath modified preparations.
Legislation Companies Adapting
The examine finds that there are considerably distinct patterns within the forms of authorized innovation rising from these reforms. In Arizona, conventional legislation corporations adapting their buildings signify the most important class – 64% of approved entities. In lots of instances, these corporations have added nonlawyer homeowners, accessed new sources of capital, or launched new service fashions whereas sustaining acquainted organizational buildings.
A very noteworthy growth, the report finds, is the emergence of “one-stop outlets” – entities that mix authorized companies with different skilled companies. These entities can handle a number of shopper wants concurrently. Examples embody accounting corporations including authorized companies, corporations providing each immigration and journey companies, or corporations offering complete end-of-life planning that features each authorized and monetary elements.
The legislation firm class consists of well-known entities equivalent to LegalZoom and newer entrants equivalent to Rocket Lawyer Legal professional Providers, which complement doc technology with direct authorized companies. Arizona hosts 21 such entities, representing roughly one-sixth of the state’s whole entities.
The Function of Expertise
One of the crucial intriguing features of the examine considerations expertise adoption, significantly provided that an specific aim of Utah’s program had been to encourage authorized expertise innovation. Regardless of the regulatory sandbox’s theoretical potential for AI-powered authorized companies, the truth has been extra modest, the report finds. At present, no entities in Utah’s sandbox function utilizing high-innovation software program fashions with out lawyer oversight.
The researchers establish a number of doable explanations for this technological hole. Expertise growth requires substantial assets and experience, and Utah’s comparatively small authorized market could not justify such investments. Moreover, the sandbox’s experimental nature and repeated pivots could have created an excessive amount of uncertainty to draw the capital mandatory for progressive expertise growth.
This expertise adoption problem just isn’t restricted to Utah. Even in Arizona, most entities will not be deploying cutting-edge authorized expertise. The examine suggests this displays broader boundaries which have constrained authorized tech usually, together with difficult market economics for serving cost-conscious shoppers and fragmented courtroom expertise methods.
Serving Particular person Customers
A constant and inspiring discovering throughout each states is that particular person shoppers stay the first beneficiaries of those regulatory improvements. In Arizona, 116 of 136 entities (85%) reported plans to serve particular person shoppers, whereas 10 of 11 remaining Utah entities (91%) indicated the identical focus. This represents a transparent success in reaching reformers’ aim of increasing entry to authorized companies for strange individuals fairly than simply company pursuits.
The examine additionally reveals essential nuances in how completely different regulatory approaches serve numerous populations. Utah’s sandbox, with its authorization for nonlawyer service suppliers, seems significantly efficient at reaching low-income populations. 4 Utah entities particularly goal free authorized companies to low-income people, highlighting the potential significance of UPL reform in spurring innovation for underserved communities.
Expertise improvements in each states focus totally on serving particular person shoppers and small companies fairly than giant companies, suggesting these reforms are efficiently democratizing entry to authorized innovation.
Little Proof of Client Hurt
A important query for any regulatory reform considerations client safety. The examine finds remarkably little proof of client hurt in both state. Utah’s knowledge by April 2025 reveals solely 20 client complaints throughout all sandbox entities, yielding a harm-to-service ratio of roughly 1:5,869 primarily based on reported authorized companies delivered.
In Arizona, two ABS entities and their compliance attorneys confronted formal disciplinary motion. Nonetheless, these instances concerned procedural and oversight points fairly than systematic client hurt, the report says, and each orders famous the entities’ cooperative attitudes and corrective measures.
This low price of client hurt is especially important given the frequent considerations raised about nonlawyer possession and progressive service supply fashions probably compromising authorized high quality or skilled requirements.
The Persevering with Function of Attorneys
Regardless of considerations that regulatory reform may sideline attorneys, the examine finds that attorneys proceed to play central roles in approved entities throughout each states.
In Arizona, 134 of 136 entities make use of attorneys to supply authorized companies instantly, whereas even in Utah’s extra permissive sandbox, seven of 11 entities have attorneys offering authorized companies and 10 entities deploy attorneys in administration or compliance roles.
This discovering counters critics’ considerations that deregulation may result in the “company observe of legislation” and undermine skilled independence and moral obligations. On the contrary, the information means that regulatory reform has enabled new enterprise fashions whereas preserving attorneys’ important experience and moral coaching.
Rising Challenges
The examine additionally examines three rising points which have generated important consideration and controversy. The primary considerations non-public fairness and litigation funder involvement in Arizona ABSs. By way of detailed evaluation of possession buildings, the researchers recognized 17 entities with clear possession by litigation finance corporations, enterprise capital corporations or non-public fairness corporations – representing about 12.5% of Arizona entities.
Whereas that is notable, the examine suggests the precise extent of such involvement could also be much less dramatic than some critics have claimed. Importantly, half of Arizona’s ABS entities seem to don’t have any direct or oblique involvement by litigation funders or non-public fairness corporations, although the researchers acknowledge this may occasionally change over time as entities search extra funding after preliminary authorization.
The second rising subject entails the focus of entities in private harm and mass tort observe areas. Roughly half of Arizona ABSs (75 entities) proposed to observe a minimum of partially in private harm and contingency payment case varieties, with 14 of the 17 entities with non-public fairness or litigation funder possession working in these areas.
This focus has raised considerations about Arizona changing into a “mass torts capital” that primarily advantages out-of-state litigation fairly than native entry to justice.
As a U.S. Chamber of Commerce remark quoted within the story put it: “Arizona shouldn’t enable hedge funds, litigation funders, and others to arrange volume-focused, for-profit claims mills, promoting and amassing claims for out-of-state plaintiffs. There isn’t any profit to Arizona and its residents in unintentionally making itself the mass torts capital of america.”
The third subject considerations the restricted deployment of generative AI regardless of its potential to remodel authorized companies supply. Few entities in both state are leveraging superior AI applied sciences, the report finds, regardless of Utah’s regulatory framework being particularly designed to accommodate such innovation.
Political Pressures
A key distinction between this five-year examine and the earlier two-year examine is the extent to which political pressures have formed the trajectory of those reforms.
Arizona has confronted substantial criticism from enterprise pursuits and chambers of commerce, main the Arizona Supreme Court docket to type a Job Pressure on Various Enterprise Buildings to look at third-party litigation funding and different considerations. However even within the face of such challenges, the Supreme Court docket has maintained its dedication to the reform program, the report says.
In Utah, political opposition had a extra dramatic influence on reshaping its regulatory initiatives. Legislative strain, criticism from the plaintiffs’ bar, and considerations about entities working exterior Utah with restricted native presence contributed to the courtroom’s determination to considerably slender the sandbox program.
These political dynamics, the report suggests, provide a important reminder for different states contemplating related reforms, which is that regulatory innovation happens inside complicated political ecosystems that may considerably affect implementation and sustainability.
Implications for Different States
The examine’s findings have essential implications for the rising variety of states contemplating regulatory reform. At present, a number of states are pursuing numerous approaches, from entity-focused reforms much like Arizona and Utah to role-focused reforms that create new classes of licensed authorized service suppliers.
Washington State has accredited a sandbox program modeled on Utah’s method, with explicit emphasis on authorized expertise innovation. Indiana and Minnesota are in preliminary levels of contemplating regulatory sandboxes. In the meantime, different states like Colorado, Oregon, and New Hampshire have centered on licensing paraprofessionals—nonlawyer authorized service suppliers analogous to nurse practitioners in medication.
The range of approaches displays completely different theories about how greatest to broaden entry to authorized companies whereas sustaining acceptable client protections. Some states are pursuing a number of reform methods concurrently, probably offering numerous pathways for authorized innovation.
Trying Ahead
The examine concludes that regulatory reform sits at an important crossroads. Whereas Arizona and Utah have demonstrated that entity-focused reforms can spur useful authorized innovation and broaden entry to justice, they’ve additionally raised essential questions on political sustainability, scalability, and the suitable steadiness between innovation and regulation.
The researchers notice that future analyses might want to discover the intersections between completely different reform approaches. Questions stay about whether or not sandbox fashions like Utah’s preliminary method are best, whether or not decoupled reforms like Arizona’s show extra sustainable, or whether or not role-focused reforms may provide higher returns on restricted political capital.
Evidently, the rise of gen AI provides one other layer of complexity, with some states like Minnesota particularly contemplating AI-focused sandbox applications to deal with each the promise and the dangers of synthetic intelligence in authorized companies supply.
The underside line is that this examine represents essentially the most complete empirical evaluation thus far of authorized regulatory reform, offering important knowledge for policymakers, authorized professionals and expertise innovators searching for to grasp how regulatory adjustments can broaden entry to justice.
As extra states take into account their very own reform initiatives, the experiences of Arizona and Utah provide each encouragement and essential cautionary classes concerning the complexities {of professional} regulatory change.
