In a move that highlights the evolving landscape of legal practice in the United States, private equity firms and litigation funders have increasingly set their sights on Arizona. The state’s decision to eliminate restrictions on non-lawyer ownership of law firms has created a unique environment conducive to outside capital infusion. Since 2020, Arizona has approved 76 applications for Alternative Business Structures (ABS), out of which at least 15 involve private equity or litigation finance investors.
Companies like Pravati Capital, Virage Capital Management, Counsel Financial, Bespoke Capital Consulting, and 777 Partners have established their presence in this burgeoning market. Additionally, private equity enterprises such as Melody Capital Management and Kayne Anderson have also secured stakes in law firms operating under these new structures.
A notable case is Missouri-based Ninth Avenue Capital, which applied for an ABS last year. The firm, headed by Greyson Clymer—a former founding partner of Melvin Capital, the hedge fund that faced significant losses from the GameStop shorting saga shuttered after losing billions—aims to initially focus on mass torts and personal injury. According to its application, Ninth Avenue will share the controlling interests with Golden West LLC, founded by Richard Frankenberg of Edgehill Partners.
Pravati Capital has also formed the 1787 Legal Group, owned by Alexander Chucri, who holds a significant ownership through Arizona Legal Ventures LLC. Like Ninth Avenue Capital, Pravati Capital plans to leverage its new legal entity for mass torts and personal injury cases.
One cannot ignore Texas-based Armadillo Litigation Funding’s recent ventures in the state. Their presentation to potential investors pitches Arizona as a hub for non-attorney law firm participation, collaborating with Houston’s Johnson Law Group and ABS Bay Point Legal Partners. As noted, Armadillo’s approach includes evaluating market potential, injuries, settlement timelines, and guiding the investment process.
National Implications
While Arizona initially aimed to enhance competition and innovation within its borders, many ABS applications focus on operating beyond state lines. Legal consultant Crispin Passmore has remarked that Arizona’s regulations provide a “first mover advantage,” enabling businesses to consider nationwide operations. Other states like Utah and Washington D.C. have also introduced similar, albeit more constrained, ABS programs.
Boris Ziser of Schulte Roth + Zabel notes that these structural changes shift the focus from traditional debt financing to equity. This model can be particularly appealing for mass tort law firms, where cases can take years to resolve. Andy Kvesic, an attorney on the Arizona ABS Committee, suggests that these new structures foster innovation and ethical conduct within the legal profession.
Nonetheless, critics argue against the potential for non-lawyer ownership to interfere with ethical legal practice. The U.S. Chamber of Commerce has been particularly vocal, arguing that Arizona’s approach may primarily benefit out-of-state plaintiffs rather than its own residents. However, proponents defend the regulatory safeguards in place, which they claim ensure ethical practices and client protection.
For a more detailed examination of the broader implications and specific case studies, visit the original article on Bloomberg Law here.