“Litigation Funder Certum Launches MSO Aimed at Mass Tort Firms” —

• “Another litigation funder is investing in the law firm space, by taking over a managed service organization to provide pre-litigation support for mass tort and personal injury firms.”
• “Texas-based Certum Group, which specializes in litigation finance and related insurance offerings, acquired a managed service organization in October. Rechristened Certum Legal Solutions, the MSO has already partnered with several firms working on a fees for services basis, but will consider acquiring stakes in law firms down the road, said Certum Group’s managing director David Diamond.”
• “Litigation funder Burford Capital in August said it was exploring MSOs and other options for investing in firms, while Big Law’s McDermott Will & Schulte said last month it is considering selling a stake in the firm to outside investors.”
• “The service organizations, increasingly seen in the healthcare and accounting industries, are getting a closer look in the US legal market as a way for firms to raise capital and steer clear of restrictions on direct investments in most states. Some MSOs are entities spun off from law firms so that outside investors can take direct stakes, while others are created to offer services directly to firms. Certum is part of the latter camp.”
• “Certum Legal CEO Asim Badaruzzaman built the MSO last year inside New Jersey law firm Sbaiti & Company, where he serves as partner and chair of the mass tort practice group. The firm has handled cases in major mass torts, including litigation over injuries and illnesses allegedly caused by water contamination at Camp Lejeune, PFAS ‘forever chemicals,’ and weedkiller Roundup.”
• “The MSO will continue to service Sbaiti while also taking on other firms, although Badaruzzaman declined to name them. The company will handle case intake and discovery support tasks done by a mix of attorneys and non-lawyers. Certum Legal has proprietary tools to manage integration with medical records providers, an app that allows the MSO to communicate with clients directly, and uses automation to receive documents, Badaruzzaman said.”
• “Mass torts and personal injury law are ‘ground zero’ for MSOs, according to Rich. She said her team has about 40 different projects right now, with about half in personal injury or mass torts.”

“Private equity overcomes California hurdle to expansion in US legal market” —

• “Private equity has scored a partial victory in its push to expand in the US legal market, after lobbyists softened legislation in California that threatened to disrupt liberalisation of law firm ownership rules.”
• “Attorneys in the country’s largest state will be allowed to partner on some legal work with investor-owned law firms under the terms of a law signed by Governor Gavin Newsom.”
• “A previous version of the legislation would have banned all such work, in an attempt to freeze out new potential competitors from other states that allow non-lawyers to own law firms.”
• “The California legislation signed by Newsom on Friday originally aimed to keep ABS firms out of the state by banning local attorneys from co-counselling and fee sharing with any firm owned partly by non-lawyers.”
• “After an intense lobbying effort by a group of ABS firms, the legislation was watered down so that it bans co-counselling only on contingent-fee cases such as personal injury claims. That was a particular focus of the bill’s sponsor, the Consumer Attorneys of California, a trade group for plaintiff-side trial lawyers who take on corporations and government agencies.”
• “As amended, the law allows fee sharing as long as there is a dollar figure stated in the contract, as well as in a limited number of other circumstances.”
• “‘This is a move away from the outright prohibition on sharing fees and seems to be tailored to preventing ABS firms competing on contingency fee business,’ said Austin Maloney, a partner at Hunton Andrews Kurth, which advises professional services firms on mergers and acquisitions.”
• “The outcome was described as an improvement on the original bill by ABS firms that had backed the lobbying effort, albeit not a total victory.”

“Private Equity-Big Law Tie Ups Could Disrupt Associate Careers” —

• “Private equity and Big Law appear increasingly destined for the equity-ownership altar. Such a marriage was unthinkable a generation ago, thanks to longstanding bans on non‑lawyer ownership and control of law firms. But that prohibitionary wall has been chiseled away—first by litigation finance and outsourcing, and more recently by jurisdictions relaxing ownership limits (notably the UK, Australia, and Arizona).”
• “The management services organization, or MSO, model goes yet a step further, replacing the chisel with a jackhammer. In its simplest form, the model splits a firm into two entities. One practices traditional law, while the other—the MSO—owns and runs the ‘non‑lawyer’ functions: human resources, payroll, billing, business management, office leases, and (increasingly) information‑technology infrastructure. The law firm then buys or leases those services back under an affiliate contract.”
• “The MSO business pitch is seductively simple: Let lawyers lawyer, while professional managers—and their investors—handle everything else. And there are plenty of examples to go around: MSOs long ago penetrated medicine, dentistry, accounting, and other professional services. Perhaps their arrival in law was only a matter of time.”
• “Now add an MSO to the mix. If ‘IT services’ reside within the MSO, as is common, the MSO could own, operate, and continuously train a private LLM—selling its outputs back to the law practice. As the LLM continues to improve, lawyers increasingly risk becoming glorified conduits for AI‑generated analysis.”
• “In the meantime, junior partners and associates are still needed, not only to check for hallucinations and spurious results but also to produce the memoranda, markups, and deal documents that will calibrate the model dynamically—effectively transferring their experience and judgment into the MSO’s future asset pool. And as client deliverables become progressively anchored to the model’s output, the IT portion of the MSO is poised to capture an outsized share of law firm invoices. Whether this is a good thing depends on one’s perspective.”
• “Clients will no doubt applaud clearer invoices and lower charges from the MSO model, at least initially. And many a senior partner is sure to cheer on this development, too, for a simple reason: PE investments monetize both current goodwill and future client flow through a one-off cash transaction, letting today’s senior partners absorb the cash payout in the form of higher salary and bonuses before sailing into retirement.”
• “But junior partners, non‑equity partners, and associates are unlikely to celebrate. After investment proceeds are distributed and the MSO is cleaved away, the legal practice may be functionally forced into ‘buying back’ its own historical expertise through LLM queries. The end result may be that there will be less left over for future lawyer cohorts at the law firm, even as those same cohorts are expected to correct errata and train the model for the sake of improving accuracy (and the MSO’s future profitability).”
• “With diluted ownership of their own work product, will these cohorts play ball or will they decamp to non‑MSO firms? And even if they stick around, will they sprout alligator arms when it comes to sharing their own client materials, or strategically convince their clients to forbid the use of confidential documents to train the model?”
• “State bar authorities and professional associations (such as the American Bar Association) will elbow in on the party as well. ABA Model Rule 5.4 still forbids non‑lawyer ownership of the practice of law in most jurisdictions. If an MSO‑controlled LLM comes to dominate legal service delivery, has the firm ceded de facto control of legal operations and professional judgment?”
• “If so, the claim that the MSO isn’t ‘practicing law’ becomes harder to defend, inviting a stiff-arm that could reverse the pendulum swing—re‑internalizing AI tools and training within lawyer-owned firms. Ironically, younger lawyers who may roll their eyes at many professional guardrails could become their biggest defenders here.”
• “Is the MSO a wise move? Like most interesting legal problems, this question invites a characteristically lawyerly answer: It depends. Although the promise of attracting private equity investment capital is intriguing, the threats of the MSO structure noted are just as real. We suspect some firms may simply wait on the sidelines, at least for now, while others plunge ahead.”
• “Private equity can bring scale, systems, and discipline to legal services. But absent thoughtful architecture, the MSO model risks shifting control and value away from the lawyers who owe duties to clients and the courts. Firms that embrace this approach will need to think carefully about structural design. And to answer this challenge, they may require a good (most likely human) lawyer.”

“Everything Old Is New Again: Why Law Firm MSOs Fit Comfortably Within Existing Ethics Rules” —

• “The business of law is evolving. Today, management services organizations (MSOs) for law firms are becoming an increasingly attractive tool to allow lawyers and law firms the ability to leverage outside investment and support.1 Investors exploring these models are enticed by the promise of professionalized operations, scalable technology, data infrastructure, human resources (HR) and payroll efficiencies. Lawyers and law firms are interested in the ability to access outside capital and logistics support through a parallel, nonlawyer-owned entity.”
• “These structures raise obvious ethical questions: Can lawyers partner with an MSO? Can they invest in one? Can an MSO participate in revenue? Can an MSO hire, discipline or evaluate lawyers? And where is the line between legitimate administrative services and the unauthorized practice of law?”
• “Taken together, this body of authority shows that partnerships between law firms and MSOs are not brand-new structures requiring brand-new rules. Instead, they are a modern tool in a time-honored industry of outsourcing and co-employment arrangements. These arrangements have been addressed by regulators and ethics authorities for decades, and the principles that made PEOs permissible (with guardrails) apply with equal force to MSOs. This Holland & Knight article traces that history, summarizes MSO-specific opinions and distills common principles for structuring a compliant law firm/MSO partnership.”
• “Across jurisdictions, the ethical analysis is remarkably consistent. These arrangements require the law firm to firmly remain at the helm, directing every aspect of legal work and exercising unqualified authority over professional judgment. The outside entity – whether called a PEO, an employee-leasing company, a management company or an outsourcing provider – operates strictly in a supportive role, never crossing into the domain of legal practice and never exerting pressure on the lawyer’s decisions. Its function is purely administrative, not advisory, and its compensation reflects that distinction, avoiding any form of fee-splitting that would compromise professional independence.”
• “Within this framework, client confidences are treated with the same sanctity as if the lawyers were employed directly by the firm, and conflicts of interest are scrutinized under identical standards. Transparency is paramount: When required, communications about the structure must be candid and accurate, leaving no room for misunderstanding. When these elements align, the entity is not a shadow law firm, but a logistical partner – one that enables operational efficiency without eroding the ethical bedrock of the profession. These principles now serve as the foundation for the ethical analysis governing modern MSOs.”
• “Texas Ethics Opinion 706, issued by the Professional Ethics Committee for the State Bar of Texas, is the first modern ethics authority to substantively and explicitly address MSOs.15 The opinion analyzes a nonlawyer-owned, support-services company that provides a bundle of operational services, including marketing, payroll, HR and technology, and proposes to charge law firms a percentage of revenues while also offering lawyers an opportunity to hold equity in the MSO.”
• “First, Texas concludes that paying an MSO a percentage of the firm’s revenues is impermissible fee-splitting with a nonlawyer. Even if the MSO does not practice law and even if the percentage is designed to reflect services performed, tying the MSO’s compensation to the firm’s legal revenues crosses Rule 5.04(a). This is consistent with every PEO opinion from the last three decades: A nonlawyer entity cannot receive a share of legal fees, directly or indirectly.”
• “Second, Texas also affirms that lawyers may invest in or own equity interests in companies that provide law-related services, including MSOs…”
• “Firms must analyze conflicts arising from MSO relationships the same way they analyze conflicts arising from a PEO and other temporary lawyer arrangements. If lawyers have ownership interests in the MSO, referrals between the firm and MSO may require informed written consent from clients.”
• “Lawyers must remain responsible for the conduct of nonlawyer personnel performing delegated functions. Lawyers must supervise MSO personnel who perform delegated functions and must ensure that those personnel act in ways consistent with lawyers’ professional obligations.”
• “Firms must describe the law firm/MSO relationship accurately in marketing, engagement letters and client communications. Where required, clients must understand which entity is providing legal services and which is providing business support.”