California Moves to Shut Down Private Equity Takeovers of Law Firms
California lawmakers sent a two-bill package to Gov. Gavin Newsom that would stiffen consequences for illegal client solicitation by lawyers and try to wall off lawsuit strategy from outside investors.
Lawmakers, as the Los Angeles Times reported, tied the push to the alleged attorney misconduct connected to Los Angeles County’s $4 billion sex abuse settlement. The bills were backed by Consumer Attorneys of California, a trial-lawyer trade group that said it wants tougher discipline for what it calls bad behavior in the profession.
One proposal, Assembly Bill 2039, would require disbarment for attorneys convicted of felony "capping," and it would also apply to certain misdemeanor cases when the lawyer "acted knowingly and for financial gain." The bill would also allow fines of $25,000 for each violation.
AB 2039 also adds protections for law firm workers who report misconduct and would tighten rules around lawyers lending money to their clients, a practice allowed in California. The bill would permit $15,000 penalties when loans are used to steer "legal strategy, settlement decisions or continued representation."
The second measure, Assembly Bill 2305, focuses on litigation funding and aims to prevent financiers from shaping decisions in cases they bankroll, such as pressuring when to settle or how many clients to accept.
Assemblymember Ash Kalra, the bill’s author, said, "California will continue to lead the nation by prohibiting corporate legal funders from controlling or influencing litigation decisions. The principle is simple: when you hire a lawyer, the person making decisions about your case should be your lawyer — not a private equity entity looking for profit."
The bill would put enforcement with the State Bar, which would be responsible for disciplining attorneys who violate the restrictions.
Kalra said the bill is meant to add "clear statutory safeguards," even though State Bar rules already prohibit third parties from directing case strategy.
"When you’re injured, wronged or up against a powerful corporation, the last thing you should worry about is a private equity firm looking to maximize its profits. This bill draws a clear and unambiguous line: in California, attorneys answer to their clients — full stop," said Doug Saeltzer, president, Consumer Attorneys of California.
If Gov. Newsom signs the bill, it would go into effect on Jan. 1, 2027.
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