California’s ABS Crackdown: AB 931 Bans Contingency Fee Sharing, Sparking National Legal Firestorm
In a seismic shift for the U.S. legal landscape, California Governor Gavin Newsom has just inked a law that could reshape how lawyers chase cases across state lines. This bold move targets the rising tide of alternative business structures, slamming shut a lucrative door on contingency fees.
California’s ABS ban through AB 931 now prohibits state-licensed attorneys from sharing contingency fees with out-of-state alternative business structures—firms backed by non-lawyers like private equity giants or accounting behemoths. Signed on October 10, 2025, the measure zeroes in on high-stakes personal injury and mass tort cases, where fees often balloon into millions. Lawmakers framed it as a safeguard against ethical pitfalls, but critics howl it’s a desperate shield for traditional firms against innovative disruptors.
The backstory here is a classic clash of old guard versus new money. Alternative business structures, or ABS, have exploded in states like Arizona and Utah since 2020, letting non-lawyers invest in law firms and fuel aggressive marketing for contingency fees—payments tied to case wins. Think KPMG’s recent Arizona launch, blending audit muscle with legal firepower to snag clients nationwide. California, with its massive $50 billion personal injury market, became ground zero for this invasion. Enter AB 931, sponsored by the plaintiffs’ bar, which bans such legal fee sharing to keep the Golden State’s bar pure.
Diving deeper, the law doesn’t just nip referrals; it outlaws any contingency-based payouts to ABS entities, including lead purchases—a staple for injury attorneys hustling ambulance chasers. Violators face steep $10,000 fines per breach, tripled damages, or court injunctions, turning what was gray-area collaboration into clear-cut foul play. This isn’t blanket prohibition—hourly or flat fees might still fly—but it guts the contingency model that powers 90% of U.S. plaintiff work.
Legal eagles are split down the middle. “This is regulatory retrenchment at its finest, freezing California’s lawyers from the ABS innovation wave sweeping the nation,” argues Boris Ziser, a Schulte Roth partner specializing in legal finance. On the flip side, California Trial Lawyers Association head James Moore calls it “a vital defense of our profession’s integrity,” warning that ABS could flood courts with profit-driven suits, eroding client trust. Public chatter on social media echoes the divide: X users decry it as “Big Law protectionism,” while others cheer the curb on “corporate lawyers in sheep’s clothing.”
For everyday Americans, the ripples hit hard on economy and access. In a nation where 80% skip lawyers due to cost, ABS promised cheaper, tech-savvy services—AI triage for claims, nationwide scale to slash overhead. Now, with California’s ABS ban in play, out-of-state firms like those eyeing the state’s 40 million residents must pivot or pull back, potentially hiking fees for injury victims from car wrecks to slip-and-falls. Politically, it fuels the red-state-blue-state divide on deregulation; Arizona’s ABS boom contrasts sharply with California’s clampdown, hinting at a patchwork U.S. legal map that confuses clients and stalls national reform.
Zoom out, and AB 931 feels like a skirmish in the ABS apocalypse. Proponents of non-lawyer ownership argue it democratizes justice, injecting billions in capital to serve underserved communities—think rural folks or gig workers battling corporations. Yet the plaintiffs’ lobby, flush from contingency windfalls, lobbied hard, painting ABS as a Trojan horse for conflicts of interest. One insider quips, “It’s not about ethics; it’s about keeping the pie from getting sliced thinner.” As private equity pours $10 billion yearly into legal startups, expect lawsuits challenging the ban’s constitutionality by spring 2026.
User intent here screams caution: If you’re a California lawyer eyeing ABS partnerships, audit your deals now. Firms must reroute referrals through compliant channels, or risk bar sanctions. For clients, it means sticking closer to home—potentially slower resolutions but fewer surprises on who pockets your settlement slice. Management tip? Track state-by-state ABS rules via tools like the ABA’s regulatory tracker to dodge cross-border traps.
This law’s teeth could bite beyond borders, slowing the ABS freight train across the U.S. As more states eye similar shields, the contingency fees model—bedrock of American tort law—faces its toughest test yet. Will innovation win, or will tradition hold the line? The courts will decide, but for now, California’s ABS ban through AB 931, alternative business structures, and legal fee sharing debates rage on, contingency fees hanging in the balance.
By Sam Michael
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California ABS law, AB 931, contingency fee sharing, alternative business structures ban, legal fee sharing prohibition, US legal industry reform, non-lawyer law firm ownership, personal injury fees California