Tuesday, September 22, 2026
Page 1
Newsom Signs Bill Expressly Restricting Investor Influence Over Practice of Law
By Kimber Cooley, associate editor
Gov. Gavin Newsom has signed a bill taking aim at any attempts by private equity groups or other outside investors to control litigation strategy in California by way of strings attached to financing or other capital investments.
Signed on Sunday, Assembly Bill 2305 stands on the shoulders of last-year’s passage of Assembly Bill 931 which precludes fee-sharing agreements between California lawyers and so-called “alternative business structures,” or legal-services providers in which ownership is not limited to licensed attorneys, in other jurisdictions with more liberal rules on law-firm organizational structure.
That legislation targets contingency-fee partnerships with private-equity-funded plaintiff shops in other jurisdictions, like neighboring Arizona, that seemed to be looking for a way to make money off of the California litigation market without violating Golden State rules precluding non-attorney ownership of organizations engaged in the practice of law.
According to Assemblymember Ash Kalra, D–San Jose, who authored both pieces of legislation, after Assembly Bill 931 was enacted, private equity groups began to shift funding into legal practices from equity investments to loans as a work-around to California’s restrictions. Assembly Bill 2305 was designed to close the loan loophole by broadly precluding anything that resembles the exertion of control over litigation decisions by non-attorney investors.
Attempts to Influence
The legislation adds §6134.4 to the Business and Professions Code, which provides that “[i]t shall constitute the unauthorized practice of law for a corporate legal funder to” “attempt to influence…a[n]…attorney or litigant regarding any substantive litigation decision,” including the “which client to represent,” the “financial terms” of representation, settlement decisions, procedural choices, or legal strategy.
Effective as of Jan. 1, §6134.4 will also preclude investors from “[s]electing or directing counsel based on profit maximization rather than client interest,” “[s]etting financial incentives tied to litigation outcomes that compromise attorney independence,” influencing budget decision that “may affect case strategy,” and “[r]equiring litigation decisions be predicated on investor return metrics rather than client objectives and professional ethics.”
The statutory scheme provides for “the imposition of discipline by the State Bar” for any violations by California attorneys and creates a civil cause of action for a client to recover “[s]tatutory damages of ten thousand dollars ($10,000) per violation or three times the actual damages…, whichever is greater” against the lawyer and the lender.
Other Financing Schemes
Sec. 6134.10 clarifies that “[n]othing in this article shall be construed to prohibit the practice of nonrecourse litigation finance,” a practice by which a firm receives an influx of cash on cases for which the lender will only be repaid if the attorneys are successful, so long as certain conditions are met.
Doug Saeltzer, president of the Consumer Attorneys of California, a trade group of plaintiffs’ lawyers that pushed for the legislation, praised the bipartisan passage of the bill back in August, saying:
“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.”
Assembly members Catherine Stefani, D-San Francisco and Rick Zbur, D-West Hollywood, co-authored the legislation.
Copyright 2026, Metropolitan News Company