The Tennessee Supreme Court has rejected a rule change that would have allowed private equity firms to own law firms, blocking a path that insurance groups had warned could lead to more litigation, more high jury pay and higher defense costs.
After reviewing stakeholder comments, “the Court has found insufficient need or support for reforms related to non-lawyer ownership of law firms or fee sharing with non-lawyers,” the court wrote in its brief October order. “The Court may revisit this issue in the future as additional data on the success of these reforms becomes available.”
The ownership proposal was one of several the court considered this year as ways to encourage more lawyers in some parts of the state. “The effort comes because large segments of the population – particularly rural and low-income people – are unable to obtain legal representation,” the Tennessee Bar Association said on its website.
The Law Society said in its comments to the court that there is “little, if any, empirical evidence to show that allowing non-lawyers to practice law or sharing fees with non-lawyers has significantly improved or is likely to significantly improve access to justice.”
Only a handful of other states, including Arizona and Utah, have allowed nonlawyers to own law firms. But private equity firms, considered some of the largest and most aggressive capital investors, have been able to invest heavily in law firms across the country through management service organizations (MSOs).
The MSO agreement generally transfers management assets to a separate management company, and the assets can be licensed back to the law firms for a fee, news sites reported. California, Colorado and Illinois have passed laws or regulations restricting these types of outside investments in law firms, according to AboveTheLaw legal news reported.
The Tennessee Supreme Court has not reviewed MSOs or other back-end ownership arrangements for law firms in Tennessee.
The American Property Casualty Insurance Association (APCIA) and others in the industry have come out strongly against private equity ownership and outside financial scrutiny of personal injury plaintiffs’ law firms, warning that it forces firms to focus too much on nuclear verdicts and larger settlements.
But some insurance protection companies have also adopted the MSO investment plans.
Reuters News Service reported October 19: Charlesbank Capital Partners has invested in the back office operations of Wood Smith Henning & Berman, one of the largest U.S. insurance defense firms.
The law firm is based in Los Angeles but has 550 attorneys and offices in 23 states, the firm states on its website. Wood Smith Henning said in a statement that it will remain an independent firm and its attorneys will “retain sole authority over the practice of law and client matters,” Reuters reported.
Private equity ownership of insurance carriers and insurance service providers is also increasing. The National Association of Insurance Commissioners noted that there were 137 US insurers owned by PE at the end of 2025 – up from 90 in 2018.
Private equity ownership of plaintiffs’ companies is just one of many concerns for insurers worried about litigation costs. Several states have enacted some restrictions and disclosure requirements on third-party litigation funding, but only North Carolina has enacted a ban on the practice.
More than two dozen insurance carriers signed a letter in September asking a federal court regulatory committee to develop a rule on disclosing third-party funds. Read more here.
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