The sequence ran fast. In February 2025, the Texas Professional Ethics Committee issued Opinion 706, the first modern ethics opinion to confront law firm MSOs directly, holding that a lawyer may not pay a services company a percentage of firm revenue, that is fee-splitting with a nonlawyer however it is dressed, while confirming the structure itself is permissible on fixed, fair-market fees. In October 2025, California enacted AB 931, barring its lawyers from sharing fees with out-of-state alternative business structures for four years, a measure aimed at Arizona's ABS program and the Big Four accounting firm practicing law through it, with statutory damages of $10,000 per violation. In June 2026, Colorado signed HB26-1421, which lifts the fee-sharing prohibition out of the ethics rules and into statute for three years, effectively bars ABS models, restricts MSO fees, and, most consequentially, creates a private right of action so that clients themselves can sue over violations. And on August 7, 2026, Illinois approved Public Act 104-0801, which targets MSOs owned or controlled by private equity and hedge funds specifically, barring them from charging any fee based directly or indirectly on the firm's fees, revenues, or profits, and prohibiting such owners from interfering with professional judgment or controlling client records.
Look at the four together and a pattern emerges that most of the commentary has missed: not one of them prohibits the MSO. Every single one strikes at the same feature, compensation linked to legal revenue. Texas said percentage-of-revenue fees are fee-splitting whatever the label. California went further and wrote the compliant design into the statute as an express exemption: contracts that charge a flat fee, pay nothing for referrals or lead generation, and do not scale with recovery are outside the ban entirely. Colorado permits a funder to lend against identified case proceeds at a capped multiple while banning any share of firm fees, revenues, or profits. Illinois bans revenue-based fees only when institutional capital owns the MSO. Four regulators, working separately across eighteen months, converged on one principle: capital may be paid for services at fixed prices, and capital may buy claims, but capital may not meter its return on the practice of law. Two of the statutes also sunset, California's after four years and Colorado's after three, which means the states are not settling the question so much as running term-limited experiments while Arizona runs the opposite one.
Three practical readings. For law firm owners considering an MSO transaction, the fee clause is the whole ballgame: a fixed, fair-market service fee survives everywhere these rules have reached, and a revenue percentage now fails an ethics opinion in Texas, a statute in Colorado, and a statute in Illinois if the buyer is institutional. For funders, Colorado's safe harbor is the sentence to memorize, because it makes deal structure outcome-determinative: a portfolio facility collateralized by identified cases with a capped return sits inside the harbor, while anything resembling revenue participation sits outside it, in a state where clients now hold a private right of action. And for everyone, Colorado's private enforcement mechanism means the first judicial interpretations of these boundaries will likely come from litigation rather than bar proceedings, at which point they will belong in our Dispute Library. This article will be updated as they arrive.