TN High Court Says ‘No’ to PE Ownership of Law Firms But Other Options Open

The Tennessee Supreme Court has rejected a rule change that would have allowed private equity companies to own law firms, blocking one avenue that insurance groups have warned could lead to more litigation, more high-dollar jury awards and higher defense costs.

After reviewing comments from stakeholders, “the Court has not identified sufficient need or support for reforms related to non-lawyer ownership of law firms or fee-sharing with non-lawyers,” the court wrote in its October order. “The Court may revisit this topic in the future as additional data regarding the success of these reforms becomes available.”

The ownership proposal was one of several that the court considered this year as ways that could encourage more lawyers in some parts of the state. “The effort is being undertaken as large segments of the population — especially rural and low-income individuals — cannot secure legal help,” the Tennessee Bar Association said on its website.

The Bar said in comments to the court that there is “scant, if any, empirical evidence demonstrating that allowing non-lawyer ownership of law firms or fee sharing with non-lawyers has meaningfully improved or is likely to meaningfully improve access to justice.”

Only a handful of other states, including Arizona and Utah, have allowed non-lawyer ownership of law firms. But private equity firms, known as some of the largest and most aggressive capital investors, have been able to invest heavily in law firms around the country through management service organizations, or MSOs.

The MSO arrangement generally transfers administrative assets to a separate management company, and the assets can be licensed back to the law firms for a fee, news sites have reported. California, Colorado, and Illinois have approved laws or regulations restricting those types of outside investment in law firms, AboveTheLaw legal news reported.

The Tennessee high court did not review MSOs or other back-end ownership arrangements for Tennessee law firms.

The American Property Casualty Insurance Association (APCIA) and others in the industry have strongly opposed private equity ownership and outside financial control of personal injury plaintiffs’ law firms, warning that it forces firms to focus too much on nuclear verdicts and bigger settlements.

But some insurance defense firms also have embraced the MSO investment plans.

Reuters news service reported Oct. 19 that Charlesbank Capital Partners has invested in the back-office operations of Wood Smith Henning & Berman, one of the largest US insurance defense firms.

The law firm is based in Los Angeles but has 550 lawyers and offices in 23 states, the firm noted on its website. Wood Smith Henning said in a statement that it will remain an independent firm with its lawyers “retaining sole authority over the practice of law and client matters,” Reuters reported.

Private equity ownership of insurance carriers and insurance service firms also is growing. The National Association of Insurance Commissioners noted that 137 U.S. insurers were PE-owned at the end of 2025—up from 90 in 2018.

Private equity ownership of plaintiffs’ firms is just one concern for insurers worried about litigation expenses. A number of state legislatures have passed some restrictions and disclosure requirements on third-party litigation funding of lawsuits, but only North Carolina has adopted a ban on the practice.

More than two dozen insurance carriers in September signed a letter urging a federal court rules committee to develop a third-party funding disclosure rule. Read more here.