In Colorado, a competing firm can now sue over who shares your fees

A law firm outside Colorado can now face a civil suit over fee-sharing arrangements tied to Colorado matters. House Bill 26-1421, the Colorado Legal Practice Integrity and Fee-sharing Prohibition Act, applies to conduct occurring, and contracts or agreements entered into or renewed, on or after August 12, 2026.

The act adds Part 4, sections 13-93-401 through 13-93-407, to Article 93 of Title 13, Colorado Revised Statutes. It was introduced April 21, 2026, passed the House and Senate, and was signed by Gov. Jared Polis on June 4. It repeals itself on September 1, 2029, unless the General Assembly acts again.

HB26-1421 reaches firms handling Colorado matters from anywhere

The act defines legal services as acting in a representative capacity concerning a legal right arising in whole or in part in Colorado. Its definition of an alternative business structure applies to an entity "wherever organized or denominated."

An alternative business structure includes an entity that participates economically in legal services, controls their provision, or shares in legal fees or profits while being owned, controlled by, or economically connected to a nonlawyer. Economic participation includes fee-sharing, revenue-sharing, equity interests, warrants, contingent equity and "any other arrangement" that gives a nonlawyer a financial interest in legal fees, firm revenue or firm profitability.

The statute defines legal fees broadly. The term includes contingent, flat, hourly, hybrid and success fees, retainers, deposits, and any portion of a settlement, verdict, judgment or award allocated to a lawyer. It also includes revenue collected through affiliated entities, subsidiaries, technology platforms, service providers or fee collection intermediaries.

Payments for nonlegal goods or services can remain outside that definition when they are purely administrative, clerical or operational support and are reasonably separable from compensation for legal services. Lawful wages, salaries, benefits and discretionary bonuses to nonlawyer employees are also excluded.

The statute adds civil claims to Colorado's existing Rule 5.4 restrictions

Colorado Rule of Professional Conduct 5.4 already restricts sharing legal fees with nonlawyers and nonlawyer ownership of law firms. The Colorado Supreme Court's Office of Attorney Regulation Counsel described HB26-1421 in its July 2026 OARC Update as a bill concerning fee-sharing with nonlawyers and non-LLPs that "sets forth provisions that go beyond Colo. RPC 5.4."

Section 13-93-404 bars a lawyer or law firm from sharing, paying, allocating or distributing legal fees, revenues or other financial benefits derived from legal services to an alternative business structure or nonlawyer. The prohibition applies whether the payment is gross or net and whether it is direct or indirect.

The section also bars financial, contractual, ownership, management, marketing, co-counsel, referral or fee-allocation arrangements with an alternative business structure relating to legal services. A lawyer cannot form an entity with a nonlawyer if any activity consists of providing legal services. A lawyer also cannot practice in a professional company authorized to provide legal services for profit if a nonlawyer owns an interest in it or has the right to direct the lawyer's professional judgment.

The act's findings state that Colorado's Supreme Court rules restrict fee-sharing and nonlawyer ownership, and that "Even minimal nonlawyer ownership or profit participation in law firms compromises public trust in the legal profession." The findings also say Colorado has a compelling interest in regulating legal services affecting Colorado clients, regardless of where a lawyer or law firm is located.

The enrolled act contains two separate permissions for flat-fee or hourly vendor payments. Section 13-93-404(3)(b) creates a five-part safe harbor. Section 13-93-405(2) separately states that MSO compensation, including flat-fee or hourly payments, is not prohibited when the payment is not expressly barred.

The safe harbor excludes outcome-based and referral-based vendor payments

A covered arrangement must satisfy every part of the section 13-93-404(3)(b) safe harbor. The contract must state a specific, predetermined dollar amount for clearly defined services. It cannot pay, directly or indirectly, for referring legal services or purchasing a lead for a potential client or case.

The fee cannot be contingent on, tied to or dependent on the economic outcome of a matter or the amount recovered. It also cannot be adjusted, refunded, credited or modified based on the outcome. The primary purpose cannot be pursuing or recovering monetary damages for a client, and the payment cannot be bundled with compensation based on referrals, case outcomes or a client's recovery.

The managed services organization provision uses a separate test. A lawyer or law firm cannot compensate or engage an MSO unless the compensation is not contingent on, or calculated as a percentage of, legal fees, revenues or profits and is not determined by recoveries, settlements, judgment awards or case outcomes.

Archivar is an operating system for a law firm that answers every call 24/7 in English and Spanish, runs intake, manages matters and remembers everything the firm does. It is billed as a flat monthly subscription, not as a percentage of fees or recoveries.

Competing firms get a limited lawsuit after notice to the Attorney General

Section 13-93-406 permits a client to sue a lawyer or law firm for legal services alleged to violate the act. It also permits a law firm doing substantial business in Colorado to sue another law firm if it has suffered or may suffer a loss in revenue from a violation.

"Substantial business in Colorado" means more than 10% of the firm's annual revenue comes from legal services performed for clients in Colorado. A competing firm may seek only injunctive or declaratory relief and disgorgement. It cannot seek its own damages under this provision.

Before filing, the competing firm must give written notice of the alleged violation to the Attorney General. It may sue only if the Attorney General has not started a civil action before receiving the notice or within 60 days after receiving it.

A client plaintiff may seek economic damages equal to the legal fees paid to the lawyer, law firm or other person in violation, as well as injunctive and declaratory relief and other relief the circumstances require. A prevailing plaintiff recovers reasonable attorney fees and costs.

A person or firm that receives or pays funds in violation is liable for the amount of those funds. If a court finds a violation, it must order the funds disgorged to the state treasurer for the general fund, offset by economic damages awarded to a plaintiff. A contract or agreement violating Part 4 is void.

Supporters cite independence while opponents cite competition and court authority

The Colorado Trial Lawyers Association supported the bill. CTLA executive director Julie Whitacre said, "Legal decisions should be guided by Colorado lawyers ... and focused on the pursuit of justice."

The Colorado Chamber of Commerce also supported it. President and CEO Loren Furman said, "Legal decisions should serve Coloradans, not investor profit." The American Property Casualty Insurance Association supported the measure as well. Its vice president for state government relations, Lyn Elliott, said, "Decision-making belongs with licensed attorneys, not outside investors."

Rep. Javier Mabrey said nonlawyer funding pushes decisions toward profit rather than a client's needs. Rep. Jarvis Caldwell, R-Monument, described the funding model as a "perverse incentive structure" and asked, "Is this how we should be doing law and lawsuits in the state of Colorado? And is this hurting our businesses?"

Opponents described a different consequence. Dave Johnson, CEO and founder of Modern Family Law, testified against the bill: "This is what the Colorado Trial Lawyers Association doesn't want coming into Colorado: They don't want competition."

Rep. Matt Soper, R-Delta, argued that the bill cuts off a potential source of funding to launch or grow a local firm and gives more of a monopoly to the largest Colorado firms. Rep. Cecelia Espenoza, D-Denver, said the Legislature was stepping inappropriately into the Colorado Supreme Court's territory.

The act states that nothing in Part 4 limits the Supreme Court's rule-making, decisional or enforcement authority over the practice of law, including unauthorized practice and professional independence. The Archivar editorial desk read all 13 pages of the enrolled act before publication. That preservation clause appears at the very end of the operative provisions, in section 13-93-407(2), two subsections before the September 1, 2029 repeal date.

Holland & Knight said HB26-1421 remains vulnerable to state and federal constitutional challenges and identified its extraterritorial reach as one of its most significant features. An Arizona ABS Law blog commentary said the bill creates no new option for people with unmet legal needs and protects incumbent lawyers rather than consumers.

Arizona took the opposite path when its Supreme Court eliminated Ethical Rule 5.4 on August 27, 2020. Its ABS licensing program took effect January 1, 2021, and 114 active licensed ABSs existed at the end of 2024. Illinois adopted a statute signed August 7, 2026, and Trisha Rich of Holland & Knight said that law "intrudes on the Illinois Supreme Court's exclusive constitutional authority."

Pull every nonlawyer vendor, marketing, management and funding agreement touching Colorado matters. Check each one against the five-part test and the MSO compensation rule. Note every renewal date against August 12, 2026, and calendar September 1, 2029. This is a statutory review, separate from any review under Colorado Rule 5.4.