The Private Equity & Personal Injury Law Connection | Bad for The People?

Private equity is buying its way into personal injury firms through a side door. A new state law slams part of it shut. To see why that matters, look at what happened when the same money bought hospitals.

The billboard promises a lawyer. The 800 number, the confident face, the slogan you can recite from memory: it all says a person will fight for you. What it does not say is who that person answers to.

Over the past two years, private equity firms and asset managers have quietly entered the personal injury space, drawn by its high case volume and consistent revenue. The proposition for lawyers is compelling: immediate liquidity and long-term equity. For clients, the arrangement is less visible – most would have no way of knowing their firm has outside investors, or what that means for their case.

Here is the point: when outside capital owns the machinery behind your lawyer, the firm’s incentives quietly shift from getting you the most money toward moving the most cases. Those two goals overlap, but they are not the same, and the gap between them is where injured people get hurt. California just became the first state to draw a hard line against the most aggressive version of this arrangement. The line is worth understanding because it tells you what to ask before you sign with anyone.

The law that drew the line

On October 10, 2025, Governor Newsom signed Assembly Bill 931, authored by Assemblymember Ash Kalra. As of January 1, 2026, it bars any California-licensed attorney from sharing legal fees, directly or indirectly, with an out-of-state “alternative business structure,” which the statute defines in Business and Professions Code section 6156 as any entity that provides legal services while allowing non-lawyer ownership, management, or decision-making authority. 

Break the rule and the penalty is $10,000 per violation or three times the client’s actual damages, whichever is greater, plus discipline from the State Bar.

In plain terms, California has long forbidden non-lawyers from owning law firms or taking a cut of legal fees inside the state. The new law closes a workaround. A handful of states, Arizona chief among them, now let non-lawyers own firms outright. AB 931 stops California lawyers from reaching across the border into those permissive states to do indirectly what they cannot do at home.

It is already biting. A Phoenix firm tied to a California mass-tort practice stripped out its non-lawyer owners to comply, after a federal judge declined to block the law. And notice who pushed the bill: it was sponsored by the Consumer Attorneys of California, the plaintiffs’ bar’s own lobby. This is not trial lawyers versus corporations. Trial lawyers split among themselves over whether to take the money, with the institutional bar voting no.

We already ran this experiment – on hospitals.

You do not have to guess what happens when private equity buys the back office of a licensed, life-affecting profession, because medicine ran the experiment first, and the results are in.

In December 2023, a study in JAMA, the journal of the American Medical Association, compared 51 hospitals acquired by private equity against 259 similar hospitals that were not. 

After the investors took over, patients at the private equity hospitals suffered a 25.4% increase in hospital-acquired conditions: falls, infections, the kinds of harm that come from cutting corners on staffing and supervision. Falls rose 27%. Bloodstream infections from central lines jumped roughly 38%, even though the private equity hospitals were placing fewer central lines. Earlier work by the same researchers found these hospitals’ net income climbed sharply after acquisition, driven by higher prices. More money out, worse care in.

That is the model potentially arriving in injury law. The mechanism is identical: a profession that bars outside ownership, a financier who wants in anyway, and a corporate structure built to thread the needle. The structure even has the same name. In medicine, it is called a management services organization, an MSO, and it is how hundreds of billions in investor money flowed into doctors’ offices, dental chains, and dermatology groups. The firm stays nominally owned by professionals; a separate, investor-owned company owns everything else and bills the firm for it.

So the obvious question is how that survives a fee-sharing ban. The answer is a piece of financial engineering that should give any client pause.

How the side door works

A law firm cannot legally pay its investor-owned MSO a percentage of the fees it collects. That would be fee-sharing with non-lawyers, which is illegal in most states and squarely banned by California’s new law. So the parties do something cleverer. They hire a valuation expert to declare the “fair-market value” of the back-office services the MSO provides, then set a fixed fee at that number. The investor’s return comes dressed as a service charge rather than a slice of your settlement.

It is legal, or at least arguably legal, and that is precisely the problem. The fee is fixed on paper, but the investor’s profit still depends on the firm generating volume and resolving cases efficiently. Whether that arrangement keeps a lawyer’s judgment truly independent, or simply routes the same profit motive through an invoice, is a live dispute among ethics lawyers.

The bill’s own backers argued the business of law cannot be cleanly separated from the practice of law. The investors’ advisers insist that a properly structured MSO keeps lawyers in control. AB 931 is California betting, for now, that the skeptics are right.

It is worth being precise about how far the law goes, because it does not go all the way. AB 931 closes the contingency-fee-sharing path, but it leaves the MSO door ajar: a flat-fee service contract that does not scale with what you recover is exempt. The law also sunsets in 2030 unless renewed. California stopped the most direct version of investor ownership. It did not end the conversation.

Why volume is the enemy of your worst-case claim

To see why throughput and recovery diverge, you have to understand how the highest-volume injury firms already make money, and the definitive account comes from Stanford law professor Nora Freeman Engstrom, who spent years studying what she calls high-volume “settlement mills”: firms that advertise relentlessly, sign a high share of callers, hand the work to non-lawyers, rarely file a lawsuit, and almost never go to trial.

Her most important finding is about leverage. These firms, she wrote, bargain in the shadow of past settlements rather than in the shadow of trial. Insurance companies know exactly which firms will never set foot in a courtroom, and they price their offers accordingly. A credible threat to try a case is the single biggest lever a plaintiff’s lawyer has. A firm built for speed gives that lever away on purpose, because trials are slow, expensive, and unpredictable, which is to say they are everything an investor optimizing for quarterly returns dislikes.

The clients who lose the most in that trade are not the fender-benders. They are the people with catastrophic, high-value injuries, the cases that are worth fighting for over years and that demand the credible threat of trial to command full value. Engstrom found that settlement mills tend to leave the most money on the table on exactly those claims. Layer private equity’s appetite for predictable, fast cash on top of that model, and you do not soften the incentive. You supercharge it.

The honest counterargument

There is a real case on the other side, and it deserves a fair hearing. Capital can buy things that help clients: modern case-management software, better intake, so calls do not go to voicemail, and trial technology a solo practitioner could never afford. It can rescue a good firm facing a succession crisis when its founders retire. Some lawyers taking these deals argue, plausibly, that a well-capitalized firm can afford to take on riskier cases it would otherwise have to turn away. And the access-to-justice numbers from states that allow outside ownership are not alarming on their face: formal client complaints in Utah’s and Arizona’s experiments have been few.

None of that is nothing. A firm that takes outside money is not automatically betraying its clients, and we are not claiming otherwise. The point is narrower and harder to wave away: the thing that has always aligned a personal injury lawyer’s interest with yours is brutally simple. Under a contingency fee arrangement, your lawyer gets paid a percentage of what you recover. Insert an investor whose return depends on volume and speed, and you have introduced a second master whose interests are merely adjacent to yours. Efficiency you can buy without doing that. The alignment, once you sell it, is hard to buy back.

The squeeze, from both directions

Step back, and the strangest part comes into focus. At the very moment private equity is betting billions that injury claims are a profitable asset to own, a different set of corporate interests is spending nearly as much to make those same claims less valuable.

In California, Uber is bankrolling Initiative 25-0022, a proposed constitutional amendment, still gathering signatures toward the November 2026 ballot, that would cap contingency fees in auto-crash cases at 25%, down from the typical 33% to 40%, and limit what victims can recover for medical care. Uber’s committee has put in tens of millions; the plaintiffs’ bar and consumer groups have committed even more to fight it. We have covered that measure separately, including its potential impact on consumers.

Hold the two trends side by side. Investors are buying injury firms because the cases are lucrative. Defendants are pushing fee caps because the cases are lucrative. Both treat your accident as a financial instrument, something to be bought, optimized, hedged, or capped. One side wants to own the firm that represents you; the other wants to shrink what that representation can win. You, the injured person, are the asset in both stories. That is the through-line connecting the private equity wave to the fee-cap fight, and it is the reason ownership is not a back-office technicality. It is the whole game.

What this means for you

California drew a line because the line protects you, not because it protects lawyers from competition, though it does that too. The state is betting that who owns your firm changes how your case is handled, and the evidence from medicine suggests that bet is sound.

So before you sign with any firm, ask three questions and listen for straight answers. Who owns this firm, and is any part of it owned or financed by outside investors? When was the last time you took a case like mine to trial, and are you willing to take mine if the offer is low? And who decides when to settle, me and my lawyer, or someone whose money is riding on a fast resolution? A firm that answers those plainly is a firm worth hiring. A firm that gets cagey is telling you something, too.

Every firm will tell you they fight for their clients. The right questions will help you find out whether the structure behind that promise supports it.