A new bill advancing through the California legislature could block global consulting giant KPMG from extending its legal services into the state via its Arizona-licensed law firm. The measure, Assembly Bill 931, would prohibit California attorneys from sharing legal fees with out-of-state firms operating under alternative business structures (ABS)—effectively erecting a wall between California’s legal market and Arizona’s regulatory experiment.

The legislation was introduced shortly before KPMG received approval to launch a law firm under Arizona’s ABS program, making it the first of the Big Four to enter the U.S. legal market in this way. KPMG plans to use staffing agencies and co-counseling models to serve clients outside Arizona, including in California—moves that would be curtailed if AB 931 is enacted, according to Bloomberg Law.

“We’ve seen an attempt by some of the ABS’s to come in through the back door over the border to California,” said Nancy Drabble, CEO of the Consumer Attorneys of California (CAOC), which is spearheading the bill. CAOC represents around 4,000 plaintiff-side lawyers and spent nearly $350,000 lobbying on AB 931 and other issues in Q1.

The bill’s primary focus is regulating consumer legal funding—third-party investments in potential lawsuit recoveries—but opponents say the ABS-related provision was added as an afterthought and could have sweeping implications. It has already passed the California Assembly and is now before the Senate Judiciary Committee.

ABS models—pioneered in Arizona and Utah—allow non-lawyers, including private equity firms and corporations, to invest in or own law firms. While these models have fueled innovation in legal service delivery, they’ve drawn fierce resistance in traditional legal markets like California. In 2022, Gov. Gavin Newsom signed legislation blocking the State Bar from exploring non-lawyer ownership or sandbox-style reforms.

Opponents of AB 931 warn that the fee-sharing prohibition could isolate California, reduce competition, and hinder access to affordable legal services. Groups representing minority-owned businesses have urged lawmakers to amend the bill, arguing it would limit their ability to secure cost-effective legal representation.

“This is going to affect a large portion of people who use legal services,” said Don Bivens, chair of a trade group for ABS law firms. “I think it’ll be a surprise to the backers of the bill.”

Anne Andrews, a mass tort lawyer in Newport Beach, is helping build a coalition to oppose the legislation. “It’s being pushed by a small minority of private attorneys at firms that want to stifle competition from smaller firms that can only compete with innovative and diverse funding structures,” she said.

University of San Francisco law professor Nicole Phillips noted that KPMG’s legal expansion into the U.S. hinges on access to large markets like California. If AB 931 passes, it could dramatically limit the scope and viability of ABS models beyond Arizona.