The California Legislature is moving forward with two bills that would meaningfully reshape the boundaries of consumer legal funding and legal advertising practices in the state. Assembly Bill 931 and Senate Bill 37, while distinct in subject matter, reflect a coordinated policy effort to curb practices viewed as exploitative, misleading, or incompatible with the state’s regulatory framework for the legal profession.
Assembly Bill 931: Regulating Litigation Funding and Codifying Attorney Boundaries
Assembly Bill 931, introduced by Assemblymember Ash Kalra, proposes a statutory framework that would, for the first time in California, directly regulate consumer legal funding transactions. These nonrecourse advances typically offered to personal injury plaintiffs in exchange for a future interest in case proceeds have operated without meaningful oversight in the state. AB 931 seeks to change that by introducing mandatory disclosures, limits on repayment structures, cancellation rights, and restrictions on funder influence over litigation decisions.
The bill also prohibits referral payments to attorneys and imposes clear contractual guidelines to guard against conflicts of interest. It grants consumers a private right of action for violations, with remedies including statutory damages of up to $10,000 per incident or three times the amount advanced.
Senate Bill 37: Expanding Liability for Unlawful Solicitation and Misleading Advertising
In parallel, Senate Bill 37 takes aim at attorney advertising and client solicitation. Authored by Senator Tom Umberg, the bill would create new private rights of action against attorneys who engage in unlawful solicitation, including traditional “capping” practices. Civil penalties would range from $5,000 to $100,000 per violation, depending on severity and intent, and courts would be authorized to award injunctive relief and attorney’s fees.
The legislation also tightens advertising restrictions by prohibiting unverifiable claims, misleading guarantees, and improper use of awards or titles that may confuse consumers. Attorneys would be required to identify themselves clearly in all promotional content. SB 37 passed the Senate Judiciary Committee and was referred to the Appropriations Committee’s suspense file in May 2025.
Fee Sharing Restrictions and ABS Implications: A Direct Hit to Non-Traditional Legal Models
Perhaps the most consequential provision for out-of-state legal service providers and investors appears buried within AB 931. The bill explicitly prohibits California attorneys from entering into any fee-sharing arrangements with legal entities that include non-lawyer ownership even if those entities are lawfully operating under the rules of another state.
In practice, this means attorneys licensed in California would be barred from partnering financially with Arizona or Utah alternative business structures (ABS), or other firms operating under regulatory sandboxes that permit non-lawyer equity participation. The statute would expose violators not only to disciplinary action from the State Bar of California, but also to statutory civil penalties.
This provision is not merely symbolic. It is a clear legislative reaffirmation of California’s hardline stance against non-lawyer ownership in legal services and reflects mounting concern over the influx of out-of-state models seeking to expand across jurisdictions.
Current State of the Legislative Process
As of July 2025, both bills have cleared their respective policy committees. AB 931 passed second reading in the Assembly on July 3 and now awaits a floor vote. SB 37, after unanimous approval in the Senate Judiciary Committee and placement on the Appropriations suspense file, was re-referred on July 16 with a “do pass” recommendation and awaits further action by the full Assembly.
