In my first post on Legal Services Today, I wrote that, while we have a great legal system, it can and must do better.  Nearly every observer agrees that law has not kept pace with advances in technology and process design the way other businesses and professions have.  

I listed three reasons law is not more modern.  This week, I address one of those reasons : the unduly restrictive rules governing the practice of law.

The Context Compelling Regulatory Reform

Law is more important than ever before.  Law is in everyone’s life; every business’ business; and in just about how everything works.  Everyone needs legal services today.

The way our legal system now operates, it does not meet the needs of the public.  In some cases not at all. In others not as well as it should.

The most urgent deficiency is commonly short-handed as “access to justice.” Statistics show that more than half of our people simply do not get the legal services they need to deal with day to day occurrences in their lives.   Whether it is a dispute with a landlord, a child custody matter, or a question about a contract, people regularly have issues that implicate the law. Professor Rebecca Sandefur estimates that there are 167 million such instances in America each year.

In each of these situations the law has established rules that govern the rights and obligations of the parties.  Most people do not have the training to understand these rules and how they work. They need help. Unfortunately, today most do not get the help they need.   

The legal services that are available (to those who can afford them) are commonly too slow, too cumbersome, and more expensive than they need to be.  The traditional providers operate with unnecessarily expensive resources, outmoded processes, incentive systems that reward taking a long time to do things, and inadequate adoption of technology tools.

Current Regulations Create A Closed System

The current regulatory model has created a closed legal services system.  It limits who can participate in legal services in two fundamental ways.

First, only those who undergo the time and expense of law school and become licensed as “lawyers” are permitted to deliver legal services.  It is a crime for anyone to do work that falls within the deliberately vague definition of “the practice of law” unless they have a lawyer license.

Second, only lawyers are permitted to participate in the financial rewards of a law firm.  Investment by others is forbidden, as is sharing profits within a law firm with personnel who are not lawyers.  

The consequences of these limitations are clear and profound.  The first limitation causes the cost of legal service to be much higher than it otherwise would be; it also causes the law firm workforce to have less diverse backgrounds (as other businesses have) resulting in less creativity and agility. 

The second limitation limits the capital law firms can raise, which, in turn, makes it harder for them to invest in new processes and technologies.  The most successful firms in this closed system command high enough fees that they can generate their own capital. The majority of firms, however, would benefit from greater access to  capital.  This is particularly acute for firms which serve individuals and small businesses; in these practices the economic stakes of matters are relatively small, warranting lower fees, making the need for outside capital even greater.

Looked at another way these limitations block competition.  If an ambitious entrepreneur wanted to create a new law firm with a modern resource model, and new processes and technologies, to compete against the traditional model, she would find it nearly impossible.  Such a new firm would, like any start up, face substantial investment in facilities and technology, and its operating expenses would exceed its income until l it won a large enough following in the marketplace.  Unlike normal startups, however, the legal entrepreneur would not be able to assemble capital to support it at the outset, not even “sweat equity” from employees agreeing to work for modest wages in exchange of stock options.

States Should Open the System to New Participants

Law practice in the United States is regulated at the state level.  In most states the state supreme courts ultimately determine the rules, often in collaboration with state bar associations and state legislatures. 

The ABA provides guidance on the rules governing law practice, and yesterday expressed support for changes in state rules to address the issues discussed above.  The ABA House of Delegates adopted Resolution 115 “encouraging jurisdictions to consider regulatory innovations that have the potential to improve the accessibility, affordability, and quality of legal services.”  Resolution 115 reflects the urgency of the need for reform, based on the work of the ABA Center for Innovation, chaired by Daniel B. Rodriguez, former dean of Northwestern’s Pritzker School of Law, and the  in-depth study and ground breaking report in 2016 by the ABA Commission on the Future of Legal Services, chaired by current ABA President, Judy Perry Martinez. 

I believe the time is now for states to adopt reforms that will open the closed legal services system.  They should take stock of the harmful consequences of the current rules, and find new ones which will serve the public better. The process will inevitably involve examining why the old system is closed to begin with, and finding ways to address those concerns another way.

More particularly, states should permit: 

  • A broader set of professionals than just licensed lawyers to participate in delivering legal services; and
  • Investment in law firms without regard to whether the investors are licensed lawyers

Several states are now considering such changes.  Utah and Arizona are furthest along, with California following close behind.  Illinois has recently begun to examine the rules, and more states likely will follow.

As befits our federal model of independent state “laboratories” for public policy, each state will proceed in its own way.  Utah’s reforms are built around a “sandbox” concept, which permits parties to propose new models and apply for preliminary permission to implement them under terms the state determines; if the new approach proves successful, the approval will be made permanent.  Arizona appears on its way to act with a combination of repealing some of the restrictions, accompanied by “sandbox” features to encourage innovative approaches.

Obviously, each state will proceed with care.  In the end, the rules are designed to protect the public.  States will be careful to avoid rules which simply substitute a new peril for the old one.

But proceed they must.  It is high time to enable our legal system to serve the public fully and effectively.