Ilene Seidman of Suffolk University Law School recently wrote a column about a paradox of supply and demand in the legal field: lots of people who can’t afford legal help and lots of recent law grads working as baristas. Her column highlights the benefits of law-school based incubator programs teaching law students about the business end of law so that they can use technology to be on the cutting end of practice upon graduation. Suffolk University’s program teaches “innovative approaches” to students them to start their own firms or join small firms serving average-income people by teaching new technologies, marketing skills, process management and business through cross-training.
These incubators provide valuable opportunities for law students interested in opening their own firms, and are able to make some difference in bridging the access to justice gap. However, a more successful approach to closing the justice gap is to allow outside investment in law firms. Training law students as managers, business owners, and entrepreneurs, can be valuable, but allowing corporate-run law firms would allow people who have studied business disciplines to take on those roles and let the law students do what they went to law school for: serving clients through the practice of law. If lawyers are taking on the management side of the firm as well as working with clients, their skills are spread thin and they are unable to help as many consumers as they would be able to if they focused strictly on providing legal services. Outside investment would allow firms to offer law on a consumer scale that small and solo law firms are unable to offer.
Legal startups have been slow to develop because of the requirement that capital for innovation come only from lawyers. Allowing outside investment would allow a new model of legal services to arise: the mass-market consumer law-firm, which could allow millions of Americans to affordably and accessibly navigate the legal system. Mass-market consumer law would also help provide recent law school grads with training, employment, and opportunities for internal advancement. Startups bring innovation to markets. However, due to restrictions on non-lawyer investment, legal service startups that employ lawyers to provide services to the public cannot seek the investor funding that allows innovation in other fields to flourish. For these startups, it’s not enough to have a business model that could reshape the legal industry—they must also contort their financial structure to avoid non-lawyer investment and fee sharing.
If lawyers want to run a small firm, we should, of course, make that option available to them, and incubators do a wonderful job of enabling them to do so. However mass-market consumer law firms would do a far better job of making lawyers available to the masses, and they can only exist if outside investment is allowed.
Responsive Law has just released its Report Card on Barriers to Affordable Legal Help. The report card grades all 50 states and the District of Columbia on how their regulations regarding the practice of law restrict consumer access to the legal system. Unfortunately, the news is not good, with no state receiving a grade higher than a C.
The report card graded three areas:
- barriers to affordable help from lawyers (45% of total grade),
- barriers to affordable help from non-lawyers (40%), and
- support for self-represented litigants (15%).
Barriers to Affordable Lawyer Help
The first area the report card graded was Barriers to Affordable Lawyer Help.
Non-Lawyer Ownership of Law Firms
Most of this grade was determined by whether the state allows non-lawyer ownership. Non-lawyer ownership of law practices would allow innovation and economies of scale that don't exist in the current law firm model. Nearly all consumer law firms—those that offer services in areas such as estate planning, family law, housing, employment, and consumer disputes—consist of fewer than ten lawyers. At this scale, legal services are still very individualized. Furthermore, lawyers in such a small firm have to spend much of their time on marketing and management, rather than on the practice of law.
Allowing non-lawyer ownership would permit the creation of mass-market consumer law firms that could use their scale to mechanize much of the most common legal work. They could also keep lawyers out of both rote legal matters and management and marketing, reserving their high-cost labor for legal oversight and review and for thornier legal questions. All of this would significantly reduce the price of a lawyer.
Unfortunately, with only a couple of very minor exceptions, non-lawyers are not allowed to have an ownership interest in a law firm in the U.S. On the other hand, in England and Australia, non-lawyer ownership is permitted and regulated to protect consumers from any potentially adverse impact on clients. As a result, people in those countries have access to a wider range of reasonably-priced consumer legal services, on Main Street or in the mall.
Other Regulations Affecting Affordable Lawyer Help
The other areas making up the Barriers to Affordable Lawyer Help grade were what type of advertising restrictions are placed on lawyers, whether consumers can hire lawyers from other states, and whether consumers are allowed to use "unbundled" legal services (hiring a lawyer for just part of their legal matter).
Restrictions on lawyer advertising often leave consumers with limited ways to find out about lawyer services. In a Yelp economy, they leave consumers stuck with an archaic model where the bar's recommended way to find a lawyer was to ask for a referral from a friend at the country club.
Restrictions on multijurisdictional practice unnecessarily restrict consumers' options based on an outdated notion that being admitted to the bar in a state has a high correlation with knowledge of that state's law. In a national economy where much of the law is identical from state to state—and where lawyers' skill is as much in finding the law as in knowing it off the top of their heads—it's irrational to prevent a Tennessee lawyer from handling a legal matter in New Jersey, particularly if the Tennessee lawyer is an expert in the particular area of law at issue. Canada has taken a much more progressive approach to multijurisdictional practice by adopting a National Mobility Compact, which allows a lawyer admitted to practice in one province to practice fairly easily in another province.
One area that most states do fairly well in is in allowing limited scope, or "unbundled" legal services. For example, in most states, a person can prepare their own documents for a court appearance while hiring a lawyer just to represent them in court. Our report card analyzed whether states provided enough assurance to lawyers that they could offer these unbundled services without getting dragged into representing the client on a wider basis. Fear of getting dragged beyond the agreed-upon scope of representation is one of the reasons lawyers don't offer unbundled services more frequently.
Because of the great weight given to whether states allow non-lawyer ownership of law firms, almost every jurisdiction received a grade of D. (The lone exception was the District of Columbia, which allows non-lawyer ownership under extremely limited circumstances, and which received a C.) If England and Australia were states, they would have received grades of A due to their more progressive approach to non-lawyer ownership.
Barriers to Affordable Non-Lawyer Help
The second area the report card graded was Barriers to Affordable Non-Lawyer Help. In other words, does the state allow consumers to use service providers other than lawyers to help them with matters that may be considered legal in nature?
Laws Restricting Non-Lawyer Help and Enforcement of Those Laws
First, we analyzed what the state's law says about the types of services that require a lawyer. Specifically, we looked at various ways in which competent non-lawyers could provide help (such as document preparation, financial advice, real estate closings, contract negotiations, and free advice from friends and family) and researched whether state law allowed or prohibited people from getting non-lawyer help for such activities. State laws range from draconian prohibitions to ambiguity, with few laws specifically allowing non-lawyer activity. The ambiguity in these laws is almost as bad as a prohibition, as a service provider is unlikely to offer a service that exists in a legal gray area.
Second, we analyzed the level of enforcement of unauthorized practice of law (UPL) restrictions. In other words, how often does the state prosecute this offense, what resources do they put towards prosecutions, and who is doing the prosecuting? States in which the attorney general has sole responsibility for prosecuting UPL were graded more harshly than those in which the state bar plays a significant role. In the former situation, UPL prosecutions are more likely to be undertaken in the public interest; in the latter they are more likely to be undertaken for anticompetitive reasons.
Grades in this area ranged from a B for Washington and 16 other states to an F for Florida, North Carolina, and Ohio. Washington is noteworthy in that it has just issued the first licenses for limited license legal technicians, or LLLTs. LLLTs are individuals with paralegal training who are licensed by the state to provide information and advice in family law matters, akin to the role of a nurse practitioner in medicine.
The states with the lowest grades earned them on the basis of overly aggressive UPL enforcement by the bar. For example, Florida has a $1.8 million budget for UPL enforcement that it has used for activities such as pursuing charges against a senior citizen who helped a fellow parishioner complete workers compensation forms.
Again, the low grades that most states received stand in stark comparison to more consumer-friendly countries. England, which licenses a wide range of non-lawyer service providers, would have received an A in this category. Australia would have ranked behind only Washington.
Treatment of Self-Represented Litigants
The third area the report card graded was court treatment of self-represented litigants. In other words, we wanted to know how easy it was for people to resolve disputes without a lawyer. We based grades in this area on the Justice Index, published by the National Center for Access to Justice at Cardozo Law School.
This grade took into account whether court forms and procedures are understandable to the average person, whether judges and court staff are trained to assist self-represented litigants, and whether courts have internal processes to monitor and review their treatment of such litigants. Hawaii was first in this category with an A grade; Mississippi was last with an F.
State Bars Have Yet To Comply with the Supreme Court's Dental Examiners Decision
Most of the obstacles to better access to the legal system stem from the fact that state bars frequently create rules governing the delivery of legal services without adequate oversight from the elected branches of government. When any group of professionals sets its own governing rules for the profession, its tendency is to favor itself at the expense of outsiders. Thus, established lawyers are likely to set rules that favor lawyers operating according to the status quo over outsider lawyers who may have revolutionary ideas about how to innovate the profession. And lawyers are likely to set rules that block competition from non-lawyers, no matter how competent their services and how much the public needs them.
The U.S. Supreme Court ruled earlier this year in North Carolina State Board of Dental Examiners v. FTC that professionals are not exempt from antitrust laws when they act without adequate oversight to limit competition. We hope that our report card will shine some light on state bars' continued reluctance to adhere to this principle. We also hope that it will demonstrate the desperate need of most Americans for affordable legal help and the failure of the organized bar to allow them to receive it.
In November 2014, the California State Bar Board of Trustees approved the creation and appointment of the Civil Justice Strategies Task Force. The charge of the task force was to analyze the reasons for the state’s justice gap: the conundrum of how there are so many lawyers yet so many Americans have unmet legal needs and cannot afford or access legal help. Specifically, the task force intended to study creative solutions and innovative strategies in use by other states and other countries that have the potential to greatly improve access to justice in California.
Responsive Law sent an array of innovative and creative solutions to the Civil Justice Strategies Task Force. We advised the task force to allow for alternative business structures to address the justice gap. Alternative business structures entail permitting outside investors to provide capital to legal service companies or allowing non-legal companies to partner and share fees with a legal organization. Both the United Kingdom and Australia have allowed legal entities to accept outside investment from non-lawyers; yet no state in the U.S has done so due to unfounded concerns that outside investment will lead to an increase in unethical violations by lawyers.
We specifically recommended that California allow outside investments in the growing number of legal startups that already exist in their state. We highlighted the fact that pro-bono services and legal aid literally do not have the capacity to provide even half of the unmet need for legal services. Thus, California needs to invest in creating a larger array of affordable legal services via outside investment in legal startups.
We also recommended allowing more non-lawyers to provide legal help to consumers. We cited the launch of limited license legal technicians (a regulated profession of non-lawyers who provide document preparation and other legal assistance) in Washington state. We also recommended the proven strategy of limiting the breadth of unauthorized practice of law claims (UPL). Research has shown that UPL cases are brought mostly by lawyers, for anti-competitive reasons, as opposed to a dissatisfied customer. As Responsive Law has noted before, such aggressive UPL enforcement chills legal innovation. Specifically we proposed that the task force create a safe harbor provision for document preparation similar to the one in Texas that has helped to provide many Texans with access to self-help tools. We also encouraged the task force to again look to the United Kingdom where non-lawyers referred to as McKenzie friends have operated for the past 50 years providing court navigation help, moral support, case paper management and advice on courtroom conduct for free or for a small fee.
Lastly, we encouraged the task force to take the lead (as opposed to waiting for other states) by launching a compact with other states to allow for multi-jurisdictional practice similar to what exists in Canada. In Canada, a lawyer can practice in any province; allowing multi-jurisdictional practice allows for greater competition in the provision legal services and more lawyers and law firms to reach economies of scale. Thus the strategy of multi-jurisdictional practice could provide Californians with unprecedented access to lawyers. We believe California is off to a good start of addressing their growing access to justice gap; the strategies and solutions we have recommended will supercharge California’s potential to actually close the justice gap.
You can read our comments to the California Bar here.
The American Bar Association has convened a Commission on the Future of Legal Services to study ways in which innovation and new regulatory models can help meet the public’s needs for legal assistance.
Responsive Law has submitted the first in what it expects will be a series of comments to this commission. We told the commission that one of the main things the legal profession needs to do is to roll back many of the regulations that it has imposed to maintain the lawyer cartel over legal services. Restrictions on who may provide legal services are one of the largest obstacles to wider access to legal help. A lack of innovation in the business model of law is another obstacle. The latter is caused by regulations banning outside investment in law firms, which could allow them to serve everyday legal needs the way that H&R Block serves everyday tax filing needs.
You can read our comments to the commission here. As the commission continues its work, we'll be continuing to make sure it hears the voice of legal consumers, so stay tuned for further developments.
A recent article in National magazine by Mitch Kowalski, How to Make a Law Firm Float, provides an in-depth look at the Australian law firm Slater & Gordon Limited. This firm has paved the way for other flourishing law firms around the world by showing them how to run a law firm that provides excellent customer service as well as excellent legal services.
The article emphasizes the focus the firm places on bringing satisfaction to its clients. Potential clients start off their experience at Slaters by calling the firm, where specially trained call center staff will triage their legal problems and decide which of the lawyers in the firm’s 30 practice areas the client should be directed to. This alone is a major improvement over the process for finding legal help in the US. Most firms that handle legal matters for individuals and small businesses consist of a fewer than a dozen lawyers and specialize in only a handful of areas of law. For most Americans, finding a lawyer involves phone calls or in-person visits to multiple law firms. And in each of those calls or visits, the customer has to get in touch with the lawyer who might handle her case to decide whether the lawyer is the right one for her.
When it comes to fees, Kowalski praises the firm on its fixed prices that are laid out based off of the influence of the demography of their clients. Because of the large scale on which Slaters practices—70,000-80,000 inquiries a year—the firm is able to collect enough data about the cost of providing its services to determine flat fees which are low enough to be attractive to consumers while still allowing the firm to turn a profit.
Kowalski emphasizes that “at Slaters the focus is on making the business of law run better. There’s an implicit understanding that quality legal service is a given—and expected.”
How does Slater’s manage to provide quality legal services and quality customer service simultaneously? There are two factors that help it to do so. First, the firm uses non-lawyer expertise for the business side of its operations. Lawyers don’t know how to run a call center, or how to examine customer data to set appropriate fees, but business experts do. Second, the economies of scale from running a large enterprise—Slater’s employs about 1600 people—allow it to provide lower fees than the typical consumer law firm that’s about one percent of its size.
Both of these factors are enabled by Australia’s policy of allowing outside investment in law firms, which the US prohibits. American restrictions on outside investment not only make it harder for lawyers to implement innovative business models, and thus remove the benefits that American clients could see from a firm modeled after Slaters. In a previous blog post, we wrote at length about how outside investment can improve client access. Without outside investment, however, it’s impossible for US lawyers or businesspeople to raise the capital to create a mass-market law firm.
Slater is leading the way for other law firms in the future by implementing the fundamental changes necessary to provide appropriate, helpful services for their clients. By running the law firm as if it’s providing a service (which, after all, it is!), it’s able to better fit those services to the needs of its clients. If American law firms were able to adopted this business model, then the entire legal sector would be brought to a whole new level. The ABA and state policy makers need to reconsider their long-standing ban on outside investment, for the benefit of all Americans seeking legal help.
Saron Berhe is a Responsive Law intern.
Recently, we wrote a guest post for our friends over at UpCounsel on Fee Sharing, Innovation, and the Consumer Interest. You’ll have to click through to read the whole thing, but (briefly) the argument runs as follows:
American Bar Association Model Rule 5.4 prohibits lawyers and law firms from sharing legal fees with non-lawyers, and while this might sound innocuous, in reality Rule 5.4 is hurting everyone who doesn’t have a law degree. The two justifications often given for the ban on fee sharing (the pernicious influence of non-lawyers and fear about the commercialization of the practice of law) simply don’t stand up to scrutiny. The most salient impact of Rule 5.4 is that it stifles innovation in the legal services industry – innovation that could provide consumers with more value for their dollar when faced with a legal situation. Despite successful liberalization of similar rules in other common-law countries like Australia and the UK, here in the US the American Bar Association has refused to even consider relaxing Rule 5.4. The ray of hope? An underreported Jacoby & Meyers lawsuit against the states of New York, Connecticut, and New Jersey is still working its way through the court system. If successful, these cases could overturn the prohibitions on fee sharing and outside investment, giving the American legal services industry a much-needed breath of fresh air - and consumers’ wallets a much-needed break.
Danny Foster is a Responsive Law intern.
There's an excellent blog post by Ron Friedmann at Prism Legal arguing for abolishing the prohibition on outside investment in law practices, a position that Responsive Law strongly supports. In a responding blog post, Brian Focht at The Cyber Advocate claims that only bankers would benefit from lifting this restriction, and that those who want to do so are only interested in making more money. It's a common objection, so we'd like to address it here.
"Most of the people asking for non-lawyer ownership in law firms have a vested interest in the deregulation of the practice of law. Whether they want to be the law’s version of Turbo Tax, or whether they simply want to earn profitable returns out of a law firm’s revenue, how many of them really and truly want to create a better, cheaper, and more accessible law firm? How many of them really want to improve access to justice? How many of them just want more ways to make more money?"
Since Responsive Law's purpose is to speak on behalf of users of the legal system, we are most certainly taking this position as a way to improve access to justice and not as a way to make more money. We've testified numerous times to the ABA and state policymakers about the benefits of non-lawyer ownership. And we're a nonprofit organization, so we certainly don't have a financial stake in the improvement of the system.
The greatest benefit of outside investment won't come from a change in the practice of existing firms. Instead, it will come as other companies, both new and existing, are able to offer law as a consumer service on a scale that solos and small firms—the predominant deliverer of services that the average person needs, such as wills, family law, housing, and employment issues—are unable to offer. For example, a national company could develop training and supervision protocols for lawyers, teaching them how to provide legal services to their clients and providing not only the legal expertise they need, but also letting those lawyers focus on their core competency of practicing law, while letting a corporate office handle the business side of practice.
There is a clear disconnect between the 80 to 90 percent of Americans who cannot afford basic legal services and the growing number of recent law school graduates who currently have no employment prospects. Corporately-provided legal services would bridge this gap and allow the true democratization of law. Consumers would be able to take advantage of economies of scale that do not exist for small firms and newly-minted lawyers would be able to receive training and employment providing legal services at an affordable price.
Concerns that lawyers would shirk their ethical duties under pressure from corporate owners and investors are misplaced. Lawyers in every setting face financial pressures to act against their clients' interests. For example, associates at large firms face pressure to pad hours to meet billable hour goals. However, this financial pressure does not relieve an attorney of the obligation to follow the rules of professional conduct, and neither would financial pressure from shareholders. As an additional safeguard, the US could adopt a version of Australia's requirement that each firm with outside investment designate an officer to be responsible and liable for ethics violations.
Both the UK and Australia have permitted non-lawyer ownership for several years, and have shown that consumers benefit from the innovation it fosters, while predictions of diminished lawyer professionalism have been proven wrong. It is past time for the US to join its international brethren in adopting this reform.
New York State Chief Judge Jonathan Lippman has announced a new rule intended to better supply legal aid to poor New Yorkers. Specifically, in-house corporate attorneys who work in New York but are not members of the New York State Bar will now be permitted to do pro bono work in New York civil and criminal cases. Previously, only attorneys licensed to practice in New York were able to volunteer their expertise without restrictions. The change is intended to widen the volunteer pool that groups like the Legal Aid Society draw on to provide legal assistance to New Yorkers unable to afford a lawyer. The New York Times reported that “the measure has broad support, not only from the state and city bar associations, but from several big businesses seeking to burnish their image.” Responsive Law likewise supports this development, but New Yorkers deserve more.
Responsive Law has long been a supporter of Judge Lippman’s efforts to facilitate poor and middle-class New Yorkers’ access to their legal system. However, this rule change is minor compared to the scope of the problem. The Legal Aid Society took 48,000 cases last year, but they were forced to turn away eight times that number – over 300,000. Why? Because there are not enough lawyers to meet the demand for legal services.
This rule change is a positive development, but according to Judge Lippman’s own estimate, it will only increase the pool of potential volunteers by a mere 5,000 lawyers. This will barely make a dent in New Yorkers’ unmet need for legal advice. More profound reforms are needed to give all New Yorkers access to their legal system. Responsive Law has a two-pronged solution to the problem.
First, competent non-lawyers should be permitted to supply legal services. Currently, social service organizations’ attempts to assist New Yorkers in navigating the courts are stifled by the requirement that only attorneys may provide legal services. These organizations should be able to use people who have expertise, but not a law degree, to provide assistance to those they serve. Non-lawyers are perfectly capable of helping to navigate the court process, a service which in many cases will be more valuable than the full legal analysis offered by attorneys. Imagine how many people Legal Aid could help every year if their volunteers could receive a few weeks or months of training in a specific field, rather than needing to spend years and thousands of dollars to get a general-purpose law degree.
Second, New York should allow outside investment in legal service providers, which is currently prohibited. There may be ways for lawyers in the private sector to deliver their services more efficiently, bringing the cost of a lawyer within the reach of even poor New Yorkers. Services like TurboTax and H&R Block have helped millions of Americans by making accounting expertise cheaper and more widely available. Where is the innovator who will do the same for legal matters? They have been locked out of the industry by these outdated regulations. New York, and likewise the rest of the United States, should look to the success of liberated legal industries in Australia and the UK, which have lifted the restrictions without harm to consumers. (For more about mass-market legal services, please see our testimony.)
The public’s need is too vast to be serviced by the small number of lawyers who work or volunteer in low-income legal assistance. Increasing the number of lawyers who are allowed to volunteer their services is a step in the right direction, but we must make great strides to provide justice to all New Yorkers.
What a difference two years can make!
A couple of years ago, I wrote about the ABA Journal's 2011 list of "Legal Rebels"—lawyers who are changing the legal profession. The 2011 list consisted mostly of lawyers who were making minor adjustments to the structure of large law firms. Only two of the ten Legal Rebels that year were doing anything to make law more accessible to the general public. The 2011 list continued the magazine's trend of largely ignoring those who made a real difference in favor of corporate lawyers who were making changes that inched the profession toward the 21st century.
The ABA Journal has just released its 2013 Legal Rebels list, and the list is quite different from two years ago. Not one of the ten lawyers on the list comes from a large law firm, and several are true innovators. One of this year's honorees is Raj Abhyanker, the founder of Legal Force, a Palo-Alto company that offers customers a storefront of user-friendly legal books and forms to choose from and affordable 15-minute consultations with onsite lawyers. Another slot belongs to Michael Poulshock, whose Hammurabi Project aims to automate large bosies of law to make them understandable and usable by both lawyers and nonlawyers. And Renee Knake and Daniel Katz of Michigan State University's Reinvent Law program are training law students to reach the unserved middle class using innovative business models and technology.
In 2011, I noted that many innovators were hampered by prohibitions on outside investment in law practices. Those bans are still in place, but not if some of these Legal Rebels have anything to say about it. Professor Knake's scholarship focuses on these bans, which she believes are unconstitutional. The future may be closer than we think.