Yet Another Access-To-Justice Debate: Has The Legal Profession Reached An Inflection Point?

Hmm, maybe nonlawyer ownership of law firms would help...

It seems like every few months, there is a new debate over access to justice and regulators are criticized for implementing draconian ethics rules that enrich themselves and prevent normal people from getting the legal help they need.

The Board of Trustees for the State Bar of California asked Professor William Henderson to conduct a landscape analysis of the current state of the legal services market, focusing on new technologies and how it can improve access to justice. Professor Henderson’s report compared the legal needs of large businesses and regular individuals. I am only going to focus on his analysis of the needs of regular individuals.

Professor Henderson cites the U.S. Census Bureau’s Economic Census for the years 2007 and 2012. They show that individuals spent $7 billion less on legal services in 2012 compared to 2007. He also noted that these individuals opted to forgo legal services by going to court unrepresented or avoiding legal remedies altogether resulting in many people not getting a just result for their problems.

Professor Henderson believes that the reason for this is because the legal profession is inflicted by a phenomenon known as cost disease. Cost disease occurs when there is a rise of salaries in jobs that have experienced no increase in labor productivity. To illustrate, four musicians playing a classical composition will take the same amount of time in 2000 as it did in 1800. Yet the musicians in 2000 will be paid a higher salary than ones in 1800. Compare this to things like computers and TVs where prices have generally gone down.

He believes that the legal profession is at an inflection point and advises regulators to take action. To fix the cost-disease problem and improve access to justice, Professor Henderson argues that lawyers need to collaborate with other professionals. But he thinks the current ethics rules prevents this. In particular, he cites to the prohibition of nonlawyer ownership of law firms arguing that it hinders innovation.

Before continuing, I should introduce a principle known as Chesterson’s Fence. It states that reform proposals are inappropriate until the reasons why the rules were created are understood. Now I realize that in some cases, a stubborn curmudgeon will try to invoke this principle (usually in a condescending manner) to maintain the status quo and hope the entitled younglings will shut up. But it has a good point.

The ethics rule against nonlawyer ownership of law firms was created by the ABA many years ago not because they consulted the ouija board while overly inebriated at a tavern one night. The purpose of this rule was to preserve a lawyer’s professional judgment. Allowing nonlawyer ownership or having a fee-splitting agreement may result in the lawyer favoring the interests of the nonlawyer as opposed to the client. Back in the day, this must have been a problem serious enough to require the ABA and the state bars to impose this prohibition.

Sponsored

There is scant discussion of how the changes Professor Henderson proposes will affect a lawyer’s independent professional judgment. He suggests that bar regulators demonstrate a clear factual basis that a lawyer’s professional judgment will be compromised when reviewing a legal marketplace like Avvo. This seems to go against Chesterson’s Fence.

There are other aspects of his proposals that I disagree with.

Let’s first look at the claim that the prohibition of nonlawyer ownership of law firms will hinder innovation. Professor Henderson cites Avvo and LegalZoom as an example of innovation in providing legal services to regular people. The funny thing is that lawyers founded these companies. Yet they seemed to have no trouble obtaining venture capital money to expand their operations. Perhaps he believes that nonlawyers have something to offer the legal profession and he could be right.

Second, the period between 2007 and 2012 was a bad time for just about everyone. It would be reasonable to assume that people spent less on many other things, not just legal services. Also, during that period, lawyers were suffering too. To get more business, they likely made price concessions they would not have made in 2006 or earlier. So this suggests that legal spending was down because the cost for legal services was much lower during this period.

Also, I question whether the cost-disease principle is really the cause of the problem. The principle applies to just about every service profession such as doctors, and educators because these jobs require human expertise and intervention which is difficult to improve or automate. Yet Professor Henderson’s report states that people spent more on health care and education while spending less on lawyers. So it seems like it’s a matter of an individual’s spending priorities and legal fees are far down on the importance list. This is the problem that small and solo firms have to deal with: distinguishing the truly indigent vs. those who can but don’t want to pay for a lawyer.

Sponsored

And lawyers already collaborate with other professionals on a regular basis: accountants, financial advisors, physicians, computer experts, etc. Quite simply, I do not see how allowing nonlawyers to own law firms will improve the relationship.

Finally, there is another reasons why a lawyer’s fees are so high: to pay for the cost of legal education. Some have argued that lawyers graduating with lower or no student loans are more likely to work for non-profit organizations to help the indigent. Professor Henderson does not include a discussion of whether lowering the cost of legal education can also help access to justice. I wonder why that is.

Professor Henderson’s report has noble goals but I think his premises are incorrect or at best questionable. He proposes a change to ethics rules without fully exploring why they were there in the first place and without explaining how the changes will not compromise a lawyer’s professional judgment. He seems to think that because the current system doesn’t work, the changes should be implemented and just see what happens. California is a heavily populated state and is one of the world’s largest economies. With that in mind, I do not think the state is a good guinea pig for this social experiment.


Shannon Achimalbe was a former solo practitioner for five years before deciding to sell out and get back on the corporate ladder. Shannon can be reached by email at sachimalbe@excite.com and via Twitter: @ShanonAchimalbe.