This is the first of a two-part overview of self-regulation in the U.S. legal market. This installment focuses on the retail segment; the corporate side will be the subject of the second part.
Lawyers in the retail segment of the legal market have priced themselves beyond the reach of most clients, individuals and small businesses. This is commonly referred to as “the access to justice crisis. ” There are fixes to the problem: competition (the glut of lawyers should yield price reduction); technology which enables lawyers to connect as never before and to create new and more efficient ways to deliver legal services; legal products, especially legal forms delivered online (formerly services provided by lawyers/law firms); and regulatory changes that would encourage new market entrants, stimulate competition, reduce prices, and provide consumers (clients) with much-needed access and options. Another key element must be added to this list: many tasks that lawyers routinely handled need not be performed by an attorney. In fact–and this is routinely occurring in the corporate market segment–service providers often perform these tasks better, faster, and cheaper than law firms do. Why, then, is this not happening in the retail segment where demand for legal services outstrips supply and price is the problem?
The Numbers Are Daunting
Just how big a crisis is the lack of “access to justice”? Let’s start with some basics. Lawyers nationwide charge an average of $200 to $300 per hour. And we all know about “hour creep” and lawyers’ abhorrence of budgets, especially when dealing with less sophisticated legal consumers who tend not to ask for them. The average annual legal spend for small business has been pegged at $7,600, a crippling sum for mom and pop shops and even more so for individuals. That is why it is estimated that approximately 60% of all U.S. small businesses go unrepresented when they have a significant legal issue (even a “bet the company” case). The number of unrepresented individuals is significantly higher. I was recently told by a Bar President that over 90% of divorce cases in his jurisdiction had at least one pro se party. He estimated that well over 75% of those in need of legal representation are unrepresented.
A spate of new entrants to the retail marketplace, mostly service providers, have appeared. Perhaps the best known–at least in the retail market– is LegalZoom, a technology company that provides online legal documents. LegalZoom is not a panacea for those requiring the exercise of legal judgment (i.e., those who need a lawyer), but it is a viable and affordable option for prospective “clients” who would be well served as “customers” of its legal forms. The forms conform to state practice requirements and serve a useful purpose in uncontested divorces, simple wills, name changes, and a spate of other matters that do not require the exercise of legal judgement. Disclosure: I have been a customer of the company when, on a Sunday, I needed a state conformed agreement in a jurisdiction where I was not admitted. With seven clicks, no conflict checks, engagement letters, or dickering over hourly rates (let alone being able to find a lawyer on a Sunday) I had what I needed–for $50. True, I am a lawyer, but I simply needed a form document, not a scholarly interpretation of how it might pass through the administrative office soon to rubber stamp my application.
But even with disclaimers that it is not engaged in the practice of law–which, clearly, LegalZoom’s document did not in my case–the company has been hailed into court in at least seven different jurisdictions to defend claims of unauthorized practice. LegalZoom is thus far undefeated but, no doubt, suffering the effects of defense costs, increased insurance premiums, harm to brand, and lost opportunity costs. Not many start-ups could absorb one unauthorized challenge, let alone several.
Still, there is a promising infusion of capital coming into the legal vertical–both at the retail and corporate segments– which should help stimulate new, more efficient, and cheaper ways to address outsized legal pricing. Why the persistent access to justice problem?
Lawyers as Whistleblowers of Vague Standards
A Stanford University study conducted in 2013 revealed that attorneys, not dissatisfied clients, are the most common referral sources for unauthorized practice claims. This suggests that their motives are likely driven more by economic self-interest–drive away the competition–than concern for public representation by and confidence in lawyers. The survey also found that in the vast majority of cases the complainant attorney could not cite an instance where an unauthorized practice claim had caused public harm–further evidence to support the conclusion that many unauthorized practice claims are baseless witch-hunts designed to drive competition out of the marketplace. How is the public served by preserving a status quo so incapable of meeting its needs? And what are the standards applied to determine unauthorized practice at a time when so many functions once performed solely by lawyers and law firms do not require a lawyer to do them because they do not require the exercise of legal judgment?
What are the Standards for Unauthorized Practice?
Since lawyers are self-regulated and, so, create the ground rules by which they operate, one would expect that those standards–particularly for something as seminal as what constitutes unauthorized practice–would be clearly defined. Not so. A sampling of standards was examined in a marvelous recent Wall Street Journal opinion piece entitled, “Hell Hath No Fury Like a Lawyer Scorned.” The results are startling: several states–including New York, Florida, and New Jersey–do not have a statutory definition of what it means to engage in the practice of law–or conversely, fail to offer a definition of unauthorized practice. This confers judges unfettered discretion to decide on a case-by-case basis whether unauthorized practice has occurred. Worse still, the penalties for these hopelessly vague standards can be exceedingly harsh. In Florida, for example, unauthorized practice of law (whatever that may be in the Sunshine State) is a felony punishable by up to five years in jail. One wonders how the standards for such a seminal element of legal self-regulation can be so vague, arbitrary, and yet carry such draconian sanctions for violation. Surely, this is not what the lawyers who crafted the state rules were taught in constitutional law class. And how can this ambiguity be permitted to persist for any reason other than to discourage the very competition needed to assist a public that lawyers are currently failing?
The retail segment of the legal ecosystem is hampered by the self-serving protectionist policies of a relatively small number of entrenched attorneys bent on preserving the status quo. Far more harm than good results. This is not to say that unauthorized practice should be jettisoned altogether; however, its identification, enforcement, penalties for breach, and, most of all, its reason for being should be re-evaluated. This will encourage innovation in the form of new service providers and law firm models that will not only benefit those who have counsel but also provide assistance to many for whom it remains out-of-reach.