“Ethics” Rules Shape the Legal Services Market: To Protect Clients? Or to Protect Lawyers from Unwanted Competition? — Introduction — Part 1 of 5

THE POINT

1. “Ethics” rules are the main determinant of how the legal market is structured: Who can do what? With whom? What is “practicing law”?

2. After decades of practicing business law, I believe that “ethics” rules structuring the market for legal services are largely about protecting lawyers from unwanted competition.

DISCUSSION

The legal profession decides who can do what in solving businesses’ legal problems.

They decide the circumstances in which lawyers may — and may not — work with people whom lawyers call “nonlawyers”. And they decide if solving a particular type of legal problem amounts to “practicing law” — something that only a licensed attorney is allowed to do.

The legal profession makes these decisions through state bar authorities that adopt rules of professional “ethics”.

Those state bar authorities are made up of … well … lawyers.

In the United States, attorneys set for themselves the competitive boundaries of markets in which they can sell their services — and in which they use the force of law to forbid others to compete with them.  

Some legal ethics principles clearly relate to attorneys’ moral conduct:

  • Don’t lie to a judge;
  • Don’t represent two parties whose interests conflict with each other;
  • Don’t undertake a task for which you are not qualified;
  • Be loyal to your client, and don’t dilute that loyalty in favor of anyone else.;
  • Keep client confidences;
  • Etc.

But in prescribing (1) who can do what for whom, (2) who is allowed to work with whom, and (3) who can do what tasks — some of these legal “ethics” rules raise an important question:

Might some of these “ethics” rules that regulate the market for legal services actually have more to do with protecting lawyers from unwanted competition than they do with protecting clients?

On lawyers’ regulation of the market for their services (via bar authorities made up of lawyers), Professor Bill Henderson of the University of Indiana Law School stated the following in a report (at Page 21) commissioned by the State Bar of California:

” … Ethics rules, particularly those pertaining to the prohibition on nonlawyer ownership [of law firms / practices] … and the unauthorized practice of law … are the primary determinants of how the current legal market is structured.”

The State Bar of California commissioned Professor Henderson’s report in 2018 as part of a major review by its board of trustees. The purpose of the review was to determine whether or not the way the current legal market is structured meets the needs of the public:

” The Bar contracted with Professor William D. Henderson to conduct a landscape analysis of the current state of the legal services market, including new technologies and business models used in the delivery of legal services ….”

With Professor Henderson’s study in hand, a “Task Force on Access Through Innovation of Legal Services”, authorized by the California Bar’s board of trustees, worked for 14 months and proposed ambitious reforms  of existing legal “ethics” rules to enable specified innovations, technology adoption, and efficiency improvements in the delivery of legal services.

Amidst much hopeful comment from the sidelines.

On March 12, 2020 the lawyers making the “ethics” rules called an abrupt halt to such changes.

Law.com / American Lawyer put it this way:

“California’s state bar … put the brakes on controversial proposals aimed at expanding availability of legal help in the state, citing ‘political headwinds'”.

Gina Passarella, Editor-in-Chief, Global Legal Brands at ALM Media tweeted:

The Calif. bar decided it was too risky politically to propose the creation of a regulatory sandbox that would test how others outside of law might provide certain legal services.”

This is not the first time bar authorities have used their regulatory power to block innovation and protect the legal profession’s business-as-usual in the name of “ethics”.

Only the most recent.

Hence the timing of this 5-part series:

Part 2 — Should legal “ethics” rules allow Big 4 accounting firms to practice law in the U.S.?

Part 3 — Does the TIKD app on cell phones that helps motorists fight traffic tickets violate legal “ethics” because the app is “practicing law”?

Part 4 — Where a web platform matches lawyers and clients, is the software making an illegal lawyer “referral”?

Part 5 — How might these “ethics” rules determine the legal services choices available to your business in coming years?