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Law Practice,
Ethics/Professional Responsibility

Mar. 22, 2021

The legal system is broken; it's time for change

Arash Homampour's recent op-ed opens with the phrase, "If it ain't broke, don't fix it." Well, the legal system is broken. Disgracefully broken. And in grave need of fixing.

Ralph Baxter

Ralph is a strategic advisor to law firms, legal technology companies, and corporate law departments, and the former chairman and CEO of Orrick, Herrington & Sutcliffe.

Zachariah DeMeola

Director, Institute for the Advancement of the American Legal System

IAALS, the Institute for the Advancement of the American Legal System, a national, independent research center at the University of Denver dedicated to facilitating continuous improvement and advancing excellence in the American legal system.

Arash Homampour's recent op-ed opens with the phrase, "If it ain't broke, don't fix it." ["A regulatory 'sandbox' that will turn to quicksand," Feb. 26, 2011]. Well, the legal system is broken. Disgracefully broken. And in grave need of fixing.

The system may work well for some lawyers, but it is broken for nearly everyone else -- and in dire need of fixing. We are heartened by the State Bar of California's effort to move forward with a "regulatory sandbox" that would allow more innovation in the provision of legal services.

Even before the COVID-19 pandemic, our civil justice system was facing a crisis in access to legal services. In 2018, 55% of Californians at all income levels experienced at least one civil legal problem in their household, yet nearly 70% of them received no legal assistance. Those who did go to court largely did so on their own.

The pandemic makes the crisis worse. Californians need legal help now more than ever. But they aren't using lawyers because they can't afford them, can't find them, and often, don't even know their personal issues have a legal solution.

The crisis runs far up the income scale. It is not only the poorest who lack access to legal services -- it is also the middle class and small businesses. We talk about protecting our "essential workers" like nurses and grocery store workers, but leave them on their own when facing divorce, debt collection, or eviction. And more legal aid funding and pro bono hours would not come close to meeting the need.

The reality is that there is an enormous untapped market for legal help that is rapidly growing, and as long as rules act as barriers to prevent lawyers and others from effectively serving it, the American public will continue to turn away from the legal system, whether by choice or by circumstance.

The principal obstacle to increasing access to legal help is the business model in which legal services have conventionally been available: one-on-one lawyering billed on an hourly basis. Consumers can be better served if we make it easier for new models to emerge.

For example, we need new TurboTax-like tools for legal services -- like lawyer Erin Levine's Hello Divorce platform, where consumers pay a monthly subscription to access guided, do-it-yourself tools with support from legal document preparers or lawyers where needed. Such tools are starting to emerge, but they require scale, which requires investment in technology. Current restrictions around who can own or invest in legal service providers -- and who can answer questions from consumers -- make these tools too hard to build.

California Rule of Professional Responsibility 5.4's ban on lawyers sharing income with "nonlawyers," either as partners or investors, negatively impacts the market for legal service in two fundamental ways.

First, it prevents law firms from raising equity capital that is critical to build and sustain their businesses, forcing them to rely on debt and after-tax income instead. This is not much of an issue for the largest firms. But it is for the firms that advise most people and small businesses with their daily legal problems. Imagine how the technology sector would fare without access to private capital to fund research and growth.

Second, it hinders innovation. Law firms are years behind other professions and industries in modernizing how they do things. In not allowing sharing of income or ownership stakes with people who are not lawyers, the legal profession has essentially sealed themselves off from new ideas and different perspectives.

Without Rule 5.4's restrictions, lawyers could partner with marketing and technology experts, hospitals and doctors, accountants and social workers. Lawyers could practice law with stable salaries and benefits as attorneys in consumer-focused law companies, serving more Californians through technology at scale.

For almost 10 years, England and Wales have allowed alternative business structures -- entities in which lawyers deliver regulated legal services in businesses owned by a mix of lawyers and other people. Research shows it has led to more choice for consumers, more technology to help increase access, and more opportunities for lawyers to offer their expertise to clients. These improvements did not come at the cost of lawyers' market share, nor did they lead to a corporate takeover of legal services. In fact, since these organizations have been allowed to exist, the legal services market has grown significantly in England and Wales. There is no evidence that there is greater harm to the public or more ethical problems. In personal injury practice, there has been fewer ethical issues in these alternative providers than there are in traditional law firms.

Neighboring states have already taken note, and are moving more quickly to get their citizens help. Arizona has authorized "alternative business structures" to provide legal services, and Utah's "sandbox" has authorized innovative providers in estate planning, employment and housing cases -- all areas of increased salience during the pandemic. In both states, individual lawyers and the entity itself have to comply with ethical standards, including conflicts rules. And nontraditional providers in Utah are subject to a much higher level of reporting and monitoring than traditional firms.

Homampour worries that reforming the regulations will "introduce the virus of profits ... which lawyers fight to eradicate." Yet the most prominent law firms in the United States are evaluated annually by The American Lawyer magazine on their "profits per partner." Lawyers need no introduction to the idea of profits.

Many lawyers struggle. According to Clio, the legal software company that provides law firms with practice management tools, lawyers bill on average barely two hours a day, while spending more time on finding new clients and completing administrative tasks. This should be no surprise. After all, lawyers are not allowed to bring in experts in business, marketing or technology as partners.

The regulatory sandbox under consideration in California is a sensible and safely controlled way to allow people -- including lawyers -- to pioneer new ideas to make law work better. This will help lawyers reach new markets and provide affordable legal services for small businesses, essential workers, and other deserving California residents. We urge the State Bar, Supreme Court and legislature to embrace bold leadership and advance these reforms. 


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