Self-Regulation: A Tale of Two Legal Markets

Editor’s Note: The author of this post is the founder and CEO of a strategic consulting firm for consumers and companies in the legal sphere.

By Mark Cohen, Chief Executive Officer, Legalmosaic

In both the retail and corporate segments of the U.S. legal market, client needs are taking a back seat to lawyers’ efforts to maintain the status quo. A quick overview of each segment supports this conclusion, albeit for different reasons.

There’s an over-supply of providers and an underserved consumer (client) base when it comes to retail law firms. The underserved client issue is called the “access to justice crisis.” Simply put, lawyers have priced themselves beyond the means of the vast majority of potential clients: individuals and small businesses. The facts are daunting: 54% of U.S. small businesses that have significant legal needs go unrepresented, according to a 2013 survey by legal service provider, LegalShield, the number of pro se litigants is significant, as many individuals cannot afford to retain legal counsel, and, paradoxically, an alarming number of lawyers are unemployed/under-employed (many carrying huge education debt) even as the access to justice crisis persists.

One would imagine that the market would self-correct and that lawyers would use technology and other overhead deflators to render services more cost-effectively and efficiently. Why has this not happened? And why have legal service providers not had more impact on the market offering cost-effective, efficient alternatives?

The answer is principally because they have been confronted by turf-protecting, whistleblower attorneys who have maintained jus tertii unauthorized practice claims to frustrate the newcomers’ entry into the retail market. And the vagueness of the regulations do not help the situation, either. 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. 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. Is this self-regulation or self-protectionism? Whatever the contours, regulatory reform is necessary, if for no other reason than to provide a definition of what it means to engage in legal practice (and what does not rise to the level of practice).

The corporate end of the market is another story altogether. Here, consumers are sophisticated, typically have their own in-house lawyers to vet providers, and seem increasingly receptive to alternatives to law firms handling a range of “unbundled” tasks. Caveat emptor is not a big concern here. That is why an ever-expanding array of service providers—some of whom now have revenues equal to AmLaw 200 firms — have become an accepted part of the corporate legal supply chain. No one cried foul when Axiom recently landed a $73M contract to perform services (but not “engage in the practice of law”) for a large international financial institution.

Still, if multinational clients’ needs are to be served, why not adopt some form of Alternative Business Structures (“ABS”) model? There does not appear to be any evidence from across the pond or in Australia, two legal hotbeds that have sanctioned ABS, that client interests are being compromised as a result of permitting non-lawyers to have an ownership interest in law firms or to manage them (practices prohibited in the U.S. except in D.C.). To the contrary, both retail and corporate clients there seem to be benefiting from the increased competition and efficiency being infused into the legal marketplace by new providers as well as reinvigorated stalwarts. Canada’s provinces are about to vote on ABS, and that would bring a more open market that much closer to home. And though many might dismiss Legalzoom’s entry to the UK as irrelevant in a discussion of the globalization of legal services, don’t be surprised if it does not emerge as a global provider. And while we’re at it, let’s note that three of the Big Four have either secured or are in the process of securing ABS licenses.

It is clear that the UK and other ABS havens can form a base of operations for the successful deployment of global legal services to a multinational client base that needs breadth, depth, and scale. Perhaps “differentiated brand” should be added to that list. Hopefully, U.S. lawyers — if their clients do not insist upon it first — will enact some form of ABS model before others have already achieved hegemony over the global market.