Another Round of the Licensing Debate

The WSJ law blog asks whether licensing is necessary, citing a  post by Larry Ribstein that discusses the Akron School Board case I blogged about a couple of days ago.  Prof. Ribstein's post prompts a rejoinder from Jonathan Wilson, who argues that without licensing "Consumers could be easily bamboozled into trusting their money (and their legal rights) to smooth-talking salesmen (and women) who know nothing at all about lawyering."  Wilson thinks licensing is not needed to protect sophisticated corporate types.

I don't think Wilson's argument justifies licensing.  It is true that sophisticated corporate types are relatively well-positioned to assess lawyer quality.  It is also true, however, that these are the people who generally would hire fancy lawyers from fancy firms with or without licensing.  In other words, these folks suffer little from the price-increasing effects of licensing. 

Consumers, on the other hand, suffer most from such effects.  They pay for expertise they may well not need.  To borrow from Milton Friedman, to consumers a licensing requirement says in effect that if you have a car at all you must have a Cadillac. Consumers would be better off with free entry and the price competition it would spark than with a state-policed cartel that forces them to amortize costs lawyers incur clearing the barrier to entry.  As to bamboozling by charlatans, to do away with licensing is not to repeal laws against fraud, and there is every reason to expect that reputational effects of good and bad service would help weed out fraudsters. 

Prof. Ribstein's post suggests he may be backing away from his already well-qualified defense of licensing on the ground that it gives lawyers a stake in making good laws and reforming bad ones.  I agree with most of Professor Ribstein's acute criticisms of licensing (my take is here), and I applaud his work on the subject.  We would be better off if state regulators read Ribstein.

I was not persuaded by the notion that licensing gives lawyers a stake in making good laws, however, mainly because even bad laws are revenue streams for lawyers, at least where parties cannot choose a particular forum to obtain efficient laws (which is Professor Ribstein's point).  That covers a lot of ground.  1960s antitrust law was terrible from an efficiency point of view, but it was great for lawyers on both sides of the caption.  The same has been true of securities litigation, both before and after the PSLRA. (Indeed, I recall discussing the then-impending PSLRA with a prominent securities defense lawyer, who worried that the statute would kill the egg-laying goose, but who supported it publicly to curry favor with clients who really wanted it.) Clients have a greater stake in efficient laws than lawyers, I think, and clients can often organize effectively. 

Probably the best argument for licensing is that it allows disciplinary officials to hold hostage the premium lawyers can earn because of the barrier to entry: the bar can threaten to take away the premium by disciplinary action.  But that imposes costs on everyone to take care of a relatively few bad apples, who could be pursued under ordinary laws against fraud, etc.  (I concede that the bar may go after bad conduct that causes too little harm to interest other lawyers--but there are ways of getting at that problem other than licensing.)  On a net basis, the case against licensing seems compelling.

DM

 

Comments

[J]

It seems to me that the disciplinary authority is no small matter. The risk of losing one's ticket influences more people than you would think. Here in California there are also a lot of unlicensed people holding themselves out as lawyers, especially in foreign-language newspapers and in connection with residency permits. The number of cases about non-lawyers screwing up paperwork and getting their clients deported is frightening. In fee disputes as well, the risk of a malpractice claim (not available against a non-lawyer) changes interactions.

[David McGowan]

I would expect cases based on violations of the standard of care (i.e., negligence, which is the root of malpractice) to survive the repeal of licensing. There is no reason a non-licensed provider of legal services would not have to live up to a standard of care, nor any reason to expect a licensed provider always to meet such a standard.
DM

[David Hricik]

Given all of tort reform and the general anti-plaintiff law in many (most?) states, I would not rely on common law actions to regulate lawyers. Fear of losing the license and of less formal peer-sanctions are a major force, I believe.

I think a better approach is to better define what is not the 'practice of law' to exclude those services which require the "Cadillacs" to do them.

[J]

There is no reason a non-licensed provider of legal services would not have to live up to a standard of care, nor any reason to expect a licensed provider always to meet such a standard.

The problem is that these unlicensed providers just disappear when they are found out. I've helped more than one unfortunate individual who initially consulted with someone who took their money, gave them bad advice, and then took off. Many of them hung out shingles with a different "law firm name" within days. With the licensing, this becomes significantly more difficult. The licensed provider risks very real sanctions. The unlicensed provider risks having to change the name under which they operate.

[David McGowan]

It sounds like your unlicensed providers are committing fraud, so they risk more than a name change. Indeed, the conduct you describe seems like an easy case for punitives. I take it the real problem is tracking them down, and then that they have insufficient assets to pay judgments?

I would agree that the bar could investigate misconduct worth too little to interest a plaintiff's lawyer. That could change with the prospect of punis, though not if the defendant were judgment-proof. But some lawyers are essentially judgment-proof, too, and take off with client funds (a variation on that theme is Beery v. State Bar, one of the client transaction cases I teach).

I don't think we can base policy on a look at one side of a ledger. A world without licensing would leave some people uncompensated, as would any other world without perfect insurance. It does not follow that licensing provides perfect security, nor even that it does not make things worse by implying that all persons with a license are honest, which is not true.

The costs of licensing are probably high, because self-regulators have a predictable interest in setting a standard for entry that maximizes revenue rather than ensuring minimal competence. Those costs affect all consumers who would be well-served with competent, unlicensed advice. I don't know why one would expect all or even a particularly large fraction of unlicensed providers to be dishonest, and, as I noted, there are familiar market mechanisms for weeding out bad actors. Reputation is extraordinarily important in regular legal markets, and that would not change with easier entry.

Although the existence of alternative regulatory schemes makes these examples imperfect, I don't know that the level of honesty or quality has suffered in the filling out of tax forms, or closing real estate transactions, or other areas in which nonlawyers have large market shares in many areas. Those examples are worth keeping in mind when netting all this out.

DM

[David Hricik]

I agree that it's somewhat complex, but... Punitive damages are capped or nonexistent in many states. (Here in GA, 75% go to the state, not the plaintiff in most cases.) The people who will likely be harmed won't have much in economic losses, and noneconomic losses are capped or eliminated in many states (or unavailable for the particular common law cause of action, absent physical harm). Even with a good claim, these folk are likely to be judgment proof (some states, in contrast, require malpractice insurance for lawyers).

I remain skeptical though, again, the idea of narrowing down what contitutes "the practice of law" to accomplish your goals may work for me.

[David McGowan]

You are right that narrowing the definition of the practice would help by inducing entry where licensing is least justified. I have not found a good definition of the practice of law, though. In my reader I give students FTC/DOJ comments on a draft definition floated a few years ago, and if one follows the logic of limiting the definition to things lawyers are uniquely talented at doing there is not a lot left, unless one stipulates that lawyers are uniquely talented at appearing in court, for example.

I remember that a few years ago in CA we had spats over whether nonlawyers could represent investors in securities arbitration, with the bar taking the position that that is UPL. This might seem a safe example of the practice of law, but whether an investment is suitable largely depends on principles of financial economics, which lawyers do not have to know to pass the bar. I have never understood why a person knowledgeable about finance could not do as good a job, if not a better one, than a lawyer who may know litte finance. The same goes for antitrust and many securities cases. I think this example could be generalized pretty far.

My guess is that the logic of looking at the skills applicable to particular problems, rather than a general exam such as the bar, would narrow the definition down to actual in-court appearances. And it would stop there only by a sort of fiat that would keep rhetorically skilled persons out of trials and rhetorically skilled experts out of appeals.

Maybe I am too skeptical about the prospects for a definition. I certainly am open to suggestions.

DM

[Stan Rule]

All of this economic analysis misses the point. The vast majority of licensed lawyers who have gone through a formal legal education, passed the bar, and are members of our profession have internalized ethical rules in dealing with each other, the courts, unrespresented people, and our own clients. This is necessary for a well functioning legal system, and indeed society. Wealth maximization and the fear of punishment, which may apply to unlicensed people offering legal services, are not enough.

[James]

A license DOES NOT prevent unethical or even illegal conduct.

Let's test your theories:

For instance, take a look at http://www.maximumadvocacy.com Why in the world would an attorney with one of the country's largest employment law firms tamper with court records by backdating and switching briefs (39-1/39-5), then file another brief that claims his client DID NOT fail to file the "new" switched brief (64), THEN "inadvertently" include three pages of emails in the "new" brief that detail the records tampering (64 at 25-27)? The briefs, emails, and other relevant filings are on the website: http://www.maximumadvocacy.com see for yourself. Who knows why the attorney didn't just admit the error and file a new motion with the correct P&A memo, but he didn't. Nonetheless, such conduct is clearly a Rule 11 violation, a violation of 18 USC 1512(c), and a violation of MRPC 8.3.

Here's an extract of the Modern Rules of Professional Conduct:
Rule 8.4. Misconduct.

It is professional misconduct for a lawyer to:
(a) violate or attempt to violate the Rules of Professional Conduct, knowingly assist or induce another to do so, or do so through the acts of another;
(b) commit a criminal act that reflects adversely on the lawyer's honesty, trustworthiness or fitness as a lawyer in other respects;
(c) engage in conduct involving dishonesty, fraud, deceit or misrepresentation;

Do you suppose tampering with court records would qualify? It was admitted in court at the April 24th motion hearing.

Not that any of you don't have enough to do, but are you familiar with Modern Rule of Professional Conduct 8.3?

Rule 8.3. Reporting professional misconduct.
(a) A lawyer having knowledge that another lawyer has committed a violation of the Rules of Professional Conduct that raises a substantial question as to that lawyer's honesty, trustworthiness or fitness as a lawyer in other respects, shall inform the appropriate professional authority.

So here's where you test your system. I'm not an attorney. I'm just the pro se litigant on the receiving end of the attorney's egregious, nefarious, and illegal conduct. Has the attorney's conduct shaken my faith in the judicial system to the core? Absolutely.

Being pro se, I don't know exactly where to report it or much more than to file a Rule 11 motion.

But where do you report this considering he is admitted pro hac vice in Nevada; has an office in Tampa, Florida; and one in Atlanta, Georgia? Which Bar do you report it to? All three to be safe?

I say "where do you report it" because, assuming you are an attorney, your duty and obligation under MRPC 8.3 is to report it.

The test of the system is how many attorneys will report it and who they decide is the "appropriate professional authority."

If no one reports it, the system doesn't work too well, does it?

On the other hand, those who do report it could just leave a comment and we will know who takes their ethical obligations seriously.

Your comments might include what you think is the appropriate sanction for such behavior. Take a look at the Records Tampering page at http://www.maximumadvocacy.com and you'll find 18 USC 1512(c) violators "shall be fined under this title or imprisoned not more than 20 years, or both." You might want to keep that in mind when offering your suggestion for an appropriate sanction.

I think you can imagine what I think the appropriate sanction should be, but that's not my obligation. My obligation is to report it so such conduct can't be used against another attorney in the future. The investigating body(ies) will determine the appropriate sanctions. I can live with that.

I appreciate your assistance reporting the violation to the "appropriate professional authority." As I said, I'm pro se and really don't know how to go about it. I filed to litigate a civil case, not to prosecute a criminal one. I certainly didn't anticipate getting wrapped up in something like this.

Thanks. You can email me through the website. I'll look forward to seeing some comments here. That is, if the system works. I sure hope it does, I'd like my faith restored.

James

[David Cameron Carr]

From the point of view of this humble practitioner in the field, the idea that we don't need to license lawyers seems one of the more grandiose libertarian delusions. The whole position depends on the idea that lawyers are merely providers of legal services to consumers. In fact, lawyers are and always have been quasi-governmental officials, officers of the court, hence the historical tradition that admission to the bar was an inherently judicial functions and the many ethical rules that limit permissible advocacy. The enactment of ethical codes and the founding of bar associations was a 19th century reaction to the abysmal quality of legal services provided under the former lax rules that permitted almost anyone to be a lawyer. There is no chance in the real world that licensing requirements will be abolished in anyone's lifetime. While academics might enjoy debating how many angels might dance on the head of this pin, this debate only makes them look especially disconnected from reality to those of us who are working with real client in the real world.

[David Hricik]

David Carr's point I agree with, in part. I don't think there will be some huge revolution, declaring all licensing unnecessary. But I do think we are seeing an evolution, with the definition of "practice of law" that is peeling back the bark that protects the profession. Real estate closings are the obvious example where it went from a "legal" proceeding to one which (in some states) does not require a lawyer. To me, the question is not whether licensing should be repealed, but whether a degree should be required in all instances.

But, as David M points out, trying to define that is tough. I think Texas, for example, carves out closings from the practice of law. So, maybe it's a slow wave of carve-outs that we're going to see... because I do think we'll see change continuing.

And, hey, us academics ARE supposed to analyze this stuff!

[David McGowan]

I agree with David H that we are seeing a gradual narrowing of the scope of UPL. And I agree with David C that revolutionary change is not on the horizon (as I said in the initial post).

I do think, however, that it is important to understand why there is pressure to narrow the scope of the definition (supracompetitive profits attract entry, and when consumers see lower-cost alternatives they will want the option of choosing them, to say nothing of the ability of lower-cost providers to organize). We have a chance to give students a glimpse at the competitive forces that will work on the profession during their careers.

For example, in CA, providers of books and interactive software are taking an ever-greater slice of the market for what I think of as low-margin work--work that is essentially routine for persons without substantial assets. In fact, if you take a class through IRAC using factual variables and legal variables in a table format, you will create what the engineers in your class (or at least mine) recognize as a preliminary step in programming. (I'm not a programmer; I take their word for it.)

I think it is useful to teach this issue, for two reasons. First, lots of people get in trouble for economic reasons, so any source of economic stress (competition) is relevant. Second, many students have no idea what lawyers get paid for. By pointing out the fraction of routine work that can be done by software, legal assistants, real estate agents, etc., you can force students to focus on (what I take to be) the fact that their success turns more on the quality of their judgment in problem-solving than on their ability to recite rules. Put differently, if people want to earn a living in low-margin work they will tend to have high-volume models, and those entail certain risks that students should think about.

You can also highlight for them the degree to which clients are frustrated by lawyers who want simply to recite the law and then say that, having done so, all that remains is a business decision for the client. I know risk-averse lawyers who do that, but the most successful ones I know offer judgments directed to solving the client's problem. The ability to assess probabilities and synthesize them into sound judgments is where margin comes from, in other words. It is the ability least subject to replication by form or program).

DM