The ABA recently renewed—and shelved– the alternative business structures (ABS) debate, and the battle lines were familiar. The retail segment of the legal market is where the most strident exchange occurred. Reform advocates maintain that the access to justice crisis cannot be meaningfully addressed without ABS. The opposition cautions that ethical concerns mandate preserving the status quo. And some candidly admit that some form of ABS would knock them out of business. That’s hard to fathom since technology and process will help leverage lawyer time, reduce cost, and make legal services affordable to the millions of Americans—and small businesses presently unrepresented due to price. Translation: ABS will lower sky-high legal cost and introduce millions of new clients into the marketplace. And that’s good for society. And lawyers.
Why Was ABS Established, Anyway?
Before proceeding further, let’s quickly review some key elements of ABS. First, it is not the deregulation of legal services. Rather, ABS eliminates legal restrictions that: (1) limit law firm ownership exclusively to lawyers; (2) allow profit sharing between lawyers and “non-lawyers”; and (3) sanction multi-disciplinary practice (e.g. legal and other professional services). Several advanced economies have some form of ABS –with variations as to percentage of ownership, for example. Australia, the UK, numerous European nations, and Hong Kong are among them. The US, the world’s largest legal market by a wide margin, has resisted the first two attempts at ABS since the new millennium. Will the third time be a charm?
Countries that have sanctioned ABS recognized the legal industry’s monopolistic and misaligned service of retail and corporate clients. Doubt this conclusion? Have a look at the Clementi Report that was the impetus for the UK Parliament’s enactment of The Legal Services Act of 2007 (resulting in implementation of ABS in 2011). Sir David Clementi, its eponymous author, did not mince words drawing such a conclusion.
And while it’s still early days, there is no evidence that ABS has done anything to compromise lawyer interest (more than is the case already in the US, for example, where ABS has yet to be adopted). But there is data to support the conclusion that ABS is a catalyst for competition and much-needed innovation in the delivery of legal services.
Why is BigLaw Silent in this Debate?
It’s curious that large law firms, the ABA’s big dogs, chose to sit this one out- at least publicly. The American Lawyer reported that only one firm among the AmLaw 200, Zuckerman Spaeder, commented on the ABS issue. Graeme Bush voiced support, noting that, ““What is best for the client should be the ultimate concern.” That’s refreshing!
Most large firms tout their pro bono and community service activities. Why then would they not advocate for a more open legal marketplace? Short answer: they don’t want the competition. At the same time, it would be impolitic to advance such a view for fear of alienating clients already more peripatetic than ever before.
But corporate clients have already begun to flex their market muscle and have altered the legal delivery landscape to the point where big firms are feeling the pressure as never before. And demand for their services is flat. Not only are corporate legal departments taking more work in-house, but also they are reducing the number of outside firms, segmenting portfolios according to complexity, value, and cost of legal service and utilizing lower-cost service providers to perform many functions once done by law firms. And some, like AIG, have spun off segments of their corporate legal departments into independent, public facing businesses. In effect, they have created a de facto form of ABS. And in the process, the corporate segment of the legal vertical is creating its own market driven form of reregulation. That’s what happens in free markets, isn’t it?
An Altogether Different Story on the Retail Side
One would think that with the access to justice crisis, tens of thousands of unemployed and under-employed lawyers, and the potential for tens of millions of new clients, the retail market would clamor for ABS. Not so. Why?
Two key reasons are: (1) a fear and loathing of technology and a misplaced notion that it will replace, not redefine, lawyers – and reduce cost; and (2) resistance from State bars, especially voluntary ones, whose existence is in no small measure dependent upon mollifying the interests of its subscribing lawyers. Remember that each state determines what is and is not “engaging in the practice of law.” Too often, the threat of an unauthorized practice of law claim, which can be financially and brand crippling, has stifled efforts to innovate legal delivery. True, retail clients lack the savvy and market might of corporate ones, but this should not serve as a justification to jettison ABS.
LegalZoom, perhaps the best known legal brand in the nation, has successfully defended nine – count ‘em nine—unauthorized practice of law actions. But for their ample war chest this pioneering service provider would have been put out of business.Hopefully, the penalty flag will not be thrown on them again as the company is quickly achieving Uber status as “too popular to fail.” LegalZoom has already served over one million new businesses as well as in excess of 3.5 million customers. And, though it does not operate as a law firm in the US (it secured an ABS license in the UK and recently acquired a law firm there), it is making a significant dent in the access to justice crisis by making legal services more affordable, accessible, and transparent.
Rocket Lawyer, another well-funded technology company in the retail legal segment has also faced considerable resistance from retail lawyers. In a well-publicized early end to the promising ABA Law Connect initiative, a joint venture between the ABA and Rocket Lawyer, two state Bars threatened secession from the ABA if the project was not terminated. It’s noteworthy that those State Bars were voluntary and, so, cowed to their lawyer members’ demands. California, an involuntary Bar and the third state participating in Law Connect, hailed the project and its stated objective to address access to justice. Bottom line: don’t expect voluntary State Bars to yield to their lawyer constituents’ demands and to embrace ABS.
It’s time for the US to act in the best interest of the public and to embrace reregulated change by adopting some form of ABS. But with BigLaw sitting it out, the burden falls upon corporate legal consumers to make the case. Retail consumers, though potentially legion, lack a unified voice. They are like so many individual plaintiffs in need of class action certification. Left to their own devices, lawyers may continue to act in their perceived self-interest. And that will neither serve the best interests of the public or, ironically, lawyers themselves.
And while ABS may not be a panacea, the competition it will spawn will be a huge step forward and recognition that legal expertise and legal delivery are no longer synonymous.