It is questionable whether states should have unauthorized practiced of law statutes and bar admission standards based on credentials rather than examinations. A first step, however, is to attack statutes that forbid a non-lawyer from giving free legal advice, whether to friend, family, or just someone who can’t afford all the legal help he needs. Should such charity be a crime?

Consider, for example. South Carolina, where the leading case is State v. McClaren, 349 S.C. 488 (2002):

“We rule that South Carolina does not allow `jailhouse lawyers’ to practice law under the guise of an inmate giving advice or preparing legal documents for another inmate. The evidence is overwhelming in this case that the defendant practiced law in violation of § 40-5-310.  We conclude that the express language of § 40-5-80 requires that leave of court be obtained before representation of another by a person not licensed to practice law is allowed without compensation. The court must exercise sound discretion whether to allow such representation. An open-ended, unfettered application of § 40-5-80 by courts would essentially emasculate § 40-5-310.”

It would seem to violate the 1st Amendment to forbid someone from telling a friend his opinion about what a law says. Indeed, this seems a far easier 1st Amendment case than most. Do we really think the government should be able to jail someone for talking about laws, when we use the same Amendment to defend pornographic movies and flag burning? Constitutional law is often bizarre, but would even such poor interpreters as Supreme Court justices go this far?

It shocks the conscience that it be criminalized for someone to tell their friend that the friend’s lawyer has given them unfounded legal advice. Yet to do that, especially if it be done carefully in writing with cites to the appropriate statutes and cases that the lawyer missed, is more the practice of law than the bad lawyer’s bare assertions.

I’d be interested in hearing from defenders of the status quo.

There is a Missouri statute that makes it a misdemeanor, punishable by $100 fine, for anyone who is not licensed by the Missouri bar to “engage in the practice of law or do law business.”  If convicted, violators can be sued by anyone that paid them for their services or by the state of Missouri; successful plaintiffs can recover three times the fees paid to the violator for their services.

In February 2010, three individuals used this statute to file a class action against LegalZoom.com Inc., an online provider of legal documents.  (Disclosure: I joined the Legal Advisory Board for LegalZoom two months ago.)  Last December, the federal district court where the case was transferred certified a class of Missourians who had “paid fees to LegalZoom for the preparation of legal documents.”

LegalZoom recently settled the case, after losing last month on summary judgment.  Summary judgment was appropriate, the court held, because there was no dispute about the facts of LegalZoom’s business model.  People or small businesses come to the site for help preparing documents to incorporate a business, form a partnership, create a trust, file an uncontested divorce, and so on.  They can download the blank forms from LegalZoom and fill them in themselves or they can answer some questions and have LegalZoom enter the information in the correct form, review it for completeness, spelling, consistency etc., and then send the completed document to the purchaser to sign and use.  The plaintiffs in the Missouri case had used the system to generate wills and articles of organization for a business. None of the plaintiffs alleged they were unhappy with the documents they received or that they had understood themselves to be purchasing legal advice.

The court held that the only question in the case was the legal one of whether LegalZoom’s business model constituted the unauthorized practice of law.  The Missouri statute offers a definition of “the practice of law” and the “law business.”  The LegalZoom court quoted those definitions, but also made it very clear that the legislature’s definitions don’t matter much.  For the General Assembly of Missouri “may only assist the judiciary by providing penalties for the unauthorized practice of law, the ultimate definition of which is always within the province of this [Missouri Supreme] Court.”  And, as the Court saw it, “it is impossible to lay down an exhaustive definition of ‘the practice of law.’”  So whether LegalZoom’s business is a “law business” and constitutes unauthorized practice law is ultimately something for the state’s Supreme Court to judge in its regulatory capacity, not a matter of statutory interpretation.

This means that even if the Missouri General Assembly decided that the availability of low-cost online services like LegalZoom would be a great boon to boost the Missouri economy by reducing the cost of starting and operating a small business, it can’t make that happen.  It’s up to the judiciary, “exclusively,” to decide what the “law business” is and who can participate in that business.

Here’s how it went with LegalZoom.  The Court held that LegalZoom’s business model constituted the unauthorized practice of law because it went beyond providing people with blank forms and transcribing what they wrote in the blanks. LegalZoom’s software instead converted questionnaire answers into document entries.  To do this, they required human beings:  to program the computer and to review the final documents for things like spelling errors and inconsistencies (but not for poor choices about what answer to give, what form to request, or what alternatives to consider.)   Because those human beings providing the LegalZoom service “are not authorized to practice law in Missouri,” the court decreed, “there is a clear risk of the public being served in legal matters by incompetent or unreliable persons.”

Remember:  this was on summary judgment, so the question before the court was supposed to be a purely legal one, not requiring evidentiary hearing.  But the court is basing its decision on a whopper of a factual finding.  Does LegalZoom’s business present a risk of incompetence or unreliability?  Does the Missouri bar’s licensing regime present a lower risk?   Does the court, by making this decision, reasonably carry out its “duty to strike a workable balance between the public’s protection and the public’s convenience?” We don’t know the quality of those findings because there is no evidence presented.  LegalZoom wasn’t given any opportunity to challenge those factual assertions.  And given the strange way in which Courts make this regulatory policy, it’s hard to see when these factual assertions might ever be challenged, by anyone.

What’s wrong with that?  Well think about how this policy would be made if it were up to a legislature or administrative agency.  The drafting of legislation and regulations would be informed by some policy analysis and data, as well as the input of various industry participants, consumers and other experts, on questions such as: What is the current average cost of obtaining document services?  How much of the demand for services is being met?  How often are these documents not completed and filed, or completed or filed incorrectly, because of cost or supply constraints?  How likely is it that an online service—provided by a corporation located in another state and serving a national market—generates documents that have higher error rates?  How much of the demand could these services reach and at what price?  Is a lower price and broader accessibility worth any increase, if it can be shown, in error rates or other quality effects?

None of this standard policy process take place in this important regulatory area.  Courts don’t put out their definition of the practice of law for public notice and comment; they don’t conduct public hearings; they don’t commission studies, collect data, or consult experts.  And they don’t subject their regulation to the kind of judicial review to which regulation is usually subject.  Instead, they rely on an empirical assertion that is treated as unassailable:  that by not allowing people or businesses other than state-licensed attorneys to do anything that constitutes the “impossible to define” practice of law, the court’s regulation will “protect the public from being advised or represented in legal matters by incompetent or unreliable persons.”

Those are empirical claims that should be the subject of empirical testing and reasoned policy analysis.  Other advanced market economies—like the U.K.—don’t find these empirical claims to be true and they don’t restrict the supply of legal advice to bar-licensed lawyers, all to good effect.  It’s time the U.S. started treating its legal system as deserving of sound evidence-based policymaking, and not leaving it up to lawyers and judges alone.

When Americans think about governmental regulations meant to protect them against harm, they are prone to making two mistakes in judgment: first, they tend to overestimate the benefits that are supposed to result from regulation (including mandatory licensing) and second, they tend to underestimate (and usually to completely overlook) the costs and problems created by it.

I believe that governmental regulation of the legal profession is a good example of that. We see both mistakes in that people think that the system of licensing lawyers ensures competence (which it does not) and fail to see that leads to higher than necessary fees, as well as considerable waste of resources.

Licensure is neither a necessary nor a sufficient condition for competence in the legal profession. It is quite possible for an individual who has not gone to law school and not passed a bar exam to render competent legal assistance. Indeed, the legal profession is occasionally embarrassed by instances where someone who had been doing exactly that is “found out” and exposed as an illegal (or “unauthorized”) practitioner. On the other hand, there are also plenty of cases of incompetence by licensed attorneys. In such cases, the aggrieved consumers usually find out that the bar’s system for handling complaints does them little or no good.

And what about the hidden costs?

Prospective lawyers are required to graduate from a law school in almost every state. That demands three years of course-taking at high expense, but very little of that information will be retained or ever put to any use. What is clearly of benefit – learning legal research and writing – could easily be learned elsewhere.  As a result, lawyers have so much invested in their degrees that few can afford to handle cases with small values. Many Americans therefore cannot afford or find legal representation when they need it.

We also waste resources by keeping too many law professors employed, but that’s a minor matter.

Under a laissez-faire approach to professional services, the natural free-market incentives and disincentives produce generally good results for consumers. Practitioners want to satisfy customers and build good reputations; they want to avoid the reverse. That leads them to undertake the optimal degree of learning and training for the kinds of work they intend to do and to limit themselves to work that is within their capabilities.

The fact that licensed attorneys sometimes foul up cases for clients shows that those incentives don’t work perfectly, but it also shows that licensure does not work as advertised. I doubt that attorney licensing adds anything in the way of consumer protection over and above free-market incentives and disincentives. All that it adds is cost.

Laissez-faire does an excellent job of regulation in many other services fields, ranging from florists and interior decorators to accountants and tax preparers. There is no reason from the standpoint of consumer welfare why it would not be just as beneficial in the market for legal services.

Lawyer licensing should not be completely abolished, but it should be made radically easier and cheaper by abolishing the requirement that lawyers attend law school to sit for the bar exam, and by only requiring passage of the bar exam for those who handle court cases.  Legal redress should also be made easier by allowing more cases to be brought in small-claims courts.

As Clifford Winston and Robert Crandall recently noted in the Wall Street Journal, law students commonly accumulate “as much $150,000 in law school debt” to get the degree required to practice law, even though many “services by lawyers do not require three years of law school” to perform, since they are simple enough to be performed by a non-lawyer.  As they point out, “every other U.S. industry that has been deregulated, from trucking to telephones, has lowered prices for consumers without sacrificing quality.”

As a lawyer, I agree that attending law school should not be required to practice law.  I learned little about the law at Harvard Law School.  This was partly due to my own laziness, and partly due to professors whose teaching pointlessly focused on ideologically-trendy but atypical situations, or hide-the-ball Socratic dialogue. (For example, my property instructor was obsessed with sexual harassment of lesbians by tenants).

I did not have to learn much to pass my classes in law school.  I somehow got a “B” in Contracts despite not knowing which body of law – the common law or the Uniform Commercial Code – applied to most of my exam.  I graduated easily despite having frittered away much of my time in law school watching the sitcom “Married With Children,” drinking, or arguing about politics.

But my knowledge rapidly improved after graduation, when I had to sit for the bar exam. I learned more law in two months of studying for the bar exam than I did in three years of law school, including basic principles of law (in real estate and family law) that I was never even taught in law school. To prepare for the bar exam, I took a class offered by a private company, Barbri.   It provided well-organized, concise summaries of the law that were easy to understand, unlike many law school textbooks.  Barbri and the New York Bar Exam ended up teaching me what Harvard failed to teach.

The requirement that people attend law school before being allowed to practice law is unnecessary and wasteful. Many prominent lawyers in American history, like Abraham Lincoln, never attended law school, or even college. They prepared to become lawyers by reading the law on their own, or apprenticing in a lawyer’s office.

Requiring law school graduation as a prerequisite for practicing law just drives up lawyers’ bills by increasing the cost of becoming a lawyer, driving away from the legal profession people of modest means who would make fine lawyers, but are daunted by the high tuition.  The resulting increase in lawyers’ bills makes it harder for people to afford a lawyer when they are ripped off in breach of contract cases, since the amount they recover even if they win may be less than what they would have to pay a lawyer to represent them.   It also makes it harder for people to afford a lawyer when they are sued over meritless claims.  (Some lawsuits are not impeded by rising hourly rates. Certain legally-favored kinds of lawsuits, like employment discrimination claims, can be brought even when lawyers’ hourly rates rise, thanks to one-way attorney-fee-shifting statutes that force employers to pay the entire bill – like state laws that require employers to pay a multiplier of a discrimination plaintiff’s legal bills (see Rendine v. Pantzer), or the federal Christiansburg Garment rule that requires employers to pay the plaintiff’s attorney fees when the plaintiff wins, but does not require plaintiffs to pay the employer’s fees when the employer wins.  For example, a Kansas civil-rights plaintiff received thousands in attorneys fees over $1 in damages.  The explosion in those kinds of lawsuits over the last generation has masked the growing difficulty of affording a lawyer to bring other, more traditional kinds of cases, like individual breach-of-contract cases, for people of modest means.)

Eliminating the requirement that students attend law school to become lawyers would force law schools to cut their exorbitant tuition (which has risen nearly 1,000 percent in inflation-adjusted terms since 1960) and streamline instruction. As Winston and Crandall note, “law schools would face pressure to reduce tuition and shorten the time to obtain a degree, which would substantially reduce the debt incurred by those who choose to go to those schools.” Law schools as we know them would mostly disappear, replaced by a shorter, more compact course of studies either folded into undergraduate studies, or lasting just one or two years.  (In many other countries, “law is an undergraduate degree,” showing that you don’t need three years of law school to learn basic legal skills.)  Law schools would have less time left over to waste on ideological fads, and would be forced to concentrate on teaching practical legal skills and black letter law.

Law school graduation requirements weed out few bad lawyers. Even students who seldom studied, and reputedly were on drugs, managed to graduate from my alma mater.  A tenured law professor recently wrote that law school is a “scam,” and that some of his faculty colleagues were “inadequate teachers” who taught the same outdated material, year after year.  My professors in law school were smart, but many were better at publishing or promoting themselves than at teaching (one of them, a leading scholar, used an ancient textbook, and was so lifeless in the classroom that he was like death-warmed-over).  Attending law school doesn’t guarantee a job: two law schools are being sued for fraudulent placement data in class-action lawsuits.

States should discard law-school attendance requirements and only require lawyers who wish to practice in court to (1) demonstrate that they have no record of crime, ethics violations, or cheating, and (2) pass the state’s own bar exam, or the Multistate Bar Exam.  (People who handle in-house legal tasks, especially at insurance companies and other legally-sophisticated entities, should not have to pass any bar exam at all.  Most such people handle only a limited variety of legal tasks, not the entire field of law tested by the bar exam.  They can easily be trained by their employer to handle those tasks.  Their employer knows better than the courts or the bar what knowledge they need to do their jobs.)

Why require even lawyers who practice in court to pass a bar exam and show moral fitness, when many other occupations don’t have licensing requirements?  Because of the power they wield.  Those who bring lawsuits impose huge burdens and externalities on other people, like making time-consuming demands for documents or discovery, forcing attendance at depositions, and threatening people with ruinously large judgments. Lawsuits involve the unstated threat of coercion, such as having your property seized to pay for a judgment against you. Requiring some type of licensing for lawyers helps weed obviously crazy, incompetent, and abusive people out of the legal profession and keeps them from wreaking havoc on the innocent. Passing the bar exam doesn’t guarantee you’ll be a good lawyer, but given how easy it is to pass most bar exams, failure means you would probably make a bad one.

States also need to repeal barriers to people suing on their own in small-claims court – barriers that make it impossible for ordinary people to seek redress in some cases that aren’t big enough to justify hiring a lawyer, leaving cheated people with little redress when they are ripped off to the tune of $5,000 to $10,000. People can represent themselves in small-claims courts, which have simplified procedures, but in many states, such courts can hear only the tiniest legal claims, like those seeking less than $5,000. When Maryland’s legislature passed a bill to increase the maximum amount to $5,000 from a ridiculously-low $2,500, then-Governor Parris Glendening vetoed it, citing opposition from trial lawyers.  (Liberal politicians are indebted to trial lawyers, who would lose income if more people represented themselves in small-claims court rather than hiring a lawyer.  But lawyers’ fear  of lost business may be exaggerated, since if people can’t sue in small claims court, they may simply forego suing, rather than hire a lawyer, who can charge $5,000 just to draft a detailed complaint – more than a plaintiff might recover on a small claim.)

Unlike small-claims courts, which operate under fairly simple rules, the courts that hear larger cases have a bewildering array of court rules dealing with format and procedure that vary from state to state, and sometimes from county to county.  One court may insist that case filings be blue-backed on 14-inch paper, while another may forbid that. Only a practicing lawyer will be familiar with such details, and overlooking them can have ruinous consequences. For example, the Georgia Court of Appeals dismissed an appeal in a $2.7 million case because the appellant used Times New Roman typeface rather than Courier.

My previous post in this symposium argued that deregulation is upon us.  Here I’ll discuss what that could entail.

The legal information expert:  I summoned up the specter of computers practicing law.  There is in fact no doubt that computers can practice law as that term is defined by some courts and regulators: giving personalized legal advice.  Clearly computers already can process a lot of data and come to fairly accurate determinations of many types of legal questions.

This does not, however, mean that computers can replace lawyers.  It means that lawyers will have to learn to work with technology.  The “legal information experts” of the future will have to provide the human insights about the world of law that computers must have to do their jobs.  They must also make the choices that computers can’t. For example, what types of contractual structures work best with the new types of arrangements that arise in a constantly changing business world?  What choices should individual clients make among the alternatives that a computer provides?

This is good news for lawyers.  Lawyers can focus on the more sophisticated tasks that require human ingenuity as computers take over the routine.

The policy architect. Freed by technology from routine, lawyers can increase their involvement in designing laws and other legal structures.  Computers may be great historians but they are not yet equipped to make judgments about what the future should look like.  Lawyers need not leave lawmaking to legislators, but can participate in a private market for law. Kobayashi and I discuss in a recent paper the potential for such private lawmaking and the changes in the law that could make it happen.

The death of the law firm.  Although I’ve written the obituary for Big Law, regulation continues to sustain a semblance of the big law structure.  These firms are sustained by rules restricting referral fees and non-lawyer financing of firms engaged in the practice of law.  At a more basic level, law firms address clients’ costs of obtaining information about lawyer quality.  Law firms presumably can help by monitoring, mentoring and screening lawyers, so that the client just needs to choose a firm with a good reputation.  But as big law weakens, so does its ability to provide these services.  More importantly, the markets and technologies discussed in my previous post can step in and solve clients’ information asymmetry better than can today’s law firms.

The future of licensing.  It’s unlikely that lawyer licensing will completely die.  It will be hard to reconcile complete deregulation of law practice with continued licensing of doctors, tour guides and horse dentists.   But there’s an important difference between lawyers and these other professions:  the prodigiously powerful lawyer interest group has managed to restrict access to the extremely broad field of human activity called the “practice of law.”  This regulatory monolith is bound to fracture.

It’s not clear what will remain.  Certain types of services to consumers may require a license, on the theory that ordinary consumers can’t fully protect themselves from lemons. Also, courts may insist that licensed lawyers conserve public courts’ scarce resources.  Licensing may reflect something like the traditional British distinction between barristers and solicitors.

Another approach to licensing may be to change how it is done.  Lawyers now must be licensed in every state where they practice law.  This enables states to erect regulatory walls that impede national law practice.  It also forces professional rules to be uniform in order to accommodate our mobile and global society.

A better option, similar to a system I’ve suggested for law firm regulation, is a “driver’s license” approach, where lawyers get a license in the state of their principal residence which they can use to practice anywhere in the country. Unlike the internal affairs doctrine for corporations, states could issue licenses only to their residents.  Because lawyers are likely to practice mainly where they live, this helps ensure that the licensing jurisdictions will have a stake in good regulation and prevent a potential race to the bottom.  At the same time, the drivers’ license approach would enable more jurisdictional competition for lawyer regulation than we have today, and thus help pave the way for the developments discussed in my previous post.