Archives For Legal Profession

The AALS each year selects a few “hot topics” program proposals for discussion of “late-breaking” subjects at the January meeting.  This year I agreed to be included in a hot topics panel described as follows:

Law schools have long kept a comfortable distance from the concerns of the practicing bar. Earlier calls for reform such as the MacCrate Report (1992), the Carnegie Foundation’s Educating Lawyers: Preparation for the Practice of Law (2007), and Stuckey et al, Best Practices for Legal Education (2007), have led to a greater emphasis on more practical training, at least in law school admissions brochures if not always in the curriculum. Increasing competition for rankings has also changed the dynamics of reputation with respect to academic study and practical training at some law schools. Fundamentally, however, most schools have seen little change in the curriculum and overall approach to delivery of instruction since the last century. Despite this, students have continued to flock to law schools, and more law schools have sought and received accreditation. Recently, however, a series of high-profile news reports, blogs, lawsuits by recent graduates, ABA disciplinary actions against law schools, and calls from Congress for stricter regulation have brought increased public attention to fundamental questions about the delivery of legal education in the U.S. What was once dismissed as the unfounded complaints of a minority of embittered law students is approaching a full-blown scandal. Issues such as the ABA’s capture by the law schools it is meant to accredit and regulate, the skyrocketing cost of a legal education in the face of what some argue is a long-term restructuring in the legal market and a permanent downturn in employment, and law schools’ failure to disclose meaningful and accurate information regarding employment prospects, are converging into a widespread sense of disillusionment and dissatisfaction with legal education.

While the perspectives and methods of the panelists vary, each has been a voice for reform within legal education. Some call for a strengthened regulatory hand; others call for deregulation of the legal profession or for voluntary collective action by law schools. All share a concern for the improvement of legal education and the profession. This panel will be an opportunity for a candid and highly interactive assessment of the situation and directions forward.

Does this discussion sound like the sort of late-breaking “hot topic” that ought to have been included in the AALS program?  I guess not, because it was rejected. 

Instead, the AALS chose programs on Occupy Wall Street, the Endangered Species Act, human rights in Russia, health care reform, the legacy of Derrick Bell, Supreme Court recusal, the ministerial employment discrimination exception, DOMA and alternatives to incarceration.

Why the rejection?  There are two hypotheses: the AALS didn’t think its members would regard the future of legal education to be as important and current a topic as those just listed; or the AALS as an organization didn’t want to be the forum for such a panel.

Either way, the rejection seems disturbing for law teaching (not for me — I can find other things to do).

About a month ago I discussed a case in which I had written an amicus brief:

Last year I wrote here about Roni LLC v Arfa, which I cited as an example of the ”troubling lawlessness of NY LLC law.” In brief, the court sustained a non-disclosure claim based on “plaintiffs’ allegations that the promoter defendants planned the business venture, organized the LLCs, and solicited plaintiffs to invest in them” despite holding that the parties’ arms-length pre-formation business relationship did not support a fiduciary relationship.  I argued that this new pre-formation duty to disclose

promises to make a mess out of NY LLC law. It also creates significant problems for business people who now have a fiduciary duty, with uncertain disclosure duties, imposed on what the court itself recognized is basically an arms’ length market relationship. It’s not even clear how parties can contract out of this duty, since the whole problem is that they do not yet have a contract.

I later noted that my blog post was cited in the appellants’ brief on appeal, which triggered a response in the respondents’ brief (see n. 25) and then my amicus brief in connection with the appeal, which the NY Court of Appeals accepted for filing.

Now the NY Court of Appeals has decided the case.  In its brief opinion the Court said “we conclude that plaintiffs’ allegations of a fiduciary relationship survive the dismissal motion.” The Court added (footnote 2):

2 Based on the foregoing analysis, we need not decide the question of whether the promoter defendants’ status as organizers of the limited liability companies, standing alone, was sufficient to allege a fiduciary relationship.

In other words, the Court of Appeals, without saying so directly, effectively rejected the lower court’s determination that the complaint had not alleged a fiduciary relationship.  The Court did so in order to avoid a holding in favor of promoter liability that would, I argued, “make a mess out of NY LLC law.”

The Court elsewhere in its brief opinion alluded to another aspect of my amicus brief.  My brief pointed out (p. 6) that there was no authority for a pre-formation disclosure duty in LLCs, and that analogies from other business entities

should be drawn carefully because * * * the LLC has evolved as a unique entity, sharing some features of but ultimately distinct from all other business entities. See generally, Larry E. Ribstein, Rise of the Uncorporation ch. 6 (2010). 

In its opinion, the Court recognized (n. 1) that “[c]ertainly, there are differences between limited liability companies and traditional corporations, but the distinctions are not relevant to the allegations in this case.”  They were not relevant because the Court strained to accept the alternative basis for a fiduciary duty the lower court had rejected.

In short, I invited the Court not to wreck NY LLC law by imposing open-ended pre-formation promoter liability.  The Court accepted my invitation although this forced it to weave a circuitous course around the lower court’s opinion.

Now, I must avoid taking too much credit for the result in the case.  The NY court might have reached the same conclusion without my brief.  The case was very well argued by the defendant-appellant’s lawyer, David Katz, who raised all the relevant issues. 

All I can say for sure is that my brief made it harder for the Court of Appeals to accept the lower court’s promoter liability theory, and the Court did, in fact, reject that theory.   I think it’s plausible my brief affected some of the language in the opinion, and thereby the course of NY LLC law.

I make these points not solely out of pure ego (not that I’m totally devoid of same) but because they relate to the many words that have been spilled over the uselessness of legal academics.  You see, we academics do have some credibility because we devote ourselves to the study of underlying theory and policy rather than to achieving particular results in cases.  This is a quality that could be lost if legal academic is restructured so as to reduce the time and resources available for such work.

It’s Sunday so the NYT has another David Segal screed on legal education.  This time he presents the insight that law school is expensive because of accreditation standards that prevent law schools from containing costs even if they wanted to.  Segal says, “[t]he lack of affordable law school options, scholars say, helps explain why so many Americans don’t hire lawyers.” He quotes several law professors — my former colleague Andy Morriss, now at Alabama; USC’s Gillian; Emory’s George Shepherd.

The article seeks to rebut the claim of the chairman of the ABA’s legal education section that high accreditation standards are necessary to give students “what they have a right to receive in terms of education” and “protect the public and make certain that graduates who offer themselves as qualified lawyers know what they’re doing.”  It examines the experiences of a start up law school in Tennessee, the Duncan School of Law, which is seeking ABA accreditation. The school must have a big library and professors with tenure and time to write law review articles.  This setup is great for law professors. So, as a couple of former law deans tell Segal, the professors exert their power through the accreditation process to maintain the status quo. 

In the end, the Duncan folks had to fly to a beachfront Ritz-Carlton in Puerto Rico to meet with the ABA to meet and make a 15-minute argument for provisional accreditation. The ABA’s questions indicated they were interested in the lawyer market in east Tennessee, suggesting that lowering clients’ costs mattered less to them than threatening lawyers’ income.

As usual (see my posts on past Segal screeds here and here) Segal presents common complaints in an overwrought stew with little cogent analysis.  Law is high-priced because the ABA is powerful and wants to keep it that way. Clifford Winston, co-author of First Thing We Do, Let’s Deregulate All the Lawyers, says this ABA-enforced “near-total absence of competition” is the big problem.  Raise your hand if this shocks or surprises you.

If you want more thoughtful analysis on the modern issues confronting law teaching you need to look beyond the NYT to a blog — namely this one, and especially our “Unlocking the Law” symposium, which had essays by, among many others, Gillian Hadfield and Winston’s co-author, Robert Crandall. My law review article, Practicing Theory, discusses many of the issues presented in Segal’s paper.

The NYT article typically fails to articulate the causes and cures of our over-priced legal system beyond the commonplace that the ABA somehow manages to restrict competition.  Segal blames the law professors, finding comfort in the scam-bloggers’ simple-minded denunciation of high-priced legal scholarship. But since Segal doesn’t explain how a bunch of eggheads sitting around writing useless articles came to control the ABA, he sounds like he’s blaming the mosquitoes for banning DDT.  This narrow focus isn’t surprising given Segal’s mission, which not to analyze or educate, but to entertain with simplistic narratives and pithy quotes.

So what’s really happening?  The cause of the current situation, as I make clear in my Practicing Theory, is obviously the practicing bar, a powerful lawyer interest group with an incentive to keep the price of legal services high.  Lawyers operate not only through the ABA but also local bar associations. Legal educators (law professors, law school and university administrators) come into the picture because they manage the key instrument for doing so — the academic institutions that keep the price of entry high. If the lawyers really wanted to make law school cheaper and more “practical” they could do it in an instant.

Gillian Hadfield’s suggestion to Segal of alternative accrediting bodies is one possible future world, but there are others.  The route to all of these worlds isn’t simply changing the law school accreditation system (accreditation is pervasive throughout the education world), but changing the system of lawyer licensing which maintains the current one-size-fits-all approach.  But how to do that when the powerful lawyers’ guild has maintained its grip on the process for almost a century?   

As I have discussed (Practicing Theory, Law’s Information Revolution, Delawyering the Corporation, Death of Big Law) the answer lies in the current rise of technology and global competition, which are combining with the soaring costs of legal services to crack the foundations of the current regulatory system.  Systemic changes such as changing the choice of law rules regulation of the structure of law practice and changing the intellectual property rules governing legal information products (Law’s Information Revolution, Law as a Byproduct) could hasten this process. 

Reform of law school accreditation ultimately will come along with significant changes to lawyer licensing whether lawyers and law professors like it or not.  Regulation of legal services will be unbundled, with only core legal services (however that comes to be defined) subject to anything like the current level of regulation, and other areas regulated at different levels or deregulated altogether. 

While lawyers and law professors can’t stop change they can shape the future.  In particular, they should start to provide a rationale for why the world needs at least some high-priced legal experts.  What, exactly, is it that lawyers do that’s so valuable?  The answer is clearly not “nothing,” although in a world of increasing competition and sophisticated technology may not be enough to maintain the current level of lawyer employment.

With respect to legal educators, as I discuss in Practicing Theory, law schools should continue to do what they do best — teach theory.  Although the theory should be relevant to what lawyers do, this doesn’t mean that law school should devolve to three-year apprenticeships overseen by practitioners.  The new world of law practice will leave the more menial and routine stuff to machines and non-lawyers.  Lawyers will handle the high-level legal planning and architecture.  They will have to learn how to build that legal architecture using disciplines such as philosophy, economics, political science, psychology, and computer science.

This leads me to the most interesting, if unspoken, aspect of Segal’s article.  All of the non-ex-dean law professors quoted in the article trained as economists. This isn’t surprising. An economist would not ask how we make sure lawyers remain important, but rather what it is that lawyers contribute on the margin.  (Perhaps it’s that tendency to ask such pesky questions and their skepticism about the government regulation that secures the demand for lawyers that some law professors don’t like about economists.) This is the kind of multidisciplinary perspective (as noted above, not just economics) that will provide the intellectual foundation of the future of legal services.  It’s going to come from law professors writing the high-priced articles that Segal and the scam-bloggers decry.  Of course, there will be fewer of them, at fewer schools, but that’s a story for another day.

A lot of ink has been spilled about the technology threat to traditional law practice. But U.S. law firms need also to worry about lawyers elsewhere in the world. 

The WSJ reports that Beijing-based King & Wood is planning to join with Australian firm Mallesons Stephen Jaques to form Hong Kong-based verein King & Wood Mallesons.  It would be the largest non-U.S. or U.K law firm merger. 

Obviously the law business is following the global economy to Asia. Will U.S law firms be part of that move?  Or will they continue to assume that the U.S. is the center around which the rest of world business revolves. The article concludes:

New York University law professor Jerome Cohen, a leading scholar on the Chinese legal system, said that despite the restrictions, he expects the deal to spur other Western firms to seek Chinese partners. “It’s going to be a scramble,” he said

In my recent Practicing Theory: Legal Education for the Twenty-First Century I noted:

Global competition is relevant not only to the legal market within the United States but also to U.S. law firms seeking to enter foreign markets. U.S. law firms used to have the significant advantage of exporting clearly superior American legal technology. This enabled them to easily enter foreign markets at low cost with their own U.S.-trained lawyers. However, foreign law firms more recently have been able to enter non-U.S. markets with lawyers who can combine U.S. LLMs and local knowledge. Also, countries such as Japan and Korea have increased the quality and output of their law schools, partly by incorporating knowledge from the United States. Thus, the United States’ export of its legal infrastructure, though profitable in the short-term, ultimately may contribute to the long-term erosion of its global competitive advantage.

I concluded that U.S. legal educators needed to prepare for these developments.  Yet subjects like comparative law are still small niches in the curriculum.

Fish on law teaching

Larry Ribstein —  14 December 2011

Stanley Fish opines on the NYT’s recent criticisms of legal education (HT Leiter):

The expert practitioner is expert in part because when he listens to a client or walks into a courtroom the field of action is already configured for him by an internalized understanding of what could possibly be at stake in proceedings like these.

That understanding is what law schools offer (among other things). Law schools ask and answer the question, “What’s the game here?”; the ins and outs of the game you learn later, as in any profession. The complaint reported by David Segal in his Times article is that law firms must teach their new hires tricks of the trade they never learned in their * * * classes. But learning the tricks would not amount to much and might well be impossible for someone who did not know — in a deep sense of know — what the trade is and why it is important to practice it. * * *

I agree. I argue in Practicing Theory that technology will enable lawyers to shed the small tasks that machines can do and focus on the big questions Fish describes. For example, instead of using forms to draft contracts, lawyers can leave this to machines and create the forms.  This will entail focusing more directly on the functions of contracts than most lawyers do today. Law schools should enable this deeper focus rather than shifting to training students for tasks that technology is making obsolete.

You’ve seen the blog posts (e.g., here) and the working paper.  Now you can get the published article here.  Let me know if you want a reprint.

My paper from Wisconsin’s in-house counsel symposium (symposium discussed here, paper previewed here) is now available on SSRN. The paper is Delawyering the Corporation.  Here’s the abstract:

This article shows how in-house lawyers’ role has evolved to address the high cost of legal services and the traditional information asymmetry between lawyers and clients. The first stage of this evolution involved the expanding role of in-house counsel from intermediary between corporate executives and the corporation’s outside law firm to the corporation’s purchasing agent in a broader market for legal services. The second stage could see legal work distributed among employees with and without legal expertise throughout the corporation. The article also shows how evolving legal information technology could facilitate corporations’ full-fledged integration of legal information into business decisions. These developments have potential implications for the corporate and general markets for legal services and for legal education.

In short, don’t assume that the evolution of corporate law practice will stop with more legal work moving inside the corporation.  The same forces driving this move — technology and markets — may change the nature of the work.

Big Law as LPO reseller

Larry Ribstein —  10 December 2011

Yesterday’s Law Blog notes a Fronterion report that legal outsourcers are facing more competition from “insourcers” setting up centers inside the U.S. The reasons include rising wages in India and falling wages in the U.S. and the U.K. so  

The glut of new law school graduates in 2012 will likely put offshore legal services outfits at a further disadvantage, the report found. “Most legal professionals, all things being equal, prefer to keep legal work domestically,” it said. In response, some offshore vendors are opening up in places such as Chicago and Washington D.C., said Fronterion managing Principal Michael Bell.

So wages of law workers in the U.S. are getting in line with their counterparts in India.  Not good news for U.S. law grads.

The story concludes with an interesting observation:

“Law firms say, we can hire these contract attorneys in the U.S. for really nothing,” Bell said. “One issue that law firms have is that they can’t mark up the services of an LPO… but if it’s a center based internally and it’s law firm staff, they can charge whatever they want to.”

In other words, amid intensifying global competition, Big Law thinks it’s found another way to make money.  I wouldn’t bet on this lasting very long — certainly not longer than in-house counsel see it happening and realize they can do better by eliminating the middleman.

The ABA is considering loosening the bar on non-lawyer ownership of law firms (HT Law Blog).  Here’s the discussion paper.

For those who are thinking that this move is meaningful, forget about it.  The ABA proposal (which would still have to be approved by the ABA and then by individual states) would permit non-lawyer ownership only if the firm provides only legal services, the lawyers have control, and the lawyers are responsible for the non-lawyers’ integrity and compliance with ethical rules.   The ABA is not considering publicly traded law firms, passive outside investments, or firms (as under the UK’s new “Tesco” law) that offer both legal and non-legal services.  

The ABA’s continued resistance to non-lawyer ownership of law firms is misguided on policy grounds.  Keep in mind that eliminating the ban would not permit non-lawyers to render legal services.  It would simply change the ownership structure of the firms in which lawyers practice.  The idea behind the rule is that non-lawyer owners would emphasize bottom-line profits over proper concern for the client.  But firms, whether or not they practice law, can’t profit by stomping on their customers and sullying their brands.  And who really believes that law as it’s practiced today, in lawyer-owned firms, isn’t a business?  Or that the law business should be protected from competition by other business models? For more on these issues see my conversation with Mitt Regan and Bruce MacEwen.

More important is what the ABA move would do about the cost of legal services: nothing.  The non-lawyer ownership ban has been enacted and maintained by and for lawyers as a way of banning lower-cost provision of legal advice.  Under current rules, many middle class consumers have no reliable reasonably priced way of getting basic legal advice.  The UK rule permitting law practice by alternative business structures was promoted by consumers.  It lets consumers buy legal services from the same businesses (e.g., Tesco) whose brands they trust for many other products and services.  It is a way of bridging the huge current divide between supply and demand for legal services by ordinary non-corporate consumers.

In any event, as discussed in my Death of Big Law and my and Kobayashi’s Law’s Information Revolution, big changes are coming to legal services as a result of significant technological developments and global competition.  The responsible position by the profession would be to try to manage these developments in ways that protect consumers, as in the UK and Australia.  The ABA’s decision to go no further than reconsidering modest proposals it rejected twenty years ago is basically one to bury its collective head in the sand and let the changes happen without the bar’s involvement.  This is not only unwise but irresponsible.

Katherine Franke argues that lawyers are partly responsible for the financial misdeeds protested by OWS (HT Leiter):

Implicit in the OWS protests is a condemnation of an approach to lawyering that regards all legal rules simply as the price of misconduct discounted by the probability of enforcement* * *

In recent years we have seen the increased blurring of the boundary between law and business, between the lawyer and the businessperson, and between legal and business education. Too often, being a “good lawyer” has meant taking on the role of consiglieri, providing effective legal cover for otherwise borderline, or worse, practices. Effective and ethical representation of business interests does not relieve lawyers of responsibility for the harmful effects on others created by our clients’ actions, taken pursuant to our counsel. * * *

Servicing law school debt after graduation drives many of our students to highly compensated legal work for the financial services industry. * * *

The widely held public outrage at corporate overreaching given voice in the OWS protests reminds us of the degree to which the legal profession has fallen short of its traditional role as “republican” citizen, obliged to act as guardian of public interests even when — indeed especially when — representing private interests.

Without getting deeper into the psyche of the Occupiers, let’s grant that Wall Street’s improvidence was a cause of its Occupation and that lawyers were partly to blame for this improvidence. (I hope Franke will accept the friendly amendment that the lawyers worked for the government as well as the banks.)   What should we do about this? 

For starters, and recognizing that it has become obligatory to drag the high price of legal education into everything, I don’t think the answer to this particular problem is getting lawyers out of “highly compensated legal work” in finance.  (Indeed, not that many of today’s law school grads are even being tempted by such jobs.) Nor does the answer lie in simply hoping that lawyers will feel more obliged to “act as guardian of public interests.”  Indeed, the latter strategy is a prescription for their irrelevance.

Rather, the answer is training lawyers to get more into business and finance, where they can be respected and full-fledged participants in business decisions.  Law schools don’t adequately train lawyers on the complex financial instruments and deals they’re being called to advise on. Although lawyers may come to law school with this knowledge or learn it after they leave, law school generally doesn’t train them to integrate financial expertise with law practice.  For example, they may understand how a deal works, but not necessarily what material facts about the deal need to be disclosed, or when the transaction comes too close to the regulatory line.  And even if they might have such knowledge, they need to be able to speak the client’s language in order to be sure of being listened to.

Integrating lawyers more fully into business should make businesses in and out of finance more rather than less responsive to legal considerations.  In retrospect it’s clear that the lawyers who didn’t fully advise their clients of the legal risks inherent in their complex deals and securities didn’t just let the public down — they didn’t serve their clients’ interests.

Not every deal or new security that eventually blows up should have been squelched by a lawyer.  Risk can be healthy and perfectly legal.  Anyway, clients will tend to ignore legal advisors who just say no rather than try to find ways to get things done.  But the right course of action is often unclear.  Finding it requires matching high-level business expertise with knowledge of black-letter law and underlying policies.

Taking the lawyers out of finance or blunting their authority by turning them into preachers will not get the results Franke hopes for.

The value of law school

Larry Ribstein —  22 November 2011

Herwig Schlunk updates his analysis of the investment value of a law degree. Here’s the abstract:

There continues to be an active debate on the question of whether or not law school is a good investment. I prefer to think of the question not in terms of “whether,” but in terms of “when.” In this essay, I conduct an analysis for three current undergraduates who are considering attending private law schools. I demonstrate how such individuals should take all known costs and all expected benefits into account in making their “investment” decision. As the calculation necessarily differs dramatically from one potential law student to another, my conclusions are far less important than my methodology.

Schlunk’s initial paper followed my highly simplistic analysis suggesting this investment approach. I haven’t fully analyzed this paper but it appears to be careful and competent. My main caveat is that valuing a law degree is immensely complicated by the significant technological and market changes the law business is undergoing (see Law’s Information Revolution).  This means that a legal education may be significantly more or less valuable than Schlunk assumes.  How much more or less depends in part on the type of legal education the new lawyer receives. That’s where my Practicing Theory comes in.  

The considerable flux in the market means law graduates may need to be patient in order to fully exploit their opportunities.  Obviously their ability to be patient will depend significantly on their debt load.

Given these extra complications on top of the complications inherent in Schlunk’s analysis, one must be skeptical of simplistic conclusions that law school is a rip-off or a good deal even for a particular applicant, much less in general.

Those attending the Wisconsin in-house counsel conference this weekend (kudos to Jonathan Lipson for a well-organized and comprehensive program) got a great overview of the problems and opportunities facing the lawyers who work inside corporations.  Here’s some brief observations.

As previously reported, my own contribution focused on how technology might significantly affect in-house lawyers’ work, including by moving many of their tasks to software and non-lawyers.  This has potential implications for the discussions by Larry Hamermesh, Don Langevoort, Deborah DeMott, Steve Schwarcz and Kathleen Cully of the watchdog or gatekeeper responsibilities of in-house lawyers. If in-house lawyers try to become gatekeepers, might this encourage firms to replace their lawyers with software and non-lawyer employees?

Several speakers (Sida Liu, David Wilkins, Christoph Henkel) discussed in-house lawyers outside the U.S. We learned, among other things, that countries such as China and Germany train and accredit lawyers separately for litigation and in-house service. I argued in Practicing Theory and in my paper for this symposium against the one-size-fits-all approach of legal education in the U.S.

The global perspective reinforced my view that U.S corporations and therefore their lawyers need to understand the laws of the many countries they do business in.  Daniel Chow, Mike Koehler, Andrew Spalding and Joe Yockey’s discussions of the Foreign Corrupt Practices Act also showed that firms need to understand foreign cultures. The U.S.-centric approach of U.S. legal education is increasingly out of step with global markets.

In general, while technology and markets are eroding the market for lawyers, there’s still plenty left for them to do, including in-house. But are U.S. law schools training for this work?