Archives For legal profession

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?

The NYT on law teaching

Larry Ribstein —  20 November 2011

The NYT brings another David Segal story on legal education.  Today’s sermon: law schools don’t teach “lawyering.”

Boiling away the overheated journalism, here’s the indictment:  Law profs are richly paid for writing mostly useless law review articles rather than “the essential how-tos of daily practice.” Students study cases about contract law but not contracts.  Clinics get second-class status.  New lawyers need law firm training to figure out how to “draft a certificate of merger and file it with the secretary of state.” A law graduate isn’t “ready to be a provider of services.” Clients won’t pay for work by untrained associates.  Legal education is not worth its high price.

Well, yes, law schools should pay more attention to the market for lawyers and offer more value.  But as I’ve written in my article Practicing Theory, this doesn’t mean teaching what lawyers traditionally do.  Lawyers now don’t draft agreements from scratch.  There’s an app for that — software templates modified by user input.  A technological tsunami is sweeping over legal services.

Practicing Theory suggests that law schools should teach law students how to be architects and designers rather than mechanics.  The lawyers of the future will focus, more than today’s lawyers, on the building blocks of law. Computers and non-lawyers will handle the mechanical tasks. Training lawyers demands the sort of theoretical perspective that Segal disdains. 

Law students also will need business skills that law schools don’t traditionally teach.  Indeed, Segal himself notes that “graduates will need entrepreneurial skills, management ability and some expertise in landing clients” without considering the implications of this observation for legal education.

The real problem, as discussed in Practicing Theory, is not that law professors are teaching theory rather than the way to the courthouse, but that their choices of which theories to teach pay insufficient attention to the skills and knowledge today’s and tomorrow’s market demands. Segal’s article, like others in this series, ignores such nuance, preferring to string together well-worn criticisms and to eschew coherent analysis in favor of attention-getting quotes.

But, then, this is what journalists learn in journalism school.  Just as law professors swing for the law reviews, so journalists swing for the Pulitzers.  No wonder blogs are replacing the mainstream media as the source of cutting-edge information.  If you want to know what is actually ailing the legal profession and the law professoriate, you would do much better to read, e.g., Bill Henderson, Dan Katz, Brian Leiter, Brian Tamanaha, Steve Bainbridge and me.  It will save time and trees.

Wal-Mart lawyers

Larry Ribstein —  11 November 2011

Yesterday’s WSJ discussed Wal-Mart’s (possible) plan to dominate the industry of primary health-care clinics:   

Wal-Mart said in its proposal document that it is interested in offering services, including clinical care such as asthma, sleep apnea and osteoporosis monitoring, diagnostic services such as allergy and blood testing, and preventive services such as vaccinations and physical exams, as well as health and wellness products. It asked vendors to propose low-cost plans and said it would make final selections by January

Wal-Mart is evidently responding to the expansion in demand for such services that could result from Obamacare.

Staffed by nurse practitioners and physician assistants, the clinics are increasingly pushing into the management of chronic diseases like diabetes, helping to fill a shortage of primary-care doctors that is only expected to worsen as health-care reform increases the number of Americans seeking their services. The clinics help lower health-care costs by dealing with patients with basic illnesses or nonemergency issues who otherwise might have gone to an emergency room.

But Wal-Mart already faces stiff competition in the medical field from such big players as CVS (645 clinics), Walgreen (347 clinics), Kroger, Target and Safeway. 

So maybe Wal-Mart would be interested in leading the way in the less-crowded field of low-end legal services, once deregulation comes to our shores.  

Should this happen?  If in medicine, why not law? The need for lower-cost legal services is surely as great as that for medical services.  The public is protected by the providers’ need to protect their costly brands. 

My point here is only that, like it or not, the Wal-Mart lawyer is rapidly getting more plausible.

Many believe that law school applicants have been misled about or just don’t understand the market for legal services. I think it’s worth exploring the alternative hypothesis that law school is college grads’ best opportunity despite the market.  

Today’s WSJ discusses one possible basis for this conclusion — college students’ poor choice of what to study:

Although the number of college graduates increased about 29% between 2001 and 2009, the number graduating with engineering degrees only increased 19%, according to the most recent statistics from the U.S. Dept. of Education. The number with computer and information-sciences degrees decreased 14%. * * *

Research has shown that graduating with these majors provides a good foundation not just for so-called STEM jobs, or those in the science, technology, engineering, and math fields, but a whole range of industries where earnings expectations are high. Business, finance and consulting firms, as well as most health-care professions, are keen to hire those who bring quantitative skills and can help them stay competitive.

Why?

Science classes may also require more time—something U.S. college students may not be willing to commit. In a recent study, sociologists Richard Arum of New York University and Josipa Roksa of the University of Virginia found that the average U.S. student in their sample spent only about 12 to 13 hours a week studying, about half the time spent by students in 1960. They found that math and science—though not engineering—students study on average about three hours more per week than their non-science-major counterparts.

Tyler Cowen discusses the problem from a broader perspective:

Since 1997-2000, there is downward pressure on lots of wages, but morale matters and labor market incumbents retain a favored position. Though some wages fall, employers resist that downward pressure, and pass along a lot of the burden of adjustment to new job seekers. Even if that original downward pressure on wages is smallish, new job seekers have to make big adjustments in their career plans, majors, ambitions, etc. to get through the door at all. They didn’t. * * *

So the law placement problem may be about bad choices, but the choices are the ones made by college sophomores, not college seniors.  The persistent demand for law school might be at least partly explained by the fact that college hasn’t given law school applicants the skills to go where most jobs are. Law school then becomes the best way to utilize the skills that they have.

Perhaps colleges should offer better career guidance at an earlier stage. Or maybe the problem lies in grammar or high school education, or in the design of college science, math and engineering courses.

Law schools should, of course, provide full disclosure of the job market for their grads.  But we shouldn’t assume that disclosure is the whole problem, particularly as news of the law job market gets out anyway. Law school applications might be a symptom of a broader problem with broader solutions.  If I’m right, the real drop in law school applications may significantly lag the law job market as the message percolates down to college students.

And it’s worth adding that law itself might be a STEM job of the future, as law becomes more tech-oriented.

Today’s WSJ covers the Howrey bankruptcy and specifically the ex-partners’ and their new firms’ potential liabilities for unfinished business taken from Howrey.

As the article says, Howrey’s bankruptcy trustee, the custodian of its claims under state law, “has the right to sue for profits generated by work that partners started at their old law firms and took to their new positions, such as continuing cases.” The defendants can include the new firms the partners joined, including Dewey & LeBoeuf, Baker Botts and Arent Fox, which “may have the deepest pockets.”

This may be Howrey’s most important asset because, according to the old saw the article quotes, a law firm’s “most valuable assets of a law firm go home every night.”

A similar fight is happening over the remains of Heller Erhman.  The article says that the defendant law firms in the Heller case are “arguing that clients have a right to take their business where they choose.”

Of course that’s true, but it doesn’t end the legal complications.  As discussed in The Source, §7.08(e) (footnotes omitted):

All of the partners of the dissolved firm, however, are generally entitled to share in fees for pre-dissolution work-in-process paid after dissolution to the dissolved partnership or to withdrawing partners, even if the client has exercised a right to discharge the attorney or attorneys who are sharing in the fees.* * *

Moreover, depending on the applicable law, the partner or firm completing the case may not be entitled to extra compensation for completing the case.  Rather, the case is treated as an asset of the prior firm and shared among the partners of that firm on the same basis that they shared fees while the firm was still alive.  As discussed in Bromberg & Ribstein, this reflects the difficulty of figuring out an alternative basis for dividing the free, the assumption that the partnership continues on the pre-dissolution basis until winding up is completed, and the need to encourage partners to stay with the firm.  Of course there are strong policy arguments on the other side:  giving partners freedom to move and the risks to the client if the lawyer isn’t paid for extra work.

But note that these are only default rules.  Thus, my book notes (footnotes omitted):

The partners can and should anticipate the above problems in their agreement. The partners should be careful to define the situations in which the work-in-process provision applies.

Often, however, there is no clear agreement, and the lawyers and their lawyers are left to hash out the issues at substantial cost.

I have two questions:

  1. Would it really be so bad if the practice of law were put on sounder financial footing by permitting non-lawyer capital? These bankruptcies illustrate the instability and insubstantiality of these weak cooperatives we call “firms.”  See Death of Big Law.  The dissolutions are likely to increase as Big Law devolves, and clients are caught in the middle.
  2. Why aren’t these matters dealt with more definitively in agreements among lawyers who write agreements for others for a living?

Law firms’ competition

Larry Ribstein —  6 November 2011

The biggest competition for law firms is not other law firms but in-house counsel. So reports the ABAJ.   I make a similar point in a paper I’m presenting at a University of Wisconsin program next week.

There are two reasons for this:  pressures on firms to reduce fees, and law’s information revolution which is reducing firms’ need to rely on traditional legal services. In my Wisconsin paper I consider the impact of the following developments, among others:  automated contracting, compliance software, knowledge management, streamlined dispute resolution mechanisms, and Web-based processes for learning about and hiring lawyers.

Simultaneously with these developments, law firms are becoming less reliable as reputational intermediaries because they do less monitoring, mentoring and screening of lawyers (see Death of Big Law).  Corporations are finding that they can dispense with the middleman (law firms) and hire lawyers directly.

I predict the next step in the evolution of corporate legal services will be the mutation of in-house lawyers themselves.  Instead of corporations simply bringing law firms within their walls, they will spread legal expertise throughout the organization — what I refer to in the Wisconsin paper as “embedded lawyers.”

These developments have significant implications for the market for corporate legal services.  Law firms have managed to survive for decades on a business model that enables them to charge corporate clients hundreds of dollars an hour more for their lawyers’ services than the firms are paying.  The difference, of course, is profits to the partners.  Corporations are now competing away these profits.

Needless to say, law graduates and law schools will see the effects of this competition between in-house and outside law firms.  At the same time that law grads are seeing fewer corporate jobs they may also be seeing lower wages for the jobs that are available.

Moreover, applicants for these in-house jobs will have to meet corporate specs. Under the old model, law firms hired generalists from the best schools and trained them.  Corporations hired some of the better ones a few years out. Now corporations are looking to hire cheaper lawyers right out of law school.  They’re looking for graduates who don’t need the law firm apprenticeship.

The law schools that will win the corporate job placement derby will be the ones that can provide some of the training law firms used to provide.  In other words, while law schools seem to think they need to teach their graduates where to find the courthouse, the biggest need will be those who understand how businesses make money.

These developments have implications beyond corporate legal services.  Corporations can access legal technology without worrying about the unauthorized practice rules that restrict this technology at the consumer level.  But once this technology is widespread in firms it will be harder to block its availability to consumers.

Watch this space for more on these issues.

Bill Henderson vs. Orin Kerr (in comments, with reply by Henderson). HT Leiter.

Henderson:

U.S. Legal Education is in the midst of a large, structural transformation. This structural shift is driven by a confluence of factors, which includes three significant trends:

  1. The decline, or plateau, of the traditional time and materials legal services model
  2. The politics of law school finance
  3. A new generation of legal entrepenuers that are turning some aspects of law into process-driven products and services. * * *

My post raises two questions for law faculty that need to be answer in order:

  1. Is the evidence of structural change sufficiently compellling that we need to retool in order to survive? This is a business decision. It must be based on facts and probabilities. And it has to be answered first so the appropriate urgency and perspective is present to answer question #2.
  2. If the answer to #1 is yes, how should our law school retool its curriculum and appointments process? Law professors are prone to focus on the difficulty/impossibility of the retooling process because–let’s face it–we are worried about how the changes will affect us. Question #2 is the wrong place to start.

Kerr

When I have asked a few peers who are in the business of practicing law if they think we are undergoing a major change in the legal market, or if we are just experiencing the usual cyclical pains of a recession, they generally respond that they think we are seeing the latter rather than the former. So that means that you as an academic are saying one thing about what is happening in the legal market, and the group I have spoken with who are actually in the legal market generally are saying another.

Henderson reply:

Lawyers generally don’t consult industry level data. When I talk to groups of practicing lawyers–and I do so regularly–and I show them trendlines and comparisons with other industries that have undergone structural change, very few continue to advance the deep recession argument because such an analysis just does not fit the industry level trendlines.

I’m with Henderson.  Here’s my take on the future of legal education in light of the developments he describes.  It seems clear that conventional law jobs are rapidly being replaced by technology, there is significant political and competitive pressure on the existing regulatory model, and that changes in the profession will accelerate with deregulation. These shifts are occurring apart from problems in the economy.  Indeed, these changes will increase as the economy, and therefore environment for innovation, improves. In other words, a significant portion of the legal profession may be left behind by the recession’s end.

Think what even a 30% decline in the demand for legal education (or more if tuition continues to increase) would mean for legal education.  The law schools outside the first tier in places with poor legal job markets will be left stranded.  All law schools outside the very top will have to scramble for position by changing their products.

Exactly what law schools should be doing is unclear.  This is not a time to set in place a complete revamp that could get the market’s direction wrong. But law schools are foolhardy if they think they can continue to bury their collective heads in the sand because of the soothing noises they’re hearing from their (currently) successful alumni.