Dereliction of Duty: State-Bar Inaction in Response to America’s Access-to-Justice Crisis
abstract. America has an access-to-justice crisis. At a time when law is more prominent in every facet of American life and commerce than ever before, most of our people and small businesses have no access to legal service. The consequences are dire.
America has ample resources to provide everyone the legal service they need. We have the lawyers, the technology, the know-how, and the capital. Our failure to enable those resources to meet the needs of our people is a disgrace.
This Essay addresses one of most obvious causes of the access-to-justice crisis: rules created and enforced by lawyer-led state bars that arbitrarily restrict who can help Americans with their legal issues and handcuff legal-service firms’ ability to draw on modern technology and business techniques to get Americans the service they need.
The Essay details how the rules have caused the crisis and lays out a common-sense approach state bars can pursue to assess and remedy it. State bars made the rules that caused the crisis. It is their duty to fix them. Failure to do so is a dereliction of duty.
State bars have the authority and responsibility to govern their justice systems in a way that makes legal service available to everyone who needs it.1 Yet no state in America achieves that outcome today. In a country based on the rule of law and blessed with talent and technology able to help everyone, most people and most small businesses cannot access legal service at all.
The system our state bars created in the nineteenth century does not work in the twenty-first. It unduly restricts the supply of legal-service resources and compels a law-firm business model that impedes the resources that do exist. As stewards of the American legal system, state bars have a duty to fix it.2 And yet, only a few state bars have taken meaningful action to remedy the crisis.3 The inaction of others is a dereliction of duty.
In this Essay, I contend that state bars have a duty to reform their rules to alleviate the failure of our justice system. In Part I, I detail the access-to-justice crisis in America. In Part II, I set out the comprehensive authority state bars have over our legal system and their consequent duty to remedy the crisis that has arisen on their watch. In Part III, I suggest a process for states to follow to address the crisis. In Part IV, I offer my view of the changes they should make.4
For most Americans, “justice for all” is a slogan, not a reality. At a time when law intersects with their lives more than ever before, most people and small businesses cannot find anyone to help them understand their rights and obligations, make their legal decisions, or represent them in court.
More than one hundred million Americans experience civil justice issues every year.5 The vast majority, however, do not receive legal assistance. For example, a 2014 survey by the American Bar Foundation found that 66% of American adults experienced at least one civil legal issue during an eighteen-month period.6 While some Americans reported more than one legal issue, the researchers randomly selected one per respondent for further investigation and found that just 16% were addressed with assistance from a lawyer.7 Similarly, in 76% of all state-court civil cases, at least one party appears in court without a lawyer.8 In some categories of cases,9 that number rises to well over 90%.10 The problem is particularly acute for lower-income Americans and small businesses. In its latest Justice Gap Report, the Legal Services Corporation found that low-income Americans receive little or no civil legal service for 93% of problems that substantially impact them.11 Moreover, 60% of small business owners with significant legal issues do not have a lawyer to help them deal with them.12 All in all, the United States ranks 126th out of 139 countries in access to justice and legal-service affordability.13 As former Colorado Supreme Court Justice Rebecca Love Kourlis and U.S. Supreme Court Justice Neil M. Gorsuch observed in a 2020 op-ed: “The rule of law in the United States is the envy of the world. But our system of justice is too often inaccessible for the ordinary American.”14
Many facets of our legal system work well, of course. We have more than 1.3 million well-educated, dedicated, and ethical lawyers.15 We have a well-developed system of laws and courts to administer them. Legal service is readily available for large corporations and wealthy individuals. Large law firms and corporate legal departments offer financially rewarding careers to the graduates of America’s law schools.
Articulating the elements that do work creates a revealing context for the elements that do not. Our system has become one that works well for the minority—those with the most money and the best education. For everyone else, access to justice is largely an illusion.
This crisis imposes great harm on our people and our society. Assessing that harm begins with this reality: moderate-to-low-income individuals and small-business proprietors are far more vulnerable to legal risk than high-income individuals and large businesses. They have less experience with the law, less understanding of their rights and obligations, and less preparation to navigate the legal system. While leading their lives or trying to make a go of their businesses, they inevitably encounter legal issues. They may not even realize when a problem is legal in nature and are highly unlikely to know what to do about it. Without help, their chances of a negative outcome are high.16
The direct harm to the unrepresented is real and commonly severe. Start with individuals. Without representation, people lose custody of their children. They are evicted from their homes. Their assets or wages are seized. They are deported. Their lives are disrupted with significant financial and emotional impact. “The human costs are often staggering, with domestic violence, illness and serious economic hardships among them.”17
For small businesses, the absence of legal service makes an already challenging situation harder, if not impossible. With the enormous increase in regulation, mushrooming amount of data,18 and complexity of engaging our courts and bureaucracies, businesses without representation are at a great disadvantage. They lose necessary licenses. They cannot get necessary approvals. They cannot enforce their contracts. They are fined. They cannot defend themselves against claims, even baseless ones. They are outmaneuvered by larger businesses that know how to work the system. All of these obstacles significantly decrease their ability to succeed.
The access-to-justice crisis compounds itself by producing the flood of unrepresented litigants noted above. Pro se litigants cause substantial delays and otherwise undermine the effectiveness of our already overburdened and underresourced judicial system.19
More broadly, the crisis undermines society’s trust and confidence in our justice system.20 With confidence in our government at historic lows,21 the day-to-day perception among people and small businesses that the judicial system only works for banks, insurance companies, and landlords reduces even further their belief that “justice for all” is a reality in America.22
Great authority comes with great responsibility.23
No organization is more responsible for how our justice system works than our state bars.24 Beginning in the late nineteenth century,25 America adopted a system in which each state bar was delegated virtually total authority to govern the way legal service is delivered.
Each state operates independently, making and administering its own rules, guided by a framework of “model rules” established by the American Bar Association (ABA).26 The law is perhaps the pinnacle of self-regulated professions. The state bars are governed by lawyers elected from within their ranks. They are overseen by state supreme courts, which are also governed by lawyers.
The regulatory model that has emerged also does more than regulate lawyers. It determines how much and what kind of legal service is available to those who need it. The regulatory model begins with the broadest possible prohibition on anyone other than licensed lawyers engaging in the expansively construed “practice of law.”27 Anyone who violates the prohibition commits a crime.28 This prohibition severely limits the number of people available to deliver legal service.
The model then prescribes how lawyers may deliver legal service. Much of the model’s prescription is familiar, such as the lawyer’s duty not to disclose confidential client information.29 But some of it is counterintuitive, such as prescribing that only lawyers can share in the financial success of law firms.30
Together, these prohibitions and prescriptions limit the number of people who can deliver legal service and how they can deliver it. More than a century under these rules has led to the crisis of justice we face today.
All state bars recognize that protecting the public is their fundamental mission. This is axiomatic for state supreme courts, and it is explicit in the mission statement of every state bar association. For example, the California bar, of which I have been a member since 1974, begins its mission statement: “The State Bar of California’s mission is to protect the public . . . .”31 The mission statement of West Virginia, my home state, begins: “The objects of the West Virginia State Bar shall be to protect the interests of the public . . . .”32
Protecting the public is more than a good idea. It is a solemn duty that includes ensuring access to needed legal service for every person and organization. When an American child begins her day pledging allegiance to our flag, she concludes with the phrase: “justice for all.” Those in charge of our legal system have a duty to keep faith with the pledge we teach our children to recite.
This duty requires state bars to reexamine their rules. The rules have created and perpetuated systems that fail to serve most of their people and small businesses. Three central elements of the rules stand out as contributing significantly to the shortfall of legal service in America: restricting who can deliver legal service, prohibiting employee sharing in profits and equity appreciation, and limiting access to capital.
First, the cornerstone of state-bar rules is a blanket prohibition against anyone delivering legal service unless they have gone to law school and been licensed as a lawyer, commonly called the “UPL” ban.33 It would be hard to imagine a greater barrier to entry or a more effective constriction of resources available to deliver legal service. Second, every state has adopted a form of ABA Model Rule of Professional Conduct 5.4, which prohibits lawyers or their firms from sharing the fees they earn or a stake in their ownership equity with “non-lawyers.”34 This restriction prevents firms from attracting and incentivizing people with diverse skills to help them create service models that can reach and serve individuals and small businesses. Third, Model Rule 5.4 also prohibits firms from raising equity capital from anyone who is not a lawyer.35 This prohibition hinders firms’ ability to innovate and grow, especially those that are trying to develop service and financial models that enable them to serve individuals and small businesses.
State bars exercised their power to set the rules. The rules have resulted in an access-to-justice crisis. It is their duty to fix them.
State bars should reexamine the impact of their rules on access to justice sincerely, thoroughly, courageously, and effectively.36 It is not enough to be open to rule change or to create a commission that writes a report only to conclude with inaction.37 State bars need to get something done. I propose that each state bar pursue a three-step process: (1) assess the problem; (2) articulate the overarching mission of the rules; and (3) examine possible rule revisions.
As I will discuss, the process of deciding on specific rule changes is certain to be contentious.38 The first two steps are essential preparation to oversee the battle.
State bars should start by taking a hard look at how well their state’s legal system is working. In particular, state bars must ask: How well does our system meet the needs of all people and businesses? Who is not being served? In what circumstances? What kinds of life and business issues are going unmet? What kinds of legal issues? How well does the system enable people to achieve the objectives that cause them to need legal service? What are the practical reasons for access challenges? How well does the system enable the infrastructure necessary to deliver legal service to everyone?
The answers to these questions must be based on hard evidence. State bars should take the time and devote the resources to look closely at their systems’ actual performance. The specifics will inform the nature of the services that need to be delivered, the qualifications required to deliver them, and what rule changes or other actions are necessary to enable them.
In the second step, state bars should refresh and renew their understanding of the fundamental objectives of their regulatory models. States bars should ask themselves: Why do we have these rules? What are we solving for? What does success look like?39 Beyond the platitude of serving the “public interest,” states should dig deeper and be more specific about what they want their rules to accomplish. The assessment should start with the overarching mission of the rules as a whole, followed by consideration of the objectives of individual rules that appear to be contributing to the access-to-justice crisis. At both levels, nearly all states would benefit from a fresh look in light of how much the world has changed since they adopted their systems and their rules.40
As a framework for this exercise, it will be helpful to consider three possible objectives articulated in discussions of potential regulatory reform: protecting consumers, protecting the lawyer monopoly, and enabling legal service for all.
Protecting consumers is the most commonly suggested rationale for the rules—particularly by those resisting change. It posits that the rules are designed to assure that the legal service clients receive is ethical, competent, and otherwise in their best interest. This objective is certainly laudable. Unfortunately, however, most people and small businesses across the country have no legal service at all. The system quite clearly does not protect consumers.41
Another, more controversial rationale suggested for the rules is protecting lawyers’ monopoly over legal service. This rationale is more commonly identified and criticized by those who advocate change. As Gillian K. Hadfield documented in an illuminating article in 2006,42 the justification for state bars’ exclusive control of legal service has drawn “withering critiques” for decades.43 While the criticism targets an array of issues, a central concern throughout is the orientation of the self-regulated bar to create rules for their own benefit without adequate concern for the impact on the public.44 Critics assert that the breadth of the ban on others participating in legal service, the arduous and expensive prerequisites to acquire a license, and the prescriptive business models that create unnecessary complexity and excessive lawyer fees all stem from bars “us[ing] the rubric of consumer protection . . . to justify rigorous protection of the legal services monopoly enjoyed by lawyers.”45
The approach Younger takes in his essay is subject to this criticism. He justifies Rule 5.4 in the very first paragraph of his essay by disapproving the participation of “nonlawyers” in legal service.46 As though any reader would readily see the logic, Younger states that the purpose of Rule 5.4 is “to prevent nonlawyers from interfering with the lawyer’s independent judgment.” Why would one suspect that everyone who is not a lawyer would seek to interfere with lawyers’ judgment? I will talk about this more below,47 but it sounds like a very broad and unwarranted indictment of 99.6% of the population48 that conveniently reserves the market exclusively to the lawyers. More significantly, Younger chronicles in detail lawyers’ record of fending off reforms that would open the legal system to competition.49 He describes case after case in which the ABA, or a state bar association, or a state supreme court launched an effort to improve our justice system by opening things up. In most cases, a task force of trusted experts was empaneled, and a report recommending reform was prepared. And each time, lawyers rose up and vanquished the efforts at the final stage. As Younger observes, these experiences reflect that the bar has, “for the last two decades, successfully opposed most attempts to revise Rule 5.4.”50 Put another way, in decades that saw the need for legal service rise and access to legal service plummet, the bar has “successfully” excluded anyone who was not a lawyer from participating.
Younger recently put an exclamation point on this issue by publicly celebrating the ABA House of Delegates action to discourage states from regulatory reform designed to address the access-to-justice crisis. He called the action “a huge victory for all lawyers.”51 Not a victory for consumers, not a victory for access to justice. A victory for the lawyers.
I suggest state bars do some institutional soul-searching on this very important issue. To what extent is the bar permitting its members to ward off much-needed new entrants to the marketplace because it threatens their success? Self-serving decision-making often happens in member-governed organizations. It is not hard to wonder whether this is occurring in state-bar rulemaking. Indeed, it is hard to imagine it is not.
Finally, consider the objective of enabling legal service for all. This rationale is not commonly suggested—but it should be. In the context of twenty-first-century realities, our regulatory models should seek to enable every person and organization to have access to the legal service they need. Such an affirmative52 mission comports with our national vision of the rule of law.53 In contemporary America, law is in every person’s life and every business’s business. Accordingly, state bars should enact rules with a goal of enabling legal service, not restricting it.
Whatever state bars decide, this second step identifies the tenets of public policy to which they commit to remain faithful as they examine possible rule changes. It is, essentially, confirming the ground rules before playing the game. If done sincerely, the policy-review process will be therapeutic, leading to a heightened consciousness of why the state bar has rules to begin with.
Before discussing the third and final step, I want to reinforce the importance of sequence. Once state bars begin the process of reexamining the rules, they will be met with stiff and often vitriolic opposition.54 Those who benefit from the status quo will come out of the woodwork and vigorously resist change.55
Younger confirms that this will be so. His essay describes the record of lawyers rising up to resist reform in Florida, California, and nationwide through the ABA.56 Younger reports how lawyers dashed the recommendation of the ABA Commission on Multidisciplinary Practice in 2000, the suggestion by the State Bar of California’s Board of Trustees for innovations in legal services in 2019, and the recommendations of a special committee of the Florida Supreme Court to adopt a regulatory sandbox in 2021.57 Indeed, Younger says states will only be able to achieve reforms like those adopted in Utah and Arizona “if they can overcome strong lawyer opposition.”58
For state bars to evaluate this resistance in the way duty requires, they need to have a solid foundation on the crisis they seek to address and the policy objectives they seek to serve. If they are not on firm footing before the battle begins, it will be nearly impossible to get there through the din of advocacy.59
Moreover, even if they are fully prepared, doing their duty will require leadership in the face of fierce resistance. This is where the courage I mentioned earlier comes in.60 Some excellent role models of courage in this setting are former ABA presidents William Hubbard and Judy Perry Martinez, who led the ABA Commission on the Future of Legal Services in 2016;61 former Utah Supreme Court Justice Deno Himonas and former Utah State Bar President John Lund, who led Utah’s reexamination of their rules in 2020;62 Arizona Supreme Court Vice Chief Justice Ann Timmer, who led Arizona’s reexamination in 2020;63 and Michigan Supreme Court Chief Justice Bridget Mary McCormack, who has led all of us, including judges, in facing up to the flaws in our legal system and helping fix them.64
With a firm grip on the problem to be solved and the public policy to be addressed, state bars should proceed to the third step: examining possible rule changes. Which state rules appear to be contributing to the problems the state has identified? How might they be modified to avoid unintended consequences while remaining faithful to regulatory objectives? If we open the system to new participants, what new requirements and oversight should we establish?
There will be no silver bullets, no surefire solutions, no risk-free ideas. Anyone who suggests otherwise underestimates the complexity of the challenge. What state bars must look for are changes that reasonably give their systems a better chance to achieve their goals, with potential for benefit that outweighs potential costs. Which rules to change, and in what way, will be up to each state given its particular circumstances and norms. But it is each state’s duty to consider what changes need to be made and to make them.
Having said it is up to the state bars, I do have opinions. This Part outlines my recommendations.
At the very minimum, state bars should tailor their overbroad UPL bans, modify Rule 5.4 to permit sharing in financial success and access to equity capital, and adopt a “regulatory sandbox” like the one Utah approved in 2020. I discuss each recommendation below.
At a time when we desperately need more people to deliver legal service to individuals and small businesses, the foundational rule of our legal system tells anyone who is not a lawyer: “Don’t you dare lend a hand.” By its vague terms,65 its criminal penalty, and enforcement actions by state bars and lawyers resisting competition,66 the UPL ban strikes fear in the hearts of all who consider doing work that might be considered the “practice of law.” It is hard to tell what service is prohibited, you might go to jail if you get it wrong, and the state bar and competing lawyers will come after you if you try.
The breadth of this prohibition is the clearest test of the mission of the rules that govern our legal system. If it is to protect the lawyer monopoly, it works like a charm. If it is to ensure justice for all, it is a disaster.67
In America’s first century, law practice was not reserved for lawyers.68 In the latter part of the nineteenth century, states began to restrict who could appear in court.69 By the end of the nineteenth century, as professional bar associations gained popularity and prominence, states began to adopt broader restrictions.70 Over time, state by state, the restriction evolved to its current expansive form and gained criminal penalties for transgressors.
Whatever may have justified this restriction in the nineteenth century, as it has expanded and as it is applied in the twenty-first, UPL rules across the country are unacceptably broad as a matter of common sense, public policy, and law.
The UPL statutes effectively treat all elements of service that implicate the law as the “practice of law,”71 as though every single task associated with delivering legal service requires a law degree. Every lawyer knows that is not true (as does, for that matter, anyone who ever watched an episode of Perry Mason). Many a first-year associate has had the experience of being assigned to a task they could have done in high school and feeling surprised that a client was willing to pay their high hourly rate to do it.72 In truth, legal service requires a set of tasks ranging from the most basic to the most challenging. Some require significant legal training and significant experience. But many, if not most, do not. Even the most complex legal matters involve tasks that do not require a law degree. And the simplest legal matters may not require a law degree at all.
Common sense tells us that in some cases, hands-on experience is more important than law-school education. As Judge Crotty observed in finding the New York UPL ban unenforceable, “[T]here is some common-sense truth to the notion that a non-lawyer ‘who has handled 50 debt collection matters, for example, would likely provide better representation than a patent lawyer who has never set foot in small claims court . . . .’”73 In “common-sense truth,” there are countless meaningful ways people who do not have law degrees can help people with legal issues. It makes no sense to erect a barrier in our legal system that bans them from doing so—particularly when most of our people and small businesses cannot get legal service at all.
As a matter of public policy, we should welcome all the help we can get to participate, in appropriate ways, in getting legal service to those who need it. While we should establish standards for roles that actually require a law degree, there is no reason to require such expertise for every role across the entire spectrum of tasks associated with the law. No sensible theory or empirical proof of potential harm to consumers could warrant such a broad prohibition. In fact, there are no empirical data on harm to consumers by virtue of UPL in the United States.74
There are data from more open jurisdictions which do not show harm to consumers from legal service by others.75 Indeed, they show that consumers often fare better. A study in the United Kingdom, for example, found that lawyers were outperformed by others measured by concrete results and client satisfaction in a variety of matters.76 There are similar findings from other jurisdictions.77 Commonly, experience with the matter at hand is more important than formal training.78 It thus makes little sense as a public-policy matter to issue a blanket criminal prohibition on anyone other than a licensed lawyer participating in any kind of legal service.
There are also meaningful and increasing questions about the legality of the overbroad UPL rules under the Sherman Act and the First Amendment.
State UPL statutes arguably violate the Sherman Act as a restraint of trade. In Goldfarb v. Virginia State Bar, the Supreme Court established that the Sherman Act applies to lawyers and state bars.79 Their actions are only immune if the state has clearly approved the anticompetitive conduct and actively supervises it.80 The Court found that the Virginia State Bar did not meet that standard in a case involving the prescription of mandatory minimum fees.81 In North Carolina State Board of Dental Examiners v. Federal Trade Commission, the Supreme Court held that a dental association did not qualify for immunity for its ban on the “unauthorized practice of dentistry” when it prohibited others from engaging in teeth whitening.82 In the wake of that decision, the North Carolina State Bar settled its litigation with LegalZoom and revised its UPL ban to permit certain online and automated document services.83
Both the U.S. Department of Justice (DOJ) and Federal Trade Commission (FTC) have also long contended that state UPL statutes are overbroad and advised states to narrow them.84 With the evident and serious harm experienced by American consumers and businesses from the anticompetitive effect of overbroad UPL statutes, it is increasingly hard to justify them under the Sherman Act.
UPL bans are also vulnerable to challenges based on the First Amendment. In Upsolve, Inc. v. James, the U.S. District Court for the Southern District of New York held the New York UPL statute unenforceable due to its breadth.85 The case involved an organization that trained and deployed “non-lawyers” to advise low-income New Yorkers facing debt-collection actions.86 The court found their legal advice was “speech” and, under the First Amendment, the UPL statute could not withstand strict scrutiny having neither a compelling interest nor being narrowly tailored.87 As the court observed, “[T]he UPL rules could hardly be broader.”88
I believe there will be more cases like Upsolve, Inc. and that many will prevail.
2. Substitute a Sensibly Tailored Statement of Roles that Require a Law License for the Overbroad UPL Ban
For all these reasons, I believe it is time to reform overbroad UPL bans that unjustifiably limit the supply of legal service.
State bars should replace UPL bans with tailored statements of the roles in which only licensed lawyers may engage. They should draw on their collective experience with the law and identify the roles that actually require a law-school education and limit who can do those.89 Beyond those roles, state bars should welcome assistance. State bars cannot protect the public if they foreclose the help they need. Their rules should encourage participation, not discourage it.
In my view, it would be sufficient to articulate two roles that require a law degree: (1) advocating on behalf of another in state- or in federal-court proceedings and (2) advising another regarding rights and obligations conferred by law. This approach encompasses the roles that require deep legal education and avoids sweeping in services that do not. Beyond that, I believe states can reasonably trust consumers to inform themselves, count on market forces to generate information from providers and evaluators, and rely on standards of care in tort law and prohibitions in the criminal law to enable a more open system to operate safely.
If a state bar concludes that some other legal-service roles, while not requiring a law degree, nonetheless require a particular level of training and experience, then that state bar can specify necessary prerequisites and processes for those roles, as other states have considered.90
State bars will not find it easy to convert from their current blunt instrument approach to a more refined and appropriate structure. The UPL ban is long established—there will be a range of views among the members of the governing entities and spirited argument from advocates for and against change. If state bars have identified their access-to-justice issues and refreshed their understanding of the purpose of their rules, as I have recommended, the task will be easier. But whatever the degree of difficulty, the stakes warrant the effort.
State bars have a few models from which to learn as they consider this issue. A more conservative approach than the one I suggest was developed by a task force empaneled by the ABA in 2002.91 It developed a definition of “the practice of law” under the existing UPL structure as “the application of legal principles and judgment with regard to the circumstances or objectives of a person that require the knowledge and skill of a person trained in the law.”92 Although somewhat tautological, this definition is a step in the right direction. The 2002 ABA task force also enumerated four settings that would be presumed to be “the practice of law”:
(1) Giving advice or counsel to persons as to their legal rights or responsibilities or to those of others;
(2) Selecting, drafting, or completing legal documents or agreements that affect the legal rights of a person;
(3) Representing a person before an adjudicative body, including, but not limited to, preparing or filing documents or conducting discovery; or
(4) Negotiating legal rights and responsibilities on behalf of a person.93
While I think this list includes tasks that do not require a lawyer,94 it provides more guidance than the current UPL ban on conduct that is restricted to licensed lawyers.
DOJ and FTC have also developed guidance for defining the “practice of law.”95 State bars can also look to the experience of the United Kingdom and other more open jurisdictions for guidance. However they get there, state bars should restructure their rules to spell out the specific roles requiring a law license and otherwise welcome and encourage others to participate.
Rule 5.4’s ban on nonlawyers sharing in a law firm’s financial success impedes the ability of lawyers and law firms to attract and retain the talent they need to deliver the best possible service to their clients. Any justification for this ban is outweighed by the harm it causes. It should be repealed.
The modern law firm needs more than lawyers to deliver optimal service to its clients. It needs people who can apply the best of contemporary ideas and tools.
Law firms are simultaneously professional-service organizations and businesses. Beyond expertise in law, they need expertise in the disciplines that enable modern business operations and client service, including process design, technology, finance, strategy, and marketing. While this is true for all law firms,96 it is mission critical for firms that seek to serve the needs of consumers and small businesses. The economics and business challenges of consumer- and small-business-serving firms are distinct from corporate law firms. Firms that serve consumers and small businesses share the high cost of employing lawyers, but their revenue models are lower and less consistent than those of corporate law firms. Consumer and small-business client matters generally involve lower financial stakes and warrant lower fees.97 The matters are also more episodic, which makes repeat business uneven and unpredictable. These differences make building a business that can reach consumers and small businesses while serving them at a fee level they can afford much more challenging.
One of the reasons we have inadequate legal service to meet the needs of this part of the legal market is, without a doubt, the difficulty of making the business model work. Given the high cost of preparing to be a lawyer and the financial challenges of serving this market, not enough firms have been able to make it. And newly educated lawyers seem reluctant to try.98 Meeting this challenge requires new ideas for how to market to clients not accustomed to using lawyers, how to deliver quality service at much lower fee structures while still making a viable income, and how to leverage technology99 to make all this happen. This calls for new process design, new service models, new operating models, new financial models, new software, and new marketing strategies.100
To do all of this requires personnel who have the requisite skills and experience. Law firms that market services to consumers and small businesses commonly lack the level and regularity of cash flow to afford to meet the market compensation for such personnel with salary alone.101 These firms would benefit from the ability to offer their people incentive compensation. If they all work together and make the firm successful, they will all share in the financial rewards. They will receive a share of the profits, and they will receive a share in the equity of the firm. This incentive system has been an indispensable tool in building many of the great modern American businesses. Yet Rule 5.4 prohibits it for law firms.
As the ABA Commission on the Future of Legal Services found in 2016, “[T]he traditional law practice business model constrains innovations that would provide greater access to, and enhance the delivery of, legal services.”102 Rule 5.4 prescribes that model by banning profit- or equity-based incentive compensation systems.103 If you are not a lawyer, you may not share in the profits or equity of a law firm. What justifies this ban on incentive compensation? Nothing that serves the appropriate goals of the justice system.
The ban on sharing profits originated from a concern for corruption in the way clients were incentivized to choose one lawyer over another.104 Over the years, it was gradually modified, ingrained, and practically consecrated105—all without any plausible justice-based justification.
The Arizona Supreme Court’s 2019 Task Force on the Delivery of Legal Services examined the history, rationale, and current effect of Rule 5.4’s ban on fee and equity sharing. As to history, the task force found that “the prohibition was not rooted in protecting the public but in economic protectionism.”106 As to the present, the task force concluded that “it no longer serves any purpose, and in fact may impede the legal profession’s ability to innovate to fill the access-to-justice gap.”107
Younger justifies Rule 5.4 on a single ground: “[T]o prevent nonlawyers from interfering with a lawyer’s independent professional judgment.”108 His essay notes that a lawyer spends “hours”109 completing a course in professional ethics and faces consequences for violating ethical rules. Sharing the financial rewards with nonlawyers, Younger argues, might lead to lawyers being persuaded by their nonlawyer colleagues to abandon their ethics.110 That’s it. No evidence of the moral depravity of nonlawyers, no evidence of such unethical influence in open systems, nothing. Just an assertion that it might happen.111
This argument proceeds from the arrogant assumption that only lawyers can be trusted to act ethically. There is no basis in real-world experience for that assumption.112 While I do believe lawyers take their ethical duties seriously, I have no reason to believe that anyone else who engages in legal service cannot be trusted to do so, too. They may need to learn some new rules, but as Younger tells us, that takes only a matter of “hours.”113
Younger also offers the example of a settlement decision to illustrate how an unethical nonlawyer might interfere with a lawyer’s ethics.114 The nonlawyer, being interested in sharing in the fee (presumably contingent in this example), might push to settle on suboptimal terms rather than hold out for something better. The lawyer, believing it is not in the client’s interest to settle, nonetheless would advise settlement. But this story does not hold water. For starters, there is no reason to believe that ethical lawyers will staff their firms with people who do not embrace their ethical duties. If you assume lawyers take ethics seriously, they will expect their people to do the same. Moreover, even if a nonlawyer advocates settlement out of self-interest, there is no reason to believe the lawyer will abandon her ethics.
Indeed, Younger’s essay seems grounded in the idea that lawyers answer to a higher calling when it comes to ethics. I have enough confidence in lawyers to be comfortable that they can withstand ill-advised pressure from “nonlawyers” regarding the advice they give their clients. Indeed, lawyers commonly face pressure to deviate from their ethics: a client that wants approval to do something they should not do or a law partner that elevates financial issues over client responsibilities. In my experience, lawyers have a good record of resisting such pressure. If I am wrong, then what ethical standard is Rule 5.4 protecting? Either we have confidence in lawyers’ commitment to their ethics, or we do not. I do.
Moreover, if nonlawyers do cause lawyers to violate their ethics, the lawyers will still face consequences115 even if Rule 5.4 is modified. The revised rules can also provide for sanctioning the nonlawyers and the firm for causing the improper conduct.
The argument for retaining Rule 5.4 really seems to boil down to preserving the lawyer monopoly. This was starkly evident in Younger’s comments celebrating the ABA House of Delegates’s most recent resistance to reform. He called it “a huge victory for all lawyers,”116 with no reference to client welfare or ethical integrity. If the real motive here were either of those ideas, Younger would have celebrated them, rather than the lawyers Rule 5.4 shields from competition.
Building a successful law firm requires capital. Most businesses have three options to raise it: self-funding, debt financing, and equity financing. Law firms have only the first two because Rule 5.4 bans the third. Even though equity is the most attractive form of capital for many startup or cash-flow-challenged firms—earning its return by spreading the risk of the new or innovative business—law firms cannot use it. Rule 5.4’s ban on access to equity capital thus further impedes the innovation our legal system needs, particularly the legal-service providers who serve consumer and small-business clients. As Justices Kourlis and Gorsuch put it: “This restriction on capital investment reduces the number of market participants, which in turn prevents competition from reducing costs.”117
As discussed previously, one of the reasons for the inadequate supply of lawyers serving consumer and small-business clients is the challenge of building a business model that can serve a relatively low-revenue client base with unpredictable cash flow and a traditionally high cost of delivering service. To address the access-to-justice crisis, we need more law firms with creative new models to surmount this challenge. Such firms will need capital at the outset and as they develop to support their investments and navigate the ebbs and flows of their income statements. Our rules, therefore, should enable equity capital, not ban it.
Adherents claim that outside investors will infect lawyers with a profit motivation and cause them to disregard their ethical obligations. As Younger says, “[N]onlawyers . . . might prioritize profit over the duties the lawyer owes to clients.”118 This claim does not comport with reality. For starters, lawyers do not need outsiders to give them the profit virus. Partners in leading American law firms have organized their firms so that partners earn millions of dollars each year, with many firms averaging more than three million dollars in profits per partner and the highest-performing partners earning substantially more.119 If lawyers were going to put profits ahead of ethics, it has already happened. But I do not think that is what lawyers do.
To the contrary, I think the record suggests the opposite. It shows that firms with the highest ethical standards can build very profitable businesses.120 In legal service, profits and ethics can coexist. Every lawyer wants to make a living, and many would like to charge high fees. But lawyers, I contend, see themselves as true professionals first and businesspeople second. That is, in fact, at the heart of Younger’s thesis. As I said previously, I am confident that lawyers can and will resist pressure to abandon their ethics as, if, and when it arises. And, if we cannot trust lawyers’ so-called higher calling, they can be sanctioned—as can the investors who persuaded them to act unethically.
As an alternative or additional response to the access-to-justice crisis, state bars should consider creating regulatory “sandboxes” in their respective states to allow experimentation, invite innovation, and gather data on how effectively and safely new ways of delivering legal-service work.
Regulatory sandboxes have been used successfully in financial services and other settings.121 A regulatory sandbox for legal service would normally involve several steps.122 First, the state bar determines that it wants to encourage innovative approaches to delivering legal service, including ones that may not presently be permitted by its rules. It then creates a regulatory body to oversee the process. That regulatory body sets up processes and criteria for applicants to seek approval to deliver legal service in a particular way. Each proposal is evaluated and, if approved, is granted temporary permission during a trial period to deliver legal service according to their proposal. During the trial period, the entity’s performance is monitored by the regulatory body. At the end of the trial period, the regulatory body evaluates the entity’s performance and, if warranted by the evidence, issues permanent permission to pursue its new model. Throughout the sandbox process, the regulatory body assembles data on innovative ideas and the performance of all entities admitted to the sandbox.
The sandbox signals to all stakeholders that the state bar wants to foster innovation in the way legal service is delivered. In turn, it generates new processes and models that will inform us all. It also gathers invaluable data about how these models actually work. And it will do it all under the supervision of the regulatory body, ensuring safety.123
The state of Utah set the standard for others to follow in adopting a regulatory sandbox in 2020124—both in how it decided to adopt the sandbox and what it did. Utah decided to adopt a sandbox through collaboration between the state bar and the state supreme court. Both the Utah State Bar president, John Lund, and a Utah Supreme Court Justice, Deno Himonas, believed the regulatory model needed reform and that the sandbox was the best way to proceed.125 Having these two leaders on board from the outset facilitated the process significantly.
The Utah sandbox is overseen by the Office of Legal Services Innovation, which John Lund agreed to head in its formative years.126 As a companion action, Utah modified Rule 5.4 to permit fee sharing and equity ownership while requiring such arrangements to go through the sandbox process.127 The sandbox also specifically contemplates proposals in which “nonlawyers” deliver legal service and reserves discretion to grant waivers for other innovations that applicants may propose.128
As it has proceeded with the sandbox, Utah has developed ways to categorize, measure, and monitor risks to consumers and is gathering data daily about how the innovative approaches it has approved have fared. To date, Utah has authorized forty-two entities to offer services in the sandbox yielding more than 24,000 legal services to 19,000 separate consumers.129 These reforms have won widespread praise, including from Justices Kourlis and Gorsuch, who “encourage others to follow suit.”130
Younger asserts that advocates for reform do not have “compelling evidence” that their proposals will fix the access-to-justice crisis.131 I am not saying my recommendations are certain to work. I am saying this: if we open our system to permit it to benefit from people, models, and technology that are currently foreclosed, we are highly likely to do better. I propose that we stop prohibiting possibilities.
We cannot predict the future. The time it will take for reforms to play out, the sequence of events, and the eventual outcomes are not knowable in advance. But we have plenty of reason to be confident that it will be better than the status quo. Indeed, we do have “compelling evidence” of this: the current closed system leaves most of our people and small businesses without legal service.
Younger also claims that there is no evidence from the early results of more open systems that such systems are improving access to justice.132 Not so. The data available on the Arizona and Utah websites show a significant number of firms participating, a healthy mixture of areas of law being offered by the approved participants, and thousands of people and businesses being served.133 That is progress.
Younger also asserts that many of the firms approved for alternative business structures in Arizona and Utah’s sandbox offer business-law services.134 But small-business clients are a significant part of the crisis we need to solve. Moreover, most of the firms that Younger labels business-oriented also offer services to individuals—specifically divorce, custody, debt-collection, eviction, estate-planning, and immigration legal services.
Younger criticizes some of these entities for deviating from the traditional model in ownership and service. But that is the point. The traditional model does not reach most of our people and small businesses. We need new ways. The traditional model is failing us.
Most important, however, is this: the Arizona and Utah models are just getting going. It is far too early to have enough data to evaluate the impact they will have.135 It will take time for people and organizations to react to the new opportunities Arizona and Utah have created.
Younger says that lawyers are innovative and that it would be wrong to claim that there can be no innovation without “nonlawyer ownership.”136 I agree. But it is irresponsible to deny law firms access to resources that could make them more innovative and effective than they otherwise would be.
Finally, Younger lauds lawyer pro bono activities and innovative programs “promoted by members of the bar to expand access to legal services.”137 I commend these activities too and hope law firms will continue to give generously to this important cause. But pro bono efforts will never be enough to meet the needs of the underserved. The scale of the challenge is too massive. In 2016, scholars calculated that it would cost forty billion dollars to deliver one hour of pro bono work to each person in America who could not access legal service.138 One hour will not accomplish much, and rates have gone up—at twenty hours per person and modestly higher rates, the tab exceeds one trillion dollars.
We need to unleash the potential of private enterprise. While the size of the underserved population makes the lack of access to legal service a social crisis, it also creates an enormous market opportunity. We need to permit people with a diverse set of skills to work with lawyers to create new models that can address it. Not all will succeed, but, over time, many will. That is our best realistic hope to close the justice gap.
America’s access-to-justice crisis requires all state bars to take action. It is truly unacceptable that most of our people and small businesses do not have access to the legal service they need. Whatever the history and purpose of the rules, state bars have created a reality at odds with America’s dedication to justice for all. Their rules must be reformed.
This will require state bars to lead: to face up to their reality, to pursue their core mission, and to inspire their lawyers to embrace new approaches. Reform will not be easy. Success will not be assured.
But failure to act is a dereliction of duty.
Ralph Baxter served as Chairman & CEO of Orrick, Herrington & Sutcliffe from 1990 to 2013. He now serves as an adviser to legal technology companies and public-interest projects, including service on the advisory boards of the centers on the legal profession at the Harvard and Stanford law schools, and of the Legal Services Corporation. The author expresses his gratitude to Zack DeMeola for his counsel and support in considering the issues addressed in this Essay. Among America’s most thoughtful observers of our legal system, Zack is currently Director of Strategic Initiatives at the Law School Admission Council and a member of the Governing Board of the ABA Center for Innovation.