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May 22, 2006

There is a Better Way: Litigation Reform and Reinvigorated Lawyer Licensing

By Jonathan B. Wilson

Larry’s argument seems to have a central premise: requiring lawyers to be licensed decreases the supply of lawyers and increases their price; the public would be better served by increasing supply (via reduced licensing requirements) with a consequently lower cost:

“Yet while a license arguably communicates little useful information, in many respects licensing sets too high a bar. How much legal history, philosophy and economics, to name a few of the subjects students learn in law school, does a lawyer need to handle a real estate conveyance, to name one of the subjects few students learn in law school?

Because all this costly learning reduces the availability and raises the costs of legal advice, licensing hurts the poor and lower income people licensing it is supposed to help. Their only recourse may be self-help. I’m reminded here of a study showing that regulation of electricians increased electric shocks to do-it-yourselfers. “

I agree that there are days when I wonder why I needed to sit through all those hours of classes. I have the same thought when I go into to see my doctor about a wart on my arm and he proceeds to burn it off with some liquid nitrogen, only to bill my HMO $85 for an exercise that took him only 3 minutes. (That’s $1,700 per hour for you lawyers who don’t have calculators).

But then I remember those moments in my career when I spotted an issue my client missed because something in my legal training allowed me to pull together disparate pieces of information. And that is why both lawyers and doctors should be required – by law -- to have a substantial course of training before they can practice in public.

The nurse (who is also licensed, by the way) could have burned off my wart, but every now and again my overly-trained doctor is going to spot an issue the nurse might have missed. Individual transactions might create an appearance of overpricing, but each transaction comes loaded with liability for the doctor. A substantial part of the doctor's value rests in issue-spotting and being able to react immediately to an emergent situation. So it is also with lawyers.

Does this tend to decrease the supply and increase the price of lawyers? Perhaps.

Those corporations who purchase legal services from the AmLaw 100 probably would not notice a difference if lawyer licensing were eliminated. The unlicensed Tom, Dick and Harrys of the world probably won’t be competing for the same clients as, say, Cravath, Milbank, King & Spalding, and so on.

The impact will be greatest on those who cannot afford lawyers now, the poor and the middle class. Today they rely on Legal Aid, legal clinics, friends, neighbors, relatives and self-help. They’ll still rely on these old standbys in a deregulated future, but they’ll also be tempted to try unlicensed alternatives and here is where the mischief will be made.

Online services and other unlicensed individuals will setup shop to sell legal services that they are prohibited from selling today. Their contributions to the legal “marketplace” will have no effect on the price of legal services to corporations, who will continue to buy top shelf lawyering, but they will sell their services to the poor and the middle class. To the extent their unlicensed services are deficient; it is the poor and the middle class who will feel the brunt of those failures.

Will some unlicensed practitioners supply a need that is unmet today? Probably so. And so would the unlicensed doctor who might provide unlicensed healthcare at a cut rate with 90% accuracy. The problem will come from the 10% error rate.

Imagine the horror stories that will quickly abound when the floodgates to the legal market are flung open. Dateline, 20/20 and every investigative reporter that ever caught a scoop will do a piece on some middle-class family who was duped by unlicensed lawyering. Inevitably every piece will end with a “call to action” which will quickly become a “call to regulation”. Either the legal profession will be re-regulated (and under what scheme we cannot know) or the legislature will be called upon to regulate whatever particular transaction seems to be causing the most pain.

The outcome, for those free market advocates among us, will be one with more regulation, and not less.

Barristers Anyone?

Professor Ribstein suggests that we might return to the English distinction between barristers (who are licensed to appear in court) and solicitors (who may practice law without appearing in court). This distinction appears in many other first world legal systems and might well be an improvement on our own.

But we could implement a distinction between barristers and solicitors without abandoning the state licensure of attorneys. If you would like to increase the licensure requirements for lawyers who file pleadings, but decrease the requirements for lawyers who don’t: go right ahead.

But if Professor Ribstein’s central thesis (that restricting the supply of lawyers artificially inflates the price of lawyers) wouldn’t this restriction exacerbate the problem?

Litigation Lottery

Larry reacts to my argument that the loss of licensure would stimulate further unnecessary or non-meritorious litigation:

“There are better ways to deal with excessive litigation. We could have stricter pleading rules, or require losers to pay winners’ fees. Or how about this: let anybody into court, but adopt a loser pays rule for parties that come into court represented by anything less than a lawyer with the highest possible trial certificate. “

These are all great tort reform ideas, of course, and many have been discussed on these pages. As our dedicated readers know, however, most litigation reform proposals get shot down either (a) in legislatures dominated by the trial bar or (b) by state supreme courts who find constitutional infirmities in any changes to the rules. Both efforts are often supported by a credulous and uninformed mainstream media that is too quick to believe the trial lawyers' spin that reforming litigation will “lock the doors to the court house” etc.

If litigation reform is tough when every plaintiff is represented by a licensed attorney, how much more difficult will it be when pro se plaintiffs are going to bear their adversaries' costs in an unsuccessful suit? From a “free marketer’s perspective” there is a certain theoretical elegance to a loser-pays rule for pro se plaintiffs, but if 45 of the 50 states (plus the federal courts) are already frightened by loser pays, they’re never going to accept loser-pays for those who cannot afford licensed attorneys. All of the “eat the rich” arguments that the trial lawyers use to defeat these proposals today will have even more teeth when the proposals are selectively aimed at those with unlicensed attorneys.

A Truly Better Way

Professor Ribstein is right when he says, “There’s a lot of discontent with lawyers. The masses are ready to storm the citadel. The time has come to contemplate the end of the lawyers' cartel.”

Here’s a better way to do it:

The President has carped about “frivolous lawsuits” for years but, apart from supporting the Class Action Fairness Act, he really hasn’t done anything about it. Here is a modest proposal through which the President can harness the energies of those who would “storm the citadel” and simultaneously allow the President to take the moral high ground in this debate:

Empanel a blue ribbon commission of lawyers, academics, economists and business leaders to examine the question: Why is there so much litigation in American and what should we do about it? In the dialogue before the commission is announced, float a trial balloon that one of the ideas the commission will investigate is the elimination of state lawyer licensing.

Merely whispering this idea will prompt the state bar associations to reform in ways not previously imagined. There is nothing that they fear more than losing the power to regulate their profession. (As a former member of the Board of Governors of the State Bar of Georgia, I’ve been party to conversations along these lines).

The process, with public hearings and the inevitable report and sound bites, will educate the public and the media. The state bars will spring to action, tightening their licensing requirements and toughening their reactions to rogue lawyers.

This may not be a perfect plan, but it’s better than eliminating lawyer licensing.

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Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.