[First published on slaw.ca.]
Regulation of legal services differs in important ways across the common law world. In Canada, self-regulation is generally the approach. Canadian law societies are authorized by provincial legislatures to decide who can practice law and provide legal services. The substantial majority of the governors of the law societies are lawyers elected by lawyers. In Ontario, paralegal benchers are elected by regulated paralegals.
In England and Wales, the Solicitors Regulation Authority and the Bar Standards Board are the regulators. The majority of the governors of these regulators are not solicitors or barristers.
In the United States, the state courts are the regulators. While lawyers have an active role, the courts are the ultimate decision-makers.
The American Bar Association and legal services innovation
The American Bar Association plays an interesting role in the U.S. context. The ABA is not a regulator, rather is “the national representative of the legal profession”. As a voluntary bar association, the ABA is governed by its House of Delegates. The ABA promulgates its Model Code of Professional Responsibility which is the starting point for the rules adopted in most states. The ABA plays an important harmonizing role with respect to legal education and legal ethics.
With this background, it is interesting to consider struggles within the ABA to address the question of innovation in the provision of legal services. The “modern” starting point is probably the ABA Kutak Commission of 1983. The Kutak Commission proposed a rule permitting non-lawyer ownership of law practice entities. The proposal was on the basis that “[a]dherence to the traditional prohibitions has impeded development of new methods of providing legal services”. The proposal was soundly defeated by the lawyers in the House of Delegates. As James Moliterno has put it “The attractive possibility that ordinary Americans might be able to obtain simple legal services quickly and easily was of no matter.”
The next time the ABA addressed this question was during the Ethics 20/20 Commission commenced in late 2011. A discussion draft from the Commission invited comment on limited non-lawyer ownership in law firms. The response from lawyers was little different than in 1983. The Illinois State Bar Association and the Senior Lawyers Division filed a resolution apparently designed to prohibit even discussion of the topic. The 20/20 Commission abandoned further discussion of the topic.
In 2015, William Hubbard, the then President of the ABA, established the ABA Commission on the Future of Legal Services, which was established to “make recommendations on how technology and innovation can help expand the availability of affordable legal services to the poor and middle class”. This approach was notably different that the Kutak Commission and Ethics 20/20 being expressly focused on unserved and underserved legal needs.
After an impressively thorough and thoughtful process, the Final Report of the Commission on the Future of Legal Services is expected to be released in August 2016. The Commission has proposed one resolution to the House of Delegates which was adopted (with a significant amendment).
Specifically, the Commission proposed and the House of Delegates adopted the ABA Model Regulatory Objectives for the Provision of Legal Services as follows:
- Protection of the public
- Advancement of the administration of justice and the rule of law
- Meaningful access to justice and information about the law, legal issues, and the civil and criminal justice systems
- Transparency regarding the nature and scope of legal services to be provided, the credentials of those who provide them, and the availability of regulatory protections
- Delivery of affordable and accessible legal services
- Efficient, competent, and ethical delivery of legal services
- Protection of privileged and confidential information
- Independence of professional judgment
- Accessible civil remedies for negligence and breach of other duties owed, disciplinary sanctions for misconduct, and advancement of appropriate preventive or wellness programs
- Diversity and inclusion among legal services providers and freedom from discrimination for those receiving legal services and in the justice system
The resolution urged that:
each state’s highest court, and those of each territory and tribe, be guided by the ABA Model Regulatory Objectives for the Provision of Legal Services when they assess the court’s existing regulatory framework and any other regulations they may choose to develop concerning non-traditional legal service providers.
This resolution was consistent with approach taken in the establishment of the Commission, which was to focus on legal needs and not just providers of legal services. Significantly, the resolution proposed a principled approach by the regulators (the state courts) in assessing existing and proposed regulatory frameworks concerning non-traditional legal service providers.
While the House of Delegates adopted this regulation in February 2016, there was controversy and an amendment to the original proposal namely that:
… nothing contained in this Resolution abrogates in any manner existing ABA policy prohibiting non lawyer ownership of law firms or the core values adopted by the House of Delegates.
During the winter of 2016, the Commission released three Issues Papers one of which was regarding Alternative Business Structures. The comments received were, by now, predictable. Perhaps the most precise was the response of the ABA Family Law Section:
On behalf of the Section of Family Law, we pose the following question: WHAT PART OF “NO!” DO YOU NOT UNDERSTAND? We remain unalterably opposed to these repeated, previously failed efforts to foist ABS upon our profession or our ethics.
When the time for presenting further resolutions by the Commission passed in the spring of 2016, the Commission did not make any proposals. This is not particularly surprising given the nature of the ABA. Some will no doubt see the responses by the House of Delegates as principled. Others will see self-interested protectionism by a voluntary bar.
What seems to me most interesting is that this is an issue that clearly isn’t going away yet the ABA seems unable to come to terms with it. This seems inevitably tied to the reality that market incumbents tend to perceive issues in accordance with their own interests and to protect their own interests.
One conclusion that might be drawn is that non-lawyer investment in law firms is a dead letter in the U.S. because the lawyers in the House of Delegates will never allow it. But I think the better conclusion is that the ABA has ceased to be the practical decision-maker because of its conflicted and ineffective governance in this context.
So, what is the evidence for the later conclusion?
The State courts and legislatures
The first is the decision of the United States Supreme Court in North Carolina Board of Dental Examiners v. Federal Trade Commission in which the Board of Dental Examiners took issue with “non-dentists” whitening teeth. At issue was whether the Board was protected from anti-trust prosecution by state-action immunity. The majority held that:
When a controlling number of the decision makers on a state licensing board are active participants in the occupation the board regulates, the board can invoke state-action immunity only if it is subject to active supervision by the state.
Where the state courts are the decision-makers or actively supervise state bars, this decision appears irrelevant. However, the decision clearly raises the risk of anti-trust prosecution for voluntary bar organizations and reinforces that the state courts are the decision makers with respect to practice of law. Recourse to the courts becomes a choice where self-regulation limits competition.
The second is activity within the state courts (as regulators rather than as adjudicators) to address impediments to access to justice. While focused on access in the litigation context rather than legal services more generally, the state courts are fairly seen as innovators compared to the ABA House of Delegates.
The New York State Court provides an example with its New York State Courts Access to Justice Program. The stated mission of the program is:
To ensure access to justice in civil and criminal matters for New Yorkers of all incomes, backgrounds and special needs, by using every resource, including self-help services, pro bono programs, and technological tools, and by securing stable and adequate non-profit and government funding for civil and criminal legal services programs.
The limited reference to “civil and criminal matters” is notable but so too is the reference to using “every resource” including “technological tools”.
The Illinois Supreme Court Access to Justice Commission similarly is charged with “promoting, facilitating and enhancing equal access to justice with an emphasis on access to the Illinois civil courts and administrative agencies for all people, particularly the poor and vulnerable”.
The third is activity from legislature and from competition authorities. The end of self-regulation in England and Wales came in large part from concern that self-regulation was inherently protectionist and was limiting access to legal services by limiting innovation in the provision of legal services. The result was the Solicitors Regulation Authority and the Bar Standards Board.
There is recent evidence of such activity in the United States. A bill has just been adopted in North Carolina which would “exclude from the statutory definition of the practice of law the operation of a website that offers consumers access to interactive software that generates legal documents in response to consumer input”. This bill follows litigation between the North Carolina State Bar and Legal Zoom that was recently settled. At issue was the application of the North Carolina Board of Dental Examiners case to attempts by the North Carolina State Bar to ban Legal Zoom as unauthorized practice.
On June 10, 2016, the Federal Trade Commission and the Ant-Trust Division of the US Department of Justice wrote sharing their views on the North Carolina Bill. As they wrote:
The Division and FTC staff believe that “the practice of law” should mean activities for which specialized legal knowledge and training is demonstrably The Division and FTC staff believe that “the practice of law” should mean activities for which specialized legal knowledge and training is demonstrably necessary to protect consumers and an attorney-client relationship is present. Overbroad scope-of-practice and unauthorized-practice-of-law policies can restrict competition between licensed attorneys and non-attorney providers of legal services, increasing the prices consumers must pay for legal services, and reducing consumers’ choices.
The underlying theory of this bill appears to be to draw a line between traditional legal practice (the practice of law) and new forms of legal service delivery. The intent would appear to be to separate regulation of “the practice of law” from regulation of new ways of providing legal services and thereby to limit the ability of lawyers to inhibit competition.
The strong position of the House of Delegates has been to seek to ensure that the practice of law is not contaminated by other interests. The conundrum is that the practice of law, as currently permitted, does not fully satisfy the legal needs of middle and low income people.
There are two paths through this conundrum. One is to encourage innovation in the practice of law by allowing access to capital and expertise, particularly technological. The other is to allow innovation by “non-lawyers” while keeping the practice of law unchanged.
With the ABA House of Delegates having firmly drawn a line in the sand, it may be that the state bars will become the regulatory innovators permitting change in the way that law is practiced. It may also be that the ambit of “practice of law” will become important with innovation being permitted outside of the “practice of law” as narrowly defined. The later course suggests that the role of the legislatures and competition authorities could increase in importance and that the courts (and the House of Delegates) will be limited to the traditional practice of law.
What are the implications for Canada, if any?
We know that lawyers primarily serve people in criminal law, family law, personal injury, real estate and wills & estates work. Outside of these areas (the so-called 85%), ordinary people don’t use lawyers to address legal problems. Within the traditional areas, approximately two-thirds of family law litigants do not use lawyers.
Self-regulation in Canada is challenged by unserved and underserved legal needs and by new ways of providing legal services. There is no doubt but that protectionist pressures on law societies exist both in election campaigning and by fact that the majority of law society governors are market incumbents. While professional interests and the public interest are aligned in much of what professional self-regulators do, this is not so where policy choices involve competition for the profession. Presumably, the challenge is less where needs are unserved or underserved. In areas of existing professional practice, the challenge is much greater.
North Carolina may be taking a different approach than the usual approach to ABS which is to facilitate new ways of providing legal services without affecting existing legal practices.
This is resonant with English legal services regulation where it is necessary to be “authorized” to provide legal services only in certain “reserved areas”. The legal services regulators do not have authority over unreserved areas except where services are provided by regulated persons. In effect, the North Carolina bill would create an unreserved area by limiting the definition of “practice of law”.
One of the available policy choices for us is to allow new service provision in unserved and underserved needs while leaving existing practices to serve the legal needs that they now serve. Embedded in this policy choice is the question of whether new service providers should be regulated and, if so, by whom. The English experience suggests that ordinary consumer protection law may be sufficient to address unreserved areas. The U.S. experience suggests that self-regulators may be too conflicted to be regulate new market entrants in the public interest.
The same question and challenge was raised in Ontario when paralegal regulation was being considered. Having the Law Society become the self-regulator of lawyers and paralegals was naturally of concern to many paralegals and to policy observers. Would lawyer self-interest compromise paralegal regulation? The answer is mostly that things have worked out pretty well despite early tensions. However, it is also right to observe that human nature is unchanged and both lawyer and paralegal benchers are affected by their professional self-interests. But this tends to get worked through because benchers work together and, on most issues, can collectively get past their self-interest. But this is not so on all issues.
A point of this reflection on paralegal regulation is that a self-regulator that regulates new professions or new ways of providing services thereby must change its nature. The Law Society of Upper Canada became different when it became the regulator of Ontario paralegals. If law societies seek to regulate new forms of providing legal services, it inevitably follows that the nature of law societies will change. This is not necessarily a bad thing given the additional perspectives would result. But for those who see independence of the legal profession (as well as independence of individual lawyers) as of fundamental importance, this prospect will be of concern.
Where does this leave us? It seems to me inevitable and proper that new ways of providing legal services will be allowed in unserved and underserved areas. Whether Canadian law societies are up to the challenge of allowing this is unclear. But if they don’t, someone else will.
If encouraging the evolution of the existing practice of law with new forms of capital and expertise is not in the cards, permitting new entrants is the alternative. The question then will be how new entrants should be regulated and by whom.
For traditionalists, it seems to follow that the preferred approach would be the English approach; to allow new entrants in areas not currently well served and not to seek to have the law societies regulate them. In this way, existing legal practises and self-regulation are protected while innovation is encouraged where it is most needed. While ironic, the answer for those who wish to avoid competition from new entrants may be limited de-regulation.
For those who prefer to see traditional legal practices evolve to address unmet legal needs, there is also some value in this approach. New entrants in underserved areas will challenge those now providing services. This competition will cause evolutionary change for the incumbents. However, limiting access to capital and expertise to incumbents will limit the ability of the incumbents to evolve to face new challenges.
Do we allow new entrants where there are unmet legal needs? It seems to me that if law societies don’t then someone else will. Should law societies seek to regulate new entrants? If they do, they will change as a result, which isn’t necessarily a bad thing – but it is a thing. Should existing legal practices be allowed new resources to evolve? If so, there will be change. Probably not as much change as is feared by many – but again a thing. On the other hand, refusing to permit evolution has its own risks.
Making choices is hard. But, as Chief Justice McLachlin has said, “The question is not whether the rules governing the legal profession should be liberalized, but how”.
 In Québec, the Barreau and other professional regulators are supervised by the Office des Professions
 In Ontario, the regulated sphere was expanded to include all legal services when paralegal regulation was undertaken in 2006
 This is mostly but not completely true. In some states, the state legislature has jurisdiction. As well, other authorities before which lawyers practice assume regulatory authority over those lawyers. The SEC is an example. This may be seen as analogous to the courts regulating rights of audience.
 In Canada, the situation is quite different with the Federation of Law Societies playing this harmonizing role.
 James E. Moliterno, The American Legal Profession in Crisis: Resistance and Responses to Change, 2013 at p. 165
 Stephen Gillers, How to make Rules for Lawyers, the Professional Responsibility of the Legal Profession. (2013), 40 Pepperdine Law Review 365
 The other large part was ineffective investigation and discipline of misconduct