If You Really Want To Open The Legal Marketplace, Let Solo And Small Firm Lawyers Compete
Alternative providers aren't the ones really suffering under state bar requirements...
Q: What happens when a technologist, a venture capitalist and an academic walk into the bar?
A: They trash it, kick out the owners take it over for themselves.
Oh wait — you weren’t talking about the legal bar?
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Ho hum, another day, another thrashing and trashing of lawyers, this time at Big Law Business by Edward Hartmann, Legal Zoom co-founder and Oliver Goodenough, a law professor who’s probably never represented individuals or practiced law as a firm owner rather than a Biglaw employee. Channeling Ronald Reagan’s challenge to Gorbachev at the Berlin Wall, Hartman and Goodenough implore the legal profession to tear down that guilded wall and for God’s sake, “open the legal marketplace” so that non-lawyers can compete alongside lawyers and reduce the high cost of legal services.
Hartmann and Goodenough claim that they’ve got nothing against lawyers – heck, we’re lawyer’s ourselves, they admit. (which is kind of like saying “Some of my best friends are African American/Jewish/gay/fill in the blank.” Yet like others of their ilk , Hartmann’s and Goodenough’s solutions — whether it’s endorsing certification of “legal technicians” or promoting delivery of legal services online or supporting outside ownership of law firms — remove lawyers from the equation, and make them secondary players.
Meanwhile, Hartmann and Goodenough ignore the myriad of regulations that burden solo and small firm lawyers that impede their ability to compete. Consider advertising regulations. LegalZoom can advertise that its contracts and forms are developed by expert attorneys — yet lawyers with 40 years of subject matter experience in criminal defense or trusts and estates or family law can’t hold themselves out as experts in their area of expertise.
Trust account requirements hobble solos and smalls in the past and continue to make it difficult for them to onboard clients as quickly and seamlessly as Legal Zoom. Because of trust accounts, many regulators would not even permit lawyers to accept credit card payments, because they need to be directed to trust accounts — and if a client initiated a charge back, it could put other client funds at risk. Likewise, once trust account requirements are introduced, other affordable services that lawyers might offer (like Groupon) become economically infeasible because, really, who’s going to pay for a Groupon ad, collect $99 for a will up front, hold it in trust, never have it redeemed and then return the cash, which is North Carolina’s genius solution. LegalZoom can collect credit card payments up front and use the cash immediately, which ensures a steady cash flow. Credit cards would give solos sufficient protection (and more protection than trust accounts, but regulators persist in keeping the regulations complex.
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Restrictions on referral fees also put solos and smalls at a competitive disadvantage to platforms like Avvo. With Avvo Legal Services, customers pay an upfront fee to Avvo for a will, corporation or other legal service. Avvo refers a participating lawyer to handle the task, then collects a cut — which is characterized as a marketing fee. Yet, some jurisdictions outright bar referral fees; others permit them only if the lawyer collects a fee proportionate to the work performed. As a result, a solo or small firm attorney who works to develop a great relationship with clients and in the community and is constantly approached for referrals to other lawyers can’t profit financially like Avvo. And for many solo and small firm lawyers, a steady stream of revenue from lots of small referrals (not to mention a big chunk for a large fee) can make the difference between a struggling and sustainable practice.
Finally, perverse regulations on flat fees prevent solos and smalls from simplifying pricing for clients and providing the kind of fee certainty that Legal Zoom can offer. Many regulators don’t allow solo and small firm lawyers to treat flat fees as earned on receipt, which means that a solo collecting $5000 for a criminal misdemeanor technically can’t take a dime of that money until the case concludes two years later. And while there are ways around these restrictions (such as setting milestones in the representation agreement where fees are deemed earned on receipt), that can add to the complexity of the representation agreement.
While these regulatory requirements apply to all lawyers, they disproportionally burden solos and smalls. Trust accounts add enormous administration costs, and expose them to draconian liability for minor violations. Advertising regulations entail substantial compliance costs and again, prevent solos from touting skills that they actually have, while enabling companies like LegalZoom to promote skills that it doesn’t have. And the profession’s penchant for the billable hour stifles innovation in billable practices that could help solos and smalls attract clients. Innovation doesn’t matter as much to big firms since their clients will pay no matter what, while large firms don’t engage in the kinds of advertising on radio, internet and social media that is often a staple of solo and small firm lawyers.
Hartmann and Goodenough ignore all of these regulations that prevent solos and smalls from competing and offering lower rates for certain types of service. The omission isn’t mere oversight; it’s intentional. Because let’s face it: Hartmann and Goodenough don’t really want to expand access to affordable legal services provided by solo and small firm lawyers because solos and smalls pose a threat to their respective business interests — online legal services and Biglaw. At the end of the day, Hartmann and Goodenough are as exclusionary as the guilded bar owners that they seek to displace.
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Carolyn Elefant has been blogging about solo and small firm practice at MyShingle.comsince 2002 and operated her firm, the Law Offices of Carolyn Elefant PLLC, even longer than that. She’s also authored a bunch of books on topics like starting a law practice, social media, and 21st century lawyer representation agreements (affiliate links). If you’re really that interested in learning more about Carolyn, just Google her. The Internet never lies, right? You can contact Carolyn by email at [email protected]or follow her on Twitter at @carolynelefant.
