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Should Non-Lawyers Own Law Firms?

By Harry S. Margolis

Under the professional ethical rules governing the practice of law, law firms cannot have non-lawyer owners or investors. The theory behind this restriction is that nonlawyer owners would not be bound by the professional rules of lawyers and could influence their lawyer employees to violate those rules. Of course, lawyers already work for nonlawyers as in house general counsel to corporations and non-profit organizations, but in those cases their employer is also their client, so no conflicts arise.

Inefficiency of Legal Practice

In theory, at least, this maintenance of lawyer independence is meant to be for the benefit of clients who will receive the lawyer’s undivided attention as well as the protections inherent in the rules of professional responsibility. But I would propose that the result is underinvestment in legal services causing many clients to receive lower-quality legal services at higher cost. This is more likely to be true in types of representation that could be routinized, such as standard estate planning, than for more complex situations that require  unique solutions. The attorneys providing consumers with legal representation in the fields of estate planning, probate, divorce, bankruptcy and misdemeanor criminal representation largely consist of mom-and-pop shops of solo practitioners and small firms. No matter the integrity, experience and legal skills of each attorney, they do not have the resources to develop state-of-the-art systems that would bring down costs and raise standards for consumers.

Contrast your experience today purchasing airline tickets or books online with that of locating and then meeting with an attorney. Your online experience will be efficient, accessible from anywhere at any time, and constantly improving. To meet with an attorney, you will have to make an in person appointment and travel to a brick and mortar building where you will meet with an attorney taking notes on a yellow legal pad. No doubt, there’s something reassuring about this and I am a strong believer that the quality of an in-person meeting in terms of the ability to elicit information and to consider goals and options makes it indispensible in many situations. But it is far from efficient and should not be the only model available to consumers.

Consider the alternative: In the realm of estate planning, why couldn’t consumers use a smart online system that brings them through a decision tree that adjusts to their situation and goals, resulting in the system producing finely individualized estate planning documents? If Turbo Tax can do it with the Internal Revenue Code, why can’t this be accomplished in most legal fields? There are a few answers to this question:

First, legal planning in many fields is more complicated. It’s not just a question of dollars, cents and rules, but involves options for the client and often uncertainty as to future situations, including health and solvency.

Second, the laws of each state differ, so a program that works in New York would have to be modified for California.

Third, there is a lack of resources. No single law firm has the resources to develop a smart system or to do the advertising necessary to recruit enough clients to justify the cost of developing the system. And law firms may not raise money from investors to do so.

In contrast, a corporation that is not a law firm might develop a system, but it is somewhat restricted by not being permitted to practice law. Developing and producing forms is not considered the practice of law, but answering consumer questions about legal matter is—a somewhat gray line. So, a third party developer of smart legal systems would have to work with solo and small firm practitioners around the country. This is what LegalZoom is beginning to do. However, lawyers are a particularly independent and fractious group, making one  wonder how this could work. Also, I wonder about the level of experience of lawyers who would work for the low rates offered by LegalZoom.

An Alternative Model

How would the following model look to you? A national law firm could provide estate planning services which you could access on line, by telephone or in person at sites all over the country, perhaps in Walmart stores. The firm would develop extremely efficient smart systems to drive down the cost of providing services and ensure a high-quality final product. A national legal staff would provide an extremely high level of legal support to local attorneys who would be supervised, trained and managed by experienced attorneys on the state or regional level. Venture capital money and eventually an initial public offering would finance the venture.

The UK Experiment

This can’t happen in the United States, but it’s beginning to happen elsewhere. Great Britain has recently loosened its rules around nonlawyer investment in law firms. As a result, new types of law firms have developed, including QualitySolicitors, a national network of franchised firms which is now partnering with LegalZoom to provide automated document-creation to back up the local offices. While LegalZoom in the United States offers do-it-yourself legal services, now with the ability to consult with affiliated attorneys, Jacoby & Meyers has long attempted to create a national U.S. law firm, but has been hampered by limitations on receiving outside investment. It now is also expanding into the British market to develop franchised firms throughout the United Kingdom.

Great Britain may serve as a model for the United States where we can learn whether these national law firms are able to provide better, cost effective services for their clients. Even if they’re successful and such services become available here, this won’t mean the end of traditional law firms, just more options for consumers. They will then have the choice of DIY online services such as those provided by LegalZoom, traditional hands-on services for those with more complex legal issues or who need or desire more handholding, and a hybrid that combines the efficiencies of online services with the personal attention of qualified attorneys.

Click here to learn about the experiments going on in Great Britain.

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