Obstacles to AccessObstacles to Access

Gillian K. HadfieldGillian K. HadfieldKirtland Professor of Law and Professor of EconomicsKirtland Professor of Law and Professor of Economics

University of Southern CaliforniaUniversity of Southern California

State Bar of California State Bar of California Civil Justice Strategies Task ForceCivil Justice Strategies Task ForceMarch 26, 2014March 26, 2014

We all know there’s a crisis in access to justiceWe all know there’s a crisis in access to justice

State Average: 62%, 3 problemsState Average: 62%, 3 problems

ABA 1995: 51%, 2 problemsABA 1995: 51%, 2 problems

CA? CA?

80-90%+ unrepresented family, housing, ?80-90%+ unrepresented family, housing, ?

The “95%” can’t afford legal adviceThe “95%” can’t afford legal advice

Middle-incomeMiddle-income

Small businessSmall business

We all know there’s a crisis in access to justiceWe all know there’s a crisis in access to justice

Why haven’t we been able to fix it?Why haven’t we been able to fix it?

PROBLEM IS PROBLEM IS COSTCOST

12.5 million households12.5 million households12.5 million legal problems (12.5 million legal problems (minimumminimum))

1 1 hourhour of help per household per problemof help per household per problem

$3.1 billion$3.1 billion70 pro bono hours per active lawyer70 pro bono hours per active lawyer

$60$6000

$20$2000

$4$400

Big Big bizbiz

Everyone Everyone elseelse

Some wealthSome wealthNo choiceNo choice

$45$4500

Other Other bizbiz

Can we lower the lowest hourly rate for existing Can we lower the lowest hourly rate for existing practitioners?practitioners?

NoNo

Highly competitiveHighly competitive

Bottom 40% of law firms average Bottom 40% of law firms average

$140,000 revenues$140,000 revenues

$25,000 payroll$25,000 payroll

Overhead, insuranceOverhead, insurance

$60,000? 75,000?$60,000? 75,000?

Most Most of the hourly rate is of the hourly rate is not not return to legal return to legal expertiseexpertise

Full-time at $200 = $400,000Full-time at $200 = $400,000

What’s in the $200 rate?What’s in the $200 rate?

Unbilled hoursUnbilled hours

Uncollected hoursUncollected hours

Finding/keeping clientsFinding/keeping clients

Managing client complaintsManaging client complaints

Investments in legal knowledge, technology, Investments in legal knowledge, technology, processprocess

Running a businessRunning a business

$60$6000

$20$2000

$4$400

Big Big bizbiz

Everyone Everyone elseelse

Some wealthSome wealthNo choiceNo choice

$45$4500

Other Other bizbiz

How do we move down the How do we move down the demand curve?demand curve?

Not Law

Let lawyers do lawLet lawyers do law

Reduce the cost of the non-law elements of legal Reduce the cost of the non-law elements of legal servicesservices

In the same way every other market doesIn the same way every other market does

ScaleScale

Branding/reputationBranding/reputation

Customer serviceCustomer service

TechnologyTechnology

Market researchMarket research

Process/protocol designProcess/protocol design

InnovationInnovation

What cuts law off from efficiencies achieved in other What cuts law off from efficiencies achieved in other markets?markets?

State bar rulesState bar rules

All law businesses must be100% lawyer owned & All law businesses must be100% lawyer owned & managedmanaged

Lawyers cannot enter contracts that give non-law Lawyers cannot enter contracts that give non-law experts incentives to reduce cost, increase quality of experts incentives to reduce cost, increase quality of

non-law elements of legal servicesnon-law elements of legal services

Lawyers cannot access capital markets or share risk Lawyers cannot access capital markets or share risk through contract (including employment) through contract (including employment)

Legal innovators have no access to venture capitalLegal innovators have no access to venture capital

Corporate practice of lawCorporate practice of law

Fee-splittingFee-splitting

Basic tools in all other markets to promote cost Basic tools in all other markets to promote cost reduction, quality improvements and innovationreduction, quality improvements and innovation

Corporate formCorporate form

Reduces cost of riskReduces cost of risk

Diversified investorsDiversified investors

Flat feesFlat fees

InnovationInnovation

Employment contractsEmployment contracts

Corporate formCorporate form

Reaps economies of scaleReaps economies of scale

Standardized protocolsStandardized protocols

SpecializationSpecialization

Investments in knowledge, data analysis, Investments in knowledge, data analysis, researchresearch

Reputation—brand integrity and protectionReputation—brand integrity and protection

Corporate formCorporate form

Diversifies knowledge base and idea poolDiversifies knowledge base and idea pool

Fee-sharingFee-sharing

Allocates incentives & risks without corporate Allocates incentives & risks without corporate formform

What might this look like?What might this look like?

Lawyers employed by profit/non-profit Lawyers employed by profit/non-profit corporationscorporations

Provider contracts between profit/non-profit Provider contracts between profit/non-profit corps and lawyers/law firmscorps and lawyers/law firms

Joint venturesJoint ventures

Shared branding and business-in-a-box services Shared branding and business-in-a-box services for small firmsfor small firms

What might this look like?What might this look like?

United Kingdom United Kingdom (2007)(2007)

Alternative Business Structures (ABS)Alternative Business Structures (ABS)

[+ narrower UPL + entity licensing/regulation] [+ narrower UPL + entity licensing/regulation]

AustraliaAustralia

NetherlandsNetherlands

CanadaCanada, soon?, soon?

1.1. NorwayNorway2.2. NetherlandsNetherlands

3.3. GermanyGermany4.4. DenmarkDenmark5.5. SwedenSweden

6.6. SingaporeSingapore7.7. AustriaAustria8.8. FinlandFinland

9.9. New ZealandNew Zealand10.10. JapanJapan

11.11. AustraliaAustralia12.12. CanadaCanada

13.13. United KingdomUnited Kingdom14.14. EstoniaEstonia

15.15. Hong KongHong Kong16.16. UruguayUruguay17.17. FranceFrance

18.18. BelgiumBelgium19.19. Czech RepublicCzech Republic

20.20. JordanJordan21.21. PolandPoland

22.22. PortugalPortugal23.23. SpainSpain

24.24. GreeceGreece25.25. ChileChile

26.26. United StatesUnited States27.27. BotswanaBotswana28.28. SloveniaSlovenia29.29. Belarus Belarus

World Justice Project (Bill Neukom,Founder) World Justice Project (Bill Neukom,Founder) Civil Justice index Civil Justice index

Accessible; affordable; free of discrimination, corruption Accessible; affordable; free of discrimination, corruption

What might this look like?What might this look like?

Online divorce, paralegal owned companyOnline divorce, paralegal owned company

Grocery stores offering legal servicesGrocery stores offering legal services

Document provider with lawyer adviceDocument provider with lawyer advice

Shared branding and customer service protocols for small law Shared branding and customer service protocols for small law firmsfirms

Business-in-a-box for small law firmsBusiness-in-a-box for small law firms

Small business trade association with comprehensive legal Small business trade association with comprehensive legal servicesservices

Non-profit consumer association offering unlimited Non-profit consumer association offering unlimited phone/email advice for flat annual fee phone/email advice for flat annual fee

What about client protection?What about client protection?

Protecting qualityProtecting quality

Licensed lawyersLicensed lawyers

Licensing of corporate entityLicensing of corporate entity

Systematic complaints systemSystematic complaints system

Corporate malpractice insuranceCorporate malpractice insurance

Standardization and protocolsStandardization and protocols

ReputationReputation

Consumer protection law (fraud, advertising, tort, Consumer protection law (fraud, advertising, tort, contract, etc.)contract, etc.)

Protecting qualityProtecting quality

Risk/outcome based regulation Risk/outcome based regulation

instead of dictating business structure and instead of dictating business structure and practicespractices

tailored to tailored to actualactual risk risk

““Existing evidence does not indicate that permitting Existing evidence does not indicate that permitting ABSs creates risk to the public. Indeed, the risk ABSs creates risk to the public. Indeed, the risk appears to be less than currently exists when appears to be less than currently exists when

introduction of ABSs is combined with entity-based introduction of ABSs is combined with entity-based regulation”regulation”

Report of the Working Group on Alternative Business Report of the Working Group on Alternative Business Structures, Law Society of Upper Canada (Ontario)Structures, Law Society of Upper Canada (Ontario)

February 2014February 2014

OTHER BENEFITSOTHER BENEFITS

• Court budgetsCourt budgets

• Legal aidLegal aid

• Pro bonoPro bono

• Small-firm profitabilitySmall-firm profitability

• Employment Employment

Remember the VCR?Remember the VCR?

““The VCR is stripping those things clean, those markets clean of our The VCR is stripping those things clean, those markets clean of our profit potential, you are going to have devastation in this profit potential, you are going to have devastation in this

marketplace…We are going to bleed and bleed and hemorrhage, marketplace…We are going to bleed and bleed and hemorrhage, unless this Congress …protects [an] industry whose total future unless this Congress …protects [an] industry whose total future

depends on its protection from the savagery and the ravages of this depends on its protection from the savagery and the ravages of this machine…The VCR is to the American film producer and the American machine…The VCR is to the American film producer and the American

public as the Boston strangler is to the woman home alone.”public as the Boston strangler is to the woman home alone.”

Jack Valenti, 1982Jack Valenti, 1982

Remember the VCR?Remember the VCR?

““Did content suffer as a result? Not exactly. In fact, it turns out that Did content suffer as a result? Not exactly. In fact, it turns out that through the 1980’s and 1990’s it was the very VCR and its successor through the 1980’s and 1990’s it was the very VCR and its successor the DVD player which were going to destroy the broadcast and movie the DVD player which were going to destroy the broadcast and movie industries that kept them alive, generating $30 billion in revenues by industries that kept them alive, generating $30 billion in revenues by

2002 for the industries.”2002 for the industries.”

Mark Lemley, Stanford Law SchoolMark Lemley, Stanford Law School““Is the Sky Falling?” 2010 Is the Sky Falling?” 2010

California LeadershipCalifornia Leadership

• Technology CentralTechnology Central

• Established legal businesses already lowering Established legal businesses already lowering costs, increasing accesscosts, increasing access

• Vibrant legal tech communityVibrant legal tech community

• Risk capital searching for legal startupsRisk capital searching for legal startups

BOTTOM LINEBOTTOM LINE

To fix the access problem, To fix the access problem,

change the ruleschange the rules

Big, real changes in access can Big, real changes in access can happen happen soonsoon