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July 2020 Cover Story - The State Bar Takes Significant Step Towards Sweeping Changes

by Nikki Presley Miliband

In 1927, legislation created the State Bar of California (State Bar), a regulatory body and trade association, as an arm of the California Supreme Court. Membership was mandatory for practicing attorneys. By 2017, adverse court opinions, legislative criticism, and advocacy by certain bar leaders led to passage of the State Bar Act of 2017, separating the regulatory and trade association functions. The new California Lawyers Association (CLA) took the trade association functions, while the State Bar kept regulatory functions. CLA is a voluntary bar; the State Bar remains mandatory.

According to its Mission Statement, the State Bar’s primary function is public protection. The State Bar is also charged with “supporting” access to justice. However, these two goals are often in conflict.

De-unification brought fundamental changes, starting with sub­stantially reducing attorney members of the State Bar governing body and ultimately eliminating all trustee elections in favor of appointments only. Orange County, which for years had its own elected member, has had no Board representative since 2014.

Since de-unification, “attorneys” became “licensees”; voluntary attorneys on the State Bar’s remaining committees and programs were reduced, with many duties being relegated to staff; requests were made to the legislature to greatly increase licensing fees (no longer “dues”); and now efforts are being made to fundamentally change the practice of law.

In 2018, responding to anticipated changes, the OCBA established the first, and possibly only, State Bar Task Force to keep the legal community apprised of the rapidly changing legal landscape and to respond to public comment requests.

In 2017, Bill Henderson founded Legal Evolution, an online publication that “chronicles successful innovation within the legal industry.” The State Bar hired Mr. Henderson to prepare a July 2018 Legal Services Landscape Report (the Report). The Report has been used by many state bar associations, in the name of “access to justice,” to seek changes to allow non-lawyers to practice law, to allow artificial intelligence to engage in the practice of law without attorney input, and to allow non-lawyer fee sharing and ownership of law firms. In response to the Report, the State Bar formed the Task Force on Access Through Innovation of Legal Services (ATILS), charging it with identifying regulatory changes that could remove barriers to innovation and enhance the delivery of, and access to, legal services.

ATILS included ten lawyers, two judges, eleven non-lawyers, several individuals from commercially interested technology companies, as well as self-proclaimed “legal disruptors.” The State Bar and NORC at the University of Chicago partnered in 2019 to survey civil legal needs of California residents to evaluate the “justice gap.”

In July 2019, the State Bar requested public comment for ATILS’ sweeping recommendations, which included authorizing non-lawyers to provide specified legal advice and services, allowing entities providing legal or law related services to be composed of lawyers and non-lawyers, and further excepting from the unauthorized practice of law (UPL) the provision by entities of technology-driven legal services.

The OCBA submitted a detailed nineteen-page public comment opposing many of these recommendations. The OCBA’s concern is that ATILS’ recommendations fail to accomplish the primary edict of the State Bar—public protection. The elimination of UPL restrictions by allowing non-lawyers to practice law, non-lawyers to own law firms, fee sharing with non-lawyers, and non-lawyer driven technology providing direct legal advice could create enormous harm to the public, as well as conflicts of interest. These recommendations create unavoidable conflict between protecting the public and access to justice. While access to justice may benefit from these changes (and there is no clear indication it will), the potential public harm is undeniable.

The genesis of these recommendations is a survey that concluded over 71% of Californians, particularly low-income individuals, have civil legal needs that are not being met. The argument is that this claimed “justice gap” cannot be fixed by pro bono alone. But a closer look at the numbers would suggest that a large percentage of these individuals simply chose not to seek legal help for a myriad of reasons, including a majority who responded that they had no need for advice. While there is a “justice gap,” there is no evidence that the 70% number is driven by economics or that any of the ATILS’ recommendations will narrow it.

The OCBA suggested it would be prudent to study the effect on the justice gap in those jurisdictions already implementing some of these recommendations before completely upturning the country’s largest bar. The limited available evidence does not support any reduction in the justice gap by implementation of these recommendations. A study of the U.K.’s Legal Services Act of 2007 reveals that allowing non-lawyers to take an ownership stake in law firms “ha[s] not sufficiently addressed consumer needs or improved access to justice.” Aebra Coe, Like it or Not, Law May Open Its Doors to Nonlawyers, Law 360 (Sept. 22, 2019), www.law360.com/articles/1201357/like-it-or-not-law-may-open-its-doors-to-nonlawyers.

The Report concluded that there is a large underserved population and that the “legal profession is at an inflection point that requires action by regulators,” so as not “to protect the 10% of consumers who can afford legal services while ignoring the 90% who lack the ability to pay.”

But, contrary to the Report’s conclusion, the 2019 Justice Gap Study reveals that of those who responded to the survey indicating they had experienced a legal problem, 27% talked to someone about these problems, 19% went online, 11% took both of these actions, and 42% took no action. Legal assistance was only sought and received in 30% of the cases, and only 1% attempted to get legal help, but could not. While the Justice Gap Study states, “Low-income Californians did not receive legal help for 70% of the problems they experienced,” when you look at the graph, in 70% of those cases “no legal help [was] sought.” The State Bar of California: 2019 California Justice Gap Study, Executive Report, https://www.calbar.ca.gov/Portals/0/documents/accessJustice/Justice-Gap-Study-Executive-Summary.pdf. The survey shows that cost is a barrier for only 15% of the respondents, with 85% citing other reasons for not seeking assistance. None of ATILS’ suggested recommendations would or could make people seek help if they choose not to do so.

In support of its recommendations, ATILS members attended town halls, tweeted, and published numerous articles. However, much of what was said attempted to shame those who dissented, stating that lawyers were “protectionists” only out for their own financial gain. At these town halls (one of which was hosted by the OCBA) and in the numerous public comments received by the State Bar, one of many prevailing themes amongst nonprofit pro bono providers was that many of their most vulnerable clients, immigrants, were being irreparably harmed by non-lawyer notaries, and that to relax the rules would be harmful to these individuals. In response, one member of ATILS expressed complete disregard for these organizations and pro bono providers when he stated: “In my opinion, anecdotal hyperbole centered around so called notaries is not only predicated on thinly veiled racism—it is also the kind of uninformed rhetoric that desperately relies on half-facts to shore up the status quo.” Andrew Arruda, University of Denver IAALS blog: Reregulation, Not Deregulation, Nov. 21, 2019, https://iaals.du.edu/blog/reregulation-not-deregulation.

After receiving thousands of overwhelmingly negative public comments, ATILS requested an extension of time to review the comments and to deliver its recommendations. In the interim, the State Bar elected to move forward with at least part of the ATILS’ agenda—forming the California Paraprofessionals Working Group. Its charter is to develop recommendations for creation of a paraprofessional licensure/certification program to increase access to legal services in California. This working group is to develop eligibility requirements, selection of practice areas that will be included in the program, types of tasks the paraprofessional will be permitted to perform, and a licensing/certification regulatory model. No attorney from Orange County sits on this working group.

Of note, Washington State has had in place a similar program, but there is no evidence that it has had any impact on the justice gap.1 When presented with that information, those in support of the paraprofessional plan suggest that Washington’s protectionist restrictions limiting areas of law and imposing education requirements were prohibitive and should be more relaxed in California; again bringing this proposal into conflict with the State Bar’s mission of public protection.

Regarding non-lawyer ownership of law firms, one of the attachments to the various ATILS agenda items for the Board of Trustees was an article by Nick Robinson entitled When Lawyers Don’t Get All the Profits, 29 Georgetown J. of Legal Ethics 1 (2016). This article analyzes the New York State Bar Association’s Task Force on Non-Lawyer Ownership and noted that “there simply is a lack of meaningful empirical data about non-lawyer ownership . . . .” (id. at 5) and the “non-lawyer ownership brings the potential for lawyers to be caught in a conflict between their duties to investors and their duties to their clients or the justice system,” (id. at 13) and further that “even though non-lawyer ownership may lead to more innovation in legal services, greater competition, and larger economies of scale, there is reason to doubt that these changes will lead to significantly more access to legal services for poor and moderate income populations” (id. at 15). The article concludes “if non-lawyer ownership is seen as a substitute for other access strategies, like legal aid, such a deregulatory reform strategy could even have a detrimental impact.” Id. at 61.

ATILS ultimately submitted its final recommendations to the Board for its March 2020 meeting. At that time, two of the recommendations were approved to be sent out for public comment: (1) to amend Rule of Professional Conduct 5.4 to expand existing exception for fee sharing agreements with a nonprofit organization and to continue to study other possible revisions; and (2) to amend Rule 1.1 to add a new comment providing that a lawyer’s duty of competence encompasses a duty to keep abreast of the changes in the law and law practice, including the benefits and risks associated with relevant technology. The OCBA submitted public comment on both requests.

The remaining recommendations were tabled to allow time to gauge the reaction of the State Bar stakeholders—the legislature and the supreme court.

In May 2020, the Board was presented with three options for forming a working group related to the outstanding issues considered by ATILS (including changes for attorney advertising, amendments to the lawyer referral service statutes, and development of a “sandbox” to experiment with non-lawyers owning law firms and consumer facing technology that provides legal advice directly to the public) summarized as follows:

OPTION 1: Develop a “regulatory sandbox” designed to propose changes to laws and rules (including UPL, non-lawyer ownership, fee sharing, and the delivery of non-legal services by lawyers and businesses owned or affiliated with lawyers) that “inhibit the development of innovative legal service delivery systems such as consumer facing technology that provides legal advice and services directly to clients at all income levels; and other new delivery systems created through the collaboration of lawyers, law firms, technologists, entrepreneurs, and others.”

OPTION 2: Similar to Option 1, but without considering the relaxing of rules and laws regarding non-lawyer ownership of traditional law firms or the delivery of non-legal services by lawyers and businesses owned or affiliated with lawyers.

OPTION 3: “[I]dentify methods to increase access to legal services, including through innovative reforms and legal services delivery systems [but] will not include the exploration of a regulatory sandbox; nor changes to traditional regulatory principles restricting the unauthorized practice of law, fee sharing with non-lawyers, or prohibiting non-lawyer ownership of, or investment in, a traditional law practice.”

The Board approved Option 1, allowing the regulatory sandbox to proceed. A regulatory sandbox allows participants to test innovative business models or offer products and services in a controlled environment under a regulator’s supervision. It encourages experimentation through technology by entities not currently allowed to do so under the existing rules of professional conduct. While the public subject to these experiments are placed in potential harm’s way, it appears the State Bar has decided the risk is a price worth paying despite the speculative nature of any positive access to justice results.

More recommendations are expected, all of which would substantially change the practice of law. The OCBA will continue to provide public comment and keep its members informed to allow them an opportunity to comment in their individual capacities.

ENDNOTE

  1. On June 5, 2020, the Washington Supreme Court announced that it will “suspend” the state’s LLLT program. Chief Justice Debra L. Stephens stated “the program was an innovative attempt to increase access to legal services . . . a majority of the court determined that the LLLT program is not an effective way to meet these needs . . . .” ABA Journal, Washington Supreme Court Sunsets Limited License Program for Non-Lawyers, June 6, 2020.

 

Nikki Presley Miliband is a partner with Good Wildman and the Chair of the OCBA State Bar Task Force. She can be reached at nmiliband@goodwildman.com.