Barring Competition

The California Bar Association would like to see fewer lawyers-and that's supposed to help consumers?

In the past few years, a number of forces have been chipping away at barriers to competition in the professions—and among lawyers, in particular. Not surprisingly, though, the increased competition has come in spite of, and not because of, the efforts of the organized bar.

While the bar is often regarded as the public's protector from incompetent and unethical attorneys, its rearguard actions in the face of moves to open up the legal profession demonstrate its obsession with maintaining the profession's exclusivity. It relies on several tools to achieve this: attendance at and graduation from an accredited law school, passage of the bar examination, and determination by the state bars of a prospective attorney's "good moral character."

LEGAL LEARNING

The accreditation of law schools is the first level of regulation by the organized bar and the state. In 34 states, admittance to the bar is limited to those who attend and graduate from schools accredited by the American Bar Association (ABA); in 14 others, one may attend a school accredited by the ABA or the state. In only two states, California and Georgia, is admission to practice open to graduates of unaccredited law schools as well.

The California State Bar would like to change that. Demonstrating the reluctance of the bar to accept greater freedom and diversity within the legal profession, the board of governors of the California State Bar recently passed a proposal that calls for phasing out California's 29 unaccredited law schools within five years and urges state legislation or a state Supreme Court rules change to require attendance at and graduation from an accredited law school as a prerequisite for admission to the California bar.

Unaccredited law schools provide an important source of legal education in California. They accounted for 11 percent of the 1978-79 student enrollment—2,400 out of 22,200. Of the 7,393 applicants taking the fall 1977 bar exam, 467 (6 percent) were unaccredited law school graduates; of the 4,222 spring 1978 examinees, 651 (15 percent) were such graduates.

In fact, California has three other, unique, procedures that would also be terminated by the bar proposal: study in a judge's chambers, in a law office, or by correspondence. In contrast to the unaccredited schools, few examinees—65 in the fall 1977 exam and 55 in the spring 1978 exam—use these procedures. So their proposed demise has caused little controversy.

The proposal met with significant opposition from unaccredited law schools at hearings held by the State Bar Special Committee re Law School Evaluation. Nevertheless, the committee recommended closure of the schools, and the board of governors approved the proposal. To justify its decision, the bar published a "Report and Recommendations on Legal Education in California," in which it claimed that the unaccredited schools are "detrimental to the public" and "detrimental to the interests of students, the legal profession, and the admission process." More specifically, the bar had three major criticisms.

By allowing study at unaccredited law schools, said the report, the legal profession implies that this method of education is "sound" and "appropriate." But even if such education is not "sound" and "appropriate," this objection is without substance: the lack of accreditation shows that the bar considers this mode of education unsound. Moreover, students at unaccredited law schools must take the First Year Law Students Exam, or "Baby Bar," at the end of their first year precisely because the bar looks askance at such schools.

The second charge? That the schools provide an "inadequate educational program." But even if this is a proper concern of the bar, instead of the students themselves, the bar's evaluation is quite circular. For example, a law program may be judged inadequate if the teachers "are not themselves graduates of accredited schools, and are not members of the bar."

LEGAL STRAITJACKET

Finally, the bar waxed paternalistic, charging that "many of these schools exploit applicants and students in various ways." For example, they are admitted even though "ineligible"—that is, they do not have two years of college work and have not demonstrated "equivalent intellectual ability" on a test given by the state bar.

Exploitation also supposedly occurs when "unqualified persons" are retained and graduated. How do we know they're "unqualified"? Because less than 10 percent of entering students at unaccredited law schools go on to pass the bar exam (doesn't this in fact show something about the bar exam?).

Students are also considered exploited because the unaccredited schools treat them as "inventory," "abandoning the students" when they cannot continue operating. According to the bar:

There is nothing per se evil in the profit motive or in the proprietary law school…but when the profit motive so pervades and the law school is operated only so long as operations, at a minimal level of quality, provide a profit, the students are exploited and the bar contributes to that exploitation by continuing to recognize that mode of instruction as an appropriate preparation for admission to the bar.

Even if this complaint were valid, the bar's solution is incongruous: closing all schools since some might close.

The bar also charged that some of the schools make misrepresentations to students, leading them to continue their studies when they would gain no credit for doing so. But what's wrong with traditional fraud remedies, or even a full-disclosure requirement, rather than closure, as a remedy?

Given the dubious nature of both the supposed crisis and the proposed solution, it seems obvious that the primary interest of the bar is the exclusion of potential attorneys. The fewer the attorneys, the more exclusive the profession and the higher the fees. Though unaccredited schools supplied only 779 (four percent) of the 19,017 new attorneys between 1973 and 1978, according to Dean Charles Meyers of Stanford Law School, these schools provided "an avenue to the profession for a number of students who would otherwise be excluded."

Of course, the bar took great pains in its report to disclaim any fear of an "overcrowded bar." Yet a resolution to close down the unaccredited schools, introduced by a local bar association for consideration at the state convention, began with the sentence: "During the last several years the number of persons admitted to practice law in the state of California has more than doubled."

Not only should regulation of law schools not be tightened; it should be ended altogether. Meyers, who argues that "the contention that regulation is a guaranty of quality is…more an act of faith than an established fact," has proposed deregulating the schools and maintaining the bar exam. He notes that "regulation feeds on itself, and if the trend is not soon reversed, law schools in 20 years will find themselves laced in a straitjacket of conformity by a central accrediting authority with broad powers and limited vision."

POPULATION CONTROL

The second level of regulation by state bars involves the bar exam, which is of dubious value. It tests subjects that many attorneys will never look at again, a substantive knowledge of the law garnered from two months of cramming, and an analytical ability that is largely irrelevant to many of the legal transactions that take place in actual practice.

Robert H. O'Brien, chairman of the California Committee of Bar Examiners, has admitted that the test does not tell the bar examiners or the public that the successful applicant will be—or will continue to be—a competent lawyer. As Milton Friedman once observed, "a man's ability to pass an examination twenty or thirty years earlier is hardly assurance of quality now." Even the attempt of the California bar to close the unaccredited schools illustrates a lack of faith in the bar exam.

Though ineffectual in guaranteeing quality, the bar exam is quite effective in limiting entry to the profession. For example, in California 46 percent of the people taking the fall 1977 exam flunked; 62 percent flunked the spring 1978 exam. The bar exam also limits entry by discouraging people from even attempting to become lawyers. Their number is unknown, and unknowable.

It is not surprising that the bar exam serves to limit entry to the profession. Richard J. Favretto of the Justice Department's Antitrust Division has observed that

In most states, lawyers write, administer and grade bar examinations. [One should be] suspicious of any system in which those in the market determine who can enter; the natural incentive is to make things a bit tougher as increasing supply threatens to bring down fees.

More evidence of this function of the bar exam is the fact that licensed attorneys from other states must still take the same or nearly the same exam as recent graduates. Since those established attorneys have already theoretically demonstrated their competence by passing a bar exam, the only purpose of testing them is to limit entry.

The exclusionary effect is felt most sharply by middle- and lower-income consumers. The potential attorneys who are not allowed to practice would not be the six-figure-salary partners of major urban law firms—they do need the prestigious schooling, and perhaps more analytical skills and innate ability for such jobs.

What the potential attorneys would be handling is "small-time" cases—small debts, rent deposits, and so on. These are cases that require, not the finest skills, but an adequate knowledge of the law, a rudimentary understanding of the legal process, and a fee small enough to justify bringing the case. The people who would take those cases have been priced out of the market by the exclusionary practices of the bar.

And there is little doubt that cases have been priced out of the market. Testimony given at a 1973 Senate subcommittee hearing on legal fees provided substantial evidence that higher fees deter people from consulting lawyers. One witness who purchased a "lemon" car testified that she never sought the advice of an attorney because she figured she couldn't "afford that."

If the State is determined to regulate the legal profession, the bar exam should at most be offered as an option. Then those attorneys who want to maximize their legal credentials could do so, and those consumers who desire official certification of an attorney's skills could seek out attorneys who had passed the bar. But others would be free to accept a lesser certainty of skill for a lower price.

WHO GETS PROTECTED?

The bar's method of regulating ethical quality is to limit the admission to practice law to those of "good moral character" and to discipline or disbar established attorneys who commit acts of "moral turpitude." It is extremely doubtful that these actions actually benefit the public.

One may be denied admission for any number of acts—such as concealing adverse information from the bar—that are totally irrelevant indicators of the moral character of an attorney insofar as the client is concerned. Other examples include refusing to swear to uphold the Constitution or being a member of the Communist Party. In some states, such as Maryland, divorce is considered evidence of immoral character. Attorneys have been disbarred for conspiring to engage in illegal gambling, willful tax evasion, violating the prohibition laws, anticonscription activities, and murder. Such activities do not mean that one is more likely to cheat or defraud clients; rather, the profession's image, and not the client's interest, is at stake. As the ABA Code of Professional Responsibility proclaims: "Because of his position in society, even minor violations of the law by a lawyer may tend to lessen public confidence in the legal profession."

Some state bars have blatantly misused their power to keep "morally disreputable" people from practicing the profession. Leftists and communists have frequently run afoul of the organized bar, and last spring, the Virginia State Bar attempted—unsuccessfully—to prevent an unmarried woman from taking the bar exam because she was living with a man.

The state bars have also used this power to stifle any competitive activities that might threaten established attorneys. Since the early 1900s state bars have prohibited advertising, claiming that it is not consonant with "maintaining the highest standards of ethical conduct" called for by the ABA Code of Professional Responsibility. These rules are unambiguously anticompetitive; they increase the consumer's cost of discovering low-cost competitors and make it easier for lawyers to avoid competing in terms of prices, thus keeping prices higher.

RELUCTANT FREEDOM

In 1977 the US Supreme Court struck down the absolute ban on advertising as a violation of the First Amendment guarantee of freedom of speech. Yet many state bars have only grudgingly implemented the decision. For example, Wisconsin bar leaders unsuccessfully attempted to outlaw "flamboyant and self-laudatory advertising." The Florida bar revised its rules but still prohibited advertisement in any medium other than general-circulation newspapers or the yellow pages. The Justice Department challenged the ban on radio and TV advertising, which "may be the most effective and efficient means of communicating information," as well as other limitations on geography and content.

Many state bars, such as California's, keep their grip on the profession by retaining rules against other forms of advertising, such as listing other professions along with that of attorney on business cards. The Justice Department's Favretto has noted that prohibiting attorneys from advertising their second profession "can result in higher costs for consumers who might be able to obtain the services of one person cheaper than they could those of two separate professionals. Perhaps as important is the freedom and flexibility such rules discourage."

Traditionally, solicitation—attempting to get legal business by offering one's services to someone who has not consulted you—has been strictly prohibited, even when the client is under no stress and is not likely to be overreached or misled. The solicitation ban has come under increasing attack, however, with the Supreme Court voiding the restriction in political litigation but validating it as applied to blatant "ambulance chasing." Both cases cast doubt upon the constitutionality of a blanket prohibition.

The linchpin holding this entire system of regulation together is the ability of the bar to prosecute nonlawyers for the "unauthorized practice of law." Even accountants, trust officers, labor relations consultants, and paralegals, who may be better able to perform some services, are subject to prosecution. The focus of this measure is not protection of the consumer; incompetence is not an element of the charge of unauthorized practice of law. As the Wisconsin Supreme Court declared in 1962: "We need not and we should not acknowledge a layman's right to practice law in a specialized field because the layman appears to be competent in it." In fact, as Favretto argues, the prosecution of nonlawyers "is often no more than a device to protect the lawyers' monopoly against competitors who are equally competent."

A LEGAL OPENING

If all restrictions on entry into the legal profession were eliminated, the pernicious power of the organized bar would be eliminated and attorneys would be freed from unnecessary and irrational regulations. A freely competitive market—termed "a benign form of regulation" by Favretto—would give more people the opportunity to practice law, lowering fees and extending access to legal services to more people.

How could an unregulated market provide "a benign form of regulation"? It would be far more likely than the present system to provide for the effective protection of consumers. Because established attorneys are protected by a monopoly backed by the power of the State, the current system insulates rather than eradicates incompetence and unethical conduct. This monopoly effectively preempts consumer regulation of attorneys. It lulls consumers into complacency, virtually destroying the consumer's incentive to carefully check the credentials and reputations of attorneys. It also limits the alternatives available to dissatisfied consumers.

Since the state bar doesn't have to compete for the confidence of consumers, established attorneys have no real incentive to crack down on their fellow attorneys except in the most egregious (or deviant) cases. In fact, since any disciplinary action creates a precedent that could be used against other established attorneys in the future, there is an inherent reluctance to discipline.

In 1970 a special panel of the ABA, after a three-year study, reported "the existence of a scandalous situation. With few exceptions, the prevailing attitude of lawyers toward disciplinary enforcement ranges from apathy to outright hostility." For example, in California, of the 5,308 written complaints filed against attorneys between June 1977 and June 1978, only 236 ended in disciplinary action, with 10 disbarments, 76 temporary suspensions, and 150 lesser expressions of disapproval. In Pennsylvania, only 120 of the 9,971 complaints filed between 1973 and 1978 resulted in public punishment. The attitude of the state bar is reflected by the letter sent to all complainants, which declares that "nearly all lawyers are reputable and sincere" and counsels that complainants "should not expect to be given reasons for the final disposition" of the case.

COMPETITIVE OPTIONS

The elimination of this State-sanctioned monopoly would turn the monetary interest of attorneys around to the consumers' advantage. The economic self-interest of attorneys would be likely to yield one or more voluntary bar associations, which would set their own standards and would have a vested interest in maintaining their own quality and reputations. This would keep the respective associations "ethically competitive" in a free marketplace.

Private organizations also would be free and would have the incentive to create their own certification programs. The National Association for the Advancement of Colored People, for example, or the American Conservative Union could establish lists of recommended attorneys. Independent research organizations could survey the credentials of attorneys in different geographical areas and legal fields, creating "Dun & Bradstreet" legal rating services. And all would have good reason to expose, rather than shield, deceit and fraud by other organizations.

Such a diverse program of certification would leave the consumer free to decide whether or not to retain an attorney who had passed a specific bar exam, belonged to a particular bar association, or had committed or not committed some act of "moral turpitude." Such a free market, in the words of Milton Friedman, "renders special groups impotent to prevent experimentation and permits consumers and not the producers to decide what will serve consumers best."

The end result, of course, would be a more fluid and uncertain legal market, but also a more diverse and just one. Though such a system could not guarantee that no consumers would be defrauded or served incompetently, neither does the present system. But a free and competitive system would offer more and independent and thus better protection for consumers than does the current monopolized legal establishment.

Indeed, the organized bar is losing its grip. Fixed fee schedules and the ban on advertising have been struck down, and competitive legal clinics are starting to flourish. The California bar's proposal to shut down the state's unaccredited law schools requires a change either in the state's Supreme Court rules or in the licensing laws of the state—neither of which appears likely. And other restrictive practices are increasingly being attacked and discarded, though much still remains to be done.

This new trend is coming none too soon. The legal profession is far too important to be left under the control of the organized bar, which has monopolized the profession for far too long.

Doug Bandow is a recent graduate of Stanford Law School and was recently admitted to the California bar. This article expands on articles published in the Los Angeles Times and the San Jose Mercury.