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Cato
Policy Analysis No. 322 October
9, 1998
by
George C. Leef, J.D.
Every state except Arizona prohibits the unauthorized practice of
law (UPL); a person must possess an attorney's license to hold himself out as a
lawyer. UPL prohibitions restrict the right to pursue a legitimate occupation
and the right to contract with others. By imposing a costly barrier to entry,
they distort the market for legal services. Consequently, consumers face higher
prices and fewer choices.
UPL prohibitions are part of a wider phenomenon: governmental
limitations on freedom to engage in voluntary economic transactions. Before the
New Deal, the Supreme Court regarded economic liberty as worthy of
constitutional protection. Since 1937, however, the Court has drawn a
distinction between "fundamental" and "nonfundamental"
liberties, with economic liberties consigned to the latter category. Governmental
interference with fundamental liberties faces "strict scrutiny" from
the courts and is frequently invalidated, whereas interference with economic
liberties receives only minimal scrutiny, implying that legislatures may do
virtually anything in the field of economic regulation. That distinction is
without any constitutional basis.
UPL prohibitions are neither necessary nor sufficient to protect
consumers from incompetence. A competitive market, reinforced by remedies for
fraud, breach of contract, and negligence, offers the optimal combination of
price and quality.
Because they infringe upon individual freedom and serve no
legitimate public purpose, UPL prohibitions should be repealed or struck down
by the courts as unconstitutional.
George C. Leef is president of Patrick Henry Associates in East
Lansing, Michigan, and adjunct professor of law and economics at Northwood
University.
Rosemary Furman had for years openly and flagrantly violated the
laws of Florida. Her final appeal was turned down by the Florida Supreme Court,
which ordered that she be jailed. (1) Her crime was to have helped, by preparing and filing
the necessary legal papers, people who wanted a divorce. Her customers sought
her services and willingly paid for them. None had ever complained about her
work.
Before engaging in that "criminal activity," Furman had
been a legal secretary doing exactly the same paperwork, but under the
"supervision" of an attorney. He charged clients $300 to handle a
divorce, then paid her a small fraction of that amount for her work. Furman
thought that high price for filing for divorce was unconscionable, particularly
in cases where battered women were unable to obtain a divorce because they
could not afford the attorney's fees. So she decided to go into business for
herself, charging only $50 for divorce filings. At first, she worked only with
battered women. Later, however, she expanded her business to assist anyone who
wanted her services. She did a large volume of business.
Despite her success--doubtless, because of it--Furman was headed for
trouble: she was acting in violation of the law. Under Florida law, only
licensed attorneys may engage in "the practice of law." She was not a
licensed attorney, and the preparation of divorce papers was regarded by the
Florida Bar as work only attorneys could do. After the bar brought action
against her, she was ordered to cease and desist from her illegal conduct. She
refused. For her unwillingness to stop doing work she wanted to do and her
clients wanted her to do for them, she was ordered by the Florida Supreme Court
to serve 120 days in jail, 90 of which would be suspended if she promised not
to violate the law again. Subsequent intervention by the governor kept her from
doing actual jail time. The point was made, though; she never again competed in
the market for legal services.
The case of Furman, hardly unique, raises several important
questions. Should it be illegal for individuals to enter a field of work and
contract with willing clients without first obtaining governmental permission
to do so? Does the U.S. Constitution give the states unchecked power to
restrict the freedom to choose one's occupation, by imposing onerous and
arbitrary licensing requirements? Does the licensing of attorneys (and other
service providers) rectify some market failure and improve consumer welfare, or
does it merely restrain competition and waste resources? This study will
endeavor to answer those questions.
Every state in the nation except Arizona has a statute or judicial
rule that limits the practice of law to licensed members of the legal
profession. So-called unauthorized practice of law (UPL) prohibitions make it
illegal for any person who does not hold an attorney's license to assist
another person if that assistance is deemed "practicing law." The
statutes or rules do not define exactly what constitutes the practice of law,
so it has been up to the courts to determine on a case-by-case basis what
actions are illegal. Violations are usually misdemeanors, although they may be
punishable as contempt of court. Aggrieved individuals may bring UPL cases, but
that is extremely rare. UPL actions are virtually always brought by a bar
organization seeking a permanent injunction, as in Furman's case, to keep the
violator out of the legal services market in the future.
It is through UPL prohibitions that the legal profession maintains
its "closed shop." They allow state and local bar organizations to
control entry into the market. No one can obtain bar membership and the
accompanying license to practice without passing the state's bar exam, and in
most states no one is allowed to sit for the exam without having graduated from
an "approved" law school. (2) To be
approved under American Bar Association standards, a school must have a three-year
course of study. (3) Whether one wants to litigate the most complex
cases or draft simple wills, the rite of passage is the same. While UPL
prohibitions do not eliminate competition within the ranks of attorneys, they
restrict competition from the outside. (4)
The desire for a closed shop is certainly not unique to the legal
profession; (5) given the profession's powerful influence on the
law itself, however, it is not surprising that lawyers have been among the most
successful of special interests in using government to accomplish that
objective. Although some prominent members of the profession have
criticized UPL prohibitions and argued for a free market in legal services, (6) support
for them remains strong and unquestioning in bar organizations. Legislation
that would open the market for legal services is certain to meet with their
vehement opposition.
This study will take a critical look at UPL prohibitions
from both a constitutional and an economic perspective.
The Constitution and the Right to Pursue an Occupation
Whether state governments have authority to deprive people of the
right to pursue a chosen occupation or engage in other economic endeavors is a
question that has arisen repeatedly in the United States. To prevent an
individual from engaging in a trade or occupation altogether, or to impose
onerous conditions upon his freedom to do so, raises serious constitutional
questions. The Supreme Court has twice done an about-face on the degree
of constitutional protection that must be given to economic liberties,
including occupational freedom.
The Fourteenth Amendment states in part: "No State shall make
or enforce any law which shall abridge the privileges or immunities of citizens
of the United States; nor shall any State deprive any person of life, liberty
or property, without due process of law; nor deny to any person within its
jurisdiction the equal protection of the laws." Ratified in the aftermath
of the Civil War, the amendment imposed broad federal restrictions on the
exercise of state power. As is true of all constitutional language, however,
the Supreme Court's interpretation of the Fourteenth Amendment would be
crucial. Would it read the words as a sweeping protection for the civil and
economic liberty of all citizens; or would it read them restrictively, thereby
allowing the states considerable latitude to enact legislation circumscribing
the freedom to engage in commercial activity? Just five years after the
ratification of the Fourteenth Amendment, the Supreme Court adopted a very
restrictive reading in what have come to be known as the Slaughterhouse
Cases. (7)
The Louisiana legislature had passed a statute granting to the
Crescent City Company a 25-year monopoly on the slaughtering of livestock in
New Orleans and surrounding parishes. A suit was brought by butchers and other
parties adversely affected by the statute on the ground that it infringed upon
liberties guaranteed them under the Privileges or Immunities Clause. A sharply
divided Supreme Court, in an opinion by Justice Samuel F. Miller, upheld the
statute, declaring that the amendment protected only the privileges and
immunities of citizens of the United States -- as opposed to citizens of
a state. The Court held that the former were few and did not encompass
such matters as earning a livelihood, which could be regulated by state
governments. With that holding, the Privileges or Immunities Clause became a
dead letter. (8)
The Court also found no merit in the argument that the Louisiana
statute violated the Due Process Clause. Viewing "due process of law"
as a mere procedural requirement, Justice Miller dismissed the argument
that it barred the legislature from forcing people out of their occupations and
outlawing businesses in which they had invested their money. Fearing that to
decide the case otherwise would make the Court "a perpetual censor upon
all legislation of the states," (9) the
justices allowed Louisiana's monopolistic, freedom-restricting statute to
stand.
In a powerful dissent, Justice Stephen J. Field wrote, "The
privileges and immunities designated are those which of right belong to the
citizens of all free governments. Clearly among these must be placed the right
to pursue a lawful employment in a lawful manner, without other restraint than
such as equally affects all persons." (10) Justice
Joseph P. Bradley also dissented, writing, "In my view, a law which
prohibits a large class of citizens from adopting a lawful employment, or from
following lawful employment previously adopted, does deprive them of liberty as
well as property, without due process of law. Their right of choice is a
portion of their liberty; their occupation is their property." (11)
The dissenters would have extended constitutional protection to the
economic liberty of the excluded owners and workers. In the majority view,
however, there was nothing constitutionally impermissible in state legislation
that deprived citizens of the freedom to pursue their chosen businesses and
occupations.
The Era of Constitutional Protection for Economic Liberties
The Court's acquiescence in allowing states to deprive individuals
of economic liberty, as expressed in the Slaughterhouse Cases, would
shortly be called into question. In 1887 the Court reviewed a Kansas statute
that put liquor dealers out of business. The Court upheld the statute, but
Justice John Marshall Harlan's majority opinion announced that state economic
regulation would not pass without careful scrutiny of the fit between means and
ends:
It does not follow that every statute enacted ostensibly for the
promotion of [public morals, health, or safety] is to be accepted as a
legitimate exertion of the police powers of the State. . . . If, therefore, a
statute purporting to have been enacted to protect the public health, the
public morals, or the public safety, has no real or substantial relation to
those objects, it is the duty of the courts to so adjudge, and thereby give
effect to the Constitution. (12)
The Court thus signaled that it would not assume that every statute
or regulation claimed to be necessary to protect the public in some way
actually did so, or was even intended to do so. Understanding the proclivity of
legislatures to enact liberty-destroying measures that do nothing to advance
the public interest, Justice Harlan warned that the Court would strike down
legislation infringing upon "rights secured by the fundamental law."
The Court's indifference to economic liberties was about to change.
The change became explicit in 1897. Louisiana had enacted a statute making it
illegal for any individual or business in the state to obtain marine insurance
from an out-of-state insurance company not licensed to do business in the
state. The Allgeyer Company, which had contracted for marine insurance with an
unlicensed New York insurance company, was charged with a violation of the
statute. Allgeyer argued that the statute was invalid under the Fourteenth
Amendment's Due Process and Equal Protection Clauses. After the Supreme Court
of Louisiana had upheld the law, Allgeyer appealed to the U.S. Supreme Court.
Justice Rufus W. Peckham's opinion for the Court, declaring the
statute unconstitutional, ushered in what has come to be known as the era of substantive
due process. In the opinion, he laid out a broad understanding of the
Fourteenth Amendment:
The liberty mentioned in that amendment means not only the right of
the citizen to be free from the mere physical restraint of his person, as by
incarceration, but the term is deemed to embrace the right of the citizen to be
free in the enjoyment of all his faculties; to be free to use them in all
lawful ways; to live and work where he will; to earn his livelihood by any
lawful calling; to pursue any livelihood or avocation, and for that purpose to
enter into all contracts which may be proper, necessary and essential to his
carrying out to a successful conclusion the purposes above mentioned. (13)
The Court thus extended the reach of the Fourteenth Amendment,
holding that it encompasses the rights to work, production, contract, and
trade. Those rights are included in the liberty protected by the Fourteenth
Amendment and entitled to judicial protection against legislative interference
no less than rights specifically mentioned in the Constitution, such as freedom
of speech. After Allgeyer, legislatures were on notice that statutes
interfering with economic liberties would face hard analysis from the courts.
The decision in Allgeyer was grounded in the Due Process
Clause. Due process of law, the Court held, was not merely a procedural
concept, a requirement that government correctly follow certain steps
before taking life, liberty, or property from individuals. Due process was also
a substantive concept: even if enacted and enforced following
correct procedures, a statute would still run afoul of the Fourteenth
Amendment if its substance unjustifiably deprived people of their economic
liberties. In this interpretation, the Court followed Justice Thomas Cooley
of the Supreme Court of Michigan, who wrote in 1868,
When the government, through its established agencies, interferes
with the title to one's property, or with his independent enjoyment of it, and
its act is called in question as not in accordance with the law of the land,
we are to test its validity by those principles of civil liberty and
constitutional defense which have become established in our system of law and
not by any rules that pertain to forms of procedure merely. (14)
Substantive due process would become the principal constitutional
shield for economic liberties for 40 years after Allgeyer.
Arguably the most important and controversial case in that line was
decided in 1905. Lochner v. New York (15) involved
a New York statute that prohibited bakery employees from working more than 10
hours a day or 60 hours a week. The statute was described by counsel for the
state as a public health and safety measure, designed to protect the welfare of
bakery employees by putting a reasonable ceiling on the number of hours they
could work. (16) The
Court's majority, however, held that workers have a right, protected by the
Fourteenth Amendment, to contract to work as they think best, not
to be overridden by paternalistic legislation. Justice Peckham, writing the
Court's opinion, asked, "Is this a fair, reasonable and appropriate
exercise of the police power . . . or is it an unreasonable, unnecessary
and arbitrary interference with the right of the individual to his personal
liberty, or to enter into those contracts in relation to labor which may seem
to him appropriate or necessary for the support of himself and his family?"
His answer: "There is no reasonable ground for interfering with the
liberty of a person or the right of free contract, by determining the hours of
labor, in the occupation of a baker." (17) Freedom
of contract trumped this paternalistic exercise of the police powers.
Nor could the statute be saved by an appeal to an alleged need to
ensure good quality bread for the public. Justice Peckham dismissed that
argument, writing, "Clean and wholesome bread does not depend upon whether
the baker works but ten hours per day or only sixty hours a week." (18) Thus, the mere assertion
that a law was intended to have a favorable impact on public health or safety
was not sufficient. Where constitutionally protected rights were involved,
the Court would insist on much more than assertions and intentions. Finding
scant connection between the purported objective of the statute and the
liberty-restricting means employed, the Court declared it unconstitutional.
Lochner has been a much criticized opinion. (19) It is
attacked as an example of an arrogant judiciary substituting its own social
policy for that of the democratically elected legislature. But that
criticism misses the mark. The Court was not substituting its own policy for
that of the New York legislature on the number of hours bakers could work;
rather it was declaring that under the Constitution there could be no policy
on the matter at all, that people have the right to decide for themselves how
many hours they want to work and the right to contract accordingly.
Liberty guaranteed under the Fourteenth Amendment secures the rights
of individuals to set their own policy when contracting out their labor. In Lochner,
the Court held that such decisions are not subject to political control.
Defending individual rights against overreaching legislative power is exactly
what appellate courts are supposed to do. In a similar manner, striking down a
law under the First Amendment doesn't establish an alternative publishing policy;
it says government may not have a policy about what can be published.
Allgeyer and Lochner were followed by many other
cases upholding individual rights over state attempts to legislate them away.
(20) In Louis K. Liggett Co. v. Baldridge, for
example, the Court held that a statute providing that only licensed
pharmacists could open pharmacy businesses was "an unreasonable and
unnecessary restriction upon private business" that had "no real or
substantial relation to the public health." (21) And in
New State Ice Co. v. Liebmann, (22) the
Court struck down a statute prohibiting anyone from entering the ice business
unless he could demonstrate to a state commission that existing facilities were
inadequate to meet the public's needs.
During this period, however, the Court was not entirely hostile to
economic regulation. Thus, in Muller v. Oregon, (23) it
sustained a statute regulating the number of hours women might work, and in Bunting
v. Oregon, (24) the Court extended Muller by upholding a
statute that established maximum hours for all factory and mill workers. The
case distinctions are not very compelling. Nevertheless, before the New Deal,
legislation that curtailed economic liberties faced difficult constitutional
obstacles, and the "substantive due process" cases, in the words of
Christopher Wonnell of the University of San Diego, "helped prevent a regression
toward a medieval economy of privileged merchants and guilds."
(25)
The
Decline and Fall of Constitutional
Protection
for Economic Liberty
Substantive due process came to an end during the national upheavals
of the Great Depression, when legislators turned to liberty-constricting
measures in an attempt to restore prosperity. Economic liberty was the
principal casualty of the movement toward governmental control and planning.
The first case indicating a change in the Supreme Court's view of
the relationship between the Fourteenth Amendment and economic liberty was Nebbia
v. New York in 1934. (26) After New York had established
a Milk Control Board empowered to determine milk prices in the state, a grocer
named Nebbia was convicted of having sold two quarts of milk at a price below
the board's established minimum. Adopting the state's theory that price control
was necessary to save the dairy industry from "destruction," a
five-member majority upheld the constitutionality of the statute. Justice Owen
J. Roberts declared, "With the wisdom of the policy adopted, with the
adequacy or practicability of the law enacted to forward it, the courts are
both incompetent and unauthorized to deal." (27) Rejecting
Nebbia's due process argument, he wrote that "due process . . . demands
only that the law shall not be unreasonable, arbitrary or capricious, and that
the means selected shall have a real and substantial relation to the object
sought to be attained." (28) New
York, therefore, could punish dealers for selling their property to willing
customers at prices different from those decreed by the state. Nebbia's freedom
to set his own prices and contract with customers was swallowed up by the
Court's willingness to defer to the legislature's presumed competence.
Justice James C. McReynolds's dissent expressed the now-abandoned
view that freedom to trade was a right of constitutional magnitude:
"Grave concern for embarrassed farmers is everywhere; but this should
neither obscure the rights of others nor obstruct judicial appraisement of
measures proposed for relief. The ultimate welfare of the producer, like that
of every other class, requires the dominance of the Constitution. And zealously
to uphold this in all its parts is the highest duty intrusted to the
courts." (29) The tide, however, had turned against the
philosophy of limited government and the view that the Constitution
protects the citizen's liberty to make business and occupational decisions for
himself.
With the Nebbia decision, the Court's resistance to
legislative interference with economic liberties began to crumble. In the
following years, a dizzying array of statutes and regulations telling people
what they must or must not do in the marketplace was enacted. Most of the
federal legislation, when challenged, was upheld under the Court's new and
expansive reading of the Commerce Clause of Article I, Section 8, of the
Constitution. Originally, congressional power to regulate "commerce among
the states" was limited to trade that crossed state lines; it was not
thought to reach the conditions under which the traded goods were produced. But
in N.L.R.B. v. Jones & Laughlin Steel, (30) the
Court held that the regulatory power of Congress extended to anything that
might affect interstate commerce. Since almost anything a producer may do can
conceivably "affect" interstate commerce, the decision
virtually eliminated any constitutional restraint on congressional regulatory
power. (31)
With Nebbia, Jones & Laughlin Steel, and decisions
that followed them, the Court demoted economic liberties from their older,
protected status--which required government to cite an objective of great
public importance and demonstrate that the regulation was the least intrusive
means of achieving that objective--to a new, unprotected status--which only
required government to allege that there was some reason to believe
the legislation would achieve a legitimate end. The demotion was made explicit
in United States v. Carolene Products Co., (32) a
decision upholding a federal statute outlawing the sale of "filled
milk" (milk with nonmilk fats added). Justice Harlan Fiske Stone wrote
that "regulatory legislation affecting ordinary commercial transactions is
not to be pronounced unconstitutional unless in the light of the facts made
known or generally assumed it is of such a character as to preclude the
assumption that it rests upon some rational basis." (33)
The "rational basis" test proved to be exceedingly easy to
meet. In numerous cases following Carolene Products, the Court upheld statutes
that curtailed economic liberty, uncritically accepting government rationales
offered in their defense, and sometimes even itself suggesting rationales
that might have animated the legislators. In Railway Express Agency v. New
York, (34) the Court sustained a New York traffic ordinance
that prohibited the sale of advertising space on trucks but allowed truck
owners to advertise their businesses on their own vehicles. Challenged as a
denial of equal protection by Railway Express, which wanted the freedom to
contract to sell advertising space on its trucks rather than just advertise
itself, the ordinance was upheld by the Court. Justice William O. Douglas
wrote, "The local authorities may well have concluded that those who
advertised their own wares on their trucks do not present the same traffic
problem in view of the nature or extent of the advertising which they
use." (35) The contrast with Allgeyer and Lochner
was striking. Freedom of contract can be restricted, under the "rational
basis" test, provided only that the justices can imagine some
reason that the legislators might have had in mind when they enacted the law.
Similarly, in Williamson v. Lee Optical Co., (36) the
Court rescued a patently anti-competitive statute with its own speculations on
what the legislators might have thought. In that case, an Oklahoma statute
prohibited opticians from fitting new lenses into old eyeglass frames unless
they first obtained a prescription from an optometrist or ophthalmologist. The
Court brushed aside the Fourteenth Amendment challenge to the law. It was
enough for Justice Douglas to muse that the legislature might have
thought the enactment would do something to "protect public health."
One critic caustically observed that a "state statute that, on grounds of
public health, forbids opticians to replace eyeglass frames without a
prescription signed by an optometrist or ophthalmologist can have no real
purpose other than to increase the income of optometrists and ophthalmologists
at the expense of opticians--and consumers." (37) The special-interest
nature of the law must have been apparent to the members of the Court, but
they were adamant in wanting to preserve legislative authority in the economic
realm.
A case that is particularly relevant to UPL prohibitions is Ferguson
v. Skrupa, (38) involving a Kansas statute prohibiting the
business of debt adjusting. Under that practice, a debtor and a debt adjuster
enter into a contract whereby the debtor makes periodic payments to the debt
adjuster, who then pays creditors pursuant to an agreed-upon plan, keeping a
percentage for himself. The statute allowed only lawyers to practice debt
adjusting, if done pursuant to the "practice of law." Skrupa, who
had been in the debt-adjusting business, challenged the statute, arguing that a
complete prohibition was unreasonable, since the occasional abuses that might
arise in debt adjusting could be remedied in other, less restrictive ways than putting
nonlawyer debt adjusters out of business. The federal court that heard the
case agreed and struck down the statute as a violation of the Fourteenth
Amendment. (39)
Kansas appealed to the Supreme Court, knowing that under the rational
basis test it was certain to win. It did. Justice Hugo L. Black, writing
for the Court, scolded the lower court for having "adopted the philosophy
that it is the province of courts to draw on their own views as to the
morality, legitimacy, and usefulness of a particular business in order to
decide whether a statute bears too heavily upon that business and by so doing
violates due process. . . . [I]t is up to legislatures, not courts, to
decide on the wisdom and utility of legislation." (40) Hammering
home the point that the Court was utterly indifferent to assaults on economic
liberty, Black added, "Whether the legislature takes for its textbook Adam
Smith, Herbert Spencer, Lord Keynes, or some other is no concern of ours."
(41)
Skrupa had also argued that because the statute permitted lawyers to
engage in debt adjusting, his right to equal protection of the law was
violated. Justice Black dismissed that argument under the rational basis test:
Kansas legislators might have thought that it was reasonable to allow lawyers
to engage in debt adjusting because the debtor might need legal advice that a
layman could not lawfully give him under the Kansas UPL statute. (42) One
monopoly served to justify another.
The Court's message in Ferguson v. Skrupa could not have been
more clear: If legislation destroys honest businesses and creates monopolies
for favored interest groups, the judiciary must allow it because courts
are not to "substitute their social and economic beliefs for the judgment
of legislative bodies, who are elected to pass laws." (43) The
precedent of deferring to the legislature whenever there is or might be some
rational basis for assaults on economic liberties continues to this day. (44)
The Court's rubber stamping of legislation restricting or
abrogating economic liberties contrasts sharply with its strict scrutiny
of legislation affecting what the justices regard as fundamental rights.
Consider, for example, Griswold v. Connecticut, (45) which
declared a statute forbidding the sale of contraceptives unconstitutional.
Justice Douglas, writing the majority opinion, justified the result on the
ground that the statute violated the "fundamental" right of
privacy that he found in "penumbras" of the First, Third, Fourth,
Fifth, and Ninth Amendments. For the majority, privacy, although not mentioned
in the Constitution, was a fundamental right, which the ban on the sale of
contraceptives violated. Because the Court regarded the right of privacy as
fundamental, it applied strict scrutiny in analyzing the case.
Statutes analyzed under strict scrutiny are doomed.
Under this analysis, the government is required to show (a) that it is
attempting to achieve an objective of vital public interest, (b) that
the statute in question will in fact do so, and (c) that it has
chosen the least intrusive means possible of doing so. The presumption
is strongly against the constitutionality of the law. Just as the rational
basis test makes it easy to find a reason to uphold a statute, strict
scrutiny makes it easy to find a reason to strike it down. As Justice Douglas
wrote, if regulations "sweep unnecessarily broadly and thereby
invade the area of protected freedoms," they are invalid. (46) Connecticut's
statute banning the pill "swept too broadly" and was therefore
unconstitutional.
It is instructive to compare Griswold with Ferguson v.
Skrupa. The Kansas statute banning debt adjusting was allowed to stand,
even though it could easily be argued that less restrictive means could have
been employed. The Connecticut statute was declared unconstitutional because it
did not employ a less restrictive means. The outcomes are explained solely by
the fact that the Court pinned the "fundamental" label on the
"right of marital privacy" in Griswold but did not pin it on
Skrupa's right to continue in business.
Another right the Court has graced with the "fundamental"
designation is voting. State laws that fail to comply with the Court's rules on
voting rights and optimal apportionment will be invalidated. Thus, in Reynolds
v. Sims, (47) a case involving the apportionment of the Alabama
legislature, Chief Justice Earl Warren wrote, "Undoubtedly, the right
of suffrage is a fundamental matter in a free and democratic society.
Especially since the right to exercise the franchise in a free and unimpaired
manner is preservative of other basic civil and political rights, any
alleged infringement of the right of citizens to vote must be carefully and
meticulously scrutinized." (48)
Whether the right to exercise the franchise in a free and
unimpaired manner is "preservative of other basic civil and political
rights" is debatable. What is not in debate is that a large percentage of
Americans eligible to vote do not choose to do so. A right that the
Supreme Court considers fundamental is one that many citizens view with
complete indifference. Voting, privacy, freedom of speech, and other rights
for which the Court shows great solicitude may indeed be fundamental, but most
people regard the right to engage in a chosen occupation, the right to contract
for the purchase or sale of goods and services, and economic liberties
generally, as being at least as important to their success and happiness as are
the Court's preferred rights. Unfortunately, the Court has not seen fit to
protect those other rights.
Arguably, that rights dichotomy reflects the prejudice of jurists,
educated in elite law schools, who apparently believe that voting, privacy,
speech, press, and other rights denominated as fundamental are of far greater
significance to people and the well-being of the nation than are mere economic
rights. Nobel laureate Ronald Coase offers this view on the reason for the
Court's hierarchy of rights:
The market for ideas is the market in which the intellectual
conducts his trade. The explanation of the paradox is self-interest and
self-esteem. Self-esteem leads intellectuals to magnify the importance of their
own market. That others should be regulated seems natural, particularly as
many of the intellectuals see themselves as doing the regulating. But
self-interest combines with self-esteem to ensure that, while others are
regulated, regulation should not apply to them. (49)
The Court's distinction between fundamental personal, political,
and intellectual rights, which the government must respect, and
nonfundamental economic rights, which the government may disregard under almost
any pretext, may appeal to some intellectuals, but does it have any basis in
the Constitution?
The Importance of Economic Liberty
F. A. Hayek has argued that economic rights, reduced by the Supreme
Court to conditional privileges, are as essential to human welfare and
progress as are fundamental rights. Human well-being depends as much on the
freedom to work, to trade, or to contract as on the freedom to think, to speak,
or to vote. In Hayek's words,
The importance of freedom . . . does not depend on the elevated
character of the activities it makes possible. Freedom of action, even
in humble things, is as important as freedom of thought. It has become a common
practice to disparage freedom of action by calling it "economic
liberty." But the concept of freedom of action is much wider than that of
economic liberty, which it includes; and what is more important, it is very
questionable whether there are any actions that can be called merely
"economic" and whether any restrictions on liberty can be confined to
what are merely "economic" aspects. (50)
Economic liberty is the foundation for the realization of nearly all
human goals. The ability to earn a living and thereby acquire the goods,
services, and resources that we need for everything from raising a family and
enjoying a vacation to supporting the fine arts and writing political tracts is
impeded, and sometimes eliminated, by the kind of statutes that easily pass
by the Court's rational basis test.
Consider, for example, the case of Nancy Dukes. She had operated a
hot-dog pushcart business in New Orleans until the City Council enacted a law
that prohibited push-cart vendors who had not been licensed and operating
continuously for eight years. Dukes was forced out of business because
she had only operated for two years. One hot-dog vendor was
"grandfathered" in under the eight-year rule and thereafter
enjoyed a monopoly.
Dukes challenged the law, arguing that it was an unconstitutional
deprivation of her liberty and property. The Fifth Circuit Court of Appeals
agreed with her, (51) but this victory for economic liberty was
short-lived. New Orleans appealed and the Supreme Court reversed. Again
emphasizing the constitutional insignificance of economic liberty, the Court
declared that "in the local economic sphere, it is only the invidious
discrimination, the wholly arbitrary act, which cannot stand consistently
with the Fourteenth Amendment." (52) Dukes
was deprived of her livelihood because the Court did not regard the New Orleans
law to be "wholly arbitrary."
The Court's distinction between rights it treats as fundamental and
those it consigns to the nether regions of constitutional jurisprudence
is untenable. Voting rights, freedom of speech, and other political-intellectual
rights are indeed important, but no more so than the right to pursue one's
chosen livelihood and engage in other economic activities. The Founders took
pains to protect the liberty of the citizens in all its many aspects, not just
those that the Court has chosen to favor. As Professor Bernard Siegan of the
University of San Diego observed,
When the Constitution was framed, separation of powers, checks and
balances, and judicial review were political and economic ideas. They would
safeguard the individual in his personal, business, or professional life from
governmental oppression. Society would benefit because liberty was regarded as
the greatest encouragement to wisdom, productivity, creativity, and
contentment. The same reasoning remains applicable today. We still rely on
freedom to advance understanding and culture as well as to supply food,
clothing, and shelter. But those constitutional aspects now operate to augment
liberty in one area and not the other. (53)
Economic liberties were unquestionably important to the framers of
the Constitution. Professor Richard Levy of the University of Kansas notes that
"economic rights are fundamental in terms of the importance attached to
them by the framers, their role in the traditions and collective conscience
that underlay our conceptions of ordered liberty, and their contribution to
individual and societal well-being." (54) Applying
the rational basis test and taking Justice Black at his word--that the Court
should remain indifferent to any and all economic controls a legislature may
want to enact--leaves a vast sphere of liberty entirely at the mercy of majoritarian
politics. That is at odds with the letter and spirit of the
Constitution.
The best approach for the Court to take in restoring economic
liberties to their proper constitutional place is an inquiry beyond the scope
of this paper. (55) What is vital is that, wherever in the
Constitution the Court chooses to ground protection for freedom to engage in
economic transactions, including the freedom to pursue an occupation, the Court
abandon the minimal scrutiny standard that has so often allowed legislation to
deprive people of economic liberty upon the flimsiest of pretexts. When
a legislative body seeks to place obstacles in the way of people who desire to
earn an honest living, it should be prepared for judicial review asking whether
the law in question is one that is necessary to advance an important public
purpose and does so in the least intrusive way.
The Court has never decided a case challenging the constitutionality
of UPL prohibitions. Under the current rational basis analysis, the
outcome of such a case is obvious--the state wins. But when the state wins, a
large number of individuals lose. People who might have become successful legal
practitioners, such as Rosemary Furman, are compelled to pursue some other line
of work. People who might have benefited from their services, as those who
dealt with Furman did, will have to choose among fewer and more expensive
service options. The freedom to decide who is authorized to serve another
is removed from the hands of the would-be contracting parties and placed in the
hands of an organization of practitioners with a strong interest in limiting
competition and protecting the status quo.
The freedom to engage in useful work should not be treated as simply
a matter of legislative prerogative, like setting speed limits. It is a
matter of liberty and justice. As James Madison wrote in 1792,
That is not a just government, nor is property secure under it,
where arbitrary restrictions, exemptions, and monopolies deny to part of the
citizenry that free use of their faculties, and the free choice of their
occupations, which not only constitute their property in the general sense of the
word; but are the means of acquiring property strictly so-called. (56)
If the Court were to restore constitutional protection for economic
liberties and ask hard questions about UPL prohibitions, could they survive the
scrutiny? To that question, we now turn.
Early American history was characterized by a laissez faire attitude
toward labor and the market for services. During the colonial period, bar
organizations in some cities succeeded in establishing a measure of control
over entrance into the legal services field, but in the years after the
Revolution, most restrictions on legal practice were abolished. Legal historian
Barlow Christensen writes that "the close of the Revolutionary War saw a
concerted attack upon the privileges of the legal profession, a movement that
was exacerbated by the rising spirit of 'Jacksonian democracy. '" (57) By the
time of the Civil War, no significant restrictions remained, and several states had statutes or even constitutional
provisions specifically stating that every citizen was entitled to practice law.
(58) The market for legal services was virtually free of
government regulation.
Individuals who wanted to earn a living (or merely supplement other
income) by providing legal assistance were free to decide how to prepare
themselves: One might read law on his own, as Abraham Lincoln did; serve an
apprenticeship with a lawyer, as Clarence Darrow did; (59) or
attend one of the small number of law schools then in operation. (60) No law
specified the kind or duration of preparation for legal practice and, according
to legal historian Albert Harno, "A substantial
portion of the practicing bar was unconvinced, if not distrustful, of the
benefits that might flow to a lawyer from either a university or law school
education." (61) Aspiring lawyers weighed the
costs and benefits of the various human capital investments they could make to
further their careers and chose among them, searching for the optimal education
and training investment, given their particular circumstances.
Beginning in the latter decades of the 19th century, the legal
profession began to assert its growing political influence and pressed
for legislation to set minimum educational qualifications for bar membership. (62) By
1902, 27 of the 45 states had established such qualifications. The argument
made by the bar in favor of minimum educational requirements was that they
would improve the quality of legal representation. Although that
public-interest rationale may have been sincerely believed by some, raising
admission standards was clearly in the interest of lawyers. During the laissez
faire years, the lawyer-to-population ratio had been steadily rising, leading
lawyers to complain about overcrowding at the bar. Christensen comments that
"the effort to impose and to raise educational standards for admission
to law practice carried with it the added attraction of limiting the number of
new lawyers admitted. That it in fact did so is perhaps reflected in the
drop in the lawyer-to-population ratio in the years following." (63)
Reducing the number of lawyers, however, left the bar facing
increasing competition from laymen and corporations, such as title insurance
companies. The legal profession next turned its attention to that
"problem." In 1930 the ABA appointed its first Committee on
Unauthorized Practice of Law; many state and local bar organizations also did
so and began to lobby for the enactment of statutes prohibiting
"unauthorized" practice of law. UPL prohibitions were sought,
successfully in every state, by the bar, with the argument that they were
needed to prevent consumers from being harmed by incompetent practitioners. The
consumer protection rationale, however, has met with much skepticism. Professor
Deborah Rhode of Stanford University, for example, has written, "Although
the organized bar has often suggested that the campaign against lay practice
arose as a result of a public demand, the consensus among historians is to
the contrary." (64)
The UPL statutes effectively cartelized
the legal profession. Only licensed attorneys were thereafter permitted to
"practice law," a term that was never carefully defined, which left
it up to a generally sympathetic judiciary to determine on a case-by-case
basis just where a person's conduct encroached upon forbidden turf.
Many courts took their lead from a very general formulation by then-judge
Justice Benjamin N. Cardozo, that "the practice of law encompasses all
those services traditionally rendered by lawyers." (65) The
law and zealous unauthorized practice committees would shield lawyers from
unwanted outside competition as much as possible.
Over the years, courts have identified many activities as UPL (66) and,
less frequently, ruled some lay activities to be free of UPL restraints. (67) No
case, however, can do more than fix a single point on the boundary between the
practice of law and activities that laymen may undertake. The imprecision of
the law makes it easy for unauthorized practice committees to threaten legal action
against nonlawyers whose activities could plausibly be called "services
traditionally rendered by lawyers."
For the most part, the bar has tried to make its UPL enforcement
unobtrusive. Rhode explains, "By design or neglect, the organized bar has
settled on an approach involving low-visibility enforcement efforts by state
and local unauthorized practice committees, attended by as little public
discussion as possible." (68) Where
UPL cases have garnered media attention, they have been a public relations
headache for the bar. The Florida Bar's prosecution of Furman, as
noted earlier, is a case in point.
In recent years, the bar's attempts to expand the boundaries of UPL
have led to "turf wars" with other professions. In 1996, for
example, the State Bar of Virginia managed to get legislation introduced that
would have declared real estate closings to be unauthorized practice if handled
solely by real estate agents. When it became apparent that the bill would fail
in the legislature, the bar sought an opinion from the Virginia Supreme Court
to the effect that real estate closings could not be done without an attorney.
The Virginia Bar's effort was opposed not only by a coalition of
realtors and bankers but by the Federal Trade Commission and the Department
of Justice. Anne Bingaman, head of the Antitrust Division, and
William J. Baer, director of the Federal Trade Commission, argued in a
joint letter to the executive director of the Virginia State Bar, "By
ending competition from lay settlement services, the Opinion would likely
increase the cost of real estate closings for consumers. . . . The restriction
would adversely affect all consumers who might prefer the combination of price,
quality, and services that a lay settlement service offers." (69) Bingaman
and Baer cited the New Jersey Supreme Court's 1995 ruling, in a similar
controversy, that competition benefited consumers, who saved money but suffered
no demonstrable harm from conducting real estate closings without legal counsel.
(70) After the Virginia legislature passed a bill declaring
that real estate closing work was not the practice of law, the Virginia Bar
withdrew its proposed ruling to the contrary.
Notwithstanding that setback, we can anticipate an on-going effort
by bar associations to prevent consumers from contracting with nonattorneys for
legal services, always in the name of consumer
protection. As we shall see, however, UPL
restrictions do not protect or benefit consumers; on the contrary, they harm
them.
Do UPL prohibitions serve any valid purpose? Although it is commonly
believed that they improve consumer welfare by ensuring standards of
competency, we will see in this section that they are in fact
counterproductive.
Occupational Licensure, Market Standards, and
Quality of Service
In the United States, many occupations are subject to licensing
requirements. (71) Licensing statutes provide that only those
individuals who have obtained a license as prescribed by law are permitted to
offer their services to others. If an unlicensed individual attempts to enter
the market, he can be enjoined from doing so and may be subject to other
penalties, whether or not any person he serves
suffers an injury. The legal profession is just one of many service
markets to which entry has been foreclosed to anyone who has not undertaken a politically
determined course of preparation.
Among economists, licensure is widely understood as a form of
rent seeking by special-interest groups--that is, an endeavor to use the
power of the government to secure higher earnings than would be possible in a
free market. Thomas Sowell writes,
Escalating qualification standards in the licensed occupation almost
invariably exempt existing practitioners, who thereby reap increased earnings
from the contrived scarcity, without having to pay the costs they impose
on new entrants in the form of longer schooling, tougher qualifying
examinations, or more extended apprenticeship. . . . Although "the public
interest" is a prominent rhetorical feature of occupational licensing laws
and pronouncements, historically the impetus for such licensing comes almost
invariably from practitioners rather than the public, and it almost
invariably reduces the quantity of new practitioners through various
restrictive devices, and the result is higher prices. (72)
Licensing thus leads to higher earnings for a few and higher costs
for many.
With less competition, licensees can charge higher prices. Because
there are fewer lawyers than clients, monopoly gains are concentrated while
costs, higher prices, and reduced contracting options are widely diffused among
the public. As public-choice economists have pointed out, in the arena of
democratic politics, organized interest groups seeking concentrated
benefits for their members have a great advantage over their opponents. The interest
group is well informed about the issue and will devote considerable
resources to lobbying and public relations to sway legislators, but members of
the public who will be made worse off as a consequence of the licensing statute
will have little incentive to organize opposition. Few even know about the
legislation, much less comprehend its adverse impact on them. (73)
The public rationale given by the profession seeking restrictive
licensure and the politicians who sponsor and advance the legislation is that
it is needed to protect consumers against harm they might suffer from dealing
with incompetent service providers. In the absence of licensing, the argument
goes, there would be no guarantee that individuals holding themselves out as
competent to perform certain services would in fact be competent. Licensing,
its defenders argue, protects consumers by imposing standards where there would
otherwise be none.
On a superficial level, the argument seems plausible. Without
licensing statutes, no legally articulated standards restrict entry into
a business or profession. If there were no attorney licensing statutes backed
up with UPL prohibitions, it would be legal for a person with little or no
training in the law to hold himself out as an attorney. Still, the absence of
statutory standards does not mean there are no standards at all. The market
imposes the unarticulated--but very real--standard that those who enter
it must be able to meet the competition. This is the test of the
marketplace: can you earn enough, in the face of free choice among consumers,
to remain in the field?
The market's standard is one of performance. The
consumer is usually not concerned with the means by which practitioners acquire
their skills. He cares only that he receives good value for his money. In any
occupation, licensed or not, practitioners have to prepare adequately or they
will quickly find themselves unable to handle the demands made on them. Failure
to satisfy enough customers will threaten the ability to remain in business.
Some new practitioners prepare by serving an apprenticeship with an established
professional; others choose to take courses. In either case, each individual
has a strong incentive to prepare well enough to be able to perform
satisfactorily when he is on his own.
How do practitioners-in-training know when they are competent to
handle work on their own? Schools that provide training courses, whether in
law, hair cutting, truck driving, or anything else, have an incentive to
provide an adequate level of preparation. It would be ruinous to their
reputations to be known as places that took money from students but failed to
train them well enough to succeed. Schools might desire to overtrain
students to increase their revenues, but competing schools would eventually
arise to offer more cost-effective alternatives. A competitive market for
training drives out training programs that are not a good value for the time
and money the student invests. In the free market, ineffective education and
training programs can no more survive than can any other product that doesn't
work.
The question is not whether there will be standards but whether they
will be politically determined or market determined. The
weakness of politically determined standards is that they are set by people who
do not bear the cost of, and indeed may gain from, setting them too high or
basing them on irrelevant criteria. The politically
determined licensing standard for beauticians in Oregon mandates 2,500 hours of
training. In California, candidates for an architect's license must be able to
discuss the tomb of Queen Hatshepshut. After analyzing many licensing
requirements, S. David Young wrote that written exams often "test little
more than the ability to memorize irrelevant facts." (74) Whereas
the nonarticulated standards of the market focus on the ability to do
satisfactory work, political standards are too often motivated by the desire to
artificially raise costs and restrict entry into the field.
In the legal services market, the licensing criteria are fulfilled
by law school graduation, passage of the state bar exam, and (in most states)
membership in the state bar association. A free market in legal services, according
to a typical statement, would "result in the most unwary, guileless
members of the public being incompetently represented and advised, if not
victimized and defrauded." (75)
The demand for high standards to protect the public seems appealing.
As we shall see, however, the benefit to consumers of having government--or,
more accurately, the organization that represents legal practitioners--set
training and competence criteria is exaggerated, if it exists at all. Moreover,
the consumer protection rationale overlooks the significant costs that this
policy imposes. UPL prohibitions are, in fact, neither necessary nor
sufficient to protect consumers from incompetent or unscrupulous practitioners.
A free market in legal services combined with consumer remedies for
fraud, breach of contract, and negligence gives consumers at least as much
protection against incompetent and unscrupulous practitioners as does the
prohibition against UPL.
The need to pass the test of the market imposes unarticulated, but
nevertheless powerful, standards on those who wish to succeed. To enter any
service market requires an investment of time and capital. Self-interest drives
people to search for the most profitable uses for their time and capital. An
ill-considered investment will mean, at the minimum, forgoing better
opportunities; often, it entails partial or complete loss of the individual's
capital. The prospective cost of failure deters people from entering markets
in which they are not competent. Someone who can barely play a C major
scale does not invest the time and money necessary to enter the market as a
piano teacher, despite the absence of any licensing requirements for that
profession. People rationally spend their time and money in pursuit of the
career that is most apt to be profitable and eschew the many that are apt to
end with dissatisfied customers suing to get their money back.
Because people do not want to fail, they desire information about
the standards that the market has established. How good is good enough? They
also desire the training necessary to reach that level of ability. Those
demands give rise to a supply of training opportunities to develop the human
capital needed for success. To prepare to enter the legal services market in
1900, for example, a person could have chosen from full-time or part-time law
schools offering courses of study ranging from one to three years. Or he might
have chosen to become an apprentice in a law office and learn the law in a more
hands-on setting. That choice was left to the individual, yet there is no
evidence that public dissatisfaction with the services rendered by lawyers was
higher then than it is today.
In the states where UPL prohibitions have been repealed or
relaxed, (76) unlicensed legal
practitioners, mostly paralegals and legal secretaries, handle work that is
within their capabilities and commonly refer more difficult or unfamiliar legal
work to lawyers. They do so for the same reason that lawyers refer cases
outside their area of expertise to other lawyers, even though they are not
legally bound to do so: it is not in their interest to try and possibly fail
at work that is beyond their capabilities.
There is no law to prevent a patent lawyer from handling litigation
under the Uniform Commercial Code, for example, but lawyers very seldom take
cases in fields in which they have no expertise. (77) More
time is required to prepare a case in an unfamiliar area of the law; the risk
of malpractice is increased; and unsatisfactory performance could damage the
lawyer's reputation. (78) Those same considerations
deter other legal practitioners from straying outside of their areas of
competence.
Marketplace incentives and disincentives work to filter out most
incompetence prospectively. Individuals rarely enter a field unless they
know they are good enough to compete. Moreover, consumers have a further
protective resource -- their own information-gathering ability. Self-interest
drives them to search for information about the reliability of service
providers with whom they would contract. Consumers can and do obtain such
information by asking others who have needed the same kind of service. They can
check with the Better Business Bureau or the state Office of Consumer
Protection. They may inquire about the length of time a service provider has
been in business, duration being an indicator of success. The
presence or absence of advertising is another. Service providers probably
would not invest in advertising only to squander that investment by performing
incompetently. When consumers search for evidence of reliability, they are
usually able to screen out charlatans.
The market process thus minimizes the problem of incompetent
practitioners. The likelihood of incompetent service is greatest where the
consumer does not go into the market for help but instead seeks advice from
persons not in the market--friends or relatives, for instance--who are not
concerned about repeat business because they are not trying to earn a living in
that field. Market incentives will not deter nonmarket transactions.
Neither, however, will laws prohibiting such dealings deter them. If
Person A asks Person B (a friend or relative) for legal assistance, B is not
apt to consult the statute books to find out whether he may help A without
violating state law. Such random cases of unauthorized practice almost never
come to light, and even when they do, prosecution accomplishes nothing either
for A (if indeed he is injured) or for other persons seeking advice from B (if
indeed there would be any). Rather than deterring nonmarket legal assistance,
which has the strongest likelihood of resulting in consumer harm, UPL
prohibitions actually encourage it by raising the price of legal services on
the free market.
Self-interested behavior in the free market, in sum, efficiently
deters and eliminates incompetence. It does not guarantee that no consumer will
ever receive bad advice or service, but it minimizes the instances of consumer
harm. As Milton and Rose Friedman have written, "On the whole, market
competition, when it is permitted to work, protects the consumer better than do
the government mechanisms that have been increasingly superimposed on the
market." (79)
Studies that have been done on unlicensed legal practitioners
support the argument that market competition leads to suitably high performance
standards. In California, where UPL prohibitions are on the books but not
enforced, the Committee on Public Protection of the California Bar,
including both lawyers and nonlawyers, concluded
unanimously that unlicensed legal practitioners pose no danger to consumers and
fill an important role in assisting people who would otherwise find it
difficult to afford legal assistance.
(80) Similarly, a Canadian study concluded that "the
great majority of clients of independent paralegals feel that they have
received satisfactory legal services. In fact, the information assembled by the
Task Force suggests that any intimation of large
scale incompetence or fraudulent activity by independent paralegals is
incorrect and misleading." (81)
Furthermore, there are a number of areas in which consumers are free
to choose legal assistance by a nonlawyer, and in those areas nonlawyers
evidently perform capably. Many federal regulatory
agencies permit parties to be represented by nonlawyers in disputes before them
that often involve difficult legal issues. A 1984 ABA study concluded that lay
representatives perform satisfactorily before such agencies. (82) To
cite one example, the Patent Office limits practice before it to those who can
pass its exam in patent law and procedure, but the exam is open to lawyers
and nonlawyers alike, and there is no evidence that parties choosing
nonlawyer representation fare any worse than those choosing lawyers. In Sperry
v. Florida, the Supreme Court rebuffed an
attempt by the Florida Bar to prevent nonlawyers from representing Floridians
before the Patent Office. The Court quoted approvingly a study by the Patent
Office stating that "there is no significant difference between lawyers
and nonlawyers either with respect to their ability to handle the work or with
respect to their ethical conduct." (83)
Where allowed, nonlawyers do competent legal work ranging from the
drafting of wills to the handling of patent applications. That sharply calls
into question the assumption behind UPL prohibitions that only individuals who
have graduated from law school and passed the bar exam can be competent legal
representatives. The great proliferation of communication and learning
technologies over the last decade has made it easier than ever for people to
acquire knowledge. Nontraditional education and training programs abound in
fields where government policy has not locked in a particular course of study
to gain entrance--for example, M.B.A. programs in finance or marketing that
efficiently train individuals to compete in those areas. In both fields, the
market sets the standards for training and competence, yet there is no clamor
for higher standards for M.B.A’s.
Because the free market creates. strong incentives for competence
and strong disincentives for incompetence and could efficiently train
prospective legal practitioners to meet its standards, government need not
establish politically determined
standards or enact UPL prohibitions.
The inevitable cost of government intervention is high legal
fees--higher than they would be in a free market. Requiring a costly three-year
course of study as the precondition to licensure increases the investment
needed to enter the legal services field. Roger Cramton of Cornell Law School
comments,
The ABA's efforts to assure the competence of new entrants have had
the effect of increasing the cost as well as the quality of legal education.
When the opportunity costs of foregone income are taken into account,
the investment in human capital presently required to become a lawyer amounts
to at least $100,000. A serious question,
infrequently discussed, is whether the required preparation and its cost are
essential in all areas of law practice. Some types of routine client service,
such as sales of residences, simple wills, and uncontested divorces, may not
require lawyers who are as thoroughly educated and as costly as lawyers are
today. If these and other areas are opened to competition from other service
providers, a market test of price and quality would be provided. (84)
That
very few law schools offered three-year programs before they were mandated is
evidence that the mandate is inefficient. It compels what is for many
an overinvestment in legal education. Limiting the practice of law to those who
can afford the high entry cost reduces competition and drives up legal fees.
To illustrate the impact, let us perform a thought experiment. Suppose that standards for
legal education, already high, were raised even higher. If three years of law
school help lawyers to analyze and argue cases, spot arguments, avoid mistakes,
and give their clients good representation, why should we not make it six?
Imagine that we have done so. As a further measure to ensure competence,
suppose that bar exams were made longer, harder, and a perfect score was
required to pass. (85) What would the results be?
The cost of entrance into the legal services market would be
significantly higher than it is today. Fewer individuals would prepare for
legal practice, but those who managed to obtain licenses would be magnificently
trained. With fewer suppliers of legal services, the price of their services
would rise. Many people who could barely afford the services of a lawyer today
would be priced out of the market. They would have to choose among three
alternatives: (a) attempt to handle their legal problem themselves, (b)
contract with an unauthorized practitioner, or (c) leave the problem unresolved.
Any of those alternatives could prove harmful to the individual; all three are
more risky than contracting with a practitioner good enough to pass the test of
the market. Thus the quest for higher standards would lead to more cases of consumer harm.
If our hypothetical doubling of the human capital investment to
become a legal practitioner has the effect of pricing some people out of the
market, so does the current high-standards policy. A
study commissioned by the ABA found that, in 1987, 40 percent of low-income
Americans experienced civil legal problems for which they obtained no
professional help. (86) Derek Bok, former president of
Harvard University and dean of the Law School, writes, "The blunt,
inexcusable fact is that this nation, which prides itself on efficiency and
justice, has developed a legal system that is the most expensive in the world,
yet cannot manage to protect the rights of most of its citizens." (87)
Economic theory instructs that decreased competition raises prices
and increased competition reduces them. Rarely, however, do we have anything
like a laboratory experiment to prove it; but a change in the law in England
several years ago demonstrates that legal fees do fall with increased
competition.
Conveyancing--the legal work associated with transferring real
estate titles--had long been a monopoly of the legal profession. Then in 1984,
Prime Minister Margaret Thatcher's administration announced that the monopoly
would end in 1987, at which time "licensed conveyancers" would be
allowed to compete for conveyancing business. They would not have to be members
of the bar; they would simply have to demonstrate proficiency in conveyancing
work on an examination.
After the announcement of that change, the prospect of increased
competition had a dramatic impact on the market for conveyancing services.
Economists Simon Domberger and Avrom Sherr studied the effects and observed
that fees charged by lawyers for conveyancing began to fall almost
immediately--three years before the influx of
new competitors. The imminence of a freer market led to significant
benefits for consumers: "Price discrimination
has been reduced, conveyancing costs have fallen in real terms, and there has
been a measurable improvement in consumer satisfaction." (88)
It is not possible to precisely quantify the cost savings to
consumers from a free market in legal services, but anecdotal evidence on the
cost differential between the fees charged by lawyers and the fees charged by
nonlawyers suggests that, for some services at least, the differential is
considerable. Consider this instance, reported in Arizona Attorney:
Bob Haves knew he needed help in filing for a divorce when a
nine-year search finally turned up his wife in Georgia. But when the
air-conditioning and heating mechanic was told by an attorney that he needed to
pay an $800 retainer up front, Haves balked. Instead, he turned to one of a
growing number of legal document services in Arizona that helped him prepare
and file his divorce and even sort through child support, child custody, and
spousal maintenance problems. Haves believes that the $175 he paid for the
service was a bargain. (89)
In Arizona, consumers like Haves benefit significantly from the existence
of a free market in legal services. While a
competitive market does not ensure that everyone can afford legal services, it
brings them within the reach of many more people.
Poorer individuals are not the only ones
harmed by entry barriers that raise the cost of legal services. Any
person, business, or other organization is made worse off to the extent that
high legal costs divert resources from other uses. In some cases, injured
parties will passively accept otherwise compensable losses because the cost of
pursuing a legal claim may exceed the amount likely to be recovered. If the
dispute is too large for small claims court and too complex to be resolved
without retaining an attorney, the cost of
pursuing justice can make justice unattainable.
Both economic theory and experience indicate that consumer welfare
is optimized by a legal services market free of artificial barriers to
competition. The bar's insistence on politically dictated "high" standards has this effect:
a small number of harmful transactions--contracts with unlicensed practitioners
who make irremediable errors--may be avoided at the expense of foreclosing a
far larger number of transactions that would have been completely satisfactory
and would have saved the consumer money. Regulation to bring about high
standards thus leads to increased costs and decreased contracting options with
little or no countervailing benefit to consumers.
If UPL prohibitions are not necessary to protect the public against
incompetence, neither are they sufficient to do so. Mandating that legal
practitioners graduate from approved law schools and pass a bar examination
does not ensure their competence in handling legal matters.
A law school education trains students broadly but without great
depth. They learn about legal writing and research and choose from a
smorgasbord of course offerings that provide a good overview of basic doctrines
and leading cases. But that does not make them competent legal practitioners. A
student who has just passed a course in workers' compensation law, for example,
undoubtedly understands the highlights of the law, but he would not be a good
choice to represent a party in a workers' comp dispute. The ability to handle a
case competently comes only after much more learning, usually under the
tutelage of an experienced practitioner.
Our civil and criminal law is so vast that there are many fields a
student will never encounter in law school -- possibly including the very field
in which he will later specialize. Law school is a useful means of
acculturating a person in the law and teaching him how to learn more about it,
but it does not create expertise or ensure case-handling competence. Most
of what a good lawyer knows, he learns
after law school.
The broad law school curriculum is often defended as enabling
lawyers to spot issues--to see the full legal implications of a dispute. To
some extent it does, but a law school degree affords little assurance that a
lawyer will not miss an issue, especially if it relates to an area that was not
part of his formal studies.
Passing the bar exam does not ensure competence in helping people
with legal problems. A passing score demonstrates only that the individual was
able to retain a large quantity of the bar review material for a short period
of time. It does not demonstrate encyclopedic knowledge; indeed, a candidate
can answer 20 to 30 percent of the questions incorrectly and still pass in most
states. That fact alone belies the notion that the law school-bar exam
tandem guarantees that lawyers will be competent. Rhode observes, "Law
school and bar exam requirements provide no guarantee of expertise in areas
where the need for low-cost service is greatest: divorce, landlord/tenant
disputes, bankruptcy, immigration, welfare claims, tax preparation, and real
estate transactions." (90)
No system of training can provide society with mistake-proof
professionals in any field. What minimizes instances of incompetence is that
practitioners, no matter how they may be regulated or how they may have been trained, have a strong
incentive to perform up to the standards of the market.
Consumer protection against
incompetence is by far the most common rationale advanced for UPL prohibitions.
There are others, but they provide no better justification for prohibiting
nonlawyers from offering legal services.
A variant of the consumer protection argument is the contention that
consumers are better off if their legal needs are handled by members of the
bar. Supposedly, the bar's enforcement of its code of ethics gives consumers an
added measure of protection against dishonesty and conflict of interest.
Consider this pronouncement by the Supreme Court of Minnesota:
The law practice franchise is based on the threefold
requirements of ability, character, and responsible supervision. The public
welfare is safeguarded not merely by limiting law practice to individuals who
have the requisite ability and character, but also by the further requirement
that such practitioners shall thenceforth be officers of the court and subject
to its supervision. . . . Protection of the public is set at naught if laymen
who are not subject to court supervision are permitted to practice law. (91)
Lawyers are officers of the court, subject ultimately to the control
of the supreme court. Nonlawyers are subject only to the ordinary civil
and criminal law. Does it follow from this that consumers should only be
allowed to obtain legal services from lawyers?
Just as the argument that law school is necessary to ensure
competence falls apart under scrutiny, so
does the argument that the bar's attorney discipline system is so beneficial
that consumers should be denied the chance to contract with anyone not subject
to it. The system of attorney discipline has been widely criticized as a
consumer protection device. Attorney Deborah Chalfie, for example, writes that
"virtually all of the [bar's ethical] rules are phrased in public
protection terms. However, when the content and interpretation of the rules
are analyzed, 'ethical' seems to relate only to upholding the profession's
public image and economic status." The code of ethics, she continues,
amounts to "little more than proscriptions against crime, a form of
protection that consumers already have and which yields little concrete
benefit to those who have been harmed." (92) Allegations
of attorney negligence or incompetence are routinely dismissed because they do
not state an infraction of the code and, therefore, lie outside the authority
of the disciplinary committee. And in the rare case where an attorney is
sanctioned for a code violation, the penalty is usually light; the client,
moreover, seldom receives any financial redress. (93)
Even if the bar's code of ethics deters some attorney misconduct,
that is not an adequate reason to make it illegal for individuals who are not
subject to its strictures to offer their services in the market. Products
frequently have extra features, but that does not justify a ban on competing
products that are offered without them. Just as automobile consumers are
entitled to decide whether, for example, four-wheel drive is of sufficient
benefit to justify the higher price, so are consumers of legal services
entitled to decide whether the bar's system of attorney discipline is
sufficiently important to cause them to choose attorneys who are governed by a
code of professional ethics over other practitioners who are not. The attorney
discipline system should be put to the test of the market, not used as an
excuse to subvert it.
UPL prohibitions are also defended on the ground that they help to
guard against the waste of scarce judicial resources. Most courts have crowded
dockets and a long backlog of cases. To allow untrained advocates into court
proceedings would, it is argued, consume excessive amounts of court time and
further delay justice.
No doubt, allowing lay representatives in court may sometimes be
inefficient. Many of them, at least initially, would struggle with procedure
and take up more time than would an experienced trial attorney. The same,
however, is true of attorneys who seldom if ever participate in trials. It
is the lack of courtroom experience rather than the absence of a license to
practice law that might cause delays.
Lay advocates who intended to represent clients in court would have
just as strong an incentive to master procedure as do lawyers who handle
litigation. And allowing lay advocates to represent their clients in court
would reduce the number of cases in which individuals represent themselves.
That would substitute a trained advocate for an untrained one, thereby reducing
the court time devoted to helping a litigant avoid legal pitfalls.
Furthermore, concern about judicial resources provides no justification
whatever for outlawing unauthorized practice in the great majority of
instances that involve no court appearance. If the waste of court time is
thought to be a serious problem, the solution is to follow the practice of the
Patent Office, which allows anyone to practice before it who can pass its
proficiency test. That is a far less restrictive way to maintain
professionalism than are blanket UPL prohibitions.
UPL prohibitions, as we have seen, are neither necessary nor
sufficient for the protection of consumers of legal services. They are no
more effective than the free market at deterring and filtering out incompetent
practitioners, yet they raise the cost of legal services, thereby pricing many people out of the market. They also
infringe upon the rights of individuals to pursue their chosen occupation and
restrict the freedom of consumers to seek the best service at the lowest cost.
For those reasons, states ought to repeal their UPL statutes. Where the UPL
prohibition is judicially created, the legislature ought to overturn it with an
anti-UPL statute, establishing that it is permissible for anyone to assist
another person in any legal matter.
The ABA, aware that legal services are priced
out of the reach of many people, has recommended expanding the role of nonlawyers, especially in state
administrative agency proceedings. (94) The
ABA suggests that, in such proceedings, states "may wish to reassess their
current UPL laws, rules and enforcement activities." (95) In
other areas, however, the ABA has opposed allowing people to choose nonlawyer
representatives, supposedly fearing harm to consumers from ill-trained
practitioners. But the ABA undercuts its own position with its analysis of the
market for tax preparation services, an activity that is certainly at the
periphery of the practice of law. After observing that individuals can choose
tax preparers ranging from storefront operations that flourish each spring to
nationally known services to accountants to tax lawyers, the ABA concludes,
"This array of choices responds to a broad range of public demand for
assistance. It may be a useful model of how the legal profession, together with non-lawyers, can offer the public
the kinds of affordable, appropriate and
reasonably safe help for law-related matters that the public seeks in many
areas." (96)
Exactly so. Fortunately, tax preparation has never been deemed the
practice of law, so the market operates freely, giving taxpayers a wide range
of service providers to choose from. People with simple tax returns can
patronize low-cost services; those with difficult tax problems almost
invariably go to accountants or lawyers who specialize in tax work. There are
no government-imposed barriers to entry into the tax preparation market, which
therefore sets its own standards for competence. Not every tax return is done
perfectly--experts and nonexperts alike make mistakes-- but the unlicensed,
unregulated tax preparation market maximizes consumer value. It is, indeed,
a useful model and argues strongly in favor of the elimination of UPL
prohibitions so that consumers of legal services can similarly benefit from the
efficiency that comes with open competition.
The repeal of UPL prohibitions would significantly lower the barrier
to entry into the legal services market. Instead of mandating a prescribed
investment in human capital before an individual is permitted to practice law,
we should allow the powerful discovery process of the free market to function.
Entrepreneurs would then search for the most efficient ways of training people
for the wide variety of work done by legal practitioners. That would mean
putting the now-obligatory three years of law school to the test of the market.
As Judge Richard A. Posner has pointed out, law schools now have a
"captive audience, insulating them from a true market test of the value of the services they provide." (97)
In a free legal marketplace, an array of law preparation
institutions would compete to satisfy the educational needs of aspiring
practitioners. Optimally efficient methods of legal training would evolve, as
rival institutions sought to give students the best educational value for their
particular needs. For some, the traditional law school education might be
ideal; others might conclude that the costs of a third year outweighed the
benefits. For still others, one year of study might be sufficient. Legal
training institutions quite different from today's law schools might develop,
dispensing with current ABA mandates such as faculty tenure and maximum
teaching load. Probably first to go: the ABA requirement that law schools
be nonprofit. (98)
Market competition will drive down the cost of producing a criminal
defense attorney, divorce lawyer, or tax specialist, just as it has reduced the
cost of producing compact discs. More services will be available to people at
lower cost, and resources now unnecessarily devoted to legal training will be
released for more productive employment elsewhere. That dynamic free markets consistently
produce more output at less cost is compelling evidence that the ABA's
preferred 70-year-old model for the production of lawyers is obsolete.
To reduce their search costs and minimize the chances of contracting
improvidently, consumers need guidance in locating service providers with
demonstrated competence. A market device that offers such guidance is
certification--a means of notifying consumers that the provider possesses
certain capabilities. The certified public accountant designation is a good
example. One can sell accounting services without becoming a CPA, but by having
earned that designation, an accountant informs prospective customers that he
has demonstrated a high degree of proficiency. Those with relatively simple
accounting needs do not usually hire a CPA because his time is too costly; on
the other hand, those with high-level accounting needs do not consider a
non-CPA because he probably is not capable of handling the work. Certification
thus helps consumers by reducing the cost of searching for a service provider
who has the appropriate level of competence. At the same time, certification does
not restrict contracting options or deprive people of occupational freedom.
The legal profession itself relies on certification rather than
licensure once individuals have made it into the ranks of the bar. While any
lawyer can argue cases in court, for instance, those who wish to advertise
their special expertise in litigation can seek certification from the National
Board of Trial Advocacy, thereby highlighting their expertise. There is no
reason not to establish certification programs for other legal specialties,
with participation open to both members and nonmembers of the bar. If, for
example, an organization wanted to set up a program to certify the competence
of individuals to assist tenants in legal disputes, it ought to be free to do
so. Presumably, because the objective is to help tenants, the certification
process would neither restrict the number of practitioners nor mandate where
and how the person seeking certification learned the law. Tenants needing legal
assistance would probably seek service providers with that certification. And
practitioners who were thus certified would correspondingly benefit.
At present, no such certification exists, but in the freer, more
competitive environment that would prevail in the absence of UPL prohibitions,
it and others would likely arise. If the bar is truly interested in helping
the public find competent and affordable legal assistance, it should take
the lead and begin certification programs in many common specialty fields.
Those programs should focus on the candidate's demonstrated ability to perform,
rather than how he achieved his proficiency. Competing certification
organizations might arise, and if so, they should be welcomed.
Certification can help consumers make more intelligent decisions
without depriving them of options and without foreclosing voluntary
transactions. Milton Friedman states the case for certification this way:
The usual arguments for licensure, and in particular, the
paternalistic arguments, are satisfied almost entirely by certification alone.
If the argument is that we are too ignorant to judge good practitioners, all
that is needed is to make the relevant information available. If, in full
knowledge, we still want to go to someone who is not certified, that is our
business; we cannot complain that we did not have the information. . . . I
personally find it difficult to see any case for which licensure rather than
certification can be justified. (99)
Certification, unlike licensure, is subject to the test of the
market. If a certifying organization made it very costly to obtain its endorsement,
it would encourage individuals to choose other means of advertising their
abilities, and perhaps spark the creation of a rival. If a certifying
organization made its endorsement too cheap--that is, so easily obtained that
it had little power to predict quality service--it would also suffer. As Daniel
Klein of Santa Clara University has observed, "Career promisors build and
protect their reputations, sensing the truth in the saying, Time wounds all
heels. When not prevented by government, voluntary institutions develop to give
bite to the saying, because that arrangement is preferred by all parties except
the untrustworthy." (100) The reputation of a certifying
organization would be damaged if it certified as competent practitioners who
were not.
No state policy is necessary for voluntary certification programs to
arise. Government should not be in the certification business, but even if
it were, it should not be the exclusive certifying agency. Private
certification programs must be free to compete. Otherwise, political pressure will build to make the
government's certification serve the same restrictive purpose that licensure
does currently.
Freedom of contract should be the controlling principle in the
market for legal services. An individual is almost always the best judge
of his needs and circumstances. Sometimes people make mistakes and contract
foolishly, but that is no justification for infringing upon their right to
make their own decisions. That is exactly what UPL prohibitions do,
however, by preventing consumers and service providers from engaging in
mutually beneficial transactions. In a counterproductive attempt to avoid the
few bad transactions that inevitably happen under contractual freedom, UPL
prohibitions have thrown out the baby with the bath water. It is far better to
remedy the occasional instance of incompetence than to restrict everyone's
liberty in futile pursuit of perfection.
Furthermore, freedom of contract and increased competition will
eliminate the overinvestment in legal education that results from UPL
prohibitions. Reducing the cost of entering the market will cause the price of
many, although not necessarily all, legal services to decline, thus enabling
some people who would not otherwise have been able to do so to obtain legal
assistance and resolve disputes. It will also open up employment
opportunities for individuals who cannot afford the investment now mandated to
compete in the market.
Offset against those tangible benefits is the cost of a few
transactions that turn out unsatisfactorily. But to insist on a market in which
there are zero cases of incompetence or malfeasance is to set a standard so
high that it can never be attained. Even when licensed attorneys are
involved, not all transactions turn out satisfactorily. We should focus our
attention on the problem of making the consumer whole after the rare cases of
harm rather than attempt to prevent harm with UPL prohibitions. The Washington Supreme Court was certainly correct when it
wrote, "We no longer believe that the supposed benefits to the public from
the lawyers' monopoly on performing legal services justifies limiting the
public's freedom of choice." (101)
Unauthorized practice of law prohibitions are neither necessary nor
sufficient for their ostensible purpose: protecting the public against
incompetent legal practitioners. Free markets deter most incompetents from
entering an occupation and soon eliminate any who might enter. No one is able
to fail repeatedly in a market; the penalties are too severe. UPL prohibitions add virtually nothing to the market's
protection against incompetence. The material typically digested in
law school and later mastered to pass the bar exam does little to prepare an
attorney to handle a case or advise a client; competence comes from practice
and additional studies that are not mandated by law but undertaken out of
self-interest.
While the benefits of UPL prohibitions are negligible, their costs
are considerable. By raising the cost of entering the legal services market, UPL statutes also raise the cost of obtaining legal
assistance. Some consumers cannot afford help. As
a result, they must either do nothing or attempt to handle the problem
themselves. When high standards are set by the political process rather than the market, prices of some legal
services are inflated and contracting options of consumers are diminished.
But this is not just a dollars and cents, costs versus benefits
issue. UPL prohibitions are an attack upon freedom.
They threaten and sometimes impose legal sanctions against individuals merely
for having rendered a legitimate service that another person desired. Legal
punishments ought to be reserved for those who have harmed or threatened
others, not visited upon peaceful individuals who wish to serve others.
Liberty is diminished when the law compels practitioners and aspirants to
comply with a competition-suppressing licensing mandate before offering
services to willing buyers.
UPL prohibitions and many similar attacks on economic liberty have
flourished because for decades the Supreme Court has chosen to accord economic
liberty cases only minimal scrutiny, tantamount to a rubber stamp for
government regulations. There is no reason to assign economic liberty to
the underworld of constitutional jurisprudence. If the Court were to move to a
higher level of scrutiny in economic liberty cases, insisting that the state
demonstrate that it has chosen the least intrusive means of accomplishing an
objective of compelling state interest, UPL prohibitions would have to be
stricken. Until that happens, state legislatures can and should repeal their
UPL prohibitions, thus allowing their citizens to benefit from a free market in
legal services.
1. Furman's
battles with the Florida Bar are reported in Florida Bar v. Furman, 376
So.2d 378 (1979); and Furman v. Florida Bar, 451 So.2d 808 (1984).
2. A few
states allow prospective bar members to undertake their education in unapproved
law schools or in law offices. See "Comprehensive Guide to Bar Admission
Requirements," American Bar Association, 1996.
3. Standard
305a, "Standards for Approval of Law Schools," American Bar
Association, 1994.
4. At one
time, the bar also imposed "ethical canons" that restricted
competition among lawyers by establishing fee schedules and forbidding
advertising. The Supreme Court struck down those anti-competitive devices on antitrust grounds
in Goldfarb v. Virginia State Bar, 421 U.S. 773 (1975); and Bates v.
State Bar of Arizona, 433 U.S. 350 (1977).
5. See,
for example, Walter Gellhorn, "The Abuse of Occupational Licensing," University
of Chicago Law Review 44, no. 6 (1976): 6-27; and S. David Young, The
Rule of Experts (Washington: Cato Institute, 1987).
6. See,
for example, Richard A. Posner, "The Material Basis of
Jurisprudence," Indiana Law Review 69, no. 1 (1993): 1-37; and W.
Clark Durant, "Maximizing Access to Justice: A Challenge to the Legal
Profession," 1987 address to the American Bar Association, quoted in
Deborah Rhode and Mark Luban, eds., Legal Ethics (Westbury, N.Y.:
Foundation Press, 1992), p. 835.
7. Slaughterhouse
Cases, 83 U.S. 36 (1873).
8. Only
once has the Supreme Court held a statute to be in violation of the Privileges
or Immunities Clause, in Colgate v. Harvey, 296 U.S. 404 1935, and that
case was overruled five years later in Madden v. Kentucky, 309 U.S. 83
(1940).
9. Slaughterhouse at
78.
10.Ibid.
at 97.
11.Ibid.
at 122.
12.Mugler
v. Kansas, 123 U.S. 623, 661 (1887).
13.Allgeyer
v. Louisiana, 155 U.S. 578, 589 (1897).
14.Thomas
M. Cooley, A Treatise on the Constitutional Limitations (Boston: Little,
Brown, 1868), p. 356. See also Roger Pilon, "Legislative Activism,
Judicial Activism, and the Decline of Private Sovereignty," Cato
Journal 4 (1985): 41 813-33.
15.Lochner
v. New York, 198 U.S. 45 (1905).
16.Whether
the statute was actually motivated by concern for the health of bakery workers
is a question discussed extensively in Bernard Siegan, Economic Liberties
and the Constitution (Chicago: University of Chicago Press, 1980), pp.
115-20.
17.Lochner at
56-57.
18.Ibid.
at 57.
19.Justice
Oliver Wendell Holmes's famous dissenting line, "The Fourteenth Amendment
does not enact Mr. Herbert Spencer's Social Statics," ibid. at 35,
is quoted far more often than anything in the majority opinion.
20.See,
for example, Adair v. United States, 208 U.S. 161 (1908); Coppage v.
Kansas, 236 U.S. 1 (1915); Adkins v. Children's Hospital, 261 U.S.
525 (1923); Tyson & Bro. v. Banton, 273 U.S. 418 (1927); and Adams
v. Tanner, 244 U.S. 590 (1917).
21.Louis
K. Liggett Co. v. Baldridge, 278 U.S. 105, 113 (1928). Justice George
Sutherland's majority opinion continued, "The claim that mere ownership of
a drug store by one who is not a pharmacist bears a reasonable relation to the
public health, finally rests upon conjecture, unsupported by anything of
substance" (at 114).
22.New
State Ice Co. v. Liebmann, 285 U.S. 262 (1932).
23.Muller
v. Oregon, 208 U.S. 412 (1908).
24.Bunting
v. Oregon, 243 U.S. 426 (1917).
25.Christopher
T. Wonnell, "Economic Due Process and the Preservation of
Competition," Hastings Constitutional Law Quarterly 11 (1983): 133.
26.Nebbia
v. New York, 291 U.S. 502 (1934).
27.Ibid.
at 537.
28.Ibid.
at 539.
29.Ibid.
at 559.
30.N.L.R.B.
v. Jones & Laughlin Steel Co., 301 U.S. 1 (1937).
31.For devastating
criticism of the Court's Commerce Clause jurisprudence, see Richard A. Epstein,
"The Proper Scope of the Commerce Power," Virginia Law Review
73 (1987): 1387; and Roger Pilon, "A Government of Limited Powers,"
in The Cato Handbook for Congress, 104th Congress (Washington: Cato
Institute, 1995), pp. 17-34.
32.United
States v. Carolene Products Co., 304 U.S. 144 (1938).
33.Ibid.
at 152.
34.Railway
Express Agency v. New York, 336 U.S. 106 (1949).
35.Ibid.
at 110.
36.Williamson
v. Lee Optical Co., 348 U.S. 483 (1955).
37.Richard
A. Posner, Economic Analysis of Law (Boston: Little, Brown, 1972), p.
271.
38.Ferguson
v. Skrupa, 372 U.S. 726 (1963).
39.Skrupa
v. Sanborn, 210 F. Supp. 200 (1961).
40.Ferguson at
728.
41.Ibid.
at 732.
42.Ibid.
43.Ibid.
at 730.
44.See F.C.C.
v. Beach Communications, 508 U.S. 307 (1993).
45.Griswold
v. Connecticut, 381 U.S. 479 (1965).
46.Ibid.
at 482.
47.Reynolds
v. Sims, 377 U.S. 533 (1964).
48.Ibid.
at 561-62.
49.Ronald
Coase, "The Market for Goods and the Market for Ideas," American
Economic Review 64 (1974): 384-85.
50.F. A.
Hayek, The Constitution of Liberty (Chicago: Henry Regnery, 1972), p.
35.
51.Dukes
v. City of New Orleans, 501 F.2d 706 (1974).
52.City
of New Orleans v. Dukes, 427 U.S. 297, 303-4 (1976).
53.Siegan,
p. 330.
54.Richard
E. Levy, "Escaping Lochner's Shadow: Toward a Coherent
Jurisprudence of Economic Rights," North Carolina Law Review 73
(1995): 329, 415.
55.For
discussions of this point, see Richard A. Epstein, "Toward a
Revitalization of the Contract Clause," University of Chicago Law
Review 51 (1984): 703-51. See also Levy; Wonnell; Siegan.
56.The
Complete Madison, ed. Saul K. Padover (New York: Harper &
Bros., 1953), p. 268.
57.Barlow
F. Christensen, "The Unauthorized Practice of Law: Do Good Fences Make
Good Neighbors--Or Even Good Sense?" American Bar Foundation Research Journal,
no. 2 (Spring 1980): 159-216.
58.Ibid.
at 173.
59.Darrow
attended the University of Michigan Law School for one year but never received
a degree.
60.In
1870 there were 31 law schools in the United States. Twelve had a one-year
course of study, 2 had a one-and-a-half-year course of study, and 17 had a
two-year course of study. Albert Harno, Legal Education in the United States
(San Francisco: Bancroft-Whitney, 1953), p. 51.
61.Ibid.
at 40.
62.The
American Bar Association is a voluntary organization. Most state bar
associations are established by statute and operate under the control of the
state supreme court. In 31 states, bar membership is
mandatory for persons who desire to practice law; in 19 states, bar membership
is voluntary. For a discussion of the case against a mandatory
("unified") bar, see Allen Falk and Bradley J. Smith, "The
Limits of Compulsory Professionalism: Does a Unified Bar Make Sense for
Michigan?" Mackinac Center for Public Policy, Midland, Michigan, May 1994.
63.Christensen,
p. 177.
64.Deborah
Rhode, "Policing the Professional Monopoly," Stanford Law Review
34 (1981): 1.
65.People
v. Title Guarantee & Trust Co., 125 N.E. 666, 671 (1919).
66.For
example, State Bar v. Cramer, 399 Mich. 116 (1976) (sale of divorce kits
declared unauthorized practice).
67.For example,
State Bar v. Galloway, 422 Mich. 188 (1985). The State Bar of Michigan
had sought to disallow representation by nonlawyers in cases before the
Michigan Employment Security Commission. The
Michigan Supreme Court held, despite the slight ambiguity in the statute, that
the legislature had clearly intended to permit nonlawyer representatives to
appear before the MESC without committing UPL.
68.Rhode,
"Policing the Professional Monopoly," p. 4.
69.Letter
from Anne K. Bingaman and William J. Baer to Thomas A. Edmonds, September 20,
1996. Copy in author's files.
70.In re
Opinion no. 26 of the Committee on Unauthorized Practice of Law, 654
A.2d 1344, 1359 (1995).
71.See
Young, pp. 4-5.
72.Thomas
Sowell, Knowledge and Decisions (New York: Basic Books, 1980), p. 200.
73.The large
public-choice literature is summarized and its relevance in judicial review
discussed in William N. Eskridge Jr., "Politics without Romance:
Implications of Public Choice Theory for Statutory Interpretation," Virginia
Law Review 74 (1988): 275-338.
74.Young,
p. 38.
75.F. M.
Apicella, J. A. Hallbauer, and R. H. Gillespy II, "Keeping Standards High
Protects the Public," American Bar Association Journal, January
1995, p. 37.
76.Arizona's
UPL statute expired in 1986 and the legislature declined to reenact it. The State Bar of California announced in 1985 that it would
no longer initiate UPL actions. Because UPL prosecutions are
almost always brought by bar organizations rather than aggrieved clients, the
bar's announcement meant a de facto freeing of entry to the market.
77.The
Rules of Professional Conduct of each state bar provide that a lawyer should
not take cases that are outside his competence. However, sanctions are
rarely imposed upon lawyers for anything less than gross or repeated
violations of the rules. The economic deterrent is much stronger than the
deterrent posed by the professional rules.
78.On the
importance of maintaining a good reputation, see Daniel B. Klein, "Trust
for Hire: Voluntary Remedies for Quality and Safety," in Reputation:
Studies in the Voluntary Elicitation of Good Conduct, ed. Daniel B. Klein
(Ann Arbor: University of Michigan Press, 1997), pp. 97-133.
79.Milton
and Rose Friedman, Free to Choose (New York: Harcourt, Brace,
Jovanovich, 1980), p. 222.
80."Report
of the California State Bar Committee on Public Protection," State Bar of
California, San Francisco, 1986.
81."Report
of the Task Force on Paralegals," Ontario Ministry of the Attorney
General, Toronto, 1990, p. 27.
82."Results
of 1984 Survey of Non-Lawyer Practice before Federal Administrative Agencies,"
American Bar Association Standing Committee on Lawyers' Responsibility for
Client Protection, 1985.
83.Sperry
v. Florida Bar, 373 U.S. 379, 402 (1963).
84.Roger
C. Cramton, "Delivery of Legal Services to Ordinary Americans," Case
Western Reserve Law Review 44 (1994): 550. For the great majority of law
students, the cost of a legal education today is undoubtedly higher than the
$100,000 figure given by the author.
85.In
most states, passing the bar exam requires a score of between 70 and 80 percent
correct, so it is possible to become a licensed attorney although ignorant
or mistaken about many points of law. See "Comprehensive Guide to Bar
Admission Requirements 1996-97," American Bar Association, pp. 32-33. The
percentage of exam takers who pass varies greatly from state to state, ranging
in 1994 from a low of 56 percent in California to a high of 91 percent in
Nebraska. See The Lawyer's Almanac 1996, pp. 288-89. Passing rates can
vary substantially within a state from year to year. On this point, Barbara A.
Reeves of the Antitrust Division of the U.S. Department of Justice commented,
"It belabors the obvious to point out that practicing lawyers would
benefit from restricted entry into practice in their state. The fact that some form
of examination may be necessary to assure qualified lawyers does not explain
the strange fluctuations in the failure rates on some state bar exams which
occur from time to time." Barbara A. Reeves, "UPL: The Lawyers'
Monopoly under Attack," Florida Bar Journal, November 1977, p. 609.
86.Spangenberg
Group, "National Survey of the Civil Legal Needs of the Poor," in
"Two Nationwide Surveys: 1989 Pilot Assessment of the Unmet Legal Needs of
the Poor and of the Public Generally," American Bar Association, May 1989,
p. 18.
87.Derek
Bok, "A Flawed System of Law Practice and Training," Journal of
Legal Education 33 (1983): 574.
88.Avrom
Sherr and Simon Domberger, "The Impact of Competition on Pricing and
Quality of Legal Services," International Review of Law and Economics
9 (1989): 55.
89.Jim
Calle, "Bar Seeks to Protect Public with Non-Lawyer Practice Rules," Arizona
Attorney, March 1994, p. 10.
90.Deborah
Rhode, "The Delivery of Legal Services by Non-Lawyers," Georgetown
Journal of Legal Ethics 4 (1990): 215.
91.Gardner
v. Conway 48 N.W.2d 788, 795 (1951). In this case, to entrap a
tax preparer in a UPL violation, a local bar association hired a private
investigator to pose as a taxpayer who had difficulty interpreting tax law.
92.Deborah
Chalfie, "Dumping Discipline," Loyola Consumer Law Reporter 4
(1991): 5.
93.Richard
L. Abel, American Lawyers (New York: Oxford University Press, 1989), p.
147.
94."Nonlawyer
Activity in Law-Related Situations," American Bar Association, 1995, p.
112.
95.Ibid.,
p. 119.
96.Ibid.,
p. 134.
97.Speech
at Association of American Law Schools annual meeting, January 1991, quoted in National
Law Journal, January 21, 1991.
98."Standards
for Approval of Law Schools and Interpretations," American Bar
Association, 1994. The three standards are, respectively, Standard 405,
Standard 404, and Standard 202.
99.Milton
Friedman, Capitalism and Freedom (Chicago: University of Chicago Press,
1962), p. 149.
100. Klein,
p. 105.
101. Cultum
v. Heritage House Realtors, 694 P.2d 630, 634 (1985).
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