The Business Of Law

I want to give credit in this post.  Credit to the FTC for a very creative legal argument, but more importantly credit to Steven Krane of Proskauer Rose for blowing that argument up in Federal Court.

First a bit of background.  The case at issue had to do with whether the FTC could make law firms comply with a set of regulations designed to prevent identity theft known as the Red Flags Rule.  The rule requires that businesses develop and implement plans to protect the personal information of their customers by screening for certain identity theft “red flags.”  The RFR was born out of the Fair and Accurate Credit Transactions Act of 2003 and requires certain businesses, primarily financial institutions,  to establish “reasonable policies and procedures” to detect and prevent identity theft.

Here’s the FTC’s creative argument.  In seeking to regulate law firms, the FTC  argued that lawyers were essentially in the business of “extending credit” because they typically get paid after they complete their work.  Therefore, the argument went, they are subject to the RFR.  So basically if a lawyer gets paid after they work, they’re just like a bank and therefore subject to these regs.  See what I mean, give them credit for creativity.

Not so fast though. In August the American Bar Association filed suit in federal court in Washington, D.C., to prevent the FTC from applying the Red Flags Rule to attorneys. The ABA was represented by Steven Krane, an attorney at Proskauer Rose with an annoyingly impressive resume who in addition to his many accomplishments is Sokolove Law’s chief consigliere on professional responsibility issues.

On October 29, the judge granted summary judgment for the ABA.   There’s a nice write up of the case here.

The judge made the right decision.  Lawyers don’t extend credit to their clients; some of them simply get paid after the work is complete.  That doesn’t make them “creditors” by any common sense definition, anymore than plumbers, carpenters, accountants or any other service provider can be classified as a “creditor”.

What’s more interesting about the FTC case though is the question of federal regulation of the practice of law—an area traditionally regulated by the states.  Some have argued that we need a more uniform set of professional responsibility rules.  I would agree.  As the largest marketer of legal services in the country, I know full well the task of navigating 50 different sets of rules around legal advertising, and the time and resources that go into compliance with all those rules.

That said, I tend to worry about federal regulations where they don’t appear to be necessary, or worse, are redundant.  For example, lawyers already operate under strict rules of professional responsibility, which require confidentiality on behalf of clients, so why do we need a new federal regulation around identity theft?

At Sokolove Law, our mission is to open the doors of the American civil justice system to everyone. As lawyers and regulators consider new rules, or look to streamline old ones, it seems to me that this mission is a helpful prism through which to consider reform.  Of course there are other reasons for rules changes, but perhaps if we considered whether the effect of a change would be to expand or contract access to the civil justice system that might be a helpful litmus test.