The Business of Law – Marketing and Business for Enterprising Attorneys

As I’ve written before, here and here, the rules of legal ethics are being forced to adapt to changing circumstances in the profession caused by the social networking revolution.  The latest example of this is a legal ethics ruling out of Florida in which the state’s Judicial Ethics Advisory Committee said that judges and lawyers should avoid “friending” one another on the popular social networking site Facebook.   (The opinion specifically says it isn’t picking on Facebook:  the rule would apply to similar types of social networking sites).

The AP has a nice write up of the Florida situation here.

Specifically, the committee was worried that “friendships” could create the impression that lawyers have a special relationship with their judge friends that could give rise to some kind of undue influence.  I appreciate the concern but am afraid that the cure does more harm than good.

One of the judges from Florida quoted in the AP story said the following: “We as judges can still be good judges and still have friends. Part of our job is to not let that friendship interfere in any way with our decisions,” he said.  Of course, he’s exactly right: Judges will always have relationships with attorneys who practice before them.

But here is where I think that the Florida advisory committee might have gotten this one wrong.  When does less information ever lead to greater safety?  If a judge feels that he or she knows a particular lawyer well enough to allow that person to view the pictures of the judge’s last skiing vacation with the kids, wouldn’t it be better for everyone to know that?

Consider what happened before and continues now in the Facebook age.  Judges and lawyers talk when they meet in the changing room at the country club or when they see each other in the local grocery store.  The medium is different (golf course, grocery store, or social networking site) but the relationship is no different. In fact, on Facebook, one could argue that the relationship is much more transparent.

One of the many advantages of our increasingly interconnected world is the idea that it promotes greater transparency.

We know judges have friends, and we know that the possibility exists that those relationships could influence their decisions.  We hope they don’t, but we know it’s possible.  So again I ask:  isn’t it better to know about those potential relationships?

Facebook and other social networking sites don’t create relationships; they are a manifestation of them, a medium through which those relationships occur.  In the case of judges and lawyers, I’d prefer that those relationships were out in the open, where everyone could see them and thus be the judge (pardon the pun) of whether a judicial decision is influenced by a friendship.

D.M. Levine over at AmLaw Daily had a recent blog post titled “Where Do We Go From Here?” The post covered a panel discussion hosted in December by LexisNexis on the future of the legal industry.

As D.M. reports:

The discussion, entitled “Evolution or Revolution: The Future of the Law Firm Business Model,” was moderated by Darryl Cross, vice president of client profitability at LexisNexis, and included panelists from various sides of the legal profession.

The debate was part of LexisNexis’s release of a survey of legal professionals on the future of the legal services industry.

Here are the study’s key findings:

•    71 percent of corporate counsels believe law firms are not doing enough to respond to current financial pressures.

•    57 percent of them believe the billable hour will be replaced by alternative billing arrangements.

•    52 percent of private practice lawyers believe the recession will permanently change the way law is practiced.

One of the panelists summed up the problem thusly: “We’re a profession that, over the last hundred years, has not done anything differently and the only industry that is proud of that.”

Can I get an “Amen”?

As I’ve said here, and here and here, the legal business model is fundamentally changing, and those that respond to those changes will have meaningful strategic advantages.

Which gets us to the question, why is the legal profession so resistant to change? Why are we the only industry that seems to innovate at a snail’s pace?  Here are a couple of possible explanations:

1.     Lawyers like consistency. That’s not a slur, it’s just a fact. Lawyers interpret and apply rules. The more consistent the rules, the more predictable the outcomes, and the easier their jobs are.  There’s nothing wrong with that, and my colleagues who are attorneys will say that there is an important place for consistency and uniformity when it comes to the law.  I agree.  But should that same need for consistency and uniformity apply to the business model?  I think too often we are an industry that does things because “that’s how things are done.”  That attitude is anathema to the entrepreneurial spirit that typically drives innovation and progress.  Bottom line, consistency is important, but thinking outside the proverbial box is the first step toward progress.

2.    Lawyers don’t like risk. Closely related to #1, most lawyers are at some level, in the risk mitigation business.  They minimize risk for their clients and they try to prevent financial harm.  And they should, and they’re right to do so because that’s what they’re being hired to do.  But does that mean that lawyers should be unwilling to take some risk in their business? Of course not.  At Sokolove Law, our contingent-fee business is based on taking risk, with our co-counsel and our clients.  We vet cases and the cases we think have merit, we take to trial with our co-counsel.  We all—our firm, the co-counsel, and the client—have some skin in the game.  It’s one of the reasons our clients come to us.  One of the principal complaints I hear about the traditional legal business model is that win or lose, the lawyers always get paid.  For many in the business community, that’s totally counter to the tried and true idea of shared risk.

3.    Consensus is stifling. One of the topics that came out of the LexisNexis panel discussion is that no one really has the solution to what ails the legal industry, and the fact that there is no consensus seems to be stifling any progress.  That’s totally true. For some reason, the legal industry seems to be convinced that until there is consensus about a new business model, we cannot proceed.  I don’t think there’s much merit to that argument.

There’s a theory in academic circles about “pioneers, imitators, and generics.” While it’s generally used to refer to product R&D, I think it applies to the legal profession as well.

The premise is that the pioneers reinvent the business model through innovation, the imitators perfect the model through trial and error, and the generics go along for the ride, dividing up market share.  The problem with the legal industry is that we have too many generics, and not enough pioneers.   We don’t need consensus to experiment, to try new things, new processes, and new ways of doing business. We need firms that are willing to step out and experiment, to break the mold, to be more responsive to the client’s needs, and to find new and innovative ways of conducting our business.

That’s what we’re trying to do at Sokolove Law.  For thirty years, we’ve been changing how people obtain legal services. Today, we are continuing to pioneer a new business model based on helping our co-counsel do what they do best, while also expanding access to the civil justice system for people who have had no access to it in the past.  If you’re interested in learning more about what we’re trying to do, drop me a note. I’d love to talk about it with you.

A recent Florida District Court of Appeal case could raise serious implications for so-called “third-party litigation financing” (TPLF).  TPLF is the practice of providing money to a party to a lawsuit with repayment of the loan contingent on the party “winning” the case.

Here’s how it works:  I am hurt, I want to sue the party that hurt me, but I cannot afford the costs of litigation.  Currently, there are lenders who will loan me the money to pursue the matter (based on their belief that I will win) and if/when I reach a settlement or am awarded damages, I have to pay back the loan plus interest.

The Florida case was significant since it held that a third-party funder was by law, a “party” to the lawsuit, rather than an arms-length lender.  The reason that this matters is because the court then held the lender liable for the other side’s attorney’s fees and costs — just as it held the named plaintiff liable.  That’s important, because if you’re a party to a lawsuit you expose yourself to all kinds of responsibility and liability that a lender certainly doesn’t bargain for.

For me, the Florida ruling is a chilling one for lenders because it says that if a lender lends you the money for a lawsuit, and tries to protect its loan by involving itself in the case, then they may have the same liability that you do.   In its decision, the court focused on the degree to which the lender sought to participate in the plaintiff’s prosecution of the lawsuit in order to protect its loan, honing in on the fact that the lender had the right to approve the choice of counsel, “veto power over whether litigation was filed, who would file it, and how it would be pursued,” and “final say over any settlement”.

Granted this lender played a much more active role than typical TPLFs but what a slippery slope the court’s decision starts us down.

Keep in mind that the court wasn’t saying the plaintiff was a shill for the lender.  But consider the potential ramifications of this decision.  Imagine that after you take over your father-in-law’s business, you find that you have to sue a big distributor that has just breached its supply contract, which may result in your company going under.   “Dad” knows the business better than you, he knows just the right lawyer, and has a serious personal stake in his son-in-law’s ability to provide for his daughter.  Maybe he still has some of his money tied up in the business.  So he gets involved and loans money to fund the lawsuit on the condition that he actively participates in how it is run. Do you now have to warn him that he might be on the hook for attorney’s fees if you lose?

Let’s step back from my intentionally one-sided fact pattern and talk about what is really going on here.  There is an ongoing war between those in favor of TPLF as a way to help people most in need get their day in court and those that see it as the work of the devil.   In October, 2009, the U.S. Chamber Institute for Legal Reform (an interest group founded by the U.S. Chamber of Commerce) issued a paper outlining their view of the matter.  In it, they wrote:

“The root of the problem with third-party litigation financing is that it introduces a stranger to the attorney-client relationship whose sole interest is a financial one. “

(As an aside, it’s always interesting when the U.S. Chamber of Commerce is attacking people for having a “financial interest.”)

However, that’s not the Chamber’s real argument.  Its real argument is that access to lending will increase the number of cases that are brought.  For the business community, which sees lawsuits not as an access to justice issue but simply another cost of doing business, that’s a problem.  Right now, businesses rely on the fact that most people don’t know how to or have the money to protect themselves.  If lenders are willing to finance suits, it becomes easier for people to sue, and that means more litigation, more settlements, and more money (and by the way, more compensated tort victims, though they always seem to forget that part).

We at Sokolove support more access to the civil justice system.  We’ve made it our business for over thirty years.  If lenders are able to allow more people to have their day in court, that is a positive development in our view.  Agree? Disagree? I’d love to hear from you.

Ralph Nader, crusading advocate for consumers, gave a talk recently at the University of Connecticut School of Law in which he blasted the legal profession and law schools for failing to adequately look out for “the administration of justice.”

Nader, who’s advocacy bona fides are without doubt, ripped into the system of legal education for spending too much time: “teaching substantive law, and too little encouraging students to think critically about why the law is what it is.”

Law.com has a nice write up of Nader’s talk here.

While I don’t necessarily agree with Nader’s politics on everything, I think he makes a great point here.  As I’ve written before, I think law schools spend too much time teaching lawyers about the way things are, and the black letter law, instead of talking about the underlying system of justice, and how we promote fairness and equality in society.  In many ways, our law schools are factories churning out widgets well prepared for the legal system as it is today, instead of how it ought to be.

If I can be so bold as to compare, I think our business schools (bias alert, I’ve got an MBA) do a much better job in their curriculum of trying to get young business leaders to think outside the box about the way the economy and business are evolving, rather than rigidly focusing on understanding the status quo.

Our economy and our profession are undergoing significant change.  Nader’s right that we need to rethink not only our business but also the way we prepare young people to enter it.  I’ll have more to say about that going forward. In the meantime, I want to know what you think.  Drop me a note, or leave a comment.