State Regulation Stifles American Ability to Compete Globally

Monday, July 26, 2010

State-based regulation of the legal profession threatens to irreparably damage the ability of American lawyers to compete in a revolutionary global marketplace.  And there is only one path forward, according to a provocative, new analysis by Anthony E. Davis, partner at Hinshaw & Culbertson

“Our state-based regulatory system made sense when the fastest means of communication–for lawyers and their clients–was on the back of a horse, but it does not make sense today,” Davis writes.  “The solution? Replace our existing regulatory patchwork with a single national regulator and uniform rules of professional conduct.”

Davis suggests that major United States law firms, acting in concert with Association of Corporate Counsel and business organizations such as the Chamber of Commerce,  has the clout to defeat predicted opposition from the ABA and state bar associations and supreme courts.

Action Needed to Protect American Competitiveness

“It will make for an interesting debate,” according to Davis.

The article focuses on how 21st Century competition in a growing global marketplace demands more flexibility than current state-based regulation can provide.  American lawyers are doomed to lose unless they can compete and respond to  their clients’ “understandable desire for seamless service across jurisdictional borders.”

For instance, this lack of uniformity makes it difficult, if not impossible, to predict whether a client’s chosen law firm will be able to act without the expense and delay of a disqualification motion whenever there is a current client conflict involving unrelated matters

United States Firms Forced to Competitive Disadvantage

Competition from London-based multinational law firms can now tap new sources of capital, including outside investors. Under the Legal Services Act, English firms are allowed to enter into alternative business structures with nonlaywers.

Such practice  is prohibited in every American state.

Davis points to the inability of United States firms to effectively negotiate liability for malpractice.  He argues that sophisticated clients may want to trade  waiver of some measure of that liability for lower fees.   Reduced malpractice insurance rates makes such an arrangement possible.

Outdated State Regulatory Restrictions Inhibit Competitiveness

“Solicitors in England and lawyers in Australia thus have a competitive edge that U.S. lawyers will be unable to match so long as the rules of any state where they operate prohibit such limitations of liability,” Davis writes.

American state rules that cause significant problems to lawyers “in practices of all sizes” include varied restrictions on interviewing witnesses, rules governing investigations, and of course, rules governing lawyer advertising.

Davis suggests that one alternative to a national unitary model would be a two-tier system.   National regulation would be imposed on firms pursuing multijurisdictional practice.   Either approach requires a new system ”designed in light of how legal services are actually provided in today’s world.”

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