US Supreme CourtThe United States Supreme Court’s decision last week in North Carolina State Board of Dental Examiners v. FTC stirred up some discussion about the non-lawyer ownership of law firms issue. If you spent the week on a remote island and missed it, the Supreme Court in a 6-3 decision held that North Carolina’s State Board of Dental Examiners violated the Sherman Antitrust Act. More specifically, the Court held that the Board did not have antitrust immunity (in antitrust parlance, Parker immunity) because there wasn’t sufficient state supervision of the Board’s activities. As the Court stated, “active market participants cannot be allowed to regulate their own markets free from antitrust accountability.” Bruce MacEwen posting on Adam Smith Esq. did a nice job of catching the high points, so I won’t repeat his discussion here.

State Bar Actions at Risk

The question coming out of the decision for us is “what now for the legal profession”? Just as the North Carolina State Board of Dental Examiners was composed of practicing dentists, many states have bar regulatory organizations composed of practicing lawyers. If those bar associations do not have sufficient state supervision of their activities, the bar associations presumably would be subject to antitrust claims.

Writing on SCOTUSblog, this is what Eric Fraser had to say:

Bar associations in particular have been a source of litigation over the doctrine of state action immunity. Today’s opinion [North Carolina State Board] cites three important cases concerning regulation of lawyers by state bar associations. The Court’s descriptions of the cases suggest that those cases should be interpreted to mean that only the specific actions of a bar that are actively supervised by the state (e.g., a state supreme court) get antitrust immunity. The rest of a bar association’s activities likely have no such immunity.

Lawyers typically engage in regulation of lawyers and often without active state supervision. For example, in Michigan (where I live) the “sole enforcement officer” to determine the unauthorized practice of law is the State Bar of Michigan and currently the five officers of the State Bar are all attorneys.

LegalZoom Leading the Challenge

LegalZoom is suing the North Carolina State Bar arguing that its enforcement efforts against LegalZoom, claiming that the company is engaged in the “unauthorized practice of law,” violates the antitrust laws. LegalZoom had filed an amicus brief in North Carolina State Board as had the North Carolina State Bar. Given the Supreme Court’s decision, I would think the odds of a North Carolina State Bar victory in its case with LegalZoom declined sharply after the decision last week.

The North Carolina State Bar is not alone, however, in its stance on the “unauthorized practice of law.” Many states joined in its amicus brief in North Carolina State Bar. When I testified before the ABA’s Commission on the Future of Legal Services recently, one state took the position that no one should be allowed to encroach on lawyers’ turf until all lawyers in the state were employed and not just scraping by. Clearly, the protectionist behaviors of the dental and legal professions are not helping them in this era.

The ABA Conundrum

In my view, the Supreme Court’s decision effectively checkmates some of the work being done by the ABA. The ABA, through at least three commissions, is considering the scope of legal practices. One issue in those discussions is whether non-lawyers should be permitted to own law firms (what in the UK are called “alternative business structures”). If the ABA comes out against non-lawyer ownership of law firms, the state bars will find it difficult to follow the ABA recommendation. A state bar composed of lawyers and not acting with adequate state supervision would be exposed to an antitrust challenge if it attempted to enforce a position that only lawyers may own law firms.

On the other hand, if the ABA comes out in favor of ABS structures, it seems that the state bars are in double-trouble. The ABA would be on record as favoring a structure, powerful evidence that a state bar, composed primarily of lawyers, which opposes ABS structures would be acting contrary to the antitrust laws.

There are, of course, ways to address the Court’s decision. A state could place the bar under the active and direct supervision of, for example, the state supreme court – at least on certain issues. In Michigan, this would be an interesting twist since the state supreme court justices are elected, not appointed. Another approach would be to turn over regulation of the bar to non-lawyers.

How to Proceed

Bruce MacEwen seems to feel that we will need another court case going to the Supreme Court to nail the lid on the coffin of those who oppose non-lawyers taking pieces of the practice of law. Probably so. I believe it would be better for the ABA to take the lead on the issue, recognize the impact of North Carolina State Bar, and chart a path forward that accepts the inevitable. Rather than barring non-lawyer ownership of law firms, that better path would use regulation to ensure new entrants do not act in ways harmful to clients’ interests. This approach would help increase public trust in lawyers and send a message that the profession is about its clients and not about its own self-interests. The lawsuit route will increase distrust of lawyers and do more to prove that lawyers are out to protect themselves and not clients.