Everyone probably knows that law and economics are closely tied. Both law and economics are social systems that arise within cultures. Every member of society is affected by participates in both systems. It might be more accurate to say that both law and economics are sub-systems within the total framework of culture. Both, like religion, are faith dependent.  They are not produced by science and technology, but exist because the people believe in them and support them.

The two systems – law and economics – are supported by differing motivational forces, and to that extent, are distinguishable, and exist independently of each other as cultural systems.  Human motivation is complex. Adam Smith assigned “enlightened self-interest” as the motivational basis for his atomistic theory of economics. Somewhat similarly, Thomas Hobbes believed that “self-preservation” is the first law of nature. Needless to say, the motivational forces that support both economics and law are far more complex than either Smith or Hobbes suggested, but their suggestion helps one to understand the role of the elemental motivational forces that energize the systems.  Ultimately, both systems are energized by collective motivational forces—the interaction of individual motivational forces.  An oversimplified explanation of how the motives that support the two systems differ, is that individual need for security motivates law, while individual need for beneficial material exchanges motivates economics.

Regardless of the similarities or differences of the underlying motivational forces, the organization of these systems evolved quite independently. Economics, beginning with the kind of reasoning that Adam Smith expressed in The Wealth of Nations arises in the marketplace. In western society we strongly believe that a free market economy is the most efficient means of satisfying the greatest good for the greatest number – a concept that Jeremy Bentham and other Utilitarians helped popularize. Law, on the contrary, has its institutional home in the governmental system—not in the free market.  Human motive force is a pre-requisite for the effectiveness of law, as I asserted in my 1994 book, Conscience and Command, but the enforcement of law in the modern world is vested in governmental entities. For law to be really effective, government must try to capture the normative force that arises in society to energize law. Morality, of course, is not a governmental function, but the same normative motive force that energizes law arises in society and is the motivational basis for morality, independent of government.

In other essays, I allude to the connections between law and economics. In the series of articles dealing with family law, I described the effects of the introduction conflicting of economic motive forces into the family. As important as child support and spousal support are, their impact in the legal system introduces conflicting economic motivation that can lead to the destruction of the important emotional aspects of family. The economic conflict creates tensions that are not good for children. Economics forces are also a strong factor in criminal justice. Economically, the people who most often become involved in crime are those who do not have strong talents that enable them to provide an economic contribution to society for which they are compensated.

In the series of essays that examine race and culture, I pointed out that four hundred years of slavery and segregation did not inspire a black culture to strongly endorse the existing legal system. I pointed out that the absence of a strong working system of law, economic development is difficult, and these difficulties plague Alabama’s Black Belt counties. Economic development depends on law: the ability to enforce property rights and contracts.

The interplay between law and economics and the impact of the economics of law practice on the legal systems are fertile areas for discussion. In the current series of essays found I will discuss how the economics of law practice tend to shape the legal system itself and the problems with which it can deal. I will discuss the economic motives of corporate America and its relationship to defense firms, who are normally paid on hourly rate, as well as the economics of law practice for Plaintiff’s attorneys who are usually paid on a contingency fee basis. Because both Plaintiffs and defendants are operating in the same system, these economic forces interact with profound effect on the civil justice system.  The system matches plaintiff’s lawyers who are compensated on a contingency basis against defense lawyers computed an hourly rate basis.  Economics also has a profound effect on the criminal justice system, but this series of essays deals mainly with civil justice.

I discuss the pervasive presence and influence of liability insurance. It is time for the people who operate the legal system to examine the fact that insurance spreads the risk of loss that is involved in litigation and that we are not dealing with insurance in the legal system with sound policy. For instance, automobile liability insurance is required by law, and everyone—jurors included—knows that, but the law still fails to take that knowledge into account. I discuss the implications of all of these economic issues for the legal system in this series of essays. The economics of law practice, ironically, renders the legal system less efficient for conflict resolution, often actually creating conflict.

In essay 1.14 that introduced the current series dealing with law, economics and the economics of law practice. Several subsequent essays in this series and deal with the economics of law practice. But to understand some of the problems associated with the economics of law practice it is first necessary I explain and readers understand certain dynamics about the nature of law.

In 1913, an East European legal philosopher named Eugen Ehrlich, in his book Fundamental Principles of the Sociology of Law, made the important point that there are two kinds of law. First there is what he called the rules of conduct. Rules of conduct actually regulate the daily activities of everyone in society in the ordinary course of their affairs. They blend imperceptibly with morality, customs, and other normative forces. It is very important that everyone follow the rules of conduct, that they keep their promises, that they avoid harming others, and do their duty. In order for the world to survive and move forward, everyone must actually do more than is required by duty and engage in meaningful activities. Everyone must follow the rules in order for society to function. Courts and government are and always should be in the background, not the forefront, of these rules. Rules of conduct have much of their origin in morality and customs, which arise naturally in society.

Secondly, there are the rules of decision. These are the rules with which courts and lawyers are concerned when it becomes necessary to resolve conflicts. Conflicts are often couched in terms of some violation of the rules of conduct. The law as used in the context of conflict resolution could be either a statute that has been enacted by a legislative body or precedents previously declared by a court.  If the rules used to resolve a conflict have not been clearly articulated in statute or in a previously decided case, sometimes courts must look to the more nebulous rules of conduct and actually articulate the principle upon which the conflict is to be resolved. This is the basis for case law.

Unfortunately, in the United States, law schools and legal philosophers during the past 150 years have over-emphasized the importance of the rules of decision and underestimated the importance of the rules of conduct.  The Eugen Ehrlich book had little impact if any in the development of legal philosophy in the United States.  After the Civil War, in support of the industrial revolution, courts and the legal profession were much more aggressive about the role of the rules of decision. The result of this emphasis on the rules of decisions over the rules of conduct was the highly questionable conclusion that courts “make” law. Oliver Wendell Holmes, Jr., a Harvard professor and eventually Chief Justice of the United States Supreme Court stridently declared, “Law is what a court does.” Needless to say, he did not distinguish rules of conduct from rules of decision. Even more perniciously, he went so far as to declare that law determines what a bad man can get away with, which totally ignores the role of rules of conduct.  Based on this faulty reasoning, during the past 100 years, courts have often assumed that it is their function to make law.

What does all of this have to do with the economics of law practice? Lawyers make money by dealing with the rules of decision—not the rules of conduct. Theoretically the legal system exists to resolve conflicts. Unfortunately, the economic motives of the legal profession do not necessarily promote the most efficient resolution of conflicts. The system is nurtured by conflict and prospers from it.  An old joke in the legal profession is “Do me a favor; sue my client.”  In the introductory essay, I pointed out that plaintiff’s lawyers are usually paid on a contingent fee basis. Defense lawyers are usually paid on an hourly rate basis. It requires little thought to see how such a system actually leads to more conflict rather than conflict resolution.

In the next essay in this series we will deal with the transition of law from being primarily a profession to being primarily operation of a business.  Unfortunately, the more effective the business of law practice becomes, the more ineffective it is in achieving the optimal conflict resolution for the benefit of all of society. The successful operation of the legal business creates a need for conflict in order to satisfy the economic needs of the legal business. Hence the atrocious, unprofessional legal ads on TV and billboards.

When law—the rules of conduct—actually work; they prevent conflict. But the absence of conflict does not support the business of law practice.

In the previous essay in this series, I pointed out that the economics of law practice can actually impede the ability of the legal system to efficiently resolve disputes. In other essays in this series, I discuss in depth the economic motivations of both defense lawyers and plaintiff lawyers that contribute to the problem. Before launching into those specifics, however, I need to provide a broad general understanding of the relationship of economics and law in the resolution of disputes. The relationship between law and economics extends far beyond the economics of law practice, but for now I am only discussing the impact the the economics or law practice on dispute resolution through litigation.

Almost all cases that arise in our legal system can be analyzed as an economic problem. Regardless of whether the underlying problem is a tort (such an automobile accident or a fight), or a contract (such as the building of a house, the sale of a car, or a myriad of other transactions), the plaintiff has some type of a claim against the defendant.  In most instances the ultimate resolution is the payment of money. This means that the plaintiff has a claim, or an asset which he or she is asserting, that the defendant has an obligation to pay or to buy. The question then becomes how much is to be paid. The legal system provides answers to that question. Ultimately if the parties are not able to reach an agreement themselves, courts assign a value to the plaintiffs claim and requires the defendant to pay that amount. It is not necessary at this point that we discuss in any detail the matter of payment by one side of the other side’s attorney’s fees, which is sometimes required by contract or by statute. But we are deeply concerned with the amount of attorney’s fees and other costs that are involved in resolutions of the disputes.

The service provided by courts and attorneys is conflict resolution. The legal system provides a way for a plaintiff to present his or her claim. Lawyers on both sides participate in the effort to settle the matter, using their skill at predicting possible outcomes, and helping the client evaluate risks. But if the matter is not settled out of court then the legal system itself—judges and juries—provide an ultimate answer and bring  a final conclusion to the controversy.  Finality is a very important element of the legal process of dispute resolution.

In every economic transaction there are transaction costs. A sale of real estate might involve costs for title insurance, title examination, a real estate commission, etc. These are transactions costs that must be paid.  They are costs beyond the payment for the real estate and what the seller receives. The same is true of the purchase of an automobile. There are transaction costs for almost every economic transaction. Transaction costs are an important element of economics.

The cost of attorneys and court costs are transaction costs, when the resolution of legal controversies by courtsis analyzed as an economic problem. The problem that we are suggesting in this series of essays is that the transaction costs for dispute resolution through the legal system have become unreasonably expensive. The economic value assigned to the transaction costs itself might very well equal or exceed the economic value either side of the underlying problem that is being solved. Transaction costs include not only attorney’s fees, but also the court costs, the cost of witnesses, the cost of depositions, judges, court reporters, and the like. Transaction costs are the main factor that renders the legal system inefficient as a method of conflict resolution.  This makes finality—regardless of the actual results of litigation—the driving force in the system: disputes must be resolved! Finality winds up being the principle benefit offered by the system. 

In other essays in this series, I analyze the economics of law practice, both from the standpoint of economic motives of the plaintiff lawyers and the economic motives of defense lawyers and insurance companies.  I suggest that these economic motives, in and of themselves, inflate the transaction costs that are involved in the resolution of disputes presented to the legal system for resolution.

It should be noted in passing that there are many significant problems that the legal system simply cannot address, because lawyers are a necessary part of the process, and there are no funds to satisfy the economic requirements of attorneys. For instance, a faulty refrigerator can be a significant problem for a consumer. But a dispute over a faulty refrigerator can be a very difficult problem for the legal system to effectively resolve. A bad auto repair job can also be a significant problem for a poor individual (or even a well-to-do individual). But again, those types of problems are very difficult for the legal system to address because the economics of resolution in the legal system do not justify the engagement of competent legal services. There is a huge number of such disputes. In some instances, court costs themselves—even in “small claims court where lawyers are not necessarily involved—make court dispute resolution prohibitively expensive.  But even for the disputes that the system is economically able to address, the economics of law practice adversely affects the efficiency of the system.

This essay is the fourth in a series dealing with the economics of law practice.  In earlier essays in the series, I described the strong relationship between law and economics. I pointed out that because the practice of law is a business, the economic motivation of the lawyers handling the litigation can actually make the legal system less efficient for conflict resolution. Now I am dealing specifically with the economic motives of defense lawyers. Quick resolution of legal disputes does not promote the economic interest of the law business. Defense lawyers who charge hourly rates clearly profit from continuation of the conflict. The lengthy period of case preparation justifies a higher percentage fee for plaintiff’s attorneys.  To set the stage for further examination of the economic motivation of lawyers, I explained that dispute resolution can be analyzed as an economic transaction.  Plaintiffs have an economic claim against defendants.  Dispute resolution (including litigation) is a transaction in which the defendant is forced to “buy” the plaintiff’s claim.  Often there is a negotiated settlement.

 The present discussion will examine in more detail the economic motive of defense lawyers. The Civil War decided that the United States would be involved in the Industrial Revolution rather than continuing as an agrarian economy. The case method of legal education evolved at Harvard University in the 1870’s and quickly spread throughout the nation. Before that, would-be lawyers usually “read the law.”  Legal education was not primarily a law school function before the Civil War. But from that time forward, law school has been the primary source of legal education.  Large firms that worked for the emerging corporate America evolved very quickly. With the advent of automobiles and the attendant litigation, defense work was often assigned by corporations and liability insurance companies to the emerging corporate law firms.

Then in the 1960s, public interest in law firms began to emerge.  They dealt with matters of public interest such a civil rights and indigent defense.  And attorneys who represented plaintiffs also became as highly organized as defense firms, claiming the name “trial lawyers,” even though both defense lawyers and plaintiff’s lawyers participate in trials.  By the 1960s, it was no longer fashionable for attorneys to “work both sides of the street.”  Attorneys were either defense attorneys or plaintiff’s attorneys, with few exceptions. The mythology of the individual advocate, and rugged individualism continues to reassert itself in the Atticus Finch type mythology; but not many lawyers practice all parts of the legal profession in an individualist style.

By the 1960s, defense firms had generally adopted hourly rate billing. By then, liability insurance companies had become significantly involved in the economics of dispute resolution.  Liability insurance companies were behind the scenes calling the shots for the defense side of cases.  Under those circumstances, defense lawyers have little economic motivation to simply assess the facts about a particular case and recommend quick settlement. The justification articulated by defense firms and liability insurers for refusal to settle is often the necessity for “investigation.”  They engage in discovery; i.e. interrogatories, requests for production and admissions, and depositions in order to “evaluate the case.”  But discovery is very expensive for the parties who are trying to get their disputes resolved. If an insurer or defense firm were to simply settle the case immediately after the case is presented, the defense firm would not have the opportunity to bill all of the hours that are involved in the discovery process.

In motor vehicle accident cases, liability insurance is a major factor.  Often the limits of liability are $25,000.  The insurance company is in the background calling the shots. It has little to lose because there is such a relatively low limit on its liability. So the case undergoes expensive discovery. Companies are often able to settle the cases for far less than is actually justified simply because the company has nothing to lose by refusing to pay until the case finally “reaches the courthouse steps” for trial.

The delays caused by the economic motives of insurance companies and defense firms in turn causes plaintiff’s attorneys to charge higher contingent fees to cover their own time investment. The total cost of dispute resolution is disproportionately high in comparison to the amount that is actually required to settle the case. Economists call the costs that are involved “transaction costs.”  The transaction costs for the people involved in legal disputes are inordinately high, and threaten the effectiveness of the legal system.

Perhaps this description of the motives of defense lawyers and liability insurance companies seems unfair, but in the next essay in this series, I will examine the economic motives of plaintiff lawyers with an equally sharp critique.  The economics of law practice involving the economic motives of both plaintiff attorneys and defense attorneys present significant problems for the efficiency of the legal system in dispute resolution. 

In the preceding essay in this series, I examined the economic motives of defense attorneys.  In this essay, I discuss the economic motives of plaintiffs’ attorneys.  Both defense attorneys and plaintiffs’ attorneys must operate their offices as a business, if they are to be successful.  They are both motivated to earn a living practicing law.  There the similarity ends.  Defense lawyers serve corporate America and liability insurance companies, in large measure.  They must practice law in a way that is pleasing to corporate America and insurance companies if they are to succeed.

On the contrary, Plaintiffs’ lawyers must attract the attention and approval of members of the general public who have a legal claim.  Hence, the obnoxious advertising.  Big bucks.  Tigers.  Prize fighters.  Cowboys.  Fighting for you!  Before the 1960s, Bar Associations generally did not permit that kind of advertising.  First the United States Supreme Court decided that fee schedules set by the Virginia Bar Association amounted to price-fixing, in violation of anti-trust laws.  Then it decided that restrictions on advertising were a restraint on trade.  Finally it concluded that the right of lawyers to advertise was imbedded in and protected by the First Amendment to the Constitution: commercial free speech.  The pretextual invocation of the United States Constitution removed the matter from any degree of control by the courts and legislatures of individual States and of Congress.  When one backs up and looks at the situation, none of that makes good sense, given the nature of law and the role of lawyers.  Law is, among other things, an instrument of government.  Lawyers serve a quasi-governmental function, and are often referred to as “officers of the court.”  They collect and sell information and advice about how to interpret and apply law.  Why shouldn’t such a practice that is dealing in regulation itself, be regulated?  But that should be the topic of a whole book, and is suggested here only to give insight into the economic motives of plaintiffs’ lawyers. 

By the way, defense lawyers don’t advertise much.  You have probably not seen an ad placed by a defense firm. Defense firms don’t have to advertise! Plaintiff’s firms do it for them every law suit drummed up by Plaintiffs has to be defended.  The defense bar was organized and practicing its methods of business recruitment long before lawyer advertising emerged.  In fact, they at least had to give lip service in opposition to the advertising, on behalf of their clientele.  Advertising is a plaintiffs’ lawyer thing.  The basic problem is how to get the members of the general public who have a legitimate legal claim in touch with an attorney capable of adequately presenting it.  Maybe advertising is better than ambulance chasing.  There are no real good solutions.  Corporate America and insurance companies are not running over themselves to pay adequate compensation for legitimate claims.

But the efforts to communicate with the public about the provision of adequate legal representation for claims puts the plaintiffs’ bar in the public eye, and makes them vulnerable politically.  Something for nothing!  Jackpot justice!  Runaway verdicts.  Political parties become involved.  Republicans in Alabama are conservative; Democrats are liberal.  Unfortunately, political motivations in Alabama continue to intertwine with race.  In other essays, I systematically described the effect of racial demographics on the likely outcomes of litigation.  Unfortunately, during the period ending about 2000, when Republicans took over the Alabama Supreme Court, Alabama was referred to as “tort hell,” and there was probably truth in some of the allegations of jackpot justice and runaway verdicts.  Now the pendulum has swung almost completely in the opposite direction, and often it is difficult for badly injured people to get just compensation for their injuries.

A conservative legislature put caps on punitive damages. And the Business Council educated the public.  Jurors in conservative counties became more conservative.  Jurors in liberal counties are not less liberal, but a conservative appellate system holds the lid on the pot.  But unfortunately, corporate America has not become more honest as a result of these conservative measures, and never will.  The caps on that conservatives placed on punitive damages are a small fraction of the annual salary of corporate executives and high ranking insurance company officers, and the justice system provides little incentive for corporate honesty.  Even punitive damages for active wrongdoing are “just part of the cost of doing business.”

Today, plaintiffs’ lawyers have to carefully consider whether they can afford to take on a case.  They must find enough profitable cases to stay afloat.  They must usually await the long delays of litigation, all the while taking the risk of no recovery at all.  So they seek out the cases that can be filed in a favorable venue.  In Alabama, that is often the Blackbelt counties, that are already economically deprived, and the atmosphere of litigation makes it more difficult to attract much needed business development.

I am not suggesting that the economic motives of plaintiffs’ attorneys are somehow purer than those of defense attorneys.  As a judge, I saw firsthand the quest for jackpot justice.  What I am suggesting is that economic motives of lawyers on both sides are real, and have a strong impact on the kinds and magnitude of problems that Courts will have an opportunity to resolve, whether the system will function efficiently, and whether they will produce a just society.

We desperately need a system that will deal with every case efficiently and bring a fair result.  The attorneys on both sides need to realize that they are entrusted with the sacred fabric of the law, that it is their responsibility to guide cases through the system to just results. There should never be jackpot justice, something for nothing results; but at the same time, there must be a legal means to attack the most egregious conduct of illegal corporate practices.  The temples of justice should not be “dens of robbers.”  Lawyers on both sides should be adequately and fairly compensated for accomplishing just results.

I discuss the anomalous role of liability insurance in a separate essay.

In this series of essays, I have concentrated on the economics of law practice. I have discussed the economic motives of plaintiff lawyers, the economic motives of defense lawyers, and the fact that the combination may impact adversely on the ability of the legal system to efficiently resolve disputes. This essay focuses on liability insurance and will complete the discussion of the economics of law practice. Liability insurance companies exist because of litigation, and their existence and actions have a major impact on the legal system. It is time that the functions of insurance be carefully reconsidered.

Liability insurance has been around for a long time. While the concept existed prior to automobiles being produced on assembly lines, the concept of liability insurance took a major step forward with the advent of the automobile. Liability insurance also extends generally to almost any business activity. In the modern world: it is not considered prudent to operate any type of business without liability insurance. State law generally requires that there be liability insurance in place before an automobile is operated on a public highway. State law also provides that in the event that a tortfeasor in an accident on a public highway does not have liability insurance or if the insurance is inadequate, that the insurance company for the injured party provides uninsured or underinsured motorist coverage.

When the concept of liability insurance was first proposed, there were significant policy arguments as to whether liability insurance is a good idea. It was argued that for an insurance company to assume financial responsibility of tortfeasors could have several undesirable effects. One concern was that the person with insurance might be less inclined to be careful. That concern probably was unfounded. A more worthy concern in the realm of economics is whether the existence of insurance would encourage litigation. It certainly has. The defendant’s insurance makes litigation by the plaintiff and his attorney economically feasible in many cases in which it would not be economically feasible otherwise. Insurance probably lends aid for the disastrous results suffered by plaintiffs in accidents to a greater extent than it assists the defendant who pays the premiums.

The actual function of insurance in the modern legal economy is quite beneficial, even though it encourages litigation that would not otherwise be possible. People can be badly injured in automobile accidents and business transactions. The existence of insurance provides partial or total compensation for the losses that are suffered by the injured parties. Insurance spreads the risk of loss. Can liability insurance compensate the injured party and at the same time also produce normative force that requires the exercise of care by the potential defendants. To some extent, educational programs called “risk control” associated with the costs of insurance has normative force on corporate business practices. 

But spreading the risk of loss and providing adequate compensation to the injured party is the greatest benefit provided by insurance. That economic justification, however, is not well recognized in the operation of the judicial system.  Despite the fact that everybody and his brother knows that it is illegal to operate a vehicle on a public highway without insurance, the mere mention of insurance in the course of a trial justifies an immediate order of mistrial by the judge. The system still assumes that the case deals only with the injuries of the plaintiff and the negligence of the defendant. It assumes that the defendant will stand for the loss. Obviously, that is just false. The maintenance of the fiction that only the plaintiff and defendant are involved in the litigation, and the continued practice of the judicial and legal system of ignoring the mandatory existence of insurance feeds the undesirable effects of the economic motivations of plaintiff lawyers and defense lawyers and the insurance companies themselves.  It ignores the pervasive systemic effect of liability insurance. We have described the inordinate transaction cost that renders the legal system ineffective. If our legislature, courts, and attorneys would take a closer look at the underlying role of insurance and come up with different economic practices for dealing with claims, the system could be improved immeasurably.

The ironic truth is that businesses and car owners must pay for insurance that ultimately is obviously for the benefit of the injured plaintiff who brings a law suit against the person who paid the premium. The focus of insurance remains on defense for its tortfeasor rather than compensation for the injured party. A slightly different conceptualization that recognizes the obligation of the insurance company to the injured plaintiff could dramatically improve the ability of the legal system to adequately resolve disputes more efficiently.

Lawyer advertising turns most people off. That includes many members of the legal profession itself. Ads that include boxing gloves, horses, tigers and big trucks may be mildly amusing the first time you see them, but add little to the image of the legal profession and nothing to the dignity of law. Those of us who still regard law as a gift of God that allows humans to live peaceably together have difficulty seeing how the commercial advertising of legal services as a commodity can be justified.

So why doesn’t the State regulate legal advertising?  After all, law is authenticated and ultimately enforced by the state.  That is the “commodity” that attorneys deal with in their practice, so why shouldn’t the practice of law, including advertising, be closely regulated. Is the skill that is required for applying law to divorces, child custody, wills, personal injuries and other litigation just another commodity like a bag of sugar or sack of potatoes? To engage in the legal profession requires rigorous education. Admission to the bar, generally speaking, is regulated by the states.

Until the 1960s, regulation of law practice was almost completely a State function. The states may have exercised questionable judgment when, as in the State of Alabama, the regulation of the profession was largely delegated to the Bar Association itself, which operates generally under the authority of the State Supreme Court.  People in the profession are still regulating themselves.

The 1960s brought changes. Public interest law firms emerged, to facilitate and bring about needed social change. The “Trial Lawyers” Association emerged. A more accurate description would have been “Plaintiffs’ Lawyers,” because that association promotes the interest of the lawyers who bring lawsuits, rather than defending them. Plaintiffs’ lawyers serve a very useful and necessary function, and must be able to bring their services to the attention of prospective clients.

The image of the legal profession has never been good, and seldom been accurate. The pre-Civil War mythology of the rugged individualist lawyer has persisted, Atticus Finch perhaps being a poignant 20^th-century example of the mythological role.  However, today’s world, the rugged individual lawyer is insignificant in the United States. The Civil War assured the dominance of industry over the agrarian economy. The Industrial Revolution happened.  Large law firms emerged to serve the needs of the industrial economy. Firms such as a Cravath firm in New York hired the top students graduating from the top law schools to represent corporate America in the Courts and legislative halls. They had open lines of communication with the big business and insurance companies that they represented. Selling their services to corporate America and insurance companies was totally different from sales by other lawyers who had to wait for the client to show up at their door. The pre-60s “legal ethics” served the interest of corporate America and the large law firms very well, but were a major problem for small non-corporate firms who represented plaintiffs.

The changes that occurred in the 60s brought Federal intervention. Goldfarb v. Virginia State Bar, 421 U.S. 773 (1975) was the U.S. Supreme Court decision that began deregulation of lawyer advertising. The United States Supreme Court found that the schedule of minimum charges utilized by the Virginia Bar Association violated the Sherman Antitrust Act, despite the fact that the Bar was acting on authority delegated by the State.   State regulation of the legal profession came into question, despite the clear need for regulation, and the nature of what was being regulated. 

Then, in Bates v. State Bar of Arizona, 433 U.S. 350 (1977), the United States Supreme Court held that lawyer advertising is commercial speech protected by the First Amendment.  The Fourteenth Amendment applies the First Amendment to States.  Because of that decision, the power of States to regulate lawyer advertising is very limited.

Ironically, states do much of what they do through laws and regulations. The court system is a part of State government, and lawyers are described as “officers of the court.” To say that States can’t regulate the practices used by lawyers who are specially licensed to peddle the State’s power doesn’t make good sense. Law, and the ability of states to “promote domestic tranquility,” is adversely affected by advertising that makes law and lawyers look silly. However, returning to the “legal ethics” that sheltered defense firms and their built-in relationship with corporate America and the insurance industry will not solve the problem. Creative regulation that will empower lines of communication between members of legal profession and the people who need their services is desperately needed.  The internet could play a vital role.