Tuesday, August 26, 2014

Kill Half the Lawyers

My favorite professor, Professor Michael I. Krauss, from my days in law school is now a contributing author for Forbes.   He recently wrote an article, “Law School Begins: Here’s A Message to the New Crop of 1L’s”, which I am pretty sure is the current version of a speech he’s been giving for long time including when I first met him twelve years ago. 

Near the end of the article he encourages some 1L’s (first year law students) to “Get thee out now whilest a partial refund of tuition is still available”, which gives you a good flavor for his overall message.  Professor Krauss ought to be commended for acknowledging the very real struggles that young lawyers today face given the exorbitant cost of law school and the overall grim employment prospects for new graduates.  He does not quite say that law school is a bad investment, but he comes close. 

However, in the midst of his discouraging he also encourages with nuggets like this, “Are you interested in helping the 50% of Americans with legal problems who cannot currently afford the legal help to resolve them? ... welcome to law school, we need you badly…” (Emphasis added).

Sure law schools need students, but Professor Krauss meant society needs the law students.  To some degree, I doubt that.  Of course, it would be bad if all law schools in the United States closed.  Society will eventually need some of today’s 1L’s to replace older lawyers as they retire.  But does society need them all?  If, for example, half of the law schools closed, would society be better off?  Maybe.

Lawyers are a transaction cost.  In the United States, we largely follow the “American Rule”, which means each party pays its own legal fees.  Thus, the costs of legal services should be taken into account when making legal decisions.  Because of that, sometimes it’s a good thing that Americans cannot “afford” the legal help to resolve their problems. 

Being one of the newer attorneys to my firm, I share in the responsibility to respond to “cold calls” – calls that come from the yellow pages, the Internet or were otherwise not referred to a particular lawyer in our firm.  I tend to think of legal problems in monetary terms because, most of the time, the matters that I am involved with in one way or another come down to money. 

A cold call came into the office recently, which I will refer to as $3,000 problem.  By this, I mean the potential damages the potential client claimed to have suffered stemming from a breach of contract struck me as being worth $3,000 at max.  After listening to the issues, I quickly thought if I am reasonably lucky it would take me 20 hours to get this person a 50-66% recovery – a 100% recovery would take much, much, longer.  However, if I am really lucky, 2 hours might get that same 50-66% recovery.  My current hourly rate is $200.  What should I do?  Politely and quickly, tell the potential client that I cannot help.

I should do this because I can reasonably expect to recover $1,500 to $2,000 after $4,000 (20 x $200) of legal work.  In other words, if I were to “help” the potential client, I can expect to make them worse off by $2,000 to $2,500 ($4,000 - $2,000 or $4,000 - $1,500). 

What happens when the market is flooded with lawyers and not everyone has enough work?  Lawyers start “helping” these types of potential clients.  For example, I could have suggested to the potential client that I might be able to do two hours of work and obtain a 50-66% recovery.  In other words, I could say that I might be able to obtain $1,500.00 to $2,000.00 for $400 (2 x $200).  If the potential client says “yes” then he or she is at the casino.

This, however, is not just a $3,000 problem problem.  It’s an every case, matter, contract, etc. problem.  Economists – and certainly George Mason University School of Law professors – will tell you that things need to be analyzed on the margin.  Clients and lawyers can, and most of the time should, analyze every decision to purchase/sell legal services on the margin. 

The question becomes not simply should this case be taken, but should this particular motion be made, letter sent, revision suggested, etc.  These decisions are often complex and cannot be made in an instant. The lawyer, usually – but not always – has a better idea as to the likely result.  In other words, the lawyer is usually in the best position to say whether the particular action should be taken.  However, the lawyer – like most people - needs work to survive.   

Lawyers are often placed in the unique position that they should advise their clients in a manner that is against their own self-interest.  I would say that I do this almost daily.  Consciously or not, I bet that the wrong choice is made more often when there is not enough work to go around.  Thus, having too many lawyers makes the improper choice more likely.  Therefore, society might be better off if we killed half the lawyers – or closed half the law schools.

That’s My Argument.

© August 2014 Brandon J. Evans