Despite aggressive competition from London’s Magic Circle, American firms have historically dominated the market for global legal services. But that dominance is now at risk. Our system of lawyer regulation, including substantively outdated ethics rules and

inconsistent state-by-state rule making, inhibits all U.S. lawyers, whether they practice at large multioffice firms, small single-office firms, or in solo practices, from providing the seamless, efficient, and cost-effective service that clients of every size and level of sophistication deserve.

In contrast, regulation of lawyers in England and Australia is being modernized in crucial ways that make their firms increasingly competitive in the global marketplace–to the disadvantage of their American competitors. New laws that allow outside investment in English and Australian firms, and permit them to expand into multidisciplinary practice will further sharpen their competitive edge.

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

Here are five areas in which our current system is failing:

Adverse representation of current clients in unrelated matters. In most of the world—including both common law and civil law jurisdictions—the rule is that lawyers and law firms may be adverse to current clients, provided that the simultaneous matters are not substantially related and do not involve using confidences received from a client in a manner adverse to that client. But because of the U.S. rule against representation adverse to current clients even where the matters are not substantially related, firms here are forced to turn down matters that many of their foreign competitors are free to take.

This problem is compounded by the U.S. rule on imputation of conflicts. Under that rule, everything an individual partner knows about or has done on behalf of a client is imputed to all of her partners, wherever they may be, even if they practice in unrelated areas of law and may never have communicated with each other on any subject. It is further exacerbated by the lack of uniformity among states as to how imputation applies when lawyers move between firms.

Although the American Bar Association has included a limited screening rule for lateral hires in the new Model Rule 1.10, only a minority of states have adopted any screening rule, and even among those few states, the rule is not uniform. 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.

Multijurisdictional practice. Under our archaic and inconsistent rules, practitioners who physically or electronically cross state lines on behalf of their clients risk being charged with unauthorized practice of law and other violations, which carry potentially grave consequences, including professional discipline, loss of fees, and even criminal prosecution. Clients are forced, often at great expense and inconvenience, to engage multiple lawyers, in different states, to accomplish a single objective.

ABA Model Rule 8.5 (a choice-of-law rule), and ABA Model Rule 5.5 (a multijurisdiction practice rule) were intended to solve these problems. But neither rule has been adopted by all states, and the wording of the versions that have been adopted is neither uniform nor consistent among the states. Thus, lawyers and firms remain vulnerable when they respond to their clients’ understandable desire for seamless service across jurisdictional borders.

Risk Allocation and limitation of liability. A global client that seeks to lower its legal costs by agreeing to prospectively limit the liability of its outside counsel in England or Australia is free to do so. In the United States, such prospective limitation of liability is strictly forbidden, regardless of the client’s size or sophistication.

Some lawyers may be shocked at the idea of changing the U.S. rule. But the issue of prospective limitation of liability is really about insurance—who should bear risk and how much. Global clients exercise their risk-assessment expertise in virtually every commercial transaction they undertake, so it seems reasonable to believe that they are capable of making the same kinds of judgments in dealing with their outside counsel. A sophisticated client that gives a law firm an informed waiver of unlimited liability should be able to negotiate lower legal fees in return, because the firm has reduced its exposure to the kind of massive malpractice suit that causes premiums to skyrocket. 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.

Alternative Capital sources and business structures. Although the U.S. legal profession has a long-standing tradition against allowing nonlawyers to invest in, own, or control law firms, or to share in fees received by lawyers, this subject must be revisited if U.S. firms are to retain their global dominance. Under the Legal Services Act, 2007, the London-based multinational law firms already have limited access to new sources of capital, including outside investors, as well as the right to enter into “alternative business structures” with nonlawyers (equivalent to what we in the U.S. call “multidisciplinary practices”). In the future, British firms will have even greater access to these capital sources. It is not clear how the Magic Circle and other leading English firms will make use of these new freedoms, but they will certainly find ways to do so.

There is tremendous competitive potential in the combination of access to outside investment and ability to expand into multidisciplinary practice. Lawyers will forge co-ownership relationships with professionals from other fields, creating various kinds of full-service firms in specialized areas. Clients will be able to retain a single provider that has exactly the array of skills and experience the client needs, under a unified fee arrangement that reflects the efficiencies of the joint enterprise. The possibilities are almost limitless: environmental scientists combined with commercial real estate practices, economists combined with antitrust practices, financial advisers joined with estate-planning practices. Each type of professional in such a multidisciplinary venture will be able to cross-sell the services of the others.

If liberalization of the traditional rules is openly and seriously debated in the U.S., it is likely that solo and small-firm practitioners, as well as big firms, will see benefits for themselves in the opening up of such new sources of revenue and client satisfaction. But as the rules now stand in every U.S. jurisdiction except the District of Columbia, such relationships continue to be prohibited.

Lack of uniformity. There are many examples of ethics rules that vary widely among the states, causing significant problems. Consider, for instance, the question of when and which witnesses (especially employees and former employees of parties to litigation) may be interviewed by a party’s counsel. The divergent rules and case law in this area carry potentially grave consequences for lawyers and their clients, including exclusion of evidence, disqualification of counsel, disgorgement of legal fees, and malpractice claims. As a result, clients are all too frequently forced to incur the expense and burden of engaging multiple counsel.

Another especially fraught example is the extent to which investigators may lie or deceive in order to obtain information that is necessary to evaluate or bring a suit. The applicable rules vary widely, from total prohibition in Colorado to rules that explicitly permit limited use of deception, such as in Oregon. In many states, the rules are, at best, unclear. As in the context of prelitigation witness interviews, a single clear national rule would greatly benefit lawyers—in practices of all sizes—and clients alike.

Finally, there is the disparity in advertising, marketing, and solicitation by lawyers and law firms. There are no state lines in cyberspace, yet each state persists in trying to regulate what law firms say on their Web sites. The right of lawyers and firms to provide information—protected as commercial speech by the U.S. Supreme Court for decades—and prospective clients’ right to access such information can and should be regulated on a national basis.

What is needed is a single, national regulator for the U.S. legal profession, empowered to develop and enforce rules that encourage efficient, value-based delivery of legal services and enable lawyers and firms to operate on a level footing with their foreign competitors. This leads to two questions: Who should this national regulator be, and how would it be established? The answer to the second question is straightforward—by federal legislation. The recent U.S. Supreme Court decision in Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA reaffirmed the power of Congress to create legislation that implicitly regulates the legal profession. If Congress can regulate lawyers implicitly, it follows that it can do so explicitly.

The answer to the first question is less clear, because various alternatives are possible, including an arm of the U.S. Department of Justice, a branch of the Federal Trade Commission, or a freestanding, independent (but nationwide) regulator outside of the federal government, perhaps modeled on the newly created Legal Services Board in England and Wales. The independent national regulator approach is likely to be more acceptable to those who oppose the idea of government regulation of the legal profession (although that is precisely what exists now, albeit diffused among the judicial, legislative, and executive branches of the states).

Instead of a unitary regulator for the entire profession, it would also be possible to create a separate national regulator to oversee only firms that serve clients on a multistate or global basis. But whether the profession as a whole is to be regulated under a unitary model, or whether there is to be a two-tier system in which firms engaged in multijurisdictional practice (however defined) are separately regulated on a national basis, both the new scheme of substantive rules and the new national regulator will need to be designed in light of how legal services are actually provided in today’s world.

Under any scenario, there will need to be a local regulatory presence. Presumably, the state courts would continue to control who may appear before them and what transpires inside their courthouses. Beyond that, though, the national regulator would preempt other rule makers. There would be a continued need for enforcement at the local level.

So how can we get there from here? Organization is a crucial first step. The collective economic and political clout of The Am Law 100 is significant. Yet these firms have had no collective advocate in the formulation of individual regulations or the overall regulatory structure under which they operate. The absence of an organization representing the interests of large U.S.–based firms contrasts starkly with the situation in England and Wales, and in Australia, where the City of London Law Society and the Large Law Firm Group Limited, respectively, have for some time represented their corresponding constituencies in matters of regulatory reform.

Every other significant industry in the U.S. has its own trade group that advocates for the collective interests of its members. The time has now come—indeed, it is overdue—for lawyers and firms representing multistate and global clients to develop a coherent voice to represent their views and concerns.

If the major U.S.–based law firms were to assert their aggregate influence and approach Congress to request preemptive legislation creating a national regulator for some or all of the profession, they would in all likelihood be accompanied to the table by the Association of Corporate Counsel, representing the general counsel of the firms’ principal clients. These clients, who are major domestic and global corporations, have a central stake in these questions. Like the firms who represent them, they have a strong interest in seeing the barriers to efficient and value-driven provision of legal services swept away. Their collective business organizations, such as the Chamber of Commerce, would be natural allies and supporters of the simplification and restructuring of lawyer regulation. Their members—the principal consumers of legal services—would reap the benefits. On the other side, the principal opponents to a national regulatory structure would likely be the ABA, the representatives of states supreme courts, and the state bar associations. It would make for an interesting debate.


Anthony E. Davis is a partner in the Lawyers for the Profession group at Hinshaw & Culbertson. His practice concentrates on professional responsibility, risk management, and the law governing lawyers. E-mail: adavis@hinshawlaw.com.