Compliance and Claim Funding: Testing the Borders of Lawyers’ Monopoly and the Unauthorized Practice of Law

Abstract

The complexity of commerce in today’s globalized era and the rise of technology have sparked new developments in the debate surrounding unauthorized practice of law (UPL) statutes. Proponents of UPL statutes argue that these rules protect consumers from the incompetency of nonlawyers. Opponents, however, argue that UPL statutes are designed to protect lawyers’ monopoly on legal and law-related services, contending that these statutes are written so broadly that the distinction between what is legal advice versus nonlegal business or strategic advice is indeterminate. Further, these statutes seem to suggest that, as a profession, we have been unable to define the practice of law in a concrete way. Thus, many argue for the abolishment of UPL statutes. In doing so, opponents of UPL statutes believe that, amongst other benefits, access to justice will increase because nonlawyers will be able to do what was traditionally lawyer-only work, and lawyers will lose the power of a monopoly-rooted competitive advantage. Proponents do not appear to disagree and, in fact, have been accused of protecting UPL statutes for this very reason.

Are the opponents to UPL statutes right? This is the primary issue I seek to examine: will abolishing UPL laws enable nonlawyers to encroach on lawyers’ monopoly of services?

Arguably, UPL statutes are most contentious on the margins — those areas where the line between business and law is the hardest to draw. More and more lawyers are moving into these quasi-legal jobs, where a legal license is not required but having a law degree provides an advantage. As such, both lawyers and nonlawyers perform key roles and often work together. Although there is debate over who should take the lead, and many scholars have thoroughly studied the unauthorized practice of law by nonlawyers, it does not appear that scholars or regulators have focused on lawyers or nonlawyers working in these quasi-legal roles in relation to UPL or the influence they might have on the reputation and status of the legal profession.

Thus, to fill this gap and analyze whether elimination of UPL restrictions will decrease lawyers’ monopoly of legal and law-related services, I explore two growing areas straddling the border between business and law in which lawyers and nonlawyers compete for jobs: compliance and claim funding (also commonly known as alternative litigation funding). To aid in this exploration, I use: (1) information from interviews I conducted with seventy general counsels and compliance officers of S&P 500 corporations across a variety of industries, including banking, pharmaceutical, and petroleum (the Compliance Study); and (2) my own personal work experience as a consultant to a start-up commercial claim funding company. This set of data and my experience bring to life how some compliance officers, lawyers, and commercial claim funders view and describe their jobs, and, ultimately, aid my analysis of the effect that eliminating UPL statutes may have on lawyers’ monopoly of law-related services.

My analysis leads me to three conclusions. First, the work conducted by compliance officers and claim funders could be considered the practice of law, and therefore, UPL statutes could prohibit such work if conducted by nonlawyers. Second, often the people with legal training and practice experience play the role of compliance officers and claim funders. Third, because of their degrees, training, and experience, attorneys may be considered more qualified or better situated to fill these mixed business-law consultant roles than their nonlawyer counterparts.

If these conclusions are correct, they lead me to two preliminary hypotheses. First, contrary to the arguments made in support of abolishing UPL statutes, such a move may not end lawyers’ monopoly of legal and law-related services. Instead, lawyers (those trained in the law) may be able to monopolize (or at least maintain a stronghold in) the marketplace for these closely law-related services, even if UPL statutes are eliminated. The role of the corporate attorney has expanded as clients’ needs have grown more complex. Clients may prefer that their lawyers fill these law-related roles for two reasons: first, because they have played them historically, and second, because they have the expertise and training to play them well.Moreover, although law is arguably a business, lawyers are still part of a profession, a delineation that only serves to protect the monopoly.

Second, these lawyer-nonlawyers may add to what Tanina Rostain identified a few years ago as a growing industry of law consultants, who are not necessarily part of the legal profession, and, therefore, not held to the rules governing professional conduct. Because ambiguity surrounds lawyers’ work in these quasi-legal areas and the issue of what is the practice of law is also nebulous, lawyers in consultant positions may be able to evade ethical obligations and help clients find legal loopholes because of their training and expertise as lawyers. This raises special concerns for the public and for the legal profession in terms of its reputation and position in the marketplace.Granted, I examine only two areas that lay on the margins of law and business. More research needs to be done on other areas to determine if these hypotheses have merit elsewhere.

Part I begins by providing a brief overview of the debate over UPL statutes and the theory behind lawyers’ monopoly of legal services. Part II describes and explores the type of work that compliance officers and litigation funders conduct. It analyzes whether these law-related jobs could be considered law practice and what skills and expertise are needed to fill these roles. Part III attempts to answer the question posed above: Will eliminating UPL statues potentially enable nonlawyers to fill the role that lawyers currently play in these areas on the border between business and law? In other words, if UPL laws were abolished, would a nonlawyer or lawyer get the job? My analysis leads to the hypothesis that in the areas of compliance and litigation funding, the lawyer will still get the job. Further, collaboration may not increase between lawyers and nonlawyers, and negative unintended consequences may result from abolishing UPL statutes.