The Future of Law (Part Eight) Strange Bedfellows:  Commercial Law and Legal Ethics

“Misery makes strange bedfellows.”
Shakespeare, The Tempest

 This week’s first prediction:

  • The law of commercial transactions will take on a Bitcoin dynamic.

This is from the Bitcoin website:

“Bitcoin uses peer-to-peer technology to operate with no central authority or banks; managing transactions and the issuing of bitcoins is carried out collectively by the network. Bitcoin is open-source; its design is public, nobody owns or controls Bitcoin and everyone can take part.”

That’s pure democratization, folks! The key is “peer-to-peer”:  if you and I agree that a business or network or other medium of exchange has value, then it does, and conventional metrics be damned. Think Amazon and Facebook:  both immensely valuable; neither shows a profit.

Peer-to-peer is what’s driving the new sharing economy. Consider this from a recent article in Time Magazine:

“The key to [the sharing economy] was the discovery that while we totally distrust strangers, we totally trust people — significantly more than we trust corporations or governments. Many sharing-company founders have one thing in common:  they worked at eBay and, in bits and pieces, recreated that company’s trust and safety division. Rather than rely on insurance and background checks, its innovation was getting both the provider and the user to rate each other, usually with one to five stars. That eliminates the few bad actors who made everyone too nervous to deal with strangers.”

(For more on this topic, see this week’s stories in Forbes and USA Today.)

  • Peer-to-peer will alter the key commercial concepts of valuation and contract consideration.
  • Commercial trust — deciding who you’re going to do business with — and related issues such as fairness and fraud will be built increasingly on the ratings you get from the people you do business with.

The sharing industry has more than a toehold on the economy:  a graphic in the Time article shows that it has already raised billions of dollars in startup capital. It will only get bigger, despite the fact that…

“It’s unclear if most of this is legal. The disrupters are being taken on by governments and the entrenched institutions they are challenging… [T]here are thousands of companies — in areas such as food, education, and finance — that promise to turn nearly every aspect of our lives into contested ground, poking holes in the social contract if need be. After transforming or destroying publishing, television and music, technology has come after the service sector.”

The legal profession is of course busy representing the “governments and entrenched institutions” trying to tax, license, and otherwise bring the sharing economy into conventional legal boundaries. Lawyers will win some and lose some, but in time…

  • The peer-to-peer dynamic will prevail in significant economic sectors — including the professional service sector of which the legal profession is a part.
  • As a result, peer-to-peer review of commercial transactions will extend to the parties’ legal counsel.
  • The resulting consumer satisfaction data will have a curious side effect as a new kind of legal ethics watchdog.

Peer-to-peer is the ultimate in self-policing, which makes its extension to legal ethics unlikely but logical. Rule 8.3 — the duty to report unethical behavior among our peers — has long been a part of the Model Rules of Professional Conduct, but has been more honored in the breach than the observance. The new, democratized marketplace will take this matter into its own hands.

Strange bedfellows, indeed.

The Future of Law (Part Two): New Ethos, New Ethics

Follow this link for a collection of my past three years of blog posts. It’s a FREE download!

For our first prediction, we’ll do an easy one:  the Model Rules of Professional Conduct will be changed to accommodate multijurisdictional practice and nonlawyer ownership of law firms.

This will happen when the tipping point of all the new practice developments we’ve been talking about is reached. The creation and adoption of the new rules will come quickly after that, because a new cultural ethos must have new ethical standards. In the meantime, the snowball is already rolling down the mountain — see, e.g., the ABA Commission on the Future of Legal Services we talked about last time.

The new Model Rules will trigger a cascade of related and derivative developments. None of these are hard to foresee. Here’s a sampling:

 

  • The process of adopting the new Rules will of course happen state by state, starting slowly, with intense polarization between adopters and non-adopters. The historically progressive states will lead the way.
  • Some states will be opportunistic in the early going, vying for status as the go-to jurisdiction. (Think Delaware corporate law. I saw this in my law practice when domestic asset protection trusts came into vogue, and states like Alaska and South Dakota jumped to the front of the line. The same thing happened when LLC’s first appeared, and Wyoming and Colorado jumped in.)
  • Because the new rules will be vigorously contested, a decision comparable to the lawyer advertising case (Bates v. State Bar of Arizona, 433 U.S. 350 (1977)) will be required to pave the way.
  • Once the new Rules are in place, professional corporation and similar laws governing law firm ownership will be revised.
  • Confidentiality and privilege will be expanded to nonlawyers in the new organizations.
  • With respect to clients, the earliest versions of implementation will be based on client disclosure, waiver, and consent, and likely will also require registration of the organization and its principals with the state (with background checks required).
  • There will be supervisory mandates governing the roles of the lawyers involved in the new multidisciplinary practice models.
  • BigLaw will jump in with both feet. Mergers with multidisciplinary and multijurisdictional partners will become the news du jour.
  • Group and prepaid legal service organizations, legal franchisors, and comparable market players will also be quick to jump in.
  • And so will industries that have historically worked closely with law firms — e.g., insurance, stockbrokers, financial planners, accountants, investment bankers.
  • But not too quick: these industries are highly regulated, and therefore new enabling laws and administrative rules will be required.
  • The malpractice industry will get a complete makeover.
  • Bar Associations will reinvent themselves to accommodate the newcomers who aren’t members of the bar.
  • There will be a huge CLE bonanza around all these developments.
  • Law schools will restructure curriculums to both teach the new rules and to offer classes in legal organization structures and business management that entrepreneurial lawyers are currently getting elsewhere.
  • Litigation and legislation and administrative proceedings will abound, and the whole thing will become a massive growth industry.
  • And so on and so on and so on.

It will take at least a full generation to assimilate all these changes, but 50 years from now lawyers and their nonlawyer colleagues will wonder what all the fuss was about.

More predictions coming re: how all of these and other developments will change not just law practice but the law itself.