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John Locke Foundation Pro–UPL article


Business and Regulation

Legal Reform


North Carolina has a good legal system, partly because punitive damages cannot reach the ridiculous “I spilled hot coffee in my lap” levels achieved in other states. But there are areas in need of both vigilance and reform. State lawmakers enacted tort reform a few years ago but efforts must be maintained to ensure full compliance and enforcement with no weakening of the punitive damages cap. Another issue that deserves attention is the state’s “unauthorized practice of law” (UPL) statute.


Tort Reform Basics


There is often a legitimate need for lawsuits and there are certainly irresponsible businesses and individuals among us. This recourse to the law is one of the most important safeguards we as free citizens have to seek justice against criminal negligence. But when that safeguard is abused, especially in such a gravely irresponsible and routine manner as has been the case over the last few years (most obviously by lawyers and attorneys general in the tobacco settlement cases and more recently in lawsuits against gun manufacturers), prices go up, innovators are much less likely to take risks, free markets are stifled, and court dockets become jammed by a combination of overzealous complainants and often unscrupulous trial lawyers.


The state legislature acted wisely in 1995 when it passed a bill limiting the amount of punitive damages to $250,000. This has largely nullified the profit motive in suing, ostensibly limiting, if not abrogating, the possibility of potentially crippling punitive damages. Yet there is little more that can be done beyond this bold measure. Citizens, lawmakers, and judges who do not believe in the punishing tactics of aggressive trial lawyers must be vigilant against attempts to repeal or creatively “interpret” the limitation statute.


If the law becomes effectively neutered one way or another, savvy legislators could direct damages over a certain amount to worthy public causes. If the point is to “teach businesses a lesson,” as lawyers claim, then plaintiffs and their attorneys should not object to, for example, a designation of the full amount of punitive damages for a burn from coffee purchased in a restaurant going to a burn center. Another alternative would be to mandate the diversion of all punitive damage awards to public education, as in Nebraska. The funds could also be designated for state tax cuts by taxing punitive damages above a certain amount at 100 percent, as has been done to some attorneys charging over $100,000 hourly rates in the tobacco lawsuits.


 “Unauthorized” Practice Of Law


One principal area of legal reform gaining attention in North Carolina is the unauthorized practice of law, or UPL. UPL laws supposedly protect members of the public against incompetence, but the actual effect is to keep prices for legal services higher than they otherwise would be because of the prohibitive cost of entering the market — three years of law school. Competition and the need to keep a good reputation in business are stronger guarantors of good quality than is a licensing scheme based on largely irrelevant coursework.


There are many fields of work in which the law requires individuals to obtain a license from the state before they are allowed to sell their services. The judgment of most economists is that those laws have the purpose and effect of restricting competition — in most, if not all, instances — and thereby keeping earnings higher for workers in the occupation than would be the case if entry were not arbitrarily limited.


The legal profession is among the fields thus restricted. State law makes it a misdemeanor for anyone who is not a licensed attorney — a member of the North Carolina Bar — to do any work for another person that is deemed to be within the “practice of law.” If a non-lawyer draws up a will for someone else, handles the closing of a real estate transaction, defends someone accused of a crime or does anything else that is “lawyer’s work,” he has broken the law. Competence and satisfaction are irrelevant. The legal violation depends solely on the performance of any legal service by a person not “authorized” to do so. Of course, the only way one can become licensed is to become a member of the State Bar by passing the bar exam. But one can’t take it without graduating from an accredited law school which must have a three-year course of study and can admit only students with undergraduate degrees. So UPL locks in place a costly course of preparation for the legal services field.


The justification invariably given for UPL prohibitions is that we need to protect members of the public against incompetent and dishonest practitioners. But that justification fails. The law school/bar exam gauntlet is neither necessary nor sufficient to ensure a high degree of competence in legal service, because people can learn what they need to about the law in order to render competent service without having graduated from a law school. Lawyers learn almost everything they need to know to serve their clients after they have become members of the bar. Law school is just a costly prelude. But the high cost of entering the market suppresses competitors and keeps the cost high. Many poor people are priced entirely out of the legal services market. If they do manage to pay for legal work done, it is with considerable sacrifice of other needs.


Nor is bar membership a sufficient condition for competence. Lawyers make many errors, as do practitioners in all fields of human endeavor. No course of training or set of licensure requirements can eliminate error. The strongest disincentive to error is the harm it does to the person who commits it, and that disincentive is increased not one bit by the holding of a license.


Benefits Of A Free Market In Legal Services


Competition gives consumers the widest range of options, keeps prices down, and motivates competitors to keep quality high enough to satisfy customers. As things now stand, people in need of legal assistance can either do it themselves or hire an attorney to do it. There is no middle ground, as there is in accounting, where one can hire someone who isn’t a CPA if one so desires. In Arizona, where there has been no UPL statute since 1986, there are legal clinics in many cities where people with simple legal needs may go to acquire basic legal advice at a reasonable price. Qualified practitioners, such as paralegals, also provide many routine services.


Furthermore, the benefits of success and the costs of failure motivate market participants to keep the quality of their products or services high enough to satisfy customers. People who want to earn money in any market try to avoid the reputational damage that comes from poor quality work. Unlicensed practitioners in Arizona refer people who come to them with legal problems beyond their scope to attorneys who have the necessary expertise. By preventing the emergence of lower-cost legal service businesses, UPL statutes lower the overall quality of service for poorer people, sacrificing the interests of justice and efficiency for job protection.





To ensure that North Carolinians have access to a fair, efficient, speedy, and affordable legal process where they can adjudicate disputes, seek redress of grievance, and pursue justice.




1.                   State leaders should maintain and possibly reduce the cap on punitive damages in order to ensure that courts are used primarily to compensate injured parties and enforce contracts, not to legislate or regulate in lieu of duly elected public officials and their appointees. Lawmakers should consider earmarking punitive damage awards for state, rather than private, purposes, such as funding education or providing tax relief.

2.                   Instead of mandating a law school education as the sole means of entrance into the legal services market, the state should establish voluntary certification programs in common legal fields and allow people who want to earn that certification to take the exam without regard to the means by which they learned the subject.



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