New Data on Arizona and Utah’s Innovations After 5 Years of Legal Reform

Episode Notes

Transcript

David Freeman Engstrom:

And so I guess I think the lesson is innovate, innovate, innovate, and that’s on kind of all sides of the equation.

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Equal access to justice is a core American value. In each episode of Talk Justice and An LSC Podcast, we’ll explore ways to expand access to justice and illustrate why it is important to the legal community, business government, and the General Public Talk. Justice is sponsored by the Leaders Council of the Legal Services Corporation.

Cat Moon:

Hello and welcome to Talk Justice. I’m your host for this episode, Cat Moon. Today we’re diving into some important research that could reshape how legal services are delivered to those who need the most. Five years ago, Arizona and Utah launched unprecedented experiments in legal innovation, and we now have the first comprehensive data on what actually worked, what didn’t, and what it means for expanding access to justice. Today I’m joined by David Freeman Engstrom, LSBF, professor in law at Stanford, and co-director of the Deborah l Roadie Center on the Legal Profession. And Natalie Anne Knowlton, associate Director for Legal Innovation at the Roadie Center. Both are co-authors of the new report, legal Innovation After Reform, five years of data on regulatory change. Welcome Natalie and David.

David Freeman Engstrom:

Thanks. Cat.

Cat Moon:

It’s great to have you here and thank you both. And Lucy Rica, your co-author for this fascinating look at five years into World, world data on legal innovation. For our listeners who might want to dig deeper into the findings, you can find the full report on the Stanford Law School website. Let’s start with a big picture for our listeners. In 2020, Arizona and Utah did something unprecedented. They broke open the traditional rules governing who can provide legal services and how. So Arizona allowed non-lawyer ownership of law firms for the first time, and Utah created a regulatory sandbox where entities could get waivers to practice law in ways that would normally be prohibited. So five years later, you all have analyzed what actually happened. So you’re looking at 136 entities in Arizona and the dramatic changes in Utah’s program. But before we dive into the specifics, can you all paint the landscape for us? What are these states trying to solve and what’s the big picture takeaway from this five years of real world data?

David Freeman Engstrom:

Thanks, KA. I’ll take that one and I’ll try to do it in a couple of steps. So big picture, I think Utah and Arizona were trying to spur innovation in the delivery of legal services. And some of this was based in a concern about a crisis in access to justice. And I’m sure Talk Justice listeners know these stats, but it’s never a bad thing to air them. For instance, in something like 75% of the 20 million civil cases filed in American courts, each year at least one side lacks a lawyer. And these are really consequential cases. They include things like debt collection actions, evictions, mortgage foreclosure cases, lots of family law matters. So one of the obvious ways to try to fix this problem or these problems is to increase the supply of legal help. But to do that, you have to find responsible ways to relax the usual rules that say that only lawyers can practice law.

So unauthorized practice of law and only lawyers can own law firms rule 5.4, for instance. But I think that the reform impulse in the two states was broader than that. And it also came from a more general concern, which is that the legal services marketplace is just not very innovative. Technology has transformed much of the rest of the economy sometimes for sure with bad results, but often with positive results in ways that really enhance welfare and improve society. And so the question was how can we spur the kinds of innovation then in legal that have happened elsewhere in the economy, which will benefit everyone, including folks who are surprisingly far up the socioeconomic ladder, small businesses, there are lots of folks and segments of society that might benefit from legal help of one sort or another. I think that’s the reform motivation. I think that’s what moved Utah and Arizona to take these really dramatic steps.

Alright, so what were our takeaways at five years? And by the way, this is following up on a similar report that we did after two years of reform, but the ideas we’ve added data and tried to enrich our findings and just try to understand what their trajectory of things might be in these two states. So alright, so I think there are at least three takeaways from this report. Maybe Natalie has a different view and we’ll add one on who knows. But the first main takeaway I think is a continuation of a lot of what we found in that first report at the two year mark. So there is robust innovation across organization types. So that includes regular old law firms that includes what we call law companies like LegalZoom or Rocket Lawyer whose primary or exclusive business is providing legal services of one sort or another.

That includes what we call non-law companies. These are companies that have some other main line of business but have used these reforms to add legal to the suite of things that they do. And then also the fourth type of organization or companies that are serving as intermediaries, they’re essentially matching attorneys and clients within the legal services marketplace. All these different organization types are innovating using a mix of, not all of them, but many of them are using a mix of lawyers, non-lawyers and technology to do so. And last thing here is, and this is again just follow up on what we found the first time around, which is lawyers remain front and center in a lot of these innovations. So the specter of entirely non-lawyer entities providing legal services I don’t think has necessarily presented itself. Lawyers are surprisingly in charge and at the helm of a lot of these innovation efforts.

So that’s one broad takeaway. A second broad takeaway I think is a really interesting one and it’s an important one and it’s a broadening of the legal areas where we’re seeing innovation and a broadening of who is served. And so for instance, there’s a whole lot of activity in Arizona right now involving veterans. So outreach, legal, veteran legacy counsel and home front group. Those are three entities that are using a variety of models to serve veterans. A state guru in Utah is a company that is using a mix of technology and links to lawyers to help folks with estate planning. And these are issues that affect a lot of people, right? A remarkable number of people don’t have a will. A remarkable number of people are now veterans after a couple of forever wars. And so I think that’s a really interesting and important broadening of what we’re seeing by way of innovation.

Third broad takeaway, reg reform, it’s a movement and it is at a crossroads. We’re seeing a narrowing of ambition in Utah, which we can talk about and I think that’s calling into question the future of entity level reforms. But I think Washington state and maybe Indiana and Minnesota will have something to say about that. I think we’ve seen a rapid growth of community justice workers, which is just one flavor of regulatory reform, which I think is great, but it also raises questions about whether that might be crowding out other types of regulatory reform and other options. And then last piece, last way I guess in which reform is really at a crossroads is I think in Arizona we’re starting to see some really quite profound questions about alternative business structures, about a BS given the growing role of private equity in some of those entities. And its concentration in litigation, finance, torts and contingency fee practice. So that was probably more than you bargain for Kat. That was maybe a too long overview of where I think these reforms are coming from and what we found in the report. So maybe I’ll stop there and see if Natalie has something else to say or we can move on to some other question.

Cat Moon:

I would say that’s a fantastic TLDR for those who have not yet read the report. And I think that context is really important because there are a whole lot of threads I would love to pull through. But given the audience of Talk Justice, there are a couple of specific ones I would love to focus on. So your research shows that UPL reform, particularly you mentioned the community justice workers appears to be an effective pathway for reaching low income populations. And Utah entities that are specifically serving low income clients for free, they’re using non-lawyer providers, some of whom are being trained by legal aid and community organizations. And meanwhile, Arizona has expanded this program statewide. So for legal aid organizations, what does this tell them about where to focus advocacy efforts and the efforts they might be employing to really scale the help that they can provide? Should legal aid and access to justice advocates be pushing harder for this kind of authorization for community justice workers rather than waiting for broader and a BS alternative reforms? What are you all seeing from the data and where this takes us?

Natalie Anne Knowlton:

Thanks Kat. So I’ll note that our report looks at entity reform. We lump community justice workers within a role reform, but it is kind of a hybrid of entity reform as well. So most of the programs that are out there today on the community justice worker, front embed non-lawyer providers as you mentioned, who are trained and otherwise qualified into either legal aid or community-based organizations. And then regulation also happens at the organizational level. So if you look at the Arizona codification of the community justice worker rule, you’ll see this dual approach there. And you’re right that our research, our findings show that the entities that are offering free legal services are the ones that are in the Utah sandbox. Now, I just want to put a plug for something that David had mentioned previously. That doesn’t necessarily mean that the Arizona ABSs are not serving lower income populations.

Veterans in particular have challenges with disability benefits. So we do see this potential expansive reach of Arizona ABSs across income levels. But the Utah Sandbox does highlight for me that there is a strong appetite for community justice workers, for non-lawyers who are embedded in community organizations. And I also think this is an opportunity for the profession. If you look at the community justice worker movement in Arizona and in Utah, there are really strong partnerships developing with academic institutions. I will call out Innovation for Justice and the work that they’re doing out of the University of Utah and the University of Arizona, creating a training model and a train the trainer model for these types of providers to then go out into community organizations and legal aid organizations, which is just another way to scale the reach of non-lawyer providers and the organizations in which they are situated.

Cat Moon:

You point to this way to scale through community justice workers to scale through humans, and I’m glad you called out those programs because I always love to highlight when things are happening in different jurisdictions that others can look to as examples perhaps templates, models. And I think what’s happening with C JWS in Arizona and Utah is absolutely one of those examples. So definitely bookmark that for everyone who’s interested in looking at something that’s working. But at the opposite end from the human help, how we can scale by expanding who can provide the help. We have technology and that it seems we’re kind of steeped in technology and what it can do for us these days. But if we look at when these reforms launched, there was significant excitement about AI and technology driven solutions. And your data shows that even Utah Sandbox, which was specifically designed to allow technology enabled legal services, deliveries like it’s mentioned in the text itself, has seen almost no purely rich, purely tech-driven innovation. Instead, you’re seeing success with pricing innovations, one-stop shops. These are all models that you all referenced in the report. What should the takeaway from this be? Are we chasing the wrong innovations and what models should we be paying attention to based on the data that you all have looked at so far?

David Freeman Engstrom:

I’ve gone back and forth quite a bit on why legal tech isn’t as robust as we might expect and why that might be the case in Utah and Arizona. But even beyond, I think one possibility if we’re just thinking about Utah and Arizona and why we aren’t seeing pure software tech models emerge in those two places, maybe especially Utah, right, where you have the UPL relaxation, which makes that more possible. One possibility is that those two states and those two legal markets just don’t deliver enough scale. They’re relatively small and after all, legal tech as a one to many model of legal services depends on and runs on scale. And so we might be having a different conversation if say Texas or California had ventured some of these reforms. I think if they had done so, things might look very different precisely because those jurisdictions can deliver that scale.

That is the fuel of a legal tech, software based legal services delivery model. Another possibility, and again this applies within Utah and Arizona, but it also applies to legal tech more generally, is that maybe AI just wasn’t powerful enough, right? We’re still relatively early in the advent of generative ai and so maybe we haven’t seen a lot of purely direct to consumer, purely software based services, again either in Utah and Arizona or more broadly because the AI just wasn’t powerful enough. And maybe now it is. So maybe that’s another explanation. I think even more ish accounts here, one possibility is that it’s just really hard to develop software-based models that poor people, to put it really bluntly, these are people who have by definition, limited ability to pay. They often only need services once or episodically, like compare the business model of someone who wants to provide legal tech services to someone facing a debt collection action to say TurboTax.

TurboTax has the best tech model around. You have people who pay their taxes every single year, and indeed they need more and more complex services over time. They tend to. And so that’s a great model that’s just very different from legal tech serving people facing eviction or a debt collection action. So I don’t know which of these explanations is the right one. I think there’s probably truth in all of them, but we just don’t know yet what weight will attach to each. So what’s the lesson for reg reform or maybe what’s the lesson for legal aid lawyers and organizations specifically? I do think we need to just innovate, innovate and innovate. And if you’re legal aid, you want to continue to do the kind of work that, for instance, my fabulous colleague here at Stanford who runs the legal design lab, Margaret Hagen is doing where she’s trying to help legal aid groups to develop technology to extend their reach.

But I also think we should continue to pursue entity level reform because I think there is still the possibility of really responsible, innovative uses of technology in the direct to consumer space. I think it’s very likely to raise all boats in a technological sense. I think when you start to develop better tools in say the direct to consumer context that’s going to benefit, say legal aid groups who are trying to develop technologies to extend their reach and vice versa. And so I guess I think the lesson is innovate, innovate, innovate, and that’s on kind of all sides of the equation.

Cat Moon:

Absolutely. I love that. Natalie, do you have something to add?

Natalie Anne Knowlton:

Yeah, I would add also that especially in Utah, there’s probably a structural issue here as well. If you look at the way the sandbox is structured, there are certain requirements that entities that are operating on a purely technology driven model have to meet. There are certain pre-launch assessments that have to be completed. The technology has to be in a certain state in order to even get to that pre-launch assessment spot. And so perhaps when the regulators in Utah, the Utah Supreme Court, they think through what the sandbox did over the last seven years and the data that they have on entities that maybe did pursue that kind of model and then did not launch that kind of model. Perhaps we’ll learn more about whether that specific structure was too much, for example, or there are ways to tweak that requirement for sandboxes in the future.

Cat Moon:

Exactly. The data can continue to inform how we can go forward. And what I hear you both talking about as well is that this is and not or right? So really diving in and looking intentionally at what’s been working, maybe what hasn’t, and let that inform the experiments, the innovation that goes forward and not, or it’s no doubt a combination. David, as you pointed out of these things. So my mind is going directly to some of the criticisms of making changes to these rules that allow some of these innovations and experiments to happen. And one of the biggest concerns that we hear voiced, especially from oversight bodies and lawyers bar associations, is what about consumer protection? And I find this a fascinating aspect of the research that you all have shared. So the research shows remarkably little evidence of consumer harm only 20 complaints in Utah’s entire sandbox program and minimal disciplinary actions in Arizona. So how should those of us who are advocating for access to justice reforms use this data in our advocacy? And what does this tell us about the real versus perceived risks

Natalie Anne Knowlton:

Of these innovations? So I’ll kick us off and then David can jump in. You’re right that what we saw in Utah and Arizona is a lack of reports of consumer harm. So we can’t prove that there is evidence of a lack of consumer harm necessarily. It’s very difficult to measure these kinds of things, but we are pleased to see that there are not high reports and widespread reports of consumer harm. I view the data that we do have, the fact that there are instances of consumer harm that were reported. I personally view that as the system working as it should, our current system of attorney regulation finds and disciplines attorneys as appropriate. And that’s what we see having happened here in Utah and Arizona. One thing that I think gets lost in the regulatory reforms that are the focus of this report are the robust structures that were in place in order to identify consumer harm.

For example, in Arizona, there are semi-annual compliance requirements that a BS entities have to undertake and submit to the committee. And then the court among these are disclosures of consumer harm and how these harms are remedied. Could you imagine if lawyers and law firms had those kinds of requirements? And then in Utah, the sandbox entities were required to disclose that they were in the sandbox. They did this visually via an icon that had to be on the website and any written materials. And they did this verbally on a consumer to consumer basis for clients. As part of that, they had to inform clients of theirs, how they were able to submit consumer complaints. And so we see in Arizona and Utah, a transparency from these entities of consumer harm that we just have not seen in traditional attorney regulation. And I think if our real goal is consumer protection, we might look at some of these innovations from a consumer harm reporting requirement standpoint and think about how we can shift our attorney regulation system to be more proactive on that front.

Cat Moon:

That is an excellent point, David, you have something to add?

David Freeman Engstrom:

I think the research that we’ve done twice over now does provide some really nice evidence that regulatory reform when responsibly implemented, does not cause consumer harm. Though I think that caveat that Natalie started out with is really important, which is that we’ve shown that there weren’t complaints of consumer harm, but that’s different from whether there was consumer harm. But I also think that regulatory reform, maybe our research shows just a bit, is maybe our best chance to try to understand consumer harm and to build the evidence base. I think that is such an important contribution that regulatory reform has made and can make to our thinking about the legal services marketplace. And so let’s just think about tech for a moment. When you’re talking about tech AI based one to many models, the types of consumer harm that we’re likely to see are going to be as Harvard’s David Wilkins once put it in a slightly different context.

It’s going to be low level negligence. It’s not going to be spectacular failures of the Tom Girardi sort where there’s been some sort of terrible fraud perpetrated on clients. It’s going to be a model that’s a little bit off or a tool that marginally pushes more people than it should to declare personal bankruptcy rather than fight a debt collection action. And that’s really hard to regulate because it’s hard to detect in the first place. So the Utah Innovation Office, which was under the leadership once upon a time of Lucy Rika, who’s the executive director here at the Roadie Center, she was then a longtime advisor of the Utah reform efforts. That office was building out plans to have real data capacity and a real ability to monitor participants in this sandbox. But that’s also a really expensive proposition. It requires what amounts to a little administrative agency.

That’s what the innovation office was doing in order to oversee the sandbox. And frankly, that innovation office never really had the resources to do full regulatory oversight and to really collect the kind of data you would want to collect to try to detect consumer harm in some sort of full robust way. I wish it did. I hope that other states that venture entity reform will help us build that evidence base and try to make the case that there really isn’t consumer harm here. And that would just be a huge benefit. I think that would discipline the debate in really important ways.

Cat Moon:

So in the report, you all do reference other jurisdictions that are jumping in to initiatives that are similar to what you studied in Arizona and Utah. So David, I hope those folks are listening and that they take seriously, really your admonition to collect the data robustly and really use it. I agree with you. I think it’s going to be critical for really addressing consumer safety. Let’s frame it as consumer safety. And Natalie, I just also want to highlight your point that these entities, these innovations are really held to a higher standard in many ways than traditional legal services providers, law firms, individual lawyers, and we really don’t know a lot in general about consumer harm when it comes to the delivery of legal services. So, so much opportunity for innovation here in that respect. And we are growing close to a close of this conversation.

There’s still so much to explore, but I always like to end these conversations with a discussion on how we can talk about concrete steps going forward based on the lessons learned, the data that has been gathered and analyzed. So if we’re looking back at your five-year analysis, if you were advising a legal aid organization that wants to expand access through innovation, and I think all of them do, what would you tell them to do on Monday morning? What would you advise them to focus on? Community justice workers programs, exploring partnerships with a PS entities advocating for specific regulatory changes, or is there another path altogether that you would recommend? So let’s end with talking about some practical and impactful approaches for organizations that admittedly are already stretched too thin.

Natalie Anne Knowlton:

I would say waking up Monday morning, start by taking a step back and defining what your as an individual, your as an organizational goals are. Is the goal to expand the reach of a particular program in that instance, perhaps community justice workers or some sort of community embedded provider outside of legal aid might be the approach is the goal to expand and scale the reach of your services. Maybe that involves technology perhaps leveraged by a lawyer or a non-lawyer to scale in the way that only technology can do. So I would just suggest that organizations align their approach and their efforts with what they are trying to achieve. And I’ll just put in a plug here for a roadie center resource, our executive director published alongside Thomas Clark, a guide for regulatory design that really walks people through, here’s what you should do if this is your goal and here’s what you should do if this is your goal, start with the goal first.

David Freeman Engstrom:

I have a very particular plug for what legal aid groups in particular might do on Monday morning, which is try to help push forward regulatory reform other than the community justice workers approach. I think that has been terrific. I think it is going to do a lot of good in the world providing legal services to people who so desperately need them, but it is not a panacea because nothing is, we need lots of experimentation with how to increase the supply of legal services throughout the legal services marketplace. And when I wear my political science hat, I worry a bunch that the community justice worker innovation, if it continues to experience the success that it’s had recently across a number of states, could innovate efforts to rethink legal services regulation in other ways. And so that’s my Monday morning concern. And then I suppose also my Monday morning hope for how legal aid groups and legal aid lawyers will think about regulatory reform going forward.

Cat Moon:

Yes, and not, or I think that’s a really important point, David, and I’ll say one reason why the research that you all are conducting is so important because it is easy to dive into some data and pick out some things that might support our preferences, a prevalent model, something that’s popular, something that’s being accepted so far to the extent that that might actually overshadow or completely block our attention and awareness and approaching experiments in all these different areas. Because yes, we are certainly seeing that the enormous access to justice, access to legal help gap is not going to be bridged by any single solution. It’s going to be a combination of many, many solutions that are. And we find those through experimentation, through innovation, and the data that you all have collected and analyzed helps us do this. So David and Natalie, thank you both so much for this really fascinating look into five years of real world data on legal innovation.

A reminder for our listeners who want to dig deeper into these findings, you can find the full report Legal Innovation After Reform, five years of data on regulatory change on the Stanford Law School website. This research really offers some compelling evidence that thoughtful regulatory reform approaches can expand access to justice and legal help. And as we continue to grapple with this crisis, the data can provide a roadmap for us for what’s actually working on the ground. So thank you both for this conversation and thanks to all of you for listening to this episode. Talk Justice is brought to you by the Leaders’ Council of the Legal Services Corporation and Legal Talk Network. If you like what you heard today, please be sure to rate and review the show and subscribe on your favorite podcast app.

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