The Legal Productivity Problem

If we categorize all of our business conversations into the above four buckets, which bucket is the fullest?

Unfortunately, I vote for bucket 4.  We end up in bucket 4 because we want to be perceived as being fully informed.  Yet, being fully informed takes a lot of solitary, uncompensated effort with no certain prospect of a return.  So in our business conversations with one another, we fudge how much we really know.  First to ourselves and then to others.

Everyone likely agrees that bucket 1 is where we need to be.  Yet bucket 1 is the endpoint.  We start in bucket 2 with something like this opening line:  “Our business relationship is not working as well as it should because we are not making decisions from a solid foundation of shared facts. I would very much like to change this.”  If we’re selective on how and where we begin the conversation, we have good odds at a substantive, ongoing dialogue about information gaps and how to jointly fill them.

During the spring and early summer, I wrote two pieces for Law.com that focused on the legal profession’s Last Mile Problem and Last Mile Solution. They presented examples of unproductive dialogue between clients and lawyers.  The unproductive conversations are no one’s fault, yet they are real and pervasive.  These two articles are now combine in a single PDF.  Below is a copy of a “Last Mile” slide deck that contains all the figures in the articles. Hopefully, a few innovators and early adopters use these materials for a “bucket 2” dialogue.  bucket 2 + time = bucket 1.

What’s next?  See Change Agents and Opinion Leaders (020)

modriatylertechEarlier this week, Modria (mentioned in Post 008) was acquired by Tyler Technologies, a publicly traded company that specializes in information management solutions to local governments. See press release.  Tyler Technology is headquartered in Plano, Texas and has 3,800 employees. It’s total 2016 revenues were $776 million. See 2016 Annual Report. Modria’s founders, management team, and employees will all join Tyler Technology.  Per the press release, they will help build out Tyler’s “portfolio of courts and justice solutions, particularly for its Odyssey File & Serve™ solution.”

The sale price of Modria was not disclosed. Although I suspect that Modria netted a decent return for its investors, I think the financial details are a lot less significant than what the acquisition means for the future of state and local courts.

For readers unfamiliar with Modria, here is the essential background. Modria is an online dispute resolution (ODR) company founded by the technologists who created eBay’s and PayPal’s ODR systems.  In these early days, ODR has been targeted at disputes where the amount at stake cannot support attorneys’ fees, court costs, or travel.  A credible, trustworthy, and efficient ODR is valued by customers.  It can also reduce the number and vitriol of negative online reviews. Thus, it is no surprise that merchants are willing to pay a company for an ODR solution (at roughly $4.50 per dispute).

Yet, the acquisition by Tyler Technologies suggests that the solutions that Modria has pioneered is likely to have use cases further up the food chain.  One of the problems that Tyler Technologies is trying to solve for small governments is cost-effective handling of disputes that involve self-represented litigants. Cf. Post 006 (presenting statistics in a National Conference of State Court report where 75% of cases involve a party not represented by a lawyer).

Modria was likely an attractive buy for Tyler Technologies because Modria was already white-labeling a dispute resolution system for property tax appeals for hundreds of municipalities. Through Modria, the municipalities shed the cost of running a tax appeals venue. At the same time, citizens were also happier with the speed and resolution of the appeals, and the municipalities fared better in total tax receipts.  Note that Tyler Technologies has 15,000 local government clients — that is an ideal sales channel for Modria’s ODR products.

In Tomorrow’s Lawyers, Richard asks the question, “Is court a service or a place?” Lawyers conceptualize it as place.  Yet Tyler Technology is likely betting it is a service that can be outsourced.  I believe that is where we are headed.

Update:

Gabrielle Orum Hernández, via LegalTech News, has written an excellent story on the value of the acquisition to Tyler Technologies.

Quoting their chief strategy officer, Bruce Graham:

‘What we expect [following integration of Modria into Tyler’s Guide and File platform] is that if there’s a dispute within [Guide & File]—for example, if they’re filing for divorce, maybe there’s an issue around custody—that’ll actually kick them into Modria. …

‘I had four different chief justices come to me and say, ‘You’ve got to do something about access to justice,’ Graham said, adding that online dispute resolution often topped wish lists for court leaders.

The American Bar Associations’ (ABA) Center on Innovation is also exploring ways to leverage online technology to assist with nationwide small claims needs. ABA president-elect Hilarie Bass previously told Legaltech News that online dispute resolution tools could help courts alleviate some of the strain on clients in small claims cases.

‘Our current system requires individuals to take a day off of work, most likely take a bus or transit system across town for a pretrial conference, at which time if they can’t resolve the issue, they have to come in for a second day,’ Bass said. ‘Why can’t we do that all online?’

On Modria’s company blog, the senior management writes, “We are incredibly excited about merging Modria’s cutting-edge ODR platform with Tyler’s powerful software for the courts. This combination will create a single system capable of supporting citizens all the way through their justice journey.”

What’s next?  See World Class Innovation and Efficiency, Billed by the Hour (010)

lawgraduates006The ABA just released 10-months out employment data for the class of 2016.  The percentages of grads employed in full-time/long term Bar Passage Required and JD Advantage jobs is up (72.5% compared to 70.1% in 2015).  However, the total number of these jobs is down (28,029 to 26,923).

Is this good news for law schools?

Not really.  The employment percentage is up only because the number of law grads is dropping faster than the number of jobs. But both numbers — grads (supply) and jobs (demand) — are declining. A true recovery would show the opposite.

A 28% Drop in the Number of Law Grads

The graph above reveals a dramatic drop in the number of law grads.  The green bars reflect historical data.   The orange bars are projections for the next three years based on incoming 1L classes that have already enrolled. (Based on a 10-year historical average, 90.1% of entering 1Ls receive a JD three years later.)  Between 2013 and 2019, the size of graduating classes will drop 28.0%.

This may be the bottom of the trough, as the number of projected graduates is essentially identical for ’18 and ’19 (33,667 versus 33,658).  Yet, it would be mistake to assume that things are headed back to normal.  We have to go back to 1978 to find graduating classes this small.  At that time, the US population totaled 223 million.  Since then, we’ve added another 100 million people.

A population gain that large should translate into a lot more divorces, wills, contract disputes, DUIs, and personal injury claims, etc. And likely it has.  But it may be the case that a growing proportion of these legal problems cannot be cost-effectively solved by lawyers (more on this below).

The Old Era of Bad Employment Data

94percent2010USNAs the job market collapsed in ’08-’09, law schools came under intense pressure to provide higher quality employment data. At the time, the only metric collected by the ABA was employment 9 months after graduation. Yet, the definition of “employed” did not distinguish between jobs that were legal versus non-legal, or full-time versus part-time or temporary.  Because US News used this metric in its ranking formula, it became normal for schools to aggressively count all jobs regardless of quality.

In the 2010 US News rankings, the median employed-at-9-months figure was a remarkable 94.4%.  In contrast, NALP data published in the spring of 2010 showed only 82.0% of law grads obtaining either Bar Passage Required or JD Preferred jobs. Terms of use with member law schools prohibited NALP from reporting school level data. But obviously the numbers weren’t adding up.

As the job market continued to stagnate, law schools got hammered in the press and blogosphere for publishing unreliable, self-serving data.  Former students and alumni filed lawsuits against more than a dozen ABA accredited law schools alleging various theories of consumer fraud.  Industrious law students at Vanderbilt Law used the bully pulpit of the Internet to create Law School Transparency (LST) and demand that law schools release more granular information on employment. And eventually it worked.

The New Era of Data Transparency

The ABA Section on Legal Education and Admissions to the Bar responded to the public pressure by agreeing to collect, publish, and periodically audit granular information on employment outcomes. That information can now be readily downloaded from an online database.  Several other outlets now incorporate these data into online tools to improve decision making for prospective law students. See, e.g., Law School Transparency (LST)AccessLex Institute (Analytix), Educating Tomorrow’s Lawyers (ELT), Above the Law (ATL).

The chart below reflects employment outcomes (i.e., demand for new law graduates) since the ABA stepped into its new role as collector and disseminator of high-quality market information.

ABAjobs2011_16

The key takeaway is that the entry-level market for law grads remains very soft.   Of the six reporting years, 2016 had the fewest number of FTLT Bar Passage Required or JD Advantage jobs. The numbers look better when they are expressed as a percentage of total class size, as in the table below:

2011 2012 2013 2014 2015 2016
63.0% 65.7% 67.1% 71.1% 70.1% 72.5%

Yet this trend is moving up only because we are at a 40-year low in the number of law grads. See Green/Orange chart above.  Enrollments are down because entry-level employment for law grads is down.  That’s the impact of the new era of transparency.

When will law school enrollments increase?  When there is a surge in high quality employment for law grads. It’s just that simple.  Legal education now operates in a real market.

Legal Problems and Legal Productivity

I created Legal Evolution because I became convinced that the biggest problem facing the legal profession and legal education was stagnant legal productivity.  Stagnant productivity is bad because it means that solving legal problems is becoming, in a relative sense, more expensive over time.  Thus, as practical matter, fewer people and businesses can afford to hire a lawyer to solve a legal problem.  Those are the economic forces driving the green/orange chart above.

The problem of legal productivity will be recurring theme here.  But a brief, concrete illustration is especially helpful for this post, as there is a systemic breakdown occurring in the practice of law.  This is a substantial root cause of underemployed law grads, flagging starting salaries, and lower law school enrollments.

The NCSC Landscape Report

NCSC_landscapeThe illustration comes from the The Landscape of Civil Litigation in State Courts, a 2015 study published by the National Center for State Courts (NCSC). The study compiled data from over 925,000 cases disposed of in state courts in ten large counties that encompass major U.S. cities (Chicago, Cleveland, Honolulu, Houston, Indianapolis, Miami, Phoenix,  Pittsburgh, and San Jose).  The sample was constructed so that it would be representative of the nation based on geography. The NCSC also wanted a mix of general and limited jurisdiction courts.

Below is Table 6, which breaks down the judgment size for the 227,812 cases that resulted in judgments exceeding $0.

Judgment amounts

Remarkably, the median judgment was for $2,441, increasing to $5,595 for matters in general jurisdiction courts. These small sums make it very difficult for lawyers to ethically serve clients and also earn a living.  Thus, perhaps it is not surprising that only 24% of cases had the benefit of attorney representation on both sides of the dispute.  Stated in the alternative, 3/4 of cases involve a party that is going it alone without a lawyer.

The Landscape report acknowledges the sharp divergence between “Justice (with a capital J)” and what actually goes on in state court. The only way to fix it, the report concludes, is through “dramatic changes in court operations … to control costs, reduce delays, and improve litigant’s experiences with the civil justice system” (p. 38).  The problem of affordable legal solutions is so big that non-lawyer entrepreneurs are engineering their business models around Rules 5.4 and 5.5 to access the market opportunity.  In the mean time, the organized bar — judges, lawyers and legal educators — wonder why our numbers are falling.

Related Post:  A Measure of Overcapacity in Legal Education (002)

What’s next?  See Units of Analysis and Adopter Types (007)