California legislature may split state bar into two separate entities
In April 2016, the judiciary committee of the California Assembly, one of the two bodies that make up the state’s legislature, called a hearing on what’s normally a routine bill to authorize the State Bar of California to collect dues for the coming year. But this hearing wasn’t so routine.
One by one, members of the committee castigated the bar for a series of recent scandals. Members were particularly upset by the revelation, brought anonymously to the legal press, that complaints alleging unauthorized practice of law had been gathering dust in a drawer.
Ultimately, the Assembly voted to tie 2017’s dues to major governance changes at the bar, including a study into de-unifying its trade association and regulatory functions. But then the bill got to the Senate, where key lawmakers opposed those proposed reforms. Despite several rounds of negotiations between legislative leaders and Chief Justice Tani Cantil-Sakauye, no bill was passed by the time the legislature adjourned on Aug. 31. (The bar is the administrative arm of the California Supreme Court.)
The legislature’s failure to authorize collection of dues doesn’t pose an immediate threat to the bar or its key operations, including attorney discipline. The bar has reserve funding to get it through the first four months of 2017, and the supreme court ordered interim dues in November, though at a slightly lower amount than 2016’s dues.
But the underlying debate about the future of the California bar is far from settled. That means 2017 could see a new round of reform proposals, pushback and threats to the state’s attorney discipline system. Meanwhile, a U.S. Supreme Court decision means the bar could face a hugely expensive antitrust lawsuit.
BAD NEWS BAR
Assembly member Mark Stone, a Democrat from Santa Cruz who chairs the judiciary committee that held the raucous hearing, says the chief concern of legislators is that the bar isn’t adequately protecting the public—by law, its highest priority.
There is some basis for that concern. Last spring, someone provided documents to the Los Angeles Daily Journal, a legal-industry newspaper, showing that about 300 abandoned complaints about possible cases of unauthorized practice of law had been discovered. Although bar policy required that the complaints be read within 20 days, the Daily Journal said, the majority had gone more than two months without an assignment.
That news came less than a year after a report from the California state auditor criticized the bar for lax discipline. Indeed, the California Supreme Court sent back 27 cases decided in 2011, the state auditor’s summary said. The bar ultimately handed down harsher sanctions (including five disbarments) in 21 of those cases.
And then there are the antitrust concerns. Under the U.S. Supreme Court’s 2015 decision in North Carolina State Board of Dental Examiners v. Federal Trade Commission, state licensing boards don’t have immunity from antitrust lawsuits when they are controlled by active members of the profession being regulated. The court held that, to have immunity, state agencies must have either a majority of nonparticipants making decisions or meaningful state supervision.
This is important, according to professor Robert Fellmeth of the University of San Diego School of Law. He studies state regulation and antitrust concerns and says he believes North Carolina State Board could expose the bar to antitrust lawsuits from people who failed California’s notoriously difficult bar exam. Damages could run into millions of dollars, he wrote to state legislators.
“The bar’s system of regulation is basically indefensible. It is controlled by attorneys in cartel fashion,” says Fellmeth, who served as a court-appointed monitor of the bar between 1987 and 1992. “Lawsuits will come, certainly with treble damages and fees a part of it, [and] they will succeed.”
The fact that the state bar is supervised by the California Supreme Court is good enough to offset potential antitrust actions, says Hannah-Beth Jackson of Santa Barbara, who chairs the Senate Judiciary Committee. “I believe that there is no antitrust concern because in California, the supreme court is the overseer,” says Jackson, a Democrat.
Fellmeth strongly disagrees. Under North Carolina State Board, he says, state supervision must be active—“underline the word active, capitalize it and put it in bold”—and the California Supreme Court doesn’t meet that standard.
In September, Cantil-Sakauye directed the state bar leadership to come up with a policy for bringing any decisions that might raise antitrust concerns to the high court. Elizabeth Rindskopf Parker, the bar’s executive director, said in October that the bar’s general counsel was studying how to implement this order.
All of these issues played into the legislative battle over the dues bill. The assembly unanimously approved a bill that would have mandated a nonlawyer majority on the bar’s board of trustees to address the antitrust problem, and created a commission to study splitting the bar into a state agency that regulates lawyers and a separate private, voluntary trade group.
But the bill foundered in the Senate against strong opposition from Jackson and Cantil-Sakauye. And a major sticking point in negotiations, Stone and Jackson say, was the study to split the bar into two separate entities.
Stone says some in the assembly would have voted for de-unification right away. Jackson, for her part, felt that less drastic reforms should be given time to work first. In the end, Stone offered what he saw as a compromise, but Jackson did not accept it, and the legislative session ended with no dues bill being passed.
The issue is likely to be back, and Dennis Mangers is a major reason why. Mangers, who recently stepped down after six years as a nonlawyer member of the state bar’s board of trustees, may be the state’s most prominent backer of de-unification.
Right now, the bar “is trying to be a trade association and a regulatory body on behalf of the people, and it’s not doing either very well,” says Mangers, a former state legislator. The bar’s board of trustees has 19 members: 13 lawyers and 6 nonlawyers.
Mangers believes bar leadership is often more concerned about internal politics on the trade group side than its public protection mission. Meanwhile, the bar’s status as a state regulatory agency puts substantial restrictions on its trade group work.
DISSENT in the sections
The state bar’s sections—which, like ABA sections, are voluntary and organized around practice areas—also are chafing under state-agency rules. In 2015, the legislature subjected sections to the state’s open meetings law, requiring them to announce every mass email and conference call 10 days in advance and open them to the public, even if they aren’t terribly relevant to government. This year, bar leaders forbade sections from paying for alcohol at functions, disrupting the plans of at least two sections.
Donna Parkinson of Sacramento, a former chair of the bar’s business law section, says some sections are so unhappy that they agreed in October to study how they’d be affected by de-unification, staying with the existing structure or a third structure. The business law and taxation sections are for separating, she says, and the business law section has even created a California Lawyers Guild in anticipation of a split.
Parker, the executive director, says the bar is being cautious about de-unification, but is “certainly looking at” splitting off certain functions.
Cantil-Sakauye has said publicly that she, like Jackson, would rather see how current governance reforms work before considering de-unification. Mangers says he believes the chief justice may think de-unification is inevitable—but, for separation of powers reasons, doesn’t want it to come from the state legislature.
Separation of powers certainly came up in negotiations over the failed bar dues bill. Jackson says it’s critical for the legislature to recognize that separation of powers constrains what it can do with the bar. But Stone says that won’t constrain the assembly in 2017.
“Our obligation as a coequal branch of government is oversight, and that’s part of the checks and balances between and among the branches,” says Stone. “And we feel the bar’s public protection obligation is not being met.”
This article originally appeared in the January 2017 issue of the ABA Journal with this headline: "California Split: Under fire from the legislature, state bar faces the possibility of being divided into two separate entities."