The Conundrum of Law Practice in Conflict Resolutions

In our preceding article we introduced the current series dealing with law, economics and the economics of law practice. Several upcoming articles will deal with the economics of law practice. In order to understand some of the problems associated with the economics of law practice it will be necessary to explain and understand certain dynamics about the nature of law.

In 1913, an East European legal philosopher named Eugen Ehrlich, in his book Fundamental Principles of the Sociology of Law, made the important point that there are two kinds of law. First there is what he called the rules of conduct. Rules of conduct actually regulate the daily activities of everyone in society in the ordinary course of their affairs. They blend imperceptibly with morality,customs, and other normative forces. It is very important that everyone follow the rules of conduct, that they keep their promises, that they avoid harming others, and do their duty. In order for the world to survive and move forward, everyone must actually do more than is required by duty and engage in meaningfulactivities. Everyone must follow the rules in order for our society to function. Courts and government are in the background, not the forefront, of these rules. Rules of conduct have much of their origin in morality and customs, which arise naturally in society.

Secondly, there are the rules of decision. These are the rules with which courts and lawyers are concerned when it becomes necessary to resolve conflicts. Conflicts are often couched in terms of violation of the rules of conduct. The law as used in the context of conflict resolution could be either a statute that has been enacted by a legislative body or as previously declared by a court. If the rules used to resolve a conflict have not been clearly articulated in statute or in a previously decided case, sometimes courts must look to the more nebulous rules of conduct and actually articulate the principle upon which the conflict is resolved. This is the basis for case law.

Unfortunately, in the United States, law schools and legal philosophers during the past 150 years have over-emphasized the importance of the rules of decision and underestimated the importance of the rules of conduct. The Eugen Ehrlich book had little impact in the development of legal philosophy in the United States. The result of this emphasis on the rules of decisions and the rules of conduct was the highly questionable conclusion that courts “make” law. Oliver Wendell Holmes, Jr., a Harvard professor and eventually Chief Justice of the United States Supreme Court actually said, “Law is what a court does.” During the past 100 years, courts have often assumed that it is their function to make law.

What does all of this have to do with the economics of law practice? Lawyers make money by dealing with the rules of decision not the rules of conduct. Theoretically the legal system exists to resolve conflicts. Unfortunately, the economic motives of the legal profession do not necessarily promote the most efficient resolution of a conflict.

The system actually feeds on conflict and prospers from it. An old joke in the legal profession is “Do me a favor; sue my client.” In the previous column we pointed out that plaintiff’s lawyers are usually paid on a contingent fee basis.

Defense lawyers are usually paid on an hourly rate basis. It requires little thought to see how such a system could actually lead to more conflict rather than conflict resolution.

In the next column we will deal with the transition of law from being primarily focused as a profession to being primarily operation of a business. Unfortunately the more effective the business of law practice becomes, the more ineffective it is in achieving the optimal conflict resolution for the benefit of all of society. The successful operation of the legal business creates a need for conflict in order to satisfy the economic needs of the legal business.

When law- the rules of conduct- actually work; they prevent conflict. But the absence of conflict does not support the business of law practice.