This research originated from a request that the American Bar Foundation provide information to the Chicago Bar Association's Committee on the Development of the Law in its study of the Association's “role and purpose.” The resulting research by the Foundation is much broader than that originally contemplated in our early conversations with the Committee, and it now constitutes a major study of the Chicago legal profession and its relation to the organizations that represent it A significant part of the study, however, has been addressed to the CBA's concerns, and this article was originally prepared as a report to the Committee. It is being published because we believe that its findings and analyses will be of wider interest. The form of the article remains that of the report to the Committee, though it has been revised for publication.

Employee pension and welfare plans first appeared in the United States well before the turn of the century, but rapid growth began only in the 1940s, when wartime wage controls, coupled with favorable tax rules, encouraged fringe benefits as a substitute for wage increases. The plans have attained awe-inspiring dimensions since World War II: The Department of Labor estimates 750,000 pension plans and 1,050,000 welfare plans, covering about 35 million persons, with total assets of the pension plans alone growing from $2.4 billion in 1940 to more than $150 billion in 1973. In 1971 the 50,000 largest welfare plans, those with 100 or more participants, paid benefits in excess of $15 billion. But legal service plans, among the most recent of welfare plans and the subject of this study, are still experimental and small; they involve no great amount of resources.

Recent efforts to implement prepaid legal services plans have raised antitrust questions, and the objective of this article is a systematic analysis of those questions and the problems to which they lead. After an introduction to prepaid legal services plans that sets the factual background, a number of specific antitrust problems will be examined: jurisdictional issues, the exemption for state action, minimum price fixing, joint ventures, maximum price fixing, discrimination against certain types of plans, and exclusive dealing problems. Finally, prepaid legal services plans will be examined in light of the McCarran-Ferguson Act exemption of the “business of insurance” from antitrust coverage which, in turn, will necessitate a look at existing and potential state regulatory control over prepaid legal services plans.

The legal profession is currently the subject of controversy and criticism. Individual attorneys are often described as unethical and incompetent, while the bar is portrayed as politically partisan, captive of economic interests, and unresponsive to the public interest. Public opinion polls document disrespect for attorneys as a group. Local and national scandals highlight criminal acts of prominent attorneys. The cost, quality, and availability of legal services are matters of public debate.

The common question class action has been a source of division and controversy in the legal community. Hailed by its proponents as both a means for small claimants to obtain redress and a deterrent to corporate wrongdoing, the class action has been attacked by others as tantamount to “legalized blackmail” and as threatening to swamp the already overburdened judicial system with proceedings of extraordinary complexity. Two empirical studies of the class action have also reached diametrically opposed conclusions. A study by the American College of Trial Lawyers found that the common question class action suit “has mandated heavy expenditures of judicial time, effort and expense” and has sacrificed “procedural and substantive fairness to the party opposing the class,” while a study commissioned by the Senate Commerce Committee found that most class actions “proceed with reasonable smoothness in the Federal court.” Proposals to restrict the use of class actions have been advanced. While these proposals have not been adopted, the courts have increasingly limited the circumstances under which class actions may be maintained.