Regulatory Barriers to Virtual Law Practice

by Darryl Mountain   January 14, 2011

As an active participant in the eLawyering task force of the American Bar Association, I have volunteered to compile a list of the types of regulations that inhibit the growth of virtual law practice. In a world plagued by access to justice issues, these regulations add to the cost of operating a virtual law practice and can make it economically unfeasible to do so, particularly for solos. I am not advocating the wholesale demolition of ethical rules but I would like to point out areas of regulation that need to be rethought in the modern context, as they are impeding innovation in their current form. As Canadian law professor David Vaver said (in relation to Crown copyright), “The smell of the crumbling pages of 17th century law reports hangs over the dancing pixels on the electronic highway.”

Special thanks goes to Stephanie Kimbro and other members of the task force for their assistance.

Here is the list.

1. New Jersey has a "bona fide" office rule that requires you to have a physical office in the jurisdiction. One of the pioneers of virtual law practice, Richard Granat practices Maryland law from his office in Florida. If he instead wanted to practice New Jersey law, he would be stopped in his tracks. Kimbro states that this appears to be the “old regime” trying to protect their traditional ways of operating and their market share and thereby limiting access to justice. 

Other states, such as Delaware, Florida, Louisiana, Michigan, Missouri, New York, and Texas, also place office location restrictions on members of their bar associations.

2. Jurisdictions need to adopt rules that address the provision of unbundled legal services and limited scope representation. Generally speaking, ethical rules do not prohibit limited scope representation: they simply fail to mention it at all. Virtual law practice by its very nature consists of limited scope representation because lawyers are limited in what they can do for clients without physically meeting with them. Clients will need to do some things on their own, such as arrange to have their wills executed and witnessed. According to Kimbro, “ There are such specific checklists for each practice area when you are unbundling different types of cases that I think there need to be ethics requirements, especially with regard to things like authorship on ghostwritten pleadings.”
3. Cloud computing regulations are on the horizon in several U.S. states that treat the digital space differently from the physical world. For example, the ABA 20/20 Commission is proposing to change Model Rule 5.3 to lump cloud computing together with outsourcing and require notice and consent to clients and supervision of cloud computing providers. Kimbro asserts that existing ethical rules are sufficient and states, "I don't need amended rules or comments to figure out how the rules translate with the technology." She believes that guidelines and best practices are what is needed instead of regulatory changes.
4. Lack of uniformity among U.S. state trust accounting and advertising rules makes compliance difficult. One attorney licensed in California and North Carolina has created two separate virtual law office websites to make sure that he doesn’t get in trouble with the respective state bars for misleading advertising or unauthorized practice of law. 

There are issues in other countries, as well. The Australian states of New South Wales and Queensland ban most advertising relating to personal injury legal services, so virtual law practice is pretty much out of the question in this field. New South Wales also has trust accounting rules that make it costly and difficult to accept credit card payment in advance for legal services. This is in contrast with U.S. and Canadian jurisdictions that have exempted virtual law practices from trust accounting rules because of the small amounts of money involved.

5. Temporary and permanent mobility rules form another barrier. Ideally, a virtual law practice could operate in a discrete area of practice in multiple jurisdictions without having to have a different qualified lawyer in each jurisdiction. 

The U.S. bar admission rules make it difficult for lawyers qualified in one state to requalify in another state and there is no meaningful ability to practice the laws of another state temporarily. This creates problems in the context of virtual law practice. For example, a patent attorney can handle the client’s patent, trademark, and copyright needs from across the U.S. but then can’t draft a state-specific contract for that client without the approval of an attorney licensed in that state.

It is relatively simple for Canadian lawyers to requalify in other provinces, but costly, due to extra insurance premiums and bar admission fees. In terms of temporary mobility, lawyers in Canada are permitted to practice for up to 100 days in other Canadian provinces but they are not allowed to hold themselves out as qualified or willing to do so. It must happen incidentally while they are doing work for an existing client. Australian lawyers have greater temporary and permanent mobility and Australia is moving toward national regulation of the legal profession. 

Operating a virtual law practice from outside your home country is an even more difficult proposition. A Canadian lawyer operating a virtual law practice in New South Wales would have to register as a foreign legal consultant and comply with New South Wales trust accounting rules. Because New Zealand lawyers can practice in Australia without requalifying, it is actually much easier for a New Zealand lawyer to practice Australian law through a virtual law practice than for, say, a California lawyer to practice New York law.

6. U.S. and Canadian jurisdictions have rules that prohibit fee sharing with non-lawyers. These rules mean that a virtual law practice that licenses automated documents from a third party provider cannot pay the provider a percentage fee per document generated. The virtual law practice also cannot pay percentage-based referral fees to third parties who bring in business online.
7. Under the Patriot Act, the U.S. government can access data hosted on U.S. servers to investigate domestic or international terrorism (a) with prior court approval or (b) by administrative subpoena to the Internet Service Provider without prior court approval. There is no statutory requirement that the hosting provider notify the lawyer of any data requests prior to producing the data. Any such notification requirement needs to be written into the contract between the lawyer and the hosting provider.

Although the risk is minimal, these rules have made some lawyers outside the U.S. reluctant to use cloud-based services that are hosted in the U.S. However, they often have little practical choice.

8. Canadian client verification rules that were enacted to combat money laundering make it difficult to open a virtual law practice in a field such as conveyancing that involves financial transactions. These rules require the lawyer to take steps to verify the client’s identification using independent source documents and then to keep copies of those source documents. This would make it complicated to operate a virtual conveyancing practice such as Australia’s ozpropertylaw.com. Other jurisdictions have procedures that verify purchaser and borrower identification without putting the burden on the lawyer.
9. U.S. and Canadian jurisdictions have rules that restrict law firms from raising outside capital (in contrast to the UK and Australia). These rules make it difficult for virtual law practices to achieve economies of scale so that they can emerge from “cottage industry” status. Non law firm competitors such as LegalZoom face no such restrictions.
10. Crown copyright in statutory forms in Commonwealth countries such as the UK, Canada, and Australia makes it difficult to gain permission to offer automated statutory forms from a website. Statutes, cases, and statutory forms are in the public domain in the United States and this has not resulted in any noticeable adverse effects in that country.