Regulatory Barriers to the Growth of Multijurisdictional Virtual Law Firms and Potential First Steps to Their Removal

• Publication year: 2011

NORTH CAROLINA JOURNAL OF LAW & TECHNOLOGY 13 N.C. J.L. & TECH. ON. 165 (2012)

REGULATORY BARRIERS TO THE GROWTH OF MULTIJURISDICTIONAL VIRTUAL LAW FIRMS AND POTENTIAL FIRST STEPS TO THEIR REMOVAL

Stephanie L. Kimbro*

The spread of disruptive technologies to the legal profession is changing the dynamic of how law firms are structured as well as the value propositions associated with the delivery of legal services. The number of law firms with a national presence has grown due to the cost benefits and efficiency of using cloud computing. New models for expansion across jurisdictional boundaries are increasing. However, the regulatory barriers to create these new firm structures are numerous and costly. This paper reviews the evolution of technology in multijurisdictional firms and examines the primary regulatory barriers to their further development. A starting point for standardization of regulations is proposed as well as potential first-steps to removing barriers to the growth of multijurisdictional virtual law firms.

1. INTRODUCTION

   New methods of providing legal services online through the use of technology, specifically cloud-based applications, in law practice are adding to the growth of multijurisdictional law practices (“MJP”) in the United States.1 Many of these practices are also virtual law firms, which may or may not have fixed

   
   

   * Stephanie L. Kimbro, M.A., J.D., is the co-founder of Virtual Law Office Technology, LLC (VLOTech), which was acquired by Total Attorneys in the fall of 2009 and the owner of Kimbro Legal Services, LLC, a North Carolina virtual law office.

   1. The author of this article is aware of the growth of international multijurisdictional practice and the breadth of scholarship on that topic, but will

      instead focus this article on the more recent growth of multijurisdictional law

      firms within the United States. These firms have spread from being limited primarily to larger law firms and now include solo, small, and medium sized firms.

      165

      
      

      geographic locations or be bound by geographic borders.2 The primary difference between a MJP and a virtual practice is that attorneys in a virtual firm deliver legal services to clients directly over the Internet and communicate with firm members, co-counsel, and in some cases opposing counsel, through secure online interfaces.3 Because the delivery of legal services is online and the structure of the firm may not be physically tied to a single geographic location, ethical issues unique to this model may arise.4

      The spread of disruptive technologies to the legal profession is changing the dynamic of how law firms are structured, and it is also changing the value propositions associated with the delivery of legal services to the public.5 The growth of law firms with a national presence is increasing due to the cost benefits and increased efficiency of using cloud computing. 6 These factors encourage firms to adopt new models for expansion across jurisdictional boundaries.7 Not only are larger law firms engaging in MJP, but smaller and medium-sized firms are also able to use

      
      

   2. Law firms that do not maintain a physical law office locations are sometimes referred to as “pure-play” virtual law office models, while law firms that maintain brick and mortar law offices for business purposes and integrate virtual law offices into the structure of their practice for the purpose of delivering legal services online and collaborating with firm members are referred to as “hybrid” virtual law offices.

   3. See, e.g., Mary C. Daly, Resolving Ethical Conflicts in Multijurisdictional Practice—Is Model Rule 8.5 the Answer, an Answer, or No Answer at All?, 36

      S. TEX. L. REV. 715, 719–20 (1995).

   4. See id.

   5. See generally RICHARD E. SUSSKIND, END OF LAWYERS?: RETHINKING THE

      NATURE OF LEGAL SERVICES 93–98 (2008) (discussing the impact of disruptive technology on the legal profession).

   6. See NAT’L INST. OF STANDARDS AND TECH., THE NIST DEFINITION OF

      CLOUD COMPUTING 2 (2011), available at http://csrc.nist.gov/publications/nist pubs/800-145/SP800-145.pdf.

   7. See generally Catherine A. Rogers, Lawyers Without Borders, 30 U. PA. J. INT’L L. 1035 (2009) (discussing the effects of Rule 8.5 on international law

      firms); Carole Silver, What We Don’t Know Can Hurt Us: The Need for

      Empirical Research in Regulating Lawyers and Legal Services in the Global Economy, 43 AKRON L. REV. 1009 (2010) (discussing the effects of new regulations on cross-border practices).

      
      

      technology to participate in the global economy.8 In addition to changes being implemented by firms, clients are demanding that their law firms use cloud computing as a form of cost savings and convenience.9

      While larger law firms have exchanged information with clients through extranets for years, these interactions are based on a virtual private network (“VPN”) where clients are able to access portions of their files and communicate with attorneys through the firm’s network.10 More recently, some law firms have developed customer client portals that operate through the use of cloud computing and, more specifically, through the use of one form of cloud computing known as Software as a Service (“SaaS”).11 The use of a client portal is common in banking and other industries where online communication must be handled in the most secure environment with the user creating their own unique username and password and communicating through an encrypted portal.12 With this method, data transmitted through the client portal is stored by a third-party company on servers housed in its data centers around the United States or located in other countries.13 The sharing of

      
      

   8. See infra Part II–III (discussing MJVFs of various sizes). See generally Carole Silver, Regulatory Mismatch in the Market for Legal Services, 23 NW. J. INT’L L. & BUS. 487 (2003).

   9. See generally STEPHANIE KIMBRO, SERVING THE DIY CLIENT: A GUIDE TO

      UNBUNDLING LEGAL SERVICES FOR THE PRIVATE PRACTITIONER 4 (2011),

      available at http://www.mcgeorge.edu/Documents/centers/government/Ethics/ Kimbro_Serving_the_DIY_Client_Ebook_2_10_11.pdf.

   10. See Stephanie Crawford & Jeff Tyson, How VPNs Work, HOWSTUFFWORKS, http://www.howstuffworks.com/vpn.htm/printable (last visited Mar. 13, 2012).

   11. See NICOLE BLACK, CLOUD COMPUTING FOR LAWYERS 156–57 (2012).

   12. See Robert S. Ellinger, Service-oriented Architecture and User Interface Services: The Challenge of Building a User Interface in Services, NORTHRUP

       GRUMMAN TECH. REV. J., Spring/Summer 2007, available at

       http://www.is.northropgrumman.com/about/ngtr_journal/assets/TRJ-2007/SS/07 SS_Ellinger.pdf; Stephen T. Taylor, Cloud Computing is Slowly Making Inroads into the Legal Profession as Security Worries Begin to Wane, 30 OF COUNSEL 1, 2 (May 2011).

   13. Michael D. Scott, SCOTT ON INFORMATION TECHNOLOGY LAW § 14.03

       (2011), available at Westlaw SOITL § 14.03.

       
       

       data with third parties not associated with the law firm raises new ethics issues.14

       Attorneys in the United States are subject to compliance by fifty-one different jurisdictions, each with differing rules and regulations regarding the use of technology in law practice.15 If a lawyer attempts to practice law in more than one state, he or she must juggle the regulations of multiple state bars and regulatory entities. 16 Many times, the rules themselves are vague or not updated to reflect the realities of cloud computing and ecommerce.17 Only a few states have published ethics opinions specifically related to cloud computing or third-party hosting of law office data. 18 For a law firm that wants to create a multijurisdictional practice, the barriers may be numerous and costly to meet multiple state compliance. 19 Accordingly, traditionally only large firms have been successful at creating MJPs because current rules tend to favor large firms. 20 While nonlawyer owned legal service providers, such as LegalZoom21

       
       

   14. See infra Parts II–III.

   15. Id. at 722.

   16. Id.

   17. For example, most states have published ethics opinions related to the use of unencrypted email and several have addressed hidden metadata in electronic

       communication. See, e.g., ABA Standing Comm. on Ethics and Prof’l

       Responsibility, Formal Op. 99-413 (2010); Alaska Bar Assoc. Ethics Comm., Ethics Op. 98-2 (1998); D.C Bar, Op. 281, available at http://www.dcbar.org/ for_lawyers/ethics/legal_ethics/opinions/opinion281.cfm.

   18. See Mass. Bar Ethics, Op. 05-04 (2005), available at

       http://www.massbar.org/publications/ethics-opinions/2000-2009/2005/opinion- 05-04; Me. Bd. of Overseers of the Bar, Formal Op. 183 (2004), available at http://www.maine.gov/tools/whatsnew/index.php?topic=mebar_overseers_ethics

       _opinions&id=89459&v=article.

   19. See Daly, supra note 3 (stating “[t]he likelihood of conflicts among professional standards has increased considerably as a result of the

       modifications made by individual states in adopting the Model Rules of

       Professional Conduct.”).

   20. Id. at 727–28; Stephen Gillers, Lessons from the Multijurisdictional Practice Commission: the Art of Making Change, 44 ARIZ. L. REV. 685, 697

       (2002) (explaining how ABA Model Rule 7.5(b) benefits larger firms in terms of expansion across jurisdiction).

   21. LEGALZOOM, http://www.legalzoom.com (last visited Feb. 2, 2012).

       
       

       and Rocket Lawyer,22 face the risk of unauthorized practice of law, they may not have the same restrictions in their ability to provide basic legal documents, forms, and guidance to the public across the country.23 Often attorneys and law firms are not sure where to turn when faced with contradictory regulations regarding the setup and operation of a cross border law practice.24

       Taking questions to a formal ethics committee for review at the state level may take a year or more and may result in an opinion that fails to provide practical guidance.25 Approaching malpractice insurance carriers about the issue may produce a similar result, a risk of losing coverage, or additional hurdles to jump through to obtain coverage.26 Some firms—solo or small firm practices in particular—are operating despite the lack of clarity and may need to go to greater lengths to find a

       ...