By Samson Habte
The Florida Supreme Court on May 3 rejected a controversial proposal—supported by state bar leaders but opposed by some of the most successful legal technology startups—that would have subjected companies in the burgeoning “legal matchmaking” industry to regulation by state bar authorities ( In re Amendments to the Rules Regulating the Fla. Bar - Subchapter 4-7 (Lawyer Referral Servs.) , 2017 BL 147366, Fla., No. SC16-1470, 5/3/17 ).
Citing “rapid developments and changes in technology, and the proliferation of online matching services in recent years,” the bar said “the definition of lawyer referral service should be broadened to encompass the widest variety of service providers operating to match lawyers with prospective clients.”
The court reviews its rules of practice and procedure every four years, and the state bar, which plays an advisory role in those quadrennial proceedings, made the now-rejected proposal in an August 2016 petition.
Legal academics and consultants who track business trends in the legal services market told Bloomberg BNA that the proposed rule changes could have subjected some of the most disruptive industry startups—including LegalZoom, RocketLawyer, UpCounsel and Avvo—to a host of regulatory requirements that may have increased their operating costs or required them to revise plans to plow resources into the legal matchmaking sector.
Lawyers who appeared before the court on behalf of companies opposed to the rule changes told Bloomberg BNA that the bar’s now-rejected August 2016 petition may have caught the high court by surprise.
The court and the bar had been considering changes to lawyer referral rules for several years, and in September 2015—less than a year before the bar filed its petition—the court directed the bar’s board of governors to come up with proposed amendments that would have prohibited lawyers from accepting client leads from any lawyer referral services owned by nonlawyers.
In that order the court focused heavily on one category of legal matchmakers: companies that refer personal injury clients to lawyers and medical clinics, and are owned by medical professionals who also own many of those clinics.
The court said prohibiting lawyers from accepting client leads from nonlawyer-owned referral services would resolve a host of problems allegedly associated with those medical-and-legal referral companies.
The bar didn’t do what the court asked. Instead, it proposed more ambitious changes that would affect a number of companies that do not fit the traditional definition of “lawyer referral service.”
In its May 3 order, the court rejected those proposals, dismissing the bar’s petition “without prejudice to allow the members of this Court to engage in informed discussions with the Bar and those who are in favor or against the proposed regulation of matching and other similar services.”
Timothy P. Chinaris, an attorney who represented 1-800-411-PAIN Referral Service LLC in these rulemaking proceedings, said he thinks “the court realized that they need to look at this a little more deeply.”
Chinaris noted that the proceedings were initially focused on referral companies that focus exclusively on personal injury matters, which is just a “narrow slice of what’s going on in the client procurement arena.”
“But then the bar started looking at a number of online services that [connect lawyers and clients] in personal injury and other areas and do so in a lot of ways they weren’t used to seeing—like doing so for a portion of the legal fee [or] doing so through online mechanisms,” Chinaris said.
“I think what happened was the court was genuinely surprised … when the bar shifted gears,” Chinaris told Bloomberg BNA.
The court’s dismissal of the bar’s petition drew cheers from Josh King, the chief legal officer at Avvo.
“If you have regulations constraining the ability of [companies] to provide information to consumers about legal issues, it’s fundamentally bad for the public,” King told Bloomberg BNA.
King said that the bar’s proposed rule changes, if adopted, would also have been vulnerable to attack on First Amendment and perhaps antitrust grounds.
He also said that bar regulators who back such reforms have a “huge blind spot” because “none of them take into account the access to justice issues” involved.
“And none of them take into account the First Amendment issues and constraints that should govern their approaches to these issues,” King said.
King was allotted time to speak during oral arguments the court held in April to hear from supporters and opponents of the proposed rule changes.
No other legal startups intervened in the proceedings. But lawyers and academics who study business trends in the legal sector say the issues at play in the Florida rulemaking hearings are significant because of the potential size of the market for legal marketing.
“Virtually every big player in the market—including LegalZoom, which started as competition for lawyers—is now in the business of trying to find clients and connect them to lawyers,” University of Tennessee law professor Ben Barton said in an interview.
"[I]t’s absolutely clear to me that [Avvo and LegalZoom] see this as a significant growth opportunity and a major market inefficiency,” Barton told Bloomberg BNA. “There’s a whole bunch of lawyers who don’t have enough work, and there’s a whole bunch of potential clients who want to pay as little as possible for work or are scared to go see a lawyer, and these companies want to connect those people together and then take [some] of the gravy.”
Jordan Furlong, an analyst of the global legal market and business consultant to law firms around the world, echoed those sentiments.
“I think there is tremendous market opportunity and demand for any platform that can reliably and efficiently connect people who need legal solutions with [the] people or in some cases the processes offering those solutions,” Furlong told Bloomberg BNA.
Lawyers for parties involved in the rulemaking proceeding said it's difficult to predict what the court will do next.
Some said it wasn’t even clear whether the justices had abandoned their earlier directive instructing the bar to develop rule changes that would prohibit lawyers from taking client leads from referral services owned by nonlawyers.
Chinaris, the lawyer for 1-800-411-PAIN Referral Service LLC, said he thinks that “what they’re going to want to do is—hopefully through a less adversarial process—gather [more] information” about these issues.
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