Legal Regulatory Sandbox Could Incubate Innovation in Washington

Judiciaries in Washington and other states are wrangling over how the practice of law can catch up with rapidly evolving demand and new technology. The answer might come in a Legal Regulatory Sandbox proposed by the Washington Supreme Court’s Practice of Law Board.

Imagine a website that could guide people through contesting traffic infractions. More often than not drivers just pay the fine and forfeit their day in court to avoid the hassle. The online service might explain legal procedures and provide documents, or it might refer their case to a licensed attorney. Under current rules, gaining full authorization for such a practice can take years, if authorized at all.

According to its designers, the Legal Regulatory Sandbox could serve as a springboard for innovative online legal services and alternative business models, such as a solo practitioner who wants to afford a paralegal by offering them a 10 percent stake in the practice. The sandbox, or laboratory, aims to provide new alternative legal services to those who otherwise could not afford or access traditional legal representation. It would create a process to regulate and test new ideas with a streamlined Supreme Court authorization process.

Practice of Law Board Chair Michael Cherry met with the justices of the Washington Supreme Court on July 1 to present a blueprint—a plan for the Legal Regulatory Sandbox. Under the blueprint, the court would grant participation in the sandbox based on balancing the risk of consumer harm with the potential to improve access to justice. Supreme Court orders would authorize participating online legal services and alternative business structures to practice law in Washington for a two-year trial period as part of the sandbox, with the possibility of ongoing authorization to practice after showing there is no harm to consumers.

“The goal is to regulate the practice of law even for people working in the Legal Regulatory Sandbox,” Cherry told NWSidebar. For example, legal ventures such as a new legal-document software system for property management or a new business model led by nonlawyers could be authorized to work in the legal regulatory sandbox, said Cherry, who worked in technology for years before becoming a lawyer. “We’re very serious about thinking through how the court determines who gets to participate in the sandbox.”

Many online legal services operate on the assumption that they can practice in Washington if they comply with a set of conditions laid out in an Assurance of Discontinuance in Thurston County Superior Court. The court there issued the Assurance of Discontinuance following former Attorney General Robert McKenna’s investigation of LegalZoom in 2010. McKenna alleged LegalZoom had engaged in an unauthorized practice of law and used deceptive business practices involving costs and benefits of its services. The Assurance of Discontinuance is a legally binding agreement with conditions under which LegalZoom can practice. It includes LegalZoom’s promise “to review and offer to adjust any customer charge where the customer articulates concerns that are the subject of any prohibited practice identified in this Assurance of Discontinuance or are otherwise alleged to be unfair and deceptive, whether directly from a customer or from another person on the customer’s behalf.”

By participating in the Legal Regulatory Sandbox, Cherry said, new online legal services will have full authorization, which could attract investors in nontraditional legal services.

“It’s a carrot-and-stick approach,” Cherry said. “I believe the stick is that if we have this mechanism for people to go through and they choose not to, the Practice of Law Board can refer people offering new services outside the Legal Regulatory Sandbox for unauthorized practice of law to the appropriate enforcement agencies. We [the Practice of Law Board] also have to educate the public about the unlawful practice of law.”

For law firms looking to expand legal services through partnerships with people who are not lawyers, such as paralegals, financial advisors, or software developers, the sandbox provides a regulated and accountable environment for innovations to get off the ground, he said. And it ensures those innovations are serving more than just those who can afford traditional services.

“Innovation is not a bad thing in and of itself,” said Justice Barbara Madsen during the July 1 meeting with Cherry and Washington State Bar Association President Kyle Sciuchetti. “But we need the access-to-justice component.”

The Practice of Law Board worked with the Access to Justice Board to model its proposed sandbox on a similar one launched by Utah’s Office of Legal Innovation in August 2020. A major difference is that Washington’s approach includes the potential for enhanced access to justice as a requirement for participation. In the Practice of Law Board’s blueprint, participants must also provide the board with data showing their service’s effectiveness.

The proposed sandbox would be funded by a participation fee of $3,000 to $5,000 and possibly grants if the program is found eligible. Nonprofit applicants could participate at reduced cost or no cost. Utah’s sandbox is funded mainly by grants.

So far, Utah’s initiative is showing promise, Cherry said. Of the 26 participants in Utah’s sandbox, most were found to pose low or moderate risk of harm to consumers; 4 percent were determined high risk. More interesting, he said, was who applied to participate.

“Surprisingly, or at least surprising to the Practice of Law Board,” Cherry said, “most participants are law firms exploring alternative business structures. Several are software providers that do document completion or provide other legal services without a lawyer’s involvement.”

In calculating an applicant’s risk of causing consumer harm, Utah developed a formula focused on three categories of risk: inaccurate or inappropriate legal result, failure to exercise legal rights through ignorance or bad advice, and purchase of unnecessary or inappropriate legal service. Cherry said the board’s sandbox blueprint follows Utah’s approach for assessing harm with the addition of considering the consequences of harm.

“We’re spending a lot of time thinking about harm,” Cherry said. “Essentially the service [must be] no more likely to cause harm than the individual acting on their own.”

Cherry said the Practice of Law Board factored in the potential conflict of a Legal Regulatory Sandbox Board composed of lawyers charged with granting or denying nonlawyer participation in the sandbox. The blueprint includes a panel of lawyers and nonlawyers charged with accepting applications.

The Practice of Law Board plans to meet again with the Supreme Court in September to ask for its approval and a court order to launch the Legal Regulatory Sandbox.