LegalZoom Sued for Unlawful Practice of Law in Missouri

LegalZoom is being sued in Missouri on the grounds of unauthorized practice of law and the plaintiff’s are requesting class certification. To give an example of how popular LegalZoom‘s services have become, LegalZoom in its petition for removal to Federal court claims that it has served over 14,000 Missouri residents in a five year period, generating over $5,000.000 in sales. Missouri is a relatively small state, so you can get some idea of what kind of business LegalZoom is doing nationwide. No wonder the legal profession is getting nervous and starting to pay attention to this disruptive player in the legal industry.

A good discussion of the case can be found on the IPWatchdog Blog in an article by the Blog’s Founder Gene Quinn and at 95years.

Click here for a copy of the Missouri Complaint, LegalZoom‘s petition for removal to Federal court, and a copy of a letter from the North Carolina Bar requesting that LegalZoom Cease and Desist from operating within North Carolina because it is violating North Carolina’s UPL statute when it prepares incorporation papers.

In its defense, LegalZoom in its removal petition, claims that it is:

“a company whose principal business consists of providing an online platform for customers to prepare their own legal documents. Customers choose a product or service suitable to their needs and input data into a questionnaire. Where applicable, the LegalZoom platform then generates a document using the product and data provided by the customer.”

It this were the case, LegalZoom would be functioning only as a “scrivener” transcribing the client’s information into a form. It is well established in some states, including California, where LegalZoom is based, and also Florida for example, that non-lawyers, often called “legal technicians” can help consumers prepare legal documents, as long as they don’t give legal advice.

The question of whether LegalZoom‘s staff do more than they say, and actually provide legal advice, even if it is limited legal advice, is a question of fact to be determined. It would be interesting to see what the discovery process turns up and what the LegalZoom, “platform” actually does and how it works.

For comparison, We the People, a retail chain of 35 “Legal Document Preparation stores operating in six states, operates under the same principles. Customers complete paper questionnaires which are faxed to a central processing center where a technician simply inserts the client’s data into a desktop document assembly program which generates a form. (This is the same process that many lawyer’s use, except lawyers provide legal advice and analysis). This document preparation process is essentially the same as LegalZoom‘s except that it takes place off the Internet through a network of retail stores. We the People has been attacked by the Bar in several states for UPL, but the company has worked hard to assure bar authorities that its staff and franchisees don’t provide legal advice.

In theory, We the People, stores are able to reach a market of customers that do not have Internet access and prefer to deal with a human being directly. This market base is likely to have even lower incomes, and ignored by both attorneys as a target market, and have too much income to qualify for legal aid. Ironically, however, the We the People pricing is even higher than the LegalZoom pricing, probably because of the cost of maintaining a retail location. Yet the remaining We the People stores, ( down from a high of 140 stores), seem to be sustainable, if not thriving.

Both companies provide a needed service in the sense that they provide an alternative to consumers who are willing to invest their own time and resources to make sure that the forms offered are the correct forms for their particular situation. Neither company can advise a consumer about what form they should use for their situation, as that would be a form of legal advice. Consumers may be taking a risk when they buy from a self-help document preparation forms company, but it seems this is a risk that consumers are willing to take to avoid what are perceived by many as high legal fees for the same transaction. For these consumers, what they get is a “good enough” result at a price they can afford.

The other reality is that it is deceptive for LegalZoom and We the People , to claim that using their services will save hundreds or thousands of dollars in legal fees, when two very different category of services are being compared:

• one a legal information service;
• and the other a true legal service from a licensed attorney.

The content of the services are fundamentally different and to compare the services to each other is like comparing “apples’ and ” oranges”.

Sometimes you get the same legal result when you use a document preparation service, but often you don’t. Apart from UPL issues, it seems to me that this is a misrepresentation in advertising and these claims should receive closer scrutiny from state consumer protection agencies. (Although I am sure that many of LegalZoom‘s satisfied customers would say that they don’t need any protection).

Both companies demonstrate the principle that you can solve certain legal problems by having access to “legal information.” Legal information by itself is a problem solver for many consumers, and the access to legal information and legal forms on the Internet, has simply accelerated this trend at a much faster rate in the last five years than the self-help law book industry has been able to accomplish in 30-35 years of its existence. This means that lawyers will have to do more to demonstrate their value to the consumer, particularly solos and smaller law firms that serve the broad middle class.

A better solution for consumers, as we have advocated in these pages, is for attorneys to offer legal forms bundled with legal advice at an affordable price, perhaps slightly higher than LegalZoom, but offering much greater value, over the Internet. This is often called “unbundled legal services,” enabling a consumer to purchase just the legal services they need, and no more.

Using virtual law firm technology, like DirectLaw’s virtual law firm platform, lawyers can be even more efficient that the LegalZoom or We the People models, because the entire document assembly process is software driven creating a legal document instantly from the user’s input, ready for the lawyers further review, drafting, and advice-giving. The increased productivity that results from a web-enabled document automation process enables the lawyer to offer a very price competitive service that in fact offers more value. The value of each sale is lower, from the attorney’s point of view, but volume can be much higher if effectively marketed. (Neither LegalZoom nor We the People have such a technology in place. No wonder their prices are so high for what you get!).

As long as the legal document preparers don’t give legal advice, they should be able to coexist with the legal profession, for certain kinds of common legal transactions, but not all.

But lawyers will have to work harder to provide their value and start offering true legal services online over the Internet. Driving non-lawyer legal document preparers out of business on UPL grounds is not an answer. At the end of the day prosecution efforts, will seem to the consuming public as just another attempt by the legal profession to maintain high legal fees for common transactions, while avoiding the cost of innovation.

[thanks to neubie and richard granat via cc]

LegalZoom and the Rise of Online Legal Self-Help

Rick Georges, a member of Team Shlep, had an interesting posting last week at his Future Lawyer weblog about LegalZoom Online, which calls itself a “Legal Documentation Service.”   Saying “We can help you take care of common legal matters – without an attorney,” LegalZoom explains that you can ”Save time and money on common legal matters! . . . [and] create reliable legal documents from your home or office. Simply answer a few questions online, and your documents will be prepared within 48 hours.* We even review your answers and guarantee your satisfaction.”  (via Oregon Legal Research, Jan. 17, 2007)

After taking a look at LegalZoom, Rick says “lawyers who don’t use technology will not be able to compete.”  He explains:

“We need to offer legal advice AND document drafting at a competitive price, or we will not have to worry about law practice anymore. It will be gone. There is no subsitute for a competent lawyer’s advice. However, we need to give the public value, or they will go elsewhere.”

Many publications have written about LegalZoom, but Rick’s nudge got me to spend some time at the website over the weekend.   It is an impressive enterprise, offering document creation services in the following areas: Copyright, DBA, Divorce, Immigration, Incorporation Services, Limited Partnership, Living Trust, Living Will, LLC, Name Change, Patent, Power of Attorney, Pre-nuptial Agreement, Real Estate Leases, Small Claims, Trademarks, Will.

Furthermore, the advantages that they boast about — reviewing your answers for correctness and completeness; having assistance available at a tollfree number; using advanced provisions that are not found in simple “do-it-yourself” kits or manuals; printing out the documents themselves on good paper stock; “per project” and “lawyer-free” pricing that is far below what a lawyer might charge using hourly fees (they say up to 85% and give an estimate of the savings for each service); and a 100% Satisfaction Guarantee — would surely appeal (if only they knew about it) to many legal consumers who want to save money and keep control of the project, but are wary of, or don’t have time for, acting on their own.

LegalZoom also has an Education Center/Library, that “allows you to access the information you need to research your legal questions and make informed decisions” (e.g., FAQs, Legal Topic articles, Glossary, and Non-Legal Resources).  For example, see the Prenuptial Library.  The materials are available to anyone and seem like helpful introductions to the many topics covered.  In addition, you can fill out the LegalZoom questionnaire for each procedure for free and “At the end, you may decide whether or not you wish to purchase.”   That process may help many consumers decide whether they can go it on their own — using forms and information prepared by a court or by a self-help publisher — and/or need the direct advice or (unbundled) services of a lawyer.

I can’t endorse LegalZoom as a product, but I can say that it appears to be worth considering by consumers who need lawyering services.  The apparent success to date of LegalZoom is, I believe, an important milestone in the market for legal services.  Americans like to use a product or service that they have heard about and that has a track record; and entrepeneurs are much more likely to enter the market with competiing services (perhaps focused on a particular state or legal subject) if they see a model that works.   As Rick Georges suggests, lawyers — especially those serving the everyday, common legal needs of the average consumer or small business — may find themselves at a great disadvantage if they do not figure out a way to offer comparable value to their clients (in service, results and price).  Document-creation technology will surely be a part of that value package, allowing fees to be lowered because far less time will be spent with each client.

Having said that, I am not at all certain that the change — a revolution that brings true price and service compeition to the lawyering marketplace, and creates more viable choices for consumers – will benefit a large percentage of consumers any time soon.  Under the fold, I have excerpted a posting from my weblog f/k/a, ”Internet Lawsites Encounter the Profession’s Guild Mentality“ (Sept. 16, 2003) that discusses why the legal profession’s “guild mentality” has kept if from adopting new techology and responding to competitive forces, as lawyers try to hold on to income, control, and status, in the face of a new breed of consumer. Excerpts from “Internet Lawsites Encounter the Profession’s Guild Mentality,” Sept. 16, 2003, at the ethicalEsq-f/k/a weblog:

. . . [M]y experience looking at learned professions from the competition-consumer perspective tells me that the real culprit [in the failure of websites offering legal services] is the historic “guild” mentality, which fears and opposes virtually every type of innovation in services or marketing.  This is especially true if most guild members see themselves as threatened with the loss of business and income, the need to become more efficient, or the pressure to engage in price or quality competition.  In addition, in the last few decades, doctors and lawyers have been most reluctant to cede their position of unquestioned authority to mere consumers.   (see our posting on Sept. 4, 2003, discussing the new breed of client and unbundling) . . . .

I’m not saying that there will never be a financially viable format for delivering legal services online.  I am say, however, that expecting a broad and significant amount of interest from the bar or its members is unrealistic.   Most likely, individuals or small groups of lawyer-entrepeneurs will have to carve out target markets of consumers and attract them to their sites.  Piggy-backing on the self-help services of courts — by offering complementary unblundled services — might be a good place to start.  Just remember: the guild won’t make the efforts easy. . . . .

P.S. Sherry Fowler (a/k/a Scheherazade) at Civil Procedure Stay of Execution . . . left a Comment worth sharing here on the Home Page:

There are so many circumstances in which a sensible, practical, reasonably priced solution to a client’s problem needn’t involve a lawyer, or needn’t involve a lawyer for long. Why on earth should acknowledging that be so antithetical to so many lawyers? It’s absurd.

Editor’s Reply: I don’t know if this was a rhetorical question.  If not, my pithiest answer would be: fear of losing dollars, control, prestige.

More expansively, it seems that most lawyers expected a very good lifestyle to come automatically with their J.D., along with high social status.  They are angry and worried that the marketplace doesn’t value their services as highly as they had expected, and they are bewildered that society doesn’t give them the anticipated respect.   Good intentions of any one individual lawyer can be readily overwhelmed by the demands of partners (at work and home) to keep the income stream flowing.   The result, as individuals and as a group, is resistance to any change that threatens to further undermine their financial and social position.   As stated with refreshing candor in a recent bar association publication, “the top concerns of the practicing bar are the economics of the practice and the image of the profession.”     (Illinois State Bar Association Bar News, June 16, 2003)

[thanks to shlep]