LegalZoom: Where There's Smoke, There is Often Fire.

LegalZoomLegalZoomRozman Legal Group, P.C., a law firm that was formerly a member of the LegalZoom network of attorneys,  recently filed a law suit against LegalZoom in U.S. District Court, for breach of the Panel Agreement that it entered into to become a member of the network.

LegalZoom maintains a Panel of Attorneys as part of a Legal Plan that provides its customers with the option of seeking legal advice in relationship to the their legal documents.

There are many claims in the complaint including breach of contract, breach of a non-disclosure agreement, and copyright infringement. The entire Complaint can be downloaded here, It makes for an interesting read.

For this observer, the most interesting claim is the alleged interference with the lawyer/client relationship.

Rozman alleges in the complaint, that LegalZoom interfered with the independence of the lawyer/client relationship, to wit:

  • the Rozman Legal Group  was discouraged "from entering into limited representation or general retainer agreements with Plan Members";
     
  • the Rozman Group was instructed to " answer Plan member questions generally and rhetorically so as to specifically not create liability for Rozman Legal Group or LegalZoom.
     
  • Rozman was told by a member of LegalZoom's management "that the purpose of the Plan was to provide good customer service and that legal advice was ancillary."
     
  • Rozman also alleges that LegalZoom "sold family law leads usually for $75 and mesothelioma leads for as much as $1000 despite the LegalZoom policy that customer information was not sold to third parties"

It is hard to know what the real facts are of course, and I assume that discovery will shed some light on what really happened between the parties.

But the potential that there was interference with the independence of the lawyer/client relationship is ominous.

Reform of the British Legal ProfessionI have sometimes advocated that the American Bar should adopt some of the English reforms that enable non-law firms (companies) to own law firms, known as Alternative Business Structures. In theory, such an organization would have better access to capital markets which could finance true legal services innovation. In the United Kingdom processes and procedures are being put in place that are designed to insure the independence of the attorney. 

When I read the complaint in the Rozman case, the idea of private company ownership of law firms, or non-lawyer equity ownership of law firms, doesn't seem like such a good idea after all. 

US attorneys participate in network arrangements with private companies, but there is no mechanism to monitor whether management practices are in ethical compliance. While these arrangements may look ethical on paper, it is the management practices that may tell a different story.

So the question is:  When you have a large, well-capitalized company that provides major cash flows to a group of law firms engaged in its delivery system, what guarantees can be put in place which protect the independence of the lawyer and the client;s interest?

It is easy to envision that  LegalZoom which will soon be a public company --driven by  Wall Street's demand for increasing earnings every quarter --  would manage its lawyer network in a way to maximize its commercial objectives.

There are solutions for this new breed of hybrid company that would give the public confidence that the ethical rules that apply to the lawyer/client relationship are being respect.   [ RocketLawyer, JustAnswer, and Law Pivot are other hybrid company that work with a network of lawyers that provide legal services, just to name a few ].

One solution that would give the public confidence that these companies are in ethical compliance would be for the company to create a truly Independent Review Board of attorneys with backgrounds in legal ethics charged with monitoring management practices to make sure that they don't  undermine the lawyer's obligations to their clients.  

Another idea could be a Legal Ethics Ombudsman, who is independent of management and the company's  office of General Counsel.  Lawyers participating in the network would be required to consult or report violations to the ombudsman before resorting to litigation.

There is precedent for this in other industries.. e.g., peer review in medical institutions the New York Times has an ombudsman charged with monitoring ethical journalistic practice, and large commercial banks have independent risk officers (in theory!).

Creating this kind of impartial Board or Office to monitor the management behavior of the company and the lawyers it engages would be an important step towards assuring the public that their interests are protected. It could also minimize or avoid litigation like the Rozman law suit, which at the end of the day, will not likely be a satisfying experience for either party. 

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Legal Document - June 1, 2012 11:02 AM

These are terrific suggestions. I wonder if these issues arise, without coming to the point of litigation, for other similarly situated companies. Also, the ombudsman or review board approach might make sense for attorney lead generating companies like TotalAttorneys.

I'm not sure if this example indicates a problem with non-attorneys managing legal services providers. After all, many decisions are made by actual attorneys that run against their clients' interests, which can be as major as settling a contingency case for a too small amount due to a lawyer's immediate cash flow needs, or just not returning a client's phone calls. Perhaps non-attorney investment and management would be a double edged sword, resulting in problems such as the one described in this complaint, but possibly also improving customer service tremendously.

bankruptcy in Orlando - June 13, 2012 12:57 PM

i knew it wouldn't be long before this happen. I've heard some real horror stories with legal zoom.

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