Limited Licensing of Legal Technicians: A Good Idea?

American Bar AssociationThe American Bar Association has issued its draft Report and Recommendations on the Future of Legal Education. You can download it here.

I agree with many of the recommendations of the report which urges law schools to experiment with different modes of legal education, recommends relaxing ABA accreditation rules which impede innovation, and modifies the traditional law curriculum to focus less on the teaching of doctrinal law and more on skills the prepare law students to actually practice law. Many of the recommendations,if adopted, would radically change the structure, focus, and culture of many law schools.

One of the recommendations of the Task Force is the idea of limited licensing of non-lawyers ("legal technicians") to deliver legal services to the public directly without the supervision of a lawyer:

"However, there is today, and there will increasingly be in the future, a need for: (a)persons who are qualified to provide limited law-related services without the oversight of a lawyer; (b) a system for licensing of individuals competent to provide such services; and (c) educational programs that train individuals to provide those limited services. The new system of training and licensing limited practice officers developed by Washington State and now being pursued by others is an example and a positive contribution."

Thus one of the final recommendations of the Task Force Report is:

"Authorize Persons Other than Lawyers with J.D.’s to Provide Limited Legal Services, Whether Through Licensure Systems or Other Mechanisms Assuring Proper Education, Training, and Oversight."

and:

"Develop Educational Programs to Train Persons, other than Prospective Lawyers, to Provide Limited Legal Services. Such Programs May, but Need Not, Be Delivered through Law Schools that are Parts of Universities."

Unlike the other recommendations which deal with fixing legal education, these recommendations are focused on access to justice issues, which requires a different framework for analysis. 

The recommendation to create a new class of limited licensed legal providers, so-called "Legal Technicians" -  needs to be re-evaluated in the light of changing legal industry market dynamics and the accelerating impact of Internet technology on the delivery of legal services.

Just to note, for decades I have been a strong advocate for the idea that trained paralegals should be permitted to serve the public directly, without further licensing or regulation by any state body, other than graduation from an ABA-accredited law school and a few years of experience working in a law firm.  I was formerly President and Dean of the Philadelphia Institute for Paralegal Training, the nation's first paralegal educational institution, and in that role saw how effective a trained paralegal can be in serving a law firm's clients.

More recently. the company I founded - DirectLaw - offers a virtual law firm platform for solos and small law firms. If there were a new class of limited license professionals in the market, I would not hesitate to modify our DirectLaw platform to serve limited licensed professionals, opening up a major new market for our virtual service. So personally I have much to gain by a new class of limited license professionals that would serve the public directly.

Only recently have I begun to reconsider the viability of a new class of legal paraprofessionals serving the public directly primarily because of  changes in the market for personal legal services.

I have  reservations about the proposal to license non-lawyers to provide limited legal services. My reservations are in the form of a challenge to the Task Force recommendations on limited-licensing, in the sense that the idea needs further thought and analysis before states rush to adopt these ideas. (despite the fact that Washington State already has a scheme in place, and  California and New York are considering similar proposals). 

Here are my reservations - comments welcome:

  • The data that we have (see for example www.attorneyfee.com) suggests that the pricing of legal services by solo practitioners and very small law firm firms is going down -- not up. It is not a fact that the legal fees are out of reach of many consumers. There is an issue of connecting with consumers with lawyers-- but it is becoming less of a price issue and more of an "engagement" issue. There is no evidence to suggest that the fees that limited licensed practitioner would charge would be any less than the fees currently charged by solo practitioners, but their service, by definition, would be much more limited than the service offered by an attorney.
     
  • Solo practitioners are already being displaced by technology which is forcing a reduction in legal fees. Limited license practitioners would be even more vulnerable to the impact of information technology on the more routine services that they would offer.
     
  • The restrictive licensing scheme for lawyers, which is based on a "job-shop" model is likely to be replicated in the licensing scheme for "legal technicians." Licensing of legal service professionals based on the "job shop" model creates a high overhead enterprise that is vulnerable to new entrants into the market, e.g., LegalZoom, that are not subject to such restrictions.  Lawyers already suffer from a competitive disadvantage against new market entrants. Legal technicians will face the same competitive disadvantages. I can't see how the practices of legal technicians, with certain exceptions, will be viable economically. (I have yet to see a business plan of what such a limited license practice would look like that would include the cost of malpractice insurance, office expenses, advertising and marketing expenses, etc.).
     
  • Introduction of a new class of limited licensed professionals will continue to erode the economic model of solo and small law firm practice by sucking out from those practices the more routine legal services which are important to sustaining the economic viability of those law firms. It is naive to suggest that solo practitioners should concentrate on doing "more complex legal work" leaving the routine legal work to "limited license professionals.". If the ABA wants to deliver a death blow to solo practitioners this is a good way to do it. (See: Will California Threaten Lawyer Livelihoods with Legal Technicians?)
     

Creating a new regulatory scheme and educational system for limited licensed professionals is going to be high in cost. It is not likely that law schools and universities will be able to offer education a price point which is much lower than there existing price levels. The result will be that we will have a new class of students being trained in law that who will incur high student loans where the income generated from their practice will be insufficient to amortize the principal and interest, because of limited market prospects and price compression in the legal industry.

  • Many of these new students who aspire to limited licensed professionals professionals are likely to be members of minority groups. Since there will be no hard data on the income prospects for this new class of professionals -- just the idea that that once graduate they will be able to compete with lawyers in a limited way - seducing students into a new field where there is no effective demand.
     
  • I can just hear the pitch of commission-based admission's representatives at a variety of educational institutions who will jump in this market: "Become a licensed legal professional and you can provide legal services like a lawyer."


One result will be the imposition on a group of students excessive loan burdens which will be impossible for them to discharge. (This reminds me of the banking industry preying on minority neighborhoods with fraudulent loans). I would feel more comfortable with an of educational program to train legal technicians if the tuition was very low or free. Since there is no evidence that there is a viable career upon graduation, the risk should be assumed by society, and not the individual student. So if law schools and universities want to jump in this educational market the least they can do it make it tuition free or very low in cost for the first three years, until it is clear that there is a real career after graduation.

I could write more abut this subject, but this post is already long enough. 

 

Private Investment in US Legal Services

I had the honor of speaking at ReInventLawSiliconValley, a conference on innovation and the legal system sponsored by the ReInvent Law Laboratory at Michigan State Law School, co-founded by Professors Dan Martin Katz and Renee Newman Knake. This was a great learning day for me and I suggest if you are interested in the subject of change in the legal profession and legal education that you watch the videos when they are published on the ReInventLaw Law Channel. See also on Twitter #ReInventLaw and my pre-conference post on this Conference.

Here are the slides from my ReInventLaw presentation.

Private capital into law firmsI am interested in the subject of how to get private capital into law firms to spur innovation despite the prohibitions of 5.4 of the ABA Model Rule of Professional Conduct. This is the rule that prevents a non-lawyer from owning an equity interest n a law firm in all US states, except on a limited basis in the District of Columbia. This is a controversial issue in the US, and the the ABA Ethics 20/20 Commission decided not to address the subject in its recent deliberations. The ABA House of Delegates and almost all state bar associations are dead set against any change to this rule.

 

Jacoby & Meyers

 

Jacoby & Meyers, the pioneering consumer law firm, has filed a suit against the judiciary in New York, New Jersey, and Connecticut  in Federal court to overturn the rule, but that's another story.

 

I am interested in finding out if clever lawyers have figured out away around the rule. I discovered at least two instances where law firms have created a business model that enables private capital to fund technology and management support that would be beyond the ability of the law partners to fund by themselves.

The law firms are Clearspire and RajPatent, recently re-branded as LegalForceLaw.  Both law firms are built around the same concept - a law firm that is supported by an independent management company that provides technology and management services to the law firm.

ClearsspireClearspire invested over $5,000,000 in a technology and management platform to support the delivery of legal services to corporate legal clients. The firm is growing rapidly and recently opened a San Francisco Office.

LegalForceLaw was founded by a solo practitioner, Raj Abhyanker. The underlying company is called Trademarkia, Inc., which created the Trademarkia web site, the legal web site with the most traffic on the Internet. Like Clearspire, Trademarkia developed a technology to make it easy for non-lawyers to do a trademark search. The traffic to the Trademarkia site generates business for the law firm. [See previous post on LegalForce ].

In both cases, a separate management and independent management company provides services to the law firm. In theory the management company could serve other law firms, but in these cases the management company only has one client.

Foloow the MoneyThe arrangement raises more questions and the answers are not apparent.

I would like to learn more about how these management companies price their services to the law firms they serve. They can't take a percentage of the legal fees or it would be a violation of Rule 5.4 How much of the cash generated by the law firm can be siphoned off by the management contract between the management company and the law firm? What is the pricing mechanism between the management company and the law firm? Is it a cost plus contract or are market rates charged for the services provided?

Why would an investor put funds at risk within the management company as there would be no easy exit. The law firm can't go public and if the managing partners of the law firm were hit by a bus the law firm would go out of existence. The brand belongs to the law firm, not the management company. The financial return to the management company is limited because of the 5.4 prohibition. So where is the upside for the investors in the management company?

I think that these innovative law firms should be more transparent about the nature of the management agreement between their management company and their law firm, so that other law firms interested in replicating this business model can experiment.

Maybe these management agreement should be  scrutinized and approved by the ethics counsel from the bar associations in the jurisdictions where these law firms are located, so there is no question that there is no violation of 5.4?

 

My Experience with LawPivot: An Online Legal Advice Service

LawPIvotLawPivot, is a Silicon Valley legal industry start-up,  a new breed of online legal advice Web site that provides legal answers through a network of attorneys. Sometimes the legal advice or legal information is free like AVVO and LAWQA,  and sometimes you pay a fee, which LawPivot and JustAnswer require. See more:  American Bar Association Journal article on LawPivot.

I had a technical, corporate legal question that I needed a quick answer to, so I decided to try LawPivot's Confidential Question and Answer Service, pay their fee, and see how well it worked. I knew that LawPivot has a pretty extensive panel of corporate lawyers, so I thought this would be a good starting place. Because my question involved a technical question, I think  if I had asked our regular outside counsel I probably would have generated a $450.00 legal fee and a long memo -- which I really didn't need at this point.

Instead for  $49.00, I received within 24 hours 8 answers from as many lawyers.  Of the 8 answers I received, I marked 5 as not helpful for my purposes. But 3 were very much on target, and one answer was exactly what I was looking for.

This service is "Confidential", but no attorney/client relationship is created, and the answers are supposed to be "legal information" rather than "legal advice",  The reality is that what I received was pretty good legal advice that applied to the particular facts of my situation.

Overall the site was very easy to use and I was very satisfied with the result. I think that even if I were not an attorney with experience in corporate law, I would have been able to recognize which answer to my question was the correct one. I am not sure that this would always be the case, so my conclusion is that this kind of online service for the average user is a starting point for more research, not an end point. The service helps you make a decision whether you need to retain an attorney for additional assistance. This is a good example of the use of the Internet to deliver "unbundled" legal services at an affordable fee.

The Ethical Issues

LawPivot makes clear that they do not share any fees with an attorney. The site also makes clear that it is not a legal referral service and that it does not promote any particular attorney. LawPivot properly avoids making claims about the lawyers in their network such as they are "the best", highly specialized in their fields", or the most experienced lawyers in their specialty.

Apparently, lawyers are ranked by an algorithm  on how well and promptly they answer questions. Whether this technology violates traditional legal referral rules, which prohibits profit-making organizations to be in the legal referral business, is the subject of a future blog post. 

Is LawPivot, as a non-law firm, permitted to charge a fee for legal advice? Is this the unauthorized practice if law? Not if the fee is paid by the user for the use of the Web site, and not for the legal answer or legal advice itself. There is a bar association opinion that holds that a Web site may charge a user for the user of the Website, when purchasing a legal service, and that this fee is not a fee for the legal service itself. See for example, Nassau County OK's Tie with Americounsel.

In the AmeriCounsel scheme, which dates back to 2000, the Nassau County Bar concluded that:

"[S[ince AmeriCounsel does not charge attorneys any fee and since AmeriCounsel does not "recommend" or "promote" the use  of any particular lawyer's services, it does not fall within the purview of DR 2-103(B) or (D). Rather, AmeriCounsel is a form of group advertising permitted by the Cod of Professional Responsibility, and by ethics opinions interpreting the Code."

I think this opinion is still good law.

However, LawPivot has been forced to create a business model, based on a work-around of a Rule of Professional Conduct that no longer serves any useful purpose.

In my opinion,  a regulatory scheme that enables private companies to take a share of the legal fee for referring client work to law firms would have a positive benefit.  It would result in providing more resources to the Web provider so that it could develop more nuanced quality control systems, more extensive marketing programs,and invest in innovative client referral systems. The prohibition on splitting fees between non-law firms and law firms doesn't serve the purpose for which the rule was originally designed -- to discourage "ambulance-chasing."

In fact, the ABA's Standing Committee on the Delivery of Legal Services most recently sent a letter to the ABA Ethics 20/20 Commission recommending that Rule 7 (2) (b) be eliminated. 

Model Professional Rule (7) (2) (b) states:

(b) A lawyer shall not give anything of value for the recommendation of the lawyer’s
services except that the lawyer may:
 (my emphasis).
(1) pay the reasonable costs of advertisements or communications permitted by this Rule;
(2) pay the usual charges of a legal service plan or a not-for-profit or qualified lawyer
referral service. A qualified lawyer referral service is a lawyer referral service that has been
approved by an appropriate regulatory authority;
(3) pay for a law practice in accordance with Rule 1.17;

 

Comment [5] to the Rule merely states, “Lawyers are not permitted to pay others for channeling professional work."

The Standing Committee's letter to the Ethics 20/20 Commission states: 

"The comment provides no rationale for this conclusion, which frankly is a position swallowed by the Rule’s exceptions. Law directories have channeled legal services for well over a hundred years. Lawyer referral services have channeled work to lawyers since the mid-twentieth century. Prepaid legal services have channeled work to lawyers for nearly 50 years. Public relations and marketing have joined lawyer advertising as vehicles that channel work since the Supreme Court ruled that states could not prohibit lawyer advertisements in 1977. Law firms providing services to corporations and institutions have in-house marketing staff, some of whom are paid well into six-figures, for the purpose of channeling professional work to their firms. And most recently, we have seen a proliferation of online third-party intermediaries that in some instances defy categorization as advertisements or referral services. Intermediaries are discussed in detail below, but suffice it to say here that the channeling of professional services in the marketplace in and of itself is not inherently inappropriate. Collectively, these mechanisms create access to legal services for potential clients of all economic strata. They are, however, most important for those of moderate or middle class individuals who infrequently use of the services of a lawyer and need the information provided by these resources to help them make the decisions about the legal services most appropriate for them. "

The Ethics 20/20 Commission gave no serious consideration to the Standing Committee's proposal so this reform is dead for the foreseeable future -- unfortunately. 

The problem with Rule (7)(2)(b) is that it has been made irrelevant by the Internet and arguably is a deterrent to innovation in devising new ways of enabling consumers to access legal services. This is a Professional Rule that chills innovation, rather than preventing consumer harm.

AmeriCounsel failed as a company because it could not generate sufficient cash flow as it was limited to charging a relatively small administrative fees for use of the Web site, as distinguished from earning larger fees that could result from channeling work to lawyer's in their network.

I hope that LawPivot does not suffer the same fate as AmeriCounsel.
 

UPL and Legal Document Preparation by Non-Lawyer Providers

The ABA Standing Committee on Client Protection just released a survey it conducted on unlicensed practice of law programs ( UPL) in United States jurisdictions in 2011-12.

Only 29 jurisdictions responded to the survey.  Twenty-three of the 29 actively enforce UPL regulations, although some jurisdictions indicate that insufficient funding or resources make enforcement challenging. Nine jurisdictions stated that enforcement is inactive or non-existent.

Of the jurisdictions reporting, 21 states permit some form of limited practice by non-lawyers. Here is the summary from the report:

Twenty-one jurisdictions authorize nonlawyers to perform some legal services in limited areas. Sixteen permit legal assistants, legal technicians or paralegals to perform some legal services under the supervision of a lawyer; six jurisdictions permit nonlawyers to draft legal documents. Other allowable nonlawyer activities include: real estate agents/brokers may draft documents for property transactions or attend real estate closings; nonlawyers may attend (and in some states participate in) administrative proceedings; and participate in alternative dispute resolution proceedings. Many of these jurisdictions do not classify these activities as the practice of law.

There are only six jurisdictions in the US that permit nonlawyers to prepare legal documents,
(without providing legal advice). These jurisdictions are California, Arizona, the District of Columbia, Florida, Maine, and Missouri. In these jurisdictions the "nonlawyers"  are referred to as -  "Legal Document Preparers" or "Legal Technicians".

[ Download Entire Report Here ].

Only one jurisdiction that we know of, the State of  Texas, makes an exception to the definition of the practice of law, and explicitly permits the sale and distribution of self-help legal software, software-powered legal web sites, self-help law books, and other technologically-based alternatives to the delivery of legal services.

It's no wonder that LegalZoom is required to state in its S-1 filing to go public - that violation of UPL statutes in many states is a major risk factor for its business:

"Our business model includes the provision of services that represent an alternative to traditional legal services, which subjects us to allegations of UPL. UPL generally refers to an entity or person giving legal advice who is not licensed to practice law. However, laws and regulations defining UPL, and the governing bodies that enforce UPL rules, differ among the various jurisdictions in which we operate. We are unable to acquire a license to practice law in the United States, or employ, or employ licensed attorneys to provide legal advice to our customers, because we do not meet the regulatory environment of being exclusively owned by licensed attorneys. We are also subject to laws and regulations that govern business transactions between attorneys and non-attorneys, including those related to the ethics of attorney fee-splitting and the corporate practice of law."

Some Observations

  • Some entity, such as the US Legal Services Corporation whose goal is to expand access to justice for all,  or an independent or university-based research organization, should undertake empirical research which analyzes whether non-lawyer practices actually cause harm to consumers within the states that permit nonlawyer document preparation.  Research should also be done on the impact that nonlawyer legal form web sites have on the consumer in terms of benefits and potential harm. Empirical research in England by the Legal Services Consumer Board on the issue of whether will writing by non-lawyers causes harm, concluded that it did. This resulted in making will drafting and will writing a reserved area under the new UK legal profession deregulation scheme.
     
  • We need more empirical research like the UK Study to inform public policy making in this area.  Perhaps if LegalZoom is successful with its public underwriting it could subsidize or contribute to such a study, as it would certainly be in their interest to do so!
     
  • Research should be conducted in those states that permit nonlawyer document preparers to evaluate whether more consumers have access to the legal system and at a lower cost by using nonlawyer document preparers, rather than attorneys. This data would inform public policy with facts, instead of generalized theories that it is necessary to limit legal document preparation services to licensed attorneys in the interest of  "protecting" the public from harm.
     
  • Legal document preparation software is getting smarter -- more intelligent-- Web-enabled document automation applications can now generate documents that really do reflect a person's individual circumstances. These applications are getting smarter and the intelligent templates easier to build. Other than in Texas, there is an issue as to whether legal software, standing alone, constitutes the unauthorized practice of law, despite disclaimers to the contrary.

    State Bar UPL Committees should consider adopting the Texas UPL exception to avoid charges of monopolistic behavior, to gain the confidence of the public that the organized Bar is really interested in expanding access to the legal system through the use of technology, and to encourage innovation in the delivery of legal services. [Disclosure
    We operate an intelligent legal forms software company ].
     

 It would be interesting to see whether legal fees are also lower in jurisdictions which have competition from nonlawyer document preparers as these authors claim.

LegalZoom: The "Good Enough" Legal Solution

LegalZoom, the leading online provider of legal services to consumers and small business, as predicted here previously, finally filed for an IPO last week. The company is seeking to raise $120 million to expand their services both in the US and internationally.

LegalZoom's data in the S-1 filing is now available for everyone to analyze:

  • In 2011, 490,000 orders were placed through their web site;
  • 20% of all limited liability companies in California were done by LegalZoom;
  • During the past ten years, LegalZoom has served over 2,000,000 customers.
  • Revenue in 2011 was $156 million.

These are impressive statistics and provide support for the proposition that consumers and small business prefer a very limited legal solution that is just good enough to get the job done, rather than pay the high legal fees charged by the typical attorney.

This is LegalZoom's analysis of the legal market for consumers and small business, buried on p. 62 of the S-1 filing: 

"Making the right choices with respect to legal matters can be difficult, especially for those with limited time and resources. The U.S. legal system consists of overlapping jurisdictions at the city, county, state and federal levels, each of which has its own evolving laws and regulations. Businesses may be subject to additional laws, regulations and legal issues applying specifically to the industries in which they operate. In addition, the policies and procedures associated with the creation, filing and certification of legal documents are often arcane and confusing."

        "When in need of legal help, small businesses and consumers lack an efficient and reliable way to find high quality, trustworthy attorneys with the appropriate experience to navigate this complex legal system and handle their specific needs. Small businesses and consumers often do not understand their legal needs or know where to start looking for an attorney. Some are wary of attorneys in general, and others may have heard from friends or family about negative experiences with attorneys or the legal system."

        "The high and unpredictable cost of traditional legal services also presents challenges for many small businesses and consumers. In 2011, the average billing rate for small and midsize law firms was $318 per hour, according to ALM's 2012 Survey of Billing and Practices for Small and Midsize Law Firms. Attorneys are frequently unable to predict the time required to address a client's legal matter, sometimes billing thousands of dollars to research a legal issue they have not previously encountered. This can be particularly true of generalist attorneys that offer many disparate legal services to members of their local communities. Unlike attorneys at large global law firms or specialty boutiques who handle high volumes of similar matters and develop expertise in specific domains, generalists can find it difficult to efficiently address a client's particular legal issue due to their lack of specialized expertise. Due to the high and unpredictable costs of traditional legal services, many small businesses and consumers limit their use of attorneys and instead often attempt to resolve legal issues without assistance."

       "As a result of these factors, many small businesses and consumers often are unsure of or dissatisfied with the legal services available to them, and many either elect not to seek help or take no action to address their important legal needs."

Many lawyers are in denial about the desire of consumers and small business to purchase their services. They will assert that consumers and small business are exposing themselves to liability by using LegalZoom's limited services which will bring regret later. But consumer's don't seem to care. What they get from LegalZoom is "good enough." The numbers tell the story.

Solos and small law firms will find that it will be very difficult to compete against LegalZoom with its superior capital resources. The organized bar (State and ABA) has given up on trying to put LegalZoom out of business on they theory that the company is violating UPL ('unauthorized practice of law") rules. Any organized bar attacks will be resisted by LegalZoom which will now have the capital to fight any challenges to its business model. The American Bar Association has created a Solo and Small Law Firm Resource Center, but it is too little and too late.

LegalZoom is here to stay and will expand its market share as the major provider of the delivery of legal solutions to consumers and small business.

LegalZoom will, inevitably, put many solos and small law firms out of business as it grows and expands its suite of services.  For a related analysis on my theory about the venture capital industry and disruption in the legal industry see video at: Legal Startups - An Overview at PointOneLaw ].

To survive in this fast changing environment, solos and small law firms need to figure out strategies that extend their brand online, without detracting in any way from their role as a trusted adviser in the communities where they live and work.  I see too many solos and small law firms that think they can emulate LegalZoom's success but don't have either the capital or the skills to compete in an online environment.

The competitive response for solos and small law firms should be to create a "click and mortal" strategy that combines what can be learned from LegalZoom with the best management practices of a law firm that has the capacity to deliver "limited" or "unbundled" legal services at a competitive price point, both in the office and online.

Here is a previous blog post which lists steps that solos and small law firms can take to become more competitive in this rapidly changing environment. The cost of adapting to this new competitive environment is not the cost of software, which is relatively inexpensive. The cost is the investment in time that the lawyer has to make to learn new online skills, create more efficient production procedures, and adopt marketing approaches that amplify a lawyer's expertise both online and offline.

It will be interesting to see what the legal landscape for solos and small law firms looks like five years from now. 

Free Online Course on Digital Law Practice

The Center for Computer-Assisted Legal InstructionThe Center for Computer-Assisted Legal Instruction (CALI) is offering a free online course on digital law practice, primarily for law students and law professors, but anyone can register.

 


I don't doubt that most law faculty will find these topics to be irrelevant, but its connecting with law students, as over 500 law students have registered nationwide.

For lawyers interested in delivering legal services online, this course would be a good introduction to the subject.

The first session is February 10 at 2-3 EST. Stephanie Kimbro is doing a session on the virtual law office.

Later in the course, Marc Lauritsen is doing a session on document automation, and I am doing a session on “unbundling legal services”.

Here are some of the other sessions:

Week 5: Online Legal Forms in Legal Aid
Friday, Mar. 9, 2-3pm ET
Ronald W. Staudt, Professor of Law, Chicago-Kent College of Law

Week 6: Contract Standardization
Friday, Mar. 16, 2-3pm ET
Kingsley Martin, President, kiiac.com & contractstandards.com

Week 7: Free Legal Research Tools
Friday, Mar. 23, 2-3pm ET
Sarah Glassmeyer, Director of Content Development / Law Librarian, CALI

Week 8: Unauthorized Practice of Law in the 21st Century
Friday, Mar. 30, 2-3pm ET
William Hornsby, Staff Counsel at American Bar Association

Week 9: Social Media for Lawyers
Friday, Apr. 6, 2-3pm ET
Ernest Svenson, Attorney at Law

Here is the course description and the registration page:

http://www.cali.org/blog/2012/01/25/free-online-course-digital-law-practice

Is It Time To Deregulate the Practice of Law?

An editorial appeared in today's (08/22/2011) Wall St. Journal , titled "Time to Deregulate the Practice of Law", by Clifford Winston and Robert W. Crandell, both Fellows at the Brookings Institution. [ Ungated version here ]. The editorial argues that it is time for the legal profession to be deregulated, as other industries have been, in order to create price competition for legal services, spur innovation in the delivery of legal services, and reduce the premium that lawyers get for pricing their services as a result of strict occupational licensing. The editorial is a summary of the conclusions of a book soon to be published by the authors, and Vikram Maheshri, titled, "First Thing We Do, Let's Deregulate All the Lawyers" (2011, Brookings Press). This book is the opening salvo it what is sure to be an expanded debate about who should be allowed to provide legal services to the general public.

New Methods of Legal Service Delivery

With online companies such as LegalZoom, RocketLawyer, JustAnswer, LawBidding, Law Pivot and our own MyLawyer.com, pushing the boundaries of new ways to delivery of legal services,  there is renewed pressure on the organized bar to respond to consumer demand for affordable, transparent, competent, and reliable legal services. Law firms are exploring ways to delivery legal services online to compete with non-lawyer providers, but are often constrained by bar regulations.

Free White Paper: Virtual Law Practice; Success FactorsEssentially, the authors argue that lowering the barriers to entry into the legal profession would force lawyers to compete more intensely with each other, and  face competition from non-lawyers and firms not owned and managed by lawyers. The authors argue that legal fees are higher  because of occupational licensing and can be reduced by deregulation without sacrificing the quality of legal services.

Since heading the Philadelphia Institute for Paralegal Training, the nation's first paralegal school and the institution that pioneered the paralegal profession in the United States,  I have argued that you don't need a fully-trained and credentialed attorney to provide services to consumers for simpler, more routine legal problems, any more than you would need a brain surgeon to treat a headache, when a pharmacist will do. I am well aware of arguments that some lawyers make that there are no simple legal problems, but the reality is that many consumers will settle  for a "good enough" result, rather than spend thousands of dollars in legal fees.

On the other hand I am not comfortable with the idea that we should abandon all occupational licensing for legal professionals, lawyers and legal assistants, essentially converting the United States in a completely unregulated free market.

 

Arguments for a Regulated Legal Profession

1. The analogy between the legal profession to other deregulated industries, such as the airline industry, that the authors cite, is simply not relevant. There is fundamental differences between the manufacturing, mining, communication, transportation, and financial industries and the human service professions where the delivery of the service is expected to be of sufficient competence to accomplish the task at hand. If you follow the author's logic, we should also deregulate the dentists, the teachers, the nurses, the social workers, and the doctors because it results in lower pricing and therefore would increase the availability of those services. e.g., Instead of going to a "Dentist" to get your root canal work, you would have the option of going to the "Tooth Fairy."

2. The authors assume that the quality of legal services would not deteriorate any more than when the planes didn't stop flying when the airline industry was deregulated. Unfortunately the authors have no facts to back up this assertion. It is just wishful thinking.

3. When you look at the facts, however,  a more thoughtful response to reforming the delivery system for legal services is required.

On the anecdotal level, I can testify to the literally hundreds of botched legal matters that I have reviewed generated by "Immigration Specialists", Legal Technicians" and other non-lawyers operating in the grey area of offering document preparation services. In some instances, I have seen immigrants actually deported because of improperly prepared papers by "Immigration Specialists." I have reviewed "failure to discharge notices"  issued by U.S. Bankruptcy Court because of improperly prepared bankruptcy petitions. I have reviewed dozens of divorce petitions filed by "pro-se" parties, assisted by online document preparation companies that were rejected by the courts. I have seen enough of these cases to know that in many of these situations  incompetence and lack of knowledge and skill is evident. In some cases there is outright fraud and misrepresentation.

4. There have been almost no empirical studies that I know of that support the argument of the authors that the quality of legal services would not deteriorate in a completely deregulated marketplace - save one- and that study does not support the author's conclusions.

Legal Services Consumer Panel Study

Very recently the Legal Services Consumer Panel of the Legal Services Board in the United Kingdom, the agency in charge of deregulating the legal profession in the United Kingdom, conducted an empirical study of the quality of wills prepared by both solicitors and non-lawyers.

 

The Panel concluded that on the issue of quality:

 "one in four wills in the shadow shops were failed with more than one in three of all assessments scoring either poor or very poor. The same proportion of wills prepared by solicitors and will-writing companies were failed. Wills were almost just as likely to fail when the client had simple or complex circumstances. Key problems where the will was not legally valid or did not meet the client's stated requirements, were: inadequate treatment of the client's needs; the client's requests not being met; potentially illegal actions; inconsistent or contradictory language; insufficient detail; and poor presentation. Key problems relating to poor advice include: cutting and pasting of precedents; unnecessary complexity; and use of outdated terminology."

The United Kingdom has a legal market which is not only more deregulated that the US market, but will become even more deregulated in the future. Despite this more open environment, the Panel concluded that:

"Inherent features of will-writing services place consumers at risk of detriment. Consumers lack the knowledge to identify technical problems or assess whether the additional services offered are necessary or represent good value for money. The reliance on extracting good information about the consumer‟s circumstances and preferences, combined with the range of possible ways to deal with these in the will, means there is potentially wide scope to give bad advice."

and

"However, there is a need to make consumers better aware of the suitability of online services as these received the highest proportion of fail marks in the shadow shopping, but wills sold over the internet are difficult to regulate."

Thus, the Panel proposes that:

"will-writing services should be made a reserved legal activity. Any business – not just a solicitors firm – satisfying an approved regulator‟s entry standards could provide will-writing services."

The UK approach is not to restrict will-writing just to lawyers, but to open up the system to any providers that can satisfy the educational, regulatory, and accountability standards within the reserved activity. This is a vastly different approach than eliminating standards all together, as the authors seem to suggest.

The compete UK Report on Regulating Will Writing can be downloaded here. See also our Resource Page on Regulation of the Legal Profession.  The Report is worth reading by any policy maker who is thinking about doing away with all regulation of the providers of legal services to the general public.

Some final thoughts:

The authors claims of the benefits of deregulation in general are not supported by current evidence.

Consider:

  • Deregulation of the mortgage baking industry brought the American economy to its knees;
  • Deregulation of the US banking industry has wreaked havoc on the world's economy;
  • Lack of strong regulation of the proprietary higher education industry has resulted in thousands of graduates without an adequate education, low employment rates, and high default rates. (Of course, as the author's point out, you could say the same about law schools and law school graduates, but then again the accreditation of law schools by the American Bar Association, it can be argued is another example of an "unregulated activity" without substantive standards that are meaningful).

The list can go on.

Perhaps I am premature in my judgment as the book has not been released, and I have just reviewed the salient conclusions. I can't wait to give it a full read and review.

 

Is Legal Software Conduct? True or False?

Legal Software Program On August 2, 2011, Federal District Judge Nanette K. Laughrey, for the Western District of Missouri, the Judge presiding over the class action case against LegalZoom for unauthorized practice of law, released an opinion denying, in part, Defendant's Motion of Summary Judgment. The Court held that document preparation by non-lawyers, under Missouri Law, is conduct, and not entitled to First Amendment protection. ( See full opinion here ).

This is consistent with my own view, expressed in a previous post. (Is LegalZoom just a self help legal software company?).

The court's opinion rejects the logic in an article authored by Professor Catherine J. Lanctot, titled, "Does LegalZoom Have First Amendment Rights: Some Thoughts About Freedom of Speech and the Unauthorized Practice of Law." , which doesn't surprise me, as it is hard to characterize LegalZoom's activities as "speech", when they have 500 employees working on customer's documents.

One paragraph in the Court's opinion is troubling. On Page 21, the Opinion states as follows:

"Furthermore, LegalZoom's branching computer program is created by a LegalZoom employee using Missouri law.  It is that human input that creates the legal document. A computer sitting at a desk in California cannot prepare a legal document without a human programming it to fill in the document using legal principles derived from Missouri law that are selected for the customer based on the information provided by the customer. There is little or no difference between this and a lawyer in Missouri asking a client a series of questions and then preparing a legal document based on the answers provided and applicable Missouri law. That the Missouri lawyer may also give legal advice does not undermine the analogy because legal advice and document preparation are two different ways in which a person engages in the practice of law. "

.....
"The Missouri Supreme Court cases which specifically address the issue of document preparation, First Escrow, Mid-America and Eisel, make it clear that this is the unauthorized practice of law. The fact that the customer communicates via computer rather than face to face or that the document prepared using a computer program rather than a pen and paper does not change the essence of the transaction."

This Opinion could be interpreted to mean that all legal software programs are a form of conduct, and not entitled to First Amendment protection. I would argue that the Court comes to this conclusion because the legal software is used in the context of a document preparation service, and is not a stand alone program. As the Court further explains that:

As in Hulse, First Escrow, Mid-America, and Eisel, LegalZoom's customers are rendered passive bystanders after providing the information necessary to complete the form. Yet LegalZoom charges a fee for its legal document preparation service. .....The customer merely provides information and "Legal takes over."

The facts of this case make a difference, I would argue, in understanding the scope of the Court's Opinion.

If we define a legal software program as a "product", where there is no service element and no conduct whatever, then it is hard for me to believe that the Court intended to ban legal software programs from distribution directly to consumers, whether on-line or off-line.

If that was the Court's intent, then companies like Nolo and Intuit, would have to pull their products off the shelves of Barnes & Noble and Staples and Amazon, programs like LawHelp Interactive, supported by the US Legal Services Corporation, would have to be terminated, and the many web sites that offer interactive forms, without any service component would have to be abandoned. Courts that are experimenting with distributing interactive forms from their web sites, would have to consider whether this activity is the "unauthorized practice of law", a strange result.


A2J Guided InterviewsLaw Schools like Chicago-Kent Law School that are experimenting with new legal software interfaces that connect citizens directly with legal help through software, might reconsider their efforts.

Stop No Entry

The only way that such legal software could be used, would be by attorneys in the context of delivering of legal service through their law firms. I think this would be an unfortunate result.

 

Other possible negative consequences of such an interpretation would be:

  • The legal profession would be further attacked for attempts to restrict commerce and maintain higher legal pricing by the consuming public causing further damage to the profession's already declining reputation;
     
  • Pro se litigants would not have access to tools that enable them to represent themselves, further restricting access to the legal system;

It would be helpful, if the Missouri District Court clarified its language on page 21 of the Court Order to distinguish between fact situations where interactive legal software is used as part of a document preparation service business and situations where the programs are distributed as stand alone programs -- products--  like a book or other publication. What do you think?

 Increasng Profit Margins With Document Automation- Free White Paper

Is LegalZoom Just a Self-Help Legal Software Company?

In a Fortune Magazine blog post by Roger Parloff just last week, entitled Can Software Practice Law?, writing about the class action suit against LegalZoom in Missouri for violating Missouri's UPL statute, Parloff argues that LegalZoom is no more than a self-help legal software company, and therefore entitled to the same protections as a self-help legal software publisher. The question of whether legal software constitutes the practice of law is a controversial one. When the Texas Bar won a suit against Nolo Press on the grounds that its WillMaker program constituted the practice of law, the Texas Legislature amended the UPL statute and further defined the practice of law  as follows:

Texas Code, 81.101 (c) the "practice of law" does not include the design, creation, publication, distribution, display, or sale, including publication, distribution, display, or sale by means of an Internet Web site, of written materials, books, forms, computer software, or similar products if the products clearly and conspicuously state that the products are not a substitute for the advice of an attorney. This subsection does not authorize the use of the products or similar media in violation of Chapter 83 and does not affect the applicability or enforceability of that chapter.

No other state has passed such an exemption, but there is a well-established line of cases that supports the position that the publication of information about the law, as well as self-help legal books, divorce forms with instructions, and do-it-yourself kits is not the practice of law and protected by the First Amendment of the U.S. Constitution and may be protected by state constitutions as well. See, e.g., New York County Lawyers’ Ass’n v. Dacey, 21 N.Y.2d 694, 234 N.E.2d 459 (N.Y. 1967), aff’ing on grounds in dissenting opinion, 283 N.Y.S.2d 984 (N.Y. App. 1967); Oregon State Bar v. Gilchrist, 538 P.2d 913 (Or. 1975); State Bar of Michigan v. Cramer, 249 N.W.2d 1 (Mich. 1976); The Florida Bar v. Brumbaugh, 355 So.2d 1186 (Fla. 1978); People v. Landlords Professional Services, 215 Cal. App.3d 1599, 264 Cal. Rptr. 548 (Cal. 1989). 

LegalZoom takes the position that it is no more than a self-help legal publisher and seeks to fall within this classification, as Roger Parloff argues in his blog post. This is also the position that Legal Zoom takes on its Web site and in its answer to the Missouri Complaint:

From the LegalZoom Web site:

"Is LegalZoom engaged in the practice of law?"

"No.  LegalZoom is the latest and natural evolution of the centuries-old legal self-help industry."

"No jurisdiction prohibits the sale of software that generates a legal document based on a customer’s unique input.  LegalZoom has never been prohibited from operating in any state."

"Should consumers be concerned about LegalZoom losing this case?"

"No.  If LegalZoom is found to be engaged in the unauthorized practice of law in Missouri, then every guide and legal formbook in libraries and bookstores in the state would also be engaging in the unauthorized practice of law.  These days, nearly all such books are packaged with computer software that works in a similar manner to LegalZoom.  Just like with a Nolo Press® book or a preprinted form, LegalZoom customers have the ability to review and consider their legal form before committing to their purchase."

It is not possible to know how LegalZoom’s document technology actually works without further evidence. However, one can state with certainty that it doesn’t work like a true Web-enabled document automation technology which generates a document instantly from data entered into an on-line questionnaire that is presented through the Web browser.

Vendors of true Web-enabled document automation solutions, such as HotDocs, Exari, DealBuilder, WhichDraft and Rapidocs (our company) have document automation technologies that generate a document instantly after the user clicks on the submit button. Because LegalZoom’s technology seems to require a separate step that is executed off-line, it does not in my opinion, fit into the category of a Web-enabled document automation technology. [ For a more extensive discussion of Web-Enabled Document Automation as a Disruptive Technology, click here to download our white paper on the subject. ]

Instead, in the LegalZoom  business model, as described by LegalZoom, a data file is created, reviewed by a legal technician, and then imported into their - document assembly application utilizing some form of import mechanism. It is not clear whether the document is fully-assembled until this second step takes place, and it’s a distinction that makes a difference.

If LegalZoom were just a legal software company, it is hard to understand why it needs over 400 employees to provide services to its customers, other than the fact that these employees are conducting professional reviews and providing real service support. For these services, LegalZoom receives a substantially higher price than if they were just selling a self-help legal form. See for example on the LegalZoom Web site, the 30-point review of wills conducted by LegalZoom's "professional legal document assistants."

These more labor intensive, personal services makes LegalZoom a "service business" and not just a "legal software publisher" entitled to the First Amendment protections that are afforded to publishers.

Andrea Riccio, a Canadian lawyer who has commented about this subject, responds to some of the arguments that LegalZoom makes in its defense:

LegalZoom’s argument: "Typically, there is no interaction between the customer and the person reviewing the file."

Riccio’s response:

“The mere fact that the employee is granted access to the customer's response is an interaction between the employee and customer.”

LegalZoom’s argument: "If there is an inconsistency, it is NOT corrected by the employee – instead, it is brought to the attention of the customer." 

Riccio’s response:

“Whether it is the customer or the LegalZooM employee that physically changes the document is irrelevant. What is important is that it is the LegalZoom employee that has identified the inconsistency. That, in my opinion, goes beyond "self-help" and is an act of legal draftsmanship.”

LegalZoom’s argument: "no employee revises or corrects any portion of the customer’s self-created document." 

Riccio’s response:

“Identifying inconsistencies or errors in another person's document is in my opinion an act of revision and correction. Who physically makes the changes is irrelevant.”


It is for these reasons that LegalZoom was required to be licensed under California law as a registered and bonded legal document assistant (see footer
LegalZoom Web site).

What is a Legal Document Assistant?

A "Legal Document Assistant", as defined by the California Business & Professions Code (Section 6400 (c)) is:

"Any person who is otherwise not exempted and who provides, or assists in providing, or offers to provide, or offers to assist in providing, for compensation, any self-help service to a member of the public who is representing himself or herself in a legal matter, or who holds himself or herself out as someone who offers that service or has that authority, or a corporation, partnership, association, or other entity that employs or contracts with any person who is not otherwise exempted who, as part of his or her responsibilities, provides, or assists in providing, or offers to provide, or offers to assist in providing, for compensation, any self-help service to a member of the public who is representing himself or herself in a legal matter or holds himself or herself out as someone who offers that service or has that authority."

This California statutory scheme is based on the idea that a non-lawyer can perform clerical support functions without violating the unauthorized practice of law statute in California. Only a few states have carved out this exception by statute (e.g., California, Florida, Arizona).  Missouri is not one of them.

Could LegalZoom operate in California, where it is headquartered, without being registered with the state as a Legal Document Assistant?  I think not.  

This is the category that LegalZoom fits into, not “self-help” software.

Otherwise, I suppose Nolo, a California-based self-help legal software publisher, and other California-based legal software publishers that sell directly to the public, would have to be licensed in California as Legal Document Assistants!!!  (See generally - http://en.wikipedia.org/wiki/Legal_document_assistant, for a more extensive discussion of what a Legal Document Assistant is, and is not.)

Just to be clear, I am personally in favor of both self-help legal software and paralegal-assisted document preparation services as a way of providing access to the legal system, and personally think there should be more choices for consumers.  But my personal opinions are not the issue.  The issue is: 

“What does the law in the different states now require, and what can we do to change it if we don’t like it?”

It is becoming clear that LegalZoom’s defense strategy in the Missouri case is to associate itself with “self-help software”.  I am sure that its well-financed publicity machine is already approaching bloggers and the business press to write stories about whether “legal software” should be prohibited or regulated, when the real issue is whether and under what conditions a legal document preparation service should be regulated, or immune from regulation.

Definitions of what is “legal self-help software”, and what is not, are critical for carving out safe harbors for innovation, particularly as legal software applications that are distributed over the Internet have potential for great impact and for providing access to the legal system for those who cannot afford full service legal representation.

For example, LawHelpInteractive, a non-profit pro bono support organization, with grants from the US Legal Service Corporation, has assisted in the creation of true Web-based document assembly Web sites in many states that provides free legal forms directly to consumers that can be assembled directly on-line. 

LawHelpInteractive has generated thousands of legal forms during the past few years that are instantly available and free to consumers throughout the United States. No one is arguing that these Web sites constitute the practice of law.

Because of the wider reach of the Internet, Web-enabled legal software applications are actually more of a threat to the legal profession, than desktop software, and the opportunity for over-regulation remains ever present. I would regret the day that courts prohibit the sale of self-help legal software because it is the unauthorized practice of law.

However, stronger arguments can be made for protecting from regulation the distribution of legal software applications, than there are for exempting from regulation a "service business", so I maintain that confusing one category with another is dangerous and takes us down a slippery slope.

Whether or not LegalZoom provides a valuable service; whether or not consumers have been harmed by LegalZoom; and whether or not the company provides some form of legal advice are questions of fact for the Missouri jury, and beyond the scope of this post.

The question for the U.S. District Court in Missouri is whether, as a matter of Missouri law, LegalZoom's document preparation service business constitutes the practice of law in Missouri, under the terms of the Missouri UPL statute.

I think it does. What do you think?

 

Should law firms be owned by non-lawyer investors?

There has been much discussion recently in various venues about whether 5.4 of the US Rules of Professional Responsibility should be amended or revised to permit investment in law firms by non-lawyer, or non-lawyer entities, or even ownership of US law firms by non-lawyer entities. The ABA's Ethics 20/20 Commission is circulating a paper on the subject and is soliciting comments.

Known in the United Kingdom as Alternative Business Structures (ABS), this new form of law firm organization, authorized by the UK Legal Services Act of 2007,  will be permitted after October 6, 2011. Alternative Business Structures are already permitted in Australia, where several law firms have already gone public.

Other than the State of North Carolina where there is bill pending to permit non-lawyer ownership of up to 40% of a law firm, there has been little movement in the US to make change Rule 5.4 Some hybrid models are beginning to emerge in the US,  but they are a workaround the existing rules.

There is no clear path for non-lawyer ownership or investment in a law firm in the United States, and as a result it is arguable that the legal services delivery system lacks the capital necessary to innovate and create the efficient systems that are necessary to serve not only the "latent market for legal services", but existing legal markets more effectively.

Now comes Jacoby & Meyers, a law firm that has pioneered in changing the way legal services are delivered, filing multiple law suits in the Federal District courts of New York, New Jersey, and Connecticut against the presiding state justices in those states responsible for implementing and enforcing Rule 5.4, requesting that the Rule by overturned. The Complaint makes clear that Jacoby & Meyers "seeks to free itself of the shackles that currently encumber its ability to raise outside financing and to ensure that American law firms are able to compete on the global stage"

Click here for a complete version of the Complaint.

Andrew Finkelstein, the Managing Partner of Jacoby & Meyers, and also the Managing Partner of Finkelstein & Partners, said that "No legitimate rationale exists to prevent non-lawyers from owning equity in a law firm. The time has come to permit non-lawyers to invest in law firms in the United States,"

Now the fun begins!

Disclosure: Finkelstein and Partners is a subscriber to our  DirectLaw Virtual Law Firm Service.

 

 

 

 

LegalZoom is Considering an IPO

Apparently LegalZoom is in the early stages of planning an IPO, (going public),  according to an unnamed source at VentureBeat. Employing more that 500 employees, and having raised over $45 million in venture capital over the last few years, LegalZoom is clearly the leading non-lawyer legal document preparation web site. This is a good example of a disruptive innovation in the delivery of legal solutions by a non-lawyer provider that continues to eat away at the market share of solo practitioners and small law firms.

Focusing on a market that is not served well by the legal profession, in the same way that Southwest Airlines first targeted people who traveled by bus, rather than by air because air travel was too expensive, LegalZoom is will undoubtedly figure out a way to move up the value chain, capturing even more complex business from law firms, without actually giving legal advice.

In the United States, because the definition of what constitutes the "unauthorized practice of law" is so vague. (perhaps unconstitutionally vague),  it would seem that even though LegalZoom does not actually provide legal advice, it would be prohibited from assembling legal documents, even when the document assembly is purely software-driven. 

The reality is that bar associations have a tough case to make against a non-lawyer provider when no actual legal advice is given. UPL statutes haven't been truly tested on the issue of whether a non-lawyer can assemble legal documents without actually giving legal advice. In Florida, when the issue came up, there was a compromise between the bar and non-lawyer providers and non-lawyers can help a consumer complete court forms as long as no legal advice is provided. It gets murky when you move beyond courts forms, to more complex transactional documents such as a will,  a living trust, or a marital separation agreement, even if the user is making the selection through a software driven questionnaire. Some UPL advocates, have argued that the selection of alternative clauses is still UPL, because a person had to "program" the clauses. There is some precedent for this position, but the State of Texas on the other hand, specifically excludes software driven document assembly from the "unauthorized practice of law., provided there there are disclaimers which state "clearly and conspicuously that the products are not the substitute for the advice of an attorney."

I think the risk portion of the prospectus will make for fascinating reading, particularly since in many states UPL is a felony. I can just visualize this language: "Investors should be aware that the company may be violating unauthorized practice of law statutes in many states, and as a result, if convicted, one or more executive officers may be required to serve time in the pokey."

In the interest of full disclosure,  Epoq US,  of which I am President, and which is the parent company of DirectLaw, also provides legal document preparation services over the web directly to consumers through a network of legal web sites    So perhaps I should be worried as well.

LawPivot: Another Legal Advice Web Site

Another interesting start-up has emerged out of Silicon Valley to provide crowdsourced legal advice to other start-ups for free.

Vertical Q&A web sites seems to be the next new thing among venture capital investors. Even Facebook  rolled out this year a crowd-sourced Q&A service.

LawPivot, a legal Q&A web site founded in 2009,  hopes to fill a niche by providing legal advice to the founders of start-up and early stage high-tech companies based in California at a legal fee they can afford -- FREE.   Legal advice is provided by an experienced network of high-priced business law attorneys, recruited from the top 200 hundred or so law firms, who hope to pick up new clients by entering into discussions by providing free legal advice services to start-up companies.

Free legal advice or the “free consult” has been employed by lawyers for years, pre-Internet, as a tried and true marketing strategy for acquiring new clients. Now many lawyers are beginning to offer free legal advice online from their web sites directly. See for example,  VirtualEsq.Com . By next year there will be hundreds of these free legal advice services offered directly by lawyers from their web sites as the virtual law firm movement begins to scale.

However, free legal advice from an individual law firm's web site, is not the same thing as a vertical web site that aggregates answers from many lawyers, giving consumers a wider variety of responses to their particular situation.

Free legal advice online is not a completely new idea. FreeAdvice has been doing it for years, and consumers can get answers to their basic legal questions from sites such as AVVO, RocketLawyer, and JustAnswer. What is new, is that LawPivot provides through its network of lawyers “real” legal advice that applies to the client’s particular situation, as distinguished from merely legal information. And this advice is reputedly to be "high quality" given the stature of the lawyers recruited to the LawPivot network.

However, genuine legal advice, [as distinguished from “legal advice” that is characterized as “legal information” ],  like any legal service, has to be delivered in an ethically compliant way requiring that the client’s information be kept confidential, that an attorney/client relationship be established, and that the attorney providing the legal advice be a member of the bar within the jurisdiction  where the client is located. Presumably LawPivot is addressing these issues. The LawPivot service is presently limited to California, but the company, according to its representations, plans to expand nationwide.

Although the company recently raised $600,000 from Google Ventures, the venture capital arm of Google, after a $400,0000 round from from a group of angel investors, it will be interesting to see how or whether it survives. At this point, neither the clients are charged for legal advice, nor are the participating attorneys charged an advertising fee. So there is no revenue, and apparently no business model. However, I doubt that the investors thought they were making  charitable contributions, so there must be a business model lurking in the background somewhere?

Unfortunately, the only business model that is ethically compliant in the US, is one where the participating lawyers pay an advertising fee to play (get listed) and get exposure. Splitting legal advice fees between a law firm and a non-law firm , is a big “No, No” and an ethical prohibition that exposes the participating attorneys to bar sanctions which could lead to disbarment.   Perhaps because Google is now involved as a major backer of  LawPivot , and the company is planning to move to the GooglePlex campus start-up incubator,  "they can do no wrong.!"

Many other Western common law jurisdictions, like the United Kingdom, have abolished the division of fees, but the rules against splitting fees with non-lawyers remains sacrosanct  in the US, on the theory that splitting fees would compromise the independent judgment of the attorney. However, in the UK, lawyers are permitted to work for a profit-making company and provide legal advice directly to consumers, and no one seems to be complaining about compromised judgment. [ See: FirstAssist in the UK  for an example ].

Charging clients an administrative fee to “use” the web site, as an alternative revenue source, has been tried before in an earlier Internet era, and it failed then. [ e.g. AmeriCounsel ]. I doubt that this model will work today when consumers are expecting everything on the web to be for free.

I think it is a good sign that innovation is happening in the legal industry, and that private capital is finally looking for a way to get a return by investing in the delivery of legal services. [See: Total Attorneys Receives Multi-Million Dollar Investment ].

I would like to see companies like LawPivot thrive, but at this point I don’t see the juice.  Are advertising revenues sufficient to make this venture sustainable, or has LawPivot  figured out another legitimate source of revenue that doesn't violate US ethical prohibitions? Only time will tell.

 

Will LegalZoom Become the Largest Law Firm in the US?

 

LegalZoom has been beta testing a concept which links its marketing capabilities to a network of law firms that offer legal services under the LegalZoom brand. With some state bar associations accusing LegalZoom of  the unauthorized practice of law,  it might makes sense for the company to seek deeper alliances with networks of attorneys who are able to offer a full and ethically compliant legal service. Solos and small law firms, leveraging off the visibility and prominence of the LegalZoom brand, could reduce their marketing costs and enable these firms to better capture consumers who are part of the “latent legal market”  on the Internet. It could be a win/win for both parties.

Unfortunately, linking the capital and management resources of profit-making organization with private law firms is almost impossible in the United States, given the regulatory framework that governs law practice. Unlike, the United Kingdom, which is in the process of deregulating the legal profession, enabling profit-making companies, from banks  and insurance companies to retail chains like Tesco,  to actually own a law firm, and/or split legal fees with a non-law firm, these practices in the US are strictly taboo.

In the US, law directories can charge a flat marketing fee for a listing, but sharing legal fees with a marketing organization can get you disbarred.

During the dot-com boom around 1999-2000, a company emerged by the name of AmeriCounsel that tried to create a hybrid organizational structure similar to the LegalZoom experiment. The company sought to enable a network of attorneys to offer legal services at a fixed and reasonable price and to mediate between the consumer and the law firm in terms of guaranteeing the quality of the legal services offered. The company failed during the dot-com bust for various reasons, including lack of financing, but on the way to failure, secured some opinions from state bar associations that blessed their model and provides a blue print for hybrid delivery systems which combine the expertise of a law firm with the marketing, management, and technological resources of a non-law firm.

One such opinion was issued by the Nassau County Bar Association New York State.

The Bar Association reasoned that the AmeriCounsel scheme was permissible because:

[S]ince AmeriCounsel does not charge attorneys any fee and since AmeriCounsel does not “recommend” or “promote” the use of any particular lawyer ’s services, it does not fall within the purview of DR 2-103(B) or (D). Rather, AmeriCounsel is a form of group advertising permitted by the Code of Professional Responsibility and by ethics opinions interpreting the Code.

In this model, AmeriCounsel provided technology and administrative services to link the client with the lawyer, but the law firm made no payment to AmeriCounsel. Instead, a separate administrative/technology fee was paid by the consumer to AmericCounsel for using the web site and gaining access to the lawyer. (This is not a practical scheme in today’s web environment, in my opinion), Moreover, AmeriCounsel did not choose the lawyer. The client was able to compare the credentials of different attorneys and choose their own lawyer. Thus no legal referral was involved, which would not be permitted in New York, as only an approved non-profit organization can make legal referrals.

In my opinion, this model, forced on AmeriCounsel, by the Rules of Professional Responsibility, is cumbersome, hard to implement, and was not economically viable for AmeriCounsel. Perhaps this was one of the causes of its failure.

Almost a decade later, companies that want to enter into this kind of hybrid relationship with lawyers, have to follow the same rule structure, as the ABA Model Rules of Professional Responsibility as the rules have not changed in any significant way. changed.  It will be interesting to see whether the ABA Ethics 20/20 Commission, which was set up just last year, will address these issues at all.

Perhaps there should be a “safe harbor” that enables organization’s like LegalZoom to experiment with new patterns of legal service delivery that could operate for a limited period of time in a specific state, like California, The experience would be evaluated carefully as a basis for rule and policy change. The evaluation would be aimed to see if client's interests are compromised in any way, and whether the delivered legal service is less expensive, without compromising the quality of legal service.

Instead of creating legal profession regulatory policies that are based on the legal profession's idea about what is good for the consumer, policy could be based on real experience and facts. Experimentation is good. It leads to change, and in other industries improvement of methods and approaches over a period of time.

Of course, I don’t believe that this will ever happen in the US, at least not in my professional lifetime.

 

We the People Files for Chapter 11: Another Casualty of the Internet

Last Friday, We The People USA, , the legal document preparation company that operates through a network of franchisees,  voluntarily filed for chapter 11 bankruptcy protection.  The company and its affiliate, We The People LLC, are subsidiaries of Dollar Financial Group, Inc.  While the companies apparently had $24 million in sales and 138 franchised locations in 2006 , there are only eight remaining franchises and the companies lost $2.4 million on only $1.4 million in revenue in 2009.  By the end of 2009, operating revenues were less than $15,000 per month. For more information click here.

Several years ago I took a closer look at the We the People model and wondered how long it would take to fail. We the People established a network of physical retail stores, some run directly by the company, but most were franchised locations. Customers would complete a paper questionnaire, submit it to the store owner with full or partial payment. The store owner would fax the questionnaire to a central processing center where a paralegal or non-lawyer would input the data from the questionnaire into a desk-top document assembly program which would create the document ready for return to the customer.

Because there is so much friction in this system, the price per document was very high, when compared with comparable documents available over the Internet from either legal form web sites, or paralegal document preparation sites such as LegalZoom. The combination of the cost of real estate,  franchises  fee, the cost of advertising a physical location, and the consistent trend towards reduced pricing for common legal documents was obviously too much for the franchisees of We the People to bear. Plus some franchisees were being harassed by state bar UPL Committees. Because each franchisee purchased a dedicated territory it was never possible for the parent company to create an Internet-based strategy which would enable customers, for example, to purchases documents directly off the Internet, and then pick up the document at a local store, or simply effectively use the Internet to drive traffic to the physical locations maintained by We the People network.

There is a parallel between Turbotax which is a pure play Internet-based tax preparation service and H&R Block which maintains a comparable network of physical locations. Just this week, H& R Block reduced its projections for 2010, attributing the decline to the fact that more people are turning to do-it-yourself services due to the weak economy. This is despite the fact that H&R Block has an online offering. On the other hand, Intuit which operates Turbotax - reports an increased by 11% in projected usage in 2010, and has raised outlook and guidance for 2010 fiscal results. Web-based document preparation services, like LegalZoom, seem to be thriving, while land-based independent paralegals, where they exist, are hurting for business.

High pricing, expensive office space, fixed office hours, commoditized product offerings, expensive advertising, little or no interaction with customers over the Internet, obsolete technology, and low productivity --- all conspired to kill We the People.

Does this business model seem familiar? It looks like the same business model used by many (but obviously not all) community-based solo law firms who wait patiently for clients to knock on their doors to buy their services.  There are lessons to be learned  for "retail law firms" that serve moderate to middle income clients from the We the People failure.

Is it too late for solos and small law firms to change?

LegalZoom Sued for UPL in Missouri

It seems like LegalZoom's practices are finally catching up with it. The company 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.

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 there 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.
 

Innovation and Rules of Professional Responsibility

ABA President B. Lamm has created a new Commission on Ethics called Ethics 20/20 to review  ethics rules and regulation of the legal profession in the United States in the context of a global legal services marketplace. Hearings will be held at ABA Meetings to get input from various interests on how to reform or modify the ABA Code to enable US law firms to remain competitive in an age where Internet  technology is pervasive.

I have been invited by the Commission to testify and submit a statement at the ABA Mid-Year Meeting in Orlando, where the Commission is holding one of its first public hearings.

My statement will discuss the following topics:

  • how the rules of professional responsibility function as a deterrent to innovation;
  • issues relating to the unauthorized practice of law and the definition of "the practice of law;"
  • legal referral concepts in the age of the Internet;
  • state rules of professional responsibility that require a "physical" business office in order to practice law in that state;
  • the potential for cloud computing;
  • enabling the delivery of limited legal services online;
  • law firm ownership structure as it relates to innovation in the delivery of legal services;
  • and the eLawyering Task Force Recommended Guidelines for the Delivery of OnLine Legal Services.

I am looking for suggestions and ideas about other issues that relate to the delivery of online legal services and the rules of professional responsibility. Any ideas are welcome. Just comment on this blog.

Blue Ocean Strategy and Limited Legal Services

When we designed the DirectLaw web service we relied on theories developed by W. Chan Kim and Renee Mauborgne in their best selling book Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant .

Our concept is that a technology platform that enables law firms to offer limited legal services over the Internet could tap into the "latent markets" for legal services.

We also used this analytical approach to develop our online non-lawyer document preparation service approach and our approach to offering automated legal forms over the Internet which are also designed to serve the "latent market for legal services". LegalZoom is demonstrating that there is a huge latent market that is satisfied with a "good enough" solution.

Nicole Garton-Jones, a lawyer based in Vancouver, Canada, and a user of our DirectLaw platform has posted a detailed analysis of how her law firm development strategy is an example of Blue Ocean Strategy in action. See her blog post on this subject. Its worth reading.
 

Conn Bar Attacks Web-Based Legal Services

Attorney Louis Pepe, a Connecticut attorney and Chair of a Connecticut Bar Task Force examining non--lawyer legal information web sites, believes that these web sites are breaking the law by providing legal services in a state in which they're not licensed to practice, as reported in the Connecticut Law Tribune.

There are differences between  legal information web sites that provide legal information and legal forms only, and web sites that offer something called "legal document preparation services" where a paralegal or other non-lawyer reviews a document and assists in preparation prior to sending the form back to the client.  Rather than making a distinction between the different kinds of web sites, Pepe's  Task Force lumps them altogether into a single "evil" category. If it's not a  law firm web site, it has no place on the web, at least as far as the Connecticut Bar is concerned.

As reported by the Tribune, "the task force filed its report with the Department of Consumer Protection alleging that the on-line legal providers also were engaged in deceptive advertising because the companies are offering legal advice by providing relevant legal documents."

Can it be that the provision of just a legal form constitutes the "unauthorized practice of law?"  If that were the case why don't we just ban self-help legal software and self-help law books from Barnes & Nobles book shelves? All of the legal information web sites that I know of,  have a clear disclaimer that they are not a law firm and do not purport to give legal advice.

Does Pepe think that a consumer can't tell the difference between an attorney and a legal information web site? Is any publication - whether print-based or web-based -  that is a legal form the "unauthorized practice of law?"

In my opinion, there is a good argument to be made that a legal information web site that states that it's services and products are the equivalent to what a lawyer provides is a misrepresentation. It would be a misrepresentation in advertising, and consumer protection agencies should monitor the claims made by these providers. However, the claim that the mere provision of a legal form is the "unauthorized practice of law" is an abuse of the legal profession's self-regulatory power to protect the consumer from harm.

 

Catherine J. Lanctot has written an interesting article on the subject in “SCRIVENERS IN CYBERSPACE: ONLINE DOCUMENT PREPARATION AND THE UNAUTHORIZED PRACTICE OF LAW,” 30 Hofstra Law Review 811 (2002, 44 pp, pdf), where she argues that those who wish to apply UPL enforcement against such software products or document preparers ”must not lose sight of the broader implications.”  Not only do they risk constitutional challenges, but :

“[W]e must consider the ramifications of such enforcement. The public reaction would likely be negative. Enforcing unauthorized practice of law statutes against online document preparation services would be neither painless nor popular. The lay public, which already detests lawyers, generally perceives unauthorized practice of law enforcement as yet another way for the legal profession to line its collective pockets at the expense of consumers. . . .

“In addition, it is at least possible that these websites are managing to provide some consumers with a necessary service—basic legal documents at an affordable price. At a time when the bar seems to have abdicated its responsibility to provide routine, noncomplex legal services to the poor and middle class, it could well be counterproductive to try to shut down one vehicle for serving those unmet needs.”

If  the Connecticut Bar can't distinguish between their self-interest in maintaining a monopoly over the delivery of legal services and the public's right to legal information whether in the form of a book, a desk-top software program, or a web-based software program, perhaps the citizens  of Connecticut should either strip the bar of its self-regulatory power, or further define what the "practice of law" means. That is what the citizens of Texas did, when the Texas Bar attempted to ban self-help law books and self-help legal software from being sold in the State of Texas.

 

 

 

LegalZoom Challenged by North Carolina Bar

Legal Zoom has been challenged by the North Carolina Bar which claims that Legal Zoom is violating the unauthorized practice of law statute in North Carolina. The essence of the Bar's complaint is that even though Legal Zoom asserts that their legal documents are created by a web-based software system,  this constitutes the practice of law because Legal Zoom selects the content that is incorporated into the system. The Unauthorized Committee of the Bar cites  In re Reynoso, 477 F.3d 1117 (9th Cir. 2007) , a case that was decided by a Federal court in California on a different set of facts. In fact, in the case of Legal Zoom, a paralegal or legal technician, conducts something called a "review" , which Legal Zoom uses as a rationale to charge a higher fee. This review is not supposed to be "legal advice", but apparently this gives the North Bar UPL Committee problems as well. We think the In re Reynoso decision is limited to the particular facts of that case, which the Court notes, so it can be argued that is not appropriate for the North Carolina UPL Committee to cite this as precedent,  We also that in California there are many non-lawyer providers who provide alternatives to lawyers, including Legal Zoom , which is based in Hollywood, California. So what is the unauthorized practice of law in North Carolina, is not in California. This doesn't make sense.

This is an ominous development as it indicates that the organized bar will go to any  length to maintain its monopoly over the delivery of legal services, even redefining what is essentially a "legal information service" as  the practice of law.  The legislature of the State of Texas was faced with a similar situation several years ago, when the Bar was trying to shut down a legal software publisher on the theory that the purchase of a  legal software program from Staples was the practice of law, and responded by passing a statute in response to consumer demand that exempted legal software programs as falling within the definition of the practice of law.

This is not an issue that will stir North Carolina's citizens to rise up in anger at the organized bar for restricting their choices and keeping legal fees unnecessarily excessive, but they should. They should follow the path of Texas's citizen's and put the North Carolina bar in its place.

LegalZoom is Launching an Attorney Directory

LegalZoom has a clever plan to create an Attorney Directory for visitors to its web site that supports its market position. LegalZoom now attracts the most web traffic of any legal web site so this is an attempt to squeeze more value from this traffic.  Attorneys who enroll in the Directory, which is free except of a $99.00 set-up fee, are required to give users who are sent their way, a free 30 minute consultation. This enables LegalZoom to provide legal advice to augment its legal form document preparation services. The only lawyers who would participate in this Directory are those who are hoping to capture a case with a large fee, for either a complex matter or a personal injury matter --- cases which LegalZoom can't service with its legal form business.

These lawyers are not threatened by the fact that LegalZoom is offering an alternative, non-lawyer service that is eating away at the market share of solos and small law firms that provide legal services to the broad middle class in such areas as wills, incorporation, no-fault divorce, trademark, and name change, to name only a few. The reality is that these common transactions also require the legal advice of an attorney, but if lawyers are to keep their fees low, how can they give legal advice away for free?

Attorneys who are offering lower cost "unbundled legal services" which consist of legal forms together with legal advice for a fixed fee would not be motivated to provide 30 minutes of free advice. Many of these firms can charge a small fee for this legal advice. 

Nolo, one of LegalZoom's competitors, also offers an Attorney Directory, but these attorneys are not required to provide a free 30 minute consultation. As a result law firm's in the Nolo Directory are more oriented towards providing limited legal services to clients of moderate means. Nolo is the second highest traffic legal web site.

Disclosure: My Maryland-based virtual law firm which offers limited legal services for a fixed fee is a member of the Nolo Lawyer Directory. We are pleased with the results we are getting, even though we pay advertising fees to participate.

With this move, venture-backed LegalZoom, with its superior market position, will continue to increase its market share of common legal services at the expense of the legal profession.

With this new Lawyer Directory, LegalZoom can buttress its claim that it "puts the law on your side."

 

Client Confidentiality and Online Document Preparation

Some of our law firm clients have asked us whether there is a breach of confidentiality if a law firm uses our automated legal documents and virtual law firm technology as part of their web site. In our model, we provide a technology platform where a client who has been accepted by the law firm can complete an on-line questionnaire which captures answers provided by the client through the web browser. All information provided by the client is passed by the client to the law firm in encrypted form. These factual answers from the client, and client choices, are used by our web-enabled document automation technology ( Rapidocs) to instantly create a first draft for the lawyer to review or amend as appropriate.

The question is:

Does a lawyer breach his or her obligation to maintain a client’s confidentiality when using an online document automation application for his or her clients, which is provided from a third party vendor?

The rules of professional conduct of every state impose an obligation on lawyers to maintain the confidences of their clients. In addition, rules of evidence protect lawyers from testifying against their clients under the attorney-client privilege.

ABA Model Rule 1.6 addresses confidentiality and has been adopted by most states. The rule provides that a “lawyer shall not reveal information relating to the representation of a client unless the client gives informed consent, the disclosure is impliedly authorized in order to carry out the representation or the disclosure is permitted” by one of the exceptions set out in the next part of the rule, none of which pertain to this situation. Paragraph 16 of the comment to the rule states, “A lawyer must act competently to safeguard information relating to the representation of a client against inadvertent or unauthorized disclosure by the lawyer or other persons who are participating in the representation of the client or who are subject to the lawyer’s supervision.”

Opinions that examine the lawyer’s obligation to maintain confidentiality when using technology generally address email. The leading analysis of this is ABA Formal Opinion 99-413 (March 10, 1999). The opinion examined different modes of email transmission and concluded that in all modes, “lawyers have a reasonable expectation of privacy …despite some risk of interception and disclosure.” The opinion also cautions that when a lawyer may send information that is “so highly sensitive that extraordinary measures to protect the transmission are warranted,” the lawyer should consult the client about the mode of the transmission.

Opinion 99-413 is of particular note here because it includes an examination of email transmitted over the Internet, like online forms. The opinion states that confidentiality may be compromised by an ISP’s legal right to monitor what is transmitted through it or stored on its network and by illegal hacking. On the first point, the opinion indicates that by law providers may conduct random monitoring only for mechanical or quality service control checks. Therefore, the interception of content of a communication sent through the Internet would be illegal in either situation. This gives the lawyer a reasonable expectation of privacy that requires no further action, except as noted in the highly sensitive communication.

Although not required under the ABA Opinion or those of various states, encryption makes the possibility of interception even more remote and creates even greater assurances the information will be confidential. Nevertheless, under the analysis of these opinions, the transmission of online forms over the Internet would not breach the lawyer’s obligation to maintain the client’s confidentiality even when the communication is not encrypted.

For other opinions on this subject see: New State Laws Requiring Encryption May Affect Law Practices  on the Blog on Virtual Law Office Technology.

 

LegalZoom.com Sued Over Trademark Filing Fees

Apparently LegalZoom has been advertising to its customers that the trademark filing fee is $325.00, when it was actually $275.00,  an obvious misrepresentation. Apparently they have been doing this since 2005. This has resulted in a consumer class action suit to recover the $50.00 overcharge on behalf of all customers who have paid the higher fee. Here is a good summary of the details of the case.  LegalZoom has since changed its web site to characterize the additional $50.00 fee as an administrative fee. If a law firm made this kind of misrepresentation on its web site it would receive a sanction from the bar for misrepresentation. This is another example of the lack of regulatory control over non-lawyer providers of legal services and the absence of any accountability other than the response of the market -- which is in inefficient as consumers  rarely have sufficient knowledge to understand the nature of a misrepresentation.  LegalZoom's claim that a consumer can save thousands of dollars by using its service, rather than lawyer, assumes that somehow the services of LegalZoom and an attorney are identical. Nothing could be further from the truth. Caveat Emptor!!!

UPL Issue in On-Line Document Assembly

Recently a prospect for our DirectLaw Web Service asked me whether it was the unauthorized practice of law for a law firm to use a legal document that is generated by our web-enabled document automation system (Rapidocs), because the legal form did not originate within the law firm itself. In this model, a client completes an on-line questionnaire which generates a legal form or legal document instantly ready for attorney review and further modification. I asked my colleague Will Hornsby, who is Counsel to the Standing Committee on the Delivery of Legal Services, American Bar Association, and a leading expert on ethical issues that arise from delivering legal services over the Internet.

Hornsby says that a lawyer commits the unauthorized practice of law when the lawyer assists a non-lawyer, whether that is a person or a corporation, to undertake the practice of law. This leads to the question of whether online document automation that creates a legal form or document from data provided by the client is the practice law. The definition of “the practice of law” varies from state-to-state but frequently includes the drafting of legal documents and the use of legal knowledge or skill. (For specific state definitions of what is the practice of law, or the unauthorized practice of law, click here.

 

However, the question here revolves around whether the lawyer is “assisting” the software vendor in practicing law when the document preparation is provided as a legal service of the law firm. This is analogous to services provided by paralegals and other outsourced services. In most states, for example, paralegals have no independent authority to provide legal services. If they independently provide document preparation or use their legal skills in serving clients, they may be deemed in violation of their state’s UPL laws, as are any lawyers who assist them in providing those services. [This is the LegalZoom model ]. However, if paralegals provide those same services under the direction of a lawyer and the lawyer assumes supervisory obligations, the paralegal is not practicing law and is not violating UPL laws, nor is the lawyer who provides the supervision “assisting” in the unauthorized practice of law.

 

ABA Formal Opinion 08-451 (Aug. 5, 2008) clarifies that a lawyer may outsource legal services, subject to several considerations. The opinion directly addresses independent contractors, such as temporary lawyers, but also mentions sources of tasks such as a photocopy shop, a document management company and a third-party vendor for the firm’s computer services. In its discussion of Model Rule 5.5 and the unauthorized practice of law, the Opinion states, “Ordinarily, an individual who is not admitted to practice law in a particular jurisdiction may work for a lawyer who is so admitted, provided that the lawyer remains responsible for the work being performed and that the individual is not held out as being a duly admitted lawyer.”

 

Therefore, according to Hornsby, and I agree, even if a document automation application would be deemed the unauthorized practice of law if its services were provided independently of a lawyer’s services, once those service or the documents produced by the software application are provided under the lawyer’s direction and supervision, within the scope of the lawyer’s services, the lawyer can no longer be assisting the document preparation in the practice of law and no longer has a risk of assisting in the unauthorized practice of law.

 

 

What is LegalZoom?

LegalZoom is a California-based company that offers on-line paralegal document preparation services on a nationwide basis.  A nationwide advertising program, financed in part by a relatively large capital investment from Polaris Venture Partners,  is now underway in major national media markets with the goal of branding LegalZoom as the leading legal services web site on the Internet. With Robert Shapiro of OJ fame,  as the company's leading spokesperson, LegalZoom uses the  tag line: "We Put the Law on Your Side", a claim that the company could not make if it were a law firm under the marketing roles that govern the legal profession in all states. LegalZoom, as it is not a law firm, is not bound by these rules, Nevertheless, the company claims to be the leading legal web site. Is there something wrong with this picture?

When a customer arrives at the LegalZoom web site they are presented with a menu of legal documents that are sold for a fixed price. The documents are common legal documents that range from wills, powers of attorney, living wills, and no-fault divorce, on hand to business documents such as incorporation, trademark, and copyright on the other. The customer completes a web form and pays with a credit card. From the data inserted by the customer into the web form, a paralegal aided by document assembly software of some kind, generates a legal document or form, which is returned to the customer in paper format by regular mail.

Under long standing bar rules that are operative in every jurisdiction in the U.S, LegalZoom as a non law firm,  cannot give legal advice of any kind, cannot modify a customer's answers in any way, and cannot do any custom drafting that is responsive to a customer's particular set of facts. The company in a very fine print disclaimer makes clear that it is not a law firm and that" "LegalZoom is prohibited from providing any kind of advice, explanation, opinion, or recommendation to a consumer about possible legal rights, remedies, defenses, options, selection of forms or strategies. " The company does do a review which has to be limited to making sure that all answers are completed in the Questionnaire, that the spelling is correct, and minor tasks that are limited to very narrow role of being a proof-reader of the customer's data entries.

The company claims that: "With LegalZoom's lawyer-free service, you can save up to 85% off the rates an attorney would charge for the same procedure. " This comparison misrepresents the contribution that an attorney makes when serving a client. It suggests that the LegalZoom service is equivalent to the services of an attorney, when it clearly isn't. The representation suggests that a consumer will receive the same result that they would get if they went to an attorney, which is clearly not the case. Moreover, there are many attorneys who charge fees which compare favorably with LegalZoom's fee structure, so the fees that lawyers charge for comparable transactions which are published on the LegalZoom web site are true of some law firms, but not all solo and small firms.

LegalZoom's prices are in fact not cheap, when you consider that with a bit of effort searching  on Google a customer can find identical forms on the Internet that are either free, or which are sold for a modest fee, when compared to the "document preparation fees" that LegalZoom charges for very common legal documents.

But if the role of LegalZoom is really limited to data input and some minor editing and proofing, where's the beef?

There is no doubt that this service concept has been successful, because the company has claimed to have served 500,000 customers. LegalZoom's customers may believe that they are getting a service that is equivalent to the service that they would get from an attorney.

As a disruptive innovation, LegalZoom is demonstrating that there is room for competition in the delivery of legal services and that there are other way's to solve people's legal problems than going to an attorney, despite the very real limitations of the LegalZoom service.

It will be interesting to see how the organized bar responds to LegalZoom as the company becomes more dominant and continues to eat away at the legal profession's dominance in helping people solve their everyday legal problems.