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.

Essentially, 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.

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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.

Law 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.

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?

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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.

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Last week I was privileged to attend a Conference on the Future of Education, sponsored by New York Law School and Harvard Law School. This conference was the third in a series on this subject. The purpose of this conference is to initiate a conversation among and between law schools on how to make legal education better, cheaper, and faster, as Dean of New York Law School, Richard Matasar frames the issue. Personally, I think that Matasar's presentation on the problems and prospects for legal education was the best that I have ever heard.

The format for the conference was a series of presentations of very inventive proposals presented by teams of legal educators and other legal specialists, mostly academics, 12 teams in all.

As participants, we each had $1,000,000 to spend as if we were venture capitalist's listening to start-up pitches.

The team that I was part of actually won the competition, by receiving the most "venture capital" dollars. Credit goes to  Ron Staudt from Chicago-Kent Law School and Marc Lauritsen from Capstone Practice who did the heavy lifting on developing the proposal. The proposed project called for law students in clinical programs to be engaged in the development of "Apps for Justice" that could be used by legal service programs to provide tools for access to justice. The title of the project is "Learning Law by Creating Software"  Click here for a copy of the proposal.

Marc and Ron receiving their $10,700,000 check.

David Johnson from New York Law School won second place for a proposal to create "legal apps" that are games that would be used to teach and learn. The "State of Play" Academy.

Click here for a link to many of the other proposals.

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The James I. Keane Memorial Award for Excellence in eLawyering for 2011 is going to the Legal Aid Society of Orange County for their Legal Genie Project, reports the eLawyering Task Force of the Law Practice Management Section of the ABA, the group that makes the Award.

James Keane was the first appointed Chair of the group, and passed away tragically from cancer six years ago.

Bob Cohen is the long time leader of Orange County Legal Aid, and provided the leadership for this Project. 

This project combines the use of advanced web-enabled document automation technology to generate Chapter 7 and Chapter 13 documents, as well as California divorce pleadings. It is unique because it involves a network of lawyers who provide legal advice, document review,  and other assistance to clients who use the program. The use of Internet technology makes it possible for the lawyers to be involved, and to also get paid a fee, because the entire transaction is made more efficient. The lawyers who participating get the benefit of the Legal Aid brand, and the marketing that results from promoting the project.

The Project demonstrates how a vertical branded network of attorneys, empowered by a robust technology platform, can provide legal services at an affordable fee to individuals who could not normally afford a lawyer.

This is from the Legal Genie website:

 “Legal Genie is a simple, affordable and reliable online service created by Legal Aid Society of Orange County. It is designed for people who do not qualify for legal aid and cannot afford the services of an attorney. It asks simple questions and puts answers on the forms in the correct place.

"Legal Genie is different from other services because it connects you to a licensed attorney on our Lawyers Referral Service panel. The LRS attorney will give you telephone consultations, review your documents and give you legal advice. Legal Genie combines the magic of technology with the help of a professional at a price you can afford.”

The formal granting of the Award will be on April 12, 2011, at a Lunch for all of the attendees of  ABA TECHSHOW in Chicago, Illinois at the Hilton Hotel.

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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.

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YouGov, a research firm based in Great Britain, in a survey of consumer preferences for legal services recently reported that 60% of respondents said they would buy legal advice from brands like Barclays, AA, Co-op and Virgin. The report states that  “Law firms build their business on their reputation not on their brands and, in a highly fragmented market, recognisable legal brands are few and far between. The large non-legal brands could follow the Co-op’s example and build a strong presence relatively quickly in a market where no strong brands currently exist." In the US there are no national legal brands that serve consumers directly, except for LegalZoom, which isn't even a law firm. It would be interesting to see what would happen if nationally branded networks of law firms emerged to service consumers with a better value proposition than the typical local solo or small law firm practitioner.

The study also asked about online legal services: 34% of respondents said they would be more likely to choose a law firm that offered the convenience of online access to legal documents over one that had no online capability; 22% disagreed and 37% neither agreed nor disagreed.

Younger males were the most likely to choose a law firm with online services and access: 44% of 25-to-39 year-old males (and 40% of such women), along with 40% of 16-to-24 year-old males, would choose a law firm offering online access to documents over another law firm.

There is obviously a generational shift happening.  As a younger generation matures to the age where they have legal problems, their desire to deal with counsel online becomes a preference.

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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.

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Unless you've been asleep for the last five years, you have probably heard of LegalZoom, the California-based, non-lawyer legal document preparation company that claims it has delivered over 1,000,000 wills to consumers, and that it is the largest incorporation company in the country.

LegalZoom is only one of hundreds of Internet-based legal form web sites that have emerged during the last 10 years and which are eating away at the market share of solos and small law firms. LegalZoom has been challenged by some state bars with the unauthorized practice of law, but hasn’t lost a case yet. They are serving thousands of customers who ordinarily would be served by solos and small law firms. They must be doing something that is in demand because they continue to grow at the expense of solos and small law firms.

LegalZoom, and non-lawyer legal form web sites like it, have a business model that consists of the following elements:

• A legal service delivered purely over the Internet;
• No physical offices, and thus no extensive rental costs to pass on to customers;
• Limited services offered at a fixed price that can be easily compared with other providers including law firms;
• The use of web-enabled document automation technology to reduce costs and increase productivity;
• A secure customer portal where clients can execute legal tasks in their own personalized web space;
• Access on their web site to thousands of pages of free legal information on hundreds of subjects;
• Money-back guarantees to comfort consumers; and
• Reliance on informed consumers to do part of the work, often called co-production, such as filing their own documents or executing their documents on their own based on provided instructions to keep costs down.

Consumers don’t seem to care that they are not dealing with a law firm. As lawyers, we know the service they are selling is risky for consumers, but for consumers it delivers a “good enough” result. LegalZoom would not be growing at this fast a rate if they weren’t offering something that consumers want and value.

How to Compete Against Legal Zoom and Other Non-Lawyer Providers

In the new, competitive environment that solos and small law firms face in the current economy, the keys to law firm survival are to expand the strategic options available by opening new client markets, reducing the cost of services, and delivering legal services in a way that distinguishes your firm from other firms in the pack. These strategic options should be mixed with more traditional approaches to differentiation such as specialization within a niche practice area.

It is time for solos and small law firms that offer personal legal services to the broad middle class to rethink their law firm business models. There are many opportunities for incorporating some of the elements of the LegalZoom business model into a more traditional law practice.

To name a few:

• Consider offering "unbundled" limited legal services at a fixed price, both on-line and off-line;
• Leverage a reputation in your local community and a physical office into an on-line brand that is both local to your community and extends throughout your state;
• Add virtual law office functionality to your web site so that your clients can have the option of interacting with you on-line;
• Figure out ways of using Internet-based technologies, such as web-enabled document automation to strip out costs from your overhead structure increasing profitability;
• Figure out how to segment the market offering lower priced services for more routine matters in order to build trust so that when a client has amore complex problems they will turn to you for assistance;
• Emphasize all of the advantages of using an attorney over a non-lawyer forms provider in your marketing materials and your elevator speech. Click here to see one such comparison.
• Use web-based technologies to respond to both prospects and clients within hours rather than days.
• Reduce the perceived risk that consumers have in retaining a lawyer by increasing transparency and structuring forms of performance guarantees.
• Adopt project management technologies to better estimate costs and fees on more complex projects, translating that data into communications that clients understand.

The current depressed economy and its affect on the broad middle class is not going to change tomorrow. It is likely that solos and small law firms, will have to adjust to new pricing and market realities in the future as competition from non-lawyer providers of legal solutions continues to increase. Large law firms serving large corporations may be immune from these developments, at least for a few years any way, but the fact that Big Law is changing relatively slowly should not mask the rapid changes happening to solos and small law firm practitioners that serve consumers and small business.

I heard a report the other day that the volume of wills and estates practice in one state declined by 50% during the past year. I predict that this trend will continue and not reverse itself, despite any improvements in the economy.

Some commentators think that the monopoly will hold. History and the experience of other countries in deregulating the legal profession suggests otherwise.

Welcome to the "new normal."
 

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Washington State's Attorney General has entered into a settlement agreement with LegalZoom , requiring that LegalZoom cease comparing its fees to attorneys' fees unless the company clearly discloses that its service isn't a substitute for a law firm. The agreement also prohibits LegalZoom from engaging in the unauthorized practice of law, selling personal information obtained from Washington customers or misrepresenting the benefits of any estate distribution agreement. LegalZoom is also the subject of a class action suit in Missouri for the unauthorized practice of law.

This action has been a long time coming, but much of the damage to solos and small law firms has already been done, as LegalZoom, with its substantial venture capital backing, has already imprinted itself on the minds of America's middle class consumers that it offers a better alternative that seeking the advice of an attorney.

Even Polaris Investors - the VC firm that backs LegalZoom - claims on its web site that:

"Legalzoom is the nation’s largest online legal service center.  The company helps its consumer and small business customers quickly and affordably create estate planning documents, form businesses, and protect valuable intellectual property such as trademarks and provisional patents through their easy-to-use website thus avoiding costly attorney fees." (Our emphasis).

There is a value in having non-lawyer, trained paralegals assist consumers in completing legal forms, but LegalZoom's consumer practices have set this reform movement back.  If an attorney claimed that his practice, "put the law on your side," as Robert Shapiro of OJ fame has done on every Cable-TV channel, that lawyer would probably be subject to disciplinary action for an advertising claim that is a material misrepresentation.

It is time to level the playing field by requiring LegalZoom to disclose clearly the limitations of the services it provides.

Other State Attorney General's with responsibility for enforcing consumer protection legislation should take notice.

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Last week the New York Times, in it's Your Money column,  did an evaluation of non-lawyer legal form sites that offer wills on-line, including products offered by Legal Zoom and Nolo. The author concluded that a lawyer can still be very helpful:

"... a computer program can’t ask you about your family relationships or tease out complex dynamics, like your daughter’s rocky marriage."

"Still, the biggest risk might be summed up by Phillip J. Kenny, a lawyer in McLean, Va., who said that one client came back to him after looking at a software package and said, “I don’t know what I don’t know.”

A subsequent blog post in the New York Times Bucks  Blog that is linked to the column, discussed emerging online services that provide a lawyer review, or lawyer preparation of a will for a fixed price.  Services that were mentioned include: RocketLawyer, Nolo's Lawyer Directory, and DirectLaw's virtual law firm service for solos and small law firms. The MyLawyer.com web site, that wasn't mentioned,  is another example of a web site that links consumers to law firms that offer "unbundled legal services" over the Internet.

The lawyer review and lawyer assisted document preparation services are an example of how lawyers are learning from non-lawyer web sites to "productize" their services in a way that makes their legal services affordable to a wider range of consumers increasing their market penetration.

If more solos and small law firms followed the lead of the law firms delivering affordable online legal services, eventually the market share erosion from non-lawyer providers would diminish. More importantly, the legal profession could retain and consolidate its dominant position as the primary provider of legal services to the broad middle class. That's a big "if". At this point solos and small law firms continue to lose market share to new market entrants, despite the legal profession's UPL rules.

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During the summer we experimented with promoting a free Version of the DirectLaw virtual law firm platform, that includes all of the communications, collaboration, and ecommerce functions, but which excludes the document automation functions.

The DirectLaw Free Version is not quite free, because we charge a $99.00 set-up fee to cover our costs for setting up the account and the ecommerce component which enables law firms to bill their clients on-line.

We wanted to see how much demand we would experience for essentially a free virtual law firm platform, without doing much advertising or marketing. We want to see how ready solos and small law firms are to embrace the virtual law firm concept by adding this functionality to their web sites at almost no cost.

To our surprise, demand was much stronger that we had expected and we met our sign-up goals very quickly. Thus we are ending this Free Version Offer, effective August 31. 2010, and replacing it with what we call: DirectLaw Basic.

DirectLaw Basic, which includes all of the same functions as the original Free Version, but excludes the document automation functions and automated legal form libraries.

The monthly subscription fee will be $49.00 a month for a solo practitioner, plus $50.00 a month for each additional lawyer in the firm, if the firm is larger than a solo, up to four practitioners. There is no charge for access by support personnel and no-set-up fee. A free listing in MyLawyer.com, our consumer legal information portal,  is included in the subscription fee. This program is designed for solos and small law firms. Law firms with over 5 attorneys should contact us for a quotation. For additional details see: DirectLaw Virtual Law Firm Free Version.

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Volume IV of the recently released 2010 ABA Legal Technology Survey Report is devoted to Web and Communication Technology. A section on E-Lawyering reports that 14% of Respondents over all, and 19% of solo practitioners, report that they have a virtual law office or virtual law practice. This question in the survey that deals with with the question of whether a law firm has a 
"virtual law practice" was framed in terms of whether the attorney primarily interacts with clients using Internet-based software and other electronic communications software.

In my opinion, these self-reported responses from attorneys are not meaningful and are much too high to be accurate. The reported numbers are not useful in understanding where the legal profession is in terms of adopting the concept of a "virtual law practice." The reality is that the adoption rate is much lower.

The ABA Law Practice Management Section's eLawyering Task Force (disclosure: I am Co-Chair of the eLawyering Task Force),  defines a "virtual law practice" as one that offers to its clients a secure client portal, as part of the law firm's web site, where the client can log in with a user name and password, and interact with their attorney, as well as consume other online legal services. A virtual law practice is more than simply communicating with clients by email and never meeting with clients face-to-face. In order to have a "virtual law practice" by our definition,  you have to have a web site and a portion of that web site has to be dedicated as a secure portal for clients. Without this distinction, many law firms can claim that they are "virtual law firms" simply because they use email extensively, as the ABA Study seems to imply, giving the impression that integration of Internet technologies as part of their legal service delivery system is much higher than it actually is.

For example, in another question, the survey participants were asked whether the firm has a web site. The solo practitioner group responded that only 52.1% had a web site, but this is the same group that responded that 19% has a "virtual law practice."  By our definition, if you don't have a web site you don't have a "virtual law practice." The only explanation for the discrepancy in these numbers is that the question of " Do you have a virtual law practice?" was phrased so broadly that more law firms where included in the category than should be.

Another question that was asked to determine what kinds of online legal services were offered by the firm was: "Does your law firm offer online document preparation?" 11.4% of solo firms reported that they did. Again this number doesn't make any sense. There were 149 respondents in the Solo category. Only 52.1% actually had a web site, or 77 firms had a web site from which online document preparation could be offered. 11.4% would suggest that only approximately 8 law firms could offer this service. Not only is this number too small to make any meaningful projections in terms of the total number of solo practitioners in the US (more than 400,000), but it is also likely to be misleading. Here's why:

The technological options for offering online document assembly for solo practitioners are very limited. One option is to provide fillable Adobe . pdf forms. But you can't easily use a fillable Adobe .pdf to create a text document such as a Will or a Shareholder's Agreement. The major document assembly vendors such as HotDocs, DealBuilder, and Exari have systems that support online document assembly but the price for licensing these systems is much too expensive for the average solo practitioner. Wizilegal, a new entrant to the field, provides a new low cost web-enabled document assembly solution, but our market information suggest that they have only a small number of users. (Disclosure: DIrectLaw, which sponsors this blog, is one of the few web-enabled document assembly solutions that is offered at a price that a solo practitioner can afford.)

In short, the question about the use of online document assembly should have been phrased much more narrowly, with a field in the questionnaire that would require that the law firm indicate what platform is being used to support online document assembly, and whether it is a third party vendor, or whether the programming was done in-house. My sense is that if the question were asked properly, the number of law firms offering online document assembly would be much lower than actually reported.

Finally, 3% of respondents report that their firms offer expert system on their web sites (compared with 1% in the 2009 survey), including 7% of the large firm respondents. Based on our surveys of law firms from solos to large law firms, this percentage seems very high to me. It is very rare that I come across a law firm web site that actually offers an "expert system" for use by its clients, and I review or check out literally thousands of law firm web sites a year.  Most lawyers don't even know what an "expert system" is! I would like to see a more precise question, where the respondent is required to name the kind of "expert system" they are offering and the url of the web site where it is offered, so that a reviewer could more closely examine what the law firm represents they are doing is in fact the case.

I think that it is commendable that the ABA Legal Technology Resource Center now has a separate section of its annual report just on web and communication technology. The platform for the delivery of legal services is gradually shifting from traditional face-to-face office practice to the Web, but my sense is that the the pace of adaptation is much slower than is being officially reported. This is understandable in a profession that views its core identity as one where clients are dealt with primarily face-to-face. 

On the other hand, our own research on consumer preferences suggests that more than half of consumers would like their law firm to have an online virtual component. Thus, the legal profession continues to lag behind what other service industries offer to their clients and customers online.

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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.
 

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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.

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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.

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DirectLaw  has announced that the Law Office of Kyle Rhodes, based in Fort Worth, Texas has subscribed to DirectLaw's virtual law firm platform to enable the firm to offer legal services over the Internet to Texas residents. The firm focuses on offering Texas, Wills, Texas Trusts, and other asset protection documents for a fixed price, bundled with legal advice.

This law firm is not a pure virtual law firm as Attorney Rhodes maintains a downtown Ft. Worth office for clients who prefer to meet with him face-to-face. This is a good example of what I call, "click-and-mortal" - combining a virtual law practice with an off-line physical practice.  The market research that we have conducted suggests that the most effective implementation of the "virtual law firm" concept is as an add-on to a office-based practice, as this combines the best of both worlds.

For more information visit the website. The firm utilizes Rapidocs, DirectLaw's web-based document automation system to enable clients to complete online questionnaires which generate documents ready for lawyer review and editing.  This is DirectLaw's third law firm launch in the State of Texas. 

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Total Attorneys has responded to Attorney Zenas Zelotes filing of ethics complaints in 47 different jurisdictions.

The Total Attorneys response can be found here.

Total Attorneys summarizes its response as follows:

"In a nutshell, Mr. Zelotes’s 303-page complaint (including exhibits) alleges that Total Bankruptcy (and various other Total Attorneys companies) is a for-profit referral service, that the business model of the Total Attorneys marketing sites amounts to impermissible fee splitting, that our advertising is impermissible solicitation and that our advertising is misleading. The complaint is a hodge-podge of hearsay, factually inaccurate statements, and carefully selected lines from a myriad of state advisory opinions taken wholly out of context, all crafted together to paint a picture of our program that could not be ignored by state regulatory counsel."

This is a complicated issue that needs further analysis, as there are two sides to this story. Supporting documents in the Total Attorneys response which require further examination include:

Zelotes Complaint with Exhibits

Total Attorneys Response filed in Illinois

Zelotes Reply

South Carolina Ethics Opinion

Kentucky Ethics Opinion

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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.

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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."

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Stephanie Kimbro, a solo practitioner who operates Kimbrolaw.com, a virtual law firm in North Carolina, has been selected as this year's winner of the James Keane Memorial Award for Excellence in eLawyering. This award is given annually by the eLawyering Task Force of the Law Practice Management Section of the American Bar Association, a group which was founded by Jim Keane an active and long-standing member of the ABA/LPM section who died tragically from lung cancer several years ago. I am the present Co-Chair with Marc Lauritsen.

Ms. Kimbro's law firm is a completely virtual law firm that serves individuals and small business over the Web. Our group concluded that Kimbrolaw.com  met the criteria for the Award perfectly as it demonstrates an innovative online model for delivering services to the broad middle class. Clients access their own individual web space where they can consult with their attorney, have their documents reviewed, and conduct other legal tasks -- all online.

The Award will be formally given to Ms. Kimbro at the American Bar Association's TECHSHOW on April 2, 2009, immediately before the key note speech by Richard Susskind, who will discuss his new book: The End of Lawyers: The Rethinking the Nature of Legal Services.

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For those of you who are members of the eLawyering Task Force of the Law Practice Management Section of the ABA, this is reminder that there is a Task Force Conference call on January 9, 2009 at 10:00 A.M.

Our agenda includes a discussion on standards and best practices for elawyering and delivering legal services online.

Members of the American Bar Association, who wish to become members of the Task Force should contact Marc Lauritsen, Co-Chair of the Task Force at marc@capstonepractice.com directly. In order to be eligible for membership you also have to be a member of the Law Practice Management Section of the ABA. 

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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!!!

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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.

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We are exhibiting our DirectLaw Web Service at LEGALTECH in New York on February 2-4, 2009. This show is one of the largest legal technology shows involving over 450 legal technology vendors which attract over 13,000 participants. The show is at the New York Hilton at 1335 Sixth Avenue. We are Booth #1621 on Level II.  If you are planning to attend, please stop by for a demonstration of our DIrectLaw Service or just to chat about new developments in the delivery of online legal services. We will be introducing the latest version of Rapidocs, known as Rapidocs 4.0, which is our web-enabled document automation solution that operates totally within the web browser without requiring the downloading of an Active X control, Java Applet, or other software application.  Come see legal documents assembled in real time within the web browser.

Richard Cohen, CO-CEO of EPOQ, our sister company in the London, will also be in attendance and is up to date on new developments to de-regulate the legal profession in the UK and EPOQ's new mylawyer network of web-enabled UK law firms that serve consumers.

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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.

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