Best Practice Guidelines for Legal Document Service Providers

Legal Documents On-LineThe American Bar Association’s eLawyering Task Force has compiled a draft set of best practice guidelines for legal document providers, which can be downloaded here*.  

An increasingly popular – and controversial – category of service providers are those that supply customer-specific documents over the Internet, using interactive software and/or human resources, without purporting to be engaged in the practice of law. There are literally hundreds of these legal documents Web sites. More of these legal document Web sites launch every month, of not every week on the Internet.

 

These Web sites include for example:

The Task Force believes that there are common principles that ought to guide these legal document sites, and practices that consumers should be able to expect.  The  eLawyering Task Force  also recognizes that consumers have different levels of knowledge in meeting their documentation needs.  Some believe, for instance, that it is simply a matter of getting “the” right form, and pay little attention to careful drafting and appropriate execution.  Others have a more sophisticated understanding of options and implications. Nevertheless there should be baseline expectations that meets the needs of all kinds of users. The goal is not to issue a "seal off approval" of these legal document Web sites. The objective is to encourage these Web sites to use acknowledged "best practices" in the development and delivery of their services.

These guidelines do not take a position on whether certain document services may constitute the unauthorized practice of law in certain jurisdictions if not performed by a licensed attorney, other than to urge providers to know and observe applicable law on that thorny subject.

The primary purpose is to aid consumers in making informed decisions about what they are buying.

Comments on these Guidelines are invited. They can be submitted on the eLawyering Task Force ListServ which any lawyer can join, Click here.

 

Hyatt Regency Incline Village Lake Taho, CaliforniaThe eLawyering Task Force is having a Quarterly Meeting at he Hyatt Regency Lake Tahoe Resort, Spa and Casino on Friday, October 19, 2012 between 9:00 - 11:00 A,M,

This is an open meeting and individuals who want to submit comments on these Guidelines are invited to attend and participate.

Additional Conference details can be found here.

 

 

*(Disclosure: I am Co-Chair of the eLawyering Task Force. The Co-Chair of the Task Force is Marc Lauitsen, of Capstone Practice Systems, who is providing leadership to this project.)

------------------------------------------------------------------------------------------------------------------------------

In accordance with the   FTC 16 CFR, Part 255: "Guidelines Concerning Use of Endorsements and Testimonial in Advertising" I am disclosing that I have a material connection to some of the companies referred to in this Post. I am the Founder/CEO of  DirectLaw, a virtual law firm platform provider and SmartLegalForms, a web-based legal document provider. The opinions expressed here are my own. I did not receive any compensation from any source for writing this post. DirectLaw sponsors this blog by paying for the costs of hosting.

 

 

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.

Legal Forms for the Price of a Song on iTunes?*

Legal forms, without the legal advice or assistance of a lawyer, continue to decline in value. As a pure digital product, a legal form follows the price curve of other digital goods eventually approaching zero.  Several new start-ups in the legal industry will accelerate this trend.

Docracy is a new legal document start-up, founded by Matt Hall and John Watkinson, that grew out of a TechCrunch Disrupt Hackathon in New York City. The idea is to provide a free depository of legal documents that meets the needs of small business and start-ups which are crowd sourced by individuals who register for the site. The concept is to provide an open source site for legal documents in the same way that GitHub is an open source site for code. The company is venture funded First Round Capital, Vaizra Seed Fund, Quotidian Ventures and Rick Webb by a group of investors who see opportunity in disrupting the legal profession. The documents are largely flat forms (MS Word or Adobe .PDF File format), with quality control provided by the "community." It's not clear yet what the business model for this site will be. Online signing of legal documents is coming.

A second legal document start-up has emerged out of the New York City start-up web scene called Paperlex  .  Paperlex is also targeting the small business market. This site will contain standardized legal documents that can be modified within the web browser. A user will be able to store all of their documents online in their own private and secure web space, will be able to collaborate with third parties, and will have the capacity to execute/sign documents online.

Rather than crowd sourcing the legal form content, Paperlex will provide their own libraries of standard forms. Alison Anthoine, Esq., the CEO and Founder, hopes to provide an accessible legal document portal that small business can easily use with their customers and other parties at a cost that is much less that the cost of a custom document crafted by an attorney. The business model for Paperlex is a Saas subscription service provided for a low monthly fee.

DocStoc is another document repository that includes not only collections of legal documents, but collections of documents in other categories as well, such as human resource, travel, and personal finance documents. Documents are for free or can be purchased. The site is also built on crowd sourcing principles. Users can contribute documents and sell them through the site, with DocStoc taking a cut. Most documents are not automated and are provided in either MS Word or Adobe .PDF file format. However, a new feature called "custom documents" enables the user to answer an online questionnaire which generates a more customized document. The user can view the assembled document before making a decision to purchase a monthly subscription.Monthly subscriptions range from $9.95 a month to $39.95. The site claims to have 20,000,000 users.

Docstoc, Inc., was founded by Jason Nazar (bio) and Alon Shwartz (bio). The company was selected in September of 2007 to debut its product at the prestigious TechCrunch40 Conference. The platform was subsequently launched to the public in October 2007.

Docstoc is a venture backed company (Rustic Canyon) and received funding from the co-founders/investors in MySpace, LowerMyBills, Mp3.com, PriceGrabber and Baidu.

WhichDraft.com , founded by Jason and Geoff Anderman, brothers, and both attorneys, offers free contracts that can be assembled within the web browser. Legal documents can be easily shared with third parties, and you can build your  own Question and Answer templates. A nice feature enables a user the compare any two versions to see new and deleted text in the fee legal form. 

By A Legal Forms PLan frm MyLawyer.comMyLawyer.com, our  own consumer legal document portal, also offers legal document plans that are libraries of automated legal documents that when purchased in a bundle are less than the cost of a song on iTunes*.

 

 

In the nonprofit sector, LawHelp Interactive, a unit of LawHelp.org,with funding from the Legal Services Corporation, [ See Technology Initiative Grants ] has been working with a legal aid agencies nationwide to help the automate legal forms and publish them to state-wide legal form web sites which are available to any one within the state. The program is not limited to low income people. Hundreds of thousands of free legal forms are now created annually in more than 34 states. LSC has invested millions of dollars in the development of interactive legal form sites over the past 9 years.

Courts have also jumped into the free legal forms distribution game in response to the hoards of pro-se filers looking for free legal help. See for example: Online Court Assistance Program in Utah and Maryland Family Law Forms .

These free legal form web sites raise some interesting questions about the future role of the attorney and the changing nature of law practice.  What role will the lawyer play in this changing environment?  What is the impact of these relatively new sources of free or low cost legal forms on law practice, particularly the practice of solo and small law firms? Our own research provides support for the fact that solos and small law firms will continue to loose market share to these new providers.

"Unbundling" legal services by providing legal advice and legal document review for legal forms that clients secure from another source, may be a way of expanding access to the legal system, but it is also disruptive of law firm business models,  just like iTunes* was disruptive of the bundled album approach of the music industry. Value is shifting from the lawyer to the consumer and non-lawyer providers of legal forms. I can hear the sucking sound as law firm business models collapse.

Some questions to think about:

  • What risk do consumers and small business assume when they use a legal form without the advice or review of an attorney? The answer depends on the type of form, its complexity and the complexity of the transaction. If a user represents themselves in their own relatively simple name change, and their name gets changed by the court successfully,  then one can assume that self-representation worked.
     
  • But what about a Shareholder's Agreement, where terms have to be negotiated, and the standard document doesn't include the particular language required by the parties to reflect their intent? Should the parties now draft their own language? Should the parties simply ignore the need to include special language that reflects their intent hoping that there will be no situation in the future that will create a conflict between the shareholders because of a failure to include the language?
     
  • Who should negotiate the terms of the Agreement? The lawyer or the principal? Who would do the better job? How much shuld be charged for a successful negotiation?
     
  • How should the lawyer price services, when the client comes to the lawyer with their own standardized form and asks the lawyer to review it?
     
  • Will the lawyer refuse to serve the client, unless the client uses the lawyer's form or document?
     
  • How important is the insurance that a lawyer provides that the document or form is valid for the purpose intended, accurate, and reflects the intent of the parties?
     
  • Lets assume that the 85% of the legal form content in many categories of documents is identical. [ This is what Kingsley Martin from KIIAC has concluded and he should know ! ] But 15% consisted of critical variable language not susceptible to easy document automation. Should the attorney charge on a fixed price for the entire project as if she drafted the entire agreement, although she only worked on several paragraphs? If the agreement fails because the variable paragraphs are incorrect for the particular case, why shouldn't the attorney charge as if she he worked on the entire agreement?

If you have thought about these questions, and have some ideas on the impact of free legal forms on the legal industry, please share them here.

Document Automation as  DisruptuveTechnology

 

*iTunes is a trademark of Apple, Inc.

 

Washington State Attorney Zooms in on LegalZoom's Claims

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.

 

On-Line Wills: Web Forms Only vs. Lawyer Services

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.

 

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.