Is Legal Software Conduct? True or False?

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

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

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

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

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

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

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

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

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

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

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


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

Stop No Entry

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

 

Other possible negative consequences of such an interpretation would be:

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

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

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Is LegalZoom Just a Self-Help Legal Software Company?

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

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

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

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

From the LegalZoom Web site:

"Is LegalZoom engaged in the practice of law?"

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

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

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

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

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

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

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

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

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

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

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

Riccio’s response:

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

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

Riccio’s response:

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

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

Riccio’s response:

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


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

What is a Legal Document Assistant?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

I think it does. What do you think?

 

LegalZoom is Considering an IPO

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

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

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

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

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

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

Venture Capital Flowing Into Legal Enterprises: Total Attorneys Receives Infusion of Capital

Private capital is beginning to flow into companies that are operating at the intersection of the delivery of legal services and the Internet.

Total Attorneys, a Chicago-based company,  just announced that they received a multimillion dollar investment from BIA Digital Partners, a Virginia-based venture capital firm. Total Attorneys is most known for the marketing services that it provides to law firms and the recent ethical controversy in some states surrounding the use of pay-per-click advertising on behalf of law firms. (Apparently this controversy has been resolved in favor of Total Attorneys in every state where it was considered by bar ethics committees.)

The company plans to extend its technology assisted services to law firms by expanding its virtual law firm Software as a Service offerings (SaaS).   Total Attorneys mission is to become a leading provider of elawyering Services to solos and small law firms by providing a comprehensive suite of outsourced technology services, from marketing to web-based practice management tools to a robust client portal.

The company licenses virtual law office technology to solos and small law firms as a subscription service, that now consists primarily of a robust suite of "back-office" practice management tools. The pan is to expand the service into a more comprehensive "front-office" client portal, providing a total solution to solos and small law firms.

This expansion would entitle the company to claim that it is a leading provider in the eLawyering space  and it would compete more directly with our own DirectLaw virtual law firm platform service and other web-based companies moving in the same direction.  [ See:  Legal Vendors Cloud Computing Association ] .

The concept of "technology-assisted service" is an interesting category for  the legal industry for it describes a form of outsourcing which combines both a digitally-based service combined with human service. Thus Total Attorneys also provides "virtual receptionist services", and at one point virtual support services to bankruptcy law firms. One management solution for solos and small law firms it to out source to independent specialized companies functions which can be done more effectively and at less cost than the law firm can do itself using internal resources.

It is good to see competition heating up in the eLawyering space, which has been moribund for a long period of time.  The eLawyering Task Force of the Law Practice Management Section of the ABA was created in 2000, more than a decade ago. For many  years there was not much to report in terms of the innovative delivery of on-line legal services by law firms. The last 2 years has witnessed an explosion in elawyering industry developments as lawyers adapt to change -- caused by a severe recession, widespread unemployment of recent law school graduates, and the challenges created by consumers who are seeking lower-cost and "good enough" alternatives to lawyers, [such as LegalZoom.]

Competition among a variety of vendors provides choices to law firms.  Competition focuses attention on the fact that delivering legal applications as a SaaS is emerging as a new paradigm for enabling solos and small law firms to access complex Internet technologies at a fraction of the capital cost of developing these applications internally.  Private capital moving into the legal industry will create more choices for law firms, and as a consequence more choices for consumers.

Creative legal outsourcing will enable solos and small law firms to become more productive and survive in an increasingly competitive environment.

LegalZoom Challenged by North Carolina Bar

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

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

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