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.
Legal Zoom has been challenged by the North Carolina Bar which claims that Legal Zoom is violating the unauthorized practice of law statute in North Carolina. The essence of the Bar's complaint is that even though Legal Zoom asserts that their legal documents are created by a web-based software system, this constitutes the practice of law because Legal Zoom selects the content that is incorporated into the system. The Unauthorized Committee of the Bar cites In re Reynoso, 477 F.3d 1117 (9th Cir. 2007) , a case that was decided by a Federal court in California on a different set of facts. In fact, in the case of Legal Zoom, a paralegal or legal technician, conducts something called a "review" , which Legal Zoom uses as a rationale to charge a higher fee. This review is not supposed to be "legal advice", but apparently this gives the North Bar UPL Committee problems as well. We think the In re Reynoso decision is limited to the particular facts of that case, which the Court notes, so it can be argued that is not appropriate for the North Carolina UPL Committee to cite this as precedent, We also that in California there are many non-lawyer providers who provide alternatives to lawyers, including Legal Zoom , which is based in Hollywood, California. So what is the unauthorized practice of law in North Carolina, is not in California. This doesn't make sense.
This is an ominous development as it indicates that the organized bar will go to any length to maintain its monopoly over the delivery of legal services, even redefining what is essentially a "legal information service" as the practice of law. The legislature of the State of Texas was faced with a similar situation several years ago, when the Bar was trying to shut down a legal software publisher on the theory that the purchase of a legal software program from Staples was the practice of law, and responded by passing a statute in response to consumer demand that exempted legal software programs as falling within the definition of the practice of law.
This is not an issue that will stir North Carolina's citizens to rise up in anger at the organized bar for restricting their choices and keeping legal fees unnecessarily excessive, but they should. They should follow the path of Texas's citizen's and put the North Carolina bar in its place.
LegalZoom 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."
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.
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.
