According to South Carolina’s Supreme Court, LegalZoom has not engaged in the unauthorized practice of law.
This comes after the South Carolina Supreme Court adopted the findings of Circuit Judge Clifton Newman who found that the practices of company did not violate state law.
South Carolina’s Supreme Court is the first court in the country to approve this self-help website. This case is being closely watched by the North Carolina State Bar.
North Carolina Lawyers Weekly – http://nclawyersweekly.com/2014/04/30/s-c-supreme-court-approves-legalzoom-future-of-service-remains-uncertain-in-nc/
October 2015 Update
North Carolina Lawyers Weekly reports that the North Carolina State Bar and LegalZoom appear on the verge of resolving their disputes which have been ongoing for over a decade.
As a quick background, the N.C. State Bar is the agency that regulates lawyers and the practice of law within the state. LegalZoom is a company that offers prepaid legal service plans which offer telephonic access to attorneys for a flat monthly fee, as well as quasi-legal services through its website. LegalZoom’s interactive website allows users, for a fee, to create documents like wills or articles of incorporation and, for an additional fee, allows users to have attorneys review their creations. The State Bar has taken the position that LegalZoom’s services constitute the practice of law. This distinction is important because “practicing law” in North Carolina may only be done by North Carolina-licensed lawyers and Bar-recognized law firms. North Carolina licensed lawyers and recognized law firms must meet numerous requirements.
For example, lawyers here must graduate from an accredited law school, pass the State Bar, take annual continuing legal education courses, and adhere to ethical codes of conduct regarding numerous matters, such as conflicts of interest, retention of documents, confidentiality, content of advertising, etc. Lawyers must also pay various fees that pay for Legal Aid services to the poor, hold their clients funds in certified trust accounts which pay interest to a fund that pays victims of legal malpractice, and make other contributions to the people of this state.
North Carolina law firms must also meet numerous requirements. For example, law firms in this state may only be owned by lawyers, and may not generally share profits or commissions with non-lawyers. These regulations are designed to ensure that lawyers use professional judgment and maintain a commitment to their clients instead of answering to corporate ownership or stockholders, and to prevent practices such as lawyers paying a percentage of their fees to non-lawyers who refer them cases (for example, if a personal injury attorney were allowed to pay any doctor, ambulance driver, or tow truck operator 20% of any attorneys’ fees on any referred cases, this would create a shared interest between the lawyer and non-lawyer that could result in pressure for one or both to take unethical actions).
LegalZoom argues that its services are self-help in nature and guide users to educate themselves and handle their own legal affairs in a cost-effective way that makes legal services attainable to people who cannot afford access to an attorney, and to people with situations that do not justify the costs of paying an attorney.
If LegalZoom’s services constitute “practicing law” in North Carolina, it would be held to these standards which would be difficult if not impossible for a corporation based out of state. LegalZoom obviously wants to be able to continue to operate in the manner it does, which has been deemed permissible in most other states. The State Bar however has feared that allowing LegalZoom to operate in the state would open the door to people and corporations to offer a range of legal services without being regulated in any meaningful way. The concern is that a class of non-lawyers will pop up around the state and provide poor legal services, or even defraud the public, and lead to a rash of unmeritorious lawsuits and/or court filings. The concern is also that allowing non-lawyers to practice in the state but avoid the fees that licensed attorneys are subject to would make it impractical for the State Bar to continue assessing fees on attorneys, thereby making it impossible for the State Bar to fund various Legal Aid programs.
On October 22, 2015, the North Carolina State Bar and LegalZoom entered a consent judgment that indicates a plan to resolve the disputes that have been pending since at least 2003. The Order memorializes an agreement that LegalZoom’s web services do not constitute the practice of law, allowing the website to continue to operate in its current form. The Bar has also agreed to reconsider the applications of two PrePaid Legal Service Plans offered by LegalZoom, which had previously been denied recognition. The Bar and LegalZoom have also agreed to jointly lobby the General Assembly to pass a bill that would refine the definition of the practice of law, to give the Bar the weapons it feels it needs to shut down unscrupulous practitioners of quasi-legal services, while allowing others to operate. The agreement puts on hold the pending lawsuits between the parties, including a State Court action, and a federal court Anti-Trust action.
The agreement, however, is not permanent; it is binding for only two years. Presumably, if the General Assembly does not act within that period, the parties could revive their disputes and continue litigation against each other.
Update on litigation
On November 9, 2015, Judge James Gale of the North Carolina Business Court denied a Motion to Dismiss filed by attorneys on behalf of World Law South in its ongoing dispute with the North Carolina State Bar. The Motion had been filed over a year earlier, in October 2014, after the North Carolina Attorney General, serving as counsel for the State Bar, Amended a Complaint against World Law South’s parent companies, Orion Processing and Swift Rock, to add World Law South as a party, on the basis that all three corporate entities were illegally practicing law in North Carolina and unlawful debt adjusting. Despite the fact that the Motion was not ruled on for over a year, the Judge noted that the decision was reached easily and that the merits of the motion deserved little analysis and that he was only issuing an opinion because the law required it, according to a report on the case published in North Carolina Lawyer’s Weekly. The case is now poised to go forward, although the stakes have decreased dramatically with World Law South having dissolved and Swift and Orion in bankruptcy. Besides this suit, the corporate defendants are all still involved in several other forms of litigation including a federal suit with the Consumer Financial Protection Bureau and another federal suit in Miami alleging violations of the Telemarketing Sales Rule and Consumer Financial Protection Act.