South Carolina’s Supreme Court has adopted a judge’s finding that LegalZoom is not engaged in the unauthorized practice of law – making it the first court of its kind in the country to have given the self-help legal website a stamp of approval.
The development comes at an important moment in a closely watched suit pitting LegalZoom against the North Carolina State Bar, and the S.C. case was mentioned during a recent hearing in the N.C. litigation.
In its March 11 order, which consisted of two paragraphs, the S.C. Supreme Court adopted the findings of Circuit Judge Clifton Newman, who was appointed as a special referee in the case.
Newman had found that LegalZoom’s practices did not violate state law, noting that almost all of the self-help documents the company sells online also are available to residents on state government websites.
He wrote in his report that the company, which he likened to a scrivener, “does not provide legal advice, and it does not provide legal assistance to its customers in the creation of a document.” He added that the S.C. Supreme Court has “held that the sale of blank legal forms is not the unauthorized practice of law.”
“The South Carolina Supreme Court has recognized that its ‘duty to regulate the legal profession is not for the purpose of creating a monopoly for lawyers, or for their economic protection,’” Newman concluded.
In adopting Newman’s findings, the S.C. Supreme Court approved a settlement between LegalZoom and T. Travis Medlock, a former South Carolina attorney general who is now in private practice and sued the website for the alleged unauthorized practice of law in 2012.
Under the deal, LegalZoom agreed to follow certain business practices for two years, such as telling potential customers that it is not a law firm or a substitute for one – the disclaimer appeared on the website before the settlement was reached.
The company also agreed that it would not alter the information that clients add to legal forms unless directed to do so by the customer; offer a 60-day refund period for online documents; and make no guarantees that the forms comply with state law.
“The way I look at it, they’re trying to take out any possibility that LegalZoom will be providing legal advice,” said S.C. Bar president Alice Paylor, who practices at Rosen Hagood in Charleston. “I don’t know that we could have gotten much more. It ties it up and takes the advice part out of it. It’s jut a service for those people who can’t afford a lawyer or don’t want to pay a lawyer.”
‘We need to get guidelines’
The S.C. Bar was not involved in the suit against LegalZoom and kept out of the fray during litigation, unlike the N.C. State Bar, which has been handing out cease-and-desist letters like sour candies.
The letters accuse LegalZoom and several other companies of practicing law without a license. After months of back-and-forth, LegalZoom sued the bar in 2011 seeking a court determination on whether the agency overstepped its bounds. The action has forced the bar to prove its unauthorized practice allegations.
During an April 17 status conference in the case, N.C. Business Court Judge James Gale acknowledged that he’d read Newman’s report in the S.C. case, though he was unaware of the Supreme Court order adopting the findings and approving the settlement agreement.
Noting the extensive discovery, expert testimony and protracted discussions in the Palmetto State case, Gale expressed reservations about the unwieldiness of the case on his docket. He said he did not want to have to analyze each and every one of the dozens of interactive documents that LegalZoom sells and determine which, if any, constitute unauthorized practice.
“What I want to talk about today is whether or not we can talk about trying to elaborate on the questions we want to ask ourselves, and whether or not we can come up with documents that would be exemplary of the questions we ask ourselves,” he said. “I don’t want to try a hundred different cases.”
Gale then launched into a candid discussion of the case with the bar’s counsel, special deputy attorney general Faison Hicks, asking him to provide the court with specific issues to address, rather than simply requesting a blanket order declaring that LegalZoom’s various interactive document services violate the state’s unauthorized practice statutes.
LegalZoom’s attorneys, A.P. Carlton, who has an eponymous firm in Raleigh, and Daniel Boyce of Nexsen Pruet, also in Raleigh, hardly spoke during the hearing, according to a transcript.
Calling the case an “extraordinary intellectual challenge” and noting a dearth of case law applying unauthorized practice statutes to the type of interactive computer software under LegalZoom’s hood, Gale suggested that he was embarking on a journey far off the beaten legal path.
“Is the decision to create a form that does not change and no judgment has been made, just fill in information, does that constitute unauthorized practice of law?” Gale asked during the hearing, which he had considered holding privately in his chambers.
“Is the predetermination of a form where you don’t present the entire form to the customer but you present only those parts, depending upon what they say, unauthorized practice?”
Gale later added, “Yeah, we need to get guidelines.”
LegalZoom’s software interacts with a client’s responses to basic templates of wills, landlord-tenant lease agreements, LLC documents and other types of forms, which automatically respond to input in the same way that a do-it-yourself tax program, such as TurboTax, does.
If you’re filling out a will on LegalZoom and indicate that you don’t have children, for instance, the software will delete sections of the document dealing with children.
“There’s no artificial intelligence here. There’s no little man hiding behind the screen,” said Ken Friedman, LegalZoom’s vice president of legal and government affairs.
“I think the law in most states, including North Carolina, is vague at best and it’s clear that what we’re doing is lawful,” he added. “More often than not I think it’s a strained interpretation to argue otherwise.”
LegalZoom has accused the bar of deliberately misconstruing the unauthorized practice statute in a bid to drive legitimate businesses out of the state. Friedman said the bar was only concerned with “protecting lawyers.”
The bar and Hicks have declined to discuss the case. But while talking with Gale in court, Hicks said that the bar “doesn’t give a darn way or the other, doesn’t have an independent view about whether the regulation of the practice of law is good, bad or indifferent, and really doesn’t care.”
He added, “Its view is the General Assembly makes those policies. They’ve made clear policies. We’re obliged to enforce them. If we don’t, the General Assembly could have some tough questions of us.”
Friedman called Hicks’ comments “sad.”
“The leading thinkers in the law understand that access is a huge problem and state bars really need to take the lead in expanding access,” he said. “For the bar to say they don’t have a role in access to the law is just sad.”
‘Lawyers should get on board’
In early April, Gale ruled in favor of the bar in its suit against Lienguard, a Chicago-based lien filing company. He found that the company’s non-attorney employees were practicing law when they completed claims of lien forms for N.C. clients, mostly contractors.
But the technology behind LegalZoom’s document preparation service could set it apart from companies like Lienguard. LegalZoom stresses that its software merely acts as a scrivener, while Lienguard had employees transferring customer information from one form to another.
“I’m not sure how long that distinction is going to hold up,” said Elizabeth Chambliss, a professor at the University of South Carolina School of Law who studies the regulation of legal services.
She says software will inevitably become so sophisticated that LegalZoom and other similar companies – and there are more than a few out there – will be able to automate relatively basic tasks, such as filling out a lien, that are currently considered to require a degree of human judgment and reason.
“Technology is going to disrupt traditional legal services and I think lawyers’ best play as a profession is to get in front of it and think of ways to help shape it,” she said, noting that many legal tech companies, including LegalZoom, count lawyers among their founders.
“Lawyers should get on board with both enhancing their own practices through automation and embracing the delivery of quality legal services by non-lawyers in certain circumstances,” she added. “There will always be people who need high-quality, full legal services, but there are plenty of people who don’t need that.”
- Follow Phillip Bantz on Twitter @SCLWBantz