Just last month, we wrote about a North Carolina draft proposal that would ease the way via its ethics rules for Avvo and other on-line legal services to operate there.  Now, after a joint opinion from three New Jersey Supreme Court committees, the Garden State has turned thumbs down on such law platforms, citing issues including improper fee-sharing and referral fees.

Nix on Avvo, LegalZoom, Rocket Lawyer

The joint opinion bans participation in Avvo’s programs because of the “marketing fees” it collect from lawyers in exchange for participating in two of its offerings:  “Avvo Advisor,” in which clients talk to lawyers for 15 minutes for $40, with Avvo keeping $10; and “Avvo Legal Services,” where clients pay a flat fee to Avvo for access to affiliated lawyers, and then Avvo pays the lawyer net of its own fee.

The committees found that this arrangement violates New Jersey’s version of Model Rule 5.4(a), barring fee-splitting with non-lawyers, and it mattered not that Avvo called its cut a “marketing fee”:  irrespective of its label, said the committees, “lawyers pay a portion of the legal fee earned to a nonlawyer; this is impermissible fee sharing.”  In addition, said the committees, these payments signal a “lawyer referral service,” and payment of an “impermissible referral fee” under New Jersey’s Rules 7.2(c) and 7.3(d).

Icing the cake, the committees also raised a trust account issue, saying that Avvo’s practice of holding the lawyer’s fee until the conclusion of the matter violates the attorney’s duty to maintain a registered trust account and to hold client funds in it until the work is completed.

Avvo wasn’t the only on-line platform tagged — Rocket Lawyer and LegalZoom also were placed off-limits to New Jersey lawyers, but for a different reason.  While they do not require payment from lawyers to participate, and do not share the clients’ monthly subscription fees with lawyers, Rocket Lawyer and LegalZoom are “legal service plans” that have not been registered with or approved by the New Jersey Supreme Court, said the committees.  That places them outside the pale, even while not violating the fee-sharing prohibition.

A notice to the bar from the supreme court’s administrative office accompanied the joint opinion, listing the 46 state-approved legal service plans, including those offered through unions and government agencies.

What next?

As we’ve noted, the ABA’s Futures Commission sees the continuing onslaught of on-line platforms as something that is here to stay.  Nonetheless, this New Jersey ethics opinion joins other cautionary or negative ones issued by regulators in Ohio, Pennsylvania and South Carolina.  Against that backdrop, North Carolina’s recent consideration of rule changes may appear to be the outlier (although an Oregon state bar association task force also recently recommended ethics rule amendments that would be friendly to on-line service legal platforms).

Avvo responded to the New Jersey opinion, telling the New Jersey Law Journal that it is “attempting to address the pressing need for greater consumer access to justice, and we will continue to do so despite this advisory opinion.”

Will market pressure become a tsunami that will eventually sweep legal ethics considerations away?  It may take awhile to tell, but until then, look for more ethics opinions to come out with differing views, potentially creating a patchwork of inconsistent state approaches.  We’ll be watching with great interest.

Tensed Businesswoman Using Computer At DeskWith the goal of positioning his on-line legal forms company as a solution to America’s access-to-justice problem, Chas Rampenthal, General Counsel of LegalZoom, zoomed through my home state last week, with two speaking engagements.  I caught his speech at a breakfast meeting at my home-town bar association, the Cleveland Metropolitan Bar Association (@clemetrobar).

A panacea for the under-served?

Despite the early hour, Rampenthal was a high-energy presence as he described the “Number One problem facing the legal profession” as “under-consumption of our services.”  As he sees it, “Access to justice is a fundamental right,” but the “legal system is designed” to shut out massive numbers of consumers who need basic legal services at a reasonable cost. There must be a continuum of legal care, Rampenthal urged, just as there is in the medical profession.

He described his visit to an urgent care center, where he was seen by numerous support personnel, whose work was rolled up into the doctor’s final opinion on the X-ray of his broken bone.  “The business of law and the practice of law doesn’t all have to be provided by lawyers,” he said.  A “pure professionalism model,” Rampenthal asserted– one based on lawyer regulations aimed at protecting the public — can’t address the “massive underrepresentation” of those needing legal services.

Unauthorized practice still an issue

Of course, the issue raised by LegalZoom (and by other players in the same field, which Consumer Reports Magazine has called “legal DIY websites“) is whether the model constitutes the unauthorized practice of law (UPL) — which is proscribed by every jurisdiction under Rule 5.5 and/or other regulations — and whether it can harm consumers.  LegalZoom has been subject to lawsuits and bar resistance in several jurisdictions.  We previously wrote about that here.  In June, LegalZoom sued the North Carolina Bar for antitrust violations, the culmination of a decade of investigations and cease-and-desist efforts.  The bar has moved to dismiss.

Rampenthal acknowledged that consumers can be confused by what LegalZoom offers — he said that “Everyone thinks LegalZoom is a law firm,” despite disclaimers, and that when asked to name any law firm that came to mind, survey respondents often named LegalZoom.  LegalZoom’s advertising says that it is not a law firm, as does its website.

And Rampenthal got some sharp questions from the Cleveland Metropolitan Bar Association audience.  One lawyer said that clients had asked him to review documents that didn’t actually fit the clients’ needs, but which they had generated using LegalZoom’s self-help software.

Problems abound

Rampenthal closed with a rallying cry, urging lawyers and bar regulators to be more open to the LegalZoom business model, as part of increasing access to justice for legal consumers.

But many are far from being sold on the notion.  Frank DeSantis, a co-editor of this blog, for instance, is the former chair of the Ohio Supreme Court Board of Commissioners on the Unauthorized Practice of Law.  He noted that “UPL regulations exist to protect the public, not lawyers.  LegalZoom is very dangerous because it gives its users the false impression that they have received sound legal advice,” when actually they have just selected from some drop-down menus.  Legal consumers are often not in a position to know what they need to protect their interests.  That’s where legal advice comes in.  Creating and using the wrong document from a website can be more harmful than not having a document.

Reflecting on Rampenthal’s described visit to the emergency room, DeSantis commented, “Legal self-help is as pernicious as medical self-help.”

Signing documentDoes a company like LegalZoom, that provides low-cost do-it-yourself legal documents, necessarily stray into the unauthorized practice of law?  The ABA Journal reports here, summarizing recent salvos in the LegalZoom war.

Under LegalZoom’s business model, customers create legal documents by answering on-line questionnaires.  Then, LegalZoom employees review the answers, and out comes a will, or an LLC agreement, or whatever customers might identify as their legal needs.  You’ve probably heard or seen LegalZoom’s ads — they’re everywhere — and they disclaim any intention to practice law.

LegalZoom has indeed racked up a success record in the courts.

  • The South Carolina Supreme Court, for example, effectively gave LegalZoom a green light to operate in March of this year, adopting a referee’s report that ended by agreement a suit brought by a former state attorney general.  The referee wrote that LegalZoom was essentially a scrivener, as its software merely “records the customer’s original information verbatim,” without using any judgment or discretion, and that the documents worked like ones already offered by various state and local agencies.
  • In Ohio, a district court in 2012 dismissed a putative class action complaint alleging that LegalZoom violated Ohio’s statute against the unauthorized practice of law.  The court held that the plaintiff didn’t have a claim unless the Ohio Supreme Court declared that the company engaged in unauthorized practice.

But other jurisdictions have put up at least temporary roadblocks.  About two weeks after the referee’s report in South Carolina, a special superior court judge just across the border in North Carolina kept alive a suit that started in 2011 with LegalZoom suing the state bar following a cease-and-desist order against it. 

The North Carolina bar asserted that the guidance and review that LegalZoom provides means that it is acting as a legal advisor.  The North Carolina court dismissed LegalZoom’s constitutional claims against the bar, and said that it needed more information and briefing before deciding the bar’s claim against the company for unauthorized practice.

Over at The Legal Ethics Forum, law professor Andrew Perlman, of Suffolk University Law School, suggests that LegalZoom should be permitted to continue its work, but with some modest regulatory oversight to protect the public.

The jury is still out, and other jurisdictions will undoubtedly continue to try to define the boundaries of what LegalZoom can do.  What do you think — Is some deregulation a positive force that expands access for consumers who need it?  Is LegalZoom just document automation software?  Or does it cross the line into unauthorized practice territory?  Use Comments to weigh in.