Online legal firm in Bar fight

Legal services questioned

cjarvis@newsobserver.comOctober 5, 2011 

— An online legal services company is suing the N.C. State Bar over a long-simmering standoff that highlights the uneasy relationship between private-practice lawyers and inexpensive, do-it-yourself online help for simple law problems.

The lawsuit by LegalZoom.com, filed in Wake County Superior Court, asks that a judge declare that the company is entitled to sell standard legal forms on its website and that it be allowed to register in this state to sell prepaid legal services.

LegalZoom attorneys say the lawsuit raises issues that have never before been decided by a court, including whether an online services provider is engaged in the unauthorized practice of law for offering the same product as off-the-shelf books and software. They say the suit also could become a landmark business case because of the state constitutional anti-trust and property rights issues it raises.

"This is the first time in their history they have filed a lawsuit," Raleigh attorney A.P. Carlton Jr. said Tuesday of LegalZoom. "They did not want to do this, but after being rebuffed at every turn, they had to take a look at their options from a business perspective. What this lawsuit is about is the principle of being able to engage in business in North Carolina free of unlawful government restraint."

A representative of the State Bar declined Tuesday to comment on the lawsuit.

LegalZoom describes itself as the nation's leading provider of legal document services and legal plans. Based in California, the company was co-founded by Robert Shapiro, one of O.J. Simpson's criminal defense attorneys, in 2001. The company reported serving half a million people by 2009, and that figure has more than doubled since.

LegalZoom's clash with North Carolina began in 2003, when a committee of the State Bar, which regulates lawyers, notified LegalZoom it was opening an inquiry into whether the company's online legal documents service constituted the unauthorized practice of law. LegalZoom explained in a letter that it didn't provide legal services, just forms that customers can select on their own.

Later that year, the State Bar committee found insufficient evidence to pursue the matter. Then in January 2007, the Bar committee notified the firm it had opened a second inquiry over LegalZoom forming corporations for its customers in this state. The company responded that its self-help business model hadn't changed since the committee looked into the matter four years earlier.

Nearly a year later, the Bar committee issued a cease-and-desist letter stating LegalZoom was engaged in the unauthorized practice of law. The company responded that there were inaccuracies in the State Bar letter, stressing that its services are automated and don't involve legal advice.

The Bar never replied and never took further action, such as seeking a court injunction or criminal charges, the lawsuit says.

The issue was still unresolved in July 2010, when LegalZoom attempted to register in North Carolina for a new service: offering prepaid legal plans for individuals and small businesses. The service costs as little as $15 a month, for which customers can obtain legal advice over the telephone and other simple services from an attorney in their state.

The Bar declined to register the company, saying it appeared the company was still doing business in a manner that violated the 2008 cease-and-desist letter. LegalZoom replied that the law doesn't give the Bar discretion not to register applicants or render legal opinions about them. LegalZoom also contends the cease-and-desist letter carries no weight without a judge's order.

The standoff went on until August, when Carlton called the State Bar president and asked to meet with the organization to resolve the dispute. A few days later president Anthony di Santi said Bar officers didn't think it would be productive to meet, the suit says. A detailed letter outlining the Bar's position would be forthcoming, di Santi said, but LegalZoom has not yet received it, the suit says.

Meanwhile, the suit says, the Bar's cease-and-desist letter remains posted on its website and has been cited by the Pennsylvania State Bar as the basis for its opinion that online legal document preparation should be prohibited, and by a class-action lawsuit against LegalZoom in Missouri.

Word of mouth in the legal and regulatory communities and news media coverage about the letter has further harmed LegalZoom, the suit says. The lawsuit notes that the General Assembly this year passed a law that took effect Saturday that allows people to sue over the unauthorized practice of law, and one lawyer has publicly said LegalZoom might be an appropriate target for such a lawsuit.

"My client has been very patient," Carlton said. "They have tried to go along to get along."

The lawsuit is asking that a Wake County Superior Court judge with an expertise in complex constitutional and regulatory law be appointed to handle the case from beginning to end.

Jarvis: 919-829-4576

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