We the Pauper
Legal-forms franchiser bankrupt—will online services follow?
Posted May 1, 2010 1:00 AM CST
By Richard Acello
As competitors vie to be contenders in low-cost legal services, the business-model pioneer, We the People Inc., is on the ropes. A national franchiser that once had 1,000 offices in 30 states, the company has gone into bankruptcy.
In a Feb. 18 filing before the Delaware bankruptcy court it was revealed that We the People suffered a 2009 loss of nearly $2.5 million on revenue of about $1.4 million. By the end of the year, the firm was down to about $13,000 in monthly operating expenses. Yann Geron, a partner at Fox Rothschild in New York City who represents the unsecured creditors committee, says the remaining We the People stores are open. The franchise’s website lists eight offices operating in four states.
The Chapter 11 fate of We the People is ironic. The company was born in the wake of the 1989 bankruptcy of Ira and Linda Distenfield, who found ed We the People as a way to help consumers with common legal problems by offering them legal documents. From the mid-1990s, the Distenfields were the darlings of the do-it-yourself movement, but in 2005 We the People was sold to Pennsylvania-based Dollar Financial Group Inc. and never recovered its star.
By then online competitor Legal Zoom was 5 years old. LegalZoom has become a brand name by leveraging the Internet and its association with former O.J. Simpson lawyer Robert Shapiro, and yet it is only one of a growing list of websites offering such services.
Do-it-yourself legal clinics have been toxic to attorneys, especially solos and small firms who compete for the same kinds of work: divorce, wills, incorporations and bankruptcies. Both We the People and Legal Zoom have been named in class action complaints by state bar associations who contend their document services amount to the unauthorized practice of law.
CONFLUENCE OF ILLS
What has poisoned We the People appears to have been a lethal cocktail of poor management, lawsuits and a turn in the market from brick to click. Parallel maneuvers are evident in the financial services arena, where online TD Waterhouse now competes with traditional storefront brokers and Turbo Tax tangles with H&R Block stores. Practitioners and competitors are assessing the impact of the We the People filing, as well as whether it is the harbinger of winter to come for legal clinics without lawyers or the do-it-yourself business is merely moving to a cozier Web address.
Richard Granat, chair of the ABA’s eLawyering Task Force, operates MyLawyer.com, which offers free legal forms and refers consumers to his national network of attorneys. In a recent blog post, he called We the People “another Internet casualty.”
“High pricing, expensive office space, fixed office hours, commoditized product offerings, expensive advertising, little or no interaction with customers over the Internet, obsolete technology and low productivity—all conspired” against We the People, he wrote.
The problem, according to Granat, is that moving paper costs money. “Customers [of We the People] would complete a paper questionnaire and submit it to the store owner with full or partial payment,” he noted in the post. “The store owner would fax the questionnaire to a central processing center where a paralegal or nonlawyer would input the data from the questionnaire into a desktop document assembly program, which would create the document ready for return to the customer. Because there is so much friction in this system, the price per document was very high” compared with more seamless online providers.
And while no one is saying UPL suits brought down the We the People franchise, Granat says LegalZoom and other online providers remain vulnerable to attack on that front, creating an opportunity for technology-savvy solos and small firms.
“LegalZoom tells you a will specialist is reviewing your document and will get it back to you in two days,” Granat says. “Under current UPL law, of course, paralegals and nonlawyers cannot give legal advice. ... At the end of the day, LegalZoom-type operations are vulnerable as long as we have the existing UPL laws. Solos and practitioners can cut into the market share of the LegalZooms if they leverage the technology.”
PARALLELS DRAWN TO BAR POLICIES
On Dec. 18, LegalZoom was sued in Cole County, Mo., for engaging in the unlawful practice of law. The plaintiffs are seeking class action certification, and on Feb. 5 LegalZoom filed an action seeking to remove the case to federal court.
Interviewed previously about the suit, Brian Liu, LegalZoom’s co-founder and chairman, said his firm is “confident we have not violated any laws. ... We intend to vigorously defend the plaintiffs’ claims.”
Bob Fellmeth, founder of the Center for Public Interest Law at the University of San Diego School of Law, says he’s ambivalent about the online form game.
“I worry about someone relying on the provider and maybe not getting what they thought they paid for, and that the online provider is not likely to have malpractice [insurance],” he says, “but I can’t get too mad because the bar doesn’t require it either. There’s a question as to whether the person seeking the information doesn’t know what they don’t know—when you avoid the attorney, you’re not getting the question asked that might lead you to an entirely different form.”
But Fellmeth says attorneys have priced themselves out of the lower-middle-class market, and “there is a need for advice on routine matters. If the providers are properly humble about the limitations of what they’re providing and if there is a competent attorney looking at what they’re doing, the net effect is positive about people making informed decisions.”
In fact, as far as UPL concerns, Fellmeth would prefer that if bar associations don’t like the kind of service being provided to middle-class consumers, they take a leadership role in providing that service.
“My problem with the purists is many people cannot afford individual lawyer examination of their problems,” he says. “Why isn’t the bar providing low-cost advice to people? We organized an effort on behalf of the 9/11 victims; why can’t people losing their homes get legal services? Why do people have to pay $5,000 and not get anything?”
The answers could be giving legal services consumers another reason to go online.
"We the Pauper," May, incorrectly states that LegalZoom has been named in class action suits by state bar associations contending unauthorized practice of law.
Chas Rampenthal, general counsel of LegalZoom.com, says "Although LegalZoom has been named in class action lawsuits, such suits were initiated by private individuals or attorneys and not by any entity that is actually responsible for enforcing unauthorized-practice-of-law regulations."
The Journal regrets the error.