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LegalZoom hits a legal hurdle in North Carolina

Posted May 19, 2014 5:27 PM CDT
By Terry Carter

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Corrected: While the purveyor of online self-help documents LegalZoom was still probably celebrating the South Carolina Supreme Court’s approval of its business model in March, two weeks later, just over the border in North Carolina, a judge breathed extended life into a case claiming the company engages in the unauthorized practice of law, Robert Ambrogi's Lawsites reports.

Judge James L. Gale, a Special Superior Court Judge for Complex Business Cases, issued an order and opinion March 24 concerning various motions in a suit involving claims and counterclaims between LegalZoom and the North Carolina State Bar, which argues that the company engages in unauthorized practice of law and also failed to meet filing requirements in seeking approval to run a prepaid legal services plan in the state.

Gale ruled (PDF) that the company had not exhausted administrative remedies for the prepaid legal services plan, and said the UPL issue is so complex he wants to know more before deciding.

Gale looked at a variety of screenshots of LegalZoom’s website provided by both parties, and at North Carolina statutes concerning the unauthorized practice of law. LegalZoom’s digitized self-help document preparation has been compared to TurboTax for consumers doing their own tax returns, with a series of questions taking users step-by-step along logic trees. What becomes the next branch depends on the answer given at the last one.

Gale notes, for example, the statutory right to self-representation (including with purchased documents) but asks “does its premise require only that the unlicensed individual make choices in drafting a legal document, and that the choice or risk of an incorrect choice about which portions of a form to include must belong exclusively to the individual? Is there then a legally significant difference between how on engaging in self-representation uses a form book versus LegalZoom’s interactive branching software?”

Acknowledging “a current policy-oriented dialogue” over deregulating the practice of law because many or most people can’t afford lawyers for basic matters, Gale wrote that unless those arguments become a necessary part of a constitutional analysis for him to undertake, “such policy changes are more appropriately addressed to the legislature and are not now before the court.

But concerning the issues presented to him on LegalZoom’s self-help technology, Gale wrote: “The court is not yet comfortable that it understands the overall process of preparing more complex documents.”

Just about two weeks earlier, the South Carolina Supreme Court had determined that LegalZoom’s logic-tree documents worked just like ones already offered by various state and local agencies, and thus were approved. The court signed off on a report and recommendations by Judge Clifton Newman, an at-large judge for the state’s circuit courts who considered arguments and expert testimony.

LegalZoom offers online, self-help legal documents in all 50 states and has faced a number of legal challenges along the way. Besides North Carolina, the company still faces a challenge in Arkansas, where the matter is in arbitration. LegalZoom is registered to operate prepaid legal plans in 41 states and the District of Columbia.

Updated June 19 to remove the assertion that LegalZoom faces a legal challenge in Alabama. That dispute was resolved before this post was written.

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