LegalZoom

Legal Challanges

In the early 1970s, Nolo Press founders Jake Warner and Ed Sherman managed to pierce through some of those pretenses when they published How to Do Your Own Divorce in California, which became a best seller. More than four decades later, a Los Angeles based company, LegalZoom.com, is taking legal self-help to the next level. Its website not only gives people easy online access to a host of legal forms but also provides them with some basic guidance on how to fill out those forms. And all at a shockingly low price.

As one might expect, lawyers are crying foul. They argue that despite disclaimers to the contrary, LegalZoom’s customer-service representatives are, in effect, practicing law without a license. And from one state to the next, including California, some of these lawyers are following up with lawsuits against the company. However these cases stand little chance of having a big impact.

Indeed, when he listens to lawyers talk about LegalZoom, McNichol is strongly reminded of how the newspaper industry reacted a decade ago when it was still in denial over the larger implications of online news.

If you’re a general practitioner, that may sound scary – even if you don’t know that disintermediation means cutting out the middleman. So how can small-firm lawyers trying to survive in this brave new world capture a bigger piece of the market that LegalZoom is gunning for? (In family law alone, as many as two-thirds of California’s cases are said to be filed on a pro per basis.) One approach, which McNichol describes in his piece, is to create hybrid practices that bundle cheaper online services with the legal expertise that clients need when they run into unexpected trouble. In other words, effectively combine the personal with the digital. That may not put LegalZoom and its ilk out of business, but it could give small firms and sole practitioners the edge they need.

LegalZoom Complaints and Reviews

By Tom McNichol. He is a San Francisco-based freelance writer.

LegalZoom provides legal services without officially engaging in the practice of law. It has attracted a huge following by offering ordinary folks a cheaper, easier way to meet their routine legal needs. And it is viewed with skepticism, if not outright disdain, by many in the legal establishment.

In 2008 a North Carolina State Bar committee concluded that LegalZoom was engaging in the unauthorized practice of law and sent out a cease and desist letter. (So far, LegalZoom says it continues to serve customers there, and indeed in all 49 other states as well.) More recently, a Connecticut Bar Association task force filed a report with that state’s Department of Consumer Protection claiming that LegalZoom was operating illegally. The panel’s chairman, construction and business litigation attorney Louis R. Pepe, says, “There are reasons why there are laws and rules regulating the practice of law, and that reason is to protect public interest.”

In Missouri, LegalZoom faces a direct legal challenge. There, a class action pending before a circuit court could, if certified, expose the company to massive punitive damages. The suit alleges that LegalZoom, by offering legal documents and instructions over the Internet, is illegally practicing law. The requested class certification would include all Missouri customers of LegalZoom for the past ten years, and the suit seeks actual damages for the fees they were charged.

Meanwhile in Los Angeles Superior Court, a class action filed in May accuses LegalZoom of unfair and deceptive business practices as well as the unauthorized practice of law. The lead plaintiff, Katherine Webster, the executor of an estate and the trustee of a living trust, claims LegalZoom created a legally flawed living trust, requiring the estate to spend more than $10,000 on an outside attorney to fix the problems. The suit alleges that LegalZoom misleads customers about the degree to which its documents are customized and about their quality, compared with those prepared by an attorney. The complaint further contends that LegalZoom broke laws and regulations governing the practice of law in California, and employed fraudulent business practices. The suit seeks damages for negligence, elder financial abuse, consumer law violations, and illegal and unfair business practices. (See Webster v. LegalZoom.com, Inc., No. BC 438637 (Los Angeles Super. Ct. filed May 27, 2010).)

“We believe LegalZoom is engaged in the unauthorized practice of law, just as the North Carolina State Bar said it was (in 2008),” says San Francisco elder abuse attorney Kathryn Stebner of Stebner and Associates, the co-lead counsel in the case. “The way the information is placed on the LegalZoom website is deceptive because, we believe, all the disclaimers are buried.”

Still, LegalZoom hasn’t yet heard from either the California State Bar or its Office of Chief Trial Counsel about any complaints. But John Russell, a Danville trademark attorney, says he hears sole and small-firm practitioners griping about LegalZoom all the time. Moreover, he himself is thinking of lodging a formal complaint. “LegalZoom creates an inference that they are lawyers, except for a tiny disclaimer at the bottom of the website,” he says. “And they’re making tons of money. Tons of money. I doubt if the big firms are really concerned about it, which may be why it hasn’t gotten much traction from the bar.”

For its part, LegalZoom is quick to deny any wrongdoing, maintaining that both the Missouri and California class actions are without merit. “LegalZoom is an automated self-help tool,” says co-founder Brian Liu, a graduate of the UCLA School of Law who worked for three years as an attorney with Sullivan & Cromwell in Los Angeles, where he handled mergers, acquisitions, initial public offerings, and general corporate law. “It’s an online version of software and self-help books that have been around for decades,” he adds. “People have been making these types of documents and writing their own wills for years. LegalZoom is no different.”

To be sure, legal self-help in this country does go a long way back – at least as far back as the late 1860s, when an American author named John G. Wells wrote Every Man His Own Lawyer, which was billed as “a complete guide in all matters of law and business negotiations for every state in the Union.” The book, published in San Francisco by H. H. Bancroft & Co., contained both sample legal forms and full instructions for tackling legal issues without the aid of a lawyer. These forms helped nonlawyers deal with everything from deeds and mortgages to such Wild West problems as lost or stolen cattle.

In the mid-20th century How to Avoid Probate! became a best seller, as did How to Do Your Own Divorce in California, which launched a Berkeley-based company called Nolo Press. Like LegalZoom, these efforts drew sharp criticism (and the occasional lawsuit) from the legal establishment. But unlike past ventures, LegalZoom is very much a product of the Internet, and as such it may be a more serious threat to the status quo.

“Change is hard,” Liu acknowledges, “whether it comes from LegalZoom or somebody else. Information used to be inaccessible. And now with the Internet, that information has become public.”

Financed with two multimillion dollar rounds of venture capital after a short startup period, the company says it has served more than a million customers since its founding in 2001. It currently has a staff of more than 300 working in Los Angeles, and a recently opened regional center in Texas may eventually employ twice that number.

To the general public, though, LegalZoom is undoubtedly known best for its ubiquitous TV commercials. These ads feature satisfied customers talking about their wills and provisional patents. They’ve also given celebrity attorney Robert Shapiro a new claim to fame. (This is the same Robert Shapiro who, back in 1995, led the “dream team” that successfully defended O. J. Simpson in the murder trial of the century.) Shapiro joined the venture in 2000, about a year after Liu and another UCLA law graduate, Brian Lee, put together a business plan. (Also joining the company early on was a Yale University?trained computer scientist named Eddie Hartman, who now serves as chief strategy officer.) In the commercials, Shapiro is identified as LegalZoom’s “founder.” But he’s not involved in the company’s day-to-day operations, and in fact remains a partner at Glaser, Weil, Fink, Jacobs, Howard & Shapiro in Century City.

“At LegalZoom.com, we put the law on your side,” Shapiro intones at the end of every ad.

On the ground floor of LegalZoom’s L.A. headquarters, dozens of workers sit at computer terminals to process the orders that pour in from across the country, while FedEx boxes stuffed with completed documents pile up on a back table. Although the office employees work standard business hours, the website can process customer orders 24/7.
To use the service, customers log on to the site and answer a series of questions relating to the particular legal document they wish to create. LegalZoom offers dozens of documents, but by far the most popular are those establishing a Limited Liability Company (LLC), and wills.

The basic rate for setting up an LLC through LegalZoom is $149; wills start at $69, and a provisional patent application starts at $199. These, of course, are prices that most lawyers can’t even begin to compete with, and LegalZoom makes no bones about it. A message on its LLC page proclaims: “You save $1,491.00 with LegalZoom!” For its standard divorce document package, the website claims that users pay $1,781 less than they would to hire an attorney to do the same work. (LegalZoom’s estimates are based on a 2006 survey of law firm economics by Altman Weil Pensa Publications that pegged the average hourly rate of lawyers nationwide at $266.)

Once customers pay up front for a legal document, their responses to the online questions enter the company’s FileNet system, an automated content manager. A LegalZoom document assistant reviews the answers for grammar, consistency, and common mistakes, contacting the user if there’s a need for clarification or more information.

On the website, the company provides what it calls “general explanations” about its offerings and the questionnaires. It also explicitly states that its customer service specialists “do not provide legal advice or specifically tell customers to choose one answer over another.” If, however, a customer poses a legal question over the phone, these specialists are under instructions to refer the user to the site’s online Education Center, which contains information on nearly two dozen legal topics. The site also has an Attorney Connect section that provides referrals to licensed lawyers, categorized by location and practice area.

After the purchased documents are completed, LegalZoom prints them out on archival quality, acid-free bond paper and delivers them with final instructions. Standard LLC packages include an official company seal for the newly formed company and a handsome binder embossed with its name. Of course, it would be easier and cheaper to just send them as email attachments. But the company has found that customers appreciate the flourishes. Many of these documents, after all, mark major life events, such as the dissolution of a marriage or the creation of a dream invention, and thus carry emotional weight. As Liu observes: “Customers feel that they’re getting something special.”

Nobody at LegalZoom actually boasts about putting small firms or sole practitioners out of business. Instead, the talk is about how they’re expanding the market for legal services. Says Shapiro: “The type of [customers] we attract are people who generally don’t go to lawyers or can’t afford lawyers. If LegalZoom wasn’t available, they’d simply go without legal documentation.”

LegalZoom’s founders also say they didn’t anticipate much push-back from other lawyers over their service. After all, the legal forms they offer were already widely available in booklet form or from state agencies; LegalZoom simply makes them more accessible. Shapiro says he even thought that some lawyers would welcome the chance to offload some of the work that’s often done as a favor, like drawing up a will for a client’s friend or housekeeper.

“If you have a big client, you have to say yes to requests like that,” Shapiro observes. “But lawyers are really not happy to do this kind of stuff, or equipped to do it. And quite frankly, they don’t want to do it.”

Of course, that may be true of a nationally known lawyer like Shapiro. But to many sole or small-firm practi-tioners, that’s the kind of work that keeps the lights on.

“Obviously this is a financial issue for me,” says Danville attorney Russell, “but it’s just not fair. I had to go to law school, I had to pass the bar, I have to pay for malpractice insurance. I have to do all of this stuff, and then to be undercut by these guys who are, in my opinion, practicing law without a license, it’s just infuriating.”
(…)

The Missouri case, which the defendants removed to federal court in February, centers on two online transactions: One involves a last will and testament; the other, articles of organization. (See Janson v. LegalZoom.com, Inc. (No. 10-04018 (W.D. Mo. petition for removal filed February 5, 2010)).)

The plaintiffs don’t claim that the documents they received from LegalZoom are in any way deficient or caused them harm. But they do contend that the mere preparation and customization of legal documents by LegalZoom constitutes the unauthorized practice of law. According to the amended class action petition, the plaintiff who wanted to create a will received a letter from the company stating: “With LegalZoom, if you return to revise your will we will automatically create a new will for you.”

“I like our chances,” declares plaintiffs co-counsel Tim Van Ronzelen, who won’t say what motivated his clients to get behind this legal action. “The Missouri UPL statute, in my mind, is really clear on what you can and cannot do. Creating a will or another legal document and accepting money for the creation of that is something that we don’t believe is permitted under the law in our state. Our assertion is that while LegalZoom may have the ability in California to prepare certain legal documents, in our state it’s a different story.”

LegalZoom, however, is not willing to make that concession. As the company’s vice president and general counsel, Chas Rampenthal, observes: “The preparation of a form document and inputting answers has never once been held to be the practice of law anywhere.” And this, he adds, applies whether the will is being created or revised.

So where, exactly, is the line that divides those who are practicing law from those who aren’t? Missouri’s UPL statute defines the practice of law as “the appearance as an advocate in a representative capacity or the drawing of papers, pleadings or documents.” Another section says that “law business” is “the drawing or the processing of or assisting in the drawing for a valuable consideration of any paper, document or instrument affecting or relating to secular rights.” By contrast, no single California statute comprehensively defines the practice of law, although provisions of the state’s Business and Professions Code require the licensing of lawyers and the punishment of those who engage in unlawful practice.

It’s those provisions that are now being invoked in the class action filed in California against LegalZoom. But that suit goes further than the Missouri case by claiming LegalZoom actually caused harm amounting to negligence and elder financial abuse. As the complaint alleges, LegalZoom’s practices are “intended to induce and lure elders (and their representatives) into contracting and paying for the preparation of estate planning documents based on false and misleading representations and material omissions.” The complaint also notes that LegalZoom’s disclaimer (“The information provided in this site is not legal advice …”) appears at the very bottom of the website in light gray 9-point type, while the rest of the text is 13 points or larger.

“One of the things we’re going to be focused on is the people who decided what to put on the [LegalZoom] website and how it was designed,” says co-lead counsel Stebner. “I’m going to be real curious why the statements that are made that are positive for them are up front, and the parts that are negative are buried in different places.”
In 2003, an American Bar Association task force tried to craft a national model definition of the practice of law. But the Department of Justice and the Federal Trade Commission sharply criticized early drafts as both overly broad and not in the public interest, and eventually the effort was abandoned.

Meanwhile, all 50 states allow nonlawyers to sell preprinted legal forms and to provide limited assistance with them, according to LegalZoom. California, for one, licenses so-called scriveners as legal document assistants.

These LDAs must carry a bond and register with the courts. (LegalZoom is registered and bonded as an LDA in California.) LDAs can perform routine tasks, such as typing and filing the paperwork for uncontested divorces, bankruptcies, wills, and other types of documents. But they cannot give legal advice, make suggestions about what a client needs to do for a particular matter, or decide what forms the client must file with the state or the other party to the action. Paralegals, on the other hand – legal assistants who work under the supervision of an attorney – need not register, but they must meet certain educational requirements.

Most states also distinguish between transcription, which is permitted as a scrivener service, and making suggestions or changes to the material based on the information provided, which is forbidden. LegalZoom maintains that it takes great pains to stay on the right side of that line. But in practice, that line can get blurry.

“I think the big problem that LegalZoom runs into is answering the telephone and then giving legal advice,” says Gene Quinn, a patent attorney in Leesburg, Virginia, who for several years advised LegalZoom on developing its provisional patent product. “They’ll follow up with customers afterwards and say, ‘OK, you filed your application for a trademark six months ago, now you need to file this, and we can help you.’ The mere fact of having that kind of continuing relation, I think, is the practice of law.”

Quinn notes further that he’s called LegalZoom’s customer service line several times and received instructions that could be construed as legal advice – and bad advice at that. Quinn says he asked one LegalZoom representative whether he needed to file a patent application first or if he could immediately start selling the product. He was told there was no reason he couldn’t start selling the product immediately – which, he says, could have cost a customer the ability to obtain a patent outside the United States.

“I found that some of the things LegalZoom’s customer service people were saying would actually compromise rights, potentially to the point where no patent could be issued,” says Quinn. “So that was troubling.”
For all the talk about the dangers of unauthorized practice, though, LegalZoom is clearly filling a need that until now has gone largely unmet.

“The success of LegalZoom is a market response to a failure in the legal market,” observes Paul Bergman, an emeritus professor at the UCLA School of Law who advised LegalZoom before the site was launched. “Most lawyers have priced themselves out of ordinary people’s ability to pay. We have lots of lawyers, and yet we have so many people who have legal needs that lawyers are not addressing. Someone’s bound to step in and address that market failure.”
Instead of waging a rearguard action against LegalZoom on UPL grounds, then, why wouldn’t attorneys compete with the site by offering legal advice bundled with reasonably priced document preparation? (…)

Still, every time Robert Shapiro appears on TV as LegalZoom’s pitchman, it’s hard for lawyers to retain their composure. But Shapiro doesn’t let that bother him: “I was told a long time ago by friends of mine who were very successful in the Internet business that you’ll know when you’re successful when you start getting class action lawsuits.”

By that measure, LegalZoom has clearly arrived.

Lawyers accuse this online company of illegally practicing law. The lawyers are fighting a rearguard action. And while they may get LegalZoom to increase the point size of its website disclaimers, they’re not going to change the basic dynamic. LegalZoom is doing to the law what the Internet has done to print journalism,” he observes. “It’s disintermediating the flow of information.

Comparing with Rocket Lawyer

By Tom McNichol. He is a San Francisco-based freelance writer.

The highest-profile player in the space is LegalZoom, co-founded in 2001 by Los Angeles attorney Robert Shapiro, best known as a member of O.J. Simpson’s defense team, and three other lawyers. The private company doesn’t disclose revenue figures, but in a public filing for a since-abandoned IPO, the site reported $156 million in revenue for 2011. In the same filing, LegalZoom stated that customers placed 490,000 orders on the site that year – including more than 20 percent of the new limited liability companies formed in California. Earlier this year LegalZoom sold a controlling stake for more than $200 million to European private equity firm Permira.

According to Moore (Rocket Lawyer’s founder), Rocket Lawyer focuses more on lawyers than LegalZoom does, integrating attorney services directly into the legal documents workflow online. But the two companies do compete against each other: Both sites strive to make legal services affordable to everyday customers; both offer a wide range of customizable legal documents, with step-by-step instructions on how to complete them.

The competition between Rocket Lawyer and LegalZoom has also spilled over into the courts, in an acrimonious legal battle. In November 2012 LegalZoom, represented by heavyweight litigator Patricia L. Glaser of Glaser Weil in Los Angeles, sued Rocket Lawyer for trademark infringement, unfair competition, and false advertising. (LegalZoom.com, Inc. v. Rocket Lawyer, Inc., CV-12-9942 (C.D. Cal.)). (Goodwin Procter is defending Rocket Lawyer.) Last year, a federal judge denied LegalZoom’s motion for summary judgment, and the case is scheduled to go before a jury in October. Even if the case is settled before then, it’s clear that some bad blood lingers between Rocket Lawyer and LegalZoom.

“From the beginning, [Rocket Lawyer] have been imitators, not innovators, from their service to their name,” says Chas Rampenthal, LegalZoom’s general counsel. “We think the suit has gone on as long as it has because Charley Moore wants it to keep going. He likes the publicity he is getting. He needs it.”

Moore sees the lawsuit as an attempt by LegalZoom to misuse unfair-competition laws to protect its own market position, noting it was filed just as Rocket Lawyer was launching its service in the United Kingdom.

Moore says the vast majority of Rocket Lawyer’s revenue comes from members who subscribe for access to attorneys.

For this reason, Rocket Lawyer has mostly avoided legal challenges over the unauthorized practice of law (UPL). Rival LegalZoom has been sued for engaging in UPL in several states, including California, and a number of the cases have settled. The South Carolina Supreme Court reviewed LegalZoom’s business practices and, in March, found that the site does not engage in the unauthorized practice of law. (Medlock v. LegalZoom.com, Inc., No. 2012-208067 (S.C. Sup. Ct., order issued Mar. 11, 2014).)

Rocket Lawyer hasn’t faced UPL claims in California, partly because LegalZoom has been around longer and offers a higher-profile target. Both websites display disclaimer language at the bottom of their respective home pages stating that they are “not a law firm or a substitute for an attorney or a law firm.” And each has extensive terms-of-use statements saying that the sites are not substitutes for the advice of an attorney.

Legalzoom Review

From NextAdvisors.

Best site for beginners; easy-to-understand interface walks you through complicated legalese; more expensive but worth it.

Legal matters can be scary. The law can seem complicated, especially for those of us who aren’t lawyers. LegalZoom understands this and has produced a site that makes the complications of the law simple and easy to understand, whether you are starting a business, creating a real estate lease or simply making a will.

Legalzoom Pricing

In reviewing these legal services, we focused on two of the more common features: starting a business and registering a trademark.

The starting price for filing a C-Corp, S-Corp, LLC or other corporations is $149, which includes preliminary clearance of your LLC’s name, filing of Articles of Organization, and personalized operating agreement, including provisions protecting officers and managers from liability. You can upgrade to the standard filing ($289) – which includes a deluxe corporation/LLC kit, a company seal and PR online visibility assistance – or the Express Gold package ($359) – which includes rush service, your federal tax ID application, over 100 business forms and accounting software.

For trademark registration, LegalZoom charges a base rate of $199, and complete coverage package for $189, which includes a news release and a 30-day trial of Business Advantage Pro. These don’t include the standard government filing fee, which is $325.

In addition to the standard pricing, LegalZoom is also very upfront about the pricing of any add-ons you may choose. They explain each add-on, tell you how much it costs and then allow you to opt-in, instead of opting in for you, even for the add-ons that are free.

Legalzoom Features

To test these legal services, we picked the most complicated feature that they all offer – starting a business – although LegalZoom also offers a slew of personal legal options, including creating a will, filing for divorce and designating a power of attorney.

Whether you are setting up a C-Corp, S-Corp, Non-Profit or an LLC, LegalZoom takes out all the unnecessary complications when it comes to the legal side of setting up a company. They hold your hand through the entire process, which is especially comforting for those who have never started a business before.

LegalZoom takes care of as many details as you want it to, which is helpful for people who have never set up a business before. Unanticipated necessities, such as having a registered agent, getting an employee identification number and filing a statement of information can all be done through LegalZoom, but aren’t necessary if you already have any of these.

LegalZoom also has a partnership with Bank of America, so if you set up a business bank account with Bank of America, you can receive $150 from LegalZoom. There are conditions on the $150, which LegalZoom lays out for you.

The trademark form is set up in a similar way: walking you through easy step-by-step questions to help you register your trademark. Each question has a help button that further explains how to answer it, and the whole process can take less than five minutes, provided you have all the needed information.

Aside from forming corporations and registering trademarks, LegalZoom offers a litany of other business legal services including features for starting your business (non-profits, partnerships, joint ventures, etc.), running your business (corporate changes and filings, real estate forms, patents and copyrights, and other business compliance forms), and various other business forms and contracts. They also offer business legal adviser services starting at $23.99/month.

Legalzoom Interface

LegalZoom had the simplest, easy-to-follow interface that we saw among the legal services sites. Every step is intuitive. And best of all, the pricing was always prominently displayed, so you know what you are paying before you start.

Each feature starts with a questionnaire that details all the questions LegalZoom will need to complete your forms. All the questions are easy to understand, and LegalZoom provides a wide range of help options at each question in case you are unsure of how to answer.

Another very helpful tool is the “How did most people answer this question?” button, which gives you a better idea of what the more popular answers are. For someone who has never set up a business, these buttons served as a very informative guide.

After you have filled out your questionnaire and selected a filing package, LegalZoom will give you a breakdown of how much everything costs and the total you will need to pay. LegalZoom also gives you the option of paying in installments, which is a nice perk not seen on other sites.

Legalzoom Support

One thing that LegalZoom prides itself on is its support. The Customer Care section of the site is easy to navigate and gives you many options to contact LegalZoom based on what you are looking for. All of the customer service features we used were helpful and informative, and all the representatives we talked to were pleasant and knowledgeable.

Unlike other websites where you have to search for a phone number for customer support, LegalZoom has a support number displayed prominently on the top of the site and on many pages of the forms. Unfortunately, that number takes you to the LegalAdvantage customer service phone system, which costs $29.99/month to be a member after a 30-day free trial. It does give you the option of connecting to the regular customer service line, which we found extremely helpful. Although there is usually a long wait, LegalZoom will “wait in line” for you and call you back when a representative is available.

For LegalAdvantage customers, you can also schedule attorney consultations, so you can ask an attorney all of your legal questions. Although each consultation is limited to 30-minutes, you can schedule an unlimited number of consultations.

Legalzoom Review Conclusion

This is the best site, hands down, for dealing with the legal side of your business. LegalZoom understands that those using their service aren’t experienced businessmen who have lawyers or business law knowledge at their disposal, so they make all the legalese so easy to understand, anyone can use it. Their easy-to-use interface, combined with their wide range of services and excellent customer support make LegalZoom the top online legal services site that we reviewed.