Online legal-documentation vendor LegalZoom has been embroiled in a class action alleging that LegalZoom was engaged in the unauthorized practice of law by selling to Missouri consumers. A couple of weeks ago, LegalZoom and the plaintiffs agreed in principle to settle. (For more on the settlement, see this WSJ Law Blog post.)
The settlement renders moot last month’s order of the District Court for the Western District of Missouri in this class action. (Go here for a PDF copy.) The order denied, in part, LegalZoom’s motion for summary judgment on the grounds that LegalZoom’s document-preparation service did indeed constitute the unauthorized practice of law.
But since this order could be cited by any court considering a similar dispute, I thought I should take a look at it.
The court’s reasoning is unpersuasive. Let’s consider the court’s three arguments.
Print v. Online
First, Missouri law follows the general rule that selling forms or kits isn’t unauthorized practice if they’re not accompanied by advice that is personalized in the sense of being directed to the specific problems of a designated or readily identifiable person. See Legal Ethics, Law. Deskbk. Prof. Resp. § 5.5–3 (2011-12 ed.). Here’s how the court attempted to distinguish LegalZoom’s service from a “do-it-yourself” divorce kit:
Here, LegalZoom’s internet portal offers consumers not a piece of self-help merchandise, but a legal document that goes well beyond the role of a notary or public stenographer. The kit in Thompson offered page upon page of detailed instructions but left it to the purchaser to select the provisions applicable to their situation. The purchaser understood that it was their responsibility to get it right. In contrast, LegalZoom says: “Just answer a few simple online questions and LegalZoom takes over. You get a quality legal document filed for you by real helpful people.” Thus, LegalZoom’s internet portal sells more than merely a good (i.e., a kit for self help) but also a service (i.e., preparing that legal document).
This analysis falls short in two respects: For one thing, LegalZoom prepares the document for the customer because LegalZoom uses an online process rather than printed materials. Attributing significance to who prepares the document in effect means that you’re drawing a baseless distinction between print and electronic materials.
And the fact that LegalZoom’s process doesn’t provide for lengthy instructions of the sort included in the print divorce kit doesn’t mean that LegalZoom is somehow impinging on the customer’s autonomy. Document-creation materials, whether in print or online, can contain a lot of guidance, some guidance, or no guidance at all—what is appropriate depends on the document being created. Koncision’s NDA template, which is intended for sophisticated users, has lots of guidance; evidently LegalZoom’s process offers little. But the relative paucity of guidance in LegalZoom’s process doesn’t change the fact that LegalZoom, as much as the divorce kit, “[leaves] it to the purchaser to select the provisions applicable to their situation” by providing appropriate answers to all questions posed.
For the same reason, there’s no basis for the court to attribute significance to the fact that “the customer does not have to follow directions to fill in a blank legal form” but instead “merely provides information and ‘LegalZoom takes over.'”
Role of Employees
Second, the court held that “LegalZoom’s legal document preparation service goes beyond self-help because of the role played by its human employees, not because of the internet medium.” In this, the court’s argument resembles that offered by document-automation pioneer Richard Granat in this blog post. But the tasks performed by LegalZoom employees are purely ministerial: they check each customer’s online questionnaire for glitches and check the formatting of the output document. There’s something deeply paradoxical about basing a holding of unauthorized practice of law on work that couldn’t remotely be described as constituting the practice of law.
Significance of Document Assembly
Third, the court decided that LegalZoom’s use of document assembly was consistent with the unauthorized practice of law:
Furthermore, LegalZoom’s branching computer program is created by a LegalZoom employee using Missouri law. It is that human input that creates the legal document. A computer sitting at a desk in California cannot prepare a legal document without a human programming it to fill in the document using legal principles derived from Missouri law that are selected for the customer based on the information provided by the customer. There is little or no difference between this and a lawyer in Missouri asking a client a series of questions and then preparing a legal document based on the answers provided and applicable Missouri law. That the Missouri lawyer may also give legal advice does not undermine the analogy because legal advice and document preparation are two different ways in which a person engages in the practice of law. …
The Missouri Supreme Court cases which specifically address the issue of document preparation, First Escrow, Mid-America and Eisel, make it clear that this is the unauthorized practice of law. The fact that the customer communicates via computer rather than face to face or that the document prepared using a computer program rather than a pen and paper does not change the essence of the transaction.
The court is certainly correct that “human programming” is required to create LegalZoom’s content. But it’s also required for all print forms and kits. So this argument makes no sense.
One Alternative Approach
This case shows that attempting to draw a line somewhere on the slippery slope from self-help divorce kits to full-blown document assembly is doomed to failure. That leaves two alternatives.
One alternative would be for courts to shift from a bright-line test to one that focuses on what should be the concern: “protect[ing] lay people from being injured by incompetents or by those who lack the integrity to practice law compared to those who have been licensed to practice law. Legal Ethics, Law. Deskbk. Prof. Resp. § 5.5–4 (2011-12 ed.)
In that regard, simply observing that LegalZoom’s personnel aren’t qualified to practice law in Missouri accomplishes nothing. Here’s what I’d ask Legalzoom: What are your quality-control processes? Are your documents prepared by lawyers, by nonlawyers, or by some combination of lawyers and nonlawyers? If lawyers are involved, what are their responsibilities, and are any of them licensed in Missouri? If LegalZoom shows that it is serious about creating a reliable product for Missouri consumers, you give them the green light.
This inquiry wouldn’t involve going over LegalZoom’s product with a fine-tooth comb—instead, it would simply have to establish basic competence. The inquiry would presumably be handled by some regulatory authority, or by the local bar.
But this sort of approach isn’t feasible. For one thing, as regards print materials, Elvis has already left the building. And it’s unlikely that anyone would have the appetite, or resources, for the extra regulatory burden that it would represent, particularly given the recent discussion of deregulating the practice of law. (Regarding deregulation, see this WSJ Law Blog post.)
Furthermore, there’s nothing exclusively legal about a contract. Much of the work of drafting and negotiating business contracts is done by nonlawyers. (That’s something I expect to discuss in a future blog post.) That being the case, why should we make a fetish of having lawyers be the ones who prepare the materials for do-it-yourself contracts?
Another Alternative Approach
Given the above, it would make sense abandon the notion of regulating materials, whether in print or electronic form, that allow users to create legal documentation.
Instead, any user who has been harmed could seek a remedy. Sure, the user is responsible for choosing between alternatives offered in the materials. And sure, a given vendor won’t necessarily be in a position to offer products that take into account all quirks in different jurisdictions. But if a vendor screws up and a user incurs damages as a result, why shouldn’t the vendor be held liable?
A user could conceivably choose from among different possible claims: A strict-product-liability claim or a claim for negligent misrepresentation, both tort claims. Or a breach-of-warranty claim. I haven’t yet researched how plausible the different kinds of claims would be in this context.
Vendors could seek to protect themselves against such liability. For one thing, a vendor could specify in its terms of service that the user releases the vendor from any liability for negligence. But contract provisions releasing or limiting liability for claims that have not yet arisen are generally not favored. 8 Williston on Contracts § 19:21 (4th ed.). Furthermore, prominently stating such a release could seriously undercut a vendor’s credibility, given what’s at stake in legal documentation.
And vendors in this space go out of their way to disclaim implied warranties. Such disclaimers might be effective, but I wonder how many would have the gumption to tell users what they mean: You the consumer are depending on us entirely, but if we make a mistake and you lose money or are otherwise harmed, we don’t have to pay you a penny.
A more cautious way for a vendor to protect against liability would be to specify that its products aren’t a substitute for review by a lawyer, or to accept as users only lawyers or people under the supervision of a lawyer. But that wouldn’t help the LegalZooms of the world.
Relevance to Koncision
Currently Koncision is for use only by lawyers or under the supervision of a lawyer. But even if we opt to allow nonlawyers to use our confidentiality-agreement template, no one could plausibly claim that we’re engaged in the unauthorized practice of law. Our position would be that the confidentiality-agreement template is for use in business by sophisticated individuals and organizations, rather than consumers, and that you shouldn’t be using Koncision if you can’t look after yourself.
This stew of considerations is relevant to Koncision 2.0, which I’m currently working on. But I’m thinking out loud, so don’t hold Koncision to any of this.
7 thoughts on “LegalZoom and the Slippery Slope of Unauthorized-Practice-of-Law Analysis”
You dismiss too quickly the court’s third reason for its conclusion – in your words, the “Significance of Document Assembly”.
Under Missouri law as explained by the court, generating custom-tailored legal documents to fit a particular set of facts is different than providing static forms (electronically or otherwise) that have not yet been customized for a particular set of facts. It may not be a perfect place to draw the line, but it makes more sense than a case by case analysis as suggested by your first alternative solution.
Don’t misunderstand. I think it’s entirely fair to criticize UPL restrictions as too vague and too restrictive. Nevertheless, the court had to work with Missouri law as it exists, today, not as the court might have preferred if the court could legislate from the bench.
All of which is to suggest that the best solution (for the group that sees a problem) is your second alternative solution. People enthusiastic about online document assembly should work to relax the statutes that impose UPL restrictions.
Clint: The line between print and electronic is an easy one to draw, but that doesn’t mean it makes sense.
For one thing, I don’t see the difference between giving a user five different print forms and providing the same user one document-assembly system that allows for the same five outcomes.
Furthermore, it’s usually the case that printed forms include alternative language.
And where the line is drawn isn’t specified by statute. If print forms are OK, there’s no reason why document-assembly templates shouldn’t be OK too.
But you may be correct that the best solution is a legislative fix of the sort enacted in Texas.
Ken, you and I may have to agree to disagree about where current UPL statutes draw the line, but we do seem to agree that UPL statutes should be relaxed to more clearly permit online document assembly. Below are two additional thoughts that your blog readers may find interesting.
First, the legislative “fix” of the UPL restrictions here in Texas was not a complete solution. Texas has more than one UPL statute, and only one was fixed. A second statute prohibits the collection of any fee, except by lawyers, for the preparation of documents that affect real estate. (See http://www.txuplc.org/applicable_law.htm. Follow the links on that site to the statutes, since the abbreviated excerpts on the site are not complete.) That second statute remains as an obstacle for companies who would provide automated real estate documents in Texas.
Second, and more importantly, a comparison of your Koncision website to Legal Zoom offers a lesson that UPL regulators should consider.
You seem genuinely passionate about providing the best possible document templates online. However, because of UPL restrictions, Koncision currently makes its online document assembly available only to lawyers. (A wise decision on your part, I think, until UPL restrictions are relaxed.)
In contrast, many other vendors use similar dazzling technology and hefty advertizing budgets to generate and promote custom-tailored, but mediocre or inadequate legal documents for sale to the general public.
It brings to mind the old saying: “Outlaw guns and only outlaws will have guns.” As currently written, UPL restrictions have a chilling effect on the online offerings by bona fide experts, like you, with first rate content. But not so much in the case of aggressive, well-funded entrepreneurs with mediocre or inadequate content.
UPL regulators can’t realistically hope to prevent “outlaws” on the internet. That being the case, we should open the door for sites like Koncision to offer better content to anyone who wants access to it. If we can’t realistically protect the general public from making bad choices on the internet, let’s at least allow people the opportunity and freedom to make better choices.
Clint: I like your analysis, but note that I’m about to make Koncision available to everyone, lawyers and nonlawyers. Koncision differs from LegalZoom in two respects. First, it’s intended for use not by consumers but by sophisticated dealmakers. And second, Koncision’s materials are prepared by a lawyer. Given those factors, I think it would be nuts to suggest that anyone needs to be protected from Koncision. And need for that sort of protection is what underlies the UPL restrictions. Ken
The other side on a real estate lease used Legal Zoom to prepare their LLC operating agreement. Unfortunately the operating agreement contradicted their articles of organization in a way that could not be cured without amending or replacing the operating agreement — which we insisted that they do before we would sign the lease.
In Ohio, it requires legal skill and judgment to recommend a given form of document as adequate for a specific transaction. A lay person, such as a broker, can insert simple information into a form selected by the client, but doing more can put the lay person at risk of ULP. Unlike form books, on-line services recommend the form for the specific transaction, and do not let the customer review the form first and make her own determination. By the time the customer sees the form, the service has been paid.
Of course it is unauthorized practice of law. The question is whether authorities keep looking the other way for whatever various reasons.
As for printed forms with instructions, that’s very substantively different than an online platform that simply asks for input and then spits out the document. With the printed instructions, the user is given a sense of the analysis that is required, and has to perform some semblance of that analysis. They see how the sausage is being made, and they choose to try their hands at making it.
With the online portal, the consumer is only answering questions and NOT MAKING ANY DECISIONS OR PERFORMING ANY ANALYSIS. The platform is making all the decisions with through some sort of preprogrammed flow chart / decision tree. That distinction ought to be the determinitive line; if the product/service is the one making the decisions and the consumer is just answering questions, that’s the unauthorized practice of law.