LegalZoom Sued in Class Action for Unauthorized Law Practice
|Written by Gene Quinn
Patent Attorney & Founder of IPWatchdog, Inc.
Principal Lecturer, PLI Patent Bar Review Course Posted: February 9, 2010 @ 4:04 pm
On December 18, 2009, LegalZoom was sued in the 19th Judicial Circuit Court in Cole County Missouri for engaging in the unauthorized practice of law (see Janson v. LegalZoom complaint). The plaintiffs are also seeking to certify a class action against LegalZoom. On February 5, 2010, LegalZoom filed a Notice of Removal, seeking to remove the case from State Court to the United States District Court for the Western District of Missouri. LegalZoom invoked in its papers the Class Action Fairness Act (CAFA), codified at 28 USC 1332(d) and 28 USC 1453, to remove the action to federal court. The CAFA provides that a district court has original jurisdiction over a class action with at least 100 plaintiffs, which involves an amount in controversy over $5,000,000 and in which minimal diversity exists between the defendant and at least one plaintiff. In its removal papers LegalZoom vigorously denies “the allegations of wrongful conduct and intend to file at an appropriate time a dispositive motion showing that they are entitled to judgment as a matter of law.”
As far as I can tell, there are no allegations presented by the plaintiffs that relate to LegalZoom’s business practices relative to patents, copyrights or trademarks, but instead focus on other LegalZoom offerings such as wills and other court filings. Nevertheless, this caught my attention because since the United States Patent and Trademark Office changed the rules of practice in September 2008 relative to patent and trademark matters pending before the Office I have believed, and openly expressed such belief, that the LegalZoom model is in fact a model that put LegalZoom squarely in the category of offering legal services without a law license, thus engaging in the unauthorized practice of law. For example, just over 1 year ago I wrote about e-mails being sent out to former LegalZoom customers by LegalZoom that explain what needs to be done moving forward in Trademark applications already filed. Not only was the advice incorrect, but it seems to me to be utilizing legal information, synthesizing such information and making recommendations to another, which is what I have always understood to be the practice of law, and certainly is what I taught was the practice of law when I taught Legal Ethics at Syracuse University. See LegalZoom Continues Unauthorized Practice of Law.
The complaint filed against LegalZoom explains that in May 2008 the North Carolina State Bar’s Unauthorized Practice Committee undertook an investigation of LegalZoom, and the complaint summarizes the charges as follows:
Among the documents LegalZoom prepares or offers to prepare are articles of incorporation, wills, trusts, divorce pleadings, and deeds. LegalZoom represents that it prepares the articles of incorporation and ‘customized bylaws and resolutions’ for its business formation customers. The legal documents are prepared through LegalZoom’s website where, once the customer purchases the service, the customer is presented a questionnaire that the customer completes online. LegalZoom transcribes the responses onto a form template that LegalZoom has determined appropriate for the customer’s legal document and in a form or manner determined by LegalZoom or through software developed by or on behalf of LegalZoom. The customer is presented with a finished document that is represented to be legally sufficient for the customer’s needs without review or edit and has not been approved by an attorney.
In my opinion this is the part of the LegalZoom business that is on the strongest footing and most likely not going to be deemed the unauthorized practice of law. The use of forms is not the practice of law, and to the extent there is any practicing of law here it would seem to me to be in the choice of form to be used. I have always understood the LegalZoom process was dictated based on an attorney who created the form and then provided the created form to be used passively in defined circumstances. I don’t see that as being the practice of law, although LegalZoom would certainly be better off if they did not have a real person doing the transcribing work. Still, the work of a scribner has never been considered the practice of law.
Where LegalZoom is much more at risk is with respect to what their customer service representatives do, and follow up communications advising of what action need to be taken moving forward. If you call LegalZoom (and I know this because I tried it several times) the customer service representatives will answer your questions and do seem to be providing legal advice, which would be the unauthorized practice of law. In some cases customer service representatives told me things that if done would immediately cause the loss of rights. For example, I asked one representative whether I needed to file a patent application first or if I could just start selling the product. I was told there was no reason why I couldn’t start selling immediately and filing a patent application first was of no importance insofar as the decision to sell was concerned. Of course, if you followed this advice you would immediately lose any ability to obtain a patent outside the US. In the US you can, in some circumstances, avail yourself of a 12 month grace period between public use or offers for sale and the filing of a patent application (see The Risk of Not Immediately Filing a Patent Application), but in virtually all places outside the US an absolute novelty rule is followed, which means you must apply for a patent before you sell or publicly use the invention.
So while the LegalZoom model is one that has a lot of appeal, it seems to me that it is just too difficult to pull off without engaging in the unauthorized practice of law. I have no doubt that the customer service representatives want to do a good job, and try and do a good job, but if you are not trained in the law then you have no way of knowing whether what you are saying is always true, sometimes true or could be misinterpreted by the hearer on the other end of the phone. The follow up e-mails that try and generate further work are certainly more troubling, even if they contain appropriate guidance and information. It seems to me that there is no way to make follow-up suggestions on what needs to be done or should be done without offering legal advice, which when provided by those who are not attorneys would constitute the unauthorized practice of law.
What will ultimately happen as a result of this complaint is anyone’s guess, but it should be a case that is carefully watched throughout the business and legal community. The relief that these plaintiffs are asking for in the complaint is real and substantial, including:
- Actual damages in the sum of the fees charged to the Plaintiffs.
- Punitive damages in a sum sufficient to punish LegalZoom for its misconduct and to deter if from such misconduct in the future.
- Reasonable attorneys fees and expenses, including the costs and expenses of the class notice and claim administration.
I also suspect that with this being forced into the spotlight there may be other plaintiff’s groups and classes that emerge, and perhaps even a State Attorney General or two become interested enough to take a look, which would be a very good thing indeed. While many think that lawyers just complain about LegalZoom and others, the truth is that if there is the unauthorized practice of law those who ultimately suffer are the customers/clients. The inescapable reality is that it is far more expensive to pay someone to do something incorrectly and then have to pay someone else later to fix it. It is even more costly if in certain circumstances there is no fix that can be accomplished.- - - - - - - - - -
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About the Author
Gene Quinn is a Patent Attorney and the founder of the popular blog IPWatchdog.com, which has for three of the last four years (i.e., 2010, 2012 and 2103) been recognized as the top intellectual property blog by the American Bar Association. He is also a principal lecturer in the PLI Patent Bar Review Course. As an electrical engineer with a computer engineering focus his specialty is electronic and computer devices, Internet applications, software and business methods.