Unauthorized Practice of Law & LegalZoom

LegalZoom is a national provider of online legal forms that markets to the general public.  You may have seen an advertisement with the famous attorney Robert Shapiro (a founder of the company) telling you that LegalZoom can help you form a company or write a will at a relatively low flat rate.  LegalZoom is controversial.  At least it is controversial for some bar associations in the United States who allege that LegalZoom is engaging in the unauthorized practice of law.

The unauthorized practice of law is where a person holds himself out to be licensed in a state to provide legal services.   Each state in the U.S. regulates the lawyers that practice within that state.  Therefore, each state has defined what constitutes the “practice of law.”  A class action suit was brought by citizens of Missouri against LegalZoom on the grounds that the document preparation that LegalZoom provided was a legal service, but LegalZoom itself is not an attorney admitted to practice in Missouri (here’s a blog post on lawyerist.com with links to more about this case; here is also a stub on the ABA Journal).

There are at least two sides to this story.  The one side is that lawyers, trained in their state’s laws, are more likely to be competent in drafting a document that is legally sufficient in their state.  Furthermore, lawyers are susceptible to suit for malpractice, and are usually pretty easy to find to be served, and generally carry insurance.  An out of state web system that is not staffed by lawyers admitted to practice in a particular state are therefore less likely to competently draft legally sufficient documents, and also less susceptible to claims of malpractice (or breach of contract).  Therefore, preventing the unauthorized practice of law is an important service within a state to protect its citizens from untrained attorneys screwing up their legal issues, leaving them without recourse for their legal problem and without the means to sue the service provider.

Another side is that lawyers are expensive, and the unauthorized practice of law statutes are designed to reduce the supply of available attorneys, thereby artificially increasing the cost of legal services.  And, there are a lot of ordinary people in the world who cannot afford to pay an attorney $600 per hour to write a “simple will” or help them to file their incorporation papers for their new business.  There is, therefore, an under-served marketplace of clients that need an attorney’s help but can’t obtain assistance from an attorney in their state.

LegalZoom recently obtained around $100 million in venture capital, and may one day have an initial public offering.  More than a few people are betting that LegalZoom can get around the unauthorized practice of law, and that there is a substantial market for the services they are providing.  I have had at least one client recently tell me that they started a business using LegalZoom.  Would I have done a better job forming their LLC, just because I am a Maryland attorney?  I would probably say, no.  But I think customers miss out on interacting with an attorney and establishing a relationship with one.  Down the road a person that starts a new business may need legal help to review other issues, write contracts, help add a new owner or sell the business to another entity.  The business could end up being sued.  LegalZoom does not, and could not, provide litigation services, because that service would clearly be unauthorized practice of law unless they referred you to a Maryland attorney to handle the case.

Besides, the State Department of Assessments and Taxation provides many of the forms required to be filed in order to form a particular entity in Maryland.  Providing blank legal forms and general instructions is not the unauthorized practice of law, and this information is sufficient for some to properly get a business registered.  Our practice at Faith At Law takes a middle ground between blank legal documents and services like LegalZoom, and having a client go to a full-service law firm.  We offer legal document preparation services online that include limited legal consultation (with yours truly) provided to Maryland businesses and individuals by a Maryland-licensed attorney.  No, you won’t likely see ads for Faith At Law on television in California, but Marylanders can obtain flat rate legal services for certain documents from us.  And there are other attorneys providing similar kinds of limited legal services now in a number of states in the U.S.  My hope is that we can help meet a market need while also not leaving clients with a shabby legal service.  I’ll let you know when I’m ready for my IPO!

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Maryland technology attorney and college professor.

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