Missouri Federal Court Says LegalZoom Could be Engaged in the Unauthorized Practice of Law — Janson v. LegalZoom

[Post by Venkat Balasubramani]

Janson v. LegalZoom, Inc., 2:10-CV-04018-NKL (W.D. Mo. Aug. 2, 2011)

Background: LegalZoom offers “blank legal forms that customers may download.” In addition, LegalZoom makes available an internet portal. Here’s how LegalZoom describes this aspect of its services in an advertisement:

Over a million people have discovered how easy it is to use LegalZoom for important legal documents, and LegalZoom will help you incorporate your business, file a patent, make a will and more. You can complete our online questions in minutes. Then we’ll prepare your legal documents and deliver them directly to you.

Another advertisement states that after answering a “few simple online questions . . . you get a quality legal document filed for you by real helpful people.”

Through its portal, LegalZoom makes available various documents, including entity formation documents, estate planning documents, pet protection agreements, and copyright, trademark, and patent applications. Customers pick what type of document they wish to have prepared and answer various questions via a “branching intake mechanism.” The questionnaire process is “fully automated,” although LegalZoom sometimes provides recommended selections based on how a majority of previous customers answered a particular question. After customers complete the questionnaire, a (human) LegalZoom employee reviews the data for errors or inconsistencies. After the data file is approved, LegalZoom’s software creates a document based on the customer’s input. A (human) LegalZoom employee then reviews the document again and fixes any formatting problems. The completed document is then mailed (and in some cases emailed) to the customer where the customer can choose to execute the document or take it to a real live lawyer and have him or her advise as to next steps. (This is the process the court describes for agreements, wills, and similar documents. The process for filings varies.)

Plaintiffs sued, asserting that LegalZoom was engaged in the unauthorized practice of law. Plaintiffs also asserted claims for “money had and received” and the Missouri Merchandising Practices Act. Plaintiffs never had any personal interactions with LegalZoom employees; nor did they believe that they were “receiving legal advice while using the LegalZoom website.”

Discussion: The court starts with a review of Missouri precedent interpreting Missouri’s unauthorized practice statute. Although the statute contains definitions for the “practice of law” and “law business,” the court notes that it’s ultimately up to the judiciary–which is the “sole arbiter of what constitutes the practice of law”–and not the legislature to determine what crosses the line.

The two main Missouri cases on the unauthorized practice issue were Hulse v. Criger and In re Thompson. Hulse involved a real estate business which prepared legal documents as an “ancillary” service to Hulse’s business as a realtor. The Missouri Supreme Court said the preparation of legal documents did not violate unauthorized practice rules, as long as the document preparation services were ancillary to the main business and no separate fees were charged for preparing documents. In Thompson, the court said that the sale of “do-it-yourself divorce kits” was fine, as long as no “personal advice as to the legal remedies or the consequences flowing therefrom” is given.

The court concludes that LegalZoom’s sale of blank forms is not the problem. The court finds problematic fact that LegalZoom prepares a document in accordance with a customer’s preferences, and conveys the impression that LegalZoom does something more than allowing the customer to pick and choose among various clauses:

LegalZoom’s internet portal offers consumers not a piece of self-help merchandise, but a legal document service which goes well beyond the role of notary or public stenographer. The purchaser [in Thompson] 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.’

Interestingly, the court finds that even LegalZoom’s decision tree questionnaire, which allows the customer to craft his or her own document, may be problematic:

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….

The Missouri Supreme Court cases which specifically address the issue of document preparation . . . make it clear that this is the unauthorized practice of law. The fact that the customer communicates via computer rather than face to face of that the document is prepared using a computer program rather than a pen and paper does not change the essence of this transaction.

The court rejects LegalZoom’s request for summary judgment and says that there is a factual question as to the role played by LegalZoom in the transaction. LegalZoom also raises First Amendment and Due Process arguments but the court rejects these as well.

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The court’s conclusion that LegalZoom’s software service may constitute the unauthorized practice was interesting. Is there a key difference between what LegalZoom does and “document assembly” services? The court says that offering “blank forms” is clearly OK, but what if someone offered blank forms that could be customized by the client? What if, along with a blank set of forms, someone offered a database and a FAQ that allowed customers to weigh the benefits of various contractual provisions and select the ones that the customer felt was most appropriate for his or her situation? Should it really matter that LegalZoom made this easier by taking in the customer’s input through a decision tree and then spitting out a legal document? The line between offering a large variety of forms and offering a customized document where the customer gives input to determine clauses seems awfully thin.

One of the potential problems for LegalZoom is that its advertisements (cited by the court) did not square with its service. At its core, LegalZoom seems like a turn-key document generation service, but its advertisements do not embrace the image of the self-reliant non-lawyer drafter of legal documents. LegalZoom says that “it” will take care of preparing your legal documents, and as a bonus, LegalZoom’s team of “real helpful people” will be available to assist. It was entirely predictable that LegalZoom’s marketing wanted to put out the image of LegalZoom “taking care of everything” for the customer and, to the extent LegalZoom’s marketing and legal departments had any sort of a battle over this issue, the marketing department apparently won out. (It is really a selling point that you are entrusting your legal document to a software application?) Not that it would have necessarily helped, but I’m surprised also that LegalZoom did not have its customers agree to any sort of disclaimers.

Eric pointed out via email that this factual scenario is hardly new. Unauthorized Practice of law Committee v. Parsons Technology, Inc. was a dispute (in 1999!) over whether “Quicken Family Lawyer” violated the unauthorized practice rules in Texas. Like LegalZoom’s service, QFL also asked “a series of questions relevant to filling in the [relevant] legal form” and generated a document. As described by the court:

[Plaintiff] alleges that QFL acts as a ‘high tech lawyer by interacting with its ‘client’ while preparing legal instruments, giving legal advice, and suggesting legal instruments that should be employed by the user.’ In other words, QFL is a ‘cyber-lawyer.’

The court there had no trouble concluding that the QFL service violated the unauthorized practice rules, so the result in the LegalZoom case is hardly unprecedented.

A few other oddities about this case. The court says that it’s solely the province of the courts (and the Missouri Supreme Court) to determine what constitutes the unauthorized practice, but it looks like the decision may end up falling to a jury rather than the court. To the extent there is a mechanism available to it, I’m surprised the court did not just certify the question to the Missouri Supreme Court. I also wondered about the availability of a Section 230 defense for LegalZoom. Its advertisements and human intervention likely make for a Section 230 argument difficult to make. Even removing these two elements, to the extent the defense was available, the case looks like it would make for a fun application of the Ninth Circuit’s Roommates decision.

Finally, the court mentions the fact that the plaintiffs in question “never believed that they were receiving legal advice while using the LegalZoom website,” and did not have any contacts with LegalZoom employees. While the court’s overall conclusion on the unauthorized practice issue is certainly defensible (in light of the statute and case law), the court does not reconcile its decision with these bad facts with respect to the two named plaintiffs, or any procedural class action issues that this raises.

This may seem like a snarky afterthought, but I’m surprised LegalZoom didn’t clear these issues with local jurisdictions in advance. They may end up winning (either at this stage or the next) but I wondered what this ruling does for public confidence in their services.

Additional coverage:

Order in LegalZoom Case (Richard Zorza’s Access to Justice Blog)

Is Legal Software Conduct? True or False? (eLawyering Blog)

Class Action Claims Online Legal Forms Pose Threat To Consumers (WSJ)

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