Federal Court Refuses to Halt Class Action Accusing LegalZoom of Unauthorized Practice

LegalZoom.com Aug. 2 failed to persuade a Missouri federal district court that it is not practicing law without a license in that state.

The U.S. District Court for the Western District of Missouri denied LegalZoom's motion for summary judgment and ruled that plaintiffs may proceed with their class action which asserts that the California-based legal document vendor violated Missouri's statute prohibiting the unauthorized practice of law (Janson v. LegalZoom.com Inc., W.D. Mo., No. 2:10-CV-04018-NKL, 8/2/11, further proceedings in 26 Law. Man. Prof. Conduct 496).

A reasonable juror could find that LegalZoom's computerized “decision tree” software, which drafts legal documents based on responses a customer types into an online questionnaire, is a legal document preparation service and therefore that the company is engaged in unauthorized practice, Judge Nanette K. Laughrey said.

The fact that documents are drawn up by a computer doesn't immunize the company, Laughrey added, because the computer program was designed by LegalZoom employees based on an analysis of Missouri law, and a LegalZoom employee checks each questionnaire for completeness and consistency of information.

“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,” Laughrey wrote.

The lawsuit seeks the treble damages allowed under the Missouri UPL statute, Mo. Rev. Stat. §484.020.2, as well as injunctive relief and punitive damages.

Customized Documents

Todd Janson, Gerald T. Ardrey, Chad M. Ferrell, and C&J Remodeling LLC filed a class action in Missouri state court against LegalZoom.com, a California-based online legal document preparation service. LegalZoom's website allows customers to put together their own legal documents by choosing a product or service suitable to their needs and inputting data via a questionnaire. The website platform then generates a document tailored to the customer's information.

The plaintiffs, all Missouri residents, argue that the company violated Missouri's unauthorized practice law when it sold them legal documents generated on its website. They also claim the company violated Missouri's Merchandising Practices Act by enticing customers to buy its services with false representations about their legality and validity.

The plaintiffs make no claim against the part of LegalZoom's business that sells blank legal forms that customers themselves fill out, such as affidavits, bills of sale, letters, releases, promissory notes, and various types of agreements.

LegalZoom removed the case to federal court in Missouri, then tried to get the case transferred to a California federal court under a forum-selection clause in its contract that named “courts of the city of Los Angeles” as the agreed-upon venue. In an earlier ruling, the Missouri federal court denied the motion, concluding that the matter belongs in Missouri given that state's strong interest in interpreting and applying its own unauthorized practice laws. See 26 Law. Man. Prof. Conduct 496.

‘Do-It-Yourself' vs. ‘We'll Do It for You.'

In its motion for summary judgment, LegalZoom argued that its online software is the 21st century equivalent of the do-it-yourself divorce kit approved in In re Thompson, 547 S.W.2d 365, 366 (Mo. 1978). The plaintiffs, on the other hand, contended that LegalZoom goes far beyond selling fill-in-the-blank kits and actually prepares legal documents for its customers, an activity forbidden to nonlawyers.

Laughrey sided with the plaintiffs, agreeing that a reasonable juror could find that the company was not simply selling a do-it-yourself product. “LegalZoom's internet portal service is based on the opposite notion: we'll do it for you,” Laughrey said.

The merchandising package approved in Thompson provided the customer with blank forms and general instructions regarding how those forms should be completed. By contrast, Laughrey said, LegalZoom “offers a legal document service which goes well beyond the role of a notary or public stenographer.”

This conclusion is confirmed, the court added, by the pitch in LegalZoom's advertising: “Just answer a few simple online questions and LegalZoom takes over. You get a quality legal document filed for you by real helpful people.”

Constitutional Objections Rejected

Laughrey rebuffed LegalZoom's claim that enforcement of Missouri's unauthorized practice law would violate the First Amendment. For one thing, Laughrey said, the ban on UPL is directed at conduct, not speech.

In any event, the court said, states have a compelling interest in regulating professionals for the protection of the public and a state doesn't lose its power to regulate activity deemed harmful to the public merely because speech may be a component of that activity. The court also rejected LegalZoom's claim that enforcing the UPL statute would violate due process.

On one point, the court agreed with LegalZoom: to the extent the company's document services deal with matters of patents and trademarks, Missouri law must yield to federal regulation of those who offer services pertaining to intellectual property.

“Even though there is no evidence that LegalZoom is licensed to practice before the [Patent and Trademark Office],” the court stated, “that field of regulation is occupied by federal law. … Therefore, the Court grants Defendant's Motion for Summary Judgment with respect to Plaintiffs' claims as they relate to patent and trademark applications.”

The plaintiffs are represented by David T. Butsch and James J. Simeri of Butsch Simeri Fields, Clayton, Mo., and Kari A. Schulte, Matthew A. Clement, and Timothy W. Van Ronzelen of Cook, Vetter, Doerhoff & Landwehr, Jefferson City, Mo.

LegalZoom is represented by Robert M. Thompson, Christopher C. Grenz, and James T. Wicks of Bryan Cave, Kansas City, Mo., and John Michael Clear of Bryan Cave's St. Louis office.

Full text at http://op.bna.com/mopc.nsf/r?Open=kswn-8kdnya .

The complaint filed in Janson may be found at http://ipwatchdog.com/cases/janson_v_legalzoom_complaint.html .

The Connecticut UPL opinion is located at http://www1.ctbar.org/sectionsandcommittees/committees/UPL/08-01.pdf .

The Ohio UPL opinion is located at http://www.supremecourt.ohio.gov/Boards/UPL/advisory_opinions/UPLAdvOp_08_03.pdf .

The Pennsylvania UPL opinion is located at http://www.pabar.org/public/committees/unautpra/Opinions/2010-01LglDocumentPreparation.pdf .

The North Carolina bar's cease and desist letter may be found at http://greatestamericanlawyer.typepad.com/ncapccd4.pdf .

The ABA/BNA Lawyers’ Manual on Professional Conduct is a joint publication of the American Bar Association Center for Professional Responsibility and BNA.

Copyright 2011 the American Bar Association and The Bureau of National Affairs, Inc. All Rights Reserved.