N.J. Panel Issues Warning on LegalZoom, Avvo and Rocket Lawyer

By Samson Habte

The New Jersey Supreme Court’s ethics committee dealt a blow to Avvo, LegalZoom and Rocket Lawyer in a June 21 opinion that said lawyers may not participate in initiatives those companies started to match lawyers with clients (New Jersey Supreme Court Advisory Comm. on Professional Ethics, Op. 732, 6/21/17).

The opinion is the latest example of the regulatory hurdles facing online companies that want to disrupt the legal services market by connecting lawyers with potential clients—in return for a portion of the legal fees the attorneys receive.

This phenomenon, which one legal technologist has described as the “Uberization of Legal Services,” has been slowed by state bar regulators, who have been virtually uniform in finding that ethics rules prohibit attorneys from enrolling in legal matchmaking programs administered by nonlawyer-owned companies.

Avvo has borne the brunt of this regulatory disapproval. Ethics panels in four states— South Carolina, Ohio, Pennsylvania and now New Jersey—have found that lawyers can’t participate in Avvo Legal Services, which connects consumers seeking “limited scope” legal services with lawyers willing to perform that work for a flat fee.

All four panels concluded that lawyers who did participate in Avvo Legal Sevices would violate ethics rules that forbid fee-sharing with nonlawyers. The New Jersey opinion—a joint product of the state supreme court’s ethics, unauthorized practice and advertising committees—further found that participating lawyers would contravene the prohibition on paying for referrals.

The analysis was different for LegalZoom and Rocket Lawyer, because the products that were under scrutiny for those companies differed from Avvo’s matching program for limited-scope legal services.

LegalZoom’s CEO suggested, in a little-noticed interview for a recently published law review article, that his rapidly-growing company may bring to market a lawyer-client matching service similar to the one Avvo has already launched.

But the New Jersey opinion focused on two currently available LegalZoom products: Business Advantage Pro, which the opinion said allows business owners to “receive legal advice on limited business matters” in exchange for a flat monthly fee; and Legal Advantage Plus, which allows monthly subscribers to receive similar consultations on estate planning, tax and other matters.

The committees said those products, and a similar unnamed program that Rocket Lawyer offers, are “legal service plans,” which are permitted under ethics rules but must be registered with the state supreme court.

Accordingly, the committees found that New Jersey lawyers “may not participate” in the Avvo, LegalZoom or Rocket Lawyer programs.

‘Large Untapped Market’

The regulatory hurdles facing Avvo, LegalZoom, Rocket Lawyer and other industry startups have not dampened investor interest in those companies.

According to CrunchBase Inc., a crowd-sourced database that tracks investment in startup companies, Rocket Lawyer has received at least $46 million in venture funding, while Avvo has obtained at least $132 million and LegalZoom has collected at least $311 million.

Although much of that funding came in before bar authorities turned their attention to online providers, some legal academics and economists have told Bloomberg BNA that regulators probably won’t sap the initiative of the most disruptive companies in this space.

“My guess is they’re looking at the Uber playbook and saying, ‘It’s better to ask forgiveness than permission,’” said Ray Brescia, a professor at Albany Law School.

Brescia discussed LegalZoom, Avvo, Rocket Lawyer and other companies in a recent law review article titled, Uber for Lawyers: The Transformative Potential of a Sharing Economy Approach to the Delivery of Legal Services , 64 Buffalo L. Rev. 745 (2016).

“In talking to some of the players in this space, they see themselves on a mission of trying to bring affordable legal services to the middle market,” Brescia told Bloomberg BNA. “I think they see—and I don’t disagree with them—a very large untapped market.”

‘Great Unknown’

Brescia said that while many attorneys may view online providers as competitors, a growing number of lawyers—particularly solo practitioners—may come to see them as valuable partners.

“You talk to solo practitioners or lawyers in small firms, they say that part of their job—finding clients—is in some ways the hardest,” Brescia said. “They don’t necessarily know what works and what doesn’t.”

Those lawyers may be willing to outsource the marketing function of running a legal practice, Brescia said, and companies like LegalZoom and Avvo will be well-placed to pick up that work. “Because of economies of scale, they can increase awareness about peoples’ needs for lawyers—and they can likely advertise more broadly than an individual lawyer or individual law firm might be able to do,” Brescia said.

Renee N. Knake, a professor at the University of Houston Law Center, said it wasn’t clear how large the “market for legal marketing” is.

“It’s sort of a great unknown,” Knake told Bloomberg BNA. But “there are enough players moving into it” that it must be sizable, Knake said, because “these companies wouldn’t be pressing forward if they hadn’t done the market analysis.”

To contact the reporter on this story: Samson Habte in Washington at shabte@bna.com

To contact the editor responsible for this story: S. Ethan Bowers at sbowers@bna.com

For More Information

Full text at http://src.bna.com/qdI.

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

Copyright 2017, the American Bar Association and The Bureau of National Affairs, Inc. All Rights Reserved.