After a federal court judge in Missouri denied LegalZoom’s Motion for Summary Judgment just 3 weeks before trial in what is probably the biggest class action lawsuit alleging systematic and illegal unauthorized practice of law, LegalZoom cries “Uncle” and last week settled the lawsuit to avoid a trial that would have started today. In a previously issued 31 page Order Denying Summary Judgment it was clear that Federal District Court Judge Nannette K. Laughrey was not buying LegalZoom’s argument that it was merely selling forms on the internet. In its Order the Court stated that 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 the unauthorized practice of law. To read a copy of the Order click on the following link: Order on Summary Judgment – Janson v. LegaZoom.8.2.2011.
The fact that documents are drawn up by a computer did not 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.
With the Plaintiffs claiming $5,000,000 in damages, including treble damages, and with LegalZoom facing a potential injunction to cease and desist operating its legal document service in Missouri, LegalZoom apparently wanted no part of the upcoming trial that might have put a serious kink in the company’s high-profile efforts to roll out an IPO in coming months to help pay back tens of millions of dollars to its initial investors. Stay tuned to see whether investors will continue to warm to LegalZoom’s novel business model that is very clearly fraught with real problems and serious questions as to whether it can survive legal challenges in every state across the country which prohibit UPL (including almost all 50 states).
Several other states have already examined LegalZoom’s operations and concluded that the company’s on-line document preparation services constitute the Unauthorized Practice of Law. One of those states is North Carolina. Click on the following link to read the May 2008 Cease and Desist Letter from the North Carolina State Bar to LegalZoom ordering that company discontinue offering legal document preparation services in North Carolina: NC State Bar Cease and Desist Letter to LegalZoom. Other States, including Connecticut, Pennsylvania, Georgia and Ohio have also concluded LegalZoom violated laws in those states that prohibit the unauthorized practice of law.
