The Missouri suit against LegalZoom

Larry Ribstein —  27 July 2011

Apropos of my recent discussions (e.g. here) of litigation against LegalZoom (and note my potential interest in this subject), the Law Blog reports on the Missouri class against LegalZoom alleging that LegalZoom is illegally practicing law in Missouri.  The judge denied a motion for summary judgment and the case is going to trial August 22.

The LawBlog quotes LZ’s GC:

“If the plaintiffs are successful, we believe it is going to become a lot more expensive for small businesses and individuals to obtain basic legal forms.  Missouri would become the only state in the nation to take away a consumer’s right to access online legal document software.”

 David Butsch, lawyer for the plaintiff class, told the Law Blog that unbeknownst to consumers

“[t]here are consequences of signing a will . . .and those consequences can be great and they can’t be properly communicated by a company over the internet.”

Asked about concerns that legal services cost too much and the claim that access to online legal documents is better than forcing people go without any advice at all, Butsch responded

that there is now a glut of legal talent in the market, with many law graduates unable to find full-time employment. That fact, he said, has made customized legal help from practicing lawyers increasingly affordable. “I know quite a few lawyers who offer a quality legal service at very good rates,” he said

I have a few more questions for Mr. Butsch:

  • Exactly who are these good lawyers he’s referring to, or at least where can Missouri consumers find them? How do consumers know they’re good apart from Mr. Butsch’s say-so?
  • Even if they charge “very good rates” by current standards, wouldn’t competition lower these fees?
  • Is he confident that lawyers are doing a better job than the internet of communicating the consequences of signing a will?
  • If a company like LegalZoom used the internet to communicate these risks, would he promise not to sue them for unauthorized practice of law?

If Butsch wins his suit I’m sure that Missouri lawyers will be happy.  But could the same be said for consumers, the purported beneficiaries of his suit?

Larry Ribstein

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Professor of Law, University of Illinois College of Law

36 responses to The Missouri suit against LegalZoom

  1. 

    concerning closely held businesses suggests clients often get questionable advice from lawyers, particularly concerning choice of form

    I have read most of the corporation books and attended a myriad of CLE programs on form and I have never seen anyone actually create any checklist or discussion as to which form is best, under what circumstances, and why.

    Obviously, one is not going to get such information from LegalZoom, so what is the point of the site—clients, presumably, know less than Ribstein

  2. 

    This comment totally (almost humorously) misses the point. Of course LegalZoom doesn’t do this — it would be illegal! UPL laws ensure that only “lawyers” can render such advice, and so block potential competition. It’s like GM having a government enforced monopoly to make cars and then justifying this by saying they make the best cars. Would less regulation give consumers access to better advice? Nobody can say for sure. But my extensive research on cases concerning closely held businesses suggests clients often get questionable advice from lawyers, particularly concerning choice of form. Many lawyers are excellent, but ordinary consumers have no reliable way to find them. If lawyers really cared about consumer welfare they would spend more time educating consumers about how lawyers can help them and less complaining in blog comments about the horrors of deregulation.

  3. 

    I’m a lawyer in Texas (but I’m not your lawyer) that has encountered lay form products (not necessarily LegalZoom’s) in the form of wills, promissory notes, and contracts.

    I LOVE them. You know why? I earn more money litigating and fixing the forms than I would ever have earned doing the transactional work in the first place.

    • 

      I don’t know whether comments like this I get from lawyers (and not from consumers like the Missouri class members) are legitimate or rhetorical. I do know that I have read many cases arising from incompetent agreements “drafted” by lawyers (or, more accurately, simply using forms without appropriately customizing them for the client. I also know that UPL suits like the one in Missouri are aimed at preventing legal software for consumers from being more robust in helping consumers make important legal choices. The result is to force consumers to make these choices themselves or to hire an expensive but, unfortunately, often incompetent lawyer.

      • 

        I’m with JM. I estimate that the scope of work (and cost to the consumer) to undo the unintended consequences of lay form documents is greater by an order of magnitude than the work (and cost) to have prepared the document in the first place. What empirical evidence exists that it is “better” for consumers to make “important legal choices” when they don’t know what the choices are? A layperson who wants a will can go on the internet and find a model will. How would he ever know to consider a trust, or more than one trust, as the tool to more completely achieve his objective? Answer: he won’t. Will Legal Zoom mull over the layperson’s fact pattern over the weekend and call him back on Monday? I bet not.

  4. 

    There are alternatives for small businesses. Legal service plans allow business owners to talk with attorneys get the forms they need and have them reviewed for a low monthly fee. They are to the legal fees what health plans are to doctor bills. I am a representative of one of the services.My clients can talk to law firms as much as they like for the cost of a happy meal per day.

  5. 
    Your own mother 2 August 2011 at 6:27 am

    In other news, a website was accused of corrupting the youth of Athens.

  6. 

    My wife does wills and trust, she loves it when the kids come in with a LegalZoom will or trust mom or dad saddled them with thinking they’d save a few bucks. Problems galore! There’s no free lunch campers.

  7. 

    There are a lot of businesses that are easier to get into; I started my first business in 1975 with two years’ experience in the field and $150 dollars of investment. I did not get rich on it, but it supported my family until I got into something better 12 years later.
    Re comment #4–from what I have seen, a lot of routine legal work is handled by the kind of standard forms he used to sell; even if you go to a lawyer; the next question is how many of those are filled out by secretaries or paralegals–unlicensed staff–rather than by the lawyer himself?
    I currently work in an industry where licensing is an issue in some areas of the work. My own observation over 25 years in the industry is that licensing is not necessarily a guarantee of quality work (if licensing is proof of competence, why are there so many auto accidents?).

  8. 

    Stuart

    I wrote easiest business not easiest job. A job is working for the man. A business, one owns, and you work for yourself. I will repeat myself. There is no business more competitive in the United States than the law business. The barriers to entry and the capital costs of being a lawyer (especially vs the income that can be earned) are lower than any other business. There are lawyers everywhere and the competition is beyond brutal. Beyond that, in no other business is the “business part” of the business, especially marketing and advertising, more highly regulated. This is to protect big business and not the public. Ribstein, for example, would yell too the moon, if lawyers could directly and immediately solicit accident victims in the moments following an accident (but he would worship the ground an insurance adjuster walked on, if they got to the scene that quickly).

    You obviously, have never considered going into business for yourself and trying to decide which one to pursue. Take oil and gas. A new shale natural gas field has just been discovered in Ohio. What would it cost to get into that business for yourself? How much study? How much capital? etc.

    Those who rant against lawyers are just jealous; remember the old saw, those who can’t teach.

    A few more points

    1) note the word smart = scholarships or in-state tuition

    2) Going to Harvard or Yale has nothing to do with having a successful law business. I went to law school with the 1st and 2nd most successful lawyers of all time. I don’t include in this group, although he has more money. Charlie Munger, America’s best lawyer, really made his fortunes as a partner and investor with Warren Buffett. He did go to Harvard and is most likely the smartest lawyer America has produced. His lesson. The way to really be successful in life is to find a great partner. 1st and 2nd were partners. Munger did form a world class law firm that still remains under his name, but he did not make his fortune as a lawyer and he faulted to the core the kind of legal education Ribstein provides. Munger, in a famous speech at Harvard, explains that law schools should teach why clients do what they do—what he calls the psychology of human misjudgment—not really bothering with the law. For example, Ribstein teaches business law (contracts, agency, partnership, corporations, securities) You will not find in his teachings anything about why people breach contracts, cheat on their partners, or water stocks.

    3) on Munger, if you want to read something worthwhile by a lawyer, read Munger, not Ribstein. In fact, when you read Munger you will learn that Ribstein suffers badly from incentive-caused bias. Ribstein, who likes to call other lawyers greedy, is pro anything that big business executives want to do because that is where his bread is buttered. Munger doesn’t suffer from incentive-caused bias

    4) I wrote business. going to law school and then getting a job is not going into business. law school only takes 3 years. that is hardly any time at all compared to how long its takes to prepare, plan, etc. most real businesses for example, one doesn’t have the skills to open a world class restaurant 3 days after graduating from high school. Doing such takes years of thought and study, lots more capital ($3 to $5 million). A lawyer can open his doors for $600. Mark Lanier made $50 million or so within 2 years of opening his law business. He explains such in a class he taught at Harvard Law School which you can find on Youtube.

  9. 

    One thing is for sure—never let the facts get in the way

    1) The law business is the most competitive business in the United States. There are no real barriers to entry. A bright student can become a lawyer for less than $100,000. In no other real business are the barriers to entry lower. Uncle Sam hires the best lawyers in the world as CJA lawyers at about $105.00 an hour. All the arguments about high costs, barriers to entry, etc., are urban legends, at best. Some lawyers make huge fees, but that is mostly because of the risk and complexity of the cases on which they work.

    The true reason why lawyers appear to be inaccessible are the incredible barriers to effective advertising (principally the direct solicitation of clients) and the rules requiring admission to practice by state (which completely prevents effective specialization). There rules are designed to protect big business, not the public. Defendants do not want plaintiffs to have aggressive, well financed lawyers, at the most critical time (moments after an event when preservation of evidence is everything).

    2) There is no evidence that lay = lower costs, because there are no studies as to the losses caused by bad legal counsel given by lay persons. For example, lets assume the next Bill Gates uses LegalZoom, forms a corporation, and takes the stock in his own name, with his wife. The software takes off (and the wife leaves with driver and half the stock). Or better yet, the stock is not given to the children when it has no value (the time for estate planning is before you hit it big, not afterwards). Example after example could be given, but the real flaw in Ribstein’s argument was made by Frankfurter in a lawyers disbarment case many years ago when Frankfurter pointed out that letting someone have a law license is an implied in fact representation by the judiciary that it is safe to do business with the fellow (hence the need to disbar people). If LegalZoom is permitted, the courts are making an implied in fact representation that using the forms is safe. Said differently, if LegalZoom is permitted, what is the justification for disbarring a lawyer?

    • 

      I think you are assuming anecdotes not in evidence. The plaintiffs here are going to have to prove that a typical IL lawyer performing the services provided by Legal Zoom will perform them not only significantly better, but that there are significant legal and/or financial consequences to not using those “live” services. I don’t expect that Legal Zoom will lay down on that issue. They can’t afford to have it decided that what they’re selling isn’t worth the money.

      It should be an interesting trial.

      • 

        Ed

        What you do not understand, first, is that very often the best legal advice a lawyer gives is “No.” That is not a choice or option with legal software.

        Second, legal software cannot complete tasks. For example, legal software might prepare a decent trust. However, one must still transfer title of the various assets to the trust. While you think this is easy, it is not. Right now, there are literally billions in mortgages that real arguments are being made were not properly transferred into the business trusts that were intended to be the foundation of mortgage backed securities.

        Additionally, there are many issues in execution of documents, delivery, etc.

        Ask any lawyer whether the market for legal services for consumers is functional and they will tell you no and they will also tell you, if they understand marketing and economics, is that the Rules on Professional Conduct are so designed that legal services cannot be marketed and sold to ordinary consumers.

        What you do not understand is that, if lawyers could effectively market documents to consumers they could effectively market litigation services and Big Business does not want consumers having prompt immediate effective legal representation.

    • 

      Automated machinery often provides higher quality products than human workers. Same for lawyering I would imagine. Legal Zoom has a formula which is well tested and informative. It doesn’t get tired or distracted, or busy thinking about that really big case and blowing off the person who is trying to just incorporate an LLC. Oh, and Legal Zoom is working at 11:00 pm when I want to do the forms…are most lawyers?

      But, if lawyers are going to insist people are better than automation, I suggest we create some new laws for them to follow:

      Lawyers may not use ATMs. They must enter the branch and use the teller. Wait, even better, they can schedule a 15 minute appointment with the teller, who will charge them for one hour for that 15 minutes.

      Lawyers may not purchase any products that use robots. Thus, they cannot drive any German or Japanese cars. They must instead drive Hindustan Motors cars.

      Lawyer may not use any productivity saving programs such as Word Perfect. They must instead hire an unemployed English major who will act as a scribe for them.

      The list can go on and on.

      • 

        Harun

        What do you do, program for LegalZoom

        Seriously, if you don’t know the difference between cashing a check and filing a patent

    • 

      I am happy to let facts get in the way. The most competitive? What other profession or business (other than medicine) requires nearly four years above and beyond a college education simply to get started? Four years (LSAT to acceptance to the Bar) during which it is hard to be earning anything at all. So factor the lost earnings of that time into your cost of entry. As for the $100K number–exactly what law schools are you talking about? Certainly not the top 10. If law school is justifiable at all it could easily be cut down to 2 years, perhaps even 1. As for the bar exam–the only way to argue for its legitimacy is with a paper bag over your head.

      • 

        Stuart

        I noticed you didn’t name any broadly based business with lower barriers to entry than being a lawyer.

        1,000,000 +/- more than fairly bright people haven’t become lawyers in this Country because it was hardest way to their goals in life (which are generally pretty ambitious)—they did it because it was the least hard path to their goals. The numbers, alone, prove my point

    • 

      John, you convinced me, since the form stuff has been available in stores for ages, there should be no reason to disbar lawyers. Lt’s just shoot them or send them to a glue factory.

      • 

        Deebee

        What has a lawyer ever done to you. You post reflects what this entire subject is about: jealously (and that is the emotion that Ribstein directs his posts). Lawyers have no power, no guns, no capital, etc.

        People dislike lawyers because lawyers have four characteristics generally lacking in the public at large: (1) they are far more honest; (2) they can read and understand and are capable of quick study and mastering very complex knowledge in other areas; (3) they can speak and write; and (4) they are better than most about human psychology; and (5) they can think at a deeper level about complex problems.

        Think about it. The law is there for anyone to read. Anyone can pick up a statute book and read that you cannot commit a murder or that certain contracts have to been in writing. However, only a lawyer can tell you what you have to have in that contract that must be in writing and only a great lawyer can tell you, “Joe, you could put that term in that contract, but if you did, you might then try to do X, and you might not want to lead yourself to do that for these reasons.”

        LegalZoom can put a form on its website that you can use to disinherit your children and leave your estate to a dog. If you ask a lawyer to write such a document, I expect they may ask a few questions (starting with your mental capacity)

  10. 

    ” . . . apart from very minor differences in state law . . . .”

    Not trying to argue the main point here, but just want to interject:

    There are huge, sometimes contradictory differences in the laws of the states. And I’m not referring to procedural stuff – e.g., how to file something, how much time do you have, etc.- that’s usually different – but I’m speaking of substantive legal issues.

    • 

      Point taken. I was on a rant. If a JD means anything, though, it should suggest the ability to assess when it is appropriate to undertake representation notwithstanding the substantive differences in the law with which someone in familiar. My background in corporate law; I find it hard to believe I should not be able to advise on contract issues generally regardless of the state law involved.

  11. 

    It would be interesting to see if LegalZoom can defend itself at trial using forms generated from its own website, rather than lawerly “meatsacks” in the courtroom. If not, perhaps that is a future market need they can cover.

  12. 

    The do-it-yourselfer is the legal profession’s best friend. Words matter. Details matter. What you say matters. Sometimes, what you DON’T say matters. Hand-written errata in the form of additions or deletions on a page of typed/printed text matters. In my state (Virginia), we probate the Will the testator wrote, not the Will his beneficiaries wish he wrote. We have two bodies of landlord-tenant law; has your “standard legal form” invoked the law that best suits your situation? The little ditty “The Jolly Testator” (google it — it is easy to find) deliciously describes the pitfalls a layperson can unintentionally create. I have a measurable quantum of my practice devoted to resolving laypersons’ missteps committed when they used one of those one-size-fits-all “universal legal forms” they found online.

  13. 

    Other than representing someone else in court, what exactly uniquely constitutes the “practice of law”?

  14. 

    My experience with LegalZoom has not been positive. I am a patent attorney, and they provide a mechanism to file provisional patent applications and attorneys to work with for utility patents. And, the provisional applications that I have seen and converted to utility applications are horrid. They are mostly not legally sufficient, which means that the applicants have disclosed their invention without really securing the rights that they should have.

    Worse than nothing? Probably not, but not much better either. This is clearly a case of getting what you pay for, and nothing more.

  15. 
    Nathan Silverstein CPA 1 August 2011 at 4:21 pm

    As a tax preparer I think that they should make Turbo Tax illegal. If you knew how much business I am losing to that software you would weep for me and my children.

    • 

      I don’t mean to be cruel, but therein lies the rub: “Screw what you people want, I want your money!”

      It has nothing to do with the quality of the service and everything to do with the members of a profession trying to preserve their monopoly.

      Is it any surprise that we have so many laws that even lawyers and police cannot keep track of them? Or that they are written so bizarrely that even the lawyers cannot tell whether you are acting within the law or not?

      Let’s have someone appoint some folks to write plain-english laws and get rid of 95% of the nonsense cluttering up our ‘legal system’. Oh wait, that would get rid of the lawyers; And most politicians are lawyers. Somehow I don’t see that happening…

      Orion

  16. 

    Standard legal forms (deeds, wills, commercial agreements) can be found in office supply stores throughout this country–not the big box ones, but generally the locally owned ones. I used to sell the things when I was an office supply salesman. I’ve got a CD-ROM I picked up at the dollar store that has hundreds of them.

    What LegalZoom should do is go to the local McDonald’s and hire a few newly minted lawyers and set up free legal clinics all through Missouri to do things (like the disability and insurance claims. that are so many lawyers bread-and-butter) for free.

  17. 

    Legal Zoom is on the internet. What’s Missouri going to do? Create some sort of electronic forcefield on the borders of Missouri?

  18. 

    Why is the practice of law in this of all countries a ‘licensed’ profession in the first place? And apart from very minor differences in state law why on earth should it matter whether you are licensed by one state or another? Why do we need law schools? Why a bar association except to bar people from entry into the so called profession by selling expensive tickets to the intellectual hazing that is the bar exam?

    The legal profession in this country is an anachronistic feudal guild. This is but the beginning of the end for a privileged class that has had its day.

    Bring it on.

    • 

      So, how many times have you flunked your bar exam??

    • 

      Let me preface my remarks: I have many family members who practice law.

      As a 44 y.o. man, I’m not prone to utter OMG, or even OM F’n G all that often. But Stuart, you, my friend, have nailed it squarely on the head. The problem (well, one of many) with lawyers is that they are the one who write the laws. And they write some of those laws (as needed) to protect themselves, which includes raising the “bar” to what is necessary to become a lawyer.

    • 

      Go find something important where most people would find a good lawyer and try going it on your own.

      Or just choose the right form for something so simple like a will or articles of incorporation. Your document will never end up having to be interpreted under the law you know little about. Quit paying you insurance premium too.

    • 

      Ok,next time you’re in jail…call a plumber.

    • 

      profession in this country is an anachronistic feudal guild . . .

      Stewart, what are you so jealous about

      What has any lawyer ever done to you

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