Can software practice law?

June 30, 2011: 8:30 AM ET

A lawsuit claims LegalZoom's do-it-yourself online legal document service is practicing without a license. Is legal self-help software illegal?

By Roger Parloff, senior editor

FORTUNE -- Wouldn't it be great if there was a Web site that could help regular folks draw up their own legal documents the way TurboTax helps them do their own tax returns?

Well, the good news is that such services do exist—and have existed for some time. The problematic news is that a federal class action suit claims they're illegal, at least in Missouri.

Specifically, the plaintiffs allege that LegalZoom, a do-it-yourself online legal document service that launched in 2001 and was co-founded by O.J. Simpson lawyer Robert L. Shapiro, is engaged in the unauthorized practice of law. The case asks whether, under Missouri law, LegalZoom's server-based decision-tree software is providing services that really ought to be performed only by chin-stroking counselors-at-law licensed by the Missouri state bar.

Ken Friedman, LegalZoom's vice president, legal and government affairs, says the fact that there have been so few legal challenges to a service that launched a decade ago reflects, in large part, that no one's being harmed by it. "The concept isn't new," he says. "Self-help legal books and services have been around for as long as lawyers. The only thing new is the technology."

U.S. District Judge Nannette Laughrey, sitting in Jefferson City, Missouri, will rule on LegalZoom's legality within the next few weeks, or she could kick the question over to a jury to decide after trial, which would begin in late summer. Either way, the case will produce what appears to be just the second court ruling ever on the legality of legal self-help software. The first one, by a federal judge in Dallas in 1999, ruled that the Quicken Family Law software package did violate Texas law, but the ruling was set aside on appeal after Texas amended its laws to permit such products. (Definitions of law practice vary from state to state; California and Arizona, for instance, have provisions authorizing nonlawyers to prepare legal documents under specified circumstances.)

To use LegalZoom a customer goes to the company's web portal and selects what he wants to do—draw up a last will and testament, say; or form a limited liability corporation (LLC); or apply for a copyright, patent, or trademark.

Then he's presented with a series of dialog boxes that ask him questions. For a will, he might be asked: Do you have children? What are their names? How do you want to distribute your estate?

The user's answers to each question determine which follow-up questions he is asked. If, at some decisional crossroads, the user's not sure what path to take, and wants to know what most customers before him chose to do, the software will tell him. (This feature must be for people who wish they could let the Family Feud studio audience be their lawyer.)

After the user answers the inquiries, he must pay to proceed further. Upon payment, the software draws up a customized document based on templates devised by lawyers, though not necessarily lawyers from the user's state. If appropriate, LegalZoom will also automatically file the document with the pertinent government agency.

All lawyered up

There are, needless to say, disclaimers galore. On nearly every web page the user is warned, for instance, "The information provided in this site is not legal advice, but general information on legal issues commonly encountered." Prior to payment the user also signs off on this one: "LegalZoom is not a law firm or an attorney and may not perform services performed by an attorney. Rather, I am representing myself in this legal matter." (Generally speaking, every American, lawyer or nonlawyer, has a constitutional right to represent himself, regardless of whether that's a good idea or not.)

In December 2009 LegalZoom customer Todd Janson, later joined by two others, filed a class-action against LegalZoom in Jefferson City. The plaintiffs don't claim to have suffered any injury from using the software. But Missouri law says that someone who has paid money to a non-lawyer for legal services is entitled to sue the poseur for a sum equal to three times what he paid. So the suit seeks that recovery for every Missouri resident who used LegalZoom since December 17, 2004—regardless of how satisfied they might have been with the service. The lead lawyer is Tim Van Ronzelen of Jefferson City's Cook, Vetter, Doerhoff & Landwehr.

Missouri's statutes define law practice as, among other things, "the drawing or the . . .  assisting in the drawing for a valuable consideration of any paper, document or instrument affecting . . . [legal] rights."

On its face that language certainly sounds broad enough to cover what LegalZoom does. But in 1978 the Missouri Supreme Court effectively narrowed that language when it reviewed a case in which Missouri bar authorities sought to punish the sellers of a divorce kit that consisted of nothing but blank legal forms and instruction booklets for filling them out. The court ruled that merely marketing such materials did not amount to practicing law absent "personal advice as to legal remedies or the consequences of flowing therefrom."

Accordingly, the opposing parties in Janson v. LegalZoom now attempt to describe LegalZoom's service in words that tend to squeeze it either into or out of this precedent's safe harbor. In legal filings, the plaintiffs say LegalZoom "prepares customized legal documents, tailored for the use of individual customers."

Not at all, responds LegalZoom. Rather, it "provides an online platform for customers to select and create their own legal documents."

Does that seem like a debate over a distinction without a difference? Judge Laughrey must wish there was a JudicialZoom.

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