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LegalZoom and N.C. Bar near end of long battle

Motions and insults have been traded with equal vigor, but now it’s time for a judge to make the call in the long bout between LegalZoom and the N.C. Bar

The bitter fight between LegalZoom and the North Carolina State Bar that has festered for more than a decade has reached a crucial point, with a state Business Court judge now poised to issue the first significant rulings in the high-stakes case.

Judge James L. Gale has a year and a half’s worth of motions on his desk seeking determinations on the scope of the bar’s authority, whether LegalZoom is engaged in the unauthorized practice of law, and whether the company is entitled to a jury trial on that issue.

LegalZoom, which sells do-it-yourself legal forms and prepaid legal services plans, accuses the bar of using monopolistic practices in an attempt to keep it from competing with local lawyers for business.

The California-based company sued in 2011, three years after the bar served it with a cease-and-desist letter declaring its form services illegal. The bar had been investigating LegalZoom since 2003. LegalZoom disregarded the letter and has continued to sell its forms to residents, but it cannot offer its prepaid legal services in the state until the bar registers the plans, which it has refused to do.

An attorney for LegalZoom, Alfred P. Carlton Jr. of Carlton Law in Raleigh, said the company is “firm in the belief that they are not violating any law and that they are operating within the bounds of the law in all 50 states.”

LegalZoom believes that the bar has been using cease-and-desist letters in an attempt to push it and other similar companies out of the state without having to actually prove any claims of unauthorized practice.

LegalZoom also says that the bar lacks the discretionary power to refuse to register the company’s legal services plans because the process is ministerial. The bar contends that it has that authority. The dispute is the subject of pending motions from both parties seeking judgment on the pleadings.

In a separate proceeding, the bar has asked the court to determine that LegalZoom is engaged in unauthorized practice of law based solely on a review of the company’s website. Arguing for the bar, Special Deputy Attorney General I. Faison Hicks wrote that the site “sets forth a description by LegalZoom itself of what it is actually doing in the marketplace in the State and the facts shown in this website control the determination of the State Bar’s Motion, not the self-serving characterizations of the facts made by LegalZoom in its brief.”

Hicks also noted that LegalZoom missed the deadline for filing a jury trial demand by about two and a half months. He referred questions to a state Department of Justice spokeswoman, who did not reply to a request for comment. The state has consistently declined to discuss the lawsuit.

Meanwhile, LegalZoom argues that the state’s unauthorized practice statute is ambiguous and it should be up to a jury to decide whether the company’s services are legal. Carlton, the company’s attorney, said in an interview it was “curious that an organization that claims to protect the public is so opposed to 12 members of the public looking into their business.”

In a motion supporting LegalZoom’s right to trial, Carlton wrote that the bar’s opposition was “a surprising, unprofessional, and self-serving position for the organization that claims to lead the legal profession.”

“Incredibly, the State Bar asserts that jury trials do not ‘further any significant or legitimate purpose,’” he added. “Such a statement shakes the very bedrock of our judicial system.”

Filings in the suit have become increasingly caustic as the case comes to a head. For instance, Hicks recently characterized LegalZoom’s assertions as “absurd,” “simply wrong,” “facially implausible,” and “not even facially plausible.” Carlton has described the bar’s position as a “hodgepodge of irrelevant, immaterial, impertinent, and misleading arguments.”

Carlton, who represents several other online legal service companies, is quickly becoming the bar’s Enemy No. 1. Another one of his clients, online commercial lien filing service Lienguard, is fending off an unauthorized practice suit from the bar.

The case, filed in 2011, appears to be the first time in which the bar has sought an injunction to enforce one of its cease-and-desist letters. Gale also is considering motions for judgment in that suit, and there’s a possibility that he’ll issue the rulings around the same time that he decides the pending matters in LegalZoom.

Contrary to the bar’s complaint, Lienguard says it is not giving out legal advice, but only offering general information about liens and related concepts to members of its website. If that service qualified as legal advice, “then,, and any number of other web outlets would be put out of business,” Carlton wrote.

“The State Bar’s outsized notions of its own authority and clear misinterpretation of the statutes also would have troubling implications under the rights to freedom of speech expressed by the First Amendment,” he added.

Considering the stakes and potentially far-reaching implications, it is highly likely that both the LegalZoom and Lienguard suits will be appealed to the state’s Supreme Court, regardless of what happens in Business Court.

Follow Phillip Bantz on Twitter @NCLWBantz

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