By now, LegalZoom has gotten used to fending off allegations that it is practicing law without a license. But this might be the first time that the company has been accused of hurting African orphans, many of whom have AIDS.
The group behind the new claim, North Carolina-based Beacon House USA, asserts in a class action against LegalZoom that the company botched its application for tax exempt status, preventing Beacon House from raising money to help sick and abandoned kids in Ghana.
LegalZoom’s handling of Beacon House’s federal tax exemption form was “improper, negligent and illegal” and ultimately resulted in “AIDS babies” being deprived of housing, food and education, said the group’s attorney, Nathan B. Atkinson of Spilman, Thomas & Battle in Winston-Salem.
“What happened to Beacon House is an unfortunate example of the problem we face with LegalZoom here in North Carolina,” he said.
The suit also alleges that the LegalZoom website’s sale of downloadable legal documents, such as wills and leases, constitutes the unauthorized practice of law and that its trade practices are unfair and deceptive.
“LegalZoom tells its customers, ‘just answer a few simple online questions and LegalZoom takes over. You get a quality legal document filed for you by real helpful people,'” the complaint states. “However, none of the ‘helpful people’ are North Carolina lawyers or authorized to practice law in the state of North Carolina.”
Beacon House’s named co-plaintiffs are Kelly Bergenstock, a home mortgage consultant in Kill Devil Hills who paid LegalZoom more than $1,700 for trademark documents, and Charles F. Jones Jr., a Raleigh man who bought limited liability company forms from the site for a few hundred dollars.
They argue that LegalZoom illegally sold document preparation services to thousands of state residents and should be forced to return all the money it collected for those services. They also are seeking treble damages and attorneys’ fees.
LegalZoom’s attorney, Alfred P. Carlton Jr. of Raleigh, has asked that the case be designated to the state’s Business Court, a move that Atkinson said he will not oppose. Carlton said in an interview that “LegalZoom is doing business legally in all 50 states,” but declined further comment as his client formulates a responsive pleading to the suit.
Carlton also represents LegalZoom in its ongoing action in the Business Court against the N.C. State Bar, which issued a cease-and-desist letter declaring that the website’s services were illegal nearly six years ago. LegalZoom, which continues to operate in North Carolina, sued the bar in 2011.
The website contends that the bar is using baseless cease-and-desist letters to push it and other similar companies out of the state without having to actually prove the unauthorized practice of law.
While the class action cites the bar’s letter as proof of LegalZoom’s illegal conduct, the court has yet to determine the validity of that letter. The complaint also notes that a former South Carolina attorney general sued LegalZoom in 2012 for unauthorized practice. However, the complaint does not mention that a settlement agreement stating that the website’s services are legal is awaiting court approval.
When told of the pending settlement, Atkinson said the outcome of the Palmetto State case will not have any bearing on his class action because “we have North Carolina statutes at play here and the North Carolina State Bar has chimed in and has a very different view of LegalZoom’s activities.”
“The bar has told them without a doubt that what they’re doing is illegal,” he said. “Our independent review also confirms that what they’re doing here is unauthorized practice of the law and damaging North Carolina consumers.”
– Follow Phillip Bantz on Twitter @NCLWBantz