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The LegalZoom Zone

Effect of state bar and LegalZoom’s unauthorized practice bill still hazy despite joint effort

You unlock the LegalZoom legislation with the key of confusion. Beyond it is another dimension of confusion, confusion about what the legislation does, how it defines or doesn’t define the practice of law and what all this means for LegalZoom and other similar companies. You’re moving into a legislative landscape of both shadow and substance, of things and ideas.TwilightLegalZoom

You just crossed over into … the LegalZoom zone.

Representatives of, a popular self-help legal website, and the North Carolina State Bar cannot seem to agree on the ramifications of a pending bill that would tweak the statutory definition of what it means to practice law in this state, despite the fact that both camps had a hand in crafting the legislation.

In March, state bar president Ronald Gibson said the bill’s proposed definition of the unauthorized practice of law would encompass the so-called decision-tree software at the heart of LegalZoom’s algorithmic engine and its dispute with the bar. Think of the software as TurboTax for legal documents.

Gibson made his remarks after an attorney for LegalZoom, A.P. Carlton of Raleigh, announced that if the bill were to pass it would allow his client to “operate just as they have been in North Carolina and all 50 states.”

“It doesn’t change anything,” Gibson contended.

Carlton and Gibson’s comments during separate interviews revealed a rift that threatened to torpedo the legislation and force the chief judge of the state’s Business Court, James Gale, to determine whether LegalZoom’s business model is legal. The two have been duking it out in Gale’s court since November 2011.

But in early April, just a few days after the interviews with Carlton and Gibson, both sides released statements saying that they would seek a joint dismissal of their suit if the legislation were to pass, indicating that LegalZoom and the state bar had worked out their differences.

Cue The Twilight Zone music

After those statements were released, Lawyers Weekly spoke to John McMillan, a lobbyist, Raleigh attorney, and past president of the state bar who worked on the bill, to discuss a provision in the legislation that would require the attorney general to oversee some of the bar’s unauthorized practice actions.

During the conversation McMillan noted that if the proposal becomes law, LegalZoom will have to significantly alter the way it does business in North Carolina. He said the company could continue selling legal forms online, but it would have to shut down or at least tweak the proprietary software that its customers use to fill out forms. The software is an integral part of LegalZoom’s business.

“If the bill passes as it is now, we would expect LegalZoom to have to change their decision-tree programming,” he said, adding that the legislation prohibits document sellers from making decisions based on the information that their customers plug into the form.

When asked if LegalZoom’s software runs afoul of the proposed statutory definition of unauthorized practice, McMillan said, “Absolutely. That’s what it’s doing.”

This time LegalZoom is staying silent. Carlton declined to respond to McMillan’s comments.

Lack of direction

The obvious problem with the bill, which has passed the House and is with a Senate standing committee, is that it fails to explicitly address the technology that triggered the fight between LegalZoom and the bar in the first place, leaving too much room for interpretation.

Some of the bill’s sponsors have admitted that they don’t even know how it would affect LegalZoom. That ambiguity could render all the legislative maneuvering that has been going on since last year meaningless and kick the ball back into Gale’s court.

“In my opinion this legislation poses more questions than it answers,” said Rufus Edmisten, a former state attorney general who practices at Edmisten, Webb & Moore in Raleigh.

“You could call 10 lawyers and they’d all give you an interpretation of what this legislation means,” he added. “Argument about this could go on until the last lingering echo of Gabriel’s horn trembles into ultimate silence.”

Rod Serling couldn’t have said it better.

New role for AG

As for the aforementioned oversight provision in the bill, a spokeswoman for the attorney general, Noelle Talley, declined to say whether the new responsibility would necessitate the hiring of additional staff. She also would not say how the office felt about overseeing the state bar.

If the bill passes in its current form, the state bar would have to seek approval from the attorney general before it could move forward with any unauthorized practice enforcement action that might shut down a competitor, such as LegalZoom.

The proposal is a reaction to the U.S. Supreme Court’s recent ruling against the North Carolina Board of Dental Examiners. The court found that the board violated federal antitrust laws and appeared to be insulating its members from competition, rather than protecting the public, when it used cease-and-desist letters to close down non-dentists who were offering teeth-whitening services.

The decision hinged on the fact that the state did not supervise the board’s actions.

Under the pending LegalZoom bill, the attorney general could tell the state bar not to send cease-and-desist letters.

When Edmisten was the state’s top prosecutor from 1975 to 1985, his staffers gave advice to the various state occupational licensing boards, which includes the state bar, whenever those agencies sought guidance.

But he said he would be “loath to take on the responsibility of trying to monitor the North Carolina State Bar,” mainly because it is one of the most powerful quasi-governmental boards in the state. He suggested that the judiciary review unauthorized practice actions.

“This is tongue-in-cheek because I’ve never run from a fight, but the state bar is composed of the most prominent attorneys in North Carolina. This is a group that produces the lawyers who guide governmental agencies,” he added. “I just find it sort of odd that the attorney general would have that [oversight] role.”

Follow Phillip Bantz on Twitter @NCLWBantz

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