LegalZoom allowed to proceed with case against local bar

LegalZoom has been allowed to proceed with its claim that the North Carolina State bar had exceeded its jurisdiction when it refused to register the online legal advice business’s subscriptions services.

In an interim ruling that could help reverse the misfortune of the otherwise successful online legal business, The Wake County Superior Court dismissed the bar’s counter-claim on 29 August that LegalZoom’s claim was unfounded.

LegalZoom has been under attack from local bars in several US states for engaging in unauthorised practice of law.

The uncertainty generated by these proceedings is likely to have been a major disincentive to potential shareholders lined up to invest in the company, which was due to float on the New York stock exchange last month.

The IPO was cancelled as a result of investors shunning the initial offer of US$10-12 per share, a decision which will - temporarily at least - hamper expansion plans, including the launch of the service in the UK.

At present, a link on LegalZoom’s website to a UK page opens a holding window with the message: “LegalZoom.co.uk is coming soon”.

The ruling is the latest development in a dispute between LegalZoom and the North Carolina bar, with the company now suing the bar for breach of due process and commercial disparagement – a tort similar to defamation in a business context.

LegalZoom’s general counsel, Chas Rampenthal, said in a statement that the company “look[ed] forward to the day when the interests of one small group of people – attorneys in North Carolina – are not put above the interests of the many citizens of North Carolina who are allowed to create their own legal documents or purchase prepaid legal services.”

The wrangling with the North Carolina bar started in 2003 when, following a complaint by local attorneys, the bar’s committee opened an inquiry into the company’s online self-help legal document preparation services to consider whether it engaged in the unauthorised practice of law.

The complaint was dismissed but in 2007 the committee opened a new investigation into LegalZoom’s company incorporation service, which resulted in the bar issuing a letter of caution – the equivalent of a letter before action – asking LegalZoom to “stop engaging in [its] activities now.”

LegalZoom engaged the services of former American Bar Association president Alfred P Carlton who, in a letter to the bar, issued an opinion that the automated document preparation and filing service provided by LegalZoom did not constitute the “organising” of a corporation, and therefore was not the unauthorised practice of law.

No substantive response was received at the time, according to LegalZoom.