Legislation Settles Lengthy Dispute Between State Bar, LegalZoom | Eastern North Carolina Now

    Publisher's note: The author of this post is Barry Smith, who is an associate editor for the Carolina Journal, John Hood Publisher.

New law would allow online self-help legal document services to operate in North Carolina

    RALEIGH     The General Assembly has codified many of the provisions of a 2015 consent judgment between LegalZoom.com Inc. and the N.C. State Bar, allowing the online self-help service to provide routine legal documents to consumers in the state. If Gov. Pat McCrory signs the legislation, it would end a battle that has lasted more than a dozen years.

    Both the House and the Senate approved a conference report that redefines the state's statute governing the unauthorized practice of law. House Bill 436, approved on Thursday, will go to McCrory.

    The bill ends a long-running squabble between LegalZoom and the State Bar dating back to 2003 when the State Bar's Authorized Practice Committee opened an inquiry into whether LegalZoom's online documents constituted unauthorized practice of law.

    The new law is actually broader than the consent agreement between LegalZoom and the State Bar. It applies the provisions in the consent order to online legal services that are similar to LegalZoom.

    "It's important to make sure we covered everybody," said Rep. Leo Daughtry, R-Johnston, who sponsored the bill.

    "LegalZoom is probably the most legitimate of all those that are out there," Daughtry continued. "I think they're a pretty good company. They want to do the right thing and they don't want to have any problems."

    Not all companies are as easy to work with as LegalZoom, he said. "For example, some of these providers say that if there is a dispute, you [have to] mediate it in California," Daughtry said. "We don't want that. That's not good for anybody. We wanted to make sure that all the other providers were treated the same as LegalZoom."

    To address that concern, one provision of the bill prohibits online legal providers from requiring its customers to agree to resolve disputes in any state other than North Carolina.

    Other provisions of the bill require:

  • consumers a means of viewing a blank template or a completed document before finalizing a purchase of the document;
  • an attorney licensed in North Carolina to review each blank template offered to North Carolina consumers;
  • the provider to inform consumers that the forms are not a substitute for getting advice from an attorney;
  • the provider to disclose to consumers its legal name and physical location and address;
  • the provider not to limit consumers' options to recover damages or other remedies;
  • the provider to have a consumer satisfaction process.

    Providers also must register annually with the State Bar. The initial registration fee can be up to $100. Annual renewal fees of up to $50 can be charged.

    "You've got to adjust to the internet," Daughtry said. "It's here to stay. If you practice law on the internet, we've got to find a way to protect the public."

    After the State Bar's 2003 inquiry, LegalZoom responded by saying its legal document service was simply an online version of off-the-shelf software widely available throughout the United States. Later in the year, the State Bar Committee wrote Legal Zoom, saying it had dismissed the complaint, citing insufficient evidence to pursue the matter.

    In January 2007, the committee initiated a second inquiry geared toward the company's documents for forming corporations. Again, the State Bar committee asserted that LegalZoom was engaging in an unauthorized practice of law. LegalZoom replied that its practice had not changed materially since the 2003 inquiry was closed.

    The State Bar sent a cease-and-desist letter to LegalZoom in May 2008, reasserting the claim of an unauthorized practice of law. The State Bar also threatened to seek an injunction against LegalZoom. The company responded by saying there were inaccuracies in the State Bar's assertions.

    The State Bar never responded to the 2008 LegalZoom letter, other than acknowledging its receipt. But it didn't pursue an injunction either.

    When LegalZoom tried to register its prepaid legal plans for individuals and businesses in North Carolina in July 2010, the State Bar refused to consider the application, citing the 2008 cease-and-desist letter and requesting more information.

    After further attempts to resolve the conflict proved unsuccessful, LegalZoom filed a lawsuit against the State Bar in September 2011.

    The case ended in October 2015 when the N.C. Business Court entered a consent judgment in the litigation. The consent judgment could have remained in effect for as long as two years had the legislation not been adopted.
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