eLawyering Blog

LegalZoom: The "Good Enough" Legal Solution

Richard Granat — Sat, 12 May 2012 09:37:41 -0500

LegalZoom, the leading online provider of legal services to consumers and small business, as predicted here previously, finally filed for an IPO last week. The company is seeking to raise $120 million to expand their services both in the US and internationally.

LegalZoom's data in the S-1 filing is now available for everyone to analyze:

In 2011, 490,000 orders were placed through their web site;
20% of all limited liability companies in California were done by LegalZoom;
During the past ten years, LegalZoom has served over 2,000,000 customers.
Revenue in 2011 was $156 million.

These are impressive statistics and provide support for the proposition that consumers and small business prefer a very limited legal solution that is just good enough to get the job done, rather than pay the high legal fees charged by the typical attorney.

This is LegalZoom's analysis of the legal market for consumers and small business, buried on p. 62 of the S-1 filing:

"Making the right choices with respect to legal matters can be difficult, especially for those with limited time and resources. The U.S. legal system consists of overlapping jurisdictions at the city, county, state and federal levels, each of which has its own evolving laws and regulations. Businesses may be subject to additional laws, regulations and legal issues applying specifically to the industries in which they operate. In addition, the policies and procedures associated with the creation, filing and certification of legal documents are often arcane and confusing."

"When in need of legal help, small businesses and consumers lack an efficient and reliable way to find high quality, trustworthy attorneys with the appropriate experience to navigate this complex legal system and handle their specific needs. Small businesses and consumers often do not understand their legal needs or know where to start looking for an attorney. Some are wary of attorneys in general, and others may have heard from friends or family about negative experiences with attorneys or the legal system."

"The high and unpredictable cost of traditional legal services also presents challenges for many small businesses and consumers. In 2011, the average billing rate for small and midsize law firms was $318 per hour, according to ALM's 2012 Survey of Billing and Practices for Small and Midsize Law Firms. Attorneys are frequently unable to predict the time required to address a client's legal matter, sometimes billing thousands of dollars to research a legal issue they have not previously encountered. This can be particularly true of generalist attorneys that offer many disparate legal services to members of their local communities. Unlike attorneys at large global law firms or specialty boutiques who handle high volumes of similar matters and develop expertise in specific domains, generalists can find it difficult to efficiently address a client's particular legal issue due to their lack of specialized expertise. Due to the high and unpredictable costs of traditional legal services, many small businesses and consumers limit their use of attorneys and instead often attempt to resolve legal issues without assistance."

"As a result of these factors, many small businesses and consumers often are unsure of or dissatisfied with the legal services available to them, and many either elect not to seek help or take no action to address their important legal needs."

Many lawyers are in denial about the desire of consumers and small business to purchase their services. They will assert that consumers and small business are exposing themselves to liability by using LegalZoom's limited services which will bring regret later. But consumer's don't seem to care. What they get from LegalZoom is "good enough." The numbers tell the story.

Solos and small law firms will find that it will be very difficult to compete against LegalZoom with its superior capital resources. The organized bar (State and ABA) has given up on trying to put LegalZoom out of business on they theory that the company is violating UPL ('unauthorized practice of law") rules. Any organized bar attacks will be resisted by LegalZoom which will now have the capital to fight any challenges to its business model. The American Bar Association has created a Solo and Small Law Firm Resource Center, but it is too little and too late.

LegalZoom is here to stay and will expand its market share as the major provider of the delivery of legal solutions to consumers and small business.

LegalZoom will, inevitably, put many solos and small law firms out of business as it grows and expands its suite of services. For a related analysis on my theory about the venture capital industry and disruption in the legal industry see video at: Legal Startups - An Overview at PointOneLaw ].

To survive in this fast changing environment, solos and small law firms need to figure out strategies that extend their brand online, without detracting in any way from their role as a trusted adviser in the communities where they live and work. I see too many solos and small law firms that think they can emulate LegalZoom's success but don't have either the capital or the skills to compete in an online environment.

The competitive response for solos and small law firms should be to create a "click and mortal" strategy that combines what can be learned from LegalZoom with the best management practices of a law firm that has the capacity to deliver "limited" or "unbundled" legal services at a competitive price point, both in the office and online.

Here is a previous blog post which lists steps that solos and small law firms can take to become more competitive in this rapidly changing environment. The cost of adapting to this new competitive environment is not the cost of software, which is relatively inexpensive. The cost is the investment in time that the lawyer has to make to learn new online skills, create more efficient production procedures, and adopt marketing approaches that amplify a lawyer's expertise both online and offline.

It will be interesting to see what the legal landscape for solos and small law firms looks like five years from now.

More Transparency to Lawyer's Fees by AttorneyFee.com

Richard Granat — Thu, 03 May 2012 23:18:27 -0500

AttorneyFee.com is partnering with FindtheBest.com to increase transparency of lawyer's legal fees.

FindTheBest is launching a lawyers comparison engine, on May 4, 2012, which allows consumers to find, narrow and compare thousands of US-based attorneys by name, education, specialty, bar admission information, pricing, contextual charts and contact information. The combination of transparent data from AttorneyFee, and the interactive presentation of the information—organized by FindTheBest’s comparison engine—will allow consumers to compare their options when it comes to finding the right attorney at a fee that the consumer can afford.

The lawyers comparison engine will allow users to:

Find attorneys in their area with a specific specialization
Narrow options with smart filters
Compare options side-by-side
View key stats (like average years of experience and average price per specialty) within a surrounding context so users can see if they’re getting a fair deal
Find answers to frequently asked questions
Contact lawyers with one click

FindtheBest was started by Kevin O'Conner whose last company (DoubleClick) was sold to Google for 3.1 billion and whose first company (Internet Security Systems) sold to IBM for $1.4 billion. This is a real win for the AttorneyFee.com team.

New Book on Limited Scope Legal Services from Stephanie Kimbro

Richard Granat — Thu, 12 Apr 2012 12:00:40 -0500

Stephanie Kimbro, a virtual solo practitioner based in North Carolina and a member of the ABA's eLawyering Task Force, has authored a new book on Limited Scope Legal Services- Unbundling and the Self-Help Client, published by the Law Practice Management Section of the American Bar Association.

The book is "must reading" for solo practitioners and lawyers in small firms who want to expand the reach of their legal services to serve an expanding latent market for legal services plus provide innovative and responsive legal services to existing clients.

The original book on this subject, also published by ABA/LPM, was written by Forest "Woody" Mosten, who is considered the "Father of Unbundling" in 2000. That was 12 years ago, before the ascendency of the Internet. A lot has happened in 12 years. Kimbro's book up-dates the original concept and explains clearly how these ideas can be used ito create new on-line business models for law firms.

When you combine the power of the Internet as a delivery platform, with the idea of limited scope representation, new "unbundled legal services" can be created that can be sold to clients in volume over a wide geographical area. The Internet takes the idea of "unbundling" to an entire new level. An example is the packaging of highly specialized legal forms with legal advice for a fixed legal fee that are sold through out a state. Long Tail marketing concepts apply when selling specialized legal services to a niche market and are compatible with the idea of limited scope legal representation.

Like Kimbro's earlier work on Virtual Law Practice, this new book is a manual filled with relevant case studies, explanations, and other resources that help a lawyer figure out out how limited scope representation could be applied to an individual practice. It should be on the book shelf of every lawyer who is thinking about ways to compete with non-lawyer companies like LegalZoom - which in effect has taken the idea of "unbundling" to an extreme by simply "unbundling" the lawyer completely out of the legal document creation process. [ LegalZoom is not a law firm, in case you haven't heard.]

The book comes with useful check lists, discussions of best practices, a discussion of the pros and cons of "unbundling" , a discussion of ethical rules that apply, a chapter devoted to marketing unbundled legal services, sample limited retainer agreements, and a sampling of state by state ethics rules that apply to limited scope representation with citations back to the relevant state statutes. This is only the tip of the iceberg. With this single book, a practitioner has enough information to develop a viable business plan for offering limited scope legal services.

If Woody Mosten is been considered the"Father of Unbundling" than Stephanie Kimbro has earned the title of "Mother of Unbundling."

Buy this book!.

Law Startups in La La Land

Richard Granat — Sat, 11 Feb 2012 11:07:26 -0500

I was at a panel in San Francisco this week titled: Law + Tech - The Unpopulated Multi-Billion Dollar Industry .

By "La La Land" I don't mean Los Angeles or California, but rather "to be in one's own world" as defined by the Urban Dictionary. As I listened to the founders talk, I couldn't help thinking that given the absence of a clear business model, or the understanding of what it takes to market to consumers or to lawyers, that many of these start-ups will simply die after the founders run out of cash. However, out of the ashes one or two are bound to survive and have a lasting impact on the markets they are targeting.

This was an interesting group of companies - all focused on the idea that there is a need for changing the way legal services are identified, purchased, and delivered and the way that lawyers practice law.

You could classify these companies into three categories:

companies that want to connect consumers with lawyers and plan to monetize the traffic stream in some way;
companies that want to provide tools to increase law firm productivity;
companies that aim to deliver direct legal services through a network of lawyers online or provide a legal solution to a consumer through the use of a digital application.

Here is a list of these companies, some of which were at the Panel, and one or two which announced within the past 30 days.

Companies linking consumers to lawyers:

MyLawSuit.com - seeks to link clients which have personal injury claims with personal injury lawyers. The company takes 5% of the recovery from the client side. Has a legal opinion that says this is not fee-splitting.

LegalSonar.com - potential clients find lawyers by searching social media to see which of the searcher's friends have had an experience with a lawyer and whether the friend would recommend them. Free to users, lawyers pay a fee for listing. Limited to Kansas City. Missouri for now, which is where the company is based. This is an interesting idea and makes more sense to me than traditional legal referral services offered by bar associations where recommendation of a lawyer for a client is more arbitrary. Company plans to expand nationwide.

AttorneyFee.com - company provides detailed legal fee information to users to help them evaluate legal services based on price.

LawGives.com - working on a software algorithm that would analyze a user's factual statement (submitted through a secure web form) of their legal problem and match the client to the most suitable attorney based on a software analysis of all of the attorney's experience, education, background, recommendations, and other selection factors. The proprietary algorithm being developed is based on advanced semantic search technologies. This is an interesting concept because if it works, it could be used in a variety of legal contexts such as in large law firms where there is sometimes a need to match the skills of lawyers within the firm to the needs of new cases and clients. LawGives.com would also be a challenge to typical bar sponsored legal referral methods which are based on antiquated pre-Internet technologies (telephone and categorized lists of lawyers). Ethics 20/20 Commission take note.

Start-ups that aim to increase the productivity of law firms:

LawLoop.com - comprehensive, affordable cloud-based practice management system that incorporates in one place document management, practice management tools, time-keeping and billing (next release), calendaring, Outlook email integration, and client communications. A unique feature is the ability to create client extranets between client, lawyer, and other third parties on the fly, by drawing a loop, not unlike creating a Google circle of contacts. Thus, for example, a secure deal space could be created instantly between all of the parties to a deal which would could contain documents, correspondence, and other supporting materials instantly. Price is affordable at $39.00 a user. More competition for RocketMatter and Clio.

LegalReach,com - Provides cloud-based applications for lawyers. An App Store now offers Referral Manager, an app designed to securely send and receive business to/from other attorneys while keeping track of vital statistics. Coming soon apps include: Website Builder, CLE Tracker and more. Attorneys can also create on-line Attorney Profiles so a dimension of the business model is to connect prospects with attorneys.

Kiiac.com - Contract analysis and contract standards tool that creates documents through the web browser using Google Docs. Create an NDA online. See also related Contract Standards web site. This is a fabulous resource for lawyers drafting contracts.

Startups that will offer legal solutions directly to consumers:

DocRun.com - DocRun is a SaaS solution that creates highly-customized, state-specific legal contracts and agreements instantly just by asking the user a series of simple, intuitive questions. Site is in alpha. The company has raised 1.1 in seed funding. At public launch, DocRun claims it will provide hundreds of personalized documents, including everything from prenuptial agreements to operating agreements to employment agreements, specially tailored to each individual user using a web-based Q&A engine. Sounds like they are building another web-enabled document assembly application.Claims documents will be very affordable.

UpCounsel.com - Company will offer sophisticated legal services from a network of lawyers to hi-tech start-up companies in California. Not yet launched.

Paperlex.com - Company will offer legal documents online and web-enabled document assembly tools to customize for the individuals personal circumstances. Read More.

LawPivot.com - Free crowd sourced legal advice from lawyers. Rumored to be getting ready to launch an eLance type service for consumers to connect with lawyers on specific projects. Funded by Google Ventures. Will be interesting to see how LawPivot team creates an ethically compliant business model.

If you hear about other recent start-ups in the legal industry, funded or otherwise, we would like to know about them. Just mention them in the Comment field to this post. All of this recent activity reminds me of 2001, when we saw many law start-ups funded during the dot.com heyday. Most didn't survive the crash. (USLAW.com; AmeriCounsel; MyCounsel to name just a few).

Maybe it will be different this time around.

Free Online Course on Digital Law Practice

Richard Granat — Mon, 06 Feb 2012 11:12:56 -0500

The Center for Computer-Assisted Legal Instruction (CALI) is offering a free online course on digital law practice, primarily for law students and law professors, but anyone can register.

I don't doubt that most law faculty will find these topics to be irrelevant, but its connecting with law students, as over 500 law students have registered nationwide.

For lawyers interested in delivering legal services online, this course would be a good introduction to the subject.

The first session is February 10 at 2-3 EST. Stephanie Kimbro is doing a session on the virtual law office.

Later in the course, Marc Lauritsen is doing a session on document automation, and I am doing a session on “unbundling legal services”.

Here are some of the other sessions:

Week 5: Online Legal Forms in Legal Aid
Friday, Mar. 9, 2-3pm ET
Ronald W. Staudt, Professor of Law, Chicago-Kent College of Law

Week 6: Contract Standardization
Friday, Mar. 16, 2-3pm ET
Kingsley Martin, President, kiiac.com & contractstandards.com

Week 7: Free Legal Research Tools
Friday, Mar. 23, 2-3pm ET
Sarah Glassmeyer, Director of Content Development / Law Librarian, CALI

Week 8: Unauthorized Practice of Law in the 21st Century
Friday, Mar. 30, 2-3pm ET
William Hornsby, Staff Counsel at American Bar Association

Week 9: Social Media for Lawyers
Friday, Apr. 6, 2-3pm ET
Ernest Svenson, Attorney at Law

Here is the course description and the registration page:

http://www.cali.org/blog/2012/01/25/free-online-course-digital-law-practice

Legal Forms for the Price of a Song on iTunes?*

Richard Granat — Mon, 16 Jan 2012 11:23:49 -0500

Legal forms, without the legal advice or assistance of a lawyer, continue to decline in value. As a pure digital product, a legal form follows the price curve of other digital goods eventually approaching zero. Several new start-ups in the legal industry will accelerate this trend.

Docracy is a new legal document start-up, founded by Matt Hall and John Watkinson, that grew out of a TechCrunch Disrupt Hackathon in New York City. The idea is to provide a free depository of legal documents that meets the needs of small business and start-ups which are crowd sourced by individuals who register for the site. The concept is to provide an open source site for legal documents in the same way that GitHub is an open source site for code. The company is venture funded First Round Capital, Vaizra Seed Fund, Quotidian Ventures and Rick Webb by a group of investors who see opportunity in disrupting the legal profession. The documents are largely flat forms (MS Word or Adobe .PDF File format), with quality control provided by the "community." It's not clear yet what the business model for this site will be. Online signing of legal documents is coming.

A second legal document start-up has emerged out of the New York City start-up web scene called Paperlex . Paperlex is also targeting the small business market. This site will contain standardized legal documents that can be modified within the web browser. A user will be able to store all of their documents online in their own private and secure web space, will be able to collaborate with third parties, and will have the capacity to execute/sign documents online.

Rather than crowd sourcing the legal form content, Paperlex will provide their own libraries of standard forms. Alison Anthoine, Esq., the CEO and Founder, hopes to provide an accessible legal document portal that small business can easily use with their customers and other parties at a cost that is much less that the cost of a custom document crafted by an attorney. The business model for Paperlex is a Saas subscription service provided for a low monthly fee.

DocStoc is another document repository that includes not only collections of legal documents, but collections of documents in other categories as well, such as human resource, travel, and personal finance documents. Documents are for free or can be purchased. The site is also built on crowd sourcing principles. Users can contribute documents and sell them through the site, with DocStoc taking a cut. Most documents are not automated and are provided in either MS Word or Adobe .PDF file format. However, a new feature called "custom documents" enables the user to answer an online questionnaire which generates a more customized document. The user can view the assembled document before making a decision to purchase a monthly subscription.Monthly subscriptions range from $9.95 a month to $39.95. The site claims to have 20,000,000 users.

Docstoc, Inc., was founded by Jason Nazar (bio) and Alon Shwartz (bio). The company was selected in September of 2007 to debut its product at the prestigious TechCrunch40 Conference. The platform was subsequently launched to the public in October 2007.

Docstoc is a venture backed company (Rustic Canyon) and received funding from the co-founders/investors in MySpace, LowerMyBills, Mp3.com, PriceGrabber and Baidu.

WhichDraft.com , founded by Jason and Geoff Anderman, brothers, and both attorneys, offers free contracts that can be assembled within the web browser. Legal documents can be easily shared with third parties, and you can build your own Question and Answer templates. A nice feature enables a user the compare any two versions to see new and deleted text in the fee legal form.

MyLawyer.com, our own consumer legal document portal, also offers legal document plans that are libraries of automated legal documents that when purchased in a bundle are less than the cost of a song on iTunes*.

In the nonprofit sector, LawHelp Interactive, a unit of LawHelp.org,with funding from the Legal Services Corporation, [ See Technology Initiative Grants ] has been working with a legal aid agencies nationwide to help the automate legal forms and publish them to state-wide legal form web sites which are available to any one within the state. The program is not limited to low income people. Hundreds of thousands of free legal forms are now created annually in more than 34 states. LSC has invested millions of dollars in the development of interactive legal form sites over the past 9 years.

Courts have also jumped into the free legal forms distribution game in response to the hoards of pro-se filers looking for free legal help. See for example: Online Court Assistance Program in Utah and Maryland Family Law Forms .

These free legal form web sites raise some interesting questions about the future role of the attorney and the changing nature of law practice. What role will the lawyer play in this changing environment? What is the impact of these relatively new sources of free or low cost legal forms on law practice, particularly the practice of solo and small law firms? Our own research provides support for the fact that solos and small law firms will continue to loose market share to these new providers.

"Unbundling" legal services by providing legal advice and legal document review for legal forms that clients secure from another source, may be a way of expanding access to the legal system, but it is also disruptive of law firm business models, just like iTunes* was disruptive of the bundled album approach of the music industry. Value is shifting from the lawyer to the consumer and non-lawyer providers of legal forms. I can hear the sucking sound as law firm business models collapse.

Some questions to think about:

What risk do consumers and small business assume when they use a legal form without the advice or review of an attorney? The answer depends on the type of form, its complexity and the complexity of the transaction. If a user represents themselves in their own relatively simple name change, and their name gets changed by the court successfully, then one can assume that self-representation worked.
But what about a Shareholder's Agreement, where terms have to be negotiated, and the standard document doesn't include the particular language required by the parties to reflect their intent? Should the parties now draft their own language? Should the parties simply ignore the need to include special language that reflects their intent hoping that there will be no situation in the future that will create a conflict between the shareholders because of a failure to include the language?
Who should negotiate the terms of the Agreement? The lawyer or the principal? Who would do the better job? How much shuld be charged for a successful negotiation?
How should the lawyer price services, when the client comes to the lawyer with their own standardized form and asks the lawyer to review it?
Will the lawyer refuse to serve the client, unless the client uses the lawyer's form or document?
How important is the insurance that a lawyer provides that the document or form is valid for the purpose intended, accurate, and reflects the intent of the parties?
Lets assume that the 85% of the legal form content in many categories of documents is identical. [ This is what Kingsley Martin from KIIAC has concluded and he should know ! ] But 15% consisted of critical variable language not susceptible to easy document automation. Should the attorney charge on a fixed price for the entire project as if she drafted the entire agreement, although she only worked on several paragraphs? If the agreement fails because the variable paragraphs are incorrect for the particular case, why shouldn't the attorney charge as if she he worked on the entire agreement?

If you have thought about these questions, and have some ideas on the impact of free legal forms on the legal industry, please share them here.

*iTunes is a trademark of Apple, Inc.

James Keane Award for Excellence in eLawyering

Richard Granat — Wed, 21 Dec 2011 20:49:52 -0500

The James Keane Memorial Award for Excellence in eLawyering is awarded every year at the ABA TECHSHOW (March 29-31, 2012, Chicago, Illinois). James Keane was the founding Chair of the ABA/LPM eLawyering Task Force., which grants the Award.

Last year the Award was given to the Legal Aid Society of Orange County for their Legal Genie Project. Another recipient was Stephanie Kimbro for her pioneering work in developing the virtual law firm concept at KimbroLaw.

The purpose of the award is to recognize law firms, private or public, that demonstrate innovative ways of using Internet technology to deliver legal services. Nominees may be any individual lawyer, law firm, or other deliver of legal services to individuals within the United States. The nominees can be a large or small law firm, public or private, or a legal services agency. Self nomination by the Task Force is encouraged.

Here is a summary of the Award criteria:

Absence of precedent - Never been done or done quite this way before.
Evidence of action - The innovative idea was transformed into action and not merely reflective of best intentions. The nominee should be prepared to provide evaluation data that documents the effectiveness of the legal service in terms of client satisfaction, revenue enhancement, and/or law productivity. The nomination must provide an analysis of the measures used to define success.
Effectiveness of innovation - There is some measurable outcome that would indicate that the innovation is accomplishing what it was intended to do.
The project must demonstrate the use of the Internet to deliver legal services.
Action must have taken place no more than three years prior to this entry, and the legal service must be operating for at least one year prior to submission of the Application.
Additional consideration will be given to projects that focus on the delivery of legal services to individuals of moderate means.
The nomination should describe how the service was developed, how it is managed, and how it has been evaluated.
The nomination should describe how the service can be replicated by other law firms in terms of development costs, required technology, people requirements, and ongoing maintenance costs.

Click here to go to the ABA Application Page to apply.

The application deadline is February 15, 2012.

December Law Practice Today Issue Focuses on eLawyering

Richard Granat — Wed, 14 Dec 2011 16:21:33 -0500

The latest edition of the ABA's Law Practice Today webzine has good articles on elawyering and virtual practice and a really innovative piece by Marc Laurtisen titled, Dancing in the Cloud, and an introduction to the elawyering concept by Stephanie Kimbro -- Getting Started With eLawyering).

I also wrote a short article on Document Assembly Over the Internet , which as readers of this Blog will know is an old theme for me.

For our latest analysis on what is working in the virtual law firm space, download our White Paper on Virtual Law Practice: Success Factors.

How Do Lawyer Bidding Sites Work?

Richard Granat — Wed, 30 Nov 2011 09:29:03 -0500

Recently several Web sites have emerged that enable consumers to bid for legal services. Examples include: ExpertBids and Shpoonkle. (Don’t ask me how to pronounce it). They all work pretty much the same way.

You submit a description of your project or the service you want, your location and your estimated budget. You create a secure account with a user name and password. Your service request is then posted or published to a lawyers who have registered for the service so they can bid on your work. When a lawyer bids for your work, you receive an email (each bid includes a rate, a description, and the lawyer’s profile, rating and client reviews). When the lawyer bids, whether bid by the hour or fixed price, you receive an email which includes a rate, a description, and the lawyer’s profile, rating and client reviews. The process gives you options and a basis for comparing how different lawyer;s will submit bids and pricing for similar work.

The process is always free to the potential client. Once you are connected to a lawyer you can continue your conversation either online or off-line. The sites enable you to communicate with the lawyer online directly, but often you don’t get any free legal advice or any legal service until you accept a retainer agreement and the lawyer/client relationship is established.

For law firms that have learned how to offer legal services for common legal matters for a fixed fee, these bidding sites could be another channel to the consumer and potential clients. These law firms, often virtual law firms, are low-cost producers of legal services, and can out bid more traditional legal firms without sacrificing quality or their profit margins.

Many of these law firms offer what are called, “limited legal services”, which enable these law firms to offer a low cost solution to consumers, but often consumers have no understanding of this concept. See for example the law firms listed in the MyLawyer.com Directory of Virtual Law Firms. We think that the bidding sites should have articles and information on their web sites describing the “limited legal service” concept as this would be way to educate consumers about another way to cost effectively buy legal services.

A problem that we see with the bidding sites that we reviewed is that there is no easy for the consumer to describe that they want “limited legal services“, as distinguished from traditional legal services. There are options for bidding by the hour, or by the project, but no option for limiting the scope of representation. “Unbundling legal services“, is a relatively new idea, but many states (more than 35) have already passed amendments to their Professional Rules of Responsibility that enable law firms to offer “limited legal services” as long as the retainer clearly defines the scope of representation.

I think this is a critical gap in the way the operators of these site understand how middle class consumers want to purchase legal services. I also think that there is likely to be a disconnect between what the consumer bids for a service, and what they law firm delivers for the bid price. Without a clear specification of the scope of services, there is bound to be miscommunication and confusion.

It is too early to predict whether these “bidding sites” will survive. In the “dot-com boom and bust” era, there were several experiments with lawyer bidding, but all the sites failed because they could not generate enough volume to support their overhead structure.

Susan Cartier Liebel, the President of Solo Practice University has written a good blog post analyzing these sites, that is worth reviewing by consumers who are interested in this approach to securing legal services.

Rejoinder: "Is the Virtual Law Model Coming up Short?"

Richard Granat — Sat, 24 Sep 2011 09:46:51 -0500

Jay Fleischman in a blog post entitled: “Is the Virtual Law Firm Model Coming up Short?” states:

"The ABA elawyering Task Force tells us that, “[t]o be successful in the coming era, lawyers will need to know how to practice over the Web, manage client relationships in cyberspace, and ethically offer “unbundled” services.”

Bull---t.

Jay also states:

"Email doesn’t substitute for a phone call. A phone call isn’t the replacement for a handshake."

"Those who offer the virtual law firm are selling something most people don’t want. People want to be able to make a personal connection with other people, to build trust in a lawyer’s expertise. They don’t want to be met with a password-encrypted firewall and triple-redundant backup systems.".

Unfortunately, like some commentators of a well known news network that make up facts and then offers opinions based on those false assumptions, Jay makes up facts to support his point of view.

Jay is entitled to opinion, but not to his own set of facts.

Here are some of the facts:

1. The ABA/LPM's eLawyering Task Force

The eLawyering Task Force , of which I am co-chair (with Marc Lauritsen), through it's web site, publications, and statements has never made the claim that delivering legal services online was the only way that law firms should connect with clients. The value of an online platform depends on the kind of law practice and the kind of clients served. Clients obviously have preferences that lawyers who serve those clients must respect.

Many firms will have a "virtual component" incorporated into a traditional practice. As Marc Lauritsen puts it, there will be:

" a shared online environment that is persistent across the life of a matter. For instance, providing interactive questionnaires on their web sites to gather information from prospects and clients, or supplying do-it-yourself document generators, checklists, or calculators.Or opening up a shared space for collaborative deliberation about a particular decision, using interactive visualizations like I 've been promoting under by 'choiceboxing" idea."

In fact, the firms that are getting the most successful results from the addition of a client portal are those that have a traditional practice and who add an interactive online component.

We know this from the analysis that we have done from observing over 200 law firms that have subscribed to our DirectLaw virtual law firm service during the past two years. We have also learned why some law firms fail to successfully implement an online strategy. We also know that some lawyers have an unrealistic expectation of what it takes to be successful as a "pure play" virtual law firm.

To read the results of our analysis download our White Paper on Virtual Law Firms: Success Factors.

Also see these blog posts on this topic: Online Legal Services: Is it Hype or a New Way of Delivering Legal Services?; Framing the Discussion About Virtual Law Firm Practice; and Defining the Virtual Law Firm .

2. Affordable Legal Service and Access to the Legal System

The work of the eLawyering Task Force has always focused on identifying ways in which lawyers can become more productive and efficient by using the Internet as platform for the delivery of legal services and ways in which clients can benefit from the use of Internet technologies in terms of the fees they pay for legal services.

President Bill Paul of the American Bar Association, who created the Task Force, had the idea that through the use of Internet technologies it would be possible to lower the cost of legal fees to make the legal system more accessible to those who cannot afford typical attorney fees.

Instead, rather than the legal profession responding to this challenge, we see the emergence of companies like LegalZoom, SmartLegalForms, CompleteCase, LegacyWriter, Nolo, and the dozens of other non-lawyer internet-based legal solution providers who are responding to the need of consumers for a ":good enough" legal result at the lowest possible cost. For millions of moderate and middle class consumers the purchasing of traditional high cost legal services delivered on a one to one basis is no longer an option. Their choice is to do the best they can with a legal solution provided by a non-lawyer provider, (which now may be a court or an online legal aid provider).

Jay seems to imply that if a client can't afford the profession's legal fees, then so be it. Who cares?

My opinion is that it will be harder to justify the profession's monopoly on the delivering of legal services when it only serves a tiny portion of the US population.

The reality is that many of us didn't become lawyers just for the money. We want to serve people and help them with resolve their legal problems. Now there are technologies that can help us do that in a cost effective way and expand the market for legal services. We shouldn't ignore these technologies, just because we are not practicing law like the last generation of lawyers.

3. The "Secure Client Portal" Concept":

Examples of Internet based applications range from web enabled document automation, to paying legal bills online, to the provision of written legal advice online, to simply storing the clients legal documents online so they can be referenced later. All of these functions require that the client have access to a secure client portal within which these functions can take place.

It is indisputable that a secure client portal is necessary for secure and confidential activities and tasks between to take place between lawyer and client. This doesn't mean that a lawyer should not use email to provide confidential legal advice which I am sure happens all of the time, at whatever the risks.

On the other hand, it is not possible to pay your legal fee by credit card using email, and I have yet to see a web enabled document assembly solution being delivered through email. For legal work to be done securely online requires a secure client portal.

It us for this reason that the eLawyering Task Force included, as part of the definition of what constitutes a virtual law practice, that the firm make available to its clients a secure client portal. This seems very obvious to us. Communicating with clients using a mobile phone and by email, is not the same thing as using legal applications online that do legal tasks.

Most people use some form of a secure portal everyday. We do our banking online, our stock brokerage online, buy insurance online, book travel online. It's not rocket science. Except that right now the legal profession is lagging behind every other service industry in the economy in its use of interactive web technology. According to Jay, we should stay where we are and eschew these web technologies. In my opinion, we do so at our peril.

4. Web-Enabled Document Automaton.

Jay seems to think that the use of a web enabled document automation application is not in a clients interest and has little value, or that client's don' t want "just forms." (It is hard to really know what he believes because of the confused logic that is used to support his argument).

I think he is wrong about this. He can read our White Paper on Web-Enabled Document Automation as A Disruptive Technology and these blog posts: Document Automaton as a Disruptive Technology and What Every Lawyer Should Know About Document Assembly.

5 The Legal Profession is Losing Market Share.

Solos and small law firms, with existing methods of delivering legal services, are pricing themselves out of the middle class marketplace. This is the real reason that LegalZoom is rumored to be generating more than 100 million in revenues this year. LegalZoom and other non-lawyer providers continue to increase their market share at the expense of solos and small law firms. The assertion that lawyers don't need the people as clients that purchase forms from non-lawyer providers is a misrepresentation of what is really happening in the solo and small law firm marketplace. The clients that are turning away from law firms are clients that law firms need and who they previously served in an earlier, pre-Internet era.

6. eLawyering Applications are Not Just Tools.

It is not accurate to see state that eLawyering applications are just "tools". In fact they are can be disruptive of the typical law firm business model. If a consumer can get the result that they want by using a Internet-based legal solution, or "digital legal application" at a fraction of the cost of using an attorney, many will opt for that "good enough" solution. What is important to the consumer, is the legal result, not the fact that they have to go to an attorney to get it.

7. A New Generation of Clients is Coming Who Don't Like to Talk on the Phone or Shake Hands With Their Lawyers.

It's is true that many clients are not interested in working with their lawyers online, but we think that as a connected generation comes of age and they have legal problems that they will prefer to deal with their lawyers online and prefer to text rather than even talk on the telephone, much less meet with their attorney face-to-face, unless it is unavoidable. For facts to support this assertion, see books like New Rules of Engagement: Understanding on How to Connect With Generation Y. and the work of Christine Hassler.

In a study conducted last year by YouGov, a UK-based research and opinion firm, on consumer preferences for legal services, one of the conclusions was that:

"34% of respondents said they would be more likely to choose a law firm that offered the convenience of online access to legal documents over one that had no online capability; 22% disagreed and 37% neither agreed nor disagreed."

Younger males were the most likely to choose a law firm with online services and access: 44% of 25-to-39 year-old males (and 40% of such women), along with 40% of 16-to-24 year-old males, would choose a law firm offering online access to documents over another law firm."

There is obviously a generational shift happening. As a younger generation matures to the age where they have legal problems, their desire to deal with lawyers online becomes a requirement, not a preference.

Summary

These are serious issues for the legal profession. The American Bar Association Legal Technology Resource Center reported last year in one of its technology surveys of the legal profession that only 52% of solo practitioners have a web site. That means that almost half of solo practitioners don't even have a web site. Is it that these practitioners are making so much money that they don't have to even have a presence on the web? Or are we as a profession so out of touch with contemporary trends, that we will have to race even faster to catch up?

So where are we on this spectrum of evolution? Are we still stuck in Web 1.0 with brochure web sites, or are we evolving to interactive web sites that connect with clients who will want to work with their lawyers online or are we still stuck in Internet circa 2002?

Let's expand this discussion, so that lawyers, particularly solos and small law firms, can figure out how to utilize these new technologies to expand and sustain their law practices in an environment that will become increasing competitive.

Disruptive web legal services such as AttorneyFee.com, Law Pivot, LegalZoom, are not going away. They will expand and proliferate. The "new normal" is here.

Another Disruption: AttorneyFee.com

Richard Granat — Wed, 21 Sep 2011 01:42:34 -0500

The legal profession has witnessed the rise of new players that are disruptive of existing patterns of law practice.

First came LegalZoom, AVVO, TotalAttorneys, Rocketlawyer, MyLawyer (our company), and Law Pivot, disrupters that are having an impact on the way legal services are identified and delivered to the broad middle class.

Now comes AttorneyFee.com that holds promise of making legal fees more transparent.

For many years I have been critical of the fact that lawyers charge widely differing legal fees for the same work. In a study I was involved at the University of Maryland Law school some years ago, we discovered that for simple family law actions, such as a no-fault divorce, lawyers would charge any where from $500.00 to $3,000.00 for essentially the same work. This variation in legal fees for the same work tasks is another cause of the distrust that the average consumer has of the legal profession.

AttorneyFee.com is a welcome development for law firms that are already experimenting with fixed fee legal services delivered online. Law firms that are using online delivery technology will in fact have a competitive advantage over law firms that use higher cost productive methods. Sites like AttorneyFee.com expand the reach of these firms by giving them another channel to advertise their fee information to consumers.

I registered my Maryland virtual law firm at AttorneyFee.com yesterday. I found the interface to be clean and simple and the registration process easy.

My only criticism was that there was no field to display a law firm's web address -- only an email address and a telephone number. This means that an interested prospect will have to contact the law firm to get more information by phone or email, without the opportunity of easily clicking through to the law firm's web site.

In my case, the page describing the pricing of my services does not provide enough information to the consumer about the scope of my services. There is no place to indicate that we offer "limited legal services" for pro se parties exclusively. For a new company that prides itself on transparency, this feature is less than transparent.

Moreover, when my firm comes up, a form also pops up that enables the prospect to ask for a free consultation. Except in our case, we don't provide free consultations. Since we sell a legal advice service by the question for a modest flat fee, offering a "free consultation" is not consistent with our business model.

When I asked Robert Komaiko, one of the co-founders of AttorneyFee about these issues, he said they have other features planned for the site but they felt it was important to launch the site, get feedback, learn, and revise. As a believer in the lean startup method of starting a company, which is now all the rage in Silicon Valley, I agreed with Robert that it was important to get the concept launched and to work out the kinks later. There is certainly enough benefits and features already built into the site to see if this concept gets any traction. Better to launch the service , get feedback, and revise, as opposed to waiting for a year, adding every feature imaginable, and then discovering that consumers have no interest in the service.

AttorneyFee using a proprietary search technology,has already listed the prices that over 20,000 law firms are charging on their web sites. The company plans to have over 70,000 law firm sites indexed within a relatively short period of time. This information alone will provide a useful consumer resource for comparing fees charged by law firms for similar tasks.

Some lawyers are bound to be critical of this web service as it is another indication of the commercialization of the legal profession but as Beibei Que, the other co-founder of AttorneyFee, and its CEO, told me:

We have all known that this moment was coming for a long time. The profession can no longer limp along with one foot in the for-profit economy and another in a quasi-clergy role. If we wish to reap the benefits of the for-profit economy, we must be prepared to comport ourselves like private market actors, and this means not retreating from conversations about price or concealing them behind closed doors.

AttorneyFee.com is a welcome addition to the family of new disrupters shaking the legal profession to its core.

Is It Time To Deregulate the Practice of Law?

Richard Granat — Mon, 22 Aug 2011 19:53:58 -0500

An editorial appeared in today's (08/22/2011) Wall St. Journal , titled "Time to Deregulate the Practice of Law", by Clifford Winston and Robert W. Crandell, both Fellows at the Brookings Institution. [ Ungated version here ]. The editorial argues that it is time for the legal profession to be deregulated, as other industries have been, in order to create price competition for legal services, spur innovation in the delivery of legal services, and reduce the premium that lawyers get for pricing their services as a result of strict occupational licensing. The editorial is a summary of the conclusions of a book soon to be published by the authors, and Vikram Maheshri, titled, "First Thing We Do, Let's Deregulate All the Lawyers" (2011, Brookings Press). This book is the opening salvo it what is sure to be an expanded debate about who should be allowed to provide legal services to the general public.

New Methods of Legal Service Delivery

With online companies such as LegalZoom, RocketLawyer, JustAnswer, LawBidding, Law Pivot and our own MyLawyer.com, pushing the boundaries of new ways to delivery of legal services, there is renewed pressure on the organized bar to respond to consumer demand for affordable, transparent, competent, and reliable legal services. Law firms are exploring ways to delivery legal services online to compete with non-lawyer providers, but are often constrained by bar regulations.

Essentially, the authors argue that lowering the barriers to entry into the legal profession would force lawyers to compete more intensely with each other, and face competition from non-lawyers and firms not owned and managed by lawyers. The authors argue that legal fees are higher because of occupational licensing and can be reduced by deregulation without sacrificing the quality of legal services.

Since heading the Philadelphia Institute for Paralegal Training, the nation's first paralegal school and the institution that pioneered the paralegal profession in the United States, I have argued that you don't need a fully-trained and credentialed attorney to provide services to consumers for simpler, more routine legal problems, any more than you would need a brain surgeon to treat a headache, when a pharmacist will do. I am well aware of arguments that some lawyers make that there are no simple legal problems, but the reality is that many consumers will settle for a "good enough" result, rather than spend thousands of dollars in legal fees.

On the other hand I am not comfortable with the idea that we should abandon all occupational licensing for legal professionals, lawyers and legal assistants, essentially converting the United States in a completely unregulated free market.

Arguments for a Regulated Legal Profession

1. The analogy between the legal profession to other deregulated industries, such as the airline industry, that the authors cite, is simply not relevant. There is fundamental differences between the manufacturing, mining, communication, transportation, and financial industries and the human service professions where the delivery of the service is expected to be of sufficient competence to accomplish the task at hand. If you follow the author's logic, we should also deregulate the dentists, the teachers, the nurses, the social workers, and the doctors because it results in lower pricing and therefore would increase the availability of those services. e.g., Instead of going to a "Dentist" to get your root canal work, you would have the option of going to the "Tooth Fairy."

2. The authors assume that the quality of legal services would not deteriorate any more than when the planes didn't stop flying when the airline industry was deregulated. Unfortunately the authors have no facts to back up this assertion. It is just wishful thinking.

3. When you look at the facts, however, a more thoughtful response to reforming the delivery system for legal services is required.

On the anecdotal level, I can testify to the literally hundreds of botched legal matters that I have reviewed generated by "Immigration Specialists", Legal Technicians" and other non-lawyers operating in the grey area of offering document preparation services. In some instances, I have seen immigrants actually deported because of improperly prepared papers by "Immigration Specialists." I have reviewed "failure to discharge notices" issued by U.S. Bankruptcy Court because of improperly prepared bankruptcy petitions. I have reviewed dozens of divorce petitions filed by "pro-se" parties, assisted by online document preparation companies that were rejected by the courts. I have seen enough of these cases to know that in many of these situations incompetence and lack of knowledge and skill is evident. In some cases there is outright fraud and misrepresentation.

4. There have been almost no empirical studies that I know of that support the argument of the authors that the quality of legal services would not deteriorate in a completely deregulated marketplace - save one- and that study does not support the author's conclusions.

Legal Services Consumer Panel Study

Very recently the Legal Services Consumer Panel of the Legal Services Board in the United Kingdom, the agency in charge of deregulating the legal profession in the United Kingdom, conducted an empirical study of the quality of wills prepared by both solicitors and non-lawyers.

The Panel concluded that on the issue of quality:

"one in four wills in the shadow shops were failed with more than one in three of all assessments scoring either poor or very poor. The same proportion of wills prepared by solicitors and will-writing companies were failed. Wills were almost just as likely to fail when the client had simple or complex circumstances. Key problems where the will was not legally valid or did not meet the client's stated requirements, were: inadequate treatment of the client's needs; the client's requests not being met; potentially illegal actions; inconsistent or contradictory language; insufficient detail; and poor presentation. Key problems relating to poor advice include: cutting and pasting of precedents; unnecessary complexity; and use of outdated terminology."

The United Kingdom has a legal market which is not only more deregulated that the US market, but will become even more deregulated in the future. Despite this more open environment, the Panel concluded that:

"Inherent features of will-writing services place consumers at risk of detriment. Consumers lack the knowledge to identify technical problems or assess whether the additional services offered are necessary or represent good value for money. The reliance on extracting good information about the consumer‟s circumstances and preferences, combined with the range of possible ways to deal with these in the will, means there is potentially wide scope to give bad advice."

and

"However, there is a need to make consumers better aware of the suitability of online services as these received the highest proportion of fail marks in the shadow shopping, but wills sold over the internet are difficult to regulate."

Thus, the Panel proposes that:

"will-writing services should be made a reserved legal activity. Any business – not just a solicitors firm – satisfying an approved regulator‟s entry standards could provide will-writing services."

The UK approach is not to restrict will-writing just to lawyers, but to open up the system to any providers that can satisfy the educational, regulatory, and accountability standards within the reserved activity. This is a vastly different approach than eliminating standards all together, as the authors seem to suggest.

The compete UK Report on Regulating Will Writing can be downloaded here. See also our Resource Page on Regulation of the Legal Profession. The Report is worth reading by any policy maker who is thinking about doing away with all regulation of the providers of legal services to the general public.

Some final thoughts:

The authors claims of the benefits of deregulation in general are not supported by current evidence.

Consider:

Deregulation of the mortgage baking industry brought the American economy to its knees;
Deregulation of the US banking industry has wreaked havoc on the world's economy;
Lack of strong regulation of the proprietary higher education industry has resulted in thousands of graduates without an adequate education, low employment rates, and high default rates. (Of course, as the author's point out, you could say the same about law schools and law school graduates, but then again the accreditation of law schools by the American Bar Association, it can be argued is another example of an "unregulated activity" without substantive standards that are meaningful).

The list can go on.

Perhaps I am premature in my judgment as the book has not been released, and I have just reviewed the salient conclusions. I can't wait to give it a full read and review.

Is Legal Software Conduct? True or False?

Richard Granat — Tue, 09 Aug 2011 08:40:43 -0500

On August 2, 2011, Federal District Judge Nanette K. Laughrey, for the Western District of Missouri, the Judge presiding over the class action case against LegalZoom for unauthorized practice of law, released an opinion denying, in part, Defendant's Motion of Summary Judgment. The Court held that document preparation by non-lawyers, under Missouri Law, is conduct, and not entitled to First Amendment protection. ( See full opinion here ).

This is consistent with my own view, expressed in a previous post. (Is LegalZoom just a self help legal software company?).

The court's opinion rejects the logic in an article authored by Professor Catherine J. Lanctot, titled, "Does LegalZoom Have First Amendment Rights: Some Thoughts About Freedom of Speech and the Unauthorized Practice of Law." , which doesn't surprise me, as it is hard to characterize LegalZoom's activities as "speech", when they have 500 employees working on customer's documents.

One paragraph in the Court's opinion is troubling. On Page 21, the Opinion states as follows:

"Furthermore, LegalZoom's branching computer program is created by a LegalZoom employee using Missouri law. It is that human input that creates the legal document. A computer sitting at a desk in California cannot prepare a legal document without a human programming it to fill in the document using legal principles derived from Missouri law that are selected for the customer based on the information provided by the customer. There is little or no difference between this and a lawyer in Missouri asking a client a series of questions and then preparing a legal document based on the answers provided and applicable Missouri law. That the Missouri lawyer may also give legal advice does not undermine the analogy because legal advice and document preparation are two different ways in which a person engages in the practice of law. "

.....
"The Missouri Supreme Court cases which specifically address the issue of document preparation, First Escrow, Mid-America and Eisel, make it clear that this is the unauthorized practice of law. The fact that the customer communicates via computer rather than face to face or that the document prepared using a computer program rather than a pen and paper does not change the essence of the transaction."

This Opinion could be interpreted to mean that all legal software programs are a form of conduct, and not entitled to First Amendment protection. I would argue that the Court comes to this conclusion because the legal software is used in the context of a document preparation service, and is not a stand alone program. As the Court further explains that:

As in Hulse, First Escrow, Mid-America, and Eisel, LegalZoom's customers are rendered passive bystanders after providing the information necessary to complete the form. Yet LegalZoom charges a fee for its legal document preparation service. .....The customer merely provides information and "Legal takes over."

The facts of this case make a difference, I would argue, in understanding the scope of the Court's Opinion.

If we define a legal software program as a "product", where there is no service element and no conduct whatever, then it is hard for me to believe that the Court intended to ban legal software programs from distribution directly to consumers, whether on-line or off-line.

If that was the Court's intent, then companies like Nolo and Intuit, would have to pull their products off the shelves of Barnes & Noble and Staples and Amazon, programs like LawHelp Interactive, supported by the US Legal Services Corporation, would have to be terminated, and the many web sites that offer interactive forms, without any service component would have to be abandoned. Courts that are experimenting with distributing interactive forms from their web sites, would have to consider whether this activity is the "unauthorized practice of law", a strange result.

Law Schools like Chicago-Kent Law School that are experimenting with new legal software interfaces that connect citizens directly with legal help through software, might reconsider their efforts.

The only way that such legal software could be used, would be by attorneys in the context of delivering of legal service through their law firms. I think this would be an unfortunate result.

Other possible negative consequences of such an interpretation would be:

The legal profession would be further attacked for attempts to restrict commerce and maintain higher legal pricing by the consuming public causing further damage to the profession's already declining reputation;
Pro se litigants would not have access to tools that enable them to represent themselves, further restricting access to the legal system;

It would be helpful, if the Missouri District Court clarified its language on page 21 of the Court Order to distinguish between fact situations where interactive legal software is used as part of a document preparation service business and situations where the programs are distributed as stand alone programs -- products-- like a book or other publication. What do you think?

Legal Cloud Computing Association Publishes Responses to ABA, North Carolina State Bar

Richard Granat — Mon, 18 Jul 2011 14:06:30 -0500

The Legal Cloud Computing Association (LCCA) has published responses to proposals issued by the ABA Commission on Ethics 20/20 and the North Carolina State Bar regarding the use of cloud computing within a law practice.

The Legal Cloud Computing Association ("LCCA"), formed in December 2010, is the collective voice of the leading cloud computing software providers for the legal profession, consisting of Clio (Themis Solutions, Inc.), DiaLawg, LLC, DirectLaw, Inc., NetDocuments, Nextpoint, Inc., RealPractice, Inc., Rocket Matter, LLC, and Total Attorneys, LLC.

Response to ABA Commission on Ethics 20/20

The LCCA’s letter to the ABA Commission on Ethics was issued in response to the Commission’s Initial Draft Proposals on "Technology and Confidentiality" published on May 2, 2011. The Proposals include certain modifications to the ABA Model Rules of Professional Conduct that are designed to facilitate the responsible adoption of technology that will increase the quality, and reduce the cost, of legal services. The Proposals were issued as part of a process initiated in early in 2010 where the Commission published an Issues Paper requesting comments and feedback from the legal community.

The LCCA fully supported the Commission’s Proposals, and concluded that the Commission 's recommendations provided a reasonable framework the would enable law firms to make infomed decisions about using cloud computing resources.

Response to North Carolina State Bar Proposed 2011FEO6

The LCCA’s letter to the North Carolina State Bar pertains to Proposed Formal Ethics Opinion 2011FEO6. The Proposed FEO attempts to address the ethical issues relating to the use of Software-as-a-Service or cloud computing within a law firm environment.

While the LCCA supported the NC State Bar’s efforts to provide clarity on the use of cloud computing, the Proposed FEO as written would negatively impact a broad scope of attorneys from those who do nothing more than use a web-based email client or conduct online legal research to those that do full scale online delivery of legal services.

The onerous requirements of the Proposed FEO, detailed in full in the LCCA’s response to the NC State Bar, would force many cloud computing providers to withdraw from the NC market entirely, thus negatively impacting the technological capabilities and competitiveness of NC-based law firms.

Unlike the recommendations of the ABA Ethics 20/20 Commission, the draft North Carolina bar opinion, as it stands, is likely to have a negative impact on the use of cloud computing resources and applications by law firms in North Carolina. One result is that North Carolina's law firms, particularly solos and small law firms would be handicapped when competing with law firms from other states.

We are hopeful that the revised opinion will be more compatible with the recommendations of the ABA Ethics 20/20 Commission. Why is it necessary for each state bar to have their own set of guidelines in this area, when the companies that offer cloud computing services operate nationally?

Is LegalZoom Just a Self-Help Legal Software Company?

Richard Granat — Mon, 04 Jul 2011 09:05:48 -0500

In a Fortune Magazine blog post by Roger Parloff just last week, entitled Can Software Practice Law?, writing about the class action suit against LegalZoom in Missouri for violating Missouri's UPL statute, Parloff argues that LegalZoom is no more than a self-help legal software company, and therefore entitled to the same protections as a self-help legal software publisher. The question of whether legal software constitutes the practice of law is a controversial one. When the Texas Bar won a suit against Nolo Press on the grounds that its WillMaker program constituted the practice of law, the Texas Legislature amended the UPL statute and further defined the practice of law as follows:

Texas Code, 81.101 (c) the "practice of law" does not include the design, creation, publication, distribution, display, or sale, including publication, distribution, display, or sale by means of an Internet Web site, of written materials, books, forms, computer software, or similar products if the products clearly and conspicuously state that the products are not a substitute for the advice of an attorney. This subsection does not authorize the use of the products or similar media in violation of Chapter 83 and does not affect the applicability or enforceability of that chapter.

No other state has passed such an exemption, but there is a well-established line of cases that supports the position that the publication of information about the law, as well as self-help legal books, divorce forms with instructions, and do-it-yourself kits is not the practice of law and protected by the First Amendment of the U.S. Constitution and may be protected by state constitutions as well. See, e.g., New York County Lawyers’ Ass’n v. Dacey, 21 N.Y.2d 694, 234 N.E.2d 459 (N.Y. 1967), aff’ing on grounds in dissenting opinion, 283 N.Y.S.2d 984 (N.Y. App. 1967); Oregon State Bar v. Gilchrist, 538 P.2d 913 (Or. 1975); State Bar of Michigan v. Cramer, 249 N.W.2d 1 (Mich. 1976); The Florida Bar v. Brumbaugh, 355 So.2d 1186 (Fla. 1978); People v. Landlords Professional Services, 215 Cal. App.3d 1599, 264 Cal. Rptr. 548 (Cal. 1989).

LegalZoom takes the position that it is no more than a self-help legal publisher and seeks to fall within this classification, as Roger Parloff argues in his blog post. This is also the position that Legal Zoom takes on its Web site and in its answer to the Missouri Complaint:

From the LegalZoom Web site:

"Is LegalZoom engaged in the practice of law?"

"No. LegalZoom is the latest and natural evolution of the centuries-old legal self-help industry."

"No jurisdiction prohibits the sale of software that generates a legal document based on a customer’s unique input. LegalZoom has never been prohibited from operating in any state."

"Should consumers be concerned about LegalZoom losing this case?"

"No. If LegalZoom is found to be engaged in the unauthorized practice of law in Missouri, then every guide and legal formbook in libraries and bookstores in the state would also be engaging in the unauthorized practice of law. These days, nearly all such books are packaged with computer software that works in a similar manner to LegalZoom. Just like with a Nolo Press^® book or a preprinted form, LegalZoom customers have the ability to review and consider their legal form before committing to their purchase."

It is not possible to know how LegalZoom’s document technology actually works without further evidence. However, one can state with certainty that it doesn’t work like a true Web-enabled document automation technology which generates a document instantly from data entered into an on-line questionnaire that is presented through the Web browser.

Vendors of true Web-enabled document automation solutions, such as HotDocs, Exari, DealBuilder, WhichDraft and Rapidocs (our company) have document automation technologies that generate a document instantly after the user clicks on the submit button. Because LegalZoom’s technology seems to require a separate step that is executed off-line, it does not in my opinion, fit into the category of a Web-enabled document automation technology. [ For a more extensive discussion of Web-Enabled Document Automation as a Disruptive Technology, click here to download our white paper on the subject. ]

Instead, in the LegalZoom business model, as described by LegalZoom, a data file is created, reviewed by a legal technician, and then imported into their - document assembly application utilizing some form of import mechanism. It is not clear whether the document is fully-assembled until this second step takes place, and it’s a distinction that makes a difference.

If LegalZoom were just a legal software company, it is hard to understand why it needs over 400 employees to provide services to its customers, other than the fact that these employees are conducting professional reviews and providing real service support. For these services, LegalZoom receives a substantially higher price than if they were just selling a self-help legal form. See for example on the LegalZoom Web site, the 30-point review of wills conducted by LegalZoom's "professional legal document assistants."

These more labor intensive, personal services makes LegalZoom a "service business" and not just a "legal software publisher" entitled to the First Amendment protections that are afforded to publishers.

Andrea Riccio, a Canadian lawyer who has commented about this subject, responds to some of the arguments that LegalZoom makes in its defense:

LegalZoom’s argument: "Typically, there is no interaction between the customer and the person reviewing the file."

Riccio’s response:

“The mere fact that the employee is granted access to the customer's response is an interaction between the employee and customer.”

LegalZoom’s argument: "If there is an inconsistency, it is NOT corrected by the employee – instead, it is brought to the attention of the customer."

Riccio’s response:

“Whether it is the customer or the LegalZooM employee that physically changes the document is irrelevant. What is important is that it is the LegalZoom employee that has identified the inconsistency. That, in my opinion, goes beyond "self-help" and is an act of legal draftsmanship.”

LegalZoom’s argument: "no employee revises or corrects any portion of the customer’s self-created document."

Riccio’s response:

“Identifying inconsistencies or errors in another person's document is in my opinion an act of revision and correction. Who physically makes the changes is irrelevant.”

It is for these reasons that LegalZoom was required to be licensed under California law as a registered and bonded legal document assistant (see footer LegalZoom Web site).

What is a Legal Document Assistant?

A "Legal Document Assistant", as defined by the California Business & Professions Code (Section 6400 (c)) is:

"Any person who is otherwise not exempted and who provides, or assists in providing, or offers to provide, or offers to assist in providing, for compensation, any self-help service to a member of the public who is representing himself or herself in a legal matter, or who holds himself or herself out as someone who offers that service or has that authority, or a corporation, partnership, association, or other entity that employs or contracts with any person who is not otherwise exempted who, as part of his or her responsibilities, provides, or assists in providing, or offers to provide, or offers to assist in providing, for compensation, any self-help service to a member of the public who is representing himself or herself in a legal matter or holds himself or herself out as someone who offers that service or has that authority."

This California statutory scheme is based on the idea that a non-lawyer can perform clerical support functions without violating the unauthorized practice of law statute in California. Only a few states have carved out this exception by statute (e.g., California, Florida, Arizona). Missouri is not one of them.

Could LegalZoom operate in California, where it is headquartered, without being registered with the state as a Legal Document Assistant? I think not.

This is the category that LegalZoom fits into, not “self-help” software.

Otherwise, I suppose Nolo, a California-based self-help legal software publisher, and other California-based legal software publishers that sell directly to the public, would have to be licensed in California as Legal Document Assistants!!! (See generally - http://en.wikipedia.org/wiki/Legal_document_assistant, for a more extensive discussion of what a Legal Document Assistant is, and is not.)

Just to be clear, I am personally in favor of both self-help legal software and paralegal-assisted document preparation services as a way of providing access to the legal system, and personally think there should be more choices for consumers. But my personal opinions are not the issue. The issue is:

“What does the law in the different states now require, and what can we do to change it if we don’t like it?”

It is becoming clear that LegalZoom’s defense strategy in the Missouri case is to associate itself with “self-help software”. I am sure that its well-financed publicity machine is already approaching bloggers and the business press to write stories about whether “legal software” should be prohibited or regulated, when the real issue is whether and under what conditions a legal document preparation service should be regulated, or immune from regulation.

Definitions of what is “legal self-help software”, and what is not, are critical for carving out safe harbors for innovation, particularly as legal software applications that are distributed over the Internet have potential for great impact and for providing access to the legal system for those who cannot afford full service legal representation.

For example, LawHelpInteractive, a non-profit pro bono support organization, with grants from the US Legal Service Corporation, has assisted in the creation of true Web-based document assembly Web sites in many states that provides free legal forms directly to consumers that can be assembled directly on-line.

LawHelpInteractive has generated thousands of legal forms during the past few years that are instantly available and free to consumers throughout the United States. No one is arguing that these Web sites constitute the practice of law.

Because of the wider reach of the Internet, Web-enabled legal software applications are actually more of a threat to the legal profession, than desktop software, and the opportunity for over-regulation remains ever present. I would regret the day that courts prohibit the sale of self-help legal software because it is the unauthorized practice of law.

However, stronger arguments can be made for protecting from regulation the distribution of legal software applications, than there are for exempting from regulation a "service business", so I maintain that confusing one category with another is dangerous and takes us down a slippery slope.

Whether or not LegalZoom provides a valuable service; whether or not consumers have been harmed by LegalZoom; and whether or not the company provides some form of legal advice are questions of fact for the Missouri jury, and beyond the scope of this post.

The question for the U.S. District Court in Missouri is whether, as a matter of Missouri law, LegalZoom's document preparation service business constitutes the practice of law in Missouri, under the terms of the Missouri UPL statute.

I think it does. What do you think?

NJ Attorney Advertising Committee Rules that a TotalAttorneys WebSite is Misleading

Richard Granat — Thu, 30 Jun 2011 17:28:46 -0500

The Committee on Attorney Advertising of the New Jersey Court System issued an Advisory Opinion this week that stated that a Total Bankruptcy web site, published by TotalAttorneys®, a law firm marketing and services organization based in Chicago, is misleading and in violation of the Rule of Professional Conduct 7.1 (a) .Download Full Opinion .

The Committee also ruled that the web site was not an impermissible referral service and that Attorneys are not flatly prohibited from paying for advertising on a "pay-per-lead" or "pay per click" basis. That's good news for TotalAttorneys and other performance-based marketing schemes on the Internet.

The Committee sets out clearly that "Attorney advertising cannot be misleading or omit operative facts." and found that the website did not provide sufficient information to the user and is misleading.

In this case, the user was directed to only one attorney based on the purchase of exclusive rights to a geographical area. To avoid misleading consumers, the Committee stated, the methodology for the selection of the attorney's name must be made clear, including the fact that the website limited participation to one (paying) attorney per geographical area. Further, the Committee specified that all requirements to participate in the website must be clearly specified; a full list of participating attorneys must be readily accessible, and the website must inform the user that the attorneys have paid a fee to participate.

It is easy for attorneys to violate their professional obligations and expose themselves to bar sanctions, by ignoring the fine print in their agreements with Internet-based marketing websites.

For example, no less a credible organization as Lexis-Nexis®, recently launched a direct to consumer web site, called EZLAW.COM. The website purports to offer wills, powers of attorney and advance directives forms bundled with legal advice for a fixed and reasonable fee. A goal I would heartily endorse.

However, the site seems to suffer from the same issues as the TotalAttorney's web site when viewed through the lense of the New Jersey Advisory Opinion.

At EZLAW, the site operator provides a mechanism for consumers to assemble legal documents on-line and then make available a network of attorneys to provide legal advice as part of the offered package. In describing its Attorney Network, EZLAW states that:

They are all prescreened by EZLaw to ensure that you get professional, experienced and confidential legal counsel. To be included in our network, attorneys must meet our rigorous 12-point checklist of criteria.

This suggests that EZLAW is vouching for the quality of the qualifications of the participating attorneys, not only whether an attorney has practiced a number of years or maintains a certain level of malpractice, and this could be construed as misleading.

Moreover, the NJ Opinion states clearly that as a form of attorney advertising, " a full list of participating attorneys must be readily accessible," but on the EZLAW web site no list of participating attorneys is to be found.

Moreover the limited representation agreement executed by the client with the law firm is provided by EZLAW on behalf of the law firm, so the client never knows the identity of the law firm prior to entering into an engagement with the attorney. Normally you would expect that the client would enter into a limited retainer agreement directly with the law firm. I never heard of a retainer agreement that wasn't entered into directly between the client and the law firm. Not in this case.

Click here for a copy of the Representation Agreement between EZLAW and the client. You decide whether this agreement is ethically compliant? I am interested in hearing other opinions about this agreement. If you have one. please comment.

So what's the bottom line? Lawyer's need to read the fine print. Lawyers need to have a full understanding of how their ethical obligations apply to these new Internet-based marketing schemes lest they be caught in a web of disciplinary proceedings that wasn't part of the bargain.

What Every Lawyer Should Know About Document Automation

Richard Granat — Sat, 18 Jun 2011 09:20:52 -0500

For years some law firms, but not all, have used some form of document automation in their law offices. Ranging from an MS Word macro to long standing programs such as HotDocs, as well as automated forms distributed by legal publishers such as Willmaker by Nolo, some law offices have incorporated some form of document automation in their law practices. Document automation of legal documents that are generated in high quantity by a law firm is an indispensable process for increasing law firm productivity and maintaining profit margins in an era of intense competition.

Legal Document Creation the Old Way

The manual process of cutting and pasting clauses from a master MS Word document into a new document, is a productivity process which is fast becoming out dated. It reminds me of the time before there were automated litigation support programs, and legal assistants would duplicate a set of case documents three or four times. The next step was filling one file cabinet with a set of documents in alpha order, filling another filing cabinet with a set of documents in date order, and finally, filling another filing cabinet with a set of documents in issue or subject order to enable "fast" retrievable of relevant paper documents. It took awhile, but almost all litigation lawyers now use automated litigation support methods.. This is not true of transactional lawyers, many of whom still use out-dated methods of creating legal documents, as if each legal document were a unique novel, poem, or other work of fiction.

Barriers to Change

An obstacle to wider use of automated document assembly methods, is typically the lawyer's insistence on crafting the words in each clause to their own satisfaction. Because most lawyer's do not have the requisite programming skill to automate their own documents, law firms by default will opt to use their own non-automated documents, rather than risk using the legal documents automated by an independent provider, because by definition the content of the documents is "not their own." As a result, many law firms do not even use desk-top document assembly solutions when the forms are published by an independent provider or publisher, remaining stuck using more time consuming and less productive manual methods.

Typically, when a law firm does use document assembly methods, a paralegal inputs answers from a paper intake/questionnaire into a document assembly program running on a personal computer. This results in the extra time-consuming step of inputting data from the intake questionnaire to the document assembly program, but it is still more efficient than manual methods.

Web-Enabled Document Automation

Now comes, "web-enabled legal document automation" methods." Web-enabled document automation is a process whereby the intake questionnaire is presented on-line to the client through the web browser to be completed directly.

When the client clicks the "Submit" button the document is instantly assembled, ready for the attorneys further review, analysis, revision, and customization if necessary. The result is a further leap in productivity because the client is actually doing part of the work at no cost to the lawyer, freeing the lawyer up to focus on analysis and further customization of the document.

This is what the work flow looks like when using web-enabled document automation methods:

Unfortunately, lawyers have been slow to adapt to this process as well, because of their reluctance to use legal documents drafted or automated by someone else. However in order to automate their own documents they must either acquire the skill to do the job, or commit the capital to have a skilled professional automate their documents for them. For solos and small law firms these two constraints create formidable obstacles to using more efficient methods.

Since neither condition is common within smaller law firms (programming skill, investment capital), the result is that the law firm gets stuck using older less productive methods of document creation.

Vendors that provide web-enabled document platforms include, our own Rapidocs, and Exari, Brightleaf, HotDocs, DealBuilder, and Wizilegal, to name only a few, all claim that their authoring systems are easy to use, but I have yet to see lawyers without any kind of programming skill create their own automated legal documents in any quantity. Thus, law firms become stuck in a negative loop of their own creation which reduces productivity (and profitability) :

"My legal documents are better than yours; I can't automate them for the web because I don't know how; thus I will be less productive and be required to charge you more because of my own inefficiency."

Competition

In the consumer space, now comes the non-lawyer providers to take advantage of the solo and small law firm's competitive disadvantage. Research by companies like Kiiac provide support the conclusion that 85% of the language in transactional documents is actually the same. In more commoditized areas, where legal forms have been standardized, the legal form content is 100% the same in all documents. Taking advantage of this consistency of legal form content, companies like LegalZoom, Nolo, CompleteCase, SmartLegalForms, and LegacyWriter , with their superior on-line marketing and branding machines, now sell legal forms by the thousands at low cost which provide a "good enough" legal solution for consumers who would do any thing to avoid paying the higher fees to an attorney.

Its true that the consumer doesn't get the benefit of the attorney's legal advice and counsel, and the accountability and protection that dealing with an attorney provides, but consumers don't seem to care.

What can be done?

The "web-based legal document automation solution" , used by non-lawyer providers, is a disruptive technology that is eating away at the core business base of the typical solo and small law firm practitioner.

What can solos and small law firms do to compete in this challenging competitive environment?
The American Bar Association's Legal Technology Resource Center reported last year in their Annual Technology Survey that only 52.2% of solo practitioner's don't have a web site. Even if this number is underestimated, it is shockingly low compared with web site utilization by other industries. If you don't even have a web site, the idea of "web-enabled document automation" is still a "light year" away.

What can be done to encourage more wide-spread use of web-enabled document automation technology by law firms, particularly solos and small law firms? A follow-up post will explore some solutions, but I am open to ideas from anyone.

North Carolina Bar Regulates Legal Cloud Computing

Richard Granat — Thu, 02 Jun 2011 08:57:47 -0500

A proposed Ethics Opinion of the North Carolina Bar that provides guidelines for attorneys using cloud computing services, commonly known as SaaS (Software as a Service), contains language that is troubling because of its potential impact on solos and small law firm practitioners who are creating virtual law practices. The Bar is soliciting comments prior to making the Opinion final. Here are some comments for consideration.

The Opinion states that to comply with the attorney's duty to keep client data confidential there should be:

"a separate agreement that states that the employees at the vendor’s data center are agents of the law firm and have a fiduciary responsibility to protect confidential client information and client property."

DirectLaw is a SaaS vendor that hosts law firm data at a Tier IV Data Center that implements the security controls that a bank or major financial institution uses. The idea that our data center would enter into an agreement that would make its employees agents of a law firm is not realistic. There is not sufficient consideration to expose the Data Center to this kind of liability, and there is no way that they would modify their terms and conditions to meet the needs of a single SaaS vendor. I doubt that counsel for the Data Center would ever approve such language. The Data Center would just tell us to take our business elsewhere. Amending the contract terms just for SaaS vendors that service the legal industry is not likely to happen.

There are other approaches to providing assurance to law firms that client confidential data is secure and less burdensome.

I think a better guideline would be to suggest or require that SaaS vendors host their data at a data center that is a Tier IV Data Center. A Tier 4 Data Center is one which has the most stringent level requirements and one which is designed to host mission critical computer systems, with fully redundant subsystems and compartmentalized security zones controlled by biometric access controls methods. The Data Center should also be SAS 70 certified. The Data Center should also have PCI DSS certification if credit card data is stored within the Data Center. With these safeguards in place, a law firm should be considered to have undertaken reasonable due diligence to satisfy the obligation to insure that client data will remain confidential.

There are other problems with the North Carolina opinion. Another guideline:

"requires the attorney to undertake a financial investigation of the SaaS vendor: to determine its financial stability."

What does that mean? I am not about to divulge our private financial statements to just any lawyer who inquires. How is it relevant? If there are provisions for data capture and downloading data that is stored in the cloud, and the law firm has access to that data, what difference does it make if the SaaS actually goes out of business?

It would make more sense to simply require that a SaaS vendor carry Internet liability insurance for the benefit of its law firm clients. Law firms will have problems securing Internet Liability Insurance to cover data loss. Data loss as a result of a Data Center outage is not normally covered under a law firm's malpractice policy. For solos and small law firm's securing this kind of coverage would be a burden and cost prohibitive. It makes more sense to require the SaaS vendor to secure such coverage and make its law firm subscribers a beneficiary of the coverage.

Another guideline states that:

"The law firm, or a security professional, has reviewed copies of the SaaS vendor’s security audits and found them satisfactory."

How much does such an audit cost? Can solo practitioners afford such an audit? Who qualifies as a security professional? I think this requirement will act as deterrent to solos and small law firms who are seeking cloud-based solutions that they can use in their practice. I think that a less costly and more effective solution would be for an independent organization to issue a Certificate of Compliance to the SaaS vendor indicating that the SaaS vendors has satisfied or complied with well recognized standards. Like the Truste Certificate in the privacy area, this would give solos and small law firms this would provide stamp of approval that minimum standards have been satisfied. This would move the cost burden of undertaking due diligence to the SaaS vendor, rather than to the solo or small law firm practitioner.

Another guideline states:

"Clients with access to shared documents are aware of the confidentiality risks of showing the information to others. See 2008 FEO 5."

This guideline should be clarified because it is not clear what "shared documents" means. This kind of statement is likely to scare clients into thinking that a law firm that stores client data on the the Internet is putting the client's data at more risk than storing the data in a file cabinet in the lawyer's office.

As the American Bar American, through its Ethics 20/20 Commission, and state bar associations adapt ethical rules to deal with the delivery of legal services over the Internet, it is important to consider that the burden of compliance may have a different impact on solos and small law firms, than on large law firms. The rules should not act as a barrier to solos and small law firms exploring new ways of delivering legal services online which are cost effective for both the law firms and their clients.

For a similar point of view see Stephanie Kimbro's blog post on the same topic.

Disclosure: DirectLaw is a SaaS vendor that provides a virtual law firm platform to solos and small law firms.

How Much is Legal Advice Worth?

Richard Granat — Wed, 25 May 2011 08:20:12 -0500

One of the winners of TechCrunch Disrupt Hackathon is a new, yet to be launched, legal document web site called, Docracy, The idea is that members will contribute their legal documents to an open source site so that there would be a basis for comparison between "open source" documents and the document that the member needs for their business. The theory is that by comparing documents, with the document that the member has on hand, there would be a basis for comparison, resulting in an informed decision, without the cost or benefit of legal advice.

In this model, legal advice from an attorney is worth zero. The model is designed to eliminate the attorney from the transaction.

The idea was developed by mobile app developers Matt Hall and John Watkinson ,from Larva Labs, who were faced with signing an NDA with a client and were unsure of some of the terms and concluded that the cost of legal advice was either unnecessary or prohibitive.

This is another example of the resentment that the average consumer and small business person has towards the legal profession resulting in the rise of non-lawyer legal form web sites such as LegalZoom.

Another example of an open source legal document repository is Docstoc which we have used as a research source. It is useful for us, because as lawyers we understand what we are reading. I think simply accessing raw documents as a consumer would be a daunting exercise, although I am sure that many consumers and small business use the site.

The problem with any legal document web site as a source for creating binding legal documents is that the use of a particular clause may be rooted in case law in a particular jurisdiction.

Without understanding all of the implications of using particular language in an agreement, the "non-lawyer" moves into a danger zone, because he or she has no idea what they are signing.

A better alternative is a "self-help" book from Nolo that contains both legal forms and explanations of the implications of each clause, but that often involves reading and understanding a 300 page book, which is beyond the attention span of most consumers.

Another solution is an automated document with extensive help screens that explain the implications of choosing one clause over the other.

A third alternative, is to purchase "unbundled and limited legal services" from an on-line law firm for a fixed price with legal advice bundled into the transaction. In that case you get a certain level of accountability and guarantee that the legal advice is correct for the user's individual situation.

See for example the firms listed at DirectLaw's legal document portal , where you can access legal forms for free, or forms bundled with legal advice for a fixed fee.

You don't get legal advice from a legal forms web site or a LegalZoom for that matter, which can be a major limitation depending on the complexity of the document or the transaction. Without annotations that explain the significance of particular language in an agreement, the non-lawyer is stumbling around in the dark.

Nevertheless, I don't doubt that consumers and small business will find this a popular site, despite its limitations. Caveat emptor!

Should law firms be owned by non-lawyer investors?

Richard Granat — Thu, 19 May 2011 13:41:37 -0500

There has been much discussion recently in various venues about whether 5.4 of the US Rules of Professional Responsibility should be amended or revised to permit investment in law firms by non-lawyer, or non-lawyer entities, or even ownership of US law firms by non-lawyer entities. The ABA's Ethics 20/20 Commission is circulating a paper on the subject and is soliciting comments.

Known in the United Kingdom as Alternative Business Structures (ABS), this new form of law firm organization, authorized by the UK Legal Services Act of 2007, will be permitted after October 6, 2011. Alternative Business Structures are already permitted in Australia, where several law firms have already gone public.

Other than the State of North Carolina where there is bill pending to permit non-lawyer ownership of up to 40% of a law firm, there has been little movement in the US to make change Rule 5.4 Some hybrid models are beginning to emerge in the US, but they are a workaround the existing rules.

There is no clear path for non-lawyer ownership or investment in a law firm in the United States, and as a result it is arguable that the legal services delivery system lacks the capital necessary to innovate and create the efficient systems that are necessary to serve not only the "latent market for legal services", but existing legal markets more effectively.

Now comes Jacoby & Meyers, a law firm that has pioneered in changing the way legal services are delivered, filing multiple law suits in the Federal District courts of New York, New Jersey, and Connecticut against the presiding state justices in those states responsible for implementing and enforcing Rule 5.4, requesting that the Rule by overturned. The Complaint makes clear that Jacoby & Meyers "seeks to free itself of the shackles that currently encumber its ability to raise outside financing and to ensure that American law firms are able to compete on the global stage"

Click here for a complete version of the Complaint.

Andrew Finkelstein, the Managing Partner of Jacoby & Meyers, and also the Managing Partner of Finkelstein & Partners, said that "No legitimate rationale exists to prevent non-lawyers from owning equity in a law firm. The time has come to permit non-lawyers to invest in law firms in the United States,"

Now the fun begins!

Disclosure: Finkelstein and Partners is a subscriber to our DirectLaw Virtual Law Firm Service.