United States: Virtually Unclear: Will Legal Tech Companies Bridge Justice Gap Or Fall Into UPL Abyss?

Last Updated: August 4 2015
Article by Nicole I. Hyland and Tyler Maulsby

In 1965, Norman F. Dacey published a book, How to Avoid Probate, which sold 600,000 copies in two years. [New York Cty. Lawyers' Assn. v. Dacey, 54 Misc.2d 564 (N.Y. Sup. Ct. 1967) affd. in part, modified in part, 28 A.D.2d 161 (1st Dept. 1967), revd. sub nom., 21 N.Y.2d 694 (N.Y. 1967).] The book contained information and forms that readers could use to create wills and trusts without the assistance of an attorney. [Id. at 566.] The New York County Lawyers Association sued Dacey and his publishers, claiming they were engaged in the Unauthorized Practice of Law (UPL) and seeking to enjoin publication of the book. [Id.] Although both the trial court and the Appellate Division ruled that Dacey's book constituted UPL, the Court of Appeals reversed. [See, Dacey, 21 N.Y.2d 694 (N.Y. 1967).]

In doing so, the Court relied entirely on an impassioned dissent penned by Justice Harold A. Stevens. [Id. at 694, reversing and dismissing with costs "on the dissenting opinion at the Appellate Division."] Justice Stevens drew a sharp distinction between furnishing legal services to clients and publishing a book containing legal forms and instructions. The latter, he argued, involves no "personal contact or relationship with a particular individual" nor the "relation of confidence of trust so necessary to the status of attorney and client." [Dacey, 28 A.D.2d 161, 174 (1st Dept. 1967) (Stevens, J., dissenting).] Justice Stevens also took the opportunity to lambast the legal profession for attempting to impose a monopoly on the discussion of law:

That it is not palatable to a segment of society which conceives it as an encroachment of their special rights hardly justifies banning the book. '[I]t is a prized American privilege to speak one's mind, although not always with perfect good taste, on all public institutions.' Free and open discussion or even controversy could lead to reforms, if needed, or improvement where desirable. Books purporting to give advice on the law, and books critical of law and legal institutions have been and doubtless will continue to be published. Legal forms are available for purchase at many legal stationery stores. Unless we are to extend a rule of suppression beyond the obscene, the libelous, utterances of or tending to incitement, and matters similarly characterized, there is no warrant for the action here taken. [Id. at 177 (Stevens, J., dissenting).]

The 21st century analogues to Dacey and his book of forms are legal technology (Legal Tech) companies, which offer online platforms that enable customers to create forms and legal documents by responding to a series of questions or prompts. In most cases, the end product of a Legal Tech service is a completed document populated with information provided by the customer. Legal Tech companies offer a variety of services, such as wills, leases, corporate formation documents, powers of attorney, and divorce petitions. Some examples of Legal Tech companies are LegalZoom.com, Nolo.com and The 21st century analogues to Dacey and his book of forms are legal technology (Legal Tech) companies, which offer online platforms that enable customers to create forms and legal documents by responding to a series of questions or prompts. In most cases, the end product of a Legal Tech service is a completed document populated with information provided by the customer. Legal Tech companies offer a variety of services, such as wills, leases, corporate formation documents, powers of attorney, and divorce petitions. Some examples of Legal Tech companies are LegalZoom.com, Nolo.com and RocketLawyer.com, which provide a range of legal self-help services for personal and business customers. Additionally, a quick Internet search reveals a host of smaller Legal Tech companies that provide services in specific areas (e.g., wills, incorporation, trademark applications). For the most part, these companies cater to the legal needs of a portion of society largely overlooked by the legal profession: Namely, individuals or start-ups that cannot afford to hire an attorney and, depending on the complexity of the issue, may not require formal legal advice. [See, e.g., Mathew Rotenberg, "Stifled Justice: The Unauthorized Practice of Law and Internet Legal Resources," 97 Minn. L. Rev. 709, 720 (2012).]

Like Dacey, Legal Tech companies claim they are not law firms and are not providing legal advice or representation. Yet, because they offer services that are also provided by lawyers, they can find themselves at odds with UPL laws. This article discusses how courts have applied traditional UPL restrictions to Legal Tech providers and how those restrictions may limit access to basic legal services. Although we begin with an examination of New York's UPL statutes, our discussion includes Legal Tech UPL cases from around the country.

UPL in New York

Central to any UPL analysis is the question "what constitutes the practice of law?" In New York, UPL is governed primarily by a handful of statutes in Article 15 of New York's Judiciary Law. Most significantly, New York Judiciary Law §478 states, inter alia:

It shall be unlawful for any natural person to practice or appear as an attorney-at-law or as an attorney and counselor-at-law for a person other than himself or herself in a court of record in this state, or to furnish attorneys or counsel or an attorney and counsel to render legal services, or to hold himself or herself out to the public as being entitled to practice law as aforesaid, or in any other manner, or to assume to be an attorney or counselor-at-law, or to assume, use, or advertise the title of lawyer, or attorney and counselor-at-law, or attorney-at-law or counselor-at-law, or attorney, or counselor, or attorney and counselor, or equivalent terms in any language, in such manner as to convey the impression that he or she is a legal practitioner of law or in any manner to advertise that he or she either alone or together with any other persons or person has, owns, conducts or maintains a law office or law and collection office, or office of any kind for the practice of law, without having first been duly and regularly licensed and admitted to practice law in the courts of record of this state, and without having taken the constitutional oath.

Other UPL provisions of the Judiciary Law include: §476-A — Action for unlawful practice of the law; §484 — None but attorneys to practice in the state; §486 — Practice of law by attorney who has been disbarred, suspended, or convicted of a felony; and §495 — Corporations and voluntary associations not to practice law. In addition, Rule 5.5(b) of the New York Rules of Professional Conduct (RPC) prohibits a New York attorney from aiding the unlicensed practice of law. Although the term "practice of law" is not defined in the Judiciary Law, a subsequent section suggests that it includes:

Appearing for a person other than himself as attorney in any court or before any magistrate, or [] preparing deeds, mortgages, assignments, discharges, leases or any other instruments affecting real estate, wills, codicils, or any other instrument affecting the disposition of property after death, or decedents' estates, or [preparing] pleadings of any kind in any action brought before any court of record in this state, or mak[ing] it a business to practice for another as an attorney in any court or before any magistrate ***. [N.Y. Judiciary Law §484.]

New York courts analyzing UPL issues have struggled to articulate a definition of the practice of law. As noted above, Justice Stevens argued that the practice of law necessarily involved personal interaction between attorney and client. [See, Dacey, 28 A.D.2d at 174 (Stevens, J., dissenting).] He viewed "the representation and the advising of a particular person in a particular situation" as "the essential of legal practice." [Id.] Other UPL formulations include "the application of legal principles to someone's personal predicament" or the "interpretation and application of legal principles to guide future conduct or to assess past conduct." [See, Small Bus. Bodyguard Inc. v. House of Moxie, Inc., No. 14-CV-7170 CM, 2015 WL 1290897, at *4 (S.D.N.Y. 3/20/2015).] But when it comes to assessing whether particular conduct is the practice of law, these definitions offer only limited guidance. In the end, the determination comes down to a fact-intensive, case-by-case analysis. [See, e.g., State v. Winder, 42 A.D.2d 1039, 1039 (4th Dept. 1973), applying fact-specific analysis to hold that seller of "Divorce Yourself Kit" was not engaged in UPL; People v. Life Science Church, 113 Misc.2d 952, 965 (N.Y. Sup. Ct. 1982), holding that defendant was engaged in UPL based on defendant's conduct "in its totality."]

A significant factor in many UPL cases is the degree of interaction between the customer and the provider. For example in Winder, the 4th Department held that a "Divorce Yourself Kit" was not the practice of law largely because, as in Dacey, "[t]here is no personal contact or relationship with a particular individual." [42 A.D.2d at 1039, quoting 28 A.D.2d at 174 (Stevens, J., dissenting); see also, Life Science Church, 113 Misc.2d at 973–74, finding UPL where non-lawyers gave "personalized and particular tax and organization advice to individuals;" Sussman v. Grado, 192 Misc.2d 628 (N.Y. Dist. Ct. 2002), finding an independent paralegal committed UPL when she provided customized legal services directly to a client.]

In light of these authorities, where do Legal Tech services fall? On one hand, Legal Tech customers are arguably filling out a form the same way they would in a formbook and the Legal Tech software is merely performing the automated function of inputting the customer's answers into the appropriate fields. On the other hand, Legal Tech services offer a more interactive experience than merely filling out a paper form, even though the interaction is generally with a piece of software rather than a human being. [See Unauthorized Practice of Law Comm. v. Parsons Tech., Inc., No. CIV.A. 3:97CV-2859H, 1999 WL 47235, at *3 (N.D. Tex. 1/22/1999), vacated and remanded, 179 F.3d 956 (5th Cir. 1999), explaining how the Court characterized a legal tech company that helped customers complete documents as a "cyber lawyer."] Editor's note: See below for further discussion.

Applying UPL Analysis to Legal Tech Providers

In response to UPL challenges around the country, Legal Tech companies have generally argued that their services are the 21st century equivalent of a "scrivener" who is merely filling out the form based on information from the customer. These arguments have led to mixed results. For example, a North Carolina court acknowledged that at least certain parts of the LegalZoom platform fit into the scrivener's exception to UPL. [LegalZoom.com, Inc. v. N. Carolina State Bar, No. 11 CVS 15111, 2014 WL 1213242, at *14 (N.C. Super. 3/24/2014).] In that case, LegalZoom (prompted by a cease and desist letter from the North Carolina State Bar) sought a declaratory judgment that it was not engaged in UPL. [Id. at *1.] Although the court concluded on summary judgment that a fuller record was needed, it opined that "[i]n some instances *** such as where a legal form closely tracks a state agency form, the information a customer supplies is routine, and no significant part of the form is added or omitted based on customer responses," LegalZoom was not engaged in UPL. [Id. at *14; see also, T. Travis Medlock v. LegalZoom.com, Inc., No. 2012-208067 (S.C. 10/18/2013), approving settlement agreement and concluding that LegalZoom's online interactive self-help services do not constitute the practice of law in South Carolina.]

By contrast, a North Carolina court held that a service similar to LegalZoom was engaged in the unauthorized practice of law. [N. Carolina State Bar v. Lienguard, Inc., No. 11 CVS 7288, 2014 WL 1365418, at *3-4 (N.C. Super. 4/4/2014).] In Lienguard, customers would complete an online questionnaire and the website would prepare a printed form. At that point, Lienguard took the customer's information, input it on a different form, and created an original legal description of the claim. [Id.] Unlike the LegalZoom cases, the court in Lienguard did not apply the scrivener's exception because the company chose "to do more than present its clients with a 'fill in the blanks' form modeled on [the state statute] such that the form would be populated with client-supplied information without any change or further manipulation." [See also, In re Bernales, 345 B.R. 206, 225 (Bankr. C.D. Cal. 2006), holding that, in the Bankruptcy context, "[s]oliciting information from a debtor [by use of a questionnaire] which is then typed into schedules constitutes the unauthorized practice of law." (Citation omitted).]

In Janson v. LegalZoom.com, Inc., a federal court applying Missouri law held that LegalZoom was engaged in UPL because its role exceeded that "of a notary or public stenographer." [802 F.Supp.2d 1053, 1064 (W.D. Mo. 2011).] The court observed that "LegalZoom's legal document preparation service goes beyond self-help because of the role played by its human employees, not because of the internet medium." [Id.] Although this language suggests that the main problem with LegalZoom's service stems from human interaction with the customer, the court also found that LegalZoom's initial creation of the computerized forms constituted UPL:

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.

LegalZoom has also faced UPL challenges in Ohio and Arkansas. In Lowry v. LegalZoom.com. Inc., the court dismissed a UPL claim against LegalZoom because the plaintiff failed to obtain a determination from the Ohio Supreme Court that LegalZoom was engaged in UPL, a pre-filing requirement in Ohio. [No. 4:11-CV-02259, 2012 WL 2953109, at *3–4 (N.D. Oh. 7/19/2012).] In LegalZoom.com, Inc. v. McIlwain, the Arkansas Supreme Court granted LegalZoom's motion to compel arbitration but also referred the case to Arkansas' committee on UPL. [429 S.W.3d 261 (Ark. 2013).] There has been no further action in this case.

Threat of UPL vs. Comprehensive Regulation — An Alternative Approach

When applying the "scrivener" versus "non-scrivener" classifications to Legal Tech providers, courts are overlooking an important question: Do these classifications actually protect consumers from incompetent service providers, while helping them meet their legal needs? As one commentator has observed, "[s]tate legislators drafted most unauthorized practice statutes prior to the emergence of the Internet or without any focus on recent advancements in computer research capabilities." [Rotenberg, supra at 710–11.] Even if a Legal Tech provider technically falls outside the "scrivener" classification, a finding of UPL may not actually advance the policy behind UPL restrictions: namely, to protect "the public against rendition of legal services by unqualified persons." [RPC 5.5, Cmt. [2].] If anything, this conventional view of UPL may harm the public by restricting access to much needed legal assistance for those who cannot afford a lawyer. [See, Cynthia L. Fountaine, "When Is a Computer a Lawyer?: Interactive Legal Software, Unauthorized Practice of Law, and the First Amendment," 71 U. Cin. L. Rev. 147, 178 (2002), "Given the substantial unmet need for legal information and services, the unprecedented possibilities provided by interactive legal software for satisfying that need, and the First Amendment interests at stake, states should not attempt to ban interactive legal software by applying UPL regulations."]

The State of Texas has addressed this issue in a unique way. At the turn of the millennium, Parsons Technology, Inc., began marketing its Quicken software products (including Quicken Financial Software and Turbo Tax). One such product, called Quicken Family Lawyer, helped users complete a variety of legal forms that were saved on the included compact disks. In response to this program, the Texas Supreme Court's Unauthorized Practice of Law Committee (UPL Committee) brought suit to enjoin the sale of Quicken Family Lawyer, arguing that the program violated Texas's unauthorized practice of law statute. [Unauthorized Practice of Law Comm. v. Parsons Tech., Inc., No. CIV.A. 3:97CV-2859H, 1999 WL 47235, at *3 (N.D. Tex. 1/22/1999).] Parsons argued that the Court should view its product as similar to Dacey's book of forms. [Id. at *7.] Rejecting Parson's argument, the Court reasoned that under the relevant Texas case law concerning UPL — which was more stringent than many other states — the activities of Quicken Family Lawyer constituted the "practice of law." The Court noted, however, that "[i]f Parsons believes such a personal contact requirement should be included in the Statute, it should address these concerns to the Texas legislature." [Id.]

The Texas legislature heeded the Court's instruction. After the district court's decision but before the appeal was decided, the legislature amended its definition of the practice of law to include a safe harbor provision. The provision reads:

In this chapter, 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 [a manner that would constitute UPL] and does not affect the applicability or enforceability of that chapter. [Tex. Govt. Code Ann. §81.101 (West 1999).]

Texas's approach should be instructive. Instead of slapping Legal Tech companies with UPL claims, it makes more sense to treat them as part of the evolving legal landscape. Under a plainly stated regulatory scheme, the rules and risks would be clear. Similarly, a safe harbor provision could still prohibit individuals from using the legal tech software to commit UPL. Thus, a legal tech company can market its product directly to consumers. But, if a non-lawyer uses Legal Tech software to prepare a will for a customer, that non-lawyer would be engaged in UPL. Given that Legal Tech services are the only affordable option for some consumers, it is worth considering a safe harbor statute that carves out a narrow field for Legal Tech companies to operate. [See, Fountaine, supra at 178.] This strategy would advance the goal of protecting consumers, consistent with the policies that drive UPL restrictions, while also ensuring a greater access to legal services.

Conclusion

In 2014, Chief Judge Jonathan Lippman of the New York Court of Appeals gave a speech highlighting the "dire need for legal assistance for the poor and those of limited means." [See, Jonathan Lippman, N.Y. State Unified Court System, The State of Our Judiciary 2014 (2/11/2014).] He noted that innovative programs, including those that expand the role of non-lawyers, will "begin to change the very contours of how we deliver legal services in our state." [Id., discussing a court initiative to use trained non-lawyers, called "Navigators," to assist pro se litigants; see also, Roy D. Simon, New York Professional Responsibility Developments Since November 2011: Part 2 — Battle Over Pro Bono, N.Y. Legal Ethics Rep. (2/8/2015).] A year later, Chief Judge Lippman observed that "non-lawyers have been an increasingly powerful force" in the "fight to close the justice gap." [See, Jonathan Lippman, N.Y. State Unified Court System, The State of Our Judiciary 2015 (2/17/2015),announcing a new initiative to permit non-lawyers to act as "Court Advocates" for low-income litigants.]

Although Chief Judge Lippman did not identify online service providers as a potential solution to the justice gap, there is no reason why Legal Tech companies should be excluded from this important effort. Yet, under the current UPL framework, any company offering law-related services over the Internet faces at least some UPL risk. Given the serious consequences of UPL (including potential criminal charges), Legal Tech companies may be deterred from developing innovative and cost-effective services. This is particularly regrettable given the need for affordable access to basic legal services. By continuing to expand the role of non-lawyers, Chief Judge Lippman is finding solutions to the justice gap in the regulation of non-lawyer activity that used to be flatly prohibited. One has to imagine there is a place for Legal Tech companies in Chief Judge Lippman's vision for legal services in New York.

Originally published by New York Legal Ethics Reporter.

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