Bob Ambrogi has a feature piece in the ABA Journal on Legal Zoom, and the move towards legal deregulation. Here is the intro:

In recent years, LegalZoom has faced lawsuits in eight states seeking to shut it down for violating state laws barring the unauthorized practice of law. But with a notable recent victory in South Carolina, and having fended off all but one of the other lawsuits, LegalZoom is anything but shutting down.

To the contrary, LegalZoom, which began offering legal forms online in 2001, is poised to significantly broaden the range of services it offers consumers and small businesses. Already it has expanded into prepaid legal services, operating plans in 41 states and the District of Columbia. Now it is looking ahead to offering a continuum of products and services, from simple forms to full-fledged legal advice, with both lawyers and nonlawyers in the mix.

“We need to continue to evolve, continue to innovate and continue to connect consumers with the services that are right for them at a price they can afford to pay,” says Chas Rampenthal, LegalZoom’s general counsel.

Meanwhile, legal ethicists such as Deborah L. Rhode, director of the Center on the Legal Profession at Stanford Law School, say it is time for the legal profession to drop efforts to shut down such companies for UPL and instead focus on how best to regulate them to protect their customers.

“With respect to LegalZoom, the train has left the station,” Rhode says. “They’ve got a couple million satisfied customers and it’s going to be really hard for anyone to shut them down.”

In a May Fordham Law Review article, Rhode and co-author Lucy Buford Ricca, executive director of the Center on the Legal Profession, argue that the legal market is primed for a total transformation driven by innovative companies such as LegalZoom. “From a regulatory perspective,” they write, “the key focus should not be blocking these innovations from the market, but rather using regulation to ensure that the public’s interests are met.”

Bob offers a useful summary of the North Carolina, South Carolina and other litigation:

In 2008 the North Carolina bar issued LegalZoom a cease-and-desist letter. The matter made its way to North Carolina business court where, last March, a judge put off deciding the UPL issue, saying he required additional evidence to fully understand LegalZoom’s process for preparing complex documents.

Two weeks earlier, the high court in neighboring South Carolina gave LegalZoom a green light to operate.

Adopting the findings of a special referee it appointed to investigate the company, the court held that LegalZoom’s practices “do not constitute the unauthorized practice of law.”

The referee compared the functionality of LegalZoom’s software to a scrivener who transcribes information without giving advice or consultation: “LegalZoom’s software acts at the specific instruction of the customer and records the customer’s original information verbatim, exactly as it is provided by the customer. The software does not exercise any judgment or discretion, but operates automatically in the same fashion as a ‘mail merge’ program.”

Previously, LegalZoom settled UPL suits in California, Missouri and Washington. Lawsuits in Alabama and Ohio were dismissed. Besides North Carolina, the company still faces a challenge in Arkansas, where the matter is in arbitration.

The South Carolina judgment isn’t as good as it may seem. As I noted in a previous post, the ruling was really, really narrow.  It’s “scrivener” analysis was limited to merely ministerial tasks. Not the types of legal services that border on offering advice.

“LegalZoom’s software acts at the specific instruction of the customer and records the customer’s original information verbatim, exactly as it is provided by the customer,” Newman wrote in the report, adding that its “does not exercise any judgment or discretion, but operates automatically in the same fashion as a ‘mail merge’ program.”

The key is that no “judgment or discretion” was used. Scott Greenfield jumped on that. These are the hallmarks of any meaningful legal service.

In any event, Bob says the UPL debate may “no longer [be] relevant.”

With LegalZoom’s train steaming along at full throttle, and given other changes in the legal industry, the unauthorized practice debate is no longer relevant, many say.

“The best approach is to recognize that these new players are providing a kind of legal service,” says Andrew M. Perlman, director of the Institute on Law Practice Technology and Innovation at Suffolk University Law School. “What we call it is less important than what we do with them. We need to find a way to appropriately regulate what they do so that the public is protected.”

Regulation, Perlman believes, would encourage innovation in the delivery of legal services by eliminating the legal uncertainties faced by companies such as LegalZoom. “The more we resolve these questions through regulation, the more we’ll free up innovation.”

This is kind of like the Uber strategy. Get enough people to love your product that does not comply with regulations, and the government will have to change the rule. In fact, this has worked in places like Virginia and elsewhere.

I’m not persuaded that lawyers will see it this way. A single UPL suit could shut down their entire business. One injunction will do the trick. Bob makes the observation that I made a year ago:

No one can say whether LegalZoom has seen the last of these UPL suits. But in its 2012 SEC filing, it noted the lawsuits then pending and added: “We anticipate that we will continue to be the target for such lawsuits in the future.”

I’ve had this friendly conversation with several legal-tech startups. Most have decided to go the Uber way.