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LegalZoom Challenges the North Carolina State Bar’s Decision to Not Approve Their Prepaid Legal Services

LegalZoom sues the North Carolina State Bar in an antitrust lawsuit for refusing to register it’sits do-it-yourself legal documents as prepaid legal plans marketed to individuals and small business in North Carolina.

Photo provided by LegalZoom.com

After the recent North Carolina State Board of Dental Examiners v. Federal Trade Commission decision, LegalZoom has brought another suit against the North Carolina State Bar.  In the NC State Board of Dental Examiners case1, the Supreme Court of the United States held that a North Carolina dental regulatory board, which is made up of mostly dentists, does not have state-action immunity in an antitrust claim brought against it.  Under this authority, LegalZoom is alleging a combination and conspiracy in unreasonable restraint of trade and monopolization, attempted monopolization, and combination and conspiracy to monopolize, both in violation of the Sherman Act, 15 U.S.C. § 1 and 15 U.S.C. § 2, since the North Carolina State Bar is the legal regulatory board and has denied its attempt to register a prepaid plan with the State Bar.

LegalZoom challenged the North Carolina State Bar in 2011 for not permitting them to sell prepaid legal services.  LegalZoom is a company that sells “do it yourself” legal documents for small businesses and other individuals.  LegalZoom also provides telephone consultations, provides document review, and yearly legal check-ups.

While LegalZoom offers services in forty-two other states, North Carolina vetoed LegalZoom’s request

While LegalZoom offers services in forty-two other states, North Carolina vetoed LegalZoom’s request.  North Carolina requires a prepaid plan be registered with the North Carolina State Bar as a precondition for selling.  The State Bar’s standing Authorized Practice Committee, which investigates suspected unauthorized practice of law, did not approve LegalZoom’s request to offer prepaid legal services.  LegalZoom was not successful in its first attempt to register its prepaid legal services.

LegalZoom tries again in its most recent lawsuit to gain access to the North Carolina legal market.  In it’s lawsuit claiming $10,500,000 in actual and treble damages, including sales in North Carolina, LegalZoom alleges that the North Carolina State Bar has engaged in anticompetitive conduct that is not in pursuit of a clearly articulated state policy.  They allege that the conduct is unsupervised, exceeds statutory authority and is not entitled to immunity under federal antitrust laws.

LegalZoom argues that the actions taken by the State Bar in monitoring and preventing certain people from providing prepaid legal services is “anticompetitive, exclusionary, and monopolistic conduct.”

The Supreme Court has held that a state agency that is composed of primarily market participants is exempt from antitrust liability only in the case where the anticompetitive actions of the agency are in pursuit of a clearly articulated state policy and the activity is actively supervised by the state.  LegalZoom argues that the actions taken by the State Bar in monitoring and preventing certain people from providing prepaid legal services is “anticompetitive, exclusionary, and monopolistic conduct.”

LegalZoom also argues that the state legislature took the power of the State Bar away years ago, and therefore their conduct in excluding LegalZoom from the legal market in North Carolina is illegal and against antitrust laws.  The NC legislature changed the statute (N.C. Gen. Stat. § 84-23.1(b)) to state that all organizations that offer prepaid legal services shall register those with the North Carolina State Bar, and each plan shall be registered prior to the implementation of the plan within the State.  LegalZoom claims this strips the State Bar of its ability to determine which plans are proper under the statute because the original law specifically included the responsibility.

The State Bar established its definition of a prepaid plan as “any arrangement by which a person, firm or corporation, not otherwise authorized to engage in the practice of law, in exchange for any valuable consideration, offers to provide or arranges the provision of specified legal services that are paid for in advance of any immediate need for the specified services.”  The regulations further stated that the legal services offered in the plan must be provided by a licensed attorney that is licensed in North Carolina and is not an employee, director, or owner of the plan.

LegalZoom claims that the State Bar’s sole authority is to provide registration forms, collect administrative fees, and register plans with regard to prepaid legal services.  They further allege that the State Bar is not permitted to exclude potential new actors, such as itself, from the legal market.

The premise of the LegalZoom set up seems to go against the North Carolina State Bar’s Rules of Professional Conduct for North Carolina attorneys…

The premise of the LegalZoom set up seems to go against the North Carolina State Bar’s Rules of Professional Conduct for North Carolina attorneys in that it allows for customers in North Carolina to get services, documents, and “legal check-ups” from LegalZoom’s contracted attorneys.  LegalZoom is not a North Carolina company and it is not necessarily true that when a North Carolina citizen interacts with a LegalZoom contract attorney that they will even be an attorney licensed to practice law in North Carolina.  In a way, the LegalZoom principle allows for attorneys to avoid taking the Bar Exam in all of the states that LegalZoom operates in, but still allowing these attorneys to provide forms of legal services by creating documents or providing consultations.

While it is true that anyone can research the law of a particular state to ensure they are giving accurate information, the fact of the matter is, an attorney is required to pass the Bar Exam in North Carolina in order to provide legal services to citizens of North Carolina.  Not only does this protect the attorneys from discipline for violating the Rules of Professional Conduct in this State, but it protects the citizens of North Carolina by ensuring their attorneys have passed the Bar Exam in North Carolina, know the North Carolina laws, and are best equipped to provide them with legal services in this State.

In fact, the requirements for being an attorney, or at least applying to be an attorney, for LegalZoom’s network is 1) five or more years of practice, 2) must be active and in good standing [with your local State Bar], 3) must not have public record of discipline with your state’s regulatory agency, [also known as your local State Bar], and 4) must maintain errors and omissions insurance with a $100,000 minimum per occurrence and a total of $300,000.  The requirements to be an attorney within the LegalZoom network requires that the attorneys meet the requirements and professional rules of conduct with their local State Bars – the same or similar rules of professional conduct and requirements that the North Carolina State Bar has for North Carolina attorneys.  In order to be an attorney for LegalZoom, you must conform to the professional conduct that is required by the local State Bar, yet these are the same rules that the North Carolina State Bar is enforcing when denying LegalZoom the ability to offer prepaid legal plans in the State.

However, the other argument is that while it is true an attorney may not necessarily have passed the Bar Exam in North Carolina, they do not just give legal advice out of nowhere.  Instead the LegalZoom attorneys have access to resources that allow them to research the laws of a particular state for which they are providing legal services to ensure they are giving accurate information.

Bar passage is a form of licensing to be able to practice the legal profession in North Carolina … similar to the professional requirements set forth by LegalZoom for attorneys in their attorney network

Regardless, the fact of the matter is that the North Carolina State Bar, the regulatory body for attorneys in the State of North Carolina, that holds attorneys accountable for malpractice and other forms of improper professional conduct, requires an attorney to pass the Bar before they can practice in North Carolina.  Bar passage is a form of licensing to be able to practice the legal profession in North Carolina, just as other professional organizations, and similar to the professional requirements set forth by LegalZoom for attorneys in their attorney network.  Should LegalZoom be able to evade these professional requirements for their attorneys, when other attorneys who do not work for such a large corporation must pass licensing requirements in each state they wish to join the legal community and practice law?

Regan Gatlin, Ethics Editor
About Regan Gatlin, Ethics Editor (42 Articles)
Regan Gatlin is a 2016 graduate and served as the Ethics Editor for the Campbell Law Observer for the 2015-2016 academic year. Regan graduated from North Carolina State University in 2013 with a Bachelor of Arts in Political Science and a minor in Sociology. Regan has previously clerked for the Insurance Section of the North Carolina Department of Justice, The General Counsel of The Select Group, and Safran Law Offices. During her experiences clerking, she gained civil litigation and research experience in the areas of insurance, construction law, labor and employment, and compliance. She also competed on a Campbell Law Trial Team in the Buffalo-Niagara Mock Trial Competition and the American Association for Justice (AAJ) Mock Trial Competition. Regan is from Smithfield, North Carolina.
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