Judge James L. Gale, Special Superior Court Judge for Complex Business Cases in Greensboro, North Carolina, denied in part and deferred in part the North Carolina State Bar’s Motion to Dismiss a case brought by LegalZoom in response to the Bar’s ongoing efforts to prevent LegalZoom’s operations without a license to practice law in North Carolina. In order to understand the significance of this ruling, a brief discussion of the case’s background is appropriate.
LegalZoom is a California-based company that, according to their own website, provides the public with self-help legal documents and prepaid legal services. The company earned $156 million in revenue last year and, until recently, was weighing its options to file an Initial Public Offering (IPO) this year. LegalZoom has offices in California and Texas, but none in North Carolina. The issue in this case is LegalZoom’s preparation of legal documents, and offers of prepaid legal services, for citizens of North Carolina without a license to practice law in North Carolina. When citizens seek to use those documents in the state – for example, registering an LLC with the Secretary of State using LegalZoom-prepared documents – the North Carolina State Bar considers it the unauthorized practice of law.
In 2008, the State Bar issued a cease-and-desist letter to the company, alleging that their conduct was illegal in the state of North Carolina and must stop immediately. Specifically, the letter stated:
LegalZoom may not prepare or offer to prepare legal documents to North Carolina residents or for use in North Carolina . . . . LegalZoom may not offer to provide any legal services in North Carolina or represent that its services have been reviewed by an attorney or are legally sufficient for the customer’s legal needs. If you continue your activities, the State Bar may seek a court order to perpetually enjoin your unlawful conduct . . . . Please also be aware that the unauthorized practice of law can be prosecuted as a criminal misdemeanor offense . . . .4
No legal action immediately followed, but when LegalZoom sought to register a pre-paid legal service in North Carolina in 2010, the State Bar declined to register it. LegalZoom filed suit in September of 2011, alleging violations of North Carolina’s Monopoly Clause, violations of LegalZoom’s Due Process rights, and commercial disparagement. LegalZoom also seeks a declaratory judgment stating that it is not practicing law in North Carolina without a license.
Judge Gale denied the State Bar’s Motion to Dismiss LegalZoom’s declaratory relief claim and deferred on the rest of LegalZoom’s claims. The main reason for the denial was the State Bar has yet to file a claim for unauthorized practice of law against LegalZoom. This filing can be done in one of two ways: either the State Bar can file a claim for injunctive relief against LegalZoom in a Superior Court, or a District Attorney can institute misdemeanor proceedings against the unauthorized party.
In denying the State Bar’s motion, Judge Gale stated, “[a] declaratory judgment action is not generally envisioned as a proceeding to force a State agency or criminal authority to undertake an enforcement proceeding it has in its discretion to date elected not to take.” 5 Judge Gale continued, “a motion to dismiss is seldom an appropriate pleading in actions for declaratory judgments.” 6 Since this motion has come before the State Bar’s response in this case, Judge Gale mentioned the State Bar could raise the issue as a counterclaim in its response. Until the unauthorized practice issue is resolved, the court cannot resolve LegalZoom’s other claims.
In response to the ruling on the motion, LegalZoom’s general counsel, Chas Rempenthal, stated, “The ruling allows LegalZoom to move forward in its efforts to expand North Carolinians’ access to the justice system. We look forward to the day when the interests of one small group of people – attorneys in North Carolina – are not put above the interests of the many citizens of North Carolina who are allowed by law to create their own legal documents or purchase prepaid legal service plans.” The State Bar’s counsel declined to comment.
At this point in the case, the State Bar may file its further response before September 21, at which time the court will consider an appropriate Case Management Order, and whether a further status conference should be held prior to the entry of such Order. The Campbell Law Observer will continue to follow this case, and will provide updates as pertinent events occur.