Online legal services site LegalZoom.com Inc. has been hit with a New Jersey class action claiming it engages in the unauthorized practice of law.
LegalZoom allegedly engages in the unauthorized practice of law because it does not fit the statutory definition of a professional service corporation and because its owners include nonlawyers, according to the complaint.
In addition, LegalZoom allegedly offers and provides legal services to clients, and manages the compliance-related filing of documents and performs other functions that can be defined as the practice of law, the suit claims.
The suit was brought on behalf of New Jersey residents who purchased products and services from LegalZoom in the past six years, and a subclass of users who paid any money as a result of the company’s alleged unauthorized practice of law.
The suit also names a second defendant, a company called Business Licenses in Monsey, New York.
The suit was filed in Essex County Superior Court by Yongmoon Kim of Kim Law Firm in Hackensack, New Jersey. Kim did not respond to requests for comment about the suit.
The named plaintiff is Ryan Erasmus, a New Jersey resident who bought a package of services called Express Gold LLC, including services related to filing articles of incorporation, management of company minutes, business tax preparation, access to legal forms, as well as attorney consultation, according to the complaint.
Under its contract with Erasmus, LegalZoom has allegedly engaged in the practice of law by providing legal advice and services, including preparing and filing legal documents and managing compliance disclosures, the suit claims.
Erasmus used it to take care of annual regulatory reporting, according to the complaint. LegalZoom has no right to provide legal services as a corporation or limited liability company, the suit claims.
The suit seeks a declaratory judgment that LegalZoom engages in the unauthorized practice of law and an injunction against engaging in the practice of law as a corporation or collecting on, enforcing or assigning accounts of any other entity.
The suit brings claims under the New Jersey Consumer Fraud Act for allegedly engaging in “unconscionable commercial practices, deception, fraud, false promises, false pretenses and/or misrepresentations in the subsequent performance of the sale of merchandise.”
“As a result of defendants’ unlawful actions, plaintiff and the class members suffered ascertainable loss from defendants’ CFA violations in the amount monies collected, and/or paid on the void agreements, entitling them to treble damages under the (Consumer Fraud Act),” the suit claims.
LegalZoom and Business Licenses did not respond to requests for comment.
LegalZoom has battled claims before that it engages in the unauthorized practice of law.
In 2015, the company reached an agreement with the North Carolina Bar Association, which accused it of offering unauthorized legal advice. A consent judgment said LegalZoom’s document services did not constitute the unauthorized practice of law under North Carolina statute, and that the company could continue to offer its services in that state under certain conditions.
In 2011, LegalZoom reached a settlement in a class action on behalf of Missouri consumers who claimed the company was not licensed to provide legal services in that state. The settlement provided compensation to Missouri consumers who used the service, and it allowed the company to continue operating there under certain conditions.
More recently, in 2021, LegalZoom went public at a valuation of $7 billion. That same year, the company won approval from the Arizona Supreme Court for an alternate business structure license. That action made the company the most recognizable business to secure a license since Arizona did away with prohibitions on fee sharing and outside ownership of law firms at the start of 2021. It will allow the company to employ lawyers alongside its suite of online offerings.
Even though LegalZoom has fought countless lawsuits around the country accusing it of the unauthorized practice of law, the New Jersey case could bring a recovery—and award of legal fees—if the lawyer filing it can show the company misled consumers, said Robert Jarvis, a professor at the Nova Southeastern University Shepard Broad Law Center.
Jarvis said he was surprised to see the latest suit against LegalZoom, since the legal profession fought it aggressively when it first made the scene but has begun to view it with a measure of acceptance.
“At this point, especially with the introduction of AI, LegalZoom is now quaint, almost horse-and-buggy stuff when AI can sit there and write a brief. It can’t do it very well yet, but it’s going to do it very well. And the legal profession is a very conservative, traditional profession that adopts new technology very, very slowly,” Jarvis said.
The most recent suits against LegalZoom have been class actions where the plaintiff’s attorney is “just there for the attorney fees,” Jarvis said. The attorney will need to show that the company’s marketing is deceptive and confusing and makes consumers think that buying the company’s services is just like going to a lawyer, and that LegalZoom can give legal advice, Jarvis said.
“You know that they’ll get Legal Zoom to say, OK, we’ll enter into a consent judgment, we’ll agree to make changes in terms of our marketing, and we’ll pay the attorney’s legal fees. And we’ll give all the class members a $10 coupon for a future LegalZoom product. So I’m assuming that’s all this is,” he said.
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