SKINNING THE CAT : LegalZoom Creates a New Loophole

View More Categories

LegalZoom, already adept at breaking the rules against the Unlicensed Practice of Law, have forged a new loophole around other antiquated restrictions that state bar associations impose on lawyers nationwide.  They just raised half a billion dollars to help fund this disruptive strategy.

SKINNING THE CAT : LegalZoom Creates a New Loophole

There’s more than one way to skin a cat, as the old saying goes (a gruesome metaphor, if you like cats).  Now, my friends at LegalZoom, already adept at breaking the rules against the Unlicensed Practice of Law, have forged a new loophole around other antiquated restrictions that state bar associations impose on lawyers nationwide.  They just raised half a billion dollars to help fund this disruptive strategy.

My fellow members of the bar may want to wake up and take note.

LegalZoom’s ubiquitous online ads and TV commercials make it seem like the biggest, cheapest, roll-up-the-shirtsleeves law firm in America.  Technically, however, LegalZoom is an incorporated business that provides “self-help legal documents.”  It isn’t allowed to be a law firm in the U.S., and it is forbidden from practicing law or employing lawyers to represent clients in the U.S. on American legal issues.

Yet it turns out that three lawyers based in the U.S., and working out of LegalZoom’s offices in Glendale, Calif. or Austin, Tex., have handled more than ninety trademark applications before the U.S. Patent and Trademark Office in recent months.  They have filed trademarks on behalf of Impact Vision Technologies in Maricopa, Ariz., Leopard LLC in Miami, Environmental Blasting Solutions in Vallejo, Calif.—and the aptly named Disgraceful LLC in Los Gatos, Calif., among other clients.

Surprise!  They have done so as full-time employees of a LegalZoom subsidiary… in London.  Yet they operate on American soil, and their clients make their payments to LegalZoom in the U.S.  Something is wrong with this picture.

A British invasion all over again?  The three LegalZoom trademark lawyers comprise a cadre whose ranks are growing, given the active job postings for more such positions on LinkedIn).  

Taken to its extreme, this latest end-around by LegalZoom could render, as meaningless, the California State Bar, the New York State bar, the U.S. Patent Office’s enforcement arm (the Office of Enrollment and Discipline (“OED”)) and virtually all state bars across the country.  They could lose their control over the practice of law and the 1.2 million lawyers engaged in it. (To which some might say, “Yippee!”) Imagine the impact if hundreds or thousands of lawyers based in the U.S. evaded bar oversight by signing up with LegalZoom U.K.

This is a human shell game: hide the attorney.  U.S. clients visit the LegalZoom website and are directed to LegalZoom Legal Services, Ltd., the company’s London-based subsidiary (the former Beaumont Legal, the two-hundred-year-old firm with 150 employees which LegalZoom acquired in late 2015).  LegalZoom U.K. links up these clients with the tricky trio, full-time employees of LegalZoom U.K. even as they sit at desks at LegalZoom offices in the U.S.

These largely illegal LegalZoom lawyers—Nicholas Thad Santucci (New York bar, residing in California), Kaela Jean Joyner (same bar and state) and Alexander J.S.W. Johnson (Iowa bar, residing in Texas)—are assisting LegalZoom in the Unlicensed Practice of Law.  UPL is the offense at the core of the lawsuit I filed against the company almost a year ago.

Though these three lawyers ostensibly are under the oversight of the bar, they flout a passel of bar rules that still are in place twenty-five years after the online revolution changed how most every other industry operates.  They forgo setting up the separate client trust accounts that the bar requires of lawyers and they have little if any direct contact with their U.S. clients, despite rules requiring it.

There might also be a conflict of interest, undisclosed to their clients, because they are beholden to the UK outlet, but also to the U.S. parent that sends them new business and likely controls every aspect of their employment.  Also, they may be violating rules that forbid lawyers from sharing fees with non-practitioners, and breaking still other rules that ban lawyers from paying finder fees, raising investor money from any non-lawyer entity and using non-lawyer staff to dispense legal advice.

LegalZoom already bends the rules in this regard, which is why I continue pursuing my lawsuits against it.  We now have five separate lawsuits pending against LegalZoom. One in state court, two in federal district court, one on appeal to the Ninth Circuit Court of Appeals and one in arbitration.  

Now the company has a new war chest of half a billion dollars it just raised from Francisco Partners and GPI Capital at a valuation of $2 billion, pretty lofty for a business based on bending or breaking bar rules.  It plans to use the cash to expand into new channels and territories. Note to consumers and lawyers alike: Be afraid, be very afraid.

If my law firm showed such flagrant disregard for bar rules and the rules at the U.S. Patent and Trademark Office, enforcers would string me up by my thumbs, and my firm and I could be prosecuted criminally.  LegalZoom does so with impunity, and the state bar associations and the USPTO Office of Enrollment & Discipline (OED) simply stand back and let it happen.

Stand back: I admire that quality, the ability to ignore an offense and focus forward, perhaps because I lack it.  And so, in a new complaint I just filed in California state court, I cite these three lawyers and their groundbreaking set-up with LegalZoom and ask whether they are violating the patent office’s rules of professional conduct and transgressing similar regimens at the State Bars of California and New York, as well as the Solicitors Regulation Authority in the U.K.  

The surprising thing:  Actually, what LegalZoom is doing could be a good thing for clients and lawyers alike–letting them break free of old rules that inflate the cost of providing legal service without doing much to improve the protection of clients.  It’s just that, my firm, too, should be free to make some of the moves that LegalZoom is making.

Instead, my law firm, LegalForce RAPC Worldwide, P.C., and the trademark-registration website I founded, Trademarkia.com, must compete with LegalZoom while adhering to nettlesome bar rules that make it harder to provide low-cost service to our clients, upon threat of severe punishment if we cut a few corners.  My lawsuit against LegalZoom aims to eliminate this inequity.

Change is hard, and our crusade continues.  Our goal is to level the playing field against LegalZoom and force the legal industry to shed a corset of old-fashioned restrictions and embrace new tech and the new methods it enables for the century that lies ahead.  In the meantime, I will leave the cat skinning to LegalZoom.

rajthelawyer.com