Sunday, August 22, 2021

Legal Zoom seeks alternative business structure license in Arizona

 As I am sure you know by now, last year Arizona and Utah became the first jurisdictions in the US to allow lawyers to partner with non-lawyers to form alternative business structures to provide legal services.  This is a significant change in the way the legal market functions but it is still too early to tell what all the consequences (positive and negative) of it are.  For more on the changes in Arizona go here and scroll down for lots of stories, links, podcasts and comments.

As I am sure you also know, this type of regulatory shift has been part of a debate for a long time and needless to say, the changes adopted in Arizona and Utah have been somewhat controversial.  As stated in an article in the ABA Journal, "[t]raditionalists and unauthorized practice of law regulators in the U.S. have long feared the possibility of a legal technology company like LegalZoom becoming a publicly traded law firm-like entity with its own attorneys serving clients. They have argued that such a business setup would result in the company’s economic interests being put before the best interests of its clients."

Actually, the old debate was always about whether "department stores" like Sears or Walmart should be allowed to offer legal services (like they offer optical services departments), but that is another story.

The news today is that, to no one's surprise, LegalZoom is seeking to be admitted to the practice of law so to speak in Arizona. And if permitted, which I would expect will happen, it may finally provide some empirical evidence on whether the "traditionalists'" worries are legitimate.

In case you did not know, and unlike what it appears to do from its commercials, LegalZoom does not provide legal services.  It is not allowed because it is not a law firm, and does not employ lawyers.  What it does is it provides a platform to connect people seeking legal representation with lawyers who are available to provide that representation.  In essence, it is a matchmaking service and makes its profit from collecting fees from those who use it.  Importantly, it does not have control over the quality of the lawyers or the services they provide.

The reason LegalZoom can't provide legal services is the generally accepted notion (reflected in Model Rule 5.4) that lawyers can't partner with non-lawyers to provide legal services.  Now that this rule has been abandoned in Arizona, companies like LegalZoom (or Walmart, for that matter) are free to hire attorneys to provide legal services as long as they meet the requirements set up by the new rules in those states.  And that is what LegalZoom is seeking to do in Arizona.  They want to become a registered legal services provider even though the company is not a law firm and it is owned and funded by non-lawyers.

The ABA Journal has a good short article on the issue here.

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