Why The Legal Profession Says LegalZoom Is Illegal
Competition – everyone loves it, except when it’s competition in your particular business or profession. Then it’s dangerous and must be controlled if not eliminated.
Back in August, I wrote about the North Carolina Board of Dental Examiners case, which involves the legality of efforts by that body to stop anyone who is not a licensed dentist from offering teeth whitening services. Upon digging further into the case, I learned that it has spawned a raging battle among legal groups, with four state bar associations weighing in on an amicus brief. They evidently fear that if the decision goes against the Board of Dental Examiners, that might undermine their ability to stifle competition in the market for legal help.
Opposing them is a brief submitted by Responsive Law, LegalZoom, and other self-help entities, backed by thirteen law professors. That brief turns over a rock and lets sunlight shine on nefarious anticompetitive doings.
First, however, what is the connection between the North Carolina Board of Dental Examiners and the state bar associations (including the North Carolina bar)?
The common thread is that they are private organizations wielding governmental power (or what at least looks like governmental power) to prevent competition, without actually having been authorized by the public to act in that manner. If the Supreme Court rules that the Board of Dental Examiners is not above antitrust law when it tries to keep the teeth whitening business exclusively for dentists, then it might rule the same way about bar associations and their similar activities. That has them worried.
And what does the brief reveal? In general, that bar associations desire to stop competition from reducing billable hours for their members. The particulars are quite interesting.
Consider the nationally known company LegalZoom, which helps individuals and small businesses with documents they need to produce and file. A great many people have benefited from its services, but bar associations think that’s a terrible diversion of money that should go to lawyers. From the brief, we learn that in 2008, the North Carolina State Bar published a cease and desist letter, informing the company that its services were “illegal in North Carolina and must end immediately.”
The reason why LegalZoom was declared illegal was the undefined prohibition against “unauthorized practice of law.” That is to say, anything from websites and books to paid or even free advice on a legal matter is off limits to everyone who isn’t a member of the bar. Oddly enough, just five years earlier, in 2003, the North Carolina State Bar had informed LegalZoom that it could operate in the state. What apparently changed was the success the company was having, making it more of a “threat” to lawyers offering the kind of work that LegalZoom helps people with.
Another fact revealed in the brief is how the South Carolina State Bar has tried to stifle competition. In 2012, it issued an advisory opinion stating that its members were not permitted to participate in a question-and-answer website, JustAnswer. Lots of professionals do that in other fields. Go online to get quick help with an electrical problem, a plumbing problem, or a car problem – you’ll find plenty of free information and advice. But the legal profession doesn’t want anything like that opening up in its field, and thus the bar threatens attorneys with sanctions for participating.
In neither instance was there any public input. Do the people of North Carolina favor “protecting” themselves from the option of getting help through LegalZoom? Do the people of South Carolina favor keeping attorneys in their state from offering help on JustAnswer? We don’t know because there was no debate over such questions in any public forum.
In fact, state bar “unauthorized practice” committees usually operate behind closed doors and outside the reach of state open records laws.
Sometimes, courts have intervened against these tactics. In Texas, for example, the State Bar declared that its investigations were private and the rules and membership of the unauthorized practice committee were secret from the public and the parties involved. That arrogant position, however, was overturned by state judges.
To avoid judicial scrutiny, state bars often choose not to enforce their UPL rulings, but leave their declarations simply as intimidating statements. “Rather,” the brief points out, “they rely on closed-door investigations, cease-and-desist letter demands, and opinions released by small committees of members, typically volunteers. Even without judicial enforcement, such ‘official’ actions effectively suppress competition for legal services.”
Remember, the present case is not directly about the suppression of competition in the legal profession. It’s about its suppression by a state board of dental examiners, acting as a private body without any public guidance. The case, however, has broad implications for competition and economic freedom.
I would never argue that it is ideal to put competition policy into the realm of governmental decision-making. When politicians make rules about who may or may not compete, they’re usually swayed by special interest groups intent on keeping rivals out. Unfortunately, the Supreme Court has long been indifferent to the waylegislatures squash people who just want to earn an honest living by competing with those interest groups, an attitude exemplified in cases like Williamson v. Lee Optical.
But at least in the realm of politics, it is possible for consumers and advocates of economic liberty to fight back. When private bodies, such as state dental boards and bar committees stifle competition, it is almost impossible.
The Supreme Court’s decision probably won’t be released until spring. Ideally, all nine justices will realize that it is intolerable for private organizations to interfere with the freedom of people who just want to compete in the market.
Article originally published on Forbes.com.