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Appendix I: GENERAL PROVISIONS AND CONSIDERATIONS FOR REGULATION OF ON-LINE PROVIDERS OF LEGAL DOCUMENTS
Appendix II: BEST PRACTICES FOR DOCUMENT PROVIDERS
The New York County Lawyers Association (“NYCLA”) has long advocated for access to justice for all New Yorkers and, indeed, for all Americans. This commitment has taken many forms in NYCLA’s 109-year history, with NYCLA pressing for equal treatment for all regardless of economic status, fighting for funding for high-quality criminal defense and civil legal services, supporting legislative reforms eliminating biases against women and minorities, and advocating for judicial independence. Over the years, NYCLA has also partnered with concerned groups to bring about positive change within the legal community.
On-line legal forms provide enhanced access to justice for people of modest means; however the impact on consumer protection of the on-line sales of these forms has received only modest attention. The NYCLA Board of Directors established a Task Force on On-line Legal Providers (the “Task Force”) in early 2016, on the recommendation of then-President Carol A. Sigmond. The Task Force was authorized to study and undertake such steps necessary to consider all relevant issues, including convening a public forum, in order to make appropriate recommendations to NYCLA’s Board of Directors. This report focuses solely on the Task Force’s investigation concerning issues related to on-line legal documents. The Task Force anticipates further investigation of on-line legal referral services and the issues related thereto.
The members of this Task Force included NYCLA Past Presidents Arthur Norman Field, James B. Kobak, Jr. and Michael Miller; NYCLA Ethics Institute Director Sarah Jo Hamilton; NYCLA Committee on Professionalism and Professional Discipline Chair Ronald C. Minkoff; NYCLA Law and Technology Committee Co-Chair Joseph J. Bambara; and then-NYCLA Treasurer Vincent Chang.
As part of its investigation, the Task Force conducted an all-day public forum at NYCLA on September 30, 2016 which addressed a wide range of topics pertaining to on-line legal documents and On-line Legal Providers (“OLPs”). The public forum was titled: Should On-line Providers of Legal Forms be Regulated? If So, By Whom? If Not, Why Not? (the “NYCLA Forum”).
The Forum included three panels, each followed by a question and answer session, as well as the President’s Perspective on the issues, presented by then-NYCLA President Carol A. Sigmond. Panelists included: Charles Rampenthal, General Counsel of Legal Zoom, Inc.; Paige E. Zandri, Attorney Network Director at Priori Legal; Peter D. Kennedy, Graves Dougherty Hearon & Moody, counsel to LegalZoom and noted expert on the unauthorized practice of law; Tom Gordon, noted consumer advocate and Executive Director of Responsive Law; NYS Assemblyman Matthew Titone, Assembly District 61; David P. Miranda, immediate past president of the New York State Bar Association (“NYSBA”) and a leading commentator on the issue; Sarah Jo Hamilton, Scalise & Hamilton LLP and Director, NYCLA’s Ethics Institute; Ronald C. Minkoff, Frankfurt Kurnit Klein & Selz and Chair, NYCLA’s Committee on Professionalism and Professional Discipline; and Joseph Bambara, UCNY and Co-Chair, NYCLA’s Law and Technology Committee. Sarah Jo Hamilton, James B. Kobak, Jr., and Michael Miller served as moderators.
The three panels focused, respectively, on the following questions:
C If additional safeguards are required, should they be self-imposed or required by legislative action? Should the addition of safeguards provide a basis to regulate industry activity?
This report outlines: (i) a summary of the Task Force’s conclusions and recommendations, (ii) a brief history of legal form providers, (iii) unauthorized practice of law legislation and case law, (iv) an overview of the on-line legal services market, (v) on-line legal providers and the “justice gap,” (vi) the need for consumer protection in the on-line legal providers market, (vii) background behind the proposed regulatory provisions, (viii) existing regulatory models, and (ix) the Task Force’s regulatory proposals. This report was approved by the NYCLA Board of Directors at its June 13, 2017 meeting.
The NYCLA Forum considerably informed the Task Force and assisted greatly in reaching the Task Force conclusions and recommendations. Most significantly, the Task Force found that the NYCLA Forum reflected that:
Considerable research by members of the Task Force, coupled with the discussion at the NYCLA Forum, led the Task Force to conclude that there is a need for some form of regulation in order to (i) establish minimum standards of product reliability and efficacy, (ii) provide consumers with information and recourse against abuse, (iii) ensure consumers are made aware of the risks of proceeding without attorneys, (iv) inform consumers how affordable attorneys can be found, and (v) protect consumers’ confidential information. Discussed in further detail in Sections III and IV of this report, the process by which consumers select and generate an on-line legal form for use can simulate the process of legal advice; the computer is programmed to make certain judgments; and the information gathered is highly personal in many cases. The potential for harm, as with medical information, can be very high if there is a mistake or disclosure.
Regulation is justified based on the particular risks of handling personal information and not on a record of consumer abuse. Such regulation must target specific issues and practices to protect the public while allowing responsible providers to serve a significant need. The Task Force believes that the market success of OLPs strongly suggests that the nation’s lawyers have not yet met this need effectively through traditional models of practice.
As set forth in greater detail below, the Task Force proposes a set of regulatory standards which provide for consumer protection in such areas as disclosure, consumer privacy, and warranties. The Task Force’s General Provisions and Considerations for Regulation are attached as Appendix I. In its view, such standards are essential to ensure reasonable protection of the public.
In the area of customer privacy and protection of customer data, we urge regulators and legislators to give strong consideration to legislation similar to that enacted in Massachusetts, which provides protection for legal information provided to OLPs. The North Carolina legislation (see further discussion below) also provides a useful model for regulation of on-line sales of legal documents. In preparing the General Provisions and Considerations, the Task Force has given special attention to these two statutory models.
The Task Force believes that traditional regulatory and legislative approaches are appropriate and desirable to protect and effectively ensure the public is adequately informed of risks attendant on using forms generated by OLPs, particularly in sensitive situations. While the Task Force prefers that the legislature or other appropriate regulators enact the regulatory standards, it believes that the adoption of industry-wide voluntary standards is a useful interim measure. To that end, the Task Force also offers in Appendix II a statement of Best Practices for Document Providers, which it calls on OLPs to voluntarily adopt immediately.
The legal form industry did not start on-line—at least as far back as the 1700s, books were written on “do-it-yourself” law and the concept of a scrivener service pre-dates the internet. Similarly, Peter Kennedy noted that wills and form books date back to at least the 1850s. An 1859 book entitled “Everybody’s Lawyer and Counsellor in Business” contains 400 pages of legal forms and information. In the 1950s and 1960s, bar associations sought to take action against such self-help books, including NYCLA’s unsuccessful challenge in Matter of New York County Lawyers Association v. Dacey, 21 N.Y. 2d 694 (1967), a case involving a Do- It-Yourself Probate book.
As at least one court noted, the fact that OLP legal forms now reside on the internet is not what creates legal problems for LegalZoom and other OLPs; rather, such problems, if they exist, flow from the way OLP personnel advertise, draft, manipulate or help consumers create those documents. Indeed, as a South Carolina court pointed out, many court systems and governmental agencies make legal forms available to the public. Based upon its investigation and the discussion at the NYCLA Forum, the Task Force believes that often much more is being sold than mere blank forms and access to software.
Today, on-line legal forms generate approximately $4.1 billion in annual revenue, providing, among other things, forms in a host of areas including trademarks, patents, copyrights, wills, living trusts, as well as LLC and corporate formation. The business of LegalZoom, the largest OLP, generally involves the following steps:
First, the client fills out a series of questions pertaining to a particular legal issue. A customer support team is available for assistance as the customer completes the questionnaire. Second, LegalZoom’s “document assistants” review the answers for “consistency and completeness.” The company has trademarked this step in the process the “LegalZoom Peace of Mind Review,” which includes a series of automated checks as well as personal review by the document scriveners. Third, LegalZoom uses the questionnaire to create the necessary legal documents, which it prints and delivers to customers with simple wrap-up instructions.
Participants at NYCLA’s Forum discussed litigation that bar associations have pursued against OLPs. Bar associations have historically commenced litigation against OLPs, contending that those companies were engaging in the unauthorized practice of law (“UPL”). Much of it has been either settled favorably to the OLPs or been outright unsuccessful. However, such litigation has tended to seek an outright ban on alternatives to the use of lawyers rather than more nuanced means of protecting consumers, which this report addresses.
Over approximately the last decade, LegalZoom was accused of engaging in UPL in several states, including California, Arkansas, North Carolina, Ohio and Missouri. The North Carolina case, LegalZoom, Inc. v. North Carolina State Bar, was settled on terms favorable to LegalZoom during litigation. The Missouri case, Janson v. LegalZoom, Inc., was settled after an adverse ruling that LegalZoom was engaged in UPL for selling to customers a document preparation system through which “[t]he customer merely provides information and ‘LegalZoom takes over.’” In Janson, the U.S. District Court judge stated that “there is a clear risk of the public being served in legal matters by ‘incompetent or unreliable persons.’”
Notably, however, in Medlock v. LegalZoom, Inc., the South Carolina Supreme Court approved LegalZoom’s business practices and ruled that most of the forms that LegalZoom provides were like ones already offered by various state and local agencies. In Texas, the state legislature passed a law specifying that the sale of computer legal software did not constitute the practice of law. Most settlements have, in effect, given the OLP a license to continue to provide legal forms to the public. However, it is important to note that these consent decrees and laws concerning OLPs and the sale of on-line legal documents have hinged on arguments revolving around UPL. It has generally been ruled that the provision of such services does not violate unauthorized practice laws in and of itself. However, when there was a determination that UPL was not involved, it turned on the narrow issue of selling software and forms, not on broader issues such as the confidential information given and lawyer algorithms utilized.
It is also important to note that the FTC and DOJ have long been hostile to a broad interpretation of UPL legislation. In a 2016 letter, they jointly recommended that the North Carolina General Assembly revise the definition of unauthorized practice of law to avoid undue burdens on “self-help products that may generate legal forms.” They stated that these self-help products and other interactive software programs for generating legal documents would promote competition by enabling non-lawyers “to provide many services that historically were provided exclusively by lawyers.” They also contended that:
Interactive websites that generate legal documents in response to consumer input may be more cost-effective for some consumers, may exert downward price pressure on licensed lawyer services, and may promote the more efficient and convenient provision of legal services. Such products may also help increase access to legal services by providing consumers additional options for addressing their legal situations.
Nevertheless, attacks directed at these other aspects of the OLP business are difficult to measure. As Ronald Minkoff noted at the NYCLA Forum, the American Bar Association (“ABA”) and other bodies have spent years attempting to define the practice of law and have not succeeded in doing so. As one law review article put it:
Despite the extensive history of unauthorized practice committees and their enforcement mechanisms, the unauthorized practice of law lacks a precise definition, and is ambiguous as to whom it applies. As a result, it is difficult for courts and legislatures to determine what activity by non-lawyers constitutes the unauthorized practice of law.
The on-line legal document industry is still in the early stages of development. The more appropriate UPL analysis may be a comparison between (a) a product based on client information and seller algorithms prepared by lawyers but without loyalty or confidentiality, and (b) a lawyer using similar algorithms to assist in a consumer-based practice. The difference is primarily human interaction, loyalty and confidentiality.
As noted above, on-line legal documents generate billions of dollars annually and the OLP business is growing in size every year. Indeed, “as computers grow more powerful and ubiquitous, legal work will continue to drift on-line in different and evolving formats,” and as NYCLA Past President Arthur Norman Field put it, “the public has voted that it wants on-line legal providers and they are here to stay.”
LegalZoom estimates that it has served four million customers, and that its forms may have created one million corporations and that someone uses its forms to write a will every three minutes somewhere in the United States. In a draft S-1 that LegalZoom prepared in connection with its proposed initial public offering, it claimed that:
In 2011, nine out of ten of our surveyed customers said they would recommend LegalZoom to their friends and family, our customers placed approximately 490,000 orders and more than 20 percent of new California limited liability companies were formed using our online legal platform. We believe the volume of transactions processed through our online legal platform creates a scale advantage that deepens our knowledge and enables us to improve the quality and depth of the services we provide to our customers.
And while LegalZoom is the market leader, it has many competitors and emulators offering a variety of forms and related services. Another large OLP, RocketLawyer, contends that “well over half—the vast majority of people who’ve used RocketLawyer for legal advice— have never consulted with an attorney before in their life, and that includes small business people. So, we are really the on-ramp now for first-time purchasers of legal advice.”
Why have OLPs been this successful? The answer is that OLPs provide cost-savings and convenience for individuals and small businesses of limited means. Those starting small businesses – particularly internet start-ups and others whose businesses require the protection of intellectual property—simply cannot afford the hourly rates many lawyers charge for their services. Though some lawyers provide substantial rate reductions and other favorable financial arrangements for start-ups, those arrangements (such as deferring costs) still create financial pressure on start-up companies. These businesspeople view the economic equation as simple: they would rather rely on an inexpensive legal form (in order to obtain some degree of protection) than pay money (and risk financial stability) to hire an attorney.
To be clear, OLPs need not be considered adverse to the legal profession. Many attorneys work with OLPs, which provide them in turn with clients and revenue that they would not otherwise obtain. As a result, it is lawyers who themselves have participated in the new market created by OLPs.
It has been posited that the overwhelming majority of low-income individuals and families, and roughly half of those of moderate income, face their legal problems without a lawyer. This “justice gap” is huge and is not closing. Low cost internet legal providers can present the promise of affordable legal services for underserved populations of low and middle income consumers who cannot afford lawyers. In New York State alone, “[s]ome 1.8 million litigants in civil matters do not have representation when addressing the ‘core essentials of life – housing, family matters, access to health care and education and subsistence income.’” In New York, over 90% of people involved in housing, family, and consumer problems have no legal representation. According to some estimates, “about four-fifths of the civil legal needs of the poor and two to three-fifths of the needs of middle income individuals remain unmet.”
It has been thought by some that one potential method of closing the “justice gap” is the use of on-line, legal service platforms that provide legal assistance at a significantly discounted rate over traditional private attorney or firm prices. On-line legal services could, at least in theory, meet the needs of the large sectors of the population which are not eligible for legal assistance and yet do not have the resources to retain attorneys. Some commentators contend that “LegalZoom can bridge the justice gap by breaking down barriers to access for low and middle-income individuals and by encouraging innovation and competition in the market for legal services at the benefit of non-lawyer consumers of legal services.” According to a recent article, LegalZoom charged as little as $69 for wills, $149 for business formation, and $169 for trademark registration. A reasonable regulatory regime could help ensure that OLPs play a role in addressing the justice gap, while protecting their consumers.
In considering the appropriate extent of regulation of OLPs, it is important to note that it is overly simplistic to contend that they are currently “unregulated” – ostensibly, they are regulated by the Federal Trade Commission (“FTC”), the Department of Justice (“DOJ”) and attorneys general. The organized bar and consumer protection agencies also provide a degree of oversight.
At the NYCLA Forum, LegalZoom’s Charles Rampenthal emphatically argued that proponents of further regulation have largely failed to identify any specific problems arising from LegalZoom’s business. However, it is difficult to obtain information regarding such problems given the fact that most claims in this area are either settled, arbitrated or abandoned. Moreover, harm or lack of efficacy may never be perceived by the user or, in the case of a will or trust, may not be known until after the death of its maker, perhaps decades after its execution. Unlike the purchaser of a toaster or even a car—both of which are subject to specific standards and regulations—the purchaser often cannot immediately judge the adequacy of the product or service purchased or recognize a product deficiency, until the product is actually tested (e.g. a will following death or when a competitor challenges the sufficiency of one’s intellectual property rights).
The FTC/DOJ position on OLPs recognizes on-line forms as a substitute for legal services in some situations without addressing the extent of appropriate consumer safeguards. Services. The Task Force does not propose a case for intrusive regulation of OLPs. Rather, we believe that regulators, legislators and bar associations need to consider important protections for the consumer (and at a minimum promote the adoption of voluntary best practices standards). One such area for possible regulation is the need for quality control.
At the NYCLA Forum, LegalZoom General Counsel Charles Rampenthal stated that LegalZoom has strict quality control standards and that it monitors calls, provides rigorous training to its employees, and utilizes lawyers and other outside monitors to evaluate the calls. He said that the company treats UPL violations the same way that it would treat sexual harassment and that the company would fire offenders, if appropriate, and would require re- training for relatively minor infractions. Rampenthal said that LegalZoom’s culture is vigilant with respect to UPL allegations because of the company’s past legal issues.
Rampenthal also said that, at LegalZoom, all forms are drafted by a team of “legal architects” who create templates, instructions, forms, and software. He said that LegalZoom stays abreast of changes in the law the same way a law firm would and will notify prior purchasers if the change in law retroactively applies. As an example, Rampenthal stated that LegalZoom reformatted a Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) form and informed its prior customers about the new form and advised them to consider consulting an attorney. However, not all OLPs maintain the same standards that LegalZoom, one of the largest and best funded of the providers, claims it maintains.
The Task Force believes that the organized Bar should take leadership to encourage reasonable regulation to protect the public, while working with all OLPs to find ways to satisfy their concerns. In that spirit, the Task Force proposes General Provisions and Considerations for Regulation of On-line Providers of Legal Documents, attached as Appendix I, which the Task Force believes strikes a reasonable balance and avoids regulations that would unduly impair OLPs’ businesses. The Task Force additionally proposes that OLPs voluntarily adopt the Best Practices for Document Providers, attached as Appendix II, to incorporate regulatory recommendations. If properly employed, these would help provide consumer protection in the legal form industry in such areas as disclosure, consumer privacy, and warranties.
The Task Force’s recommendations are intended to counter the one-sided nature of OLP form contracts. Typically, such contracts contain no warranties and, indeed, often disclaim warranties. These contracts also generally contain arbitration clauses which LegalZoom contends are favorable to consumers but are likely to require the consumer to bear costs and arbitrate in a distant place; however, these clauses often force consumers to waive their rights to a trial by jury and preclude class actions. Use of any on-line service involves disclosure of personal data and potential disclosure of sensitive information about a user’s transactions and circumstances. OLPs may make use of this data for marketing purposes, or may try to sell it outright. Typically, nothing in the contract precludes them from doing so.
At the same time, in a show of good faith, the Task Force urges that self-regulation be initially employed by OLPs, pending regulation or legislation. The Task Force does not view a voluntary standard as a substitute for effective governmental regulation. It is unlikely that the industry is cohesive enough to adopt an industry-wide self-regulatory scheme, and, even if it did, it is highly unlikely that such regulation would provide adequate and sufficient safeguards to protect the public in the manner characterized by the Task Force’s Best Practices for Document Providers, attached as Appendix II.
However, NYCLA’s Task Force recognizes that regulation or legislative action may be difficult to achieve quickly and thus, encouraging self-regulatory efforts by individual OLPs such as adoption of best practices, may end up as the principal means of guarding consumer interests.
In issuing its General Provisions and Considerations for Regulation of On-line Providers of Legal Documents, the Task Force is not writing on a blank slate. At the NYCLA Forum, former NYSBA President David P. Miranda discussed some of the types of regulations that he believed would be necessary, including the imposition of disclaimers, warnings, and notifications that the user of legal forms should seek attorney assistance for difficult problems. The Task Force has also reviewed the following regulations and guidelines that have thus far been adopted, including:
In the Task Force’s view, the above regulatory regimes are imperfect at best and have often been adopted in settlement of ongoing litigation, a scenario which does not lend itself to optimal policymaking. Unlike the standards outlined above, the Task Force’s proposed General Provisions and Considerations for Regulation of On-line Providers of Legal Documents cover most of the major areas of consumer concern, yet strive to adopt balanced regulations which avoid any undue burden on the business of OLPs.
The ABA Model Regulatory Objectives (the “ABA Objectives”) were adopted by the ABA in February 2016 in an effort to urge each state’s courts in assessing state regulatory framework and regulation concerning non-traditional legal service providers. LegalZoom has indicated its willingness to abide by these objectives. Those model regulations are:
These ABA Objectives are intended as guidelines for regulation of legal services providers; they are not intended to serve as regulations themselves. Nevertheless, the General Provisions and Considerations for Regulation of On-line Providers of Legal Documents adopt some of the ABA’s principles. Like the ABA Objectives, the Task Force’s standards also seek to promote accessible civil remedies. Moreover, as is the case with the ABA Objectives, many of the provisions aim at transparency.
Despite these similarities, the Task Force believes that its proposed General Provisions and Considerations for Regulation of On-line Providers of Legal Documents are considerably more specific and would protect consumer welfare to a much greater extent than the ABA Objectives.
Between 2008 and 2015, the North Carolina State Bar (the “NC State Bar”) engaged in litigation with LegalZoom. The NC State Bar contended that LegalZoom’s business constituted the unauthorized practice of law. In turn, LegalZoom filed a lawsuit against the NC State Bar in federal court in North Carolina in June 2015, seeking $10.5 million in antitrust damages. LegalZoom’s suit relied on a U.S. Supreme Court antitrust ruling in 2015 against the state’s self- regulating body for dentists, which had unsuccessfully proposed regulations on teeth whitening by non-dentists.
LegalZoom and the NC State Bar settled their litigation, agreeing to provisions that read in full as follows:
The practice of law, including the giving of legal advice, as defined by G.S. 84-2.1 does not include the operation of a Web site by a provider that offers consumers access to interactive software that generates a legal document based on the consumer’s answers to questions presented by the software, provided that all of the following are satisfied:
1) The consumer is provided a means to see the blank template or the final, completed document before finalizing a purchase of that document.
2) An attorney licensed to practice law in the State of North Carolina has reviewed each blank template offered to North Carolina consumers, including every potential part thereof that may appear in the completed document. The name and address of each reviewing attorney must be kept on file by the provider and provided to the consumer upon written request.
3) The provider must communicate to the consumer that the forms or templates are not a substitute for the advice or services of an attorney.
4) The provider discloses its legal name and physical location and address to the consumer.
5) The provider does not disclaim any warranties or liability and does not limit the recovery of damages or other remedies by the consumer.
6) The provider does not require the consumer to agree to jurisdiction or venue in any state other than North Carolina for the resolution of disputes between the provider and the consumer.
7) The provider must have a consumer satisfaction process. All consumer concerns involving the unauthorized practice of law made to the provider shall be referred to the North Carolina State Bar. The consumer satisfaction process must be conspicuously displayed on the provider’s Web site.
At the NYCLA Forum, LegalZoom’s representative, Charles Rampenthal, criticized the North Carolina regulation. He said that the regulations that had been adopted by North Carolina were not an appropriate model for other states. Rampenthal contended that at least some of the North Carolina regulations were overly intrusive, including the provision forbidding OLPs from disclaiming warranties. He urged other states not to follow North Carolina’s example and said that other states should adopt a process that is not protectionist.
The Task Force has included some aspects of the North Carolina model in its General Provisions and Considerations For Regulation of On-line Providers of Legal Documents, including the requirements that: an attorney licensed in the relevant state review each form, the provider communicate that the forms are not a substitute for a lawyer, the provider disclose its legal name and physical location, the provider not disclaim any warranties, and the provider does not require the consumer to agree to jurisdiction in any other state. In short, the Task Force has incorporated considerable portions of the North Carolina settlement but has augmented the settlement provisions with many other recommendations.
The Task Force has also included a warranty provision analogous to the North Carolina provision. That provision proved to be a particular flashpoint at the NYCLA Forum and will be discussed separately below in Section IX.
The Washington Attorney General and LegalZoom entered into a settlement that barred the company from comparing its document costs favorably to attorney fees unless it discloses that its service is not a substitute for a law firm. In an “assurance of discontinuance,” LegalZoom also promised to refrain from:
Like the Washington standards, the NYCLA Task Force’s General Provisions and Considerations for Regulation of On-line Providers of Legal Documents include a requirement that the OLP acknowledge that its services are not a substitute for an attorney and that its forms conform to state law.
The Missouri settlement includes the following elements, among others:
The NYCLA Task Force’s General Provisions and Considerations for Regulation of Online Providers of Legal Documents and Best Practices for Document Providers are set out in full in Appendices I and II. Broadly speaking, the Task Force’s provisions contain three general categories:
1) Standards for disclosure and transparency (Appendix I & II, Nos. 1, 5, 7, 13, 14);
2) Standards for the protection of personal information provided by the consumer (Appendix I & II, Nos. 6, 8, 9, 10, 11-12); and
3) Provisions relating to arbitration and dispute resolution (Appendix Nos. 16-19).
Several of the more important provisions recommended in this report deserve special mention because they are not included in some of the settlements and because representatives from the OLPs have expressed opposition to these provisions.
As an initial matter, many of the provisions in the Task Force’s proposal track the recommendations of the FTC and DOJ in their letter to the North Carolina legislature. Thus, the proposal contains a number of disclosure related provisions, consistent with the FTC/DOJ letter. Like the settlements in Washington and North Carolina, and also in accord with the FTC/DOJ proposal, the NYCLA Task Force’s proposal calls for OLPs to acknowledge that the services they provide are not a substitute for the services of a lawyer. The proposal also adopts the proposed regulation of the Joint Letter, “that advertisers should ensure that disclosures are clear and conspicuous on all devices and platforms consumers may use.”
The Task Force’s proposal also requires the use of so-called “clickwrap” agreements in which website users are required to click on an ‘I agree’ box after being presented with a list of terms and conditions of use. “Clickwrap” agreements are more readily enforceable, since they “permit courts to infer that the user was at least on inquiry notice of the terms of the agreement, and has outwardly manifested consent by clicking a box.” “‘Browsewrap’ agreements are treated differently under the law than ‘clickwrap’ agreements.” Courts will generally enforce browsewrap agreements only if they have ascertained that a user “‘had actual or constructive knowledge of the site’s terms and conditions, and … manifested assent to them.’” This is rarely the case for individual consumers. In fact, courts have stated that “the cases in which courts have enforced ‘browsewrap’ agreements have involved users who are businesses rather than… consumers.”
However, other courts have held that consumer contracts presented by Uber and other internet-based companies constituted valid consent to arbitration or other waivers of rights. In these cases, the courts found that (unlike in Meyer), the agreements in question required an affirmative assent to the clause in question.
Uber has filed an appeal in Meyer and, thus, the Second Circuit will likely decide the issue of the validity of at least some of Uber’s arbitration clauses. Regardless of the outcome of the litigation, the Task Force believes that OLP agreements should incorporate a protective form of “clickwrap” agreement, requiring that a customer affirmatively click “I agree” to assent to arbitration and the waiver of the right to access to court.
At the NYCLA Forum, LegalZoom’s representative, Charles Rampenthal, opposed efforts to require LegalZoom to include warranties. However, Rampenthal acknowledged that North Carolina’s settlement imposes such a requirement and that LegalZoom adheres to it. In the Task Force’s view, warranty protection is essential in this area because (unlike e.g., the internet purchase of a consumer product) flaws in many legal forms cannot easily be discerned by most lay customers. For this reason, NYCLA’s Task Force regards warranty protection as a fundamental aspect of its General Provisions and Considerations for Regulation of On-line Providers of Legal Documents and Best Practices. The Task Force notes that consumers in New York and across the nation deserve warranty protection and not just North Carolinians.
The Task Force’s proposals contain several provisions relating to arbitration and dispute resolution. Once again, many OLP form contracts require resolution in arbitration rather than in court, and require that arbitration take place in distant locations inconvenient to the customer. In addition, most of these forms prohibit class action law suits. All of these restrictions reduce the likelihood that aggrieved customers would pursue their legal remedies. The Task Force notes that restrictions on litigation are not uncommon in other form contracts. However, in this situation, the Task Force believes it is appropriate to permit the customer to have the option of preserving his or her day in a court in his or her home state.
Additionally, the Task Force’s proposal would forbid provisions in OLP contracts which bar class action litigation. As one consumer advocacy group has put it, “class action waivers prevent consumers who have been harmed on a systematic basis from joining together to seek remedies from the offending company—which is often the only method of obtaining redress.” For similar reasons, the Consumer Finance Protection Bureau has proposed a rule that would prohibit class action waivers in consumer finance contracts. Moreover, the Financial Industry Regulatory Authority (FINRA), which is an industry self-regulatory organization for broker dealers, allows forced arbitration clauses in brokerage contracts but does not allow those agreements to contain class action waivers.
The Task Force’s proposed General Provisions and Considerations for Regulation of On- line Providers of Legal Documents and its proposed Best Practices also focus on the protection of consumer information. Based upon its research and the sentiments expressed at the NYCLA Forum, the Task Force believes that sensible consumer privacy regulations in this area are important. The Task Force’s General Provisions and Considerations for Regulation of On-line Providers of Legal Documents contain one possible interim framework. Laws such as the Massachusetts Consumer Privacy Law or HIPAA provide other longer-term regulatory solutions.
It should be noted that, at the outset, many OLPs’ activities (such as the mere sale of forms) do not involve confidential consumer information. In addition, as Peter Kennedy pointed out at the NYCLA Forum, information should be treated differently depending upon the level of sensitivity. He suggested that “innocuous” information such as names and addresses need less protection as compared to other personal information, such as DNA data.
The Task Force agrees that consumer protection safeguards are necessary for sensitive consumer information and that OLPs must assure such protection in order to ensure the viability of their business models. Indeed, in its draft S-1, LegalZoom itself acknowledged that: “Our online legal platform involves the receipt, use, storage, processing and transmission of information from and about our customers, some of which may be personal or confidential.” In its draft S-1, LegalZoom explained that “sophistication of intrusion techniques” could be used to compromise consumer privacy.
The online document form industry touches the lives of millions of consumers and small businesses and continues to grow rapidly. Online legal forms are widely used, and their presence – and eventually their effect on future transactions – already is, and increasingly will be, significant.
This is not a passing phenomenon and the impact of online forms and related activities – be they adequate substitutes for lawyers’ services or not – cannot be dismissed as inconsequential. Although the Task Force recognizes that First Amendment consideration may apply to the content of forms themselves, the First Amendment does not require specific practices involved in the on-line sale of forms be free from any regulation. Some regulation of this industry is important. Meeting an unmet need is not a valid argument for ignoring consumer risk.
The Task Force is concerned that many features of the online relationship could lend themselves to abuse in a manner similar to that encountered in other online industries. For example, while different companies have promulgated different terms and differ in the range and quality of their offerings, the relationship is typically governed by a lengthy online form contract which, depending on the provider, is not always consumer-friendly. Not many non-lawyers would readily understand the terms or consequences of these agreements, including non-English speakers. Some of the more popular services have forms which, if printed out, run to many densely typed, single spaced pages. Typically, these forms contain no warranties; in fact, quite the reverse: they disclaim consumer warranties, and strictly limit damages, while imposing indemnities that run from the user to the provider rather than vice versa. This stands in stark contrast to legal services, where disclaimer of warranties and malpractice liability is strictly prohibited.
The forms almost always include an arbitration clause; some of these have some features favorable to the consumer, as LegalZoom contends its clause does, but many require the consumer to bear costs and arbitrate in a distant place. Additionally, the arbitration clause is also almost certain to preclude any form of class actions.
Use of the service often involves disclosure of some personal data and potential disclosure of sensitive information about a user’s transactions and circumstances. Whether a particular OLP chooses to use this information for internal marketing purposes or even chooses to sell it, often nothing in the contract precludes them from doing so. Given that OLPs are not lawyers or law firms, the attorney-client privilege does not apply – another fact often not adequately conveyed to consumers.
In other regards, Massachusetts Consumer Privacy Law may be the most appropriate regulatory model. In 2007, the Massachusetts Legislature passed a comprehensive set of laws addressing data breaches. The Massachusetts Regulation contains an extensive list of technical, physical and administrative security protocols aimed at protecting personal information that affected companies must implement into their security architecture, and describe in a comprehensive written information security program. The law applies to companies such as OLPs that collect and retain personal information of their customers. “Personal information” under the law includes names plus any of the following social security numbers, driver’s license numbers or financial account numbers, including credit or debit card numbers. Commentators have described the Massachusetts law as “[t]he best example of a preventative-type of law.” It has also been called “the most comprehensive data protection and privacy law in the United States.” It should be noted that at the NYCLA Forum, Rampenthal stated that LegalZoom follows Massachusetts law in all 50 states, does not share customer information without permission, and that, if LegalZoom wanted to market or disclose information, it would need to disclose that intention to its customers.
Regulators should consider not only the Massachusetts statute, but also privacy laws from other sectors such as HIPAA and Gramm Leach Bliley. While NYCLA’s Task Force urges that governmental regulators carefully study the possibility of adapting such regulations to the OLP context, the Task Force also urges that regulators consider the cost of regulations and arrive at a balanced outcome.
With respect to the sale of consumer information, it is the Task Force’s belief that such sale should be prohibited without informed consent. The Task Force believes that sensible regulations can be developed in this area. Charles Rampenthal said, at NYCLA’s Forum, that the sale of customer information is not likely be a major problem because he does not believe there is massive profit to be made from information sharing. However, it should be noted that Legal Zoom’s standard form provisions state that customer information can be re-sold. As several panelists pointed out, apart from “special” laws targeted at internet companies, those companies are subject to laws of general applicability. Regulators and legislators should examine the prospect of enforcing current privacy laws in lieu of, or perhaps in addition to, the development of special laws targeted at OLPs. Notably, even if regulators take no steps to enforce existing laws, some courts might import existing laws even from other areas of law. For example, in fashioning private law remedies, courts have used the standards established by HIPAA even when that statute is not directly applicable.
The General Provisions and Considerations for Regulation of On-line Providers of Legal Documents and the statement of Best Practices for Document Providers proposed by this Task Force provide a common-sense approach to regulation or self-regulation of OLPs. The Task Force believes that, if enacted or adopted, they would:
The Task Force submits that such regulations would protect the public while allowing responsible providers to serve a demonstrated need that traditional models of practice have not been able to meet. NYCLA’s Task Force will continue exploring the issues related to OLPs and will next investigate the thorny and complex issues regarding legal referrals, fee-splitting and non-lawyer ownership of law firms.
GENERAL PROVISIONS AND CONSIDERATIONS FOR
REGULATION OF ON-LINE PROVIDERS OF LEGAL DOCUMENTS
BEST PRACTICES FOR DOCUMENT PROVIDERS