LegalZoom Says N.C. Violates Antitrust Rules

(CN) - The Tar Heel State's legal regulatory agency is unlawfully preventing a popular online legal service from selling certain products there, LegalZoom claims in Federal Court.

LegalZoom.com Inc. sued the North Carolina State Bar and four state bar officials last week, claiming antitrust violations.

"LegalZoom has been compelled to file this lawsuit because the defendants are illegally and unreasonably restraining trade in the market for legal services, including delivery through prepaid legal services plans, in North Carolina," the complaint states. "Specifically, the defendants are illegally and unreasonable excluding LegalZoom from offering its prepaid legal services plans in this state, in violation of the Sherman Antitrust Act."

The U.S. Supreme Court's Feb. 25, 2015 decision in North Carolina State Board of Dental Examiners vs. Federal Trade Commission held that a state licensing board whose controlling members are active participants in the profession can only invoke immunity if the board is supervised by the state, according to the lawsuit. LegalZoom says that, after the high court's ruling, the state bar is now subject to federal antitrust laws.

"For years, the North Carolina State Bar, by and through its agents and council members, has engaged in unsupervised anticompetitive activity under the guise of regulating the 'unauthorized practice of law,'" the lawsuit states. "In doing so, the North Carolina State Bar, like the North Carolina State Board of Dental Examiners before it, regularly exceeds its grant of legislative authority by engaging in misleading 'cease and desist' letter campaigns designed to intimidate businesses and individuals into ceasing activities in North Carolina that are perceived by the state bar, its agents and its council members to be in competition with members of the state bar."

The legal solutions website claims the state bar dismissed a complaint against LegalZoom in 2003 for its online document services only to flip-flop and send a cease and desist letter in 2008. When LegalZoom tried to register its prepaid legal services plans in 2010, the state bar refused, citing "arbitrary criteria" and the 2008 cease and desist letter, according to the complaint.

"When LegalZoom submitted its prepaid legal services plans for registration, the defendants refused to 'accept' them, thus excluding LegalZoom's plans from sale in the relevant market," the complaint states. "The defendants' reasons for refusing registration were purely pretextual, as shown by the fact that the defendants had readily registered other plans that contained the same features that purportedly disqualified LegalZoom's plans."

The company says in its lawsuit that its growth is "perceived as a threat to licensed attorneys."

The prepaid legal services plans that LegalZoom wants to register for sale in North Carolina provide customers with access to licensed attorneys contracted by the company, according to the complaint. The proposed plans, currently sold in 42 other states and Washington D.C., include one plan for individuals and another for small businesses.

A North Carolina State Bar press release provided to Courthouse News says the agency has yet to review the LegalZoom lawsuit.

"The state bar has not yet been served with a copy of the complaint and thus has not yet taken a position regarding LegalZoom's accusations," it states. "The state bar does intend to vigorously defend against this lawsuit and any other lawsuits that threaten its ability to protect the public of North Carolina by fulfilling its statutory obligations."

The regulatory group says it wants to approve plans that fall within state guidelines.

"The state bar has no interest in declining to register prepaid legal services plans that satisfy the rules; in fact, the state bar routinely works with plan applicants whose materials do not satisfy the requirements to bring them into compliance with the rules so that they may be registered," the June 5 press release states. "The state bar, pursuant to its statutory obligations to protect the public and in accordance with rules approved by the North Carolina Supreme Court, determined that LegalZoom's two proposed prepaid legal services plans did not qualify for registration due to a number of deficiencies in the plan materials... In short, the applications were denied registration because they did not satisfy the registration requirements approved by the North Carolina Supreme Court, not because the state bar has any desire to prohibit prepaid legal services plans from operating in this state."

LegalZoom seeks at least $10.5 million in damages. It also asks the court for an injunction stopping the state bar from engaging in anticompetitive actions. The company is represented by Marguerite Willis of Nexsen Pruet PLLC in Columbia, S.C.

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