Antitrust Law Daily Wrap Up, ANTITRUST NEWS: State bar’s restrictions on prepaid legal service plans violate antitrust laws, LegalZoom charges, (Jun 4, 2015)

By John W. Arden, J.D., LL.M.

Citing a recent U.S. Supreme Court decision in North Carolina State Board of Dental Examiners v. FTC, LegalZoom.com has brought an action against the North Carolina State Bar, claiming that its restrictions on the practice of law—and limits on prepaid legal service plans in particular—constitute a conspiracy in restraint of trade, attempted monopolization, and monopolization in violation of federal antitrust law. The action was filed against the state bar and several individuals in the U.S. District Court for the Middle District of North Carolina (LegalZoom.com, Inc. v. North Carolina State Bar, June 3, 2015).

On February 25, 2015, the U.S. Supreme Court issued the decision in North Carolina State Board of Dental Examiners(2015-1 Trade Cases ¶79,072), ruling that the North Carolina State Board of Dental Examiners was not immune under the state action doctrine for excluding non-dentist providers from the market for teeth whitening services in violation of Sec. 5 of the FTC Act because the board's conduct was not actively supervised by the state.

In its complaint, LegalZoom.com charges that the “unsupervised activities of the North Carolina State Bar are now fully subject to the reaches of the federal antitrust laws” and seeks redress from anticompetitive, exclusionary, and monopolistic conduct by the North Carolina State Bar and other actors. In the absence of state-action immunity, the defendants’ restrictions on prepaid legal services, exclusion of lawyers and non-lawyers from competing in the market, and other regulation of the “unauthorized practice of law” has violated the federal antitrust law, causing LegalZoom.com to lose more than $3.5 million in sales in North Carolina, the complaint alleges.

Named as defendants in the action are the state bar’s president, Ronald L. Gibson; deputy counsels Joshua T. Walthall and Fern Gunn Simeon; and councilor and member of the Authorized Practice Committee John N. Fountain. Co-conspirators charged with aiding, abetting, and performing acts in furtherance of the conspiracy are 23 members of the Authorized Practice Committee.

Founded in 2000, LegalZoom.com operated a website that provides access to general information about the law, downloadable blank legal forms, and self-help document services, the company stated. In 2010, LegalZoom.com began selling prepaid legal service plans, providing members with access to attorneys licensed in their states who had contracted with the company to provide certain legal advice and services. LegalZoom.com currently has prepaid legal plans in 42 states and the District of Columbia.

Although North Carolina law simply requires that a prepaid legal plan provider shall register its plan with the State Bar Council “on forms provided by the Council,” the State Bar “voluntarily and unlawfully” assumed full regulatory power over registration of all legal plans in North Carolina, the complaint claimed. The State Bar allegedly refused to register plans that did not meet the bar’s definition of “prepaid legal services plan” and prohibited North Carolina licensed attorneys from participating in prepaid legal services unless registered. The State Bar and individual defendants developed informal procedures, under which counsel decides whether to “accept” a plan for registration. Plans that are not accepted must change the plan to satisfy counsel’s objections and resubmit for review or appeal counsel’s refusal to register to the State Bar’s own Practice Committee.

According to LegalZoom.com, the State Bar has a long history of engaging in anticompetitive conduct under the guise of “unauthorized practice of law” statutes, including writing “cease and desist” letters to those engaging in the “practice of law.” In 2008, the State Bar sent a cease and desist letter to LegalZoom.com, charging that its online document service was illegal and “must end immediately.”

In July 2010, LegalZoom.com sought to register its prepaid legal service plans with the State Bar. “Rather than perform the ministerial task of simply registering the plans, deputy counsel for the State Bar, Defendant Fern Gunn Simeon, responded by listing purported requirements for registration of LegalZoom’s plans and requiring LegalZoom to satisfy those requirements,” the complaint stated. She then claimed that LegalZoom.com continued to conduct business in a manner previously prohibited by the Authorized Practice Committee’s 2008 cease and desist letter.

Between July 2010 and July 2011, the defendants “continuously and repeatedly raised such arbitrary objections and obstacles to the registration of LegalZoom’s claims,” it was alleged. LegalZoom.com responded to each objection, but defendants prevented the prepaid legal plans from being sold to North Carolina consumers, the company contended. LegalZoom.com appealed the decision to deny registration, but the Authorized Practice Committee voted to refuse to register the plans. “Upon information and belief, every single committee member who voted to deny registration is a licensed North Carolina attorney, almost all of whom are attorneys in private practice in North Carolina and are active participants in the Relevant Market.”

The complaint alleged that the refusal to register LegalZoom’s prepaid legal service plans constituted (1) a boycott, a collective refusal to deal, and the exclusion of a competition from the relevant market by market participants with market power and (2) unlawful monopolization, attempted monopolization, or conspiracy to monopolize. LegalZoom.com requested a permanent injunction barring anticompetitive conduct, damages of $3.5 million, treble damages of more than $10.5 million, attorney fees, costs, prejudgment interest, and any further relief deemed just and proper.

The case is No. 1:15-CV-439.

Attorneys: Marguerite S. Willis (Nexsen Pruet, PLLC) and Peter D. Kennedy (Hearon & Moody, P.C.) for LegalZoom.com, Inc.

Companies: LegalZoom.com, Inc.

News: Antitrust NorthCarolinaNews