North Carolina Business Court Gives Full Faith And Credit To LegalZoom's California Class Action Settlement
There are probably some of you who lie awake at night wondering whether Leagalzoom's offering of do it yourself lawyering products will be found to be the unauthorized practice of law (UPL) in North Carolina.
For those few of you, that uncertainty will continue. At the end of last week, Judge Gale issued an opinion in Bergenstock v. Legalzoom.com, Inc., 2015 NCBC 49, dismissing a putative class action by Plaintiffs seeking to represent all North Carolina residents who purchased Legalzoom products or services. The claims were for UPL, unjust enrichment, and violations of the North Carolina Unfair and Deceptive Trade Practices Act. Op. ¶28.
The Judge dismissed the complaint, but he did not make a ruling as to Legalzoom's business model, nor did he address the question whether its services constitute UPL. The resolution of that issue will have to come in the still pending case brought by LegalZoom against the NC State Bar: LegalZoom.com, Inc. v. North Carolina State Bar.
The reason for the dismissal in the Bergenstock case was the full faith and credit given to the settlement of a similar class action in 2012 in California (known as the Webster case). Webster had sued Legalzoom on behalf of a nationwide class.
The Webster Settlement
The Webster settlement covered all claims:
asserted or that could have been asserted [in that case] arising out of the LegalZoom website, any materials available on or through the LegalZoom website . . . the unauthorized practice of law, or the purchase or use of documents prepared through LegalZoom.
In consideration for the settlement, LegalZoom agreed to provide sixty days of free enrollment in its prepaid legal services Programs. As Judge Gale described those Programs (known as the LegalZoom Legal Advantage Plus Program [for individuals] and the Business Advantage Pro Program [for businesses]), they involve:
services provided by licensed attorneys, including telephone consultations; review and written summary of legal documents; an annual legal checkup (which would be provided to Webster class members in the free sixty-day period), including a written summary and recommendations for legal documents and strategies; a ten percent discount on all LegalZoom products; access to the LegalZoom form library; electronic document storage; and a twenty-five percent discount on legal services not included under the Programs, but provided by a participating firm.
The challenge presented by the Bergenstock putative class was that those Programs were not available in North Carolina. (That is true, as the NC State Bar has refused to approve the Programs. That refusal is the subject of litigation between the State Bar and LegalZoom. Op. ¶20). The Settlement dealt with members who did not live in states where those Programs were available by providing them with the lesser of (i) $75.00, or (ii) half of the current base price of the document that the class member had purchased from LegalZoom. Op. ¶19.
The Bergenstock Plaintiffs said that they had not received due process in the Webster settlement because there was no counsel representing their interests and there was no named class representative who had interests in common with them. They further argued that the California Court approving the settlement had not considered the adequacy of the alternative payment to the class members who did not have the LegalZoom payments available to them. They asserted that the settlement was not entitled to full faith and credit as to them.
Full Faith And Credit To Class Action Settlements
The main road block faced by the Plaintiffs challenging the effect of the Webster settlement lies in a U.S. Supreme Court decision holding that:
a judgment entered in a class action, like any other judgment entered in a state judicial proceeding, is presumptively entitled to full faith and credit.
Matsushita Elec. Indus. Co. v. Epstein, 516 U.S. 367, 374 (1996), under 28 U.S.C. § 1738 (2014).
The North Carolina appellate courts have accordingly held that courts should:
apply only a “very limited” scope of review when determining whether a foreign judgment is entitled to full faith and credit, with the inquiry limited to whether jurisdictional and due process considerations were “fully and fairly litigated and finally decided” by the court rendering judgment.
Op. Par. 32 (citing Boyles v. Boyles, 308 N.C. 488, 491, 302 S.E.2d 790, 793 (1983); Moody v. Sears Roebuck & Co., 191 N.C. App. 256, 275–76, 664 S.E.2d 569, 581–82 (2008).
If the out-of-state court found jurisdiction and due process to have been "fully and fairly litigated" and they were finally decided, a "North Carolina court extends full faith and credit without further inquiry." Op. ¶32.
The Bergenstock Plaintiffs argued that the California court had not specifically considered the adequacy of the settlement amount paid to persons living in states where LegalZoom's programs were not offered and that they therefore had not been afforded due process.
Judge Gale refused to accept that argument, holding that:
the record does not allow for this parsing of the settlement consideration. The full settlement consideration, including the consideration provided to the Alternative Payment Plaintiffs, was before Judge Highberger [the California Judge approving the settlement] for his review. The Court cannot infer that Judge Highberger failed to consider the adequacy of representation of or the adequacy of consideration for the Alternative Payment Plaintiffs merely because he did not make express findings in that regard. He made findings that the overall settlement was fair and reasonable and that the Settlement Class had been adequately represented. The Court then must conclude that the issues Plaintiffs now seek to litigate in this Court were fully and fairly litigated and finally decided by Judge Highberger.