Legal Eagles

Bye-Bye to the Billable Hour? Rash of Legal Startups Offer a Dot JD

"There’s probably a hundred different lawyer-related type of shticks." Should you seek their counsel?
lawyer shark e1323978738111 Bye Bye to the Billable Hour? Rash of Legal Startups Offer a Dot JD

An early logo for legal startup Nolo.

Whether the startup world’s zeal for instantaneous disruption can mesh with a profession that built on precedence and hierarchy still remains to be seen. None of these companies, no matter how long their tail, are likely to make a dent in the profit margins of big law firms like Wachtell, Lipton, Rosen & Katz which, along with 17 other white shoe firms reported revenues of more than $1 billion last year, despite their dwindling ranks. “You can’t use one of these companies if you’re accused of a crime, you can’t do a merger just yet,” said Above the Law’s David Lat.

But their presence seems to signal a moment of reckoning. Where macroeconomic forces have prompted lawyers to shuttle their legal processing outsourcing (LPO) to India for more than a decade, or, more recently, replace the standard processing for document review (humans) with e-discovery algorithms, those cost-cutting measures haven’t necessarily trickled down to consumers.

“Friends of mine at Skadden have said they worked too quickly and we’re docked [pay],” Paperlex co-founder Michael Gruen explained. “They were told, ‘Wait three hours and then send it to the client. We don’t want them to think that you’re working too quickly.’ It’s a terrible model. Lawyers are incentivized to spend as much time as possible working with your legal contracts.”

Within the industry, reactions to these startups tends to vacillate between disbelief to dismissal, in some cases from the same person. On his blog, Simple Justice, Scott H. Greenfield, a criminal defense attorney, called Shpoonkle, the “next step to the de-professionalization of legal services, where the purchase of legal services is no different than buying a widget at the big box store for the lowest available price,“ It represented, “a move from excellence toward commodity. “

Over the phone to Betabeat, however, Mr. Greenfield sounded unperturbed about the rise of legal startups. “They’re not even a tiny blip on the radar,” he said. “There’s probably a hundred different lawyer-related type of shticks, not reverse auction, but any kind of variety of flavors that they offer. They all have a couple thousand people engaged in their entirety and they tend to be the same couple thousand of people.”

Maybe, but back in August, at the news of their funding, RocketLawyer claimed to create 20,000 wills and 40,000 business contracts per month. In July, LegalZoom claimed 2 million members. Even Mr. Niznik said Shpoonkle’s 2,200 lawyers have closed 600 cases since March.

Besides, not everyone shares Mr. Greenfield’s views on commoditization. “In my mind the internet does one thing amazingly well. And that is, it takes any information commodity and makes the price of that commodity go to zero,” said Mr. Gruen, one of the co-founders of Paperlex. “Taking that same mantra with legal documents, a legal document is nothing but a information commodity, it’s just a representation of words that help memorialize some sort of business deal or situation you’re trying you’re trying to transact.”

Mr. Greenfield acknowledges that it’s not necessarily a bad thing for the profession. “Some people say they love this stuff because ten years from now there’s going to be a boom in litigation when all these people find out they screwed everything up,” said Mr. Greenfield, noting how often clients don’t realize crossing out a name in a last will voids the contract. “They’re gonna have to hire lawyers up, down, and sideways and pay them through the nose to undo the damage that their $10 form created.”

If LegalZoom’s history in court is any indication, the biggest strain on these startups may come from how easy they make it to generate legal documents. In September, LegalZoom settled a class action lawsuit with clients in Missouri. According to Chas Rampenthal, the company’s general counsel, “The complaint was that we should not have been allowed to offer it anyone. They never actually said that there was any problems with the documents.” But there have also been settlements, such as with the attorney general in Washington State where LegalZoom is barred from comparison pricing its documents to attorney fees unless the company discloses that its service isn’t a substitute for a law firm.

“I think that in some ways, some of the opposition you’re seeing from state bar associations may be a little bit self-interested,” said Mr. Lat, managing editor of Above the Law. “The State Bars are thinking, okay our members are going to be threatened by companies like this, so we have to make it difficult for companies like this.”

Although the New York State Bar declined to comment, we did hear back from Eric Friedman, director of communications from the New York City Bar Association. Mr. Friedman said the agency had not issued any ethics opinions, “Except to say we caution people using forms they download off the internet that they may not be applicable to their current situation or to New York law, and may not have been properly prepared and vetted, so we believe they are better off seeking legal advice.”

When we requested comment on startups like Shpoonkle, we were likewise shut down. “We have not looked into them. Perhaps we will at some point in the future,” Mr. Friedman wrote pointedly, “if they have a major effect on the profession.”

As for those “race to the bottom” woes about reverse auction companies like Shpoonkle, “I haven’t seen that happen,” said the author of the outspoken legal blog Constitutional Daily who writes under the pseudonym “BL1Y”.  He acknowledged via email that it could affect younger attorneys more than older ones, but noted, “I’m sure clients walk away from attorneys all the time because their price is too high. If there was going to be a race to the bottom, it would have already happened.”

In fact, Betabeat spoke to Christopher Travis, a Manhattan attorney who recently left a big firm to start his own, Mangan, Ginsberg & Travis. Mr. Travis signed up with Shpoonkle early on and managed to find a medical supplies client that currently makes up ten percent of his practice’s business. Although he took a slight discount, Mr. Travis said each time he got business, it was not by being the lowest bidder. As one of the first litigators on the service, Mr. Travis says, “I didn’t want to tell anyone else about it,” for fear of the competition for business.

“You just can’t argue that the site is doing anything to the legal profession but bringing it up,” Shpoonkle founder Robert Nizik told Betabeat. “If you look at some of these billboards for lawyers, or some of these cheesy commercials, or the fact that lawyers outsource to India, but still bill these clients American attorneys rates… I think that brings down the legal profession. But a site that’s free and lets people find a lawyer for a better price. I mean, what more could you ask for?”

That reminded us a joke we once heard.

ntiku@observer.com

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