Can an On-Demand Lawyer Startup Transform the Legal Business?

A US subscription-based legal advice company is set to upset the legal industry, improving access to legal services.

(Bloomberg) John Suh is convinced that he can put lawyers back to work.

A perfect illustration of how he plans to do it can be found in a bland office building in Pasadena, Calif., that is headquarters to the Arroyo Law Group. You could be forgiven for confusing Arroyo, at which a group of lawyers helps small businesses navigate legal problems, for a typical law office. A closer look, though, reveals oddities. Employees arrive and leave whenever they want. In the course of a day, they take around a dozen half-hour calls from clients, many of whom they have never heard from before, and may never talk to again. 

The company, which functions more like a call center than a traditional law firm, represents the most serious challenge that the American legal industry has faced in recent history. That’s because Arroyo gets all its clients from LegalZoom, at which Suh is chief executive. With its Uber-for-lawyers model, Suh hopes LegalZoom can upend the legal business.

“If the legal system only works for the 1 percent of Americans that can afford it, and 99 percent can’t use the benefits, that’s not a system, it’s an oligarchy.”

The law could use fresh energy. In the past decade, the number of working lawyers has fallen by more than 50,000. Solo practitioners, the mom-and-pop shops of jurisprudence, have been in a death spiral for even longer. Since 1988, income for stand- alone attorneys, of which there are 354,000 nationally, declined by 31 percent. In 2012, their average income was $49,000, according to tax returns. Meanwhile, the typical person (PDF) who needs legal services makes $100 less per hour than what lawyers charge, and most small businesses opt not to hire attorneys when they have legal problems, research shows.

Enter Suh, who thinks he can enhance demand for lawyers and make it cheaper for people to hire them. “We want to democratize law,” said Suh, perched at the edge of his office chair in a glass-walled conference room at the company’s headquarters in Glendale, Calif. “If the legal system only works for the 1 percent of Americans that can afford it, and 99 percent can’t use the benefits, that’s not a system, it’s an oligarchy.”

The revolution, Suh says, will be “technology-enabled.” In 2010, LegalZoom began offering a subscription plan whereby small business owners pay $24 a month for an unlimited number of 30- minute calls with lawyers about basic legal questions. If a problem requires additional time, a client can hire the attorney for additional work. LegalZoom staffs its phone lines with lawyers from small firms, which can lose their contracts if they get enough bad ratings from customers.

If the a la carte model takes hold, it could wipe out the need for smaller firms, which Suh says charge too much and oversell what they can do for regular consumers. Suh, who is partial to basketball metaphors, says small law firms are a little like street-ball players who think they’re playing in the big leagues: “If everyone who didn’t play in the NBA acted like an NBA player, it would be like, 'dude, they are paid to do that, you aren’t.'”

Generally, people disrupting an industry tend to be more optimistic about their plans than the ones getting disrupted. That’s true for LegalZoom, which has been cast as the enemy by small law firms across the country who have not warmed to new competition. LegalZoom has stoked their fear by aggressively battling state bar associations for the right to displace traditional law firms.

In October, the company notched an crucial victory in that fight. The North Carolina state bar, which had fought to block LegalZoom from providing on-call lawyers, agreed to let it do business in the state. The settlement likely eliminated a final obstacle to Suh’s grand plans. Now, only Tennessee and Michigan prevent LegalZoom from offering its services.

The typical lawyer at Arroyo makes $60,000 per year when they start working. Three years at a private law school costs $125,000.

Suh says attorneys working with LegalZoom have the option to work longer hours and earn more. He also says that law graduates should stop viewing law school as an automatic ticket to a six-figure salary. “Most people have mismatched expectations,” he says.

A.J. Darab admits he took "a little bit of a pay cut" when he left his real estate law firm for Arroyo in 2013. His life, though, got richer. He used to stay at the office until 9:00 pm at times, focusing on a type of litigation that he didn't care much about. Now, he says, he gets to work on trademark law, his passion, and can come and go whenever he likes. 

"Unlike a more traditional law firm setting, there's no expectation of obligation to stay late," says Darab. His friends, some of whom still work seven days a week, were initially skeptical of his job, but have started to loosen up. One of them recently asked if there might be a slot for him at Arroyo. 

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