Dozens of lawsuits have been filed against Pre-Paid Legal Services (PPLS) in at least three states alleging fraud. The plaintiffs allege that PPLS, which claims to offer “legal service plans to provide access to justice for middle-income individuals and families”, made promises it did not and could not possibly keep. The nationally known law firm of Lieff Cabraser Haimann & Bernstein, LLP sued Prepaid Legal Services, Inc. in Federal Court for the Western District of Oklahoma on March 1, 2002. Plaintiffs are current and former plan members and sales associates of Prepaid Legal Services, Inc. To go to the Lieff Cabraser website article about this important case, click here.
Prepaid legal service programs are offered nationwide for a nominal monthly fee. The advertisements promoting these services, directed towards the working middle-class, promise full-service legal assistance. They are promoted by a sales force and fulfilled by participating attorneys across the nation. With 1.4 million consumers signed up, wherein lies the problem?
First, you get what you pay for. At under $20.00 per month, the quality of assistance offered by an attorney assigned to a client may leave something to be desired. The attorneys that participate in the program are typically not exclusively prepaid legal service providers, so when a client paying full-price needs attention, he gets it. In addition, the participating attorneys are assigned thousands of prepaid clients. These attorneys are relying on the probability that many of the prepaid clients will not need any assistance. In the event that clients do need assistance, the attorneys’ time is devoted to them on a first come, first-served basis. Left with little recourse and lingering problems, the prepaid clients could be in a worse position because they have paid a fee and may receive little legal assistance.
Second, the contracts are so far skewed from the advertisements that the service providers have been sued numerous times for fraud. While the promotional advertising creates the impression that the prepaid plan is all-encompassing, the contract’s fine print delineates the numerous situations that are not covered, including, in most plans, filing a lawsuit.
Third, most plans do not allow clients to choose between the participating attorneys. Therefore, clients are assigned to an attorney that may or may not have any knowledge, let alone expertise, in the area of law in which he or she is having trouble. The law is so intensely diverse that it could be devastating to a client’s potential case to be paired with an attorney not skilled in the specific area of law needed.
Lastly, the sales forces are organized similarly to a multilevel system. The initial group sells and markets the product to consumers and potential sales directors. Commissions are received from each recruit and the monthly sales of the recruit in addition to the base commission received from the director’s own sales. The recruits then sell and market, retaining a commission on their sales and anyone they are able to recruit. This process builds until interest dissipates. The reason that the service providers are able to charge so little is because the money is constantly coming in due to new clients. The money is pooled, much like insurance, and disbursed when needed. While there are currently enough assets to satisfy the service companies’ contracts with attorneys, the market is becoming saturated, and the consumer demand is decreasing. As there become fewer interested consumers and consumer awareness of the pending litigation against these service providers heightens, the case inflow will decrease and eventually run out. The lack of incoming cash from new clients will cause a deficiency, the attorneys will halt service, and the multilevel system will cease to exist.
While the courts have failed to recognize prepaid legal services sales initiatives as a pyramid “scheme”, the view among non-participating attorneys is that these plans are a waste of people’s money. Attorneys are in the business of going to great lengths to provide care tailored to their clients’ needs; prepaid legal services are in the business of handling clients from start to finish over the phone. Though the concept of paying a flat monthly fee for attorney services sounds enticing, the service received is incomparable to that received by a firm that charges a retainer or contingency.
