Construction lawyers in North Carolina can breathe a sigh of relief. On Friday of last week, the Business Court ruled that the service of on-line service provider Lienguard in preparing claims of lien constitutes the unauthorized practice of law.
You most likely have never heard of Lienguard. It says on its website that it files throughout the country: "commercial mechanics liens, notices, public and federal bond claims as well as municipal liens." It does this on a fixed price basis. It charges $495 for the preparation and filing of a mechanics lien.
A committee of the North Carolina State Bar sent Lienguard a cease and desist letter in 2010 informing Lienguard that it had concluded that Lienguard’s conduct constituted the unauthorized practice of law. Lienguard, notwithstanding the letter, continued offering its services in North Carolina.
The Order in North Carolina State Bar v. Lienguard, Inc., 2014 NCBC 11, followed in the State Bar’s lawsuit. Lienguard raised a litany of defenses against what it termed the State Bar’s "monopolistic crusade" against the UPL.
Lienguard’s Services Are The Unauthorized Practice Of Law
The Business Court didn’t agree with any of Lienguard’s defenses. Lienguard argued, for example, that a claim of lien wasn’t a "legal document" and its assistance in preparing those documents was therefore not within the statutory definition of the "practice of law." Section 84-2.1 of the General Statutes bars non-lawyers from "preparing or aiding in the preparation of "deeds, mortgages, wills, trust instruments, inventories, accounts or reports of guardians, trustees, administrators or executors. . . ."
Given the absence of "claims of liens" from the language of the statute, Lienguard said it was not engaged in the practice of law. Judge Gale looked to G.S. §84-4, which prohibits non-lawyers from preparing "any other legal document." It took him just twenty words to conclude that a claim of lien is a "legal document":
Clearly, a claim of lien is prepared to enforce the claimant’s statutory lien rights. It is,
therefore, a “legal document.”
The Court also ruled that Lienguard’s statements about its expertise in the construction industry, its commitment to compliance with the law, and its qualifications to prepare claims of lien constituted Lienguard "holding out" that it was licensed to practice law. There are administrative regulations in North Carolina that direct that a lawyer who is not admitted to practice in this jurisdiction "shall not. . . hold out to the public or otherwise represent that the lawyer is admitted to practice law in this jurisdiction.” 27 N.C. Admin. Code 02, Rule 5.5(b).
Lienguard’s services also constitute impermissible "legal advice" in violation of Chapter 84. It provides definitions of lien law terms, gives warnings regarding time requirements, and reminders about sending out preliminary notices. Those things are "legal advice," when combined with the preparation of legal documents. Op. ¶72.
You might remember the "scrivener’s exception" to charges of UPL, which recognizes that merely typing or “scrivening” a petition or legal document does not constitute the practice of law, so long as the non-attorney does not create the document, or advise on how the document should be prepared." Op. ¶59. Lienguard wasn’t entitled to this exception because "it performs services beyond that of a scrivener." Op. ¶65.
Lienguard’s Constitutional Claims Were Rejected
Lienguard also argued that Chapter 84 is so vague due to its lack of definitions that it cannot be constitutionally applied to it. The Court rejected that argument, ruling that "there is no vagueness involved in concluding that a claim of lien is a legal document." Op. ¶82. Besides, the NC Supreme Court held almost a century ago that G.S. §84-4 is constitutional and valid. Seawell v. Carolina Motor Club, Inc., 209 N.C. 624, 632, 631 S.E.2d 540, 544 (1936). And Lienguard hadn’t taken the necessary procedural steps to attack the constitutionality of a statute anyway. G.S. §1-260 requires service on the Attorney General if the constitutionality of a statute is in question, and he has an opportunity to be heard.
If you are not exhausted from reading this by now, you might be wondering how the Court resolved Lienguard’s argument that the State Bar was in violation of the monopoly clause of the North Carolina Constitution. That clause says that: "monopolies are contrary to the genius of a free state and shall not be allowed." N.C. Const. §34. The State Bar, which is a state agency, has the power to exclude persons from practicing in the legal profession "to protect the public against incompetents and imposters." Op. ¶86. (There was no finding that Lienguard was "incompetent."). Judge Gale rejected the monopoly claim.
There’s More To Come
The Court’s ruling is not the final round for Lienguard. The State Bar was directed to prepare a proposed form of permanent injunction for the Court to enter. It was given twenty days to present it to Lienguard for "comments as to form." You all know that this type of instruction from a Court can lead to endless back and forth between counsel for the parties.
A couple more things:
The Supreme Court of Ohio, bin 2010,also found Lienguard to be engaged in UPL.
Also, I was surprised to discover that there are multiple companies in the business of providing DIY lien preparation services in North Carolina. Companies named zlien, CRM Lien Services, and the Lien Professor all do that. If the State Bar is truly concerned about stamping out UPL in this area, it has a lot more work to do.