Lienguard, Inc. Found Itself in the N.C. State Bar’s Crosshairs; Might LiensNC, LLC Be Next?

LienguardCrosshairs

As the Lienguard case discussed in my prior blog post (immediately below) makes abundantly clear, the North Carolina State Bar is willing to prosecute unauthorized practice of law (“UPL”) claims against online mechanics’ lien service providers lacking a license to practice law in North Carolina.

Friday ForumThere’s been a boisterous reaction to the decision in the blogosphere, and in the Friday Forum spirit, I commend to your reading the following: “Business Court Makes North Carolina Safe for Construction Lawyers” by Mack Sperling of Brooks Pierce; “Can Software Practice Law? The Unauthorized Practice of Law and Technology” by Nate Budde of zlien.com; and “NC Business Court Enjoins National Lien Filing Firm for UPL” by Brian Schoolman of Safran Law, all of which were promoted on Twitter over the past 10 days or so:

I also highly recommend checking out the Comments section of my previous blog post.  Among the thoughts posted there are those of Scott Wolfe, Jr., founder of zlien.com, one of Lienguard, Inc.’s competitors.  Scott makes a number of thought-provoking and response-worthy arguments in support of his belief that online lien filing services do not engage in UPL.

The subject of this blog post is Scott’s argument that under the logic of the Lienguard decision, LiensNC, LLC, the limited liability company which operates the LiensNC.com website created to facilitate the filing of Designations of Lien Agent and Notices to Lien Agent under North Carolina’s new Mechanics’ Lien Agent statute, engages in UPL:

As to preliminary notices — the NC court in this case does not, and really cannot not, distinguish between preparing a preliminary notice versus preparing a lien notice. They are both legal documents.

This case calls LienGuard’s preparation of notices illegal, but the UPL statute clearly enables or allows LiensNC, LLC – “a coalition of title insurance underwriters” – to assist contractors and suppliers with the state’s preliminary notices. See: http://www.liensnc.com/LiensNC__LLC.html

* * *

[T]here is some momentum to distinguish between “serious” legal documents and maybe “easy” legal documents.  The UPL “practice of law” definition and the case law surrounding it offers no opportunity to make this distinction.  Preliminary notices … are all “legal documents.”

I’ve given a fair amount of thought to these comments over the past week in trying to predict whether LiensNC.com might be among the State Bar’s next targets.  For the three reasons set forth below, I highly doubt it:

(1)  Unlike online lien filing services, LiensNC.com is expressly authorized by statute.  The new statute requiring notice to lien agent, N.C. Gen. Stat. § 44A-11.2, provides, in subsection (f), seven methods for providing the required notice.  Check out the highlighted method at number 7, below (click image for larger version):

ServiceToLienAgentStated simply, North Carolina statutory law allows service of Notice to Lien Agent via the Internet, but does not allow filing of actual lien claims in the same manner.  That’s a critical distinction, one that in and of itself likely removes LiensNC.com from the State Bar’s hit list.

(2)  LiensNC.com likely does not generate “legal documents.”  As the Lienguard decision makes clear, “legal documents” are defined as “documents or contracts by which legal rights are secured,” citing State v. Pledger, 257 N.C. 634, 636–37, 127 S.E.2d 337, 339 (1962).  A Notice to Lien Agent, however, does not “secure” lien rights; it merely “preserves” them in the event the potential claimant needs to rely upon them later on.  Lien rights against real property are only “secured” through claims of lien, not through “Hi, I’m here” preliminary notices.  That point was made repeatedly during the legislative process, and is reflected in N.C. Gen. Stat. § 44A-11.2(j):

The service of the Notice to Lien Agent does not satisfy the service or filing requirements applicable to a Notice of Claim of Lien upon Funds under Part 2 of Article 2 of this Chapter or a Claim of Lien on Real Property under Part 1 or Part 2 of Article 2 of this Chapter.

(3)  LiensNC.com does not change the form of the notice provided or file the notice with the court.  The N.C. Business Court in Lienguard expressed concern that the online service was receiving information from a lien claimant, refashioning that information into a claim of lien, and then filing the lien claim with a court.  LiensNC.com does not follow a similar practice.  Instead, it merely accepts the information provided by the potential lien claimant and then fires off a receipt confirmation.  That’s it.  No refashioning of the information provided, no filing of the refashioned information with a court.  Instead, the lien agent (read: title insurance company) simply retains the potential lien claimant’s information for future reference, should the property being improved ever be sold or refinanced, at which point the lien agent can use the information previously provided to contact the potential lien claimant and make sure it’s been paid.

* * *

Bottom line?  For the reasons set forth above, I don’t share Scott Wolfe’s concern that the title insurance industry could be engaging in UPL by offering LiensNC.com as a method for filing Notices to Lien Agent.  Unless and until a court of competent jurisdiction says otherwise, I will be advising my clients accordingly.

mic1What about you?  Do you think the Lienguard decision protects or hinders potential lien claimants?  Are you going to continue using LiensNC.com to file your preliminary lien notices?  And what do you think of the site’s recent redesign?

The Friday Forum microphone is all yours!

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N.C. Business Court: Online Lien Filing Service Engaged in Unauthorized Practice of Law

Screen shot of Lienguard's home page

Screen shot of Lienguard, Inc.’s home page on April 9, 2014. Click image to explore the site.

In a decision likely to impact out-of-state suppliers furnishing materials to North Carolina construction projects, the North Carolina Business Court ruled on April 4, 2014 that Lienguard, Inc., an online mechanics’ lien filing service, engaged in the unauthorized practice of law by preparing liens for others without first acquiring a license to practice law in the Old North State.

In The North Carolina State Bar v. Lienguard, Inc., Judge Jim Gale declared that Lienguard violated North Carolina’s statutes governing the licensure of attorneys (Chapter 84 of the N.C. General Statutes) by preparing liens, providing advice about liens and holding out that it was competent to file liens in North Carolina, all without being licensed to do so.  Judge Gale also ruled that the State Bar was entitled to a permanent injunction prohibiting Lienguard from engaging in similar acts in the future, giving the parties 20 days to draft and submit an appropriate order for the Court’s consideration.

In defending against the State Bar’s action, Lienguard argued that its services were clerical, not legal, in nature, and that the statutes governing licensure of attorneys did not apply to its services.  The Business Court disagreed.  It ruled that a claim of lien is a “legal document,” defined as “documents or contracts by which legal rights are secured,” State v. Pledger, 257 N.C. 634, 636–37, 127 S.E.2d 337, 339 (1962), and that preparing legal documents for another constitutes the practice of law, not simply a clerical task.  After reviewing the contents of Lienguard’s website, Judge Gale also found as follows:

Lienguard’s various statements, including its definition of lien law terms, warnings regarding time requirements, and reminders about sending out preliminary notices within five to ten days of beginning work, when combined with its preparation of legal documents in the manner described above, constitute providing legal advice.  Therefore, Lienguard’s statements are in violation of Chapter 84.

Finally, the Court ruled that the statements appearing on Lienguard’s website “are here made for the specific purpose of drawing a client to the commercial lien preparation service and in specific connection with drafting such claims of lien,” and as such violate Chapter 84.

The Business Court also rejected Lienguard’s argument that Chapter 84 is unconstitutionally vague:

The court finds no vagueness in the statutes’ prohibition against preparing legal documents without a law license. The court also finds that there is no vagueness involved in concluding that a claim of lien is a legal document. It is clear that Lienguard believes the claim of lien is a legal document. Its own website emphasizes the legal importance of a claim of lien to protect its clients’ interests.

The decision is subject to appeal, and so as a judicial matter, I suspect we haven’t heard the last word on whether online mechanics’ lien service providers are subject to Chapter 84 of the General Statutes.  For the moment, however, the decision could disrupt the activities of a number of online service providers, including Northwest Lien, LienItNow, Titan Lien Services and friend-of-the-blog, zlien.com.*

Wednesday WisdomIt could also affect how out-of-state suppliers of materials to North Carolina construction projects secure their right to get paid for their goods.  My recommendation to suppliers who currently rely upon online services to prepare their claims of lien is to verify that at least one person employed by the service provider is licensed to practice law in North Carolina, and that such person will supervise and sign their future lien claims.  Alternatively, out-of-state suppliers should consider retaining an experienced construction attorney licensed to practice law in North Carolina to preserve their lien rights.

* By way of clarification, I’ve developed a social media relationship with Scott Wofle, Jr., Seth Smiley and others at zlien.com, who have been kind enough to tweet about and link to my North Carolina lien law content over the last few years.  I sincerely appreciate the exposure they have provided my blog, which is why I describe zlien as a “friend-of-the-blog.”  I did not intend to suggest, however, that I have a business relationship with zlien.com beyond our social media connection.  I do not. 

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Filed under Lien Law, NC case law, State law, policy & news, Subcontractors

Is Bidder Prequalification Reform Within Reach in North Carolina?

Senator Neal Hunt, Chair and Representative Dean Arp, House Co-Chair, helm the Purchase and Contract Study Committee, which is currently considering prequalification reform.

Senator Neal Hunt, Chair, and Representative Dean Arp, House Co-Chair, helm the Purchase and Contract Study Committee, which is currently considering prequalification reform in North Carolina.

Statutes governing the procurement of public construction contracts are intended to promote honest and open bidding procedures, thereby placing interested contractors on an equal footing when competing for the work.  A Pennsylvania court observed way back in 1908 that it is the duty of public awarding authorities “to see that the purposes aimed at by the laws shall be effected in good faith.”

Monday MemoMany contractors are skeptical that standard is being met in North Carolina.

As I’ve previously written, a number of prime contractors recently testified before the General Assembly’s Purchase and Contract Study Committee about how the statute permitting prequalification of bidders is often misused so that certain contractors are favored over others, particularly in the construction management at-risk context.  The opportunity for misuse arises from the utter lack of any statutory direction for exercising the right to prequalify under existing law (click image below for larger version):

PrequalStatute

Thankfully, the Committee appears ready to recommend extensive and significant modifications to this bare-bones statute.

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As North Carolina’s Lien Agent Statute Turns 1, Three Tips for Soothing the Growing Pains


North Carolina’s lien agent statute, which went into effect on April 1 last year, celebrated its first birthday yesterday.

Didn’t join the party?  I can’t say I’m surprised.

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Legislative Committee Set to Vote on Recommendations for Strengthening Liens on Leaseholds in North Carolina


UPDATE 4/8/2014 9:45 a.m.: The Committee voted yesterday, April 7, 2014, to embrace only the second of the three recommendations discussed in my original blog post below.  I have struck through the recommendations that did not survive the final draft of the report, which is now in the hands of the Legislative Research Commission for further action.  Many thanks to Raleigh construction attorneys Jason Herndon and Brian Schoolman for alerting me to the Committee’s vote, as a trip out-of-state prevented my attendance at yesterday’s meeting.

The Legislative Research Committee charged with studying the lien rights of contractors and materialmen on tenant improvement projects meets a week from today, on April 7, 2014, to vote on a series of recommendations to the 2014 Session of the North Carolina General Assembly.  The Committee’s recommendations can be found in its recently released draft report.

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Crazy S#!% in Construction Contracts

It’s springtime in the construction industry, my friends.  Banks are lending again, optimism has returned and the private, non-residential sector is heating up.  Good news all.

But before you mobilize the yellow steel to your next jobsite, the deal’s gotta get done.  And so ’tis the season of contract negotiation — which, if you’re not careful, could lead to the season of your discontent.  That’s because some crazy stuff might be lurking in the document the party above you in the contractual chain wants you to sign.

Just ask Birmingham, Alabama construction attorney Burns Logan, the inspiration behind this post and its cheeky title:

There’s only one way to suss out the crazy in your construction contracts, and that’s by carefully reviewing them, as Sage Construction reminded us this week:

One of the three reasons cited in the linked blog post is “owners are pushing risk to GC’s.”

Tell me about it!

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Your Date of Last Furnishing of Labor Might Be Earlier Than You Think


Meeting lien and bond claim filing deadlines can sometimes feel like a race against the clock.  For claimants who provide on-site labor for a construction project, properly identifying the date such labor was last furnished is a critical component to winning that race.

Wednesday WisdomAn unpublished Fourth Circuit Court of Appeals decision illustrates the point.  In U.S. ex rel. Mavis Mechanical Services, Inc. v. Hanover Ins. Co., 182 F.3d 910 (4th Cir. 1999), a subcontractor on a federal construction project tried to establish compliance with the Miller Act’s one-year filing deadline by arguing it furnished labor on two occasions within a year of its lawsuit.  The first instance involved attendance at a coordination meeting; the second involved mobilization to the site to perform certain valve installation work it had yet to complete, but refusal by the sub to actually perform the work when the GC refused to make payment on alleged past due amounts.  On these facts, the Fourth Circuit upheld the district court’s determination that neither site visit qualified as “labor” for the purposes of the Miller Act’s one-year filing deadline.  That holding doomed the sub’s Miller Act claim to dismissal.

The moral of the story?

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Five Key Points to Understand About OSHA’s Proposed Airborne Silica Standard

The Monday Memo in recent weeks has focused on North Carolina laws and policies bearing on the Tar Heel State’s construction industry.  Today I turn my gaze to our nation’s capitol, where public hearings are underway on OSHA’s proposed rule to lower the permissible exposure limit (“PEL”) for airborne crystalline silica, a by-product of such common construction operations as concrete and stone cutting.

Monday MemoThe hearings began on Tuesday, March 18 and continue through Friday, April 4, with a variety of construction industry and safety voices scheduled to be heard.

Here are five key points to bear in mind as the process moves forward:

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Don’t Blame Me When It’s All Your Fault: the Role of Anti-Indemnity Statutes in Construction

Nobody likes being blamed for somebody else’s mistake.  Worse still is shouldering the financial burden on account of another’s wrongdoing.

Yet that’s precisely the position many contractors and subs find themselves in as the result of the presence of an indemnity clauses in their construction contracts.

To my way of thinking, it is fundamentally unfair to shift the entire risk of one’s own negligence to another party.  As my Twitter feed has revealed over the last week or so, the state legislatures in Missouri and Minnesota are in the process of wrestling with that unfairness:

The good news for North Carolina contractors is that the Tar Heel State has a statute on the books preventing one party from shifting the entire risk of its own negligence to another.

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Prefer to Serve Your Own Lien & Bond Preliminary Notices? These Three Web Tools Can Help.

Wednesday WisdomWhile the conservative approach is to rely on an experienced construction attorney to serve preliminary lien and bond notices for North Carolina construction projects, there are many subs and suppliers who prefer the DIY approach.  I’m sure many of you do-it-yourselfers already rely on these web-based tools for facilitating your preliminary notices, but just in case, here are my three favorites:

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North Carolina Will Now Revise Its Building Code Every Six Years, Instead of Every Three

Monday MemoPrepare to hold onto your 2012 North Carolina Building Code until 2019.

On March 11, 2014, the N.C. Building Code Council voted to update the commercial building code once every six years, instead of once every three years under current regulations.  The six-year commercial code cycle now mirrors the update schedule for the residential code, which was changed to a six-year cycle by House Bill 120, signed into law by Governor McCrory on June 19, 2013.

As an exception to the new six-year rule for commercial buildings, the electrical code will continue to be updated on a three-year cycle.

The Council’s vote to place the commercial code update on a parallel track with the residential code’s six-year cycle was close: 9-6.  Why such a sharp split?

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Bidder Prequalification & Fairness in Public Contracting

Friday ForumWith last year’s passage of House Bill 857 in the North Carolina General Assembly, public contracting agencies in the Tar Heel State have no shortage of project delivery methods from which to choose.  From design-bid-build to construction management at-risk, design-build, design-build bridging and P3s, our state statutes now authorize a veritable cornucopia of options for procuring public construction contracts.

But the following tweet from ENR’s Tom Sawyer earlier this week got me wondering: is the state overlooking another viable procurement option?

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A Trap for 2nd-Tier Miller Act Claimants to Avoid

Wednesday WisdomMost second-tier Miller Act subs and suppliers understand that in order to recover under a prime contractor’s Miller Act payment bond, written notice of the claim must be made to the contractor “within 90 days from the date on which the person did or performed the last of the labor or furnished or supplied the last of the material for which the claim is made.”  40 U.S.C.A. § 3133(b)(2).  With that 90-day rule in mind, consider the following hypothetical:

You’re a second-tier supplier who last furnished materials to a first-tier subcontractor on a Fort Bragg project on December 13, 2013.  Today is the 89th day since your last furnishing, and you still haven’t been paid.  Realizing your claim notice deadline is fast approaching, you send your claim to the prime contractor by certified mail, return receipt requested this morning.  The prime will receive the notice and sign the green card on March 14, the 91st day after your last furnishing.  Was your notice of claim timely?

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Filed under Federal case law, Federal law, policy & news, Payment Bonds, Subcontractors, Surety Law

N.C.’s Lien Law Study Committee Makes Progress, But Time Is Running Short

Monday MemoNorth Carolina’s House Committee on Mechanics’ Liens and Leasehold Improvements gathered for the third of four scheduled meetings last Friday, March 7.  Up for discussion were two legislative proposals: one that would strengthen liens on leaseholds, and one with the potential to weaken the “direct liability” or “wrongful payment” liens of subcontractors and suppliers.

Progress was made on both proposals, but with the Committee scheduled to meet for the last time and issue its recommendations on April 7, the clock is ticking on what might be accomplished during the legislative short session convening in May.

Here’s what you need to know about where things stand and what happens next:

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