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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Is the U.S. Green Building Council Becoming a Not-So-Jolly Green Giant?

Friday ForumAs folks who travel in sustainability circles know well, the Leadership in Energy and Environmental Design green rating system, better known as LEED® certification, is far and away the industry leader when it comes to validating green construction projects.  Developed by the Washington, D.C. non-profit the U.S. Green Building Council (“USGBC”), LEED had been used to certify the green bona fides of more than 55,000 projects around the world as of October 2013; by way of comparison, a rival system, Green Globes, had been used for just 850.

My Twitter feed has featured a series of “good news” chirps for USGBC lately.  For example, about a month ago, the agency touted its release of the 2013 Top Ten States for LEED (North Carolina cracked the top ten at #7):

Locally, Barnhill Contracting promoted a Triangle Business Journal slideshow featuring some high-profile Triangle projects to obtain LEED certification recently:

But another series of tweets reveals that the USGBC is facing unprecedented challenges that call into question its continued dominance of the rating system marketplace.  As best as I can tell, these challenges fall into three categories: (1) its competitor, Green Globes, is starting to make inroads; (2) some state legislatures are seeking to ban use of LEED on public construction projects; and (3) the adoption of green building codes by state and local governments calls into question the value of voluntary rating systems like LEED and Green Globes altogether.

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