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.*
It 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.