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

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.

There’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

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[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):

Stated 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.

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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.

What 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!