Suit Challenging Ban on Corporate Law Practice Survives

By Samson Habte

Sept. 8 — A business association may proceed with its lawsuit challenging the constitutionality of North Carolina statutes that prohibit corporations owned or controlled by nonlawyers from providing legal services for profit, the U.S. District Court for the Middle District of North Carolina held Sept. 4.

But the court denied the group's bid for a preliminary injunction, saying at this stage the plaintiff hasn't shown a likelihood of ultimately winning its case.

Business of Law

The nonprofit trade group Capital Associated Industries Inc.—which lobbies on behalf of employers and has said that it fields “about 9,000 workplace-related questions” from its members each year—filed suit after it was told by the state bar that its proposed plan to provide legal advice and services to its members would be considered the unauthorized practice of law.

Judge Loretta C. Biggs expressed skepticism that CAI will ultimately prevail in the suit, which seeks a declaration invalidating North Carolina's unauthorized practice of law statutes on grounds that they violate CAI's First and 14th Amendment rights.

But Biggs nevertheless denied a motion to dismiss the lawsuit at the pleading stage. In a 44-page opinion, she said the defendants—state officials responsible for prosecuting unauthorized practice violations, which are classified as crimes—failed to show that CAI lacked standing or a cognizable claim.

Status Quo Stands

The court refused to issue a preliminary injunction that would have prevented state prosecutors “from taking any action that would interfere with CAI (1) offering or delivering to its members—through CAI employees who are licensed to practice law in North Carolina—legal advice and services and (2) publicly advertising such legal advice and services for its members.”

“The injunction that CAI seeks will necessarily alter the status quo rather than preserve it,” Biggs said.

“While CAI now wishes to provide legal advice and services to its members without the threat of prosecution, it has never been able to do so,” she wrote. “To grant CAI's requested relief and allow it to now provide legal advice and services to its members without threat of prosecution is in fact an alteration of the status quo.”

The court said CAI also couldn't satisfy the test for determining whether injunctive relief is warranted.

Under that test, CAI had to show that: (1) it was likely to succeed on the merits; (2) it was likely to suffer irreparable harm in the absence of preliminary relief; (3) the balance of equities tipped in its favor; and (4) an injunction was in the public interest.

The court said the “skeletal record” before it precluded a “meaningful review of the merits” of CAI's suit, which claims that the challenged statutes, N.C. Gen. Stat. §§84-4 and 84-5,

• “violate the Due Process Clause of the Fourteenth Amendment by prohibiting [CAI] from practicing law for arbitrary and capricious reasons”;

• violate the First Amendment “by infringing on [CAI's] associational right to provide legal advice and services to its members,” prohibiting CAI “from advertising itself as able and competent to offer legal advice and services to its members” and “from speaking to its members based on (1) the content of [CAI's] speech and (2) [CAI's] corporate identity”;

• violate the First and 14th Amendment “because they are impermissibly vague in that they do not adequately define ‘legal advice'”;

• violate the First Amendment “by prohibiting CAI from advertising itself as able and competent to offer legal advice and services to its members”; and

• violate North Carolina's constitution “by granting an exclusive privilege to a particular class of licensed attorneys (i.e., those practicing through particular channels such as law firms or solo practices, and not those employed by membership associations).”


Weak, but Cognizable

Biggs said that while several weaknesses might justify killing CAI's suit at a future time, dismissal wasn't warranted at this stage.

According to the opinion, CAI's claim that the UPL statutes infringe on its First Amendment associational rights is based on cases that struck down restrictions on the solicitation activities of groups offering legal services to “union workers, minorities, or other marginalized individuals who were actually being denied channels to vindicate rights protected by the United States Constitution or federal law.”

Biggs said that unlike those plaintiffs CAI has not “demonstrated that it or its members are being deprived of the ability to advance a political agenda, effectuate a basic public interest, or receive legal advice from counsel when needed.”

Biggs said she wasn't persuaded CAI's other claims “would fare any better in light of the sparse record.”

But Biggs said those weaknesses only precluded a finding in CAI's favor on the injunction issue. They did not mandate dismissal of the complaint under Fed. R. Civ. P. 12(b)(6), she said.

“[W]hen the Court evaluates a Rule 12(b)(6) motion, it applies a ‘sufficiency of the pleadings' standard, which requires a lesser showing than the ‘clear likelihood of success' standard applicable to motions for preliminary injunction,” Biggs wrote, quoting case law. “CAI's complaint can survive a Rule 12(b)(6) motion even if ‘recovery is very remote and unlikely.'”

CAI was represented by Brooks Pierce McLendon Humphrey & Leonard LLP. Special Deputy Attorney General David Adinolfi of the North Carolina Attorney General's Office represented the defendants.

To contact the reporter on this story: Samson Habte in Washington at

To contact the editor responsible for this story: Kirk Swanson at

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