CAPITAL ASSOCIATED INDUSTRIES, INCORPORATED, Plaintiff - Appellant,
JOSH STEIN, in his official capacity as Attorney General of the State of North Carolina; NANCY LORRIN FREEMAN, In her official capacity as District Attorney for the 10th Prosecutorial District of the State of North Carolina; J. DOUGLAS HENDERSON, In his official capacity as District Attorney for the 18th Prosecutorial District of the State of North Carolina, Defendants - Appellees, and NORTH CAROLINA STATE BAR, Intervenor/Defendant-Appellee.
Argued: December 13, 2018
from the United States District Court for the Middle District
of North Carolina, at Greensboro. Loretta C. Biggs, District
Lloyd Phillips, BROOKS, PIERCE, MCLENDON, HUMPHREY, &
LEONARD, L.L.P., Greensboro, North Carolina, for Appellant.
William Duncan, MULLINS DUNCAN HARRELL & RUSSELL PLLC,
Greensboro, North Carolina, for Appellees.
Jennifer K. Van Zant, Charles E. Coble, Craig D. Schauer,
BROOKS, PIERCE, MCLENDON, HUMPHREY & LEONARD, L.L.P.,
Greensboro, North Carolina, for Appellant.
Stephen M. Russell, Jr., MULLINS DUNCAN HARRELL & RUSSELL
PLLC, Greensboro, North Carolina, for Appellee North Carolina
H. Stein, Attorney General, Matthew W. Sawchak, Solicitor
General, NORTH CAROLINA DEPARTMENT OF JUSTICE, Raleigh, North
Carolina, for Appellees Joshua H. Stein, Nancy Lorrin
Freeman, and J. Douglas Henderson.
GREGORY, Chief Judge, DIAZ, Circuit Judge, and DUNCAN, Senior
Associated Industries, Inc. ("CAI") is a trade
association representing North Carolina employers. As part of
a plan to expand its membership, CAI wants to provide legal
services to its members. But it cannot because state law
forbids corporations from practicing law. Following
unsuccessful lobbying efforts to change the law, CAI sued
state prosecutors to enjoin the enforcement of state
unauthorized practice of law ("UPL") statutes
against it. After the North Carolina State Bar intervened to
defend the statutes, the defendants obtained summary
judgment. On appeal, CAI contends that North Carolina's
UPL statutes violate its constitutional rights to free
association, free speech, and commercial speech; lack a
rational basis; are void for vagueness; and violate the state
constitution. For the reasons that follow, we affirm.
1931, the State of North Carolina has forbidden corporations
from practicing law. N.C. Gen Stat. §
84-5(a). To address the unauthorized practice of
law, the State Bar and state prosecutors may sue for an
injunction, and prosecutors may bring misdemeanor charges.
Id. §§ 84-37, 84-7, 84-8(a). The UPL
statutes do, however, allow the practice of law by
lawyer-owned professional corporations, public interest law
firms, and in-house counsel representing their employers.
Id. §§ 55B-8, 84-5.1.
a North Carolina nonprofit corporation that claims a tax
exemption under 26 U.S.C. § 501(c)(6) as a trade
association of employers. It has about 1, 100 North Carolina
employers as members and describes its mission as fostering
successful employment relationships. CAI charges its members
an annual fee adjusted for each member's size. It
competes with for-profit businesses in providing some
services, such as recruiting, background checks, consulting,
training, conferences, and affirmative action planning.
the most popular services it provides its members is a call
center, where members can speak to CAI's staff of human
resources experts. The experts can advise on HR issues. But
they can't give legal advice, even if they are licensed
attorneys. So, when legal issues arise, CAI's HR experts
have to steer the conversation elsewhere, end the
conversation, or refer the member to outside counsel.
it disclaims any interest in representing its members in
court, CAI would like to help them draft legal documents
(such as contracts or employee handbooks) and answer
questions about employment and labor law. If it could
practice law, CAI would offer most legal services without
charge as part of its membership fees, but it would charge
hourly fees for certain services.
spent years trying to change the UPL statutes as part of its
"2X" development plan to double its membership and
reach. In 2011, CAI's lobbyists persuaded state lawmakers
to introduce bills that would have allowed corporations to
practice law. CAI tried and failed to get the State Bar to
support the bills. The State Bar instead actively opposed the
bills, and they were not enacted. CAI's lobbying efforts
met a similar fate in 2013. That same year, the State Bar
adopted a proposed ethics opinion advising that CAI would
violate the UPL statutes if it employed lawyers to give its
members legal advice.
two failed bids to achieve its goals through legislation, CAI
turned to the courts. It challenged the UPL statutes in
federal district court, naming as defendants the attorney
general of North Carolina and certain district attorneys. The
complaint sought declaratory and injunctive relief that would
prevent enforcement of North Carolina's UPL laws against
it. It pleaded five claims under 42 U.S.C. § 1983
(concerning due process, free association, free speech,
vagueness, and commercial speech) and one claim under the
district court allowed the State Bar to intervene as a
defendant. It then denied CAI's motion for a preliminary
injunction and the defendants' motions to dismiss and for
judgment on the pleadings. Capital Associated Indus.,
Inc. v. Cooper, 129 F.Supp.3d 281 (M.D. N.C. 2015);
Capital Associated Indus., Inc. v. Cooper, No.
1:15CV83, 2016 WL 6775484 (M.D. N.C. June 23, 2016). After
discovery, the parties cross-moved for summary judgment.
the district court, State Bar representatives expressed
concerns about nonlawyers controlling litigation and
receiving attorney fees, confidentiality, excessive fees, and
the State Bar's inability to discipline corporations.
Regarding CAI, they worried about conflicts of interest due
to its large base of members and the fact that its directors
and officers don't have to be lawyers and thus
wouldn't have obligations under the State Bar's Rules
of Professional Conduct.
assuage these concerns, CAI filed declarations from three
trade organizations practicing law in other states, and it
outlined a plan to comply with ethics rules. CAI's
lawyers would control legal services, make decisions about
conflicts of interest, and have sole access to privileged
communications. But CAI's directors and president would
set the attorneys' salaries and the legal
department's budget. And CAI declined to offer assurances
that it would require its directors and officers to be
CAI's members testified that allowing CAI to practice law
would mean that they could obtain more efficient and
cost-effective legal representation. But almost all those
members said they had received legal advice from private
attorneys. Just one member said it had gone without counsel
in low-risk situations, but even it found counsel for more
serious matters. And according to CAI's President and
CEO, no member has left CAI because it doesn't offer
the cross-motions for summary judgment, the district court
first held that CAI had standing because it faced "a
credible threat of prosecution" if it practiced law.
Capital Associated Indus., Inc. v. Stein (CAI), 283
F.Supp.3d 374, 380 (M.D. N.C. 2017). The district court then
turned to the merits and rejected all six ...