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Capital Associated Industries, Inc. v. Stein

United States District Court, M.D. North Carolina

September 19, 2017

CAPITAL ASSOCIATED INDUSTRIES, INC., Plaintiff,
v.
JOSH STEIN, in his official capacity as Attorney General of the State of North Carolina,, Defendants.

          MEMORANDUM OPINION AND ORDER

          Loretta C. Biggs, District Judge.

         Plaintiff, Capital Associated Industries (“CAI”), initiated this action for declaratory and injunctive relief, alleging that the enforcement of Sections 84-4 and 85-5 of the North Carolina General Statutes (“UPL Statutes”), which govern the unauthorized practice of law, violate the United States Constitution and the North Carolina Constitution, as applied to CAI. (ECF No. 1 ¶¶ 1, 100.) Before the Court are three motions for summary judgment brought pursuant to Rule 56 of the Federal Rules of Civil Procedure by (1) Defendants Josh Stein,[1] Nancy Lorrin Freeman, and J. Douglas Henderson (collectively “State Prosecutors”), (ECF No. 100); (2) CAI, (ECF No. 103); and (3) Intervenor-Defendant, the North Carolina State Bar (the “State Bar”), (ECF No. 112). For the reasons stated below, the Court (1) denies State Prosecutors’ motion, (2) denies CAI’s motion, (3) and grants the State Bar’s motion.

         I. BACKGROUND

         In its Complaint, CAI describes itself as a tax-exempt, “non-profit employers’ association” comprised of approximately 1,080 employers throughout North Carolina that “associate[ ] . . . to promote industrial development and progress.” (ECF No. 1 ¶¶ 6, 17.) CAI members pay annual membership dues to CAI to receive “efficient, low-cost human resources-related information, advice, data, education, legislative advocacy, and other benefits and services pertaining to each member’s human resources, compliance, and day-to-day management needs.” (Id. ¶ 17.) In addition to its current offerings, CAI wishes to provide “employment-related legal advice and services to its members through licensed North Carolina attorneys” that it employs, as part of the dues its members currently pay. (ECF No. 105-1 ¶¶ 34, 44.) For a separate fee of $195 per hour, CAI also wishes to offer its members other legal services that would include drafting employment, separation, and non-compete agreements, reviewing employment policies and handbooks, and representation “in charges before the Equal Employment Opportunity Commission.” (Id. ¶ 44.) The legal services that CAI wishes to offer would not include providing legal assistance with matters related to litigation or “extremely specialized areas of workplace law” including, for example, “[t]ax matters that relate to workplace and employee needs.” (ECF No. 106-1 at 64–67.)

         In April of 2013, CAI requested from the State Bar an opinion as to whether CAI’s proposed plan to provide legal advice and services to its members would constitute the unauthorized practice of law. (ECF Nos. 42 ¶¶ 7–9; 42-1.) On May 28, 2013, the State Bar issued a proposed ethics decision, which notified CAI that its plan would amount to the unauthorized practice of law because of CAI’s status as a corporation not authorized to practice law. (See ECF No. 42-2.)

         On January 23, 2015, CAI filed this lawsuit, seeking declaratory relief and requesting that State Prosecutors be enjoined from enforcing the UPL Statutes against CAI. (ECF No. 1.) CAI alleged that the enforcement of the UPL Statutes, as applied to CAI, would violate (1) its right to substantive due process under the Fourteenth Amendment to the Constitution, (id. ¶¶ 45–53); (2) its right of association under the First Amendment, (id. ¶¶ 54–63); (3) its right to free speech under the First Amendment on the grounds that the UPL Statutes operate as content-based restrictions and prevent CAI from speaking because it is a corporation, (id. ¶¶ 64–72); (4) its right to due process under the Fourteenth Amendment on the ground that the UPL Statutes are vague, (id. ¶¶ 73–82); (5) its right to free speech on the ground that the UPL Statutes prohibit CAI from advertising its proposed legal services, (id. ¶¶ 83–91); and (6) the Monopoly Clause of the North Carolina Constitution, (id. ¶¶ 92–99). On February 16, 2015, CAI sought a preliminary injunction, requesting that the Court enjoin State Prosecutors from taking any action that would interfere with CAI offering or delivering legal advice and services to its members through CAI attorneys licensed to practice law. (ECF No. 19 at 1.) State Prosecutors moved to dismiss CAI’s claims. (ECF No. 10.)

         The Court heard oral arguments on the motions on May 29, 2015. On September 4, 2015, this Court entered a Memorandum Opinion and Order (“Preliminary Injunction Order”), denying CAI’s motion for a preliminary injunction, and denying State Prosecutors’ motion to dismiss. Capital Associated Indus., Inc. v. Cooper, 129 F.Supp.3d 281, 308 (M.D.N.C. 2015). State Prosecutors later moved for judgment on the pleadings, and the Court entered an Order that denied that motion. Capital Associated Indus., Inc. v. Cooper, No. 1:15CV83, 2016 WL 6775484, at *2 (M.D.N.C. June 23, 2016). Each Party has now moved for summary judgment. (ECF Nos. 100, 103, 112.)

         II. LEGAL STANDARD

         Summary judgment is appropriate when “the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). A dispute is “genuine” if the evidence would permit a reasonable jury to find for the nonmoving party, and “[a] fact is material if it might affect the outcome” of the litigation. Jacobs v. N.C. Admin. Office of the Courts, 780 F.3d 562, 568 (4th Cir. 2015) (quotations omitted). The role of the court is not “to weigh the evidence and determine the truth of the matter” but rather “to determine whether there is a genuine issue for trial.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). “If the evidence is merely colorable, or is not significantly probative, summary judgment may be granted.” Id. at 249–50 (citations omitted). When reviewing a motion for summary judgment, the court must “resolve all factual disputes and any competing, rational inferences in the light most favorable” to the nonmoving party. Rossignol v. Voorhaar, 316 F.3d 516, 523 (4th Cir. 2003). When, as here, a court has before it cross-motions for summary judgment, “the court must review each motion separately on its own merits” to determine whether each party is entitled to judgment as a matter of law. Id.

         III. DISCUSSION

         State Prosecutors have moved for summary judgment on jurisdictional grounds and on CAI’s right of association claim only. (ECF No. 100.) CAI and the State Bar have each moved for summary judgment on each of the six claims brought by CAI. (ECF Nos. 103, 112.) As State Prosecutors raise the threshold issue of whether the Court can consider CAI’s claims, the Court will first consider their motion.

         A. State Prosecutors’ Motion for Summary Judgment

         1. Standing and Ripeness

         State Prosecutors argue that CAI cannot satisfy the requirements of standing doctrine or ripeness doctrine because CAI did not face a credible threat of prosecution before it brought suit. (ECF No. 101 at 6–20.) CAI contends that it does have standing to sue on the ground that such a threat exists. (ECF No. 117 at 4–11.) The Court observes that “the Article III standing and ripeness issues in this case ‘boil down to the same question.’”[2] See Susan B. Anthony List v. Driehaus, 134 S. Ct. 2334, 2341 n.5 (2014) (quoting MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 128 n. 8 (2007)). Accordingly, the Court will consider State Prosecutors’ arguments concerning standing and ripeness simultaneously, characterizing the discussion as one involving “standing.”

         Article III limits the jurisdiction of federal courts to cases and controversies. U.S. Const. art. III, § 2. Standing doctrine is “[o]ne element of the case-or-controversy requirement,” and a plaintiff that invokes federal jurisdiction must accordingly establish standing to sue. Clapper v. Amnesty Int’l, 133 S. Ct. 1138, 1146 (2013). A plaintiff has standing upon demonstrating an injury that is “concrete, particularized, and actual or imminent; fairly traceable to the challenged action; and redressable by a favorable ruling.” Id. at 1147. A plaintiff has standing to bring a “pre-enforcement challenge” to a statute when the plaintiff “faces a credible threat of prosecution” under that law. N.C. Right to Life, Inc. v. Bartlett, 168 F.3d 705, 710 (4th Cir. 1999). Further, when “the State has not disclaimed any intention of enforcing” the challenged statute, a plaintiff “need not actually violate” that statute, “or be proactively threatened with prosecution prior to violation, in order to have standing to challenge its constitutionality.” Does 1–5 v. Cooper, 40 F.Supp.3d 657, 671–72 (M.D.N.C. 2014); see MedImmune, Inc., 549 U.S. at 129 (“The plaintiff’s own action (or inaction) in failing to violate the law eliminates the imminent threat of prosecution, but nonetheless does not eliminate Article III jurisdiction.”).

         The Court concludes that CAI has standing to bring its claims because it faces a credible threat of prosecution under the UPL Statutes. The Court’s justification for this conclusion remains unchanged from the Court’s earlier ruling on this issue:

State Prosecutors have not stated that they would refrain from prosecuting CAI for violating the UPL Statutes. Nor have State Prosecutors stated that they disagree with the State Bar’s proposed ethics opinion issued to CAI. To the contrary, State Prosecutors and the State Bar vigorously contend that CAI lacks the right to provide its members with legal advice and services. CAI need not subject itself to criminal prosecution to establish standing to challenge the UPL Statutes. . . . With the injury-in-fact requirement satisfied, CAI clears the other two hurdles for standing: causation and redressability.

Capital Associated Indus., Inc., 129 F.Supp.3d at 301–02. State Prosecutors advance several related, yet equally unavailing, arguments to counter the conclusion that CAI faces a credible threat of prosecution. (ECF No. 101 at 6–15.)

         State Prosecutors contend that CAI lacks standing because (1) the record contains no evidence of a pending prosecution against CAI, (id. at 7; see Id. at 12–13); (2) CAI’s plan is insufficiently specific, (id. at 7–8; 15–16); (3) the record contains no evidence of UPL prosecutions of “licensed attorneys, business association or corporation attorneys by the Attorney General or these two District Attorneys,” (id. at 7; see Id. at 11); (4) North Carolina law does not allow prosecutors to agree to refrain from enforcing the law, (id. at 13–15; 17– 20); and (5) CAI has provided no evidence to support its “theory that the State Bar, or any other person, association or entity can make a referral to the Attorney General or a District Attorney, and have that referral automatically result in a prosecution for” the unauthorized practice of law, (ECF No. 101 at 16–17).

         The Court does not find State Prosecutors’ arguments persuasive. First, CAI is not required to submit evidence that it faces a pending prosecution in order for the threat of prosecution to be credible. CAI could only satisfy such a requirement by engaging in the prohibited conduct, which the law does not require it to do. See MedImmune, Inc., 549 U.S. at 128–29. Second, CAI’s plan is sufficiently specific to allow the State Bar to conclude that the plan would constitute the unauthorized practice of law. (See ECF No. 42-2.) This conclusion by the State Bar is sufficient to subject CAI to criminal liability under North Carolina law and thus establish a threat of prosecution. See N.C. Gen. Stat. § 84-7.[3] Third, the fact that North Carolina has not prosecuted a business association for the unauthorized practice of law is immaterial to the standing inquiry.[4] Fourth, the question of whether North Carolina law allows district attorneys to disavow their enforcement of state law is also irrelevant. Since State Prosecutors have not refused to enforce the UPL Statutes, CAI faces a credible threat of prosecution. Finally, contrary to State Prosecutors’ contention, the Court concludes that North Carolina law requires the State’s district attorneys to indict individuals or entities who allegedly violate the UPL Statutes once a district attorney receives notice of the alleged violation. See Disciplinary Hearing Comm’n v. Frazier, 556 S.E.2d 262, 264 (N.C. 2001) (“The duty imposed on district attorneys by N.C.G.S. § 84-7 is not to be ignored.”). The Court concludes that CAI does have standing as a matter of law and thus State Prosecutors have failed to carry their burden. Accordingly, State Prosecutors are not entitled to summary judgment on jurisdictional grounds.

         2. Right of Association

         The Court will next address State Prosecutors’ right of association argument. The Court will address this argument separately from its discussion of the cross-motions brought by CAI and the State Bar because State Prosecutors’ argument rests on different grounds. State Prosecutors contend that they are entitled to summary judgment on CAI’s right of association claim solely because, according to them, CAI has not produced any evidence “to support CAI’s efforts to categorize its members as ‘marginalized individuals who were actually being denied channels to vindicate rights.’” (ECF No. 101 at 15 (quoting Capital Associated Indus., Inc., 129 F.Supp.3d at 293).) CAI does not respond directly to this contention. CAI merely states that: “Although the State raises several arguments, the theme of its challenges is the familiar refrain that CAI lacks standing in this case.” (ECF No. 117 at 4.)

         It appears that State Prosecutors may have misconstrued the Court’s Preliminary Injunction Order, in which the Court concluded that “[p]aying more than desired for the assistance of outside counsel does not place CAI and its employer-members in the same category as 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.” Capital Associated Indus., Inc., 129 F.Supp.3d at 293. In raising this argument, State Prosecutors appear to construe that conclusion as a rule that CAI must satisfy in order to prevail on its right of association claim. However, in the Preliminary Injunction Order, the Court also stated that it “d[id] not foreclose the possibility that the activities CAI and its members wish to undertake may be entitled to First Amendment protection.” Id. at 292. The right of association protected under the First Amendment extends beyond marginalized individuals who are denied access to the courts. See Roberts v. U.S. Jaycees, 468 U.S. 609, 622 (1984) (concluding that the right of association protects efforts to join “with others in pursuit of a wide variety of political, social, economic, educational, religious, and cultural ends”). Accordingly, the Court concludes that State Prosecutors have not met their burden of showing that they are entitled to judgment as a matter of law on CAI’s right of association claim. Having concluded that State Prosecutors have failed to carry their burden on the two issues raised in their motion, the Court will deny State Prosecutors’ motion for summary judgment.

         B. Cross-Motions for ...


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