Capital Associated Indus., Inc. v. Cooper, 1:15–cv–83.

129 F.Supp.3d 281

CAPITAL ASSOCIATED INDUSTRIES, INC., Plaintiff,

v.Roy COOPER, 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; and J. Douglas Henderson, in his official capacity as District Attorney for the 18th Prosecutorial District of the State of North Carolina, Defendants.

No. 1:15–cv–83.

United States District Court, M.D. North Carolina.

Signed Sept. 4, 2015.

Reid L. Phillips, Charles E. Coble, Jennifer K. Van Zant, Kimberly M. Marston, Brooks Pierce McLendon Humphrey & Leonard, LLP, Greensboro, NC, Craig D. Schauer, Raleigh, NC, for Plaintiff.

David J. Adinolfi, II, N.C. Department of Justice, Raleigh, NC, for Defendants.

MEMORANDUM OPINION AND ORDER

LORETTA C. BIGGS, District Judge.

Plaintiff, Capital Associated Industries, Inc. ("CAI"), brings this action for declaratory and injunctive relief, challenging the constitutionality of Sections 84–4 and 84–5 of the North Carolina General Statutes ("UPL Statutes"), which govern the unauthorized practice of law, as applied to CAI, and requesting that State Prosecutors be enjoined from enforcing said statutes against CAI. (ECF No. 1 ¶ 100.) The North Carolina State Bar ("State Bar"), though not named by CAI as a Defendant, has intervened in this action. (ECF No. 37 at 1.) Before the Court are CAI's Motion for Preliminary Injunction pursuant to Rule 65 of the Federal Rules of Civil Procedure (ECF No. 19), along with Defendants Roy Cooper, Nancy Lorrin Freeman, and J. Douglas Henderson's ("State Prosecutors") Motion to Dismiss pursuant to Rules 12(b)(1), 12(b)(6), and 12(b)(7) of the Federal Rules of Civil Procedure (ECF No. 10) and Motion to Dispense with Mediation (ECF No. 12). The Court heard oral argument on the parties' motions on May 29, 2015. For the reasons stated below, the Court denies CAI's Motion for Preliminary Injunction and denies State Prosecutors' Motion to Dismiss.

I. BACKGROUND

In its Complaint, CAI describes itself as a tax-exempt, non-profit business association that provides human resources-related information, advice, data, education, legislative advocacy, and other benefits and services to approximately 1,080 member organizations throughout North Carolina. (ECF No. 1 ¶¶ 2, 17.) CAI is incorporated under the laws of North Carolina. (Id. ¶ 6.) Its members are employers in North Carolina that pay annual membership dues to CAI to avail themselves of its services. (Id. ¶ 17.) In addition to the services outlined above, CAI wishes to provide legal advice and services to its members through attorneys employed by CAI. It argues that it is prevented from doing so because of the threat it will be prosecuted under Sections 84–7 and 84–8 of the North Carolina General Statutes, which criminalize violations of the UPL Statutes. (Id. ¶ 44.) CAI claims that the UPL Statutes, as applied to CAI, violate its Fourteenth Amendment and First Amendment rights, are unconstitutionally vague under the First Amendment, and violate the North Carolina Constitution.

In February of 2011, representatives of CAI met with a representative of the State Bar concerning CAI's plan to provide its members with legal advice and services. (ECF No. 41 ¶¶ 5–7.) In April of 2013, CAI requested that the State Bar render an opinion on whether its proposed plan to provide legal advice and certain legal services to its members would be considered the unauthorized practice of law. (ECF No. 42 ¶¶ 7–9.) On May 28, 2013, the State Bar issued a proposed ethics decision, notifying CAI that its plan would be in violation of the UPL Statutes and recommending as an alternative that CAI consider a pre-paid legal or group services plan. (See ECF No. 42–1; ECF No. 422.) On January 23, 2015, CAI filed this lawsuit, seeking, among other relief, a preliminary and permanent injunction enjoining State Prosecutors from enforcing the UPL Statutes against CAI, claiming that those statutes prevent its members from receiving the full extent of information and services they need and want in a cost-efficient manner, in violation of the United States and North Carolina Constitutions. (ECF No. 1 ¶ 43.)

II. THE UNAUTHORIZED PRACTICE OF LAW STATUTES

Sections 84–1 through 84–10 of the North Carolina General Statutes govern the unauthorized practice of law in North Carolina. Section 84–2.1 defines the practice of law, in pertinent part, as "performing any legal service for any other person, firm or corporation, with or without compensation, specifically including ... assisting by advice, counsel, or otherwise in any legal work; and ... advis[ing] or giv[ing] opinion upon the legal rights of any person, firm or corporation." N.C. Gen.Stat. § 84–2.1 (2015). Section 84–4 prohibits the practice of law by "any person or association of persons, except active members of the Bar of the State of North Carolina." Id. § 84–4. Section 84–5 makes it "unlawful for any corporation to practice law[,] ... hold itself out to the public or advertise as being entitled to practice law[,] ... draw agreements[ ] or other legal documents, ... or give legal advice." Id. § 84–5. Under the statutes governing the unauthorized practice of law, the State's district attorneys are responsible for bringing suit to enjoin persons and corporations from violating these statutes. See id. § 84–7. The State's district attorneys also have a statutory duty to bring criminal charges against any person or corporation that has violated Sections 84–4 through 84–8.¹ Id. § 84–7. Violation of these statutes is punishable as a Class 1 misdemeanor. Id. § 84–8.

III. MOTION FOR PRELIMINARY INJUNCTION

Based on CAI's allegations in its Complaint that the UPL Statutes violate its constitutional rights, CAI moves this Court for a preliminary injunction to enjoin State Prosecutors as well as all of their agents, affiliates, officers, and employees 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.

A. Legal Standard

A preliminary injunction is an extraordinary remedy involving the exercise of a very far-reaching power that is only to be employed in the limited circumstances that demand it. Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7, 22, 129 S.Ct. 365, 172 L.Ed.2d 249 (2008) ; In re Microsoft Corp. Antitrust Litig., 333 F.3d 517, 525 (4th Cir.2003), abrogated on other grounds by eBay, Inc. v. MercExchange, L.L.C., 547 U.S. 388, 126 S.Ct. 1837, 164 L.Ed.2d 641 (2006). Whether to grant this relief is in the sound discretion of the court. Winter, 555 U.S. at 24, 129 S.Ct. 365. Courts generally employ preliminary injunctions for the limited purpose of preserving the status quo during the course of litigation in order to prevent irreparable harm and to preserve the ability of the court to render meaningful relief on the merits. Microsoft, 333 F.3d at 525. The Fourth Circuit has defined the status quo as the "last uncontested status between the parties which preceded the controversy." Pashby v. Delia, 709 F.3d 307, 320 (4th Cir.2013) (quoting Aggarao v. MOL Ship Mgmt. Co., 675 F.3d 355, 378 (4th Cir.2012) ). The party seeking a preliminary injunction bears the burden of justifying such relief. Wagner v. Bd. of Educ., 335 F.3d 297, 302 (4th Cir.2003). To prevail on a motion for preliminary injunction, a party must establish "[1] that [it] is likely to succeed on the merits, [2] that [it] is likely to suffer irreparable harm in the absence of preliminary relief, [3] that the balance of equities tips in its favor, and [4] that an injunction is in the public interest." Winter, 555 U.S. at 20, 129 S.Ct. 365. "[A] clear showing" of likelihood of success on the merits and irreparable harm is required in addition to satisfying the other factors before a preliminary injunction can be entered. Real Truth About Obama, Inc. v. FEC, 575 F.3d 342, 346–47 (4th Cir.2009), vacated on other grounds, 559 U.S. 1089, 130 S.Ct. 2371, 176 L.Ed.2d 764 (2010).

Such a remedy "is a matter of equitable discretion; it does not follow from success on the merits as a matter of course." Winter, 555 U.S. at 32, 129 S.Ct. 365. "In each case, courts ‘must balance the competing claims of injury and must consider the effect on each party of the granting or withholding of the requested relief.’ " Id. at 24, 129 S.Ct. 365 (quoting Amoco Prod. Co. v. Vill. of Gambell, 480 U.S. 531, 542, 107 S.Ct. 1396, 94 L.Ed.2d 542 (1987) ). In doing so, the Supreme Court has instructed federal courts to "pay particular regard for the public consequences in employing the extraordinary remedy of injunction." Id. Even in cases where a plaintiff has shown likelihood of success on the merits and irreparable harm, the balance of equities and the public interest factors can weigh in favor of denying a preliminary injunction. See id. at 23–24, 31 n. 5, 129 S.Ct. 365.

B. Analysis

Before turning to the four factors, as enunciated by the Supreme Court and Fourth Circuit, that a plaintiff must satisfy to prevail on a motion for preliminary injunction, the Court must briefly address the relief CAI seeks in this action. As stated above, the purpose of a preliminary injunction is to preserve the status quo to prevent irreparable harm and allow the Court to enter final, meaningful relief on the merits. The injunction that CAI seeks will necessarily alter the status quo rather than preserve it. The last uncontested status between the parties before the controversy, as the Fourth Circuit has defined status quo, is as follows: the UPL Statutes, which prohibit the corporate practice of law, have been in existence in some form in North Carolina since 1931, for more than 80 years, with certain notable exceptions.² CAI has been in existence since 1963, for more than 50 years.³ Whil...