Byline: Bill Cresenzo
A North Carolina law that prohibits corporations from engaging in the practice of law has survived a constitutional challenge brought by a trade association that had been seeking to provide legal services to its members. The 4th U.S. Circuit Appeals unanimously affirmed a lower court ruling upholding the statute in an April 19 opinion.
Capital Associated Industries has pushed for a change in the 80-year-old state law, and after lobbying efforts at the state legislature failed, it sued the state's attorney general and several local prosecutors, seeking to enjoin them from enforcing the law. In 2017 a federal judge
granted the defendants' motion for summary judgment after letting the state bar intervene as an additional defendant.
CAI contended that the law violates constitutional rights to free association, free speech, and commercial speech; lacks a rational basis and is vague; and violates the state constitution. But Judge Albert Diaz, writing for the 4th Circuit, rejected each of the association's arguments.
"Professional integrity could suffer if the state allows lawyers to practice on behalf of organizations owned and run by nonlawyers and to collect legal fees from clients," Diaz wrote, noting that the North Carolina Supreme Court has twice upheld the ban on corporate law practice and that members of the bar had voiced concerns over non-lawyers controlling litigation and receiving attorney fees, and the bar's inability to discipline corporations.
The bar was also worried about conflicts of interest due to CAI's large number of members and the fact that its directors and officers don't have to be lawyers, making them exempt from the bar's Rules of Professional Conduct.
Non-lawyers would likely supervise lawyers representing third-party clients at CAI, Diaz wrote, and that could compromise professional judgment and cause conflicts between clients' interests and the corporation's interests.
Diaz disagreed with CAI's argument that the restrictions were a violation of freedom of speech, noting that many laws that regulate the conduct of a profession or business place incidental burdens on speech, and the U.S. Supreme Court has treated those differently than pure restrictions on speech. For example, while obtaining informed consent for abortion procedures implicates a doctor's speech, the state may require it 'as part of the practice of medicine, subject to reasonable licensing and regulation,' Diaz wrote.