INTERSTATE LAW FIRMS: COMPLIANCE ISSUES AND SUGGESTIONS

https://www.ncbar.gov/for-lawyers/interstate-law-firms-compliance-issues-and-suggestions/

In recent years, the Grievance and Authorized Practice Committees of the State Bar have noticed an increase in the number of cases originating from multijurisdictional law firms.

In North Carolina, 27 N.C.A.C. 1E, § .0200 contains the rules governing what are, in this state, known as “interstate law firms.” The rules indicate, generally, that no law firm that maintains offices in North Carolina and one or more other jurisdictions, or that is organized under the laws of another state and has filed an application with the Secretary of State for a certificate of authority to transact business in North Carolina, may do business in this state without first obtaining a certificate of registration from the North Carolina State Bar.1

While some multistate law firms get into trouble by failing to appropriately register as an interstate law firm despite practicing in North Carolina and in at least one other state, the provision that seemingly generates the most trouble is found in 27 N.C.A.C. 1E, § .0205: “This rule shall not be construed to confer the right to practice law in North Carolina upon any lawyer not licensed to practice law in North Carolina.” Thus, even within a registered interstate law firm, attorneys not licensed in North Carolina cannot practice law in this state. Individuals hold law licenses, not law firms. Therefore, registration as an interstate law firm does not override the prohibition, set forth in Chapter 84 of the General Statutes, on the unauthorized practice of law by persons not holding a North Carolina law license. The analysis here is not difficult. However, based upon grievance and authorized practice files recently opened at the State Bar, the implications of this provision of the rule are either misunderstood or just simply not followed.

The following scenario has become all too common. A North Carolina attorney – usually a relatively new, inexperienced attorney – sees an advertisement on Craigslist by an out-of-state firm or attorney who wants to hire a North Carolina “partner” to head up the firm’s North Carolina office. There is no actual North Carolina office, of course; the firm claims to save money by using a mail-store mailbox or virtual office space. The firm provides legal representation in bankruptcy, post-conviction matters, foreclosure issues, family law, or debtor matters; the firm drafts documents for its clients to use in court and negotiates with lenders or creditors on behalf of clients. The firm tells the North Carolina attorney that the firm will do most of the work – the local attorney will just need to review and/or file some documents and possibly make an appearance or two. The local attorney signs an “of counsel” or “class b partner” agreement and the firm begins representing North Carolina clients. The local attorney is paid a portion of the fee the firm charges to the client and does not have to participate in advertising or retaining the clients on behalf of the firm; the firm handles those services through a website and “intake paralegals.” The firm tells the local attorney that it is registered as an interstate law firm with the North Carolina State Bar so the local attorney “doesn’t need to worry about any compliance issues.”

Employees of the out-of-state firm handle advertising for legal services in North Carolina, initial client counseling, retaining the clients, answering client questions, and they even draft legal documents for the client; all the local attorney has to do is review the legal documents for accuracy and file them in North Carolina. The local attorney doesn’t mind the work because he gets some extra money on the side and is able to maintain his own separate firm. He hardly – if ever – speaks to the clients and he takes all of his instructions from the out-of-state firm. The firm’s paralegals, working in the firm’s home office, are very efficient, and the local attorney is pleased with the work they’ve produced; he doesn’t have supervisory authority over them, but he does have access to a call log or remote desktop where he can see their notes and emails. He thinks the clients are being served, and the firm is, after all, registered with the State Bar as an interstate law firm.

Is there a problem?

Yes. In the scenario just described, nearly all of the legal services are being provided by individuals who are not licensed to practice law in North Carolina. The local, North Carolina attorney is not answering the clients’ questions, deciding which clients have a case and need representation, drafting the legal documents, negotiating with the opposing parties, or determining the course of the representation. Remember the rule? Registration as an interstate law firm does not “confer the right to practice law in North Carolina upon any lawyer not licensed to practice law in North Carolina.” There is no exception to this rule, nothing that allows attorneys licensed in other jurisdictions – or nonattorneys in any state – to provide legal services in North Carolina, even if they are nominally supervised by a North Carolina attorney or their work is perfunctorily reviewed by a North Carolina attorney. Even if a firm is registered as an interstate law firm, all of the legal services that the firm provides to North Carolina residents must be provided by licensed, North Carolina attorneys. This does not mean, however, that a North Carolina attorney cannot work in conjunction with out-of-state attorneys and properly supervised nonlawyers to provide legal services in North Carolina matters, nor does it mean that the North Carolina attorney cannot utilize the services of a paralegal in the representation of clients or obtain assistance from non-lawyers with non-legal aspects of a law practice, such as marketing. It just means that, if clients are receiving legal services relative to a North Carolina legal matter, those services need to be provided by an attorney licensed in this state.

So how can North Carolina attorneys ensure that they comply with the rules? What does compliance in this arena look like? Here are some suggestions:

1. The North Carolina lawyer should have a bona fide business relationship with the out-of-state firm for the practice of law, and if she is held out to the public as having an ownership interest in the firm or having authority within the firm to make decisions, she should actually have that interest or authority. Nearly all of the problematic relationships reviewed by the State Bar are designed so that the local North Carolina attorney is a “partner” in name only with no actual authority or ownership in the firm.2

2. The North Carolina attorney should participate in the decision to provide representation to a prospective client relative to a North Carolina legal matter and in the initial consultation with the client. If an individual calls the firm and is (a) accepted as a client by the firm or (b) advised as to the legal course of action the firm will take for the client prior to the involvement of a North Carolina attorney, it is the unauthorized practice of law and violates the interstate law firm rule because the client has been provided with legal advice by someone other than a North Carolina attorney. Accordingly, the North Carolina attorney should be the first point of contact for all North Carolina matters and should have decision-making authority regarding the firm’s acceptance of North Carolina clients.

3. The North Carolina attorney must be the one ultimately deciding what legal services will be provided to clients in this state. To be truly providing all of the legal services relative to a North Carolina legal matter, the North Carolina attorney cannot take directions from out-of-state individuals, not licensed in North Carolina, about what legal services to provide to North Carolina clients.

4. Legal services provided to North Carolina residents should be provided by North Carolina attorneys, or by nonlawyer assistants under their direct supervision and, with regard to the following services, may only be provided by North Carolina lawyers: giving legal advice, answering client questions, explaining legal options, drafting legal documents, negotiating with opposing parties, making court appearances, et cetera.

5. If the North Carolina attorney utilizes the assistance of a paralegal, the supervision of the paralegal should encompass more than the paralegal or attorney “being available by phone” or reviewing of the paralegal’s emails or having access to the paralegal’s remote desktop. The supervision should be such that the North Carolina attorney is fully responsible for the actions of the nonlawyers she is supervising – she should be fully directing the representation, including oversight of what the client is told and how the client is advised.

6. All advertisements and websites should make the nature of the relationship very clear to the clients and potential clients of the firm. The North Carolina attorney should not be held out as a “partner” or “supervising attorney” if those titles are not indicative of the attorney’s level of authority or involvement, nor should the firm hold out as having “offices” in various states unless that is actually the case – a mailbox is not an office.

Multistate law firms are welcome to establish a North Carolina practice utilizing North Carolina licensed attorneys to deliver legal services in this state. But there are some out-of-state firms that misuse multistate registration, and they do so by taking advantage of naïve North Carolina lawyers. To remain in compliance, be discerning, ask questions, and carefully read the rules. When in doubt, contact the State Bar at 919-828-4620.

Endnotes:

1. There is an exception, however, that notes that such registration is not required “if all attorneys associated with the law firm…are licensed to practice law in North Carolina.”

2. Cf. Proposed 2015 FEO 5 (2016), ruling that a lawyer who does not own equity in a law firm may be held out to the public by the designation “partner,” “income partner,” or “non-equity partner,” provided the lawyer was officially promoted based upon legitimate criteria and the lawyer complies with the professional responsibilities arising from the designation.

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