Lola v. Skadden, Arps, Slate, Meagher & Flom

14‐3845
Lola v. Skadden, Arps, Slate, Meagher & Flom
UNITED STATES COURT OF APPEALS 1
FOR THE SECOND CIRCUIT 2
____________________ 3
4
August Term, 2014 5
6
(Argued: May 29, 2015 Decided: July 23, 2015) 7
8
Docket No. 14‐3845‐cv 9
10
____________________ 11
12
DAVID LOLA, on behalf of himself and all others similarly situated, 13
14
15
Plaintiff‐Appellant, 16
17
v. 18
19
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP, TOWER LEGAL 20
STAFFING, INC., 21
22
Defendants‐Appellees. 23
24
____________________ 25
26
Before: POOLER, LOHIER, DRONEY, Circuit Judges. 27
28
David Lola, on behalf of himself and all others similarly situated, appeals 29
from the September 16, 2014 opinion and order of the United States District Court 30
for the Southern District of New York (Sullivan, J.) dismissing his putative 31

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collective action seeking damages from Skadden, Arps, Slate, Meagher & Flom 1
LLP and Tower Legal Staffing, Inc. for violations of the overtime provision of the 2
Fair Labor Standards Act, 29 U.S.C. §§ 201 et seq. (“FLSA”), arising out of Lola’s 3
work as a contract attorney in North Carolina. We agree with the district court 4
that: (1) state, not federal, law informs FLSA’s definition of “practice of law;” and 5
(2) North Carolina, as the place where Lola worked and lived, has the greatest 6
interest in this litigation, and thus we look to North Carolina law to determine if 7
Lola was practicing law within the meaning of FLSA. However, we disagree with 8
the district court’s conclusion, on a motion to dismiss, that by undertaking the 9
document review Lola allegedly was hired to conduct, Lola was necessarily 10
“practicing law” within the meaning of North Carolina law. 11
Vacated and remanded. 12
____________________ 13
14
D. MAIMON KIRSCHENBAUM, Joseph & 15
Kirschenbaum LLP (Denise A. Shulman, on the 16
brief), New York, NY, for Plaintiff‐Appellant David 17
Lola, on behalf of himself and all others similarly 18
situated. 19
20
BRIAN J. GERSHENGORN, Ogletree, Deakins, 21
Nash, Smoak & Stewart, P.C. (Stephanie L. 22
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Aranyos, on the brief) New York, N.Y. for 1
Defendants‐Appellees Skadden, Arps, Slate, Meagher 2
& Flom LLP and Tower Legal Staffing, Inc. 3
4
POOLER, Circuit Judge: 5
David Lola, on behalf of himself and all others similarly situated, appeals 6
from the September 16, 2014 opinion and order of the United States District Court 7
for the Southern District of New York (Sullivan, J.) dismissing his putative 8
collective action seeking damages from Skadden, Arps, Slate, Meagher & Flom 9
LLP and Tower Legal Staffing, Inc. for violations of the overtime provision of the 10
Fair Labor Standards Act, 29 U.S.C. §§ 201 et seq. (“FLSA”), arising out of Lola’s 11
work as a contract attorney in North Carolina. We agree with the district court’s 12
conclusion that: (1) state, not federal, law informs FLSA’s definition of “practice 13
of law;” and (2) North Carolina, as the place where Lola worked and lived, has 14
the greatest interest in this litigation, and thus we look to North Carolina law to 15
determine if Lola was practicing law within the meaning of FLSA. However, we 16
disagree with the district court’s conclusion, on a motion to dismiss, that by 17
undertaking the document review Lola allegedly was hired to conduct, Lola was 18
necessarily “practicing law” within the meaning of North Carolina law. We find 19
that accepting the allegations as pleaded, Lola adequately alleged in his 20
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complaint that his document review was devoid of legal judgment such that he 1
was not engaged in the practice of law, and remand for further proceedings. 2
BACKGROUND 3
Lola commenced this FLSA collective action against Skadden, Arps, Slate, 4
Meagher & Flom LLP and Tower Legal Staffing Inc. In his first amended 5
complaint, Lola alleged that Skadden, a Delaware limited liability partnership, is 6
based in New York City. He alleges that Tower is a New York corporation that 7
provides attorneys and paralegals on a contract basis to various law firms and 8
corporate law departments. Lola alleges that Skadden and Tower (together, 9
“Defendants”) were joint employers within the meaning of FLSA. 10
Lola, a North Carolina resident, alleges that beginning in April 2012, he 11
worked for Defendants for fifteen months in North Carolina. He conducted 12
document review for Skadden in connection with a multi‐district litigation 13
pending in the United States District Court for the Northern District of Ohio. 14
Lola is an attorney licensed to practice law in California, but he is not admitted to 15
practice law in either North Carolina or the Northern District of Ohio. 16
Lola alleges that his work was closely supervised by the Defendants, and 17
his “entire responsibility . . . consisted of (a) looking at documents to see what 18
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search terms, if any, appeared in the documents, (b) marking those documents 1
into the categories predetermined by Defendants, and (c) at times drawing black 2
boxes to redact portions of certain documents based on specific protocols that 3
Defendants provided.” App’x at 20 ¶ 28. Lola further alleges that Defendants 4
provided him with the documents he reviewed, the search terms he was to use in 5
connection with those documents, and the procedures he was to follow if the 6
search terms appeared. Lola was paid $25 an hour for his work, and worked 7
roughly forty‐five to fifty‐five hours a week. He was paid at the same rate for any 8
hours he worked in excess of forty hours per week. Lola was told that he was an 9
employee of Tower, but he was also told that he needed to follow any procedures 10
set by Skadden attorneys, and he worked under the supervision of Skadden 11
attorneys. Other attorneys employed to work on the same project performed 12
similar work and were likewise paid hourly rates that remained the same for any 13
hours worked in excess of forty hours per week. 14
Defendants moved to dismiss the complaint, arguing that Lola was exempt 15
from FLSA’s overtime rules because he was a licensed attorney engaged in the 16
practice of law. The district court granted the motion, finding (1) state, not 17
federal, standards applied in determining whether an attorney was practicing 18
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law under FLSA; (2) North Carolina had the greatest interest in the outcome of 1
the litigation, thus North Carolina’s law should apply; and (3) Lola was engaged 2
in the practice of law as defined by North Carolina law, and was therefore an 3
exempt employee under FLSA. Lola v. Skadden, Arps, Slate, Meagher & Flom, LLP, 4
No. 13‐cv‐5008 (RJS), 2014 WL 4626228 (S.D.N.Y. Sept. 16, 2014). This appeal 5
followed. 6
DISCUSSION 7
“We review de novo a district court’s dismissal of a complaint for failure to 8
state a claim, accepting all factual allegations in the complaint as true and 9
drawing all reasonable inferences in plaintiffs’ favor.” Freidus v. Barclays Bank 10
PLC, 734 F.3d 132, 137 (2d Cir. 2013). 11
Pursuant to FLSA, employers must generally pay employees working 12
overtime one and one‐half times the regular rate of pay for any hours worked in 13
excess of forty a week. 29 U.S.C. § 207(a)(1). However, employees “employed in a 14
bona fide . . . professional capacity” are exempt from that requirement. Id. § 15
213(a)(1). The statute does not provide a definition of “professional capacity,” 16
instead delegating the authority to do so to the Secretary of the Department of 17
Labor (“DOL”), who defines “professional employees” to include those 18
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employees who are: 1
(1) Compensated on a salary or fee basis at a rate of not 2
less than $455 per week . . . ; and 3
4
(2) Whose primary duty is the performance of work: 5
6
(i) Requiring knowledge of an advanced type in a 7
field of science or learning customarily acquired by a 8
prolonged course of intellectual instruction; or 9
10
(ii) Requiring invention, imagination, originality 11
or talent in a recognized field of artistic or creative 12
endeavor. 13
14
29 C.F.R. § 541.300. These requirements, however, do not apply to attorneys 15
engaged in the practice of law. 29 C.F.R. § 541.304(d) (“The requirements of 16
§ 541.300 and subpart G (salary requirements) of this part do not apply to the 17
employees described in this section.”). Instead, attorneys fall under 29 C.F.R. § 18
541.304, which exempts from the overtime requirement: 19
Any employee who is the holder of a valid license or 20
certificate permitting the practice of law or medicine or 21
any of their branches and is actually engaged in the 22
practice thereof[.] 23
24
Id. § 541.304(a)(1). While it is undisputed that Lola is an attorney licensed to 25
practice law in California, the parties dispute whether the document review he 26
allegedly performed constitutes “engaging in the practice of law.” 27
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I. “Practice of law.” 1
Lola urges us to fashion a new federal standard defining the “practice of 2
law” within the meaning of Section 541.304. We decline to do so because we 3
agree with the district court that the definition of “practice of law” is “primarily a 4
matter of state concern.” Lola, 2014 WL 4626228, at *4 (citation omitted). 5
In Kamen v. Kemper Financial Services, Inc., 500 U.S. 90 (1991), the Supreme 6
Court examined whether, in an action based on a federal statute, federal common 7
law should incorporate state law. There, the issue was whether the contours of 8
the demand futility requirement of the Investment Company Act of 1940 must be 9
discerned by reference to state law or by reference to federal law. Id. at 97‐98. The 10
Kamen Court explained “that a court should endeavor to fill the interstices of 11
federal remedial schemes with uniform federal rules only when the scheme in 12
question evidences a distinct need for nationwide legal standards, or when 13
express provisions in analogous statutory schemes embody congressional policy 14
choices readily applicable to the matter at hand.” Id. at 98 (citation omitted). 15
“Otherwise,” the Court continued: 16
we have indicated that federal courts should 17
incorporate state law as the federal rule of decision, 18
unless application of the particular state law in question 19
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would frustrate specific objectives of the federal 1
programs. The presumption that state law should be 2
incorporated into federal common law is particularly 3
strong in areas in which private parties have entered 4
legal relationships with the expectation that their rights 5
and obligations would be governed by state‐law 6
standards. 7
8
Id. (internal citation, quotation marks and alterations omitted). 9
Applying these principles, the Supreme Court explained that “where a gap 10
in the federal securities laws must be bridged by a rule that bears on the 11
allocation of governing powers within the corporation, federal courts should 12
incorporate state law into federal common law unless the particular state law in 13
question is inconsistent with the policies underlying the federal statute.” Id. at 14
108 (emphasis omitted). Thus, the Kamen court concluded that “the scope of the 15
demand requirement” must be determined by the law of the state of 16
incorporation. Id. at 108. 17
De Sylva v. Ballentine, 351 U.S. 570 (1956), is also instructive in determining 18
whether state or federal law should define the sweep of a federal right.. In De 19
Sylva, the Supreme Court examined the question of whether an illegitimate child 20
was a “child” within the meaning of the Copyright Act. Noting that “[t]he scope 21
of a federal right is, of course, a federal question, but that does not mean that its 22
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content is not to be determined by state, rather than federal law,” id., the court 1
also observed that “[t]his is especially true where a statute deals with a familial 2
relationship; there is no federal law of domestic relations, which is primarily a 3
matter of state concern.” Id. The Court then relied on state law to define “child” 4
within the meaning of the federal Copyright Act. Id. at 581. 5
Just as “there is no federal law of domestic relations,” here there is no 6
federal law governing lawyers. Regulating the “practice of law” is traditionally a 7
state endeavor. No federal scheme exists for issuing law licenses. As the district 8
court aptly observed, “[s]tates regulate almost every aspect of legal practice: they 9
set the eligibility criteria and oversee the admission process for would‐be 10
lawyers, promulgate the rules of professional ethics, and discipline lawyers who 11
fail to follow those rules, among many other responsibilities.” Lola, 2014 WL 12
4626228, at *4. The exemption in FLSA specifically relies on the attorney 13
possessing “a valid license . . . permitting the practice of law.” 29 C.F.R. § 14
541.304(a)(1). The regulation’s history indicates that the DOL was well aware that 15
such licenses were issued by the states. See Wage and Hour and Public Contracts 16
Divisions, U.S. Department of Labor, Report and Recommendations of the 17
Presiding Officer at Public Hearings on Proposed Revisions of Regulations, Part 18
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541, at 77 (1949) (noting that the exemption for attorneys was based in part on 1
“the universal requirement of licensing by the various jurisdictions”). In rejecting 2
a proposal to exempt librarians from the overtime rules, the DOL noted that 3
“states do not generally license the practice of library science, so that in this 4
respect . . . the profession is not comparable to that of law or medicine.” Id. A 5
similar distinction was drawn in a discussion of extending the exemption to 6
architects and engineers: 7
The practice of law and medicine has a long history of 8
state licensing and certification; the licensing of 9
engineers and architects is relatively recent. While it is 10
impossible for a doctor or lawyer legally to practice his 11
profession without a certificate or license, many 12
architects and engineers perform work in these fields 13
without possessing licenses, although failure to hold a 14
license may limit their permissible activities to those of 15
lesser responsibilities. 16
17
Id. We thus find no error with the district court’s conclusion that we should look 18
to state law in defining the “practice of law.” 19
II. Choice of law. 20
We turn to the question of which state’s law to apply. “Where jurisdiction 21
is based on the existence of a federal question . . . we have not hesitated to apply 22
a federal common law choice of law analysis.” Barkanic v. Gen. Admin. of Civil 23
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Aviation of the Peopleʹs Republic of China, 923 F.2d 957, 961 (2d Cir. 1991). “The 1
federal common law choice‐of‐law rule is to apply the law of the jurisdiction 2
having the greatest interest in the litigation.” In re Koreag, Controle et Revision S.A., 3
961 F.2d 341, 350 (2d Cir. 1992). Here, there are four possible forum states: North 4
Carolina (where Lola worked and lived); Ohio (where the underlying litigation is 5
venued); California (where Lola is barred); and New York (where Skadden is 6
located). 7
“[W]hen conducting a federal common law choice‐of‐law analysis, absent 8
guidance from Congress, we may consult the Restatement (Second) of Conflict of 9
Laws.” Eli Lilly Do Brasil, Ltda v. Fed. Express Corp., 502 F.3d 78, 81 (2d Cir. 2007). 10
The Restatement provides in relevant part that: 11
The validity of a contract for the rendition of 12
services and the rights created thereby are determined, 13
in the absence of an effective choice of law by the 14
parties, by the local law of the state where the contract 15
requires that the services, or a major portion of the 16
services, be rendered, unless, with respect to the 17
particular issue, some other state has a more significant 18
relationship under the principles stated in § 6 to the 19
transaction and the parties, in which [ ] event the local 20
law of the other state will be applied. 21
22
Restatement (Second) of Conflict of Laws § 196 (1971). Here, the services were 23
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rendered in North Carolina. Moreover, as the state where Lola resides, North 1
Carolina possesses a strong interest in making sure Lola is fairly paid. We find no 2
error in the district court’s decision to apply North Carolina law. 3
III. Definition of “practice of law” under North Carolina law. 4
5
North Carolina defines the “practice of law” in its General Statutes, Section 6
84–2.1, which provides that: 7
The phrase “practice law” as used in this Chapter 8
is defined to be performing any legal service for any 9
other person, firm or corporation, with or without 10
compensation, specifically including . . . the preparation 11
and filing of petitions for use in any court, including 12
administrative tribunals and other judicial or 13
quasi‐judicial bodies, or assisting by advice, counsel, or 14
otherwise in any legal work; and to advise or give 15
opinion upon the legal rights of any person, firm or 16
corporation . . . . 17
18
N.C. Gen. Stat. § 84–2.1. North Carolina courts typically read Section 84–2.1 in 19
conjunction with Section 84–4, which defines the unauthorized practice of law as 20
follows: 21
Except as otherwise permitted by law, . . . it shall 22
be unlawful for any person or association of persons 23
except active members of the Bar, for or without a fee or 24
consideration, to give legal advice or counsel, [or] 25
perform for or furnish to another legal services . . . . 26
27
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Id. § 84–4; see N.C. State Bar v. Lienguard, Inc., No. 11–cvs–7288, 2014 WL 1365418, 1
at *6–7 (N.C. Super. Ct. Apr. 4, 2014). 2
The North Carolina General Statutes do not clarify whether “legal 3
services” includes the performance of document review. Nevertheless, the North 4
Carolina State Bar issued a formal ethics opinion shedding light on what is meant 5
by “legal services.”1 The question considered in the ethics opinion was: “May a 6
lawyer ethically outsource legal support services abroad, if the individual 7
providing the services is either a nonlawyer or a lawyer not admitted to practice 8
in the United States (collectively ‘foreign assistants’)?” In its opinion, the Bar’s 9
Ethics Committee opined that: 10
A lawyer may use foreign assistants for administrative 11
support services such as document assembly, 12
accounting, and clerical support. A lawyer may also use 13
foreign assistants for limited legal support services such 14
as reviewing documents; conducting due diligence; 15
drafting contracts, pleadings, and memoranda of law; 16
and conducting legal research. Foreign assistants may 17
not exercise independent legal judgment in making 18
decisions on behalf of a client. . . . The limitations on the 19
type of legal services that can be outsourced, in 20
1 The ethics opinion technically referred only to “legal support services.”
Nothing in the opinion or in the relevant North Carolina caselaw suggests that
there is any meaningful difference between “legal services” and “legal support
services.”
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conjunction with the selection and supervisory 1
requirements associated with the use of foreign 2
assistants, insures that the client is competently 3
represented. See Rule 5.5(d). Nevertheless, when 4
outsourcing legal support services, lawyers need to be 5
mindful of the prohibitions on unauthorized practice of 6
law in Chapter 84 of the General Statutes and on the 7
prohibition on aiding the unauthorized practice of law 8
in Rule 5.5(d). 9
10
N.C. State Bar Ethics Committee, 2007 Formal Ethics Op. 12 (Apr. 25, 2008). 11
The district court found that (1) under North Carolina law, document 12
review is considered “legal support services,” along with “drafting contracts, 13
pleadings, and memoranda of law[,] and conducting legal research;” (2) the 14
ethics opinion draws a clear line between legal support services, like document 15
review, and “administrative support services,” like “document assembly, 16
accounting, and clerical support;” and (3) by emphasizing that only lawyers may 17
undertake legal work, the ethics opinion makes clear that “document review, like 18
other legal support services, constitutes the practice of law and may be lawfully 19
performed by a non‐lawyer only if that non‐lawyer is supervised by a licensed 20
attorney.” Lola, 2014 WL 4626228, at *11–12 (alteration in the original). Thus, the 21
district court concluded, any level of document review is considered the “practice 22
of law” in North Carolina. Id. at 12. The district court also concluded that because 23
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FLSA’s regulatory scheme carves doctors and lawyers out of the salary and duty 1
analysis employed to discern if other types of employees fall within the 2
professional exemption, a fact‐intensive inquiry is at odds with FLSA’s 3
regulatory scheme. Id. at *13. 4
We disagree. The district court erred in concluding that engaging in 5
document review per se constitutes practicing law in North Carolina. The ethics 6
opinion does not delve into precisely what type of document review falls within 7
the practice of law, but does note that while “reviewing documents” may be 8
within the practice of law, “[f]oreign assistants may not exercise independent 9
legal judgment in making decisions on behalf of a client.” N.C. State Bar Ethics 10
Committee, 2007 Formal Ethics Op. 12. The ethics opinion strongly suggests that 11
inherent in the definition of “practice of law” in North Carolina is the exercise of 12
at least a modicum of independent legal judgment.2
13
14
2 Were it an option, we might have opted to certify the question of how to
define “practice of law” to the North Carolina courts. See AGI Assocs. LLC v. City
of Hickory, N.C., 773 F.3d 576, 579 n.4 (4th Cir. 2014) (“A lack of controlling
precedent on the state rule of decision can merit certification of the issue to the
state’s highest court. The State of North Carolina, however, has no certification
procedure in place for federal courts to certify questions to its courts.”).
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Although the parties do not cite, and our research did not reveal, a case 1
directly on point, two decisions of the North Carolina courts that relied, in part, 2
on the exercise of legal judgment to support a finding of unauthorized practice of 3
law also support such a conclusion. Lienguard, 2014 WL 1365418, at *9–11 (lien 4
filing service engaged in unauthorized practice of law in preparing claims of 5
lien); LegalZoom.com, Inc. v. N.C. State Bar, No. 11–cvs–15111, 2014 WL 1213242, at 6
*12 (N.C. Super. Ct. Mar. 24, 2014) (noting that the “scrivener’s exception” to the 7
unauthorized practice of law allows “unlicensed individuals [to] record 8
information that another provides without engaging in [the unlicensed practice 9
of law] as long as they do not also provide advice or express legal judgments”). 10
Moreover, many other states also consider the exercise of some legal 11
judgment an essential element of the practice of law. See, e.g., In re Discipline of 12
Lerner, 197 P.3d 1067, 1069‐70 (Nev. 2008) (“exercise of legal judgment on a 13
client’s behalf” key to analysis of whether a person engaged in the unauthorized 14
practice of law); People v. Shell, 148 P.3d 162, 174 (Colo. 2006) (“[O]ne of the 15
touchstones of Coloradoʹs ban on the unauthorized practice of law is an 16
unlicensed person offering advice or judgment about legal matters to another 17
person for use in a specific legal setting”); Or. State Bar v. Smith, 942 P.2d 793, 800 18
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(Or. Ct. App. 1997) (“The ‘practice of law’ means the exercise of professional 1
judgment in applying legal principles to address another person’s individualized 2
needs through analysis, advice, or other assistance.”); In re Discipio, 645 N.E.2d 3
906, 910 (Ill. 1994) (“The focus of the inquiry” into whether person engaged in 4
unauthorized practice of law is, in fact, “whether the activity in question required 5
legal knowledge and skill in order to apply legal principles and precedent.”); In 6
re Rowe, 80 N.Y.2d 336, 341–42 (1992) (authoring an article on the legal rights of 7
psychiatric patients who refuse treatment did not constitute the practice of law 8
because “[t]he practice of law involves the rendering of legal advice and opinions 9
directed to particular clients”). 10
The gravamen of Lola’s complaint is that he performed document review 11
under such tight constraints that he exercised no legal judgment whatsoever—he 12
alleges that he used criteria developed by others to simply sort documents into 13
different categories. Accepting those allegations as true, as we must on a motion 14
to dismiss, we find that Lola adequately alleged in his complaint that he failed to 15
exercise any legal judgment in performing his duties for Defendants. A fair 16
reading of the complaint in the light most favorable to Lola is that he provided 17
services that a machine could have provided. The parties themselves agreed at 18
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oral argument that an individual who, in the course of reviewing discovery 1
documents, undertakes tasks that could otherwise be performed entirely by a 2
machine cannot be said to engage in the practice of law. We therefore vacate the 3
judgment of the district court and remand for further proceedings consistent with 4
this opinion. 5
CONCLUSION 6
For the reasons given above, the judgment of the district court is vacated, 7
and this matter remanded. 8
9
10
11
12
13
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