Jacoby & Meyers Loses Suit To Allow Non-Lawyer Ownership of Firms

March 13th, 2012

From WSJ:

Judge Lewis Kaplan on Thursday dismissed a lawsuit filed by Jacoby & Meyers Law Offices LLP, a 60-lawyer personal-injury firm and a pioneer in televised legal advertising.

Jacoby & Meyers had claimed that a New York rule preventing nonlawyers from owning stakes in law firms had hurt its ability to raise capital to cover technology and expansion costs and hindered its ability to provide legal services to working-class clients. The firm argued that the rule—Rule of Professional Conduct 5.4—violated its First Amendment freedom-of-association rights, among several other constitutional provisions.

But Judge Kaplan didn’t reach the constitutional questions. Rather, he found that even if he were to strike down rule 5.4 as unconstitutional, other New York laws would still restrict Jacoby & Meyers’s ability to raise money from nonlawyers. Therefore, the suit was improper.

AMLaw has the opinion:

The advisability of allowing non-lawyer equity investment and, perhaps ultimately, public offerings of shares in law practices has become a much debated topic. Permitting it, as J&M contends, conceivably might broaden the availability and lower the cost of legal services without serious adverse consequences. On the other hand, it instead might prove to be “a deal with the devil,” as some have argued was the case when traditionally private investment banking partnerships went public.3 But those, at least in the first instance, are issues for the legislatures and professional rule-setting bodies that govern lawyer conduct. The issue before this Court on defendants’ motion to dismiss is far more limited – whether plaintiffs have standing to raise the constitutional claims they advance.

The fundamental problem is this. Rule 5.4 is not the only provision of New York law that forecloses plaintiffs from receiving non-lawyer equity investment. But plaintiffs challenge only Rule 5.4. Indeed, they explicitly disclaim any challenge to other provisions of New York law,4 each of which independently would prevent them from doing what they say they wish to do. Thus, plaintiffs could not accept non-lawyer equity investments even if they won on the merits of their constitutional claims. Plaintiffs therefore could not, consistent with New York law, practice law and accept equity investments from non-lawyers even if Rule 5.4 were declared unconstitutional. Hence, the ruling that they seek would be a purely advisory declaration of the sort that is forbidden to federal courts under Article III of the U.S. Constitution.

Courts will not be receptive, at all, to the types of changes I seek.