In a spirited defense of a court rule barring non-lawyers from holding an ownership interest in a law firm, the New York attorney general is asking a federal court to dismiss a Jacoby & Meyers lawsuit the state deems meritless on the law and dangerous to the legal profession and its clients.
Jacoby & Meyers is attempting to overturn New York Court Rule 5.4, which prohibits law firms from accepting outside investment. The personal injury firm contends the rule infringes on its constitutional rights.
In a Southern District lawsuit against the presiding justices of the four departments of the Appellate Division and in parallel actions lodged in New Jersey and Connecticut, Jacoby & Meyers also argues that the prohibition interferes with the business and professional interests of the firm, and ultimately harms the public by denying attorneys “a critical source of funding” that “dramatically impedes access to legal services for those otherwise unable to afford them” (NYLJ, May 20).
But Attorney General Eric T. Schneiderman, in a motion to dismiss the Southern District action, Jacoby & Meyers v. The Presiding Justices, 11-cv-3387, contends that accepting Jacoby & Meyer’s claims could open a Pandora’s Box.
“[T]he limitations on non-lawyer investments found in the Rules are necessary to ensure that the profession’s ‘complete independence and uncompromised loyalty to those it serves…the very foundation of the profession’ is not compromised by conflicts of interest that would arise whenever a law firm becomes financially beholden to its non-lawyers investors,” the attorney general says in court papers. “Plaintiff obviously believes that it would not itself bow to such economic pressures—but the existence of such apparent conflicts could undermine the public’s trust in the legal profession. And plaintiff cannot answer for the multitude of attorneys practicing in this State, who would then be free to pursue such investments.”
At the heart of the lawsuit is Rule 5.4 of the New York Rules of Professional Conduct, which says that a lawyer cannot practice in a partnership where a non-lawyer owns an interest, a non-lawyer is a member or corporate director or a non-lawyer has the “right to control the professional judgment of a lawyer.”
Jacoby & Meyers claims the rule is outdated, unconstitutionally vague, and violates the commerce clause, the First Amendment and the takings clause.
The attorney general counters that the “claims have no merit—indeed many border on frivolous,” but maintains that Jacoby & Meyers lacks standing since even if Rule 5.4 was shot down the plaintiff would still be barred under the New York Partnership Law from adding a non-lawyer as partner.
According to the attorney general’s motion, the firm is organized as a professional limited liability partnership. As such, it is not permitted to add non-lawyers as partners, the attorney general argues.
“Plaintiff here alleges that it desires an infusion of capital, that it has received offers from non-lawyers interested in becoming partners who are prepared to invest capital in exchange for an equity interest in plaintiff law firm, and that it is prevented from accepting those offers by the New York Rule of Professional Conduct,” the attorney general says. “This alleged injury is too remote, not traceable to the actions of the defendants or the Rule being challenged, and declaring the Rule to be legally infirm would not remedy the alleged injury.”
The case is pending before Southern District Judge Lewis A. Kaplan and Magistrate Judge Kevin N. Fox.
Assistant Attorneys General Daniel Schulze and Michael J. Siudzinski are defending the four presiding justices.
Jeffrey I. Carton of Meiselman, Denlea, Packman, Carton & Eberz in White Plains represents Jacoby & Meyers.
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