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Can Law Firms Get By with a Little Help from (Non-Lawyer) Friends?

By Robyn Hagan Cain | Last updated on

Why should law firm ownership be restricted to lawyers?

Jacoby & Meyers, a multi-state law firm, says that New York's only-lawyers-can-own-law-firms rule infringes on fundamental rights like equal protection and due process. Maybe the firm has a point. Now, it's up to a federal district court to figure that out.

Last week, the Second Circuit Court of Appeals remanded the firm's previously-dismissed challenge to the non-lawyer fee-sharing prohibition, permitting the firm to amend the lawsuit with challenges to other New York statutes, including the Judiciary Law and the Limited Liability Partnership law, Thomson Reuters News & Insight reports.

(Sidebar: New York, like the 49 other states, bars non-lawyers from owning a stake in a law practice. Washington, D.C. allows such arrangement under certain conditions.)

In March, District Judge Lewis Kaplan dismissed the case, holding that the firm lacked standing since it hadn't proved it had been harmed by the rule. Judge Kaplan also observed that New York's Rule of Professional Conduct 5.4 wasn't the only obstacle to Jacoby & Meyers open ownership plan: other New York laws besides Rule 5.4 bar the firm from accepting investment capital from non-lawyers, The Wall Street Journal reports.

On appeal, however, the Second Circuit concluded, "We see no reason not to remand the case back to the district court, in order to permit the plaintiffs to amend their complaint to name additional state defendants and challenge other provisions of New York law that prohibit non-lawyer investment in law firms."

Some people argue that outside investors could interfere with a lawyer's fiduciary duty: If a client's interests were at odds with a firm investor's interests, an attorney could be tempted to prioritize the investor's interests over the client's. Whether or not that's a valid concern, it's one that the district court can address on the merits when it considers whether Rule 5.4 is unconstitutional.

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