Legal Ethics

2nd Circuit Revives Suit Challenging Ban on Nonlawyer Ownership of Law Firms

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Jacoby & Meyers will get another chance to challenge New York’s ban on nonlawyer ownership of law firms.

In an order (PDF) issued last week, the New York-based 2nd U.S. Circuit Court of Appeals said Jacoby could amend its complaint to challenge all provisions of New York law that bar nonlawyer investment in law firms. The New York Law Journal, Reuters, the Wall Street Journal (sub. req.) and the Wall Street Journal Law Blog have stories.

U.S. District Judge Lewis Kaplan had dismissed the suit, saying any opinion would be advisory because the personal injury law firm had challenged only the ethics rule and not other laws barring nonlawyer ownership. Kaplan also said the firm did not have standing because it had not shown there were any nonlaywer investors wanting to buy a share of the firm.

At oral argument, lawyers for Jacoby & Meyers said they had declined to challenge the other provisions of New York state law because of concerns the district judge would find their meaning to be uncertain and then abstain from hearing the case under the Pullman doctrine. The firm contended a ruling overturning the ethics rule would also bar enforcement of the other relevant laws.

The defendants, however, argued that the other provisions of New York law unambiguously bar nonlawyer investment and conceded that they would be estopped from arguing state law provisions are unclear. “Given these developments, we see no reason not to remand the case back to the district court,” which can proceed to decide the constitutional issues, the appeals court said.

The lawsuit had argued the ban on nonlawyer investors violated the law firm’s First Amendment right of association and hurt Jacoby’s ability to compete with larger firms, the New York Law Journal says.

Related coverage:

New York Law Journal: “State Bar Affirms Its Opposition to Non-Lawyer Ownership of Firms” “Ethics 20/20 Recommends Helping Foreign Lawyers to Practice in US, Sidesteps Nonlawyer Ownership” “ABA House Postpones Resolution Reaffirming Opposition to Nonlawyer Ownership of Law Firms”

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