NEW YORK, Feb 7 (Reuters) - A federal judge who could
rule on the constitutionality of New York's attorney-ethics rule
barring non-lawyers from having ownership of law firms seemed
poised to punt the case on Tuesday.
At a hearing in Manhattan federal court, U.S. District Judge
Lewis Kaplan preceded the attorneys' arguments by saying that
his "preliminary view of the matter" was doubt that the
plaintiff, Jacoby & Meyers, a personal-injury law firm, had
standing to bring suit. Kaplan said "it shouldn't be very
long" before he decided whether he will let the case
proceed, dismiss it for lack of standing, or possibly abstain
and turn the matter over to state court.
The lawsuit, filed in May 2011, asserts that New York's Rule
of Professional Conduct 5.4 -- which prohibits non-lawyers from
sharing in the ownership of a law firm -- unfairly cuts the firm
off from private-equity funding and other sources of capital.
Jacoby & Meyers further argues that the rule restricts
individuals from getting the help from law firms that they need,
and that the rule itself is vague.
Supporters of the rule argue that non-lawyer ownership can
create conflicts between the clients' interests and the
financial interests of any non-lawyer owners.
The defendants in the suit are the presiding justices from
the state's appellate division, in the First, Second, Third and
Fourth Departments; Jacoby & Meyers sued them because they adopt
and oversee rules governing the conduct of lawyers. The New York
State Attorney General's Office is representing the defendants.
The lawsuit comes at a time when non-lawyer ownership of law
firms is under consideration by the American Bar Association and
the New York Bar State Bar Association. On Feb. 2 NYSBA
President Vincent Doyle announced that the association was
forming a task force to study whether non-lawyers should be
allowed to own equity in firms.
Other countries, including Australia and the United Kingdom,
have recently begun to allow firm ownership by non-lawyers. In
the United States, no state permits it, but the District of
Columbia allows it in limited circumstances.
STATE LAW ISSUES MAY TAKE PRECEDENCE
Before any decision from Kaplan on the legality of the
professional-conduct rule, Jacoby & Meyers may have to overcome
the attorney general's argument that it does not have standing
to bring the lawsuit because, as a limited liability company, it
cannot operate as a law firm.
In November, Jacoby & Meyers LLP added Jacoby & Meyers USA
LLC as a plaintiff to its amended complaint, after the AG's
office argued that as an LLP it could not add a non-lawyer as an
owner under state law.
But at Tuesday's hearing, Kaplan said that the state
business-law issues presented considerable challenges to Jacoby
& Meyers that likely required resolution from the state court as
a preliminary matter.
"Even if you're right on the standing issue, you're barred
under a number of state statutes," Kaplan said to Jacoby &
The attorney general's office also has argued that even if
Jacoby & Meyers has standing to bring the case, its claims are
not ripe because the law firm is not in "imminent risk" of
having Rule 5.4 applied to it unlawfully.
Attorney Jeffrey Carton, representing Jacoby & Meyers,
pushed on Tuesday for Kaplan to take up the case on its merits.
In arguing for the state, Daniel Schulze, special litigation
counsel in the AG's office, spoke for less than two minutes,
asking that Kaplan dismiss the suit outright.
After the hearing, Carton said he expected the judge to
issue a ruling "probably next week."
The case is Jacoby & Meyers v. Presiding Justices, U.S.
District Court for the Southern District of New York,
For Jacoby & Meyers, Jeffrey Carton, Meiselman, Denlea,
Packman, Carton & Eberz, White Plains.
For the presiding justices, Daniel Schulze, Attorney General
of the State of New York, New York.
(Reporting by Leigh Jones)
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