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Jacoby & Meyers to Bring Amended Lawsuit over Non-lawyer Ownership

On Wednesday, a three-judge panel of the 2nd US circuit Court of Appeals held that Jacoby & Meyers could amend the lawsuit they had brought challenging a New York ethics rule that bars non-lawyers from having a ownership stake in law firms. The court held that the law firm could challenge other New York statutes that similarly prevent non-lawyer ownership and can resubmit their complaint to district court.

The initial lawsuit brought by Jacoby & Meyers had been against the New York Rule of Professional Conduct 5.4, in 2011. However, it was dismissed by federal court Judge Lewis Kaplan in March, this year, holding that Jacoby & Meyers lacked locus standi, and had failed to prove that it had been harmed by the ethics rule.

The defendants in the lawsuit by Jacoby & Meyers had included the presiding justices from the state’s appellate division in the First, Second, Third and Fourth Departments as the authorities who oversee rules of professional conduct of lawyers in the state.

The 2nd Circuit Panel, however, held that Jacoby could amend the lawsuit and include challenges to other New York statutes like the Judiciary Law and the Limited Liability Partnership law that prohibit non-lawyer ownership of law firms.

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The panel observed, “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.”

While many countries including Australia, and other European countries non-lawyer ownership of law firms is permitted today, all states in USA barring Washington D.C. (which allows non-lawyer ownership under certain conditions) prohibit non-lawyer ownership. To a section of lawyers, this causes severe handicaps on law firms in matters of raising funds or creating technological and business tie-ups.

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