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ABA Steps Back from Proposal of Non-lawyer Ownership of Law Firms
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In a statement issued by the American Bar Association on Monday, Jamie Gorelick and Michael Traynor, co-chairs of the committee studying the controversial issue said, “Based on the commission’s extensive outreach, research, consultation and the response of the profession, there does not appear to be a sufficient basis for recommending a change to the ABA policy.”

Had things been favorable, the proposal would have been submitted to the House of Delegates, the policy-making body of the association. Currently, the Attorney ethics rules stay as they are, banning non-lawyers from owning equity interest in law firms in the country except in the District of Columbia. In 2012, U.K. allowed such investment in law firms with Australia following suit.

The decision was expected as according to recent reports released by Reuters, rich lawyers are getting richer faster. From 2007 to 2011, fees charged by partners who bill at least $800 per hour increased at three times the rate at which the fees of lawyers who charged less than $300 experienced increase in fees. Who would want to risk such a party? Not those who control the corridors of power.

  
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Last month, a lawsuit brought by Jacoby & Meyers, which challenged the constitutionality of the New York state ethics rule prohibiting non-lawyers from having a financial stake in law firms was dismissed by the court. The court held that the law firm did not have the required locus standi to bring the suit.

The concern expressed by the rule-makers is that non-lawyer ownership would undermine the duty of loyalty and confidentiality owed to clients by lawyers. For the last 21 years, the District of Columbia is the only region in the country where non-lawyers are allowed to invest in law firms.

The question whether the existent non-lawyers investing in DC law firms showed a history of causing problems over the last 21 years, or whether the ban should also include the DC area, was neither raised nor addressed.

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At any rate, the situation remains where it was, with law firms incurring huge debts by depending upon loans to tide over difficult times or restructuring, and transferring the costs onto the shoulders of clients. And the situation remains adverse to the sudden emergence of small entrepreneurs in the law firms’ sector, who do not come from moneyed backgrounds.





 

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