Law Offices of David G. Arganian, Seattle, WA

Jacoby & Meyers Hits Bump in Bid to Seek Outside Investors

A skeptical federal judge questioned this week whether Jacoby & Meyers has standing to bring a lawsuit challenging a state ethics law that bans outside investment in law firms and, if so, why federal court is an appropriate venue to litigate the issue, sibling publication The New York Law Journal reports. The firm—which became something of a household name in the 1980s and 1990s through a national televesion advertising campaign—filed suit earlier this year in federal court in New York, New Jersey, and Connecticut, challenging laws in all three states that deny law firms from tapping what Jacoby & Meyers says is a source of funding that could help smaller firms compete with larger rivals, the NYLJ reports.

Outside investment in law firms is currently illegal in all 50 states, though in Washington, D.C., limited investments of up to 25 percent outside ownership are allowed, NYLJ reports. Law firms with a presence outside D.C. cannot take advantage of that rule.

At a hearing Wednesday in Jacoby & Meyers's New York suit, the NYLJ reports that U.S. district court Judge Lewis Kaplan told the firm's attorney, Jeffrey Carton, that its current complaint was too vague about why the firm felt the applicable New York state regulation violated its rights to due process and First Amendment rights, among other claims, according to the NYLJ.

"I gotta tell you, you are pushing a huge rock uphill here on standing, and if you get past that, you're pushing a huge rock uphill on ripeness," Kaplan said from the bench, according to the NYLJ. "The odds I'm going to get to the merits here are slim." Kaplan gave Carton the opportunity to amend the firm's complaint to make more specific allegations on how the law firm has been injured, the NYLJ reports.

The New York Times recently reported on changes in the legal industry in the U.K., where law firms are now allowed to do what Jacoby & Meyers wants to do, thanks to the recently implemented Legal Services Act. Among other things, the act allows investment in—and ownership of—law firms by parties other than lawyers.

So far, few large U.K. law firms appear to be interested in the changes to the law, with most of the impact playing out at mass-market retailers that hope to offer legal services alongside grocery shopping and accounting, according to the Times.

Ralph Baxter, the longtime chairman and CEO of Orrick, Herrington & Sutcliffe, told the Times that he could see large firms seeking outside capital to invest in technology, streamlining processes, and funding expansions that would potentially make them more profitable as businesses.

The Times notes that the American Bar Association's Commission on Ethics 20/20 is expected to seek comments in November on a proposal that recommends changes to attorney ethics rules allowing other professionals, including accountants, economists, and social workers to partner with lawyers and own as much as 25 percent of individual law firms.

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