Law Offices of David G. Arganian, Seattle, WA

Federal court strikes down attempt to overturn ownership rule

A New York personal injury firm has failed in its attempt to overrule the state's ban on non-lawyer ownership.

Jacoby & Meyers had sought to prove that the so-called Rule 5.4 preventing external investment - which applies to almost all the US - was unconstitutional.

A ruling in the Manhattan Federal Court last week found Jacoby & Meyers did not have the standing to challenge Rule 5.4 and held that limited liability companies could not lawfully practise law in New York.

Jacoby & Meyers had argued that Rule 5.4 prevented it from entertaining the 'numerous offers' it had received from prospective non-lawyer investors.

District judge Lewis Kaplan said the firm had not proved it had been harmed by the rule and threw out the lawsuit. Jacoby & Meyers, which has filed similar cases in New Jersey and Connecticut, is reported to be planning an appeal.

The case had drawn widespread attention as a test of the US's long-standing aversion to non-lawyer investment in law firms.

In his summary, Judge Kaplan said he was not commenting on the ethical issues surrounding non-lawyer ownership, instead focusing on Jacoby & Meyers' right to launch a challenge.

He accepted that non-lawyer equity investment might broaden the availability and lower the cost of legal services but noted it could prove to be a 'dance with the devil' and have similar consequences to private investment banking partnerships going public.

The ruling is not likely to quell the issue of non-lawyer ownership in the US, with discussions continuing about potential changes to the law.

The topic of reform has been on the agenda in the US for some time, with the American Bar Association's Commission for Ethics 20/20 announcing last year it would assess the need for alternative business structure-style reforms and how they might be implemented.

Last month, the New York State Bar Association created a task force to study whether non-lawyers should be allowed to own interest in law firms.

The organisation maintains it is opposed to the concept but says that changes to the profession and growing globalisation mean the idea is worthy of 'serious consideration'.

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