An Opening Skirmish? 2nd Circuit Rejects Challenge to Ban on Nonlawyer Ownership of Law Firms

Rule 5.4(d) of the Vermont Rules of Professional Conduct prohibits lawyers from practicing in or forming a for-profit firm if (1) a nonlawyer owns any interest therein; (2) a nonlawyer holds a position similar to director or officer (or partner); or (3) a nonlawyer can control or direct a lawyer’s professional judgment.

Last year, I posted a series of blogs in which I asked whether it’s time to rescind 5.4 and authorize lawyers to practice in so-called “Alternative Business Structures.”  There are strong arguments in favor of ABS.  Chief among them, the infusion of capital, ingenuity, talent, and expertise in running a business might make lawyers and firms more efficient, more flexible, and better suited to provide clients with access to cost-effective legal services.  My posts aren’t all that original.  Rather, they summarize an ABA issues paper.  Nevertheless, I concluded that nonlawyer ownership is coming.

Josh King is the Chief Legal Officer at Avvo.  For a great take on how a careful and smart implementation of ABS might help both lawyers & clients, I recommend this post from Josh.

Last week, the 2nd Circuit Court of Appeals rejected a law firm’s challenge to New York’s ban on nonlawyer ownership. Jacoby & Meyers claimed that the rule violated the first amendment rights of association and to petition the government on behalf of clients.  In particular, per the ABA Journal, “Jacoby & Meyers  had argued it needed outside investment from nonlawyers to expand and increase efficiency, leading to reduced legal fees and the ability to represent more clients of limited means.”  Stories on the ruling and link s to the opinion ran in the ABA Journal, the Wall Street Journal Law Blog, How Appealing, and the Legal Profession Blog.

I’d be surprised if a constitutional challenge removes the ban on nonlawyer ownership & management from the ethics rules.  Rather, as a profession, we must continue to examine whether the rule makes sense. As noted at Above The Law, our task becomes increasingly important as more & more jurisdictions around the world and within the U.S. report not only the sky’s failure to fall following elimination of the ban, but a sunnier, bluer sky.