Potential for non-lawyer firm ownership may be on the rise

 By Kristen D’Andrea

The Daily Record Newswire
 
LONG ISLAND, NY — An opinion issued last summer by the American Bar Association’s Standing Committee on Ethics and Professional Responsibility has sparked renewed interest in the debate over non-lawyer ownership of law firms.
 
Currently not permitted in American jurisdictions — with the exception of the District of Columbia, which allows it to a limited extent — non-lawyer ownership of law firms percolates from time to time, specifically following the issuance of related opinions from bar associations.

The American Bar Association’s Formal Opinion 464 does not deal directly with the issue of non-lawyer ownership, but does address whether the ABA Model Rules — guidelines defining the standards of legal ethics and professional responsibility for lawyers in the United States — permit a lawyer to share a legal fee with a lawyer in a jurisdiction that would allow the other lawyer to distribute some portion of the fee to a non-lawyer.

The question raised was whether, for instance, a New York law firm could work together as co-counsel with a Washington law firm, which could include non-lawyer owners, and share the fee. In its opinion, the ABA said this would be permitted; each law firm can operate according to the applicable rules that govern them, according to the Hon. Kenneth Gartner, chairman of the Nassau County Bar Association Ethics Committee.
Inter-relationships between attorneys practicing in New York and the District of Columbia are not uncommon, Gartner said, noting he is admitted to practice law in both places.

Prior to the ABA’s opinion, the New York State Bar Association Committee on Professional Ethics issued two related opinions. In November 2011, Opinion 889 again found lawyers are bound by the rules of the jurisdiction in which they principally practice. For example, a lawyer who primarily practices full-time at a D.C. firm could, in fact, pick up a case that would be litigated in New York and earn a fee from the New York client, despite the fact that, when divided up, part of the fee would go to the D.C. firm’s non-lawyer owner.

Several months later, in March 2012, the NYSBA issued Opinion 911, which found a New York lawyer may not practice law principally in New York as an employee of an out-of-state firm that has non-lawyer owners. For instance, a United Kingdom law firm would not be permitted to hire a New York lawyer to work out of its New York office.

“The three opinions are not at odds with each other,” Gartner said, noting the opinions are necessary to help lawyers address questions such as: Can I hire a D.C. firm or join up with a D.C. firm to co-counsel? Can I take on this job with a United Kingdom entity as its full-time emissary in New York?

“In a national and global economy, people have to practice on matters that cut across national and state boundaries,” he added. “It’s not like you can place a bubble and insulate yourself from things happening in other places.”

To be sure, in countries such as Australia, Canada and the United Kingdom, corporations are allowed to own law firms, noted Lawrence Raful, former dean and professional ethics expert at Touro Law Center in Central Islip.

“What do you do about law firms that do business with international law firms?” he asked, noting it is not uncommon for a New York lawyer to have an international client with offices in both New York and London. “Is it unethical to be a New York lawyer and work with an international lawyer who is in a law firm owned by a company?”

The state bars’ decisions have shown that they are willing to start thinking about these issues, Raful said, noting their responses show they want to help their members and progress with the times.

“The other reason this has become important is that with the economic change in the way people practice law, firms need new streams of capital,” he said, adding law firms may not be able to count on traditional, steady streams of income to support a large workforce. “They need capital infusion, like any business.”

And there may be some pressure on law firms over the next 20 years to partner with large companies or investors who offer new funding opportunities.

“Are we really so pure we can’t get into bed with a real estate firm or be ethically aligned with a company?” Raful asked, noting this is a common hypothetical question law students will see on a quiz.

And if so, “what will law firms give up to be in a partnership with a business? They may lose some of that purity — do we really want that?”

Douglas Good, general counsel at Ruskin Moscou Faltischek in Uniondale, hopes it doesn’t come to that.

“I wouldn’t consider allowing non-lawyer investment and public ownership of law firms to be a positive development in the history of the legal profession,” he said. “I think that takes away from the core values of the profession.”

He concedes, however, that many people question what makes the legal industry different from any other.

“There are a lot of people who think, ‘If they don’t act professionally, they won’t get clients,’” he said. “However, in the global marketplace, there has to be some accommodation to allow people to work together with other law firms that have different approaches, as long as they keep separate ownership.”

While the debate about lawyers splitting fees with firms that maintain non-lawyer ownership is about providing the best client services, the question of non-lawyer investors and public law firms comes down to money, Good said.

“The lawyers in law firms that represent Wall Street firms see how much their clients make, and how much they could make in that market,” he said. The question remains: “Will they continue to resist it in the name of professionalism? Will the enhanced amount of capital Wall Street can finance become so attractive [lawyers] won’t want to say no anymore?

“It’s a changing world,” Good added. “Who knows what will happen?”

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