Law firm files suits in New York, New Jersey, and Connecticut challenging nonlawyer ownership and investment restrictions

Both the Wall Street Journal (here, behind a paywall, and quoting LEF's Stephen Gillers) and the ABA Journal (here) are reporting on lawsuits filed yesterday by Jacoby & Meyers challenging Model Rule 5.4's restrictions on nonlawyer ownership and investments in law firms.  Jacoby & Meyers argues that the "system perpetuates economic inequity at every level of practice" and contends that the "ability to raise the capital necessary to pay for improvements in technology and infrastructure, and to expand its offices and hire additional personnel, is severely restricted by an out-dated Rule of Professional Conduct."  The complaint raises a number of constitutional claims, including a First Amendment argument based upon freedom of speech and association.  I've made a similar argument in an article forthcoming in the Ohio State Law Journal, Democratizing the Delivery of Legal Services: On the First Amendment Rights of Corporations and Individuals.  A copy of the New Jersey complaint can be downloaded here.

Comments

[Wick R. Chambers]

Interesting post. Thanks. (Download link didn't work for me.)

[Wick R. Chambers]

Update: When I switched from IE to Google Chrome, the link to download the NJ complaint worked. Sorry to bore anyone with my IT issues.

[John Steele]

I'm agnostic on this issue for now. But I'm curious about who's driving it. Investors who want to make a big ROI? Law firm partners who want to be the lucky generation that gets to "cash out" the going concern value generated by prior generations of lawyers? The public? Someone else?

[stephen.gillers]

The challenge to the plaintiffs is summed up in the final quote (by a big firm lawyer) in the WSJ article. The other challenge is that the assigned judge is Lewis Kaplan. It seems from the article that plaintiffs claim it is unconstitutional to forbid passive investment in law firms. That's close to the most aggressive form of lay investment (next to listing on an exchange). A claim for relief along the lines of the D.C. rule would have a better chance, but even then not a particularly good one.

[Doug Richmond]

Any law firm that accepts outside investment will ultimately rue the day, as investors will demand many of the same sort of business alterations they do in publicly-traded companies to enhance profits (e.g., relentless cost-cutting, benefits routinely eliminated, down-scale offices to save real estate costs, etc., plus, in the law firm world you can kiss pro bono service goodbye). But apart from all that, who in the world would want to invest in Jacoby & Meyers?