Plaintiffs’ personal injury firm is to investment banker as . . . ?

A major issue that has dogged the legal profession in the past, and looks likely to dog it again in the near future (if you don’t happen to think it already does), is the debate over the restriction imposed under the ethics rules that prevents non-lawyers from having any ownership stake in a law firm.  In Tennessee, this prohibition is housed in two parts of RPC 5.4.  RPC 5.4(b) imposes a prohibition on partnerships with nonlawyers if any partnership activities involve the practice of law, and RPC 5.4(d) addresses restrictions on law practices taking other corporate forms.  “Third rail” analogies are overdone in general, but it would not be far from the mark to say that, at least for the American Bar Association, advocating in favor of changing the ethics rules to permit non-lawyer investment in law firms is the “third rail” of politics within that organization.  To some extent, this is not surprising as it is not a position that enjoys any sort of widespread popularity.  As but an example, in March 2015, the Tennessee Bar Association polled Tennessee lawyers and asked whether they supported or opposed allowing non-lawyer corporations to own and operate law firms and received a response that was 85% in opposition.

In 2015, D.C. is the only U.S. jurisdiction to permit such nonlawyer ownership to any extent.  There are multiple nations that now allow for such investment, including the U.K. and Australia, which has led even to public ownership in stock in publicly-traded law firms in those nations.  There are loud voices that insist that American lawyers should be empowered to obtain capital and investment from non-lawyer sources.

I do not think of myself as an advocate at this stage for the rules to shift from the current restrictions but I certainly acknowledge there is intellectual merit to arguments that, as long as certain other restrictions under the ethics rules remain, then it should not be dismissed out of hand.  For example, provided that the core concept that lawyers must not allow outside influences to interfere with their independent professional judgment set out in rules such as RPC 1.8(f) and RPC 5.4(c) survives, then the specter of a lawyer somehow being “beholden” to shareholders to “win at any cost” or to put the bottom line above client interests should not be viewed as any greater a concern or fear than when insurance companies retain and pay lawyers to represent insureds.  If those arrangements do not result in the eradication of the independent professional judgment of the lawyers hired in such an arrangement, then why should such eradication be presumed if a law firm were to be publicly-traded.  In fact, there are, in Tennessee and elsewhere, law firms that are essentially captive entities which provide only legal services to insureds of an insurance company.  If such an entity can exist without running afoul of the core tenets of RPC 1.8 and RPC 5.4, then there is no real intrinsic reason that non-lawyer investment in a law firm might not also be accomplished without eroding the attorney-client relationship or bankrupting the professional ethics of lawyers operating in such a structure.

One thing has always seemed clear to me, any significant change in the U.S. on this issue is not going to be brought about by the kind of lawsuit that was filed by Jacoby & Meyers seeking a ruling that New York’s ban on non-lawyer ownership was unconstitutional as a First Amendment violation.  That suit appears to have now received its death knell ruling earlier this month.  While I am not surprised by the outcome, I do admit to being surprised at the level of vitriol that seems to lurk beneath the surface in the district judge’s opinion.  In taking down the constitutional challenges presented to him, Judge Kaplan’s opinion seems to drip with antipathy toward the litigant as much as the litigant’s positions.  (And, worse yet, it also reads like the judge is perturbed as much by having been reversed previously in the case by the Second Circuit as anything else.)  Which is kind of a shame because some of the firm’s positions — for example, an equal protection argument with a premise that lawyers with Jacoby & Meyers and investment bankers are similarly situated — merited a real rebuke.  It isn’t quite “as a fish is to a bicycle” kind of stuff, but investment banker is not among the first things people would think of to equate with a plaintiffs’ personal injury law firm.

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