Lawyers Say States’ Firm-Ownership Restrictions Are Unconstitutional

     NEWARK (CN) – Personal injury powerhouse Jacoby & Meyers filed federal class actions against the justices of courts in New Jersey, Connecticut and New York, challenging what the firm calls an “antiquated” state ethics law that forbids lawyers from practicing in firms that are at least partly owned by nonlawyers.




     Rule 5.4 of the state’s Rules of Professional Conduct “is impeding law firms’ ability to compete in today’s global marketplace and restricting the public’s access to affordable, quality representation,” according to the complaint.
     The self-proclaimed “pioneers” of “legal services for the masses” say this restriction unconstitutionally blocks them, and other lawyers, from exchanging a stake of their firms for capital.
     Ultimately, they say, the public has to foot the bill since the restriction “dramatically impedes access to legal services for those otherwise unable to afford them.”
     “As a result, critical sources of funding are unavailable to a majority of lawyers in New Jersey (and elsewhere) which dramatically impedes access to legal service for those otherwise unable to afford them,” according to the complaint.
     “By this action, Jacoby & Meyers seeks to free itself of the shackles that currently encumber its ability to raise outside financing and to ensure that American law firms are able to compete on the global stage,” the 23-page complaint also states.
     Jacoby & Meyers is a New York-based firm of nearly 100 employees with two offices in New Jersey.
     The class seeks an injunction and an order declaring that the ethics rule violates the federal and state constitutions. It is represented by Barry Cepelewicz of Meiselman, Denlea, Packman, Carton & Eberz of White Plains, N.Y.
     “The present system perpetuates economic inequity at every level of practice,” Jacoby & Meyers claims. “The small practice does not have access to the capital markets that the Wall Street firms have and the Wall Street firms do not have access to the funding sources that firms in the U.K. and Australia have.”
     In the U.K. and Australia, law firms are allowed to benefit from nonlawyer equity, while the District of Columbia allows nonlawyers to own up to 25 percent interest in a firm, according to the complaint.
     While law firms have generally “self-financed their operations through capital contributions, cash flow and bank loans,” law firms today need a new revenue source, according to the complaint.
     “In these challenging economic times, these ‘normal’ channels for capital infusion are either too expensive or unavailable to fund Jacoby & Meyers’ intended business plans,” the firm says.
     Without a “substantial infusion of new capital,” Jacoby & Meyers will have to put the kibosh on plans to hire more staff, improve its offices and expand “within communities in which working-class, blue-collar and immigrant families reside.”
     Noting that critics say nonlawyer investments will lead to “the violation of clients’ confidences, the erosion of lawyers’ independent judgment and the spectre of a loss of professionalism,” Jacoby & Meyers calls such fears unsubstantiated.
     “There are innumerable ways in which to ensure that a lawyer’s professional ‘independence of judgment’ remains resolute,” according to the complaint.
     Jacoby & Meyers, a New York-based firm of nearly 100 employees, has two offices in New Jersey. It rose to prominence after airing the nation’s first television commercial advertising legal services in the country.
     The class seeks an injunction and an order declaring that the ethics rule violates the federal and state constitutions. It is represented by Barry Cepelewicz of Meiselman, Denlea, Packman, Carton & Eberz of White Plains, N.Y.
     Jacoby & Meyers made the same allegations against the judges of the Connecticut Superior Court and the justices of New York state courts.

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