New York: Ethics opinion
A New York lawyer may hold a financial interest in an alternative business structure (ABS) operating legally elsewhere, the city bar association has said.
It is the latest in a series of ethics opinions from both New York and the American Bar Association on US lawyers’ involvement with ABSs.
Non-lawyer ownership of law firms is prohibited in most of the US, except in Arizona (where there are currently 70 ABSs licensed), Utah and, to an extent, the District of Columbia – and opposition to them remains fierce.
At the same time, several prominent US law firms have set up their London offices as separate businesses that are ABSs, even if they have not used it to take external investment.
New York rules prohibit a lawyer from practising law in New York through an ABS, such as being the resident New York partner of an English ABS.
But an opinion issued last week by the New York City Bar Association’s professional ethics committee said its rules did not prevent a member’s passive investment in an ABS, because they would not actually be practising law.
A lawyer would not be sharing legal fees with a non-lawyer “simply by collecting a return on the lawyer’s investment from the ABS”.
The purpose of the current restrictions was to protect the lawyer’s “professional independence of judgment”, the committee explained.
“Where the lawyer is not practising law through the ABS, we do not see any attribute of a New York lawyer’s financial investment in an ABS entity that would risk compromising the lawyer’s professional independence.
“Any legal practice that the lawyer maintains would be entirely separate from the lawyer’s investment. It would therefore be impossible for any non-lawyer affiliated with the ABS entity to attempt to influence the lawyer’s decision making on behalf of clients of the lawyer’s New York law practice.”
Previous New York City Bar opinions have allowed a New York lawyer to share fees with an ABS from another jurisdiction, so long as they remain separate legal entities, while in 2021 the American Bar Association (ABA) said a lawyer may passively invest in an ABS that includes non-lawyer owners, even if the lawyer is admitted in a state that does not allow them.
However, the lawyer must not practise law through the ABS or be held out as a lawyer associated with it. ABA decisions of this nature are advisory and dependent on the individual rules of each state.
Shortly after that, the New York State Bar Association – responding to an ethics inquiry over a London-listed law firm wanting to take over a New York firm – decided that a New York lawyer could not merge his practice with an ABS, unless the lawyer was licensed in the other jurisdiction and principally practised there, “and the predominant effect of the lawyer’s conduct is not in New York”.
Texas was the last state to look at non-lawyer ownership, with the Texas Access to Justice Commission narrowly rejecting a recommendation from one of its own sub-committees to pilot it.
It was commissioned by the Texas Supreme Court to consider the issue, although the vote was not binding on the court.
The non-attorney ownership sub-committee recommended that a pilot programme should be launched for “entities that demonstrate a business model that provides services to low-income Texans and includes infrastructure to protect clients and ensure attorney independence”.
But the commission rejected this by eight votes to six, with two abstensions.
Research carried out as part of the work found some stakeholders “feared that non-attorney ownership would result in a ‘fundamental change to the fabric of legal services’ that would create a ‘slippery slope and dismantling of quality legal representation’.”
They were also unclear about how opening investment opportunities for legal services would improve services and access for low-income Texans.
“One stakeholder noted: ‘If businesses wanted to invest in legal aid they would already be doing so’.”
Many were concerned that non-attorney ownership would create “conflicts of interest in the fiduciary duties owed to clients”, regardless of the new rules.
Separately, two US lawyers started a petition via LinkedIn earlier this year calling on the ABA to stop using the term ‘non-lawyer’ and replace it with one that reflects “the diversity of modern legal practice”.
It said the term “perpetuates negative stereotypes and hierarchical structures, undermining our profession’s fundamental principles of inclusivity and respect…
“It implies a binary division between lawyers and others, inadvertently (or purposefully) marginalizing the invaluable contributions of our legal support professionals, paralegals, and other professional colleagues (e.g., COOs, CFOs, CTOs).”
The petition was started by Olga Mack and Damien Riehl. They said this was not a matter of semantics; rather, it was “a call to action rooted in principles of equality, diversity, and respect”.
Alternative terms – such as ‘legal professionals’, ‘allied professionals’ or ‘domain professionals’ – were “inclusive and respectful, and appropriately acknowledge our legal ecosystem’s diverse roles and contributions”.
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