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March 21, 2012

NEW YORK LAWYERS CANNOT WORK FOR OUT-OF-STATE FIRMS
OWNED BY NONLAWYERS, SAYS STATE BAR ETHICS COMMITTEE

The State Bar's Committee on Professional Ethics has determined that a lawyer who primarily practices in New York cannot be an employee of an out-of-state or foreign firm owned or managed by nonlawyers, even if nonlawyer ownership is permitted where the firm is established.

The opinion, issued March 14, cited Rule 5.4 (a) of the New York Rules of Professional Conduct, "which forbids a lawyer from sharing fees with a non-lawyer, and Rule 5.4(d), which forbids a lawyer from practicing law for profit with an entity that includes a non-lawyer owner or member." The Opinion 911 is available here.    

The ruling affects law firms in such countries as the United Kingdom and Australia, which permit ownership by nonlawyer investors, and the District of Columbia, where nonlawyer employees can have an equity interest in law firms.

New York and 49 other states prohibit nonlawyer ownership of law firms. 

That could change. The Commission on Ethics 20/20 of the American Bar Association (ABA) is considering whether the prohibition should be dropped. 

It is seeking comments on a measure that would allow nonlawyers who work at a law firm to own a limited, noncontrolling share of the firm. Many law firms employ investigators, accountants, nurses, engineers, social workers and other professionals to assist attorneys. 

To review the State Bar's historical opposition to outside ownership, President Vincent E. Doyle III of Buffalo (Connors & Vilardo) has created a Task Force on Nonlawyer Ownership. It is chaired by former State Bar President Stephen P. Younger of New York (Patterson Belknap Webb & Tyler). 

As the task force deliberates, "The New York State Bar Association remains opposed to nonlawyer ownership of law firms." Doyle told the Ethics 20/20 Commission in February.

He said he recognized that the measure under consideration is more restrictive than a proposal defeated by the ABA House of Delegates in 2000.  The earlier proposal would have authorized the formation of multi-practice firms that could provide legal and nonlegal services, such as accounting, financial planning and investment banking. 
 
The Commission on Ethics 20/20 is gathering reactions to its December 2 discussion paper on nonlawyer ownership. Any formal proposal would be considered by the ABA House of Delegates no sooner than February 2013.

The 77,000-member New York State Bar Association is the largest voluntary state bar association in the nation. It was founded in 1876. 

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