Ethics opinion stymies UK ABS’s takeover of New York law firm


New York: Ethics opinion

A London-listed law firm’s bid to buy a New York practice has led the state Bar association to limit the circumstances in which New York lawyers can work for firms owned by non-lawyers.

The ethics opinion from the New York State Bar Association (NYSBA) comes against the background of pushback against moves to allow alternative business structures (ABSs) in the US.

The opinion was issued after an inquiry from an unnamed New York-qualified lawyer at a New York law firm that is subject to a takeover proposal from an unnamed listed law firm in England.

The lawyer himself is not based in New York and said he was seeking admission to the bars in certain US states and foreign countries which permit non-lawyer ownership.

The NYSBA panel said its rules meant a New York lawyer could not be a partner, associate or employee of a law firm in New York or in another jurisdiction that allows direct or indirect ownership by non-lawyers – unless, however, 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”.

It would not make a difference, the opinion said, if the ABS only owned a minority share in the New York firm.

This would appear to stymie a takeover like this one envisaged.

The lawyer also asked if he could be directly employed in the UK in a senior leadership position at the ABS if it had no New York office.

“[If he] principally practises in the UK and his activities do not clearly have their predominant effect in New York, then we see no problem with this,” the panel said.

There is a slow drift towards ABSs in the US – earlier this year, the US saw its first two ABSs approved in Arizona, to go alongside an increasing variety of businesses in a regulatory sandbox in Utah. New York, California, Florida and Illinois are also studying liberalisation, although earlier this year New York ruled out ABSs.

In October, the American Bar Association’s standing committee on ethics and professional responsibility issued a formal opinion confirming that 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.

However, last month, members of the Florida Bar Association’s ruling board of governors voted unanimously against moves to allow non-lawyer ownership, while last week it similarly voted down the idea of a regulatory sandbox, a ‘legal lab’ to test new ways of providing legal services.

The board held the votes in response to the recommendations in favour of such innovations contained in report published in June by a committee created by the Florida Supreme Court.

Like all state supreme courts, it regulates the local profession – rather than the state Bar association – and it has yet to decide whether to take the recommendations forward notwithstanding the opposition.

It has also been reported this week that the California State Bar Association has paused work on developing its own regulatory sandbox.

It follows a joint letter from the chairs of the judiciary committees of the California Senate and Assembly – which oversee the state Bar – that warned they would heavily scrutinise any proposals to give non-lawyers a role in providing legal services, saying it would be “to the detriment of Californians in need of legal assistance”.

Tani Cantil-Sakauye, chief justice of the California Supreme Court, was reported to have described the intervention as “not surprising” and said in response, with reference to the country’s access to justice crisis: “Well, what’s the alternative then? What are we going to do? Just throw up our hands and say nothing?”

In a blog highly critical of the letter, the Institute for the Advancement of the American Legal System – which is investigating how regulatory reform could help improve justice – noted that “real regulatory scrutiny, of course, is the stated goal of the sandbox proposal”.

It said: “Indeed, the Utah model requires far more oversight and regulatory intervention over the participants in the sandbox than what any lawyer in California has to face.

“By parroting the discredited arguments of lawyers organised in opposition to exploring new solutions, without acknowledging any of the evidence that belies those same arguments, these lawmakers seem to be more concerned about scrutinising any possible competition to a segment of the profession that contributes to their campaigns.”

In October, we reported that LegalZoom had become the first business to have ABSs in both the UK and US after it won approval from Arizona.




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