Firm With ‘Virtual’ New York Office Booted From Case

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By Samson Habte

A California law firm that leases “virtual office space” in Manhattan was removed from a case Dec. 29 because it couldn’t satisfy New York’s requirement that lawyers have a physical office in the state.

A trial judge in Nassau County, N.Y., said he could not overlook the fact the that firm—which leased an executive workplace on Wall Street through a company that offers “virtual office space” and business support services—had no “attorneys or law firm staff” at the location.

The failure to maintain a physical office violated N.Y. Judiciary Law § 470, which says that attorneys who are licensed in New York but don’t live there must maintain an “office for the transaction of law business” in the state in order to appear in New York courts.

The law was adopted in 1862, and it has been a source of controversy for decades. In 2010, a state bar committee called for the law’s repeal, describing it an “anachronistic vestige of an era when only residents could be admitted to the New York State Bar.”

But Section 470 has survived constitutional attacks, and in April 2017 the U.S. Supreme Court declined to hear an appeal challenging its validity.

Virtual Office Insufficient

The disqualification order was issued by Justice Jerome C. Murphy, who is presiding over a breach of contract case that Platinum Rapid Funding Group Ltd. filed against H D W of Raleigh Inc.

Platinum asked the court to disqualify the Utah-based lawyer and California-based firm representing the defendants, based on their failure to maintain an office in New York. Platinum also asked the court to strike defense counsel’s pleadings.

Murphy granted those requests over the objections of the defense lawyers, who said disqualification wasn’t necessary because they had a lease agreement with a company that offers “virtual office space” on Wall Street. In an affirmation, lead defense counsel Rayminh L. Ngo said that arrangement includes “24-hour access to physical office space.”

Ngo said his California-based firm, Higbee & Associates, also has a lease agreement for office space in Syracuse.

But Murphy said he “cannot overlook the fact that at no point does Ngo aver that either he or Higbee have attorneys or law firm staff at either of the two New York addresses that they claim to be located at.”

Murphy also noted that the lease agreements Ngo furnished were executed after this lawsuit commenced.

Division Among Appellate Divisions

Platinum had also asked the court to strike all of the pleadings that Ngo filed in the case.

Murphy declined that request without stating his reason for doing so.

But Platinum’s motion noted that appellate courts in New York are divided on the remedies available when an opponent’s lawyer isn’t compliant with Section 470.

The First Department’s appellate division, seated in Manhattan, has the strictest approach. That court has held that a lawyer’s failure to maintain a local office “requires dismissal of an action commenced by such attorney, without prejudice to commencing anew.”

By contrast, the Second Department’s appellate division—which is seated in Brooklyn and also covers Nassau County—has held that a lawyer’s noncompliance with Section 470 “does not create a ‘nullity’ or render all prior proceedings void per se.”

“Accordingly, the defendant may not take advantage of the plaintiff’s counsel’s noncompliance with the Judiciary Law and, by the same token, the plaintiff will be held bound by acts taken on its behalf by its unauthorized attorney, unless it demonstrates at a hearing that it suffered prejudice as a result of being represented by an un-authorized attorney,” the Second Department said in a 2006 case.

In Aug. 2017, the Third Department’s appellate division, based in Albany, similarly rejected the view “that all of the work performed by [noncompliant attorneys] should be declared void from the beginning.”

A search of case law indicates that the Fourth Department’s appellate division, seated in Rochester, N.Y., has not weighed in on the question.

Giuliano McDonnell & Perrone LLP represented the plaintiffs. Higbee & Associates represented the defendants.

The case is Platinum Rapid Funding Grp., Ltd. v. H D W of Raleigh, Inc. , 2017 BL 467279, N.Y. Sup. Ct., No. 605890-17, 12/20/17 .

To contact the reporter on this story: Samson Habte in Washington at shabte@bloomberglaw.com

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