N.Y. Ban on Nonlawyer Ownership Prohibits D.C. Firm From Establishing N.Y. ‘Subsidiary'

Jan. 6 — A New York attorney who is also licensed in the District of Columbia may not join a D.C. firm that has nonlawyer owners under arrangements that require him to either handle cases as a New York-based partner or manage a “wholly-owned subsidiary law firm” in the state, the New York state bar's ethics committee advised Dec. 6.

The opinion is the latest state bar advisory to address the extent to which ethics rules banning multidisciplinary partnerships limit the types of associations that can be formed between lawyers in the 50 states that observe those rules and law firms in D.C., the only U.S. jurisdiction that permits any nonlawyer ownership of a law firm.

The committee previously determined that a lawyer who is licensed in both New York and D.C.—and who principally practices in D.C. as a member of a firm that has nonlawyer owners—may conduct “occasional” litigation in New York without becoming subject to New York's rules forbidding fee-sharing and multidisciplinary associations with nonlawyers.

In the present opinion, however, it rejected two proposed arrangements under which a dual-licensed lawyer would join a D.C. firm but remain in New York.

Under the first arrangement, the lawyer would become a partner of the D.C. firm, handle New York cases and staff an office in New York. Under the second proposal, he would establish and independently manage a “wholly-owned subsidiary law firm” in New York.

The panel said both arrangements would violate Rule 5.4(a) of the New York Rules of Professional Conduct.

Differentiating 2011 Opinion

In New York State Ethics Op. 889, 27 Law. Man. Prof. Conduct 743 (2011), the committee said a lawyer who “principally practices” in a jurisdiction that allows nonlawyer ownership, and who is also admitted in New York, may “conduct New York litigation even if in a partnership that includes a non-lawyer who would benefit from the resulting fees.”

“[A]lthough the New York rules generally prohibit such arrangements, in this case the governing ethical provisions would be those of the other jurisdiction,” the committee said in that opinion.

But the committee said the arrangements proposed in the inquiry that triggered the present opinion—unlike the one addressed in the 2011 opinion—would be governed by New York's more restrictive rules.

That's because the choice-of-law analysis here differs from the analysis that was required to assess the proposal in the 2011 opinion, the committee said. It pointed to Rule 8.5(b)(2) as the relevant rule.

That provision says the rules of the jurisdiction in which a dual-licensed lawyer “principally practices” generally govern the lawyer's noncourt–related conduct. However, an exception exists where the conduct at issue “clearly” has its “predominant effect” in the other jurisdiction in which the attorney is admitted.

“The inquiry specifies that the lawyer will handle New York cases and have a practice based primarily in New York, so it seems clear that the lawyer ‘principally practices' in New York,” the committee stated.

Accordingly, it said, whether the lawyer's conduct is governed by New York's version of Rule 5.4, or by D.C.'s less restrictive standard, will turn on where the “predominant effect” of the lawyer's conduct is felt.

‘Predominant Effect' in N.Y.

The committee said the “predominant effect” of the proposed conduct here “is ‘clearly' in New York,” rather than D.C.

The factors relevant to making a “predominant effect” determination were addressed in New York State Ethics Op. 1027, 30 Law. Man. Prof. Conduct 711 (2014). That opinion, the committee said, advised that “when the conduct in question relates directly to the provision of legal services in a particular matter,” lawyers should consider “various factors relating to the circumstances of the particular matter.”

“Here, however, the conduct does not relate to any particular matter, but rather relates to the entire operation of the partnership—specifically, practicing in New York in a partnership with a nonlawyer partner and sharing legal fees from New York matters with the nonlawyer partner,” the committee said. “In these circumstances, the ‘predominant effect' of the conduct is ‘clearly' in New York.”

‘Subsidiary' Dodge

The panel also shot down the alternative plan under which the lawyer would not join the D.C. firm as a partner but would instead manage a “wholly-owned subsidiary” in New York. The opinion states:

Rule 5.4(b) would plainly prohibit the lawyer from partnering, either directly (as proposed in the first question) or indirectly (through a subsidiary structure which ultimately has the effects of partnership) with a nonlawyer. … But even if the inquiring lawyer were only an employee of either entity, without a partnership interest, Rule 5.4(d) would prohibit him from practicing “with or in the form of an entity authorized to practice law for profit, if … a nonlawyer owns any interest therein” or “has the right to direct or control the professional judgment of a lawyer.”

Full text at http://www.nysba.org/CustomTemplates/Content.aspx?id=53798.

The ABA/BNA Lawyers’ Manual on Professional Conduct is a joint publication of the American Bar Association Center for Professional Responsibility and Bloomberg BNA.

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