U.S. law firm partners hoping to tap nonlawyer investors to invest in their firms will have to wait a while longer to follow the footsteps of their brethren in England and Australia who have been allowed to sell pieces of their practice to groups other than lawyers. A high-profile legal challenge to New York's rule banning law firms from selling ownership stakes to nonlawyers had been dismissed by New York Judge Lewis Kaplan, several news outlets reported.
According to the story in the Wall Street Journal, Jacoby & Meyers had filed a suit claiming that a New York rule preventing nonlawyers from owning stakes in law firms had hurt its ability to raise capital to cover technology and expansion costs and hindered its ability to provide legal services to working-class clients. The firm argued that the rule — Rule of Professional Conduct 5.4 — violated its First Amendment freedom-of-association rights, among several other constitutional provisions.
But Judge Kaplan, in dismissing the suit, found that even if he were to strike down rule 5.4 as unconstitutional, other New York laws would still restrict the firm's ability to raise money from nonlawyers.