* Rule prevents non-lawyers from investing in firms
* Potential investors included executives of ES Bancshares
* Judge said law firm had not been harmed by rule
By Leigh Jones
NEW YORK, March 8 A Manhattan federal
judge has thrown out a closely watched lawsuit challenging a
rule that bans non-attorneys from investing in law firms.
Jacoby & Meyers, a well-known personal injury law firm, had
challenged the constitutionality of the New York state ethics
rule that prohibits non-lawyers from having a financial stake in
Jacoby & Meyers said in court papers that several investors,
including Anthony Costa, Philip Guarnieri and Michael Ostrow,
had expressed an interest in investing "significant sums of
money" in the firm. The men are directors of ES Bancshares Inc
(ESBS.OB), a holding company for Empire State Bank, and Costa
and Guarnieri are also co-chief executives, according to the
company's website and regulatory filings.
But U.S. District Judge Lewis Kaplan on Thursday found that
the firm lacked standing to bring the case because it had not
proved it had been harmed by the rule.
"The ruling they seek would be a purely advisory declaration
of the sort that is forbidden to federal courts," he wrote.
Jacoby & Meyers has filed two similar cases in New Jersey
and Connecticut. The defendants in the cases are state judges
who authorize attorney rules.
The issue of non-lawyer ownership has gained attention in
the United States since the United Kingdom and Australia
recently changed their rules to permit non-lawyer ownership.
Rules in New York and in every jurisdiction in the country
except the District of Columbia prevent non-lawyers from having
an ownership stake in law firms because of the concern that the
profit motive will undermine the duty to the client, said
Stephen Gillers, an ethics professor at New York University
School of Law.
"The investors would have power over the lawyers and the
investors, unlike the lawyers, are not governed by ethics
rules," Gillers said.
Jeffrey Carton, an attorney representing Jacoby & Meyers,
said his client plans to appeal Kaplan's decision.
"Jacoby & Meyers is looking forward to changing the status
quo," Carton said.
Representing the presiding justices named as defendants is
New York State Assistant Attorney General Daniel A Schulze. A
spokeswoman for the office declined comment.
The parent holding company of ES Bancshares did not
immediately return a call after business hours seeking comment.
Kaplan's dismissal on Thursday came days after a federal
judge rebuffed a bid to dismiss the New Jersey case brought by
Jacoby & Meyers. The judge in the Connecticut case has not ruled
on a pending motion to dismiss.
Non-lawyer ownership of law firms is under consideration by
the American Bar Association and the New York Bar State Bar
Association. On Feb. 2, NYSBA President Vincent Doyle announced
that the association was forming a task force to study whether
non-lawyers should be allowed to own equity in firms.
The case is Jacoby & Meyers v. Presiding Justice, U.S.
District Court, Southern District of New York, No. 11-CV-3387.