Does Nonlawyer Ownership of Firms Threaten the Independent Judgment of Lawyers?

The New York State Bar’s Committee on Professional Ethics decided this week that a New York lawyer cannot practice law for an out-of-state or foreign firm owned or managed by nonlawyers, if the lawyer in question practices primarily in New York.

But the issue is far from settled – a new NYSB task force is reviewing the existing prohibition on nonlawyer ownership of law firms.  The American Bar Association’s Commission on Ethics 20/20 is considering a new measure that would modify the Model Rules of Professional Ethics to allow limited, non-controlling ownership of law firms by nonlawyers.  Currently all fifty states follow the Model Rules on this issue.  The one U.S. exception is the District of Columbia, but we’ll get to that in a moment.

In question is what the ABA’s comments to Rule 5.4 refer to as “the lawyer’s professional independence of judgment.”  The fear is that ownership of law firms by nonlawyers would compromise that independence by introducing business interests external to the attorney-client relationship.  Last month, one such client – IBM general counsel Robert Weber – forcefully argued against any change to the current rules in the Wall Street Journal’s Law Blog:

Weber … said the idea is gaining purchase for the wrong reasons: Firms are looking for interest-free capital in tough economic times.

“I don’t know if I’d call it greed, but it’s in the greed ball park,” he said. “When the world was such that lawyers were able to raise their rates 5%, 6%, 10% a year…and profits per partner at big firms and small were outpacing the GDP, you didn’t hear about this.”

He said the profession has grown more selfish in recent years and less focused on clients, which, in turn, has given the idea of outside ownership room to grow.

Yet the idea of nonlawyer ownership, which is indeed a potential source of capital, is gaining traction in the broader legal community.  As we’ve previously discussed, the U.K. last year passed the Legal Services Act, which allows companies to invest in law firms.  Australia also allows the practice.  And the D.C. Bar has modified the old prohibition on nonlawyer ownership.  D.C.’s Rule 5.4(b) allows nonlawyer ownership, provided:

• The firm is still focused exclusively on providing legal services to clients (so no hybrid law firm/medical practices);
• All owners and managers agree to abide by D.C.’s Rules of Professional Conduct;
• Lawyer owners and managers undertake responsibility for nonlawyers in the same way they are responsible for the actions of subordinate lawyers; and
• The firm puts these conditions in writing.

The question for the ABA and the NYSB, and for concerned clients like Robert Weber, is whether these provisions sufficiently protect the independent judgment of lawyers.  D.C. has clearly decided that they do, and the U.K. and Australia have reached similar conclusions regarding their own legal communities.  Is nonlawyer ownership the future of the U.S. legal profession?  Or will it only serve to undermine the historically sacrosanct relationship between firms and their clients?  Tell us what you think by participating in the poll below or offering your thoughts in the comments.

Posted by Emily Fisher