M AY 17- 2 3 , 2 01 3 I V O L . 6 0 I N O. 2 1 I $ 2 . 0 0 I libn.com

If you’d like to own a law firm withoutthe bother of actually being a lawyer,Jacoby & Meyers applauds you.

But as the franchised firm continuesits crusade to loosen regulations pre-venting lawyers from raising private-investment capital, attorneys across theland are railing against the idea, citingdecades of tradition and decrying a

fundamental shift in the practice ofAmerican law.

Why a cut-rate chain with a $10million-plus advertising budget ispushing for private investments mightseem obvious, though Jacoby & Meyershas publicly stated it wants to raisecapital expressly to service working-classand immigrant communities.

A spokeswoman at the firm’sHempstead office declined to commentand other representatives of the Cali- fornia-based firm, including managingpartner Andrew Finkelstein, didn’treturn several calls.

Whatever its motives, the firm in

2011 asked federal courts in New York,New Jersey and Connecticut to tossstate statutes prohibiting nonlawyersfrom investing in U.S. firms. Judges inall three states dismissed the suits onjurisdictional grounds, but in November2012 Jacoby & Meyers got a secondchance.

That’s when the U.S. Court of Appealsfor the Second Circuit ruled the firmcould amend its complaint to directlychallenge New York’s nonlawyer-in-vestment laws, not just the ethics-basedNew York Rule of Professional Conduct it originally targeted. That volleyed thesuit back to the trial court, where it’s

Island attorneys united against the push for private investment in law practices

HOLDING FIRM

By GREGORY ZELLER

NEIL KAUFMAN: Ethical considerations aside, law firms wouldn’t make a very good investment.

Bob Giglione

still simmering. Echoing the sentiments of many

national attorneys – even the AmericanBar Association has voiced opposition –several Long Island attorneys haveraised ethical objections.

“New York should not adopt anyform of nonlawyer ownership,” saidNassau County Bar Association Presi -dent Marian Rice, who was part of aNew York State Bar Association taskforce that explored the issue last year.

Chaired by former New York BarPresident Stephen Younger, the 17-member Task Force on NonlawyerOwnership – which included Rice,attorney Kenneth Gartner of Mineolafirm Lynn, Gartner, Dunne & Covello;and attorney John Gross of Hauppaugefirm Ingerman Smith – concluded thatlaw practice and private investmentdon’t mix.

“The independence of lawyers andthe judgments they must render infavor of their clients shouldn’t besubject to outside forces,” Rice said.“Once in the door, investors would havea say in firm operations. That’s just tooclose to impacting the attorney’sprofessional judgment.”

Attorney Neil Kaufman of LakeSuccess firm Abrams, Fensterman,Fensterman, Eisman, Formato, Ferrara& Einiger cited “theories dating back toolden times” as the primary reasonsprivate capital shouldn’t be injectedinto law practices.

But one common argument againstallowing the investments – that lawyerswould put shareholder interests beforeclient interests – doesn’t fly withKaufman, the chairman of Abrams’corporate department.

“Whether they’re making money toput in their own pockets or to satisfyinvestors, law firms still want tomake money,” Kaufman said. “But thevalue of the services and advice youprovide has to exceed their cost. Thatwouldn’t be significantly different if a

firm had investors.”Rice refutes the suggestion that

nonlawyer investors wouldn’t change afirm’s thinking – “Private investors willautomatically become decision-makers,”she noted – but agreed that the lure ofenhanced profits isn’t a huge concern.

“Anyone who suggests that at -torneys turn a blind eye to their ethicalobligations to increase profits is justplain wrong,” Rice said. “Most attorneysare cognizant of their professionalobligations and live up to them as bestthey can.”

That includes respecting the sanctityof the attorney-client privilege, anotherage-old concept threatened by privateinvestments.

“Clearly, nobody is investing insomething they know nothing about,”Rice said. “They’re going to want toknow about the cases. They’re going towant to know details. Once you gothere, you’ve struck a nerve on theattorney-client privilege.”

According to Kaufman, that’s whatthe private-investment prohibitionreally boils down to: the inviolableattorney-client bond.

“There’s no accountant-client privi -lege,” he said. “No architect-clientprivilege. The bond between lawyersand clients is special. This concept thatnonlawyers should not be participantsin the profits of a legal business is partof that.”

The other major industry enjoyingsimilar provider-customer privileges,health care, is well into a private-investment shift. Multihospital systemsin Boston and Detroit have beenacquired in recent years by privateinvestment firms like New York-basedCerebrus Capital Management, essen -tially shifting them from not-for-profit to for-profit enterprises.

But that spotlights another reasonlaw-practice outlays might nevermaterialize: Ultimately, law firmsmight not be a very good investment.

Kaufman, who’s also a board mem -ber at Long Island Capital Alliance,said he wouldn’t invest in a law firm ifdoing so was legal. LICA matchesbusinesses at virtually every stage,from startup to late-stage venture, withangel funding – and most law firms aretoo risky an investment for LICA’stastes, according to Kaufman.

“The law industry has struggled overthe last several years and only recentlyturned it around,” he said. “That’semblematic of the problem: It’s a verycyclical business, sometimes coun -tercyclical, built around real estatemarkets, capital markets, bankruptcyfilings, things like that – all highlysusceptible to the vagaries of variousbusiness cycles.”

Other well-known Island investorswould at least consider the idea.Andrew Hazen, a lawyer and member ofthe Long Island Angel Network, saidinvesting in a law firm “could beinteresting, depending on the type ofpractice.”

“If I could invest in a personal injuryfirm or a firm that handled a lot ofwhistleblower-type cases, that might besomething to consider,” said Hazen, ofcounsel at Uniondale law firm RuskinMoscou Faltischek.

“Those cases can produce par -ticularly large verdicts, as opposed tofirms that specialize in divorces orimmigration law. That’s a businessinvestment worth exploring.”

Hazen doesn’t believe Jacoby &Meyers’ attempts will bear fruit, atleast “not anytime soon,” and Kaufmanagreed that a fundamental shift doesn’tappear imminent. But Kaufman’s rul- ing nothing out, citing the emergence ofpublicly traded law firms in Australiaand England and certain domestic rulechanges over the last half-century.

“Fifty years ago, lawyers weren’t evenallowed to advertise, but that’s obviouslychanged,” he said. “I’m skeptical, butwe’ll see what the courts say.”

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