ABA pulls proposal on non-lawyer ownership of firms

The American Bar Association on Monday abandoned the idea of allowing non-lawyers to take an ownership stake in law firms.

In a statement, Jamie Gorelick and Michael Traynor, who co-chair a committee that had studied the controversial issue, said they decided to pull the plug on developing a proposal last week.

"Based on the commission's extensive outreach, research, consultation and the response of the profession, there does not appear to be a sufficient basis for recommending a change to the ABA policy," said the statement from the ABA Commission on Ethics 20/20.

The proposal would have been submitted to the House of Delegates, the association's policy-making body, in 2013.

Attorney ethics rules in all U.S. jurisdictions but the District of Columbia bar nonlawyers from having an equity interest in law firms. In 2012, the U.K. began allowing the practice, and Australia also permits it.

The intent of the bans in the United States is to prevent non-lawyers from undermining the duty of loyalty and confidentiality owed to clients.

The issue of non-lawyer ownership became more visible after the personal injury law firm Jacoby & Meyers filed federal lawsuits in New York, New Jersey, and Connecticut last year, arguing that those states' rules against non-lawyer ownership in law firms curtailed its ability to raise funds from outside investors.

A federal judge threw out the New York case last month.

On Feb. 2, New York State Bar Association President Vincent Doyle announced that it was forming a task force to study whether non-lawyers should be allowed to own equity in firms. It was unclear Monday whether the ABA's decision would impact the state bar's efforts.

(Published by Reuters - April 16, 2012)