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Jacoby & Meyers, LLP v. Presiding Justices of First, Second, Third and Fourth Departments

United States Court of Appeals, Second Circuit

March 24, 2017

JACOBY & MEYERS, LLP, ON BEHALF OF ITSELF AND ALL OTHER SIMILARLY SITUATED ENTITIES AUTHORIZED TO PRACTICE LAW IN THE STATE OF NEW YORK; JACOBY & MEYERS USA II, PLLC, Plaintiffs-Appellants,
v.
THE PRESIDING JUSTICES OF THE FIRST, SECOND, THIRD AND FOURTH DEPARTMENTS, APPELLATE DIVISION OF THE SUPREME COURT OF THE STATE OF NEW YORK; ERIC T. SCHNEIDERMAN; DIANE MAXWELL KEARSE, IN HER OFFICIAL CAPACITY AS CHIEF COUNSEL FOR THE GRIEVANCE COMMITTEE FOR THE SECOND, Eleventh and Thirteenth Judicial Districts; GARY L. CASELLA, in his official capacity as Chief Counsel for the Grievance Committee for the Ninth Judicial District; GREGORY A. GREEN, in his official capacity as Chief Counsel for the Grievance Committee for the Tenth Judicial District; GREGORY J. HUETHER, in HIS OFFICIAL CAPACITY AS CHIEF COUNSEL FOR THE GRIEVANCE COMMITTEE FOR THE FIFTH, Seventh and Eighth Judicial Districts; PETER M. TORNCELLO, in his official capacity as Chief Attorney for the Committee on Professional Standards for the Appellate Division of the Supreme Court, Third Judicial Department; MONICA DUFFY, Defendants-Appellees [*]

          Argued: August 19, 2016

         Plaintiffs-Appellants Jacoby & Meyers, LLP, a limited liability law partnership, and Jacoby & Meyers USA II, PLLC, a related professional limited liability company (together, "plaintiffs" or "the J&M Firms"), challenge the constitutionality of a collection of New York regulations and laws that together prevent for-profit law firms from accepting capital investment from non-lawyers. The J&M Firms allege that, if they were allowed to accept outside investment, they would be able to-and would-improve their infrastructure and efficiency and as a result reduce their fees and serve more clients, including clients who might otherwise be unable to afford their services. By impeding them from reaching this goal, the J&M Firms contend, the state has unconstitutionally infringed their rights as lawyers to associate with clients and to access the courts-rights that are grounded, they argue, in the First Amendment. The District Court (Kaplan, J.) dismissed the complaint, concluding that the J&M Firms failed to state a claim for violation of any constitutional right and that, even if such rights as they claim were to be recognized, the challenged regulations withstand scrutiny because they are rationally related to a legitimate state interest. We agree that under prevailing law the J&M Firms do not enjoy a First Amendment right to association or petition as representatives of their clients' interests; and that, even if they do allege some plausible entitlement, the challenged regulations do not impermissibly infringe upon any such rights. We therefore AFFIRM the District Court's judgment.

          Douglas Gregory Blankinship, Finkelstein, Blankinship, Frei-Pearson & Garber, LLP, White Plains, New York, for Appellants.

          Andrew Rhys Davies, Assistant Solicitor General (Barbara D. Underwood, Solicitor General, Steven C. Wu, Deputy Solicitor General, on the brief), for Eric T. Schneiderman, Attorney General of the State of New York, New York, New York, for Appellees.

          Before: Lynch and Carney, Circuit Judges, and Hellerstein, District Judge. [**]

          Susan L. Carney, Circuit Judge:

         Through a set of prohibitions of long standing in New York and similar to those widely prevalent in the fifty states and the District of Columbia, the State of New York prohibits non-attorneys from investing in law firms. See generally N.Y. State Bar Ass'n, Report of the Task Force on Nonlawyer Ownership, reprinted at 76 Alb. L. Rev. 865 (2013) ("NYSBA Report"). The prohibition is generally seen as helping to ensure the independence and ethical conduct of lawyers. See id. at 876-77. Plaintiffs-Appellants Jacoby & Meyers, LLP, a limited liability partnership (the "LLP"), and Jacoby & Meyers USA II, PLLC, a related professional limited liability company (the "PLLC"; together, "plaintiffs" or the "J&M Firms") bring a putative class action challenging New York's rules, regulations, and statutes prohibiting such investments. The infusions of additional capital that the regulations now prevent, they declare, would enable the J&M Firms to improve the quality of the legal services that they offer and at the same time to reduce their fees, expanding their ability to serve needy clients. They assert that, were they able to do so, they would act on that ability in the interests of such potential clients. Because the laws currently restrict their ability to accomplish those goals, they maintain, the state regime unlawfully interferes with their rights as lawyers to associate with clients and to access the courts-rights they see as grounded in the First Amendment.

         The United States District Court for the Southern District of New York (Kaplan, Judge) dismissed the complaint for failure to allege the infringement of any cognizable constitutional right. On de novo review, we identify no error in that conclusion. Neither as a for-profit law partnership nor as a professional limited liability company do the J&M Firms have the associational or petition rights that they claim. Even were we to assume, given the evolving nature of commercial speech protections, that they possess some such First Amendment interests, the regulations at issue here are adequately supported by state interests and have too little effect on the attorney-client relationship to be viewed as imposing an unlawful burden on the J&M Firms' constitutional interests. We therefore AFFIRM the judgment of the District Court.

         BACKGROUND

         We draw this factual statement from the J&M Firms' Third Amended Complaint ("TAC"), accepting as true the allegations stated there for purposes of our review of the District Court's decision. AHW Inv. P'ship v. Citigroup, Inc., 806 F.3d 695, 697 n.1 (2d Cir. 2015).

         Founded in 1972, Jacoby & Meyers, LLP, is a New York-based law partnership that "maintains a network of affiliated law offices across the country, including in Southern California, New York, Alabama, Florida, and Arizona." Joint Appendix ("J.A.") 106-07. The LLP presents as its mission the following: "[T]o ensure that people of modest or average means, who could often not afford to hire a lawyer, ha[ve] a practical alternative to obtain competent, qualified counsel at reasonable rates." J.A. 106. The LLP was formed and is operated, still, as a for-profit law firm, as is its co- plaintiff, the related professional limited liability company Jacoby & Meyers USA II, PLLC.[1]

         The J&M Firms challenge the constitutionality of New York Rule of Professional Conduct 5.4, "Professional Independence of a Lawyer, " and a clutch of New York state laws that in combination work to prevent non-lawyers from investing in New York law firms.[2] Rule 5.4, for example, provides in part that "[a] lawyer shall not practice with or in the form of an entity authorized to practice law for profit if: (1) a non lawyer owns any interest therein . . . or (3) a non lawyer has the right to direct or control the professional judgment of a lawyer." N.Y. R. Prof'l Conduct 5.4(d).[3] Approaching the issue from a slightly different angle, New York Judiciary Law Section 491, for example, makes it a misdemeanor for any non-attorney to share fees or compensation with an attorney in consideration of client referrals.

         The LLP alleges that it "wishes to expand its operations, hire additional attorneys and staff, acquire new technology, and improve its physical offices and infrastructure to increase its ability to serve its existing clients and to attract and retain new clients and qualified attorneys." J.A 107. To make these improvements, the LLP asserts, it requires capital contributions. It reports receiving "numerous offers" from "prospective non- lawyer investors . . . who are prepared to invest capital in exchange for owning an interest in the firm." J.A. 109. These include some "high net-worth individuals" and "institutional investors" identified in the TAC. J.A. 109. And it would accept such contributions through the vehicle of the professional limited liability company that it has formed for this purpose. But in light of New York's prohibitions, it has "been relegated to obtaining capital from (i) the personal contributions of the partners, (ii) retained earnings on fees generated and collected, and (iii) commercial bank loans, which invariably come with onerous interest rates and intrusive covenants and conditions." J.A. 109. Moreover, these potential alternative sources of capital are either not available in practice, or too costly to be used.

         In 2011, the LLP sued the Presiding Justices of the New York Supreme Court's Appellate Divisions (who administer Rule 5.4) and others, asserting that the rule violates the First and Fourteenth Amendments and the Dormant Commerce Clause of the U.S. Constitution. After an amendment of the complaint, a dismissal for lack of standing, and a successful appeal to this Court with respect to standing, the case was remanded to the District Court, at which point the J&M Firms filed a second amended complaint that attempted to articulate a constitutional challenge to the entire New York regulatory regime. See Jacoby & Meyers, LLP v. Presiding Justices of the First, Second, Third & Fourth Dep'ts, 847 F.Supp.2d 590, 591 (S.D.N.Y. 2012) ("Jacoby I"); Jacoby & Meyers, LLP v. Presiding Justices of the First, Second, Third & Fourth Dep'ts, 488 F.App'x 526, 528 (2d Cir. 2012) ("Jacoby II"); Jacoby & Meyers, LLP v. Presiding Justices of the First, Second, Third & Fourth Dep'ts, 118 F.Supp.3d 554, 563 (S.D.N.Y. 2015) ("Jacoby III").[4] But on remand they met with no greater success: the District Court again granted the state's motion to dismiss, this time holding that the J&M Firms' amended complaint failed to state a claim for a violation of any constitutional right. See Jacoby III, 118 F.Supp.3d at 566-81.

         This appeal followed.

         DISCUSSION

         We review de novo a district court's decision to dismiss a complaint for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6). Apotex Inc. v. Acorda Therapeutics, Inc., 823 F.3d 51, 59 (2d Cir. 2016).

         On appeal, the J&M Firms abandon many of the constitutional challenges asserted in their prior complaints, and press only the argument that New Yo r k 's prohibition of non-lawyer investment in law firms infringes their First Amendment rights to petition and to association.[5] The J&M Firms are not clear about whether their claim is a facial or as-applied constitutional challenge. The District Court observed that they "attempt[] to characterize [their] lawsuit as an as-applied challenge, [but] [they] simply do[] not appreciate the distinction between as-applied and facial challenges." Jacoby III, 118 F.Supp.3d at 566 n.50. On appeal, they do not address the issue until their reply brief. In any event, "[b]ecause plaintiffs pursue this pre-enforcement appeal before they have been charged with any violation of law, it constitutes a facial, rather than as-applied challenge." N.Y.S. Rifle & Pistol Ass'n, Inc. v. Cuomo, 804 F.3d 242, 265 (2d Cir. 2015) (internal quotation marks omitted). "[T]o succeed on a facial challenge, the challenger must establish that no set of circumstances exists under ...


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