It is unethical for a New York law firm to accept a non-lawyer’s investment into the firm. But should it be? The law firm Jacoby & Meyers, in a complaint filed in the Southern District of New York seeking declaratory and injunctive relief against the presiding justices of New York’s four Appellate Divisions, argues that non-lawyer investment should be permitted.1 The New York Attorney General disagrees, arguing that the state has a compelling interest in the regulation of its bar and that rules prohibiting non-lawyer investment are designed to protect attorney independence and client loyalty.
The Jacoby firm’s suit highlights a new battleground in the debate over the increasing role alternative litigation financing (ALF) plays in major litigation, as investors seek to capitalize on litigation-related income by wagering on the outcome of large civil cases, or on a larger and potentially more problematic scale, by investing directly into law firms themselves. The New York City Bar Committee on Professional Ethics in a recent Formal Ethics Opinion estimated there is $1 billion in litigation financing outstanding.2
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