Are New York Law Firms Organized As LLCs Violating the Law?
In New York, a professional services limited liability company (PLLC) may only be formed by state-licensed professionals such as doctors, architects, chiropractors and, of course, lawyers. But does this mean that lawyers must use a PLLC if they form a limited liability company? May lawyers choose to form an LLC instead?
In 2012, Judge Lewis Kaplan of the Southern District of New York held that New York law prohibits lawyers from using LLCs. He rendered this holding in a lengthy decision in Jacoby & Meyers, LLP v. Presiding Justices. 847 F. Supp. 2d 590. In Jacoby, a well-known personal injury firm argued that New York ethics rules prohibiting non-lawyers from investing in law firms was unconstitutional under the First Amendment. Before the law firm sued, it created a domestic LLC to accept investments.
Judge Kaplan dismissed the law firm's complaint, holding among other things that the firm lacked standing. His reasoning: That New York law prohibits law firms from using LLCs regardless of the nature of their investors. As a result, the firm did not properly allege that it was harmed by the ethics rules.
That particular holding by Judge Kaplan did not garner much attention, however. At the time, it was widely expected that the law firm would appeal, and the U.S. Court of Appeals for the Second Circuit would consider the issues de novo.
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