Another Blow for Non-lawyer Investors

by Jimmy Bewley | August 23, 2016

Jacoby & Myers, LLP took its argument for removing the restriction on non-lawyer financial investing to federal court Friday, August 19. To say it didn’t go well would likely be an understatement. According to Law 360, the appellate panel from the U.S. Court of Appeals Second Circuit came down pretty hard on Jacoby & Myers’ counsel calling their argument “far-fetched” and that the lawsuit was lacking any “logical coherence”.

After reading more about the suit, I can see where “logic” and “coherence” were a problem. If I’ve understood correctly, Jacoby & Myers attacked the restriction using a First Amendment argument. They claimed the ban creates a financial roadblock for lawyers by impeding their right to free speech. In return, this ultimately prohibits them from providing low cost legal services to a poor and financially underdeveloped demographic—A demographic that cannot afford legal services other than obtaining services from a contingency fee based law firm.   Moreover, the lack of money from private, non-lawyer investors only curtails the firm’s ability to help more people.  In my opinion, the argument was somewhat disjointed and confusing, and apparently, the judges on the panel agreed.

It would seem, regardless of the validity or lack thereof of the Jacoby & Myers’ First Amendment argument, an “old guard” mentality on non-lawyer funding still rings true. One judge concluded that if a strict scrutiny review was applied to the First Amendment argument that many other restrictions or obligations might follow. For example, why do we need a three year law degree or why a specific type of bar exam?  Sorry, your Honor, but that seems a little too fearful that change might wreak havoc on the entire judicial system…that’s yet to be determined.

In the end, while this topic seems to always illicit emotionally-charged responses from both camps, the reasoning for the restriction typically boils down to the protection of the public.  If attorneys are accountable to private, non-lawyer investors, how can we be sure their obligations to their clients, ethical or otherwise, will not suffer?  It’s a tough question even for those of us who are supporters and advocates for the change.