United States District Court, S.D. New York
July 15, 2015
JACOBY & MEYERS, LLP, and JACOBY & MEYERS USA II, PLLC, Plaintiffs,
THE PRESIDING JUSTICES OF THE FIRST, SECOND, THIRD AND FOURTH DEPARTMENTS, APPELLATE DIVISION OF THE SUPREME COURT OF THE STATE OF NEW YORK, et al., Defendants.
Todd S. Garber, D. Greg Blankinship, Jeremiah Frei-Pearson, FINKELSTEIN, BLANKINSHIP, FREI-PEARSON & GARBER, David J. Meiselman, MEISELMAN, PACKMAN, NEALON, SCIALABBA & BAKER, Attorneys for Plaintiffs.
Daniel A. Schulze, Special Litigation Counsel, Michael J. Siudzinski, Assistant Attorney General, ERIC T. SCHNEIDERMAN, ATTORNEY GENERAL OF THE STATE OF NEW YORK, Attorneys for Defendants.
LEWIS A. KAPLAN, District Judge.
This putative class action challenges - on First and Fourteenth Amendment and dormant Commerce Clause grounds - the constitutionality of several New York laws and regulations that, like those of all or most other states, prohibit non-lawyer equity ownership in law firms. The matter, which the Court previously dismissed for lack of standing, is on remand from the Court of Appeals and is before the Court on a motion to dismiss the third amended complaint ("TAC"). The Court concludes that (1) it is constrained by the mandate rule to hold that the plaintiffs have standing and that their dispute is justiciable, but (2) the plaintiffs' constitutional challenges are entirely without merit.
New York Rule of Professional Conduct 5.4
Rule 5.4 of the New York Rules of Professional Conduct ("New York Rule 5.4") and comparable provisions in effect across all or most of the country provide in substance that "[l]awyers in the United States are not now permitted to obtain equity investments in their practices from non-lawyers, which precludes them from, among other things, selling stock in their practices to the public." It has its most recent origins in Rule 5.4 of the American Bar Association's Model Rules of Professional Conduct, which was adopted in 1983 and which, among other things, prohibits a lawyer from "practic[ing] with or in the form of a professional corporation or association authorized to practice law for a profit if... a nonlawyer owns any interest therein." In the intervening years, nearly every state, including New York, has adopted Model Rule 5.4(d) or a variant thereof.
The Complaint and the Amended Complaint
This action originally was filed on May 18, 2011 by Jacoby & Meyers Law Offices, LLP. At a November 2011 hearing on defendants' motion to dismiss the complaint for lack of subject matter jurisdiction and for failure to state a claim, however, it became clear that there in fact was no such entity. In part to cure that problem, and in part to respond to the Court's concerns about justiciability, the plaintiff moved orally for leave to amend its complaint - a request the Court granted on the record.
On November 23, 2011, Jacoby & Meyers, LLP ("J&M") and Jacoby & Meyers USA, LLC ("J&M LLC") - a limited liability company formed by J&M, allegedly to receive non-lawyer equity investment and to conduct J&M's practice following a proposed transfer to it of J&M's assets - filed an amended complaint ("AC") which did not vary from the original in any respect that remains material. The AC, like the original complaint, named as defendants the presiding justices of the four appellate divisions of the New York Supreme Court, and sought principally a declaration that New York Rule 5.4 violated the First and Fourteenth Amendments and the dormant Commerce Clause.
This Court's Prior Decision
Defendants moved to dismiss the AC, arguing, among other things, that the plaintiffs lacked standing, that their claims were unripe, and, alternatively, that the Court should abstain. At the heart of defendants' motion was an assertion that provisions of New York law independent of New York Rule 5.4 would preclude plaintiffs from accepting non-lawyer equity investors even if the Rule were deemed unconstitutional. In consequence, defendants argued, plaintiffs lacked standing because "their injury can neither be traced to the Rule, nor remedied by striking it down."
At oral argument, the Court advised plaintiffs of its preliminary view that their failure to challenge any of the other provisions of New York law said by defendants to prohibit plaintiffs from accepting non-lawyer equity investment could result in dismissal for lack of standing. Nevertheless, plaintiffs expressly confirmed that they were challenging only New York Rule 5.4, though they did dispute whether the other New York laws relied upon by the defendants applied, arguing that those laws "by necessity... would fall" if this Court issued a decision declaring New York Rule 5.4 unconstitutional.
The Court began its analysis by examining state statutes (other than New York Rule 5.4) claimed by the defendants to foreclose non-lawyer equity investment in law firms. It held that Section 495 of the New York Judiciary Law and Section 121-1500 of the New York Partnership Law foreclosed J&M LLC and J&M, respectively, from accepting equity investment from nonlawyers. Accordingly, the Court concluded that plaintiffs had not sufficiently alleged that New York Rule 5.4 caused their alleged injuries or that a decision invalidating the Rule would redress any such injury. It therefore dismissed the AC for lack of subject matter jurisdiction.
On appeal, plaintiffs asserted that this Court's standing determination was erroneous, arguing in a conclusory fashion, that "[w]here, as here, the plaintiff itself is the subject of the government action (or inaction) at issue, there is ordinarily little question that the action or inaction has caused [the plaintiff] injury, and that a judgment preventing or requiring the action will redress it.'" Plaintiffs' appellate briefs for the most part did not even address the question whether their failure to challenge the constitutionality of state laws distinct from - but with the same practical effect as - New York Rule 5.4, deprived them of standing to challenge the Rule for the reasons provided by this Court in its opinion granting defendants' motion to dismiss the AC. The lone exception was a terse statement in plaintiffs' reply brief that assumed - as plaintiffs had argued unsuccessfully before this Court - that a ruling striking down New York Rule 5.4 necessarily would invalidate the other relevant state laws and thus would redress their alleged injury.
At oral argument before the Court of Appeals, plaintiffs confirmed that they "had declined to challenge the other provisions of New York state law out of concern that the district court... would [have] abstain[ed] from deciding the case pursuant to" Pullman.  But after defendants argued that "alternative provisions of New York law unambiguously prohibit non-lawyer investment in law firms, " plaintiffs voiced no objection to a remand "so that [they] could amend [their] complaint to challenge the other provisions of New York law as well." Ultimately, the Court of Appeals vacated this Court's judgment without explicitly discussing standing, remanded the case with instructions to grant plaintiffs leave to amend their complaint, and said:
"Because the district court and appellees agree that Judiciary Law § 495 and LLC Law § 201, as authoritatively interpreted by the state courts, unambiguously prohibit non-lawyer investment in law firms, Pullman abstention is unnecessary, and the district court can proceed to adjudicate the parties' dispute as to whether those statutes, and Rule 5.4, are constitutional."
Proceedings on Remand - the Second and Third Amended Complaints
On June 21, 2013, seven months after the Second Circuit's remand, J&M and J&M LLC filed a second amended complaint ("SAC") challenging, in addition to New York Rule 5.4 and consistent with the Second Circuit's suggestion, more than a dozen state laws that allegedly prohibited non-lawyer equity investment in law firms. Defendants again moved to dismiss. During briefing on that motion, however, it became clear that J&M - nearly three weeks after defendants filed their motion but 10 days before J&M filed its opposition - had organized a new entity, Jacoby & Meyers USA II PLLC ("J&M PLLC"), presumably on the theory that it (unlike J&M LLC) would not run afoul of Section 201 of the LLC Law or Section 495 of the Judiciary Law, both of which prohibit limited liability companies from practicing law regardless of who their investors are.  J&M LLC soon merged with and into J&M PLLC. Thus, one of the two plaintiffs in the case ceased to exist. Moreover, plaintiffs' opposition to defendants' motion to dismiss relied heavily on claims that appeared to be asserted by J&M PLLC, which was not a party to the action. Accordingly, the Court (1) dismissed the action as moot insofar as it was brought on behalf of J&M LLC, (2) denied defendants' motion to dismiss the SAC as to J&M without prejudice to renewal, and (3) permitted the filing of a motion for leave to amend the complaint to add J&M PLLC as a plaintiff.
Plaintiffs filed the TAC on March 13, 2015. Aside from adding J&M PLLC as a plaintiff, it adds nothing to the SAC, which itself added little beyond the additions noted above to the AC. The facts alleged, in substance, have remained the same throughout this litigation.
J&M contends, with debatable justification, that it "has become synonymous with legal services for underserved populations" and that it "has been at the vanguard of overturning obstacles that impede robust competition for lawyers." It goes on at some length, as it did in the AC and in the SAC, about what it characterizes as its "pioneer[ing]" efforts to provide "quality legal services at a reasonable cost to economically challenged individuals who would otherwise have no access to the legal system." To accomplish its purported goals - and, no doubt, to increase its profitability - J&M wants to "expand [its] operations, hire additional attorneys and staff, acquire new technology, and improve [its] physical offices and infrastructure." To do this, J&M says it "requires a substantial infusion of new capital" - capital it admits is, in some circumstances, available to it in the form of partner contributions, retention of earnings on fees, and commercial bank loans, but which it says is now "too expensive." In light of the alleged unavailability of these traditional means of financing, J&M contends, New York's prohibition on non-lawyer equity investment in law firms has jeopardized J&M's commitment to providing low-cost legal services to the poor.
But fear not. J&M says it has received "numerous offers... from prospective nonlawyer investors... who are prepared to invest capital in exchange for owning an interest in the firm." Indeed, there allegedly are "several high net-worth individuals" and institutional investors who "have expressed their commitment to invest significant sums of money" in J&M in exchange for equity in the firm. It is only the ban on non-lawyer equity ownership of law firms, the TAC asserts, that has prevented J&M from entertaining these offers. But for the ban - a ban that J&M contends "unnecessarily restrict[s]" its ability to raise capital by eliminating "critical sources of funding" for lawyers who practice, or are admitted to practice, in New York - J&M says it already would have "consummated these investments and allowed non-lawyers to own an interest" in J&M, J&M PLLC, or "whatever form is required."
The Pending Motion to Dismiss
Defendants have moved to dismiss the TAC. They argue, once again, that this case is not justiciable - that plaintiffs lack standing because their alleged prospective injury neither would be caused by the challenged statutes nor redressed by a favorable decision, and that their claims are unripe because "no disciplinary, criminal or other proceeding regarding the Rule and statutes at issue against either plaintiff is imminent." Defendants argue in the alternative that the Court should abstain from deciding this case to give the New York state courts an opportunity to hear, in the first instance, plaintiffs' challenge to the constitutionality of New York Rule 5.4 and the other New York laws at issue here. Finally, defendants contend that plaintiffs' First and Fourteenth Amendment and dormant Commerce Clause claims lack merit.
A. Preliminary Issues: Justiciability & Abstention
The judicial power of the United States extends only to "cases" and controversies." This "case-or-controversy limitation on federal judicial authority underpins, " among other doctrines, the principles of standing and ripeness,  which seek to "preserve the the proper - and properly limited - role of the courts in a democratic society.'" No doubt aware of these and other limitations of Article III jurisdiction - and of the Court's corresponding duty to avoid reaching constitutional questions if it can decide a case on other, more limited grounds - the parties argue at length about whether (1) J&M has standing to bring this suit, (2) J&M's claims are ripe for adjudication, and (3) the Court, on grounds of comity, should abstain from deciding this case now.
To be sure, this pre-enforcement facial constitutional challenge presents some interesting - and arguably difficult - questions of justiciability, for the law governing standing and ripeness in such cases is complicated and unsettled. In the ordinary case, of course, the Court would consider those "threshold issue[s]" before reaching the merits of J&M's constitutional challenge. But this is not an ordinary case.
On the prior appeal, J&M confirmed that it deliberately had challenged only the constitutionality of New York Rule 5.4 in the AC, claiming that it did so in an attempt to avoid any possibility of abstention in favor of state court proceedings. But it then changed its position before the Court of Appeals, agreeing to a remand to permit it to amend the complaint it had declined to expand below. The Second Circuit saw "no reason not to remand the case... in order to permit the plaintiffs to amend their complaint to name additional state defendants and challenge the other provisions of New York law that prohibit non-lawyer investment in law firms." In so doing, the Court of Appeals gave this Court very clear instructions. It said that "abstention is unnecessary." And it directed this Court "to adjudicate the parties' dispute as to whether [Judiciary Law § 495 and LLC Law § 201], and Rule 5.4, are constitutional."
The issue concerning Section 201 of the LLC Law now is out of the case by virtue of the merger of J&M LLC with and into J&M PLLC, as there no longer is a limited liability company plaintiff. But implicit in - and necessary to - the Second Circuit's directive was a conclusion that J&M's anticipated TAC would contain allegations that, if proved, would establish J&M's standing to bring constitutional claims against New York Rule 5.4, Section 495 of the Judiciary Law, and the additional state statutes identified by defendants, as well as the ripeness of those claims. Under the "so-called mandate rule, '" then, this Court must do what the Second Circuit has asked. It must reach the legal sufficiency of J&M's constitutional challenge.
B. Constitutional Claims
J&M argues that the New York laws it challenges here violate the First and Fourteenth Amendments and the dormant Commerce Clause by prohibiting it, and other firms like it, from practicing law if they accept non-lawyer equity investment. Two points bear mention at this stage.
First, this is a facial, not an as-applied, challenge. Facial challenges are "disfavored for several reasons, " not least of which being that they inevitably require decisions to be made "on the basis of factually barebones records." That perhaps is at least part of the reason that many of the cases J&M cites in support of its First Amendment claims address as-applied challenges.
Second, state statutes regulating the conduct of lawyers are entitled to a strong presumption of constitutionality, for there is an "important state obligation to regulate persons who are authorized to practice law." Indeed, the Supreme Court repeatedly has reflected on the "extremely important interest in maintaining and assuring the professional conduct of the attorneys" that are licensed by a particular state, and it has looked favorably upon the "extensive control" that states "traditionally have exercised... over the professional conduct of attorneys." A state's interest in regulating lawyers, the Supreme Court has said, is "especially great" because "lawyers are essential to the primary governmental function of administering justice, and have historically been officers of the courts." For that reason, and because the judiciary and the public depend upon the "professionally ethical conduct of attorneys, " courts themselves have "a significant interest in assuring and maintaining high standards of conduct of attorneys engaged in practice."
From that starting point, we proceed to plaintiffs' constitutional arguments.
1. First Amendment
Employing at times soaring rhetoric about, among other things, the "right of access to courts" and the "essential essence of legal representation, " J&M claims, broadly speaking, that New York Rule 5.4 and the various other provisions of New York law here at issue unconstitutionally restrict the core First Amendment protections of free speech and association. Specifically, J&M says that New York law (1) is "an impermissible ban" on "free speech through corporate expenditure, " (2) "infringe[s] on the right of individuals and corporations from forming associations for the purpose of providing legal representation, " and (3) restricts lawyers' "right to speak for clients." Ultimately, J&M's First Amendment claim, in effect, is largely this: lawyers and, by extension, law firms have a constitutional right to associate with others, including non-lawyers, for the purpose of providing clients with legal services. By prohibiting such associations, New York law unconstitutionally bans corporate speech and restricts the receipt of that speech by the public at large.
J&M's argument at best is unpersuasive. At worst, it makes a mockery of the First Amendment. It lacks logical coherence. At times, it misstates the law, misconstrues Supreme Court precedent, and misunderstands critical distinctions in First Amendment jurisprudence. In the end, the theory on which it depends - and on which it bases the proposed transaction - falls outside even the most expansive reading of the First Amendment.
It is true, of course, that "First Amendment protection extends to corporations, " that "speech that otherwise would be within the protection of the First Amendment" does not "lose that protection simply because its source is a corporation, " and that "restriction[s] on the amount of money a person or group can spend" on certain kinds of speech violate the First Amendment by "reduc[ing] the quantity of expression." It is true also that "the right of access to the courts is an aspect of the First Amendment right to petition the Government for redress of grievances" and that "collective activity undertaken to obtain meaningful access to the courts is a fundamental right within the protection of the First Amendment." Whatever the reach of those principles, however, J&M's argument that lawyers have a constitutional right to associate with non-lawyers in the practice of law is not within it.
For one thing, this case has nothing to do with speech, despite J&M's best efforts to convince the Court otherwise. The transaction that J&M proposes to undertake - that is, its plan to accept non-lawyer equity investment - is not speech at all. It is neither an advertisement, paid or unpaid, nor a solicitation of money or business, in-person or otherwise. Indeed, whereas "commercial speech serves to inform the public of the availability, nature, and prices of products and services" and to convey "information of import to significant issues of the day, " the proposed transaction here does neither. It therefore is not speech. It is conduct.
a. Freedom of Speech
The First Amendment protects, among other things, freedom of "speech." It says nothing about "conduct." To be sure, First Amendment "rights are not confined to verbal expression, " and the Supreme Court has extended constitutional protection to some forms of particularly expressive conduct - that is, to conduct that is "sufficiently imbued with elements of communication to fall within the scope of the First and Fourteenth Amendments." But this socalled "symbolic speech" is where the First Amendment's protection of conduct ends. The Supreme Court has "rejected the view that an apparently limitless variety of conduct can be labeled speech' whenever the person engaging in the conduct intends thereby to express an idea." Indeed, "virtually every law restricts conduct and virtually any prohibited conduct can be performed for an expressive purpose - if only expressive of the fact that the actor disagrees with the prohibition." Thus, First Amendment protection has been extended "only to conduct that is inherently expressive." That is, it extends only to conduct motivated by "[a]n intent to convey a particularized message" such as: burning the American flag in political protest,  wearing black armbands to protest American involvement in the Vietnam War,  and conducting a sit-in to protest racial segregation.
The proposed conduct here - and that the laws at issue seek to preclude - is of a different hue. It lacks the "expressive, overtly political nature" of flag burning or the moral gravitas of a "peaceable and orderly" sit-in to protest "the unconstitutional segregation of public facilities." It does not "communicat[e]... ideas by conduct, " as often was so of draft card burning during the Vietnam War. Nor is it "closely akin to pure speech, '" as sometimes is true of the wearing of an armband to evidence solidarity with a movement. Rather, J&M seeks non-lawyer equity investors as a means to commercial end: without a "substantial infusion of new capital, " J&M says it will be unable, among other things, to "expand its operations, hire additional attorneys and staff, acquire new technology, and improve its physical offices and infrastructure." What J&M wants, in other words, is to engage freely with non-lawyers in conventional commercial conduct - conduct that "manifests absolutely no element of protected expression." The New York laws that prevent J&M from accomplishing its commercial goals thus are merely "restriction[s] on a commercial practice." Such laws, directed as they are at "commerce or conduct, " fall outside the purview of the First Amendment even if they impose "incidental burdens on speech." After all, "every civil and criminal remedy imposes some conceivable burden on First Amendment protected activities, " and "it has never been deemed an abridgment of freedom of speech... to make a course of conduct illegal merely because the conduct was in part initiated, evidenced, or carried out by means of language, either spoken, written, or printed."
Even if the regulated conduct were expressive, the First Amendment would not bar the New York laws here at issue. First, the state "generally has a freer hand in restricting expressive conduct than it has in restricting the written or spoken word." Second, the laws in question are not "related to the suppression of free expression" in that they are not " directed at the communicative nature of [the] conduct." Rather, they are concerned with its "noncommunicative impact" - i.e., with the conflicts of interests and other client-adverse effects that might occur were law firms permitted to accept non-lawyer equity investors. Third, the laws (1) are "within the constitutional power of the" state; (2) "further an important or substantial government interest;" and (3) have an "incidental restriction on alleged First Amendment freedoms" that "is no greater than is essential to the furtherance of that interest." It is well-established that "[t]he States enjoy broad power to regulate the practice of professions within their boundaries" and that states have "an extremely important interest in maintaining and assuring the professional conduct of the attorneys [they] license." Finally, it is indisputable that New York's interest in regulating attorney conduct "would be achieved less effectively absent the regulation." Neither J&M's unsubstantiated promise that it "shall ensure that client confidences and lawyers' independence of professional judgment are at all times preserve[d], " nor its sweeping, conclusory statements about the purported benefits of non-lawyer equity investment in British and Australian law firms, among others, counsels differently.
Ultimately, J&M's challenge to these New York laws on free speech grounds is without merit. To the extent that the contested provisions of New York law incidentally affect expression - if indeed they do at all - J&M's effort to cast itself and other law firms like it as victims of a heavy-handed, outmoded regulatory regime "plainly overstates the expressive nature of their activity and the impact of the [New York laws] on it, while exaggerating the reach of [the Supreme Court's] First Amendment precedents."
b. Freedom of Association
These New York laws regulate non-expressive commercial conduct and do not violate J&M's freedom of speech, but that conclusion does not end the Court's analysis under the First Amendment, the protection of which extends beyond the right to speak to the "right to associate for the purpose of engaging in those activities protected by the First Amendment." This right, also called a "right of expressive association, " protects, among other things, "the freedom of individuals to associate for the purpose of engaging in protected speech." Courts safeguard this unenumerated right to associate because the "right to speak is often exercised most effectively by combining one's voice with the voices of others." Indeed, an "individual's freedom to speak, to worship, and to petition the government for the redress of grievances could not be vigorously protected from interference by the State unless a correlative freedom to engage in group effort toward those ends were not also guaranteed." Thus, the Supreme Court has "long understood as implicit in the right to engage in activities protected by the First Amendment a corresponding right to associate with others in pursuit of a wide variety of political, social, economic, educational, religious, and cultural ends."
Once again, however, J&M's claim faces an insurmountable threshold issue. Just as its proposed professional partnership (here in the colloquial, not legal, sense) with non-lawyer equity investors would be non-expressive commercial conduct outside the scope of the First Amendment, so too does J&M - like other law firms - propose to engage primarily in nonexpressive commercial association undeserving of constitutional protection.
J&M admits that the primary purpose of its plan to accept non-lawyer equity investors is 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." Its attempt to highlight the kinds of clients it says it has and wants to attract - those from "working-class, blue-collar and immigrant families" - is mere misdirection. The demographic and socioeconomic characteristics of J&M's clientele are not constitutionally relevant to the question of whether these New York laws abridge law firms' "expressive associational" rights. Ultimately, there is "only minimal constitutional protection" for the sort of " commercial association" in which J&M and other law firms regularly engage, and associations "whose activities are not predominantly of the type protected by the First Amendment [are] subject to rationally related state regulation."
There is no question that the New York laws challenged here survive rational basis review, which requires courts to uphold legislation "if any reasonably conceivable state of facts could demonstrate that the statute is rationally related to a legitimate government purpose." For one thing, statutes come with a "strong presumption of rationality, " and J&M has not met its burden of alleging facts that, if proved, would show "that no set of circumstances exists under which the Act would be valid." For another, the New York laws "promote the independence of lawyers by preventing non-lawyers from controlling how lawyers practice law" and by, among other things, "attempt[ing] to minimize the number of situations in which lawyers will be motivated by economic incentives rather than by their client's best interests." The state's "extremely important interest in maintaining and assuring the professional conduct of the attorneys it licenses" is a more-than-adequate justification for the various restrictions on relationships between lawyers and non-lawyers and for the prohibition on non-lawyer equity ownership in law firms.
Moreover, even if J&M were engaged in constitutionally protected expressive association, the New York laws it challenges here would not violate the First Amendment. Indeed, "the freedom of expressive association, like many freedoms, is not absolute." It may be overriden "by regulations adopted to serve compelling state interests, unrelated to the suppression of ideas, that cannot be achieved through means significantly less restrictive of associational freedoms." As the Court has discussed, New York passed these laws to serve its "extremely important interest in maintaining and assuring the professional conduct of the attorneys it licenses, " and the laws in question "do not aim at the suppression of speech, do not distinguish between prohibited and permitted activity on the basis of viewpoint, and do not license enforcement authorities to administer the statute on the basis of such constitutionally impermissible criteria." Finally, J&M has not alleged sufficiently that the laws actually "impose any serious burdens" on its constitutionally protected associational freedoms, as distinct from, for example, its bottom line or its economic viability. In the last analysis, New York's "especially great" interest in regulating lawyer conduct - an interest that is unrelated to the suppression of expression - justifies any incidental impact that application of these laws may have on J&M's associational freedoms.
Finally, J&M contends that Supreme Court precedent "make[s] clear that association for the purpose of providing access to the courts is a fundamental right which cannot be trumped by state regulation of the practice of law." It is true that "collective activity undertaken to obtain meaningful access to the courts is a fundamental right within the protection of the First Amendment." But J&M's theory that the Constitution grants it the right to associate with nonlawyer equity investors in particular forms of business organizations for the benefit of its clients misunderstands to whom the right of access adheres. The Constitution "protects the right of individuals " and legal persons "to appeal to courts and other forums established by the government for resolution of legal disputes." It does not confer protection on lawyers with respect to the nature and forms of the associations and organizations into which they may enter for the purpose of representing their clients. It is, in fact, those clients whose access to the legal system the Constitution protects. And while the constitutionally protected right of access to the courts "would be a hollow promise if courts could deny associations of workers or others the means of enabling their members to meet the costs of legal representation, " the Court's conclusion in this case - that the Constitution does not forbid state laws precluding lawyers from accepting non-lawyer equity investors - has no such effect. J&M has no members. It is not an advocacy organization. It is a law firm with paying clients. Whether or not J&M receives a financial boost from non-lawyer equity investors will have no constitutionally problematic impact on the public's right of access to courts. If anything, of course, laws that forbid lawyers from entering into financial arrangements with nonlawyers protect the public "by preventing non-lawyers from controlling how lawyers practice law" and by attempting to "minimize the number of situations in which lawyers will be motivated by economic incentives rather than by their client's best interests." The First Amendment does not bar these laws.
2. Dormant Commerce Clause
J&M argues also that the New York laws prohibiting non-lawyer equity investment in law firms violate the dormant Commerce Clause because they (1) "substantially dampen" the flow of "capital, goods, services, lawyers, and employees across state lines, " thereby burdening interstate commerce in a way that is "clearly excessive" relative "to any putative local benefit [the laws] might otherwise advance, " and (2) "reach across state lines" to bar non-New York law firms from accepting non-lawyer equity investors in such a way that they "constitute extraterritorial regulation." This argument relies on a fundamental misunderstanding of the dormant Commerce Clause.
The Constitution gives Congress "the power to regulate commerce among the States, " but "many subjects of potential federal regulation" - owing to their "local character and their number and diversity" - are "open to control by the States so long as they act within the restraints imposed by the Commerce Clause itself." These restraints - which, in effect, are "an implied limitation on the power of the States to interfere with or impose burdens on interstate commerce" - constitute the dormant Commerce Clause, which is "driven by concern about economic protectionism" - that is, "regulatory measures designed to benefit in-state economic interests by burdening out-of-state competitors."
The critical question in a dormant Commerce Clause challenge is whether the state law in question "regulates evenhandedly with only incidental effects on interstate commerce" or, instead, "discriminates on its face against interstate commerce." A facially discriminatory law motivated by "simple economic protectionism" is subject to a "virtually per se rule of invalidity" and may survive only if it "advances a legitimate local purpose that cannot be adequately served by reasonable nondiscriminatory alternatives." A state law that "regulates even-handedly to effectuate a legitimate local public interest" and that has only "incidental" effects on interstate commerce, however, "will be upheld unless the burden imposed on such commerce is clearly excessive in relation to the putative local benefits."
This is not a high bar: "State laws frequently survive this... scrutiny." In fact, "[f]or a state statute to run afoul of the Pike standard, the statute, at a minimum, must impose a burden on interstate commerce that is qualitatively or quantitatively different from that imposed on intrastate commerce." If the party challenging the law has not alleged facts that, if proved, would show such an "unequal burden, " the "reviewing court need not proceed further."
J&M's dormant Commerce Clause claim relies on the woefully misguided premise that the laws at issue here are facially discriminatory. But they are not. They provide no special or beneficial treatment to New York lawyers or law firms. They treat in-state and out-of-state interests identically. They do not have a "disparate impact on any non-local commercial entity;" rather, they treat all commercial entities equally, without regard to in-state or out-of-state status. They do not "regulate commercial activity that takes place wholly beyond the state's borders;" rather, they apply only to lawyers and law firms practicing in New York. And they do not "impose a regulatory requirement inconsistent with those of other states;" rather, as J&M acknowledges, "virtually every jurisdiction in the United States" bans non-lawyer equity ownership in law firms. Assuming, arguendo, that these laws have any effect at all on interstate commerce, that effect is merely incidental.
As evenhanded laws that serve New York's "extremely important interest in maintaining and assuring the professional conduct of the attorneys it licenses" and that have, at most, an incidental effect on interstate commerce, the laws at issue here must be upheld unless the TAC alleges facts that, if proved, would show that the burden those laws impose on interstate commerce is "clearly excessive" relative to the benefits they have for New York. But the TAC alleges no such facts. Indeed, its factual allegations are insufficient to make out a plausible claim that these laws impose any more than a de minimis burden on interstate commerce, if they impose any burden at all. And as the Court explained earlier, New York legislators were entitled to conclude that laws like these yield important benefits for the citizens of that state. They arguably "promote the independence of lawyers by preventing non-lawyers from controlling how lawyers practice law, " and by, among other things, "attempt[ing] to minimize the number of situations in which lawyers will be motivated by economic incentives rather than by their client's best interests." Thus, the TAC does not allege sufficiently that these laws violate the dormant Commerce Clause.
3. Fourteenth Amendment
J&M's contends finally that the New York laws banning non-lawyer equity investment in law firms violate the Fourteenth Amendment, first by "abridg[ing] a fundamental right under Substantive Due Process" and, second, by denying J&M "the equal protection of the laws in violation of the Equal Protection Clause." J&M's equal protection argument appears predicated on the idea that the restrictions on outside ownership that apply to lawyers do not apply to other "similarly situated" professionals, such as investment bankers, rendering those restrictions "arbitrary and capricious" and, ultimately, unconstitutional. Both of these arguments are frivolous.
a. Due Process Clause
Neither the TAC nor J&M's briefing is particularly clear about which "fundamental right" (or rights) J&M believes these New York laws "abridge." As best the Court can tell, though, it is the right to free speech, the right of access to the courts, or both. For reasons already discussed herein, however, these laws have nothing to do with speech, and the right of access to the courts inheres in individuals and entities seeking relief or defending themselves as litigants, not in law firms like J&M in their capacities as legal representatives. But there are other problems with J&M's argument, as we will see momentarily.
The Due Process Clause of the Fourteenth Amendment, in addition to its guarantees of fair process, "provides heightened protection against government interference with certain fundamental rights and liberty interests." But this concept of substantive due process is limited, and "the Due Process Clause specially protects" only "those fundamental rights and liberties which are, objectively, deeply rooted in this Nation's history and tradition.'" Moreover, "if a constitutional claim is covered by a specific constitutional provision, ... the claim must be analyzed under the standard appropriate to that specific provision, not under the rubric of substantive due process." Finally, a regulation that infringes on a fundamental right will be struck down as a violation of substantive due process under the Fourteenth Amendment unless the regulation is "narrowly tailored to serve a compelling state interest, " but "[l]egislative acts that do not interfere with fundamental rights... carry with them a strong presumption of constitutionality and must be upheld if rationally related to a legitimate state interest."
The right to free speech, of course, is covered by the First Amendment. The Court already has analyzed J&M's free speech claim in that context and will not do so again under the substantive due process framework. As there is no legally sufficient free speech claim, there is no speech-related substantive due process claim.
The right of access to the courts, in some contexts, is a fundamental right for substantive due process purposes. In others, however, the Supreme Court has grounded the right of access to courts in the Privileges and Immunities Clause. In still others, as here, it is "an aspect of the First Amendment right to petition the Government for redress of grievances." In all contexts, however, "the right is ancillary to the underlying claim, without which a plaintiff cannot have suffered injury by being shut out of court." J&M has no legally sufficient right of access claim and therefore has not alleged a sufficient substantive due process claim of infringement of its right of access to the courts.
Finally, the Court must uphold these laws, which "do not interfere with fundamental rights, " if they are "rationally related to a legitimate state interest." For reasons already discussed in its analysis of J&M's First Amendment claims, the Court concludes that they are.
b. Equal Protection Clause
J&M's final argument is that New York law draws an "arbitrary" distinction between lawyers and investment bankers who, despite their many alleged similarities, are "treated completely differently under the law." According to J&M, New York prohibits lawyers from accepting nonlawyer equity investment but allows public ownership of investment banks.
The Equal Protection Clause of the Fourteenth Amendment "is essentially a direction that all persons similarly situated should be treated alike." However, "[t]he Constitution does not require things which are different in fact or opinion to be treated in law as though they were the same." Thus, where similarly situated parties are treated differently, the "legislation is presumed to be valid and will be sustained if the classification drawn by the statute is rationally related to a legitimate state interest."
Whether lawyers and investment bankers are similarly situated in the first place is a "fact-intensive inquiry" that the Court need not make in any depth here, for it matters not to the outcome of this claim. Whatever similarities may exist in their day-to-day work, lawyers and investment bankers do not play the same role in the American judicial system or in the administration of justice in this country. As the Supreme Court has recognized, "lawyers are essential to the primary governmental function of administering justice, and have historically been officers of the courts." No other profession - not even investment banking - fills such a role. The judiciary and the public depend upon the "ethical conduct of attorneys, " and these New York laws preventing nonlawyers from investing in law practices are rationally related to New York's legitimate - indeed its "extremely important" - "interest in maintaining and assuring the professional conduct of the attorneys it licenses."
For the foregoing reasons, defendants' motion to dismiss the third amended complaint [DI 127] is granted. The Clerk shall enter judgment and close the case.