Jacoby & Meyers v. Connecticut Superior Court Judges

by Paul S. Bailin & James W. Bergenn, Shipman & Goodwin

CTLA’s Opposition to Jacoby & Meyers Attempts to Change the Practice of Law as We Know It

Jacoby & Meyers may not have any clients in Connecticut, but that didn’t stop the firm from suing all of the judges of the Connecticut Superior Court last year.  The same firm that claims to have pioneered low-cost legal clinics and television advertising for legal services is back in court, this time seeking to enjoin enforcement of Rule 5.4 of the Connecticut Rules of Professional Conduct, which prohibits non-lawyers from taking ownership positions in legal practices.  Last fall, Cindy Bott and John Kennedy approached Jim Bergenn and me about writing an amicus brief for CTLA on behalf of the defendants.  What followed has been an education in the systems of legal practice ownership, attorney conduct regulation, and comparative fee systems across three continents.

The Case

In May 2011, Jacoby filed suit against the State of Connecticut Superior Court judges in Connecticut Federal District Court, seeking a declaration that Rule 5.4 violates various constitutional provisions.  Jacoby brought the action as a purported class action on behalf of all those licensed to practice law in Connecticut.  Similar sister suits were filed in federal courts in New York and New Jersey.

The Connecticut complaint stated eight claims under federal and state law, although Jacoby subsequently withdrew all of its state claims in order to bolster its (relatively weak) jurisdictional position.  The claims run the gamut from due process and equal protection challenges to purported violations of the first amendment, the takings clause, and even the dormant commerce clause.  A common theme running through the complaint is that Rule 5.4, while purporting to regulate only legal practice, actually regulates commerce more broadly, and therefore runs afoul of various constitutional principles.  The general gravamen of the complaint was that how lawyers practice law is to be considered distinct from how they structure their business affairs, and that only the former is a legitimate subject of the Rules of Professional Conduct.

Aside from the specific constitutional claims, the complaint emphasizes four general policy themes: (1) Rule of Professional Conduct 5.4 is antiquated and has no place in a modern, technological economy; (2) the rule prevents Connecticut lawyers from competing effectively in the new global economy; (3) access to abundant, low-cost equity capital would allow Jacoby and other law firms to invest in personnel, offices, technology and other infrastructure, which, in turn, would allow them to increase public access to affordable legal services; and (4) other jurisdictions — including the UK, Australia and Washington DC — have begun to relax similar restrictions, without any resulting “parade of horrors,” suggesting that the rule lacks even a rational basis.  If the rule were abolished, Jacoby contends, there would be other means of ensuring lawyers’ independence and ethics.

The “Focus Group”

CTLA recognized that Jacoby’s lawsuit was an affront to the practice of law in Connecticut, and knew it had to challenge Jacoby’s claims by presenting amicus arguments.  To help hone the CTLA’s message and identify where we could be of most use to the Court, Cindy, John, Jim, and I rounded up a “focus group” brain trust of current and former CTLA dignitaries, to determine how CTLA could best contribute.  The group decided early on that CTLA’s help wasn’t needed to address the substantive merits of the case.  In its motion to dismiss, the AG’s office did a nice job of batting down Jacoby’s various constitutional claims, while also raising a number of strong jurisdictional challenges.  And the Connecticut Bar Association, which had already submitted its own amicus brief on behalf of the defendants, focused its argument on the first amendment claim — perhaps the least specious of Jacoby’s dubious constitutional challenges.  We decided CTLA should concentrate our resources where they would be most useful, which would also dovetail with CTLA’s unique role in the Connecticut legal community: CTLA would focus on debunking Jacoby’s claims that the restriction on non-attorney ownership of legal practices has made legal services unavailable to middle and lower income consumers, and that other nations have addressed this problem successfully by permitting ownership by non-lawyers.

The CTLA Amicus Brief

Our primary goal in the amicus brief[1] was to sever the spurious connection Jacoby tries to draw between increasing access to investment equity capital and firms’ ability to serve the needs of the poor.  We focused our analysis on personal injury litigation, not only because that is the special province of the CTLA, but also because Jacoby itself, like the Australian firm it seeks to emulate, is also primarily a plaintiffs’ side accident and injury firm. 

In the first portion of the brief, we traced the history of the contingent fee system to the early days of the industrial revolution, when the workers (and their widows and orphans) who fell victim to the increasingly common industrial accidents could not afford legal assistance and so could not take advantage of the new laws that had been adopted to protect them.  Understanding that the traditional ban on “champerty,” as applied to attorneys, posed “an insuperable bar to the claim due to the widow and the fatherless,” esteemed attorneys like Henry Clay and Daniel Webster began to provide legal services to clients like the Western Cherokee on a contingency basis during the late colonial period.

Bringing the argument up to the present, we directed the court’s attention to the abundant academic research demonstrating that the contingent fee system has opened the courthouse doors to victims, including poor victims, of negligent or reckless conduct.  The conclusion: additional equity capital would do little to increase access to the legal system for the populations we serve, as meritorious claims already pay their own way under the present system.[2]

CTLA’s amicus brief also explained why eliminating Rule 5.4 actually would undermine the protections afforded by the entire Rules regime for the many clients who do use legal services.  Because the Rules only apply to attorneys (and, by extension, those under their direct supervision), allowing non-lawyer ownership would create a class of individuals — ranging from active participants in firm management to anonymous overseas investors — who would be free to, say, conduct prohibited ex parte communications, intermingle personal and client funds, or engage in improper advertising.  Thus, beyond the most frequently voiced concerns — that eliminating Rule 5.4 would jeopardize client confidences and attorneys’ independence of judgment — CTLA highlighted that if Jacoby had its way, the grievance system, which is the primary recourse of clients who have been mistreated by the legal system, would be stripped of all authority.

In the second portion of CTLA’s amicus brief, we debunked Jacoby’s misleading representation that the UK and Australia have successfully eliminated their respective counterparts to Rule 5.4, and that their approach could be a model for Connecticut.  The poster child for those new rules is Australia’s Slater & Gordon, the world’s first publicly traded law firm.  Since its AUS$35 million IPO in 2007, Slater has gone on a shopping spree, gobbling up two dozen competitor firms;[3] investing heavily in brand building and advertising; and paying out nearly $10 million to shareholders, despite ongoing cashflow problems.  Any increases in productivity flowing from the firm’s new economies of scale have been used to try to bolster share prices and earnings, rather than to lower service prices and better meet the legal needs of the poor or disenfranchised.

Our brief also attempted to educate the Court about the important differences in the British and Australian systems that make them a dubious model for our state.  Most importantly, the advent of non-attorney ownership of legal practices in those countries was accompanied by a corresponding transformation in the way they regulate attorney conduct.  Both countries have established new government agencies, independent of the bar and outside the direct control of the courts, to regulate the newly formed legal entities.  New grievance procedures will be administered by non-lawyers, and are expected to be applied much more aggressively than in many American jurisdictions.  To abandon our legal ownership restrictions, then, would also likely be to surrender our bar’s long tradition of autonomy and self-regulation. 

Finally, we hit hard on Jacoby’s hyperbolic claim that lack of non-lawyer ownership has caused Connecticut law firms to be “trammeled” by domestic and global competition.  We emphasized that British and Australian firms have only recently begun to take advantage of the new rules in their own countries, and that the very rule that Jacoby decries currently bars those firms from competing in Connecticut.  We further highlighted that Jacoby’s own demise as the erstwhile leader of the American plaintiff’s bar had nothing to do with competition from Internet start-up companies or firms playing under the new Australian and British rules.  Rather, Jacoby has been losing market share for decades to other American firms that simply are more effective.  Our ultimate message to the Court: if the people of Connecticut want a fundamental overhaul of their legal system, then they are always free to do so.  But there is no reason for a federal court to start tampering with the state Rules of Professional Conduct, Rules that have been followed for decades in every American jurisdiction, just so that Jacoby can raise enough cash to mimic Slater & Gordon’s “if you can’t beat them, buy them” approach to competition.

The End?

On March 19, Judge Chatigny held a hearing on the defendants’ motion to dismiss.  By that time, the New York sister suit had already been dismissed on jurisdictional grounds, and the New Jersey one stayed pending consideration by that state’s Supreme Court.  For his part, Judge Chatigny made clear that he has little patience for Jacoby’s insinuation that they could not get a fair hearing from the Connecticut state courts, and he pressed Jacoby about why a firm with virtually no presence in Connecticut has standing to seek a broad federal injunction against enforcing a state ethics rule without first having (1) made clear exactly what sort of ownership structure it wishes to adopt and (2) seeking an advisory opinion from the CBA or the state judiciary. 

The final decision is not in, but we believe CTLA’s amicus efforts have provided valuable assistance in warding off challenges to important ethical safeguards of the practice of law in Connecticut.  Stay tuned!


[1] The entire brief is available on the Shipman & Goodwin website.

[2] If anything, the contingent fee system has been criticized by some for providing overly effective representation and access for the disadvantaged. 

[3] Indeed, Attorney Kevin Shea, representing the CBA, pointed out at oral argument that Jacoby’s real purpose in seeking the rule change is transparent: to allow it to buy up small plaintiff’s firms in Connecticut.