Jacoby & Myers Law Offices, LLP v. The Presiding Justices of The First, Second, Third and Fourth Departments et al

Filing 29

MEMORANDUM OF LAW in Opposition re: 26 MOTION to Dismiss the Amended Complaint.. Document filed by Jacoby & Meyers USA, LLC, Jacoby & Myers Law Offices, LLP. (Carton, Jeffrey)

David J. Meiselman (DM-6621)
James R. Denlea (JD-4610)
Jeffrey I. Carton (JC-8296)
MEISELMAN, DENLEA, PACKMAN,
CARTON & EBERZ P.C.
1311 Mamaroneck Avenue
White Plains, New York 10605
[phone]
Attorneys for Plaintiffs
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

_________________x
JACOBY & MEYERS, LLP,
on behalf of itself and all other similarly situated
entities authorized to practice law in the
State of New York, and JACOBY & MEYERS
USA, LLC,

Civil Action No.
11 Civ. 3387 (LAK)(KNF)

Plaintiffs,

v.
THE PRESIDING JUSTICES OF THE FIRST,
SECOND, THIRD AND FOURTH DEPARTMENTS,
APPELLATE DIVISION OF THE SUPREME
COURT OF THE STATE OF NEW YORK,
Defendants.

_________________.x

PLAINTIFFS' MEMORANDUM OF LAW IN OPPOSITION TO
DEFENDANTS' MOTION TO DISMISS THE AMENDED COMPLAINT

TABLE OF CONTENTS

PRELIMINARY STATEMENT

1

STATEMENT OF RELEVANT FACTS

4

A.

Jacoby & Meyers Pioneers Legal Services For All

4

B.

Jacoby & Meyers Requires Additional, Outside CapitaL

6

C.

New York's Rule of Professional Conduct 5.4

7

ARGUMENT

9

I.

THE RELEVANT GOVERNING STANDARDS

9

II.

PLAINTIFFS HAVE STANDING TO SUE AND
THEIR CLAIMS ARE RiPE

10

A.

Plaintiffs Have Standing to Challenge Rule 5.4
1.

2.

3.

B.
III.

IV.

10

Attorneys Are Authorized to Practice Law
As an LLC

11

Judiciary Law Section 495 Does Not Prohibit
Jacoby & Meyers LLC From Practicing Law

13

Rule 5.4 is the Only Bar to Jacoby & Meyers USA, LLC
Practicing Law With Non-Lawyer Owners

15

Plaintiffs' Claims Are Ripe

17

JACOBY & MEYERS' CLAIMS ARE NOT BARRED BY
LEGISLATIVE OR JUDICIAL IMMUNITY

20

THIS COURT SHOULD EXERCISE ITS JURISDICTION OVER
JACOBY & MEYERS' CONSTITUTIONAL CLAIMS

23

A.

Abstention is Unwarranted

24

B.

This Court Should Not Decline To Exercise Jurisdiction
Based On The Declaratory Judgment Act

26

CONCLUSION

30

TABLE OF AUTHORITIES

Cases

Albright v. Oliver,
510 U.S. 266, 114 S.Ct. 807 (1994)

9

Alliant Energy Corp. v. Bie,
277 F.3d 916 (7th Cir. 2002)

17, 18

Ankenbrandt v. Richards,
504 U.S. 689,112 S.Ct. 2206 (1992)

24

Avlon v. 829-31 Rest. Corp.,
No. 92 CIV. 9372 (LBS), 1993 WL 403982 (S.D.N.Y. Oct. 5,1993)

11

Babbitt v. United Farm Workers Nat'l Union,
442 U.S. 289, 99 S.Ct. 2301 (1979)

18

Bailey v. Broder,
No. 94 CIV. 2394 (CSH), 1997 WL 73717 (S.D.N.Y. Feb. 20,1997)

11

Bates v. State Bar of Arizona,
433 U.S. 350, 97 S.Ct. 2691 (1977)

5

Bear Creek Cranberry Co., LLC v. Cliffstar Corp.,
No. 10-CV-00770 A M, 2011 WL 2652338 (W.O. N.Y. May 6,2011 )
Bell At/antic Corp. v. Twombly,
550 U.S. 544, 127 S.Ct. 1955 (2007)

14

9

Brooks v. The New York State Supreme Court, Appellate Division, First Department,
21
No. 02-CV-4138, 2002 WL 31528632 (E.D.N.Y. Aug. 16,2002)
Calcagno v. Aidman,
872 N.Y.S.2d 689 (Table), 2008 WL 3390943 (N.Y. Sup. Ct. Aug. 8, 2008)

19

Canadian Lumber Trade Alliance v. United States,
517 F.3d 1319 (Fed. Cir. 2008)

18

Clarke v. Fonix Corp.,
98 CIV. 6116 (RPP), 1999WL 105031 (S.D.N.Y. Mar. 1, 1999)
aff'd, 199 F.3d 1321 (2d Cir. 1999)

11

ii

TABLE OF AUTHORITIES
(Cont'd)
Cases

Colorado River Water Conservation Dist. v. United States,
424 U.S. 800, 96 S.Ct. 1236 (1976)

24

Cooper v. Aaron,
358 U.S.1, 78 S.Ct. 1401 (1958)

16

Dow Jones & Co., Inc. v. Harrods Ltd.,
346 F.3d 357 (2d Cir. 2003)

27

Eli v. Apker,
No. 05 CIV. 2703 (DC), 2005 WL 2848956 (S.D. N.Y. Oct. 28, 2005)

12

Ellis v. Dyson,
421 U.S. 426, 95 S.Ct. 1691 (1975)

28

England v. Louisiana State Bd. of Medical Examiners,
375 U.S. 411,84 S.Ct. 461 (1964)

24, 26, 28

F & W Oldsmobile, Inc. v. Tax Comm'n,
106 A.D.2d 792, 484 N.Y.S.2d 188 (3d Dep't 1984)

12

Felmeister V. Office of Att'y Ethics,
856 F.2d 529 (3d Cir. 1988)

20

FTD Corp. v. Banker's Trust Co.,
954 F.Supp. 106 (S.D.N.Y. 1997)

18

Harman V. Forssenius,
380 U.S. 528, 85 S.Ct. 1177 (1965)

24, 25

Harrison v. NAACP"
360 U.S. 177,79 S.Ct. 1025 (1959)

25

Iqbal v. Hasty,
490 F.3d 143 (2d Cir. 2007)

9

Lawline V. Am. Bar. Ass'n,
956 F.2d 1378 (7th Cir. 1992)

20

Leclerc v. Webb,
270 F.Supp. 2d 779 (D. La. 2003)

21, 22
iii

TABLE OF AUTHORITIES
(cant'd)

Cases

LSO, Ltd. v. Stroh,
205 F.3d 1146 (9th Cir. 2000)

10

Lujan v. Defenders of Wildlife,
504 U.S. 555, 112 S. Ct. 2130 (1992)

10

Lujan V. Nat'l Wildlife Fed'n,
497 U.S. 871, 110 S. Ct. 3177 (1990)

10

Marchi V. Bd. of Coop. Educ. Services of Albany,
173 F.3d 469 (2d Cir. 1999)

18

Mental Hygiene Lega/,Serv.,
785 F.Supp. 2d 205 (S.D.N.Y. 2011 )

19

Michael Reilly Design, Inc. V. Houraney,
40 AD.3d 592, 835 N.Y.S.2d 640 (2d Dep't 2007)

14

Middlesex Cty. Ethics Committee,
457 U.S. 423,102 S.Ct. 2515 (1982)

22

N. Y. Bar Ass'n V. Jacoby & Meyers,
92 AD.2d 817, 460 N.Y.S.2d 309 (1st Dep't 1983)

16

Oglesby v. McKinney,
7 N.Y. 3d 561 (2006)

19

Pappas V. Tzolis,
87 AD.3d 889, 932 N.Y.S.2d 439 (1 st Dep't 2011 )

12

Pennsylvania v. West Virginia,
262 U.S. 553,43 S.Ct. 658 (1923)

19

Pulliam v. Allen,
466 U.S. 522, 104 S.Ct. 1970 (1984)

22

Railroad Comm'n of Texas V. Pullman Co.,
312 U.S. 496, 61 S.Ct. 643 (1941)

24

iv

TABLEOF AUTHORITIES
(cont'd)
Cases

Renard v. Dillman,
162 F.3d 1148 (Table), 1998 WL 642474 (2d Cir. 1998)
Ryder Energy Distribution V. Merrill Lynch Commodities, Inc.,
748 F.2d 774 (2d Cir.1984)

11

9

Sassower v. Mangano,
927 F.Supp. 113 (S.D.N.Y. 1996)

21

Simmonds V. I.N.S.,
326 F.3d 351 (2d Cir. 2003)

19

Steffel V. Thompson,
415 U.S. 452, 94 S.Ct. 1209 (1974)

18, 26, 29

Sullivan v. Town of Salem,
805 F.2d 81 (2d Cir. 1986)

12

Supreme Court of Virginia V. Consumers Union of the United States,
446 U.S. 719, 100 S.Ct. 1967 (1980)

20, 21,22

TC Systems, Inc. V. Town of Colonie,
263 F.Supp. 2d 471 n. 6 (N.D.N.Y. 2003)

19

Texas v. United States,
523 U.S. 296, 118 S. Ct. 1257 (1998)

17

The New York Times CO. V. Gonzales,
459 F.3d 160 (2d Cir. 2006)

27

Ungar V. Matarazzo Blumberg & Associates, P.C.,
260 A.D.2d 485, 688 N.Y.S.2d 588 (2d Dep't 1999)

15

United States V. City of Yonkers,
856 F.2d 444 (2d Cir. 1988)

16

Whitley v. Comcast,
No. 00 Civ. 9401 (WHP), 2001 WL 1135946
(S.D.NY Sept. 25, 2001 )

22

v

TABLE OF AUTHORITIES
(cont'd)

Cases
Wilton v. Seven Falls Co.,
515 U.S. 277,115 S.C!. 2137 (1995)

27

Younger v. Harris,
401 U.S. 37, 91 S. C!. 746 (1971)

18

Statutes
N.Y. Bus. Corp. § 102, et seq

14

N.Y. Jud. Law § 495

13, 14

N.Y. Jud. Law § 491

15
7,8,21

N.Y. Jud. Law § 90(2)
N.Y. LTD. LiAB. Co. LAW§201

11, 14

N.Y. LTD. LiAB. Co. LAW§ 102

11

N.Y. LTD. LiAB. Co. LAW§ 1203

12

N.Y. LTD. LiAB. Co. LAW § 602

12

Other Authorities
S. Rep. No. 104-336 (1996)

22

Myrna Oliver, New SelVices Plans Ease Burdens on Legal System,
L.A. Times, Dec. 21, 1987

14

Thomas R. Andrews, Nonlawyers in the Business of Law:
Does the One Who Has the Gold Really Make the Rules?,
40 HASTINGS L.J. 577 (1989)

15

vi

Plaintiffs JACOBY & MEYERS, LLP and JACOBY & MEYERS USA, LLC
(together, "Jacoby & Meyers"), respectfully submit this memorandum of law in
opposition to the motion to dismiss the Amended Complaint by the Presiding Justices of
the First, Second, Third and Fourth Departments, Appellate Division of the Supreme
Court of the State of New York ("Defendants").
PRELIMINARY STATEMENT
The practice of law in the United States is at serious risk of falling behind the rest
of the world. With the success of recent legislative initiatives in Australia and the United
Kingdom, the growth of "alternative business structures" ("ABS") which allow for nonlawyer ownership of law firms is rapidly accelerating. The growth of these ABS entities
represents a profound change for the practice of law and allows for the infusion of
significant capital into law firms which, in turn, ensures that access to the legal system
remains unshackled for all, regardless of socio-economic considerations. By this action,
Jacoby & Meyers seeks to ensure that the American judicial system keeps pace with its
international counterparts. Perhaps more importantly, it seeks to do away with an
antiquated rule that was designed as law practice economic protectionism. The afteroccurring legal fiction that the rule is a necessary ethical constraint is now disavowed
even by the ABA Committee studying the matter.
At the prior oral argument on Defendants' initial motion to dismiss, the Court
expressed its apparent skepticism as to whether Jacoby & Meyers' challenge was ripe
for consideration, or whether the Court should abstain from resolving the dispute. At
Plaintiffs request, leave to amend the complaint was granted and Jacoby & Meyers has
now set forth the specific identity of the non-lawyer investors who are prepared to

capitalize the law firm in exchange for an ownership interest, and the precise manner in
which that investment will be structured, i.e., through the issuance of a membership
interest in a newly created limited liability company to which Jacoby & Meyers is
prepared immediately to transfer all of its assets. As a result, it cannot credibly be
contested that Jacoby & Meyers has now sufficiently alleged the specifics of the
transaction which it wishes to pursue, but which it is ethically prohibited from
consummating as a result of the dictates of Rule 5.4.
Apparently recognizing the same, and desperate to avoid this Court's
consideration of the substantive merits of Plaintiffs' federal constitutional challenge,
Defendants renew the blunderbuss of procedural arguments offered in their initial
application and again offer a panoply of standing, ripeness, abstention and immunity
arguments by which to seek to derail the current prosecution. As set forth more fully
below, however, nothing in the state statutes on which Defendants' challenge is
predicated prohibits an LLC created in the manner in which Plaintiffs propose from
practicing law in New York.
To the contrary, Section 201 of the LLC law allows for the formation of a limited
liability company for "any lawful business purpose." And nothing in the Judiciary Law
compels a contrary result. In fact, just the opposite is true as Judiciary Law Section
495(4) expressly does not apply to "organizations which offer prepaid legal services" or
to "organizations which have as their primary purpose the furnishing of legal services to
indigent persons." Thus, the contention that the Judiciary Law somehow bans
altogether the practice of law through an LLC that is not registered as a "professional
services" LLC is nowhere to be found in that statute.

2

Similarly, Defendants' "invitation" to the Court to abstain from exercising its
jurisdiction over a uniquely federal constitutional challenge should be swiftly declined.
Federal courts have a virtually unflagging obligation to exercise the jurisdiction given
them, and this case is no exception. There is nothing "uncertain" concerning the
application of state law here. Rule 5.4 emphatically prohibits the practice of law in the
form of an entity in which a non-lawyer owns any interest, and no other state law
imposes a similar restriction to the proposed transaction which Jacoby & Meyers is
prepared immediately to consummate. Moreover, asking Plaintiffs to raise their
constitutional challenges before the very tribunal that enacted Rule 5.4, would place that
body in conflict, as being both a party and a judicial tribunal. Indeed, that body had and
continues to have the power, sua sponte, to overturn this Rule and their unwillingness to
do so is prima facie evidence that they have pre-judged the facts of this case. If
Plaintiffs were required to adjudicate the constitutionality of Rule 5.4 in state court, this
Court would essentially be eviscerating the separation of powers that should otherwise
be observed as all three branches of government (legislative, executive, and judicial)
would be conflated in one body. This Court should not countenance such a result.
This Court stands at the crossroads of the modern-day evolution of the practice
of law. The status-quo is changing, and practitioners in the United States are at risk of
falling behind. Jacoby & Meyers is prepared to adapt to the new realities of the
profession, but needs a jurist with the same profile in courage to ensure that antiquated

3

barriers to its survival are cast aside. As we now set forth, Defendants' challenge to
Jacoby & Meyers' standing to pursue this action should be summarily denied. 1
STATEMENT OF RELEVANT FACTS

A.

Jacoby & Meyers Pioneers Legal Services For All

Jacoby & Meyers was founded in September 1972, when Stephen Z. Meyers and
Leonard D. Jacoby, law schooi classmates at UCLA, opened its first storefront office in
Van Nuys, California. In creating their law practice, Messrs. Jacoby and Meyers sought
to ensure that people of modest or average means, who could often not afford to hire a
lawyer, had a practical alternative to obtain competent, qualified counsel at reasonable
rates. (Amend. Compl.

~

22). Since the firm began its operations nearly forty years

ago, Jacoby & Meyers has become synonymous with legal services for the masses and
has been at the vanguard in overturning vestigial regulations that impede access to the
legal system, including attorney advertising. (Amend. CompI.

~

23).

Ardent believers in attorneys' rights to freedom of speech and the public's right to
be granted access to worthwhile new concepts in the practice of law that could lower
the cost of obtaining legal representation, Jacoby & Meyers helped spark an

In light of the Court's remarks concerning "pushing rocks uphill" at the prior oral
argument, Plaintiffs' opposition only responds to Defendants' arguments regarding
standing, ripeness, and abstention. We view the task not as Sisyphean, but rather a
turning aside of procedural arguments that offer Defendants no refuge from the reality of
the merits of this case. Given the litany of jurisdictional issues raised by Defendants,
Plaintiffs requested an enlargement of the page limitation to address both the standing
issues, as well as the substantive challenges directed at the various causes of action.
Unfortunately, the Court declined Piaintiffs' request, thereby intimating its continued
struggles with the threshold jurisdictional issues. Accordingly, Plaintiffs respectfully
incorporate by reference the prior briefing and compendium of resources in opposition
to Defendants' earlier challenge to the substantive, federal causes of action asserted in
the Amended Complaint and requests permission to submit a supplemental brief after
Defendants' standing challenge is denied.
4

international debate that lasted for years, and ultimately culminated in a California
Supreme Court decision in 1977, applying the founders' rights of free speech and the
public's right to be informed. A month later, the United States Supreme Court banned
prohibitions on legal advertising in the seminal case of Bates v. State Bar of Arizona,
433 U.S. 350, 97 S.Ct. 2691 (1977). (Amend. Compl.

11 24).

Immediately after the

issuance of the Bates decision, Jacoby & Meyers placed a full-page advertisement in
the Los Angeles Times, and within weeks, the firm aired the first television commercial
advertising legal services in the country. (Amend. Compl.

11 25).

Jacoby & Meyers has continued to innovate through the years - all in an effort to
help provide quality legal services to clientele at reasonable fees. Jacoby & Meyers
opened branch offices in retail shopping centers, maintained Saturday and evening
office hours, and was the first law firm to accept credit cards for payment. (Amend.
Compl.

11 26).

The firm developed detailed written systems to standardize the handling

of cases, expediting the progress of the case and allowing for more efficiency and
quality control. For example, the firm developed detailed pre-printed forms for interview
intakes, and created standard form pleadings and other legal documents which assured
quality control and allowed for paralegals to begin much of the initial drafting at much
more reasonable prices, subject to attorneys' oversight, revisions and finalization.
(Amend. Compl.

11 27).

Jacoby & Meyers continues to practice law in an innovative fashion, and today
maintains a network of affiliated law offices across the country, including in Southern
California, New York, Alabama, Florida, and Arizona. (Amend. CompI.

11 29).

More

significantly, throughout its forty year history, Jacoby & Meyers has always corn ported

5

itself with the highest regard for its ethical and professional responsibilities and has
zealously represented the nearly one million clients it has been privileged to serve.
Jacoby & Meyers holds its individual practitioners to the highest ethical standards and
over the past four decades has demonstrated the independence of professional
judgment that it will continue to exhibit regardless of the source of outside capital it is
permitted to pursue. (Amend. Compl.

B.

,-r 30).

Jacoby & Meyers Requires Additional, Outside Capital
Jacoby & Meyers intends 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. (Amend. Compl.

,-r 31).

Notably, Jacoby & Meyers' business plans

principally concern expansion within communities in which working-class, blue-collar
and immigrant families reside. Indeed, as Chief Judge Jonathan Lippman remarked in
his 2011 State of the Judiciary Speech, it is often "the most vulnerable in our society" for
whom the courthouse doors must be kept open. (ld.).
In order to expand its operations, and to ensure the public's greatest possible
access to legal representation and protection of their rights through the civil justice
system in an affordable, cost-effective way, Jacoby & Meyers requires a substantial
infusion of new capital. (Amend. Compl.

,-r 33).

In these challenging economic times,

the traditional channels for a law firm's capital infusion: (1) personal contributions of
partners; (2) retained earnings on fees generated and collected; and (3) commercial
bank loans (with onerous rates of interest); are either too expensive or unavailable to

6

fund Jacoby & Meyers and other class members' intended business plans. (Amend.
CompI.

,m 33 & 34).

However, several high net-worth individuals including, but not limited to Michael
Ostrow, Anthony Costa, and Philip Guarnieri, as well as several institutional investors
whose identities Jacoby & Meyers has been asked to keep confidential, have expressed
their commitment to invest significant sums of money in Jacoby & Meyers in exchange
for owning an interest (specifically, a share of the anticipated profits) in the entity
through which Jacoby & Meyers practices law. (Arnend. CompI.

t

35).

Jacoby & Meyers has recently created Jacoby & Meyers USA, LLC ("Jacoby &
Meyers LLC"), a New York limited liability company, for the express purpose of allowing
non-lawyers to "own an interest" in the entity through which Jacoby & Meyers is
authorized to practice law for profit. (Amend. Compl.

t

14). Jacoby & Meyers, LLP is

prepared to immediately transfer all of its assets to Jacoby & Meyers USA, LLC and
immediately obtain non-lawyer investment. (Amend. Compl.

t

14). Unfortunately,

however, due to an antiquated Rule of Professional Conduct, Rule 5.4, Jacoby &
Meyers is prohibited from effectuating this transaction. (Amend. Compl.

C.

t

34).

New York's Rule of Professional Conduct 5.4
Defendants, The Presiding Justices of the First, Second, Third and Fourth

Departments, Appellate Division of the Supreme Court of the State of New York, are
responsible for implementing and enforcing the Rules of Professional Conduct, which
are designed to govern the conduct of attorneys licensed to practice law in the State of
New York. (Amend. Compl.

t

15); see N.Y. Judiciary Law § 90(2). Under the Judiciary

Law, the Appellate Division is authorized to censure, suspend, or disbar lawyers guilty

7

of "professional misconduct, malpractice, fraud, deceit, crime or misdemeanor, or any
conduct prejudicial to the administration of justice." N.Y. Judiciary Law § 90(2).
On or about December 16, 2008, then-Chief Judge Judith S. Kaye, the Chief
Judge of the New York Court of Appeals, and the Presiding Justices of the Appellate
Division announced a new set of attorney conduct rules for New York. These new
Rules of Professional Conduct, effective April 1, 2009, were issued as Joint Rules of the
Appellate Divisions, and constitute Part 1200 of the New York Court Rules. The Rules
of Professional Conduct apply to all attorneys admitted to practice in New York State
(either generally or for purposes of a particular proceeding), including out-of-state or
foreign attorneys, regardless of where the attorneys' conduct occurs. (Amend. Compl.
19); see Rule 8.5: Disciplinary Authority and Choice of Law.
Rule 5.4 addresses the "Professional Independence of a Lawyer." Rule 5.4
provides, in pertinent part:
(d)

(1)

(Amend. CompI.

A lawyer shall not practice with or in the form of an entity
authorized to practice law for profit, if:
a nonlawyer owns any interest therein, except that a fiduciary
representative of the estate of a lawyer may hold the stock or
interest of the lawyer for a reasonable time during administration;

,-r 20).

As a result of this rule, Jacoby & Meyers cannot allow a nonlawyer to acquire or
own an interest in the legal entity (i.e., the law firm) through which it provides legal
services to its clients. (Amend. Compl.

,-r 21).

Thus, Jacoby & Meyers is limited to the

"normal" avenues of raising capital, which in the current economic climate are either
unavailable or prohibitively expensive, such that Jacoby & Meyers (and other similarly-

8

,-r

situated law firms) are effectively barred from raising capital at all by the proscriptions of
Rule 5.4. 2
ARGUMENT
I.

The Relevant Governing Standards
The function of a motion to dismiss is "merely to assess the legal feasibility of the

complaint, not to assay the weight of the evidence which might be offered in support
thereof." Ryder Energy Distribution v. Merrill Lynch Commodities, Inc., 748 F.2d 774,
779 (2d Cir.1984). When deciding a motion to dismiss, the court must accept as true
the well pleaded allegations of the complaint. Albright v. Oliver, 510 U.S. 266, 268, 114
S.Ct. 807, 810 (1994). "[W]hen a complaint adequately states a claim, it may not be
dismissed based on a district court's assessment that the plaintiff will fail to find
evidentiary support for his allegations or prove his claim to the satisfaction of the
factfinder." Bell At/antic Corp. v. Twombly, 550 U.S. 544, 563 n. 8, 127 S.Ct. 1955,
1969 n. 8 (2007).
To meet the standard of adequacy, the complaint should contain "enough facts to
state a claim to relief that is plausible on its face." Id. at 1974. The Second Circuit
interprets Bell At/antic not as requiring "a universal standard of heightened fact
pleading, but is instead requiring a flexible 'plausibility standard,' which obliges a
pleader to amplify a claim with some factual allegations in those contexts where such
amplification is needed to render the claim plausible." Iqbal v. Hasty, 490 F.3d 143, 15758 (2d Cir. 2007). Here, these standards are easily satisfied.

With respect to the abstention issue, this Court must not shy away from an issue
where the State courts have not only pre-judged the matter, they have been the
architects of the position that has caused them to be Defendants in the instant action.
The conflict of interest is palpable.

2

9

II.

PLAINTIFFS HAVE STANDING TO SUE AND THEIR CLAIMS ARE RIPE
A.

Plaintiffs Have Standing to Challenge Rule 5.4

As the Supreme Court has repeatedly explained, Article III standing requires an
(1) "injury in fact" which is (a) concrete and particularized, and (b) actual or imminent,
not conjectural or hypothetical, with the injury being (2) fairly traceable to the challenged
action, and (3) likely to be redressed by a favorable decision. Lujan v. Defenders of
Wildlife, 504 U.S. 555, 560-61, 112 S. Cl. 2130, 2136-37 (1992). "At the pleading

stage, general factual allegations of injury resulting from the defendant's conduct may
suffice, for on a motion to dismiss we 'presum[e] that general allegations embrace those
specific facts that are necessary to support the claim.'" Id. at 561, 112 S. Cl. at 2137
citing Lujan v. Nat'l Wildlife Fed'n, 497 U.S. 871, 889,110 S. Ct. 3177, 3189 (1990).
Where, as here, "the threatened enforcement effort implicates First Amendment rights,
the inquiry tilts dramatically toward a finding of standing." LSO, Ltd. v. Stroh, 205 F.3d
1146, 1155 (9th Cir. 2000).
Defendants challenge Plaintiffs' standing to bring their claims on the misguided
basis that even if Rule 5.4 were abolished, the New York limited liability company law
("NY LLC Law") would allegedly prohibit the same conduct (Le., providing ownership
interests to non-lawyers). Defs. Sr. at 6. A plain reading of the NY LLC Law, however,
reveals the infirmity of Defendants' argument. Accordingly, Jacoby & Meyers has
standing to bring the instant action. 3

Defendants' claim that Jacoby & Meyers LLC is improperly joined and that
Plaintiff failed to obtain leave of court before adding a new party-plaintiff is little more
than sandbox litigation. During oral argument on Defendants' motion to dismiss the
original complaint, Plaintiff requested permission to amend the Complaint noting that it
"may pursue a different legal corporate form and amend on that basis." This Court

3

10

1.

Attorneys Are Authorized to Practice Law as an LLC

The New York LLC Law allows attorneys to form an LLC for the purpose of
rendering legal services. Indeed, Section 201 of the LLC Law provides that:
A limited liability company may be formed under this chapter
for any lawful business purpose or purposes except to do
in this state any business for which another statute
specifically requires some other business entity or natural
person to be formed or used for such business.
N.Y. LTD. LiAB. Co. LAW § 201 (emphasis added). A "lawful business purpose" includes
"professions" (see N.Y. LTD. LiAB. Co. LAW § 102 ("'[b]usiness' means every trade,
occupation, profession or commercial activity")) (emp. supplied) which includes the
practice of law. See Bailey v. Broder, No. 94 CIV. 2394 (CSH), 1997 WL 73717 at *3
(S.D.N.Y. Feb. 20, 1997) ("the practice of law is a profession").
The NY LLC Law also affords professionals the option of forming a professional
service limited liability company ("PSLLC,,)4 See N.Y. LTD. LiAB. Co. LAW § 1201, et seq.

granted that request over Defendants' objections. In fact, the Court will recall the stony
silence in the courtroom when Your Honor asked the Attorney General for the basis of
his objection. Carton Decl., Ex. A. (Transcript at p. 25-27). Leave to amend, including
the possible addition of a new party, was granted by this Court. Defendants' reliance on
Renard v. Dillman, 162 F.3d 1148 (Table), 1998 WL 642474 at *2 (2d Cir. 1998) is
misplaced as that case reinforces the well-established policy that "leave to amend
should be freely granted in the early stages of litigation, absent undue delay, bad faith,
prejudice to the opposing party, or futility." Clarke v. Fonix Corp., 98 CIV. 6116 (RPP),
1999 WL 105031 (S.D.N.Y. Mar. 1,1999) aff'd, 199 F.3d 1321 (2d Cir. 1999)
(quotations and citations omitted). Similarly unavailing is Defendants' citation to Avlon
v. 829-31 Rest. Corp., No. 92 CIV. 9372 (LBS), 1993 WL 403982 (S.D.N.Y. Oct. 5,
1993) addressing the use of a dormant company to create diversity, an issue not
present here.
4

Jacoby & Meyers LLC was purposefully formed as an LLC, not a PSLLC.
(Amend. Compl. ~ 14). Indeed, Plaintiffs anticipated the very argument being advanced
by Defendants and obtained the favorable opinion of the author of the Practice
Commentaries for the Limited Liability Company Law that a law firm could be created as
an LLC, and not only as a PSLLC. Thus, Defendants' contention that Jacoby & Meyers
11

Nowhere in the LLC Law (including Article 12 governing PSLLCs), however, is it
required that attorneys must form a PSLLC to practice law. See, e.g., N.Y. LTD. lIAB.
Co. LAW § 1203(a) (emphasis added) (stating that professionals "may" form a PSLLC).
The Statute's use of the permissive "may" instead of the mandatory "shall" indicates that
there is no mandatory requirement that companies wishing to engage in a profession
must form as a PSLLC. See, e.g., Sullivan v. Town of Salem, 805 F.2d 81,84 (2d Cir.
1986) (a statute permits discretion regarding an activity where the statute uses "a
discretionary 'may', not a mandatory 'shall"'); Eli v. Apker, No. 05 CIV. 2703 (DC), 2005
WL 2848956 at *5 (S.D.N.Y. Oct. 28, 2005) (a statute's "use of the permissive 'may'
rather than the mandatory 'shall''' indicates that the statute confers discretion); F & W
Oldsmobile, Inc. v. Tax Comm'n, 106 A.D.2d 792, 792-93, 484 N.Y.S.2d 188, 189 (3d

Dep't 1984) ("The language of the statute uses the mandatory 'shall' rather than the
permissive 'may"'). Rather, both corporate forms are permitted for law firms, and each
form has advantages and drawbacks. For example, the LLC provisions permit nonlawyers to have an ownership interest in the entity, while the PSLLC provisions do not.
N.Y. LTD. LIAS. Co. LAW § 602 (stating that "a person may become a member" and
containing no restrictions on ownership); See, e.g., Pappas v. Tzolis, 87 A.D.3d 889,
889, 932 N.Y.S.2d 439, 442 (1 st Dep't 2011) (describing a non-professional owner of an
LLC).
Similarly, the name of an LLC may not contain the word "attorney" or "lawyer" or
any abbreviation or derivative thereof, whereas the name of a PSLLC may contain "any
word that, at the time of formation, could be used in the name of a partnership or

did not comply with the statutory requirements is entirely incorrect as Jacoby & Meyers
fully intended to form as an LLC, and not as a PSLLC.
12

professional service corporation practicing a profession that such limited liability
company is authorized to practice," Thus, Jacoby & Meyers has properly formed an
LLC and has carefully ensured that neither the word "attorney," nor the word "lawyer" is
present in its name.
The propriety of the formation of Jacoby & Meyer USA LLC is illustrated by the
fact that other New York law firms have chosen to form as LLCs instead of PSLLCs,
For example, the law firm Wahab Medenica, LLC ('Wahab LLC") was authorized to form
as an LLC, and not a PSLLC, by the New York State Department of Corporations. See
New York State Division of Corporation Entity Information for Wahab Medenica
(attached to Carton Decl. as Exhibit B). Wahab LLC is clearly a law firm that practices
law. See Wahab LLC's website, available at http://www.wrlawfirm.com. Although
Wahab LLC has been registered as an LLC for more than 7 years, there is no indication
that any authority has concluded that Wahab LLC was improperly or impermissibly
formed as an LLC. Nor has the Attorney General sought to enjoin their use of that
status on the grounds they seek to apply here. Accordingly, the plain meaning of the
relevant statutes (and the practical reality that New York law firms already exist as LLCs
without fear of prosecution) compel a finding that Jacoby & Meyers properly formed as a
LLC under New York law.

2.

Judiciary Law Section 495 Does Not Prohibit Jacoby & Meyers LLC
From Practicing law

While Defendants correctly contend that Judiciary Law Section 495 prohibits a
corporation or voluntary association from practicing law unless they are authorized to do
so by statute, (Defs. Br. at 7; N.Y. JUD. L. § 495), Section 495 exempts from that
prohibition any corporation or voluntary association that is "lawfully engaged in a

13

business authorized by the provisions of any existing statute." N.Y. JUD. L. § 495(4).5
As established above, Jacoby & Meyers LLC is authorized to practice law pursuant to
Section 201 of the NY LLC Law. Defendants cannot cite to any statute (other than the
PSLLC law generally), any case law or any other learned commentary to support their
conclusion that Article 12 of the LLC Law governing professional service limited liability
companies ("PSLLC") is the only "existing statute" that authorizes the practice of law in
an LLC form. Defs. Br. at 7. And this for good reason: because no such authorities
exist.
Moreover, the infirmity of Defendants' reliance on Section 495 is found in the
statute itself which specifically states that it "does not apply to organizations which offer
prepaid legal services," or "to organizations which have as their primary purpose the
furnishing of legal services to indigent persons." N.Y. JUD. LAW § 1§ 495(7) (emphasis
added). Because Jacoby & Meyers openly offers prepaid legal services, and has often
furnished legal services to indigent persons without other recourse to the legal system,
Section 495 is inapplicable to Jacoby & Meyers. See, e.g., Myrna Oliver, New Services

5

As a threshold matter, it is arguable that Section 495 does not apply to Jacoby &
Meyers LLC at all. Under New York law, Jacoby & Meyers LLC is not a corporation
(compare N.Y. Bus. CORP. § 102, et seq. and N.Y. LTD. LiAB. CO. LAW § 102, et seq.
establishing distinct legal entities); see also Bear Creek Cranberry Co., LLC v. Cliffstar
Corp., NO.1 0-CV-00770 A M (2011 WL 2652338 at *6, nA (W.D.N.Y. May 6, 2011,
report and recommendation adopted, No. 10-CV-770A, 2011 WL 2669090 (W.D.N.Y.
July 6,2011) ("LLC ... is the designation for a limited liability company, not a
corporation .... Thus, if [plaintiff] is truly an LLC, it is not a corporation.") (internal
quotations omitted). Similarly, Judiciary Law § 495 provides little guidance as to
whether Jacoby & Meyers LLC constitutes a "voluntary association" under that statute.
See Michael Reilly Design, Inc. v. Houraney, 40 A.D.3d 592, 593-94, 835 N.Y.S.2d 640
(2d Dep't 2007) (discussing LLCs, corporations and voluntary associations as three
distinct entities). Assuming, arguendo, that Jacoby & Meyers LLC is a "voluntary
association," it would still be excluded from Section 495's prohibitions under Section
495(4)'s exemption for entities lawfully formed under other statutory provisions.
14

Plans Ease Burdens on Legal System, LA Times, Dec. 21, 1987 (discussing prepaid
legal services offered by Jacoby & Meyers and other law firms); Thomas R. Andrews,
Nonlawyers in the Business of Law: Does the One Who Has the Gold Really Make the
Rules?, 40 HASTINGS L.J. 577, 656 n. 316 (1989) (same). Thus, Jacoby & Meyers has
properly formed an LLC through which it may lawfUlly engage in the practice of law.

3.

Rule 5.4 is the Only Bar to Jacoby & Meyers USA, LLC Practicing
Law With Non-Lawyer Owners

In addition to misconstruing the fact that Jacoby & Meyers purposefully created a
LLC and not a PSLLC through which to do business, Defendants recycle the same
arguments they made previously regarding additional provisions of the Judiciary Law
that they contend bar Jacoby & Meyers LLC from practicing law. (Defs. Sr. at 6,8-9.)
These arguments are sorely misplaced. Section 491 of the Judiciary Law, on its face,
does not forbid the proposed conduct, but simply forbids nonlawyers from receiving
compensation in exchange for referring a matter to a lawyer. N.Y. JUD. LAW § 491.
In Ungar v. Matarazzo Blumberg & Associates, P.C., 260 A.D.2d 485, 688
N.Y.S.2d 588 (2d Dep't 1999), the Second Department extended Section 491 to
invalidate a contract where a nonlawyer administrator and claims manager was
compensated for his work at a law firm in the same manner that a partner would be
compensated. The Second Department's holding in Ungar did not and does not prohibit
nonlawyers from passively investing in a law firm in exchange for participating in the
profits generated by the firm. In fact, no court has extended Ungar to prohibit the
behavior contemplated by Plaintiff's proposed transaction.
Furthermore, while Judiciary Law Sections 478,479,481,482,484,485 and 491
bar nonlawyers from practicing law, holding themselves out as being able to do so,
15

being compensated for procuring clients for lawyers and engaging in other similar
activities, these provisions put no relevant limitations on how iaw firms conduct their
internal affairs. Cf. N. Y. Bar Ass'n v. Jacoby & Meyers, 92 A.D.2d 817, 818-19, 460
N.Y.S.2d 309 (1 st Dep't 1983) (rejecting a complaint under Section 478 on the grounds
that listing lawyers not admitted to practice in the state in a firm's letterhead and title did
not violate the judiciary rules). More specifically, these laws create absolutely no
limitations on who may passively invest or own an interest in a law firm, as contrasted
with the actual provision of legal services to prospective or actual clients. To suggest
otherwise, is to offer the Court a flawed analogy. As a result, the injury suffered by
Jacoby & Meyers is fairly and unequivocally traceable to Rule 5.4 and is the direct result
of its prohibition restricting non-lawyer ownership of law firms.
In addition, even if the other laws which Defendants invoke did somehow prohibit
the same type of conduct prohibited by Ruie 5.4 (which they do not), if Rule 5.4 is struck
down, so too would any similar prohibition be deemed infirm. "It is well established that
the supremacy of federal law, including federal court orders to remedy violations for
federal constitutional and statutory violations, prevails over conflicting state law." United
States v. City of Yonkers, 856 F.2d 444, 455 (2d Cir. 1988) (citing Cooper v. Aaron, 358

U.S. 1,78 S.Ct. 1401 (1958)). A constitutional ruling or directive, once established by a
federal court, cannot be abrogated by separate state laws that were not specifically at
issue in the initial case. See, e.g., Cooper v. Aaron, 358 U.S. at 15-23, 78 S.Ct. at
1408-1412. In Cooper, the defendant school district claimed that even if it wanted to
desegregate schools, other agencies of state government - through legislation and
executive action - would continue to prohibit integration. Id. at 14-17, 78 S.Ct at 1408-

16

1409. The Supreme Court ruled that it must evaluate the constitutionality of the school
district's action, regardless of whether the equally unconstitutional action by other state
actors would cause the same injury. Likewise, this Court must pass judgment on the
actions of the defendants in proscribing non-lawyer investment in law firms, even if
other state actors might enforce the NY LLC Law against Jacoby & Meyers to achieve
the same unconstitutional end. 6 Therefore, a decision by this Court striking down Rule
5.4 on Constitutional grounds could not be undermined by the relevant state laws even
in the very unlikely event that those laws were somehow interpreted to be functionally
equivalent to Rule 5.4. Defendants cannot cure one infirm rule by reliance on others
that suffer from the same constitutional infirmity.

B.

Plaintiffs' Claims Are Ripe

Contrary to Defendants' assertions, this is not a case that turns on the
imminence of prosecution, because the injury to Jacoby & Meyers has already
occurred. Rule 5.4's prohibitions result in an immediate increase in the costs of
financing law firms like Jacoby & Meyers, thereby causing a present and ongoing injury
to Plaintiffs and making their challenge to Rule 5.4 ripe. See Alliant Energy Gorp. v.
Bie, 277 F.3d 916, 920 (7th Gir. 2002) (Easterbrook, J.) (statute constraining equity
investment in firm causes costs of capital to increase, thereby causing injury sufficient to
establish standing).7 "The impairment of the corporation's ability to raise capital" is

6

Other state actors will not take such action for the reasons set forth in this Point

1I.A.3.
7

The ripeness cases relied upon by Defendants are inapposite and are offered to
support Defendants' mistaken belief that a party must be actually prosecuted or
threatened with prosecution under a statute in order for a claim to be ripe. This is
directly contrary to Alliant, Babbitt and Steffel. In Texas v. United States, 523 U.S. 296,
17

sufficient to confer standing, and Rule 5.4 clearly creates such an impairment for
Jacoby & Meyers. FTO Corp. v. Banker's Trust Co., 954 F.Supp. 106, 109 (SD.N.Y.
1997); cf., e.g., Canadian Lumber Trade Alliance v. United States, 517 F.3d 1319, 1333
(Fed. Cir. 2008) (collecting cases holding that standing exists when the government
acts so as to reduce a party's market share).
Moreover, even if Jacoby & Meyers had not already been harmed by Rule 5.4,
Defendants concede that Plaintiffs should not be forced to flout the law and face
prosecution in order to seek protection of its constitutional rights. (See Defs. Br. at 11)
("We note in this regard that plaintiff is in no way required to 'bet the farm' on the Rule's
invalidity by going through with the transaction and risking possible discipline"). 'When
the plaintiff has alleged an intention to engage in a course of conduct arguably affected
with a constitutional interest, but proscribed by a statute, and there exists a credible
threat of prosecution thereunder, he should not be required to await and undergo a
prosecution as the sole means of seeking relief." Babbitt v. United Farm Workers Nat'l
Union, 442 U.S. 289, 298, 99 S.Ct. 2301, 2309 (1979); accord Steffel v. Thompson, 415
300,118 S. Ct. 1257, 1259 (1998), the plaintiff's claims were not ripe because the
constitutional violation alleged required the occurrence of several speculative events
that were not "even likely" to occur. Similarly, in Marchi v. Bd. of Coop. Educ. Services
of Albany, 173 F.3d 469, 474 (2d Cir. 1999), the Second Circuit held that the claims
were not ripe where the defendant never indicated that it intended to take any action
against the plaintiff that would violate the constitutional right underlying the plaintiff's
lawsuit. And, in Youngerv. Harris, 401 U.S. 37, 42,91 S. Ct. 746, 749 (1971), the
Supreme Court held that claims were not ripe when the threat of prosecution was not
"remotely possible." Here, as in Alliant, no further or future action is needed to cause
injury to plaintiff. Rule 5.4's mere existence, without more, causes injury to Jacoby &
Meyers. Whether or not prosecution has been threatened - and here it certainly has
not been waived - is of no import where the Rule of Professional Conduct prohibits the
very transaction which Plaintiff is prepared to consummate. To rule otherwise would
place Plaintiffs in a Hobson's choice by which the cost of challenging Rule 5.4 would be
their license to practice law.

18

U.S. 452, 462, 94 S.Ct. 1209, 1216 (1974) (plaintiff should not be forced to choose
between "the Scylla of intentionally flouting state law and the Charybdis of forgoing what
he believes to be constitutionally protected activity"); Pennsylvania v. West Virginia, 262
U.S. 553, 593,43 S.Ct. 658, 663 (1923) ("[o]ne does not have to await the
consummation of threatened injury to obtain preventive relief...."); TC Systems, Inc. v.
Town of Colonie, 263 F.Supp. 2d 471,479-80,482 n. 6 (N.D.N.Y. 2003) (constitutional
ripeness satisfied where telecommunications provider "faces the dilemma of either
complying with the franchise process or suffering the costs and sanctions of
noncompliance"). Similarly, "claims predicated on future events are considered fit for
adjudication under the ripeness doctrine 'when they would not benefit from any further
factual development and when the court would be in no better position to adjudicate the
issues in the future than it is now.... Mental Hygiene Legal Serv., 785 F.Supp. 2d 205
(S.D.N.Y. 2011) (quoting Simmonds v. INS., 326 F.3d 351, 359 (2d Cir. 2003). Jacoby
& Meyers easily meets this ripeness requirement.

Finally, conceding that Jacoby & Meyers does not need to violate Rule 5.4 in
order for its claims to be ripe, (See Defs. Br. at 11), Defendants contend that Jacoby &
Meyers should have sought a declaratory judgment in state court. In so arguing,
Defendants inexplicably rely upon Matter of Oglesby v. McKinney, 7 N.Y. 3d 561 (2006)
and Calcagno v. Aidman, 872 N.Y.S.2d 689 (Table), 2008 WL 3390943 (N.Y. Sup. Ct.
Aug. 8, 2008). Neither of these cases is factually or legally similar to the instant one.
Oglesby simply held that a challenge to a judge's order granting a motion to
strike a jury panel should be made by a declaratory judgment, not an Article 78
proceeding. Jacoby & Meyers has not filed an Article 78 proceeding, but instead seeks

19

a declaratory judgment. Calcagno involved a declaratory judgment action in state court
to determine whether an attorney disciplinary rule had been violated. Jacoby & Meyers
is not seeking a declaration as to whether it has violated Rule 5.4 as was the case in
Calcagno, it is challenging the very constitutionality of Rule 5.4 under the U.S.

Constitution. There simply are no "preliminary issues" (Defs. Sr. at 11) for a state court
to determine before the constitutionality of Rule 5.4 is determined. 8
As set forth above, Jacoby & Meyers has standing to maintain its claims against
Defendants and its claims are ripe. Challenges to standing can be strained to the point
of absurdity. Does the Attorney General, as the executive branch of government, have
proper standing to represent the interests of the judiciary, acting outside of its narrowly
prescribed authority to regulate the practice of law, in an area reserved for the federal
legislature, i.e., the regulation of interstate commerce? Plaintiffs' federal and
constitutional claims are uniquely and exclusively within the province of this Court. As a
result, Defendants' motion to dismiss the Complaint should be denied.
III.

JACOBY & MEYERS' CLAIMS ARE NOT BARRED
BY LEGISLATIVE OR JUDICIAL IMMUNITY

Defendants assert that all of Jacoby & Meyers' claims are barred by the doctrine
of legislative immunity. (Defs. Sr. at 12.) This is simply not so. Indeed, in the very case

8

Likewise, neither Law/ine v. Am. Bar. Ass'n, 956 F.2d 1378 (7th Cir. 1992), nor
Felmeister v. Office of Att'y Ethics, 856 F.2d 529 (3d Cir. 1988) support Defendants'
claim that Jacoby & Meyers' claim is not ripe until "state court proceedings regarding the
transaction had concluded." (Defs. Sr. at 11). Law/ine does not involve or address the
propriety of state law claims. And in Felmeister, the plaintiff's claims were dismissed
because the allegations in the complaint made it impossible to determine whether the
plaintiff's proposed advertisements would violate a New York disciplinary rule. Here,
Defendants themselves contend that what Jacoby & Meyers wants to do - enter into
engagements with nonlawyer investors - is prohibited under Rule 5.4.

20

Defendants rely upon for this proposition, Supreme Court of Virginia v. Consumers
Union of the United States, 446 U.S. 719, 100 S.Ct. 1967 (1980), the U.S. Supreme

Court found that the Supreme Court of Virginia and its Chief Justice were proper
defendants in an action for declaratory and injunctive relief concerning their
enforcement of Virginia's ban on attorney advertising. The Supreme Court based its
decision on the power vested in the Virginia Court and its chief justice to enforce the
rule at issue. See Consumers Union, 446 U.S. at 736, 100 S.Ct. at 1977. Thus, while
the Court held that the defendants could not be sued in their official capacities for their
enactment of the rule at issue (due to legislative immunity), the action against them

nonetheless could proceed based on their enforcement of the rule. See id. ("the
Virginia Court and its members were proper defendants in a suit for declaratory and
injunctive relief, just as other enforcement officers and agencies were."); see also
Leclerc

v. Webb, 270 F.Supp. 2d 779, 793-94 (D. La. 2003) (Louisiana judges found not

immune from constitutional challenge to rule governing admission to the bar "because
they are charged with enforcing the allegedly unconstitutional rule.").
The same is true here. Defendants herein, the Presiding Justices of the First,
Second, Third and Fourth Departments, Appellate Division of the Supreme Court of the
State of New York, are responsible for enforcing the Rules of Professional Conduct.
See N.Y. JUDICIARY LAW § 90(2). The Appellate Division is authorized to censure,

suspend, or disbar lawyers guilty of "professional misconduct, malpractice, fraud, deceit,
crime or misdemeanor, or any conduct prejudicial to the administration of justice." Id.
Thus, they are proper defendants in their enforcement capacity.

21

Defendants further argue that judicial immunity bars Plaintiffs' claims because
various courts have found "judicial immunity applies in connection with defendants'
oversight of disciplinary proceedings in New York." (Defs. Br. at 13). However, only
two of these cases, Brooks v. The New York State Supreme Court, Appellate Division,
First Department, No. 02-CV-4138, 2002 WL 31528632 (ED.N.Y. Aug. 16,2002), and
Sassower v. Mangano, 927 F.Supp. 113 (S.D.N.Y. 1996), address the issue of
immunity.9 To the extent that these cases hold that Defendants are acting in their
judicial - as opposed to their enforcement - capacity when they enforce the rules of
professional conduct, they are directly at odds with the controlling authority of
Consumers Union. Indeed, the Supreme Court in Consumers Union found that it was
unnecessary to reach the issue of whether judicial immunity would bar the plaintiff's
claims against the Virginia Court and its members, because the defendants were proper
defendants in their enforcement capacity. See Consumers Union, 446 U.S. at 736,100
S.Ct at 1977. Thus, Defendants' contention that they are acting in their judicial
capacity when they enforce the Rules of Professional Conduct cannot be squared with
the Supreme Court's holding in Consumers Union, and therefore must be rejected. 1o

9

The remainder of the cases Defendants rely on do not address judicial immunity
at all. Rather, they all stand for the proposition that an ongoing disciplinary proceeding
may qualify as a "judicial proceeding" warranting abstention under the Younger doctrine
- a doctrine that is not applicable here. See Middlesex Cty. Ethics Committee, 457 U.S.
423,433,102 S.Ct. 2515, 2522 (1982); Whitley v. Comeast, No. 00 Civ. 9401 (WHP),
2001 WL 1135946, at *4 (SD.N.Y. Sept. 25, 2001). Critically, none of these cases
address the issue of whether Defendants are acting in their judicial or enforcement
capacity when they enforce a rule of professional conduct.
10

To the extent Defendants would argue that the 1996 amendments to Section
1983 overruled Consumers Union, this argument is unfounded. As the legislative
history to the 1996 amendments makes clear, in enacting the 1996 amendments, the
legislature intended to "restoreD the doctrine of judicial immunity to the status it
occupied prior to the Supreme Court's decision in Pulliam v. Allen, 466 U.S. 522, 104
22

Moreover, even if this Court were to find - contrary to Consumers Union - that
Defendants' enforcement of Rule 5.4 is a "judicial act," Defendants concede that it
would not affect Jacoby & Meyers' claims for declaratory relief. (Defs. Br. at 13) ('''in
any action brought against a judicial officer for an act or omission taken in such officer's
judicial capacity, injunctive relief shall not be granted unless a declaratory decree was
violated or declaratory relief was unavailable.'" (Defs. Br. at 13, quoting Section 1983).
Accordingly, because Jacoby & Meyers seeks declaratory relief on each of its causes of
action, (see Amend. Compl. at pp. 26-28.), none of its claims would be subject to
dismissal under the doctrine of judicial immunity.
IV.

THIS COURT SHOULD EXERCISE ITS JURISDICTION OVER
JACOBY & MEYERS' CONSTITUTIONAL CLAIMS

Defendants' argument that this Court should abstain from hearing Plaintiffs'
constitutional challenge and allow the very body that enacted Rule 5.4 (supposedly to
avoid conflicts of interest) to rule on its Constitutionality - creating a clear conflict of
interest - is so ironic as to be unfathomable. Thus, it should be swiftly and soundly
rejected.
The unique posture of this action weighs heavily against this Court's sparing
exercise of the abstention doctrine. Specifically, this is not a typical challenge to the
constitutionality of a state statute. In such a case, the state judiciary may be well-suited
to perform an independent and unbiased review of a statute enacted by the legislature.
Here, however, the rule at issue was not enacted by the state legislature, but rather by
the judiciary. (See Amed. Compl.,-r 19.) If this Court were to abstain, Jacoby & Meyers
S.Ct. 1970 (1984), which expanded upon the Court's holding in Consumer's Union. See
S. Rep. No. 104-366, at *36 (1996); see also Leclerc, 270 F.Supp.2d at 793. Thus, the
1996 amendments returned the doctrine of immunity to status it occupied under
Consumers Union.

23

would be left in the untenable position of raising its constitutional challenges before the
very body that enacted Rule 5.4. It is hard to believe that Plaintiffs' challenge to Rule
5.4 would receive an unbiased review, particularly in light of the strident position taken
by Defendants in response to this lawsuit. Moreover, asking the New York judiciary to
review its own rules - in essence, to judge itself - would violate the advocate witness
rule (Rule 3.7) and place the judiciary in conflict position, clearly creating the
appearance of impropriety, and undermining public confidence in the judiciary. Further,
asking the state court to rule on the validity of Rule 5.4 would strain the principle of
separation of powers. Rule 5.4 was promulgated by the state court, and is enforced by
the state court. If the court were to adjudicate the constitutionality of Rule 5.4, all three
powers (legislative, executive and judicial) would be conflated. Plainly, the only way to
obviate this conundrum is for the court to refrain from abstaining.

A.

Abstention is Unwarranted

Moreover, notwithstanding the unique posture of this case, abstention is
unwarranted even under traditional application of the doctrine. The district court's
determination whether to abstain from exercising its jurisdiction in deference to state
court resolution of underlying issues of state law is a matter left to its sound discretion.
See Harman v. Forssenius, 380 U.S. 528,85 S.Ct. 1177 (1965), citing Railroad Comm'n
of Texas v. Pullman Co., 312 U.S. 496, 61 S.C!. 643 (1941). Indeed, although
discretionary, '''abstention from the exercise of federal jurisdiction is the exception, not
the rule.'" Ankenbrandt v. Richards, 504 U.S. 689, 704, 112 S.Ct. 2206 (1992), quoting,
Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 813, 96 S.Ct.
1236, 1244 (1976). "Abstention should rarely be invoked, because the federal courts

24

have a 'virtually unflagging obligation ... to exercise the jurisdiction given them.'"
Ankenbrandt, 504 U.S. at 705, 112 S.C!. at 2215, quoting Colorado River, 424 U.S. at
813,465 S.C!. at 1246.
The abstention doctrine does not, in any way, divest the federal court of its
jurisdiction over a constitutional claim. See England v. Louisiana State Bd. of Medical
Examiners, 375 U.S. 411,416,84 S.C!. 461,465 (1964) (abstention does not "'involve
the abdication of federal jurisdiction, but only the postponement of its exercise."'),
quoting Harrison v. NAACP, 360 U.S. 177,79 S.C!. 1025, 1030 (1959). Rather, where
resolution of the federal constitutional question is dependent upon, or may be materially
altered by, the determination of an uncertain issue of state law, abstention may be
proper. See Harman, 380 U.S. at 534, 85 S.C!. at 1182 (affirming district court's refusal
to abstain). The doctrine, however, is only applicable where the issue of state law is
uncertain; if the "state statute in question is not fairly subject to an interpretation which
will render unnecessary or substantially modify the federal constitutional question, it is
the duty of the federal court to exercise its properly invoked jurisdiction." Id.
Here, there is no "uncertain" issue of a state law that could moot the federal
constitutional questions. First, there is no interpretation of Rule 5.4 that would allow
Jacoby & Meyers to convey an ownership interest to a non-lawyer in exchange for an
investment, thus mooting Jacoby & Meyers' constitutional challenge. Further, contrary
to Defendants' assertion, Jacoby & Meyers' standing does not turn on an "uncertain"
question of state law. As discussed above in Point I, the NY LLC Law does not
preclude Jacoby & Meyers from practicing law as an LLC. Defendants attempt to create
uncertainty by misinterpreting that statute and arguing - incorrectly - that Jacoby &

25

Meyers cannot practice law as an LLC. Defendants cannot concoct a claim that the
meaning of the state statute is "uncertain" by baldly pronouncing that the statute has a
meaning other than what its plain text denotes. As discussed above, the NY LLC Law
has a meaning that is crystal clear. If parties could induce federal district courts to
abstain by fabricating alternative meanings for clear state law, then the Courts' bedrock
responsibility to enforce constitutional rights would instead rest upon quicksand.
Furthermore, by withdrawing those of its causes of action based on the New York
State Constitution, Jacoby & Meyers has narrowed its challenge to Rule 5.4 only to
arise under the United States Constitution. As such, it is an action squarely within the
jurisdiction of this Court; and it is this Court that should decide Jacoby & Meyers' claims.
See Louisiana State Bd. of Medical Examiners, 375 U.S at 415-416, 84 S.Ct. at 465
("recognition of the role of state courts as the final expositors of state law implies no
disregard for the primacy of the federal judiciary in deciding questions of federal law.")
(emphasis added).11

B.

This Court Should Not Decline to Exercise Jurisdiction
Based On The Declaratory Judgment Act

Finally, Defendants' contention that this Court should exercise its "broad
discretion" under the Declaratory Judgment Act to refuse to exercise jurisdiction over
this action (Defs. Br. at 16) should be swiftly rejected.
First, Jacoby & Meyers' did not bring this action pursuant to the Declaratory
Judgment Act (the "Act"), rendering the Defendants' reliance on the Act as the arbiter of
11

Defendants' argument that the federal constitutional claims could be mooted by
state law claims Jacoby & Meyers has not asserted is a red herring wholly irrelevant to
this motion. Defendants assert that state law claims not contained in the Amended
Complaint could render Rule 5.4 void ab initio and thus moot Jacoby & Meyers'
constitutional challenge. (Defs. Br. at 15). This argument is simply irrelevant because
the Amended Complaint does not contain any state law claims.

26

this Court's jurisdiction inapplicable. Section 1983 provides an independent cause of
action providing for declaratory relief. Moreover, contrary to Defendants' apparent
position, the Act, which creates a federal cause of action for a declaratory judgment,
does not diminish this Court's jurisdiction over Jacoby & Meyers' challenge to the
constitutionality of Rule 5.4. Indeed, determining the constitutionality of a state statute
is a proper subject for adjudication under the Declaratory Judgment Act. See Steffel v.
Thompson, 415 U.S. 452, 467, 94 S.Ct. 1209, 1219 (1974) (the Declaratory Judgment
Act was designed to test constitutionality of state criminal statutes).
Tellingly, virtually none of the cases cited by Defendants address a federal
court's jurisdiction to issue a declaratory judgment on a constitutional challenge. See
Wilton v. Seven Falls Co., 515 U.S. 277,115 S.Ct. 2137 (1995) (underwriters sought
declaratory judgment that their commercial liability insurance policies provided no
coverage); Dow Jones & Co., Inc. v. Harrods Ltd., 346 F.3d 357, 358 (2d Cir. 2003)
(newspaper publisher sought declaration that story was not libelous as a matter of law);
The New York Times Co. v. Gonzales, 459 F.3d 160 (2d Cir. 2006) (newspaper seeking
declaratory judgment that its reporters' telephone records were privileged from potential
grand jury subpoena).
Moreover, even if this Court were to apply the factors identified by the Second
Circuit as relevant to a court's determination of whether to entertain a declaratory
judgment action under the Act, such an exercise of jurisdiction would be warranted.
The applicable factors are:
(i) "whether the judgment will serve a useful purpose in clarifying or
settling the legal issues involved"; (ii) "whether a judgment would finalize
the controversy and offer relief from uncertainty"; (iii) "whether the
proposed remedy is being used merely for 'procedural fencing' or a 'race
27

to res judicata' "; (iv) "whether the use of a declaratory judgment would
increase friction between sovereign legal systems or improperly encroach
on the domain of a state or foreign court"; and (v) "whether there is a
better or more effective remedy."
The New York Times Co. v. Gonzales, 459 F.3d 160, 167 (2d Cir. 2006) (citations
omitted) (finding that the district court did not abuse its discretion in entertaining the
action). All of these factors weigh heavily in favor of this Court hearing this case.
Factors (i) and (ii) favor a decision on the merits. Contrary to Defendants'
argument that a resolution of this action would not clarify or settle the issue due to
various other New York statutes, a declaration that Rule 5.4 is unconstitutional would
settle the legal issue involved and finalize the controversy for all of the reasons
discussed in Point I, above.

Further, factor (iii) is inapplicable on its face.

Factor (iv) likewise weighs in favor of the Court's exercise of jurisdiction. The
Court's resolution of Jacoby & Meyers' constitutional claims would not intrude upon the
domain of a state court because the matter at issue is not within the "dominion of the
state court." Jacoby & Meyers has withdrawn its state law claims, focusing the issue as
a question of federal constitutional law. Indeed, as discussed above, there is no
interpretation of Rule 5.4 that would avoid the need for an adjudication of its
constitutionality. This determination is not one of state law, but of the United States
Constitution, and as such is squarely within the dominion of this Court. See Louisiana
State Bd. of Medical Examiners, 375 U.S at 415-416, 84 S.Ct. at 466 (recognizing the
"primacy of the federal judiciary in deciding questions of federal law.")
True, Jacoby & Meyers asks this Court to block the state court's enforcement of
a state court rule. But, as explained above, this claim arises in the unusual context in
which the state is acting as law-maker and law-enforcer, and when no state judicial

28

proceeding against Jacoby & Meyers under Rule 5.4 is pending. In Ellis v. Dyson, 421
u.s. 426, 95 S.Ct. 1691 (1975), the plaintiff brought a claim under both Section 1983
and the Act alleging that a state anti-loitering law was unconstitutional. The Supreme
Court ruled that the opportunity for adjudication of constitutional rights in a federal forum
was "paramount" and superceded by any considerations of comity and federalism,
especially where there was no pending state judicial case enforcing the statute. 421
u.S. 426, 432,95 S. Ct. 1691 (where no state enforcement proceeding is pending "the
opportunity for adjudication of constitutional rights in a federal forum, as authorized by
the Declaratory Judgment Act, becomes paramount"), citing Steffel, 415 U.8. 462-62,
94 S.Ct. 1217-1218. 12
Finally, turning to factor (v), there is no better or more effective remedy. Indeed,
the State does not argue that there exists another remedy, but rather that Jacoby &
Meyers should seek the same remedy (a declaratory judgment) in state court. (Defs.
Br. at 20). However, as discussed above, forcing Jacoby & Meyers to bring this
challenge before the very body that enacted Rule 5.4 would: preclude an unbiased
review; threaten the appearance of impropriety by the state judiciary; and place the
judiciary in a conflict of interest. They are litigants in this proceeding! Given this Court's
ability to decide the issue free of these encumbrances, it can hardly be said that seeking
a declaratory judgment in state court would be a "better" or "more effective" remedy.

12

Defendants' further argument that striking down Rule 5.4 without imposing any
alternative restrictions on non-lawyer investment, as exist in other jurisdictions, would
create "open season for all sorts of questionable litigation financing schemes" (Defs. Br.
at 18) must be rejected. Essentially, Defendants are arguing that the existing Rule is
better than no rule at all. But that does not render it constitutional. Should this Court
strike down Rule 5.4, Defendants would be free to enact whatever replacement Rule
they wish, as long as that Rule is constitutional, unlike Rule 5.4.
29

For all of the foregoing reasons, this Court should exercise its jurisdiction over
Jacoby & Meyers' constitutional claims.
CONCLUSION
For the foregoing reasons, Plaintiffs respectfully request that the Court should
deny Defendants' motion to dismiss in its entirety, together with such other and further
relief as it deems just and proper.
Dated:

White Plains, New York
January 17, 2012
MEISELMAN, DENLEA, PACKMAN,
CARTON & EBERZ P.C.
By:

00246064.ooc

30

/s/ Jeffrey I. Carton
David J. Meiselman (DM-6621)
James R. Denlea (JD-4610)
Jeffrey I. Carton (JC-8296)
1311 Mamaroneck Avenue
White Plains, New York 10605
Tel: [phone]
Attorneys for Plaintiffs

CERTIFICATE OF SERVICE
I hereby certify that on this 1yth day of January, 2012, a copy of Plaintiff's
Memorandum of Law in Opposition to Defendants' Motion to Dismiss the Amended
Complaint and Declaration of Jeffrey I. Carton were filed electronically. Notice of this
filing will be sent bye-mail to all parties by operation of the Court's electronic filing
system. Parties may access the filing through the Court's system.

lsI Jeffrey I. Carton
Jeffrey I. Carton