Friday, September 10, 2021

ABA issues new opinion on lawyers passive investment in law firms that include non-lawyer owners -- UPDATED

The ABA's Standing Committee on Professional Responsibility and Ethics recently issued a new Ethics Opinion on whether lawyers may invest in law firms with non-lawyer owners. The opinion's summary reads as follows:  

A lawyer may passively invest in a law firm that includes nonlawyer owners (“Alternative Business Structures” or “ABS”) operating in a jurisdiction that permits ABS entities, even if the lawyer is admitted to practice law in a jurisdiction that does not authorize nonlawyer ownership of law firms. To avoid transgressing Model Rule 5.4 or other Model Rules and to avoid imputation of conflicts under Model Rule 1.10, a passively investing lawyer must not practice law through the ABS or be held out as a lawyer associated with the ABS and cannot have access to information protected by Model Rule 1.6 without the ABS client’s informed consent or compliance with an applicable exception to Rule 1.6 adopted by the ABS jurisdiction. The fact that a conflict might arise in the future between the investing lawyer’s practice and the ABS’s work for its clients does not mean that the lawyer cannot make a passive investment in the ABS. If, however, at the time of the investment the lawyer’s investment would create a personal interest conflict under Model Rule1.7(a)(2), the lawyer must refrain from the investment or appropriately address the conflict under Model Rule 1.7(b).

You can read the full opinion (Formal Opinion 499) here

You can read more about the opinion in LawSites and the ABA Journal.

UPDATE 9-19-21:  

Faughnan on Ethics has a comment here.

The San Diego County Bar Association has a comment here.

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