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May Florida lawyers passively invest in out-of-state firms that include nonlawyer owners?

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'We’re asking if lawyers in Florida can follow the rules in Arizona for an [alternative business structure]'

EthicsThe Bar’s Professional Ethics Committee is considering if it is permissible for a Florida lawyer to be a passive investor in an alternative business structure (ABS) in another state that allows nonlawyer ownership of law firms.

After spirited debate during the Fall Meeting, the committee voted 26-9 in favor of having staff draft an opinion which would allow the inquiring Florida lawyer to invest in an Arizona entity that is expected to practice law in Arizona.

On March 21, Bar staff initially declined to issue an opinion based on a lack of Florida precedent in this area. The inquirers, however, requested the Professional Ethics Committee review the denial.

While alternative business structures are prohibited in Florida, under current Arizona law they are perfectly legal — so long as the investors are not involved in providing the legal services.

Representing the inquirers, Tallahassee attorney Richard Greenberg pressed the committee for a  decision.

“We’re not asking for an ABS in Florida,” Greenberg said. “We’re asking if lawyers in Florida can follow the rules in Arizona for an ABS. I’m not sure that complying with the rules of Arizona presents an ethics problem in Florida.”

Greenberg pointed to the ABA’s Formal Ethics Opinion 499 as a potential precedent. Published in September 2021, the opinion states that, even if a lawyer is admitted to practice law in a jurisdiction that does not authorize non-lawyer ownership of law firms, a lawyer may passively invest in an ABS in another jurisdiction so long as the relevant jurisdiction permits those entities.

“Arizona rules are clear on passive investors,” Greenberg said. “My clients would just be investors in this entity and everything they do would be pursuant to Arizona law. Because they are passive investors they would not be involved in the day-to-day operations of the ABS.”

Bar Ethics Counsel Jonathan Grabb said that issuing a Florida Bar ethics opinion in this case is “a tough call to make.”

“So much of the fundamental question is what is permissible in Arizona and how it affects the practice of law in Florida,” Grabb said. “Without guidance, we can’t just defer to Arizona.”

Committee member Louis Reinstein said there’s a lack of information on what a passive investment is.

“It makes it very difficult to regulate,” he said. “In this case, I would support staff’s initial decision not to issue an opinion.”

Linda Sue Brehmer-Lanosa made a motion to affirm the staff’s opinion not to issue an opinion, seconded by Phillip Hutchinson. That motion failed 20-14.

D. Culver “Skip” Smith III voted against the affirmation.

“In this case, wouldn’t ABA 499 serve as precedent here?” Smith asked. “We’re not talking about a fee-sharing problem. It seems to me that there is not a violation of rule here.”

Andrew Berman agreed.

“There is precedent,” Berman said. “I don’t think this would offend any of our policy.”

Michael Dribin made a motion to approve the issuance of an opinion using ABA 499 as precedent.

Leslie Mitchell Kroeger, however, wanted more information.

“We need to establish that the staff go back and research this more,” Kroeger said. “We don’t know enough at this point to direct our staff to do anything.”

That statement was met favorably by Dribin.

“I’m not opposed to having this reviewed by another committee,” he said. “I’m willing to amend my motion to allow a subcommittee.”

In the 26-9 vote, the committee directed staff to present a draft opinion at the next committee meeting but agreed to approve the proposed transaction with ABA Ethics Opinion 499 as guiding precedent.

The committee will vote on the draft opinion once it’s presented during its Winter Meeting on January 20, 2023.

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