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November 04, 2011 Articles

State of New York Appeals Striking of Nonresident Office Requirement

Whether the plaintiff's favorable decision knocking out section 470’s office requirement will survive on appeal or perhaps prompt a legislative response remains to be seen.

By Chad A. Jira and Brian F. Toohey

On October 5th, 2011, New York filed its notice of appeal of District Judge Lawrence Kahn’s recent ruling upholding lawyer Ekaterina Schoenefeld’s challenge to New York’s Judiciary Law section 470. (The Northern District of New York’s docket identifies the following appellants:  all justices of New York Supreme Court, Appellate Division, Third Judicial Department, Committee on Professional Standards of New York Supreme Court, Appellate Division, Third Judicial Dept and its Members, Andrew M. Cuomo, New York Supreme Court, Michael J. Novack, State of New York, John Stevens.) Judge Kahn ruled that section 470’s in-state “office requirement” violates the Privileges and Immunities Clause (Article IV, section 2) of the U.S. Constitution. Schoenefeld v. State of New York, No. 1:09-CV-00504 (LEK/RFT), 2011 U.S. Dist. Lexis 100576, *4 (N.D.N.Y. Sept. 7, 2011).

Ms. Schoenefeld, a resident of New Jersey, admitted to practice in New York, New Jersey, and California, does not have an office in New York. Prior to Judge Kahn’s decision, New York lawyers residing in that state could practice without maintaining a law office, but New York admitted non-resident lawyers could not. (New York never enforced its in-state office provision against Ms. Schoenefeld, but she asserted that section 470 required her to avoid handling cases that would have constituted practice in New York.  Id. at *5–6.  Section 470 has, however, been actively enforced against others.  For example, the defendant’s answer was stricken in Empire Healthchoice Assurance, Inc. v. Walter Lester, D.C., 81 A.D.3d 570 (Sup. Ct. N.Y., A.D., 1st Dept., 2011), for noncompliance with section 470.  Id.) Whether Ms. Schoenefeld’s favorable summary-judgment decision knocking out section 470’s office requirement will survive on appeal or perhaps prompt a legislative response during the pendency of the appeal remains to be seen.

The Ruling
Judge Kahn invalidated section 470 by applying two well-established tests for: (1) whether the section implicates the Privileges and Immunities Clause, which ensures to the “Citizens of each State” the “Privileges and Immunities of Citizens in the several States.” U.S. Const. Art. IV, § 2.; and (2) whether section 470 runs afoul of the clause. Schoenefeld at *11–*13. Under the first test, a state rule implicates the Privileges and Immunities Clause if it: “(1) infringes on a fundamental right or privilege, which promotes interstate harmony, and (2) . . . infringes on that right on the basis of state residency.” Id. at *12 (citing Supreme Court of New Hampshire v. Piper, 470 U.S. 274, 284 (1985)). A statute that implicates the clause generally runs afoul of it unless, under the second test, the state can show: “(1) a substantial interest for the discrimination,” and “(2) that the means used bear a close or substantial relation to that interest,” taking into account “the availability of less restrictive means.” Id. at * 13 (citing 470 U.S. at 284).

Judge Kahn first ruled that “the practice of law is plainly a fundamental right under the Privileges and Immunities Clause.” Id. at *16. He further found that section 470 places “an additional threshold cost that resident attorneys are not required to incur.” This disparity between the burdens faced by nonresident versus resident attorneys is illustrated by the fact that New Yorkers can operate from a home office at little or no additional cost beyond the cost of one’s residence, but a nonresident must bear the costs of a residence plus the costs of an office in New York (and, perhaps, another office in his or her home state). Id. at *18–*19. In Judge Kahn’s view, the effect is to preclude “a number of nonresident attorneys from practicing law in New York, regardless of whether they have complied with all requirements imposed on residents to practice law in New York.” Id. at *19, emphasis added).

Having determined that section 470 is discriminatory on the basis of residency—and that it infringes the right to practice law in New York on that basis—Judge Kahn turned to whether the state could nevertheless defend the discrimination by demonstrating a “substantial interest for the discrimination” and the “close or substantial relation” between that interest and section 470. Id. at 13. To this end, the defendants cited three examples of state interests served by section 470: (1) ensuring attorneys can be efficiently served with process and made available for court proceedings; (2) facilitating the observation and disciplining of nonresident attorneys; and (3) enabling attachment as a remedy against nonresident attorneys. Id. at *25.

With respect to the first of these purported justifications, Judge Kahn acknowledged the legitimacy of the interests of making attorneys available for service of process and for court proceedings, but found them to fall short of being substantial interests. He reiterated the reasoning of the Supreme Court in Piper that most dues-paying attorneys who take a state’s bar exam will reside an accessible distance from the state—or could accommodate the state’s needs by appointing a local agent for service of process and by identifying local counsel for any unscheduled court proceedings. Judge Kahn concluded that: “ensuring attorneys’ ready availability for court proceedings and contact by interested parties is not a sufficiently substantial interest to withstand scrutiny under the Privileges and Immunities Clause.” 2011 U.S. Dist. Lexis 100576 at *25–*30.

Defendants also failed to persuade Judge Kahn that the need to observe and discipline nonresident attorneys was a substantial interest served by the office requirement. He noted that New York bar applicants are interviewed prior to admission, and are “personally available to the Committee on Character and Fitness.” This fact, bolstered by case law finding that ethical safeguards can be asserted equally against residents and nonresidents, supported Judge Kahn’s conclusion that, as a matter of law, “this justification does not constitute a substantial state interest for Section 470 under the Privileges and Immunities Clause.” Id. at *31.

Judge Kahn also rejected the notion that access to the remedy of attachment provided a substantial state interest. Judge Kahn observed that a nonresident attorney could avoid attachment while nevertheless complying with section 470 simply by maintaining an of-counsel relationship with a New York firm. He also reasoned that because money judgments against attorneys are frequently satisfied through professional liability insurance, the significance of section 470 to the availability of attachment is also insubstantial. Id. at *32–*33.

Having established no “substantial” state interest served by section 470, Judge Kahn easily disposed of the question whether a “substantial relation” exists between the interests and the statute. Finding “no substantial relationship” between section 470 and the [state’s] interests, he struck down section 470 under the Privileges and Immunities Clause.” Id. at *33. In addition, Judge Kahn stressed that even if the interests had been deemed sufficiently substantial, requiring nonresident attorneys to appoint an in-state agent for service of process or to retain a local attorney in ongoing proceedings would be a less restrictive way of addressing at least some of the interests served by the statute. Id. at *33–*36.

What’s Next for Section 470?

While Judge Kahn knocked down section 470 as unconstitutional on Privileges and Immunities Clause grounds, the provision may be down but not out. Between crafting a legislative response or filing an appeal, New York appears to have elected the latter. On October 5, 2011, New York filed their appeal (Ms. Schoenefeld filed a motion for bill of costs on the same date).

Appeal, however, may not be New York’s only recourse. A possible legislative response by New York would be to make modest changes to the rule, more closely tailoring it to the interests it purports to serve. As Judge Kahn suggested, requiring some combination of appointment of a local agent for service of process, and appointment of local counsel for court proceedings or proof of malpractice insurance for non-resident New York lawyers could both serve the state’s needs and survive constitutional challenge.

Alternatively, the rule could be modified to apply with equal force to both residents and nonresidents. That approach, however, would create some intriguing possibilities. What, exactly, is meant by “maintaining an office”? Would such a new rule accommodate the increasingly popular notion that a lawyer can be “officed” pretty much anywhere he or she has Internet access and cell-phone service?

And how does the trend to virtual law offices measure up against requirements like section 470? A number of states offer some guidance, often in the form of ethics opinions. See, S. Kimbro, Practicing Law without an Office Address: How the Bona Fide Office Requirement Affects Virtual Law Practice, 36 U. Dayton L. Rev. 1 (2010), related to virtual law practice. (North Carolina, Florida, Ohio, Pennsylvania, Washington, and even New York have addressed the issue.) Ms. Kimbro cited to Ms. Schoenefeld’s case in her discussion of how rules regarding brick-and-mortar offices may not effectively translate in modern law practice: “The Schoenefeld opinion [February 8, 2010 denial of New York’s motion to dismiss] has raised the issue of the practical application of the bona fide office rule in a global economy and a digitally-connected society.” 3. “The opinion in Schoenefeld resonated with other solo practitioners who are licensed in multiple jurisdictions and brought into question the difficulties of enforcing residency requirements and bona fide office rules. . . .” Id. at 8.

At the time of Ms. Kimbro’s assessment, “constitutional challenges to these requirements, such as the one taken on in Schoenefeld, [had] not survived.” 13. But now that Judge Kahn’s ruling in favor of Ms. Schoenefeld has bucked that trend, the opportunity may be ripe, particularly if its appeal proves unsuccessful, for New York to revisit section 470’s in-state office requirement. If New York does so, whether willingly or unwillingly, it will hopefully do so in a fashion that addresses emerging multi-jurisdictional practice issues in what may well be a growing trend toward virtual law offices.

Perhaps New York’s intentions will become clearer once the briefs on appeal are filed. Stay tuned.


Brian F. Toohey is of counsel and Chad A. Jira is an associate with Jones Day in Cleveland, Ohio.

Keywords: litigation, ethics and professionalism, section 470, schoenfeld

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