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July 17, 2014 Articles

An Update on the Schoenefeld Appeal

A non-dispositive opinion by Circuit Judge Peter W. Hall leaves the ultimate question of the appeal unanswered for now.

By Chad Jira


[UPDATE: Updated information on this case can be found here.]

On April 8, 2014, The U.S. Court of Appeals for the Second Circuit ended its 18-month silence regarding the constitutionality of New York’s attorney in-state office requirement, New York Judiciary Law Section 470. The Court, though, did not settle the matter. Rather, the non-dispositive opinion by Circuit Judge Peter W. Hall leaves the ultimate question of the appeal unanswered—for now—and instead seeks the guidance of New York’s top court on the question of what would minimally satisfy § 470’s mandate that non-resident attorneys (and only non-resident attorneys) keep an “office for the transaction of law business” within the state. Schoenefeld v. New York, et al., 748 F.3d 464 (2d Cir. 2014). The specific question certified to the New York Court of Appeals on April 8, 2014 is: “Under New York Judiciary Law § 470, which mandates that a nonresident attorney maintain an ‘office for the transaction of law business’ within the state of New York, what are the minimum requirements necessary to satisfy that mandate?” Id. at 471.

Section 470 effectively requires non-resident attorneys to maintain an “office for the transaction of law business” within New York, but imposes no such burden on resident attorneys. Schoenefeld, 748 F.3d at 465. Plaintiff, now Appellee, Ekaterina Schoenefeld is a resident of New Jersey admitted to practice in New York, among other states, but who lacks the requisite New York office. Ms. Schoenefeld challenged the constitutionality of § 470’s in-state office mandate, which she claims has precluded her from handling cases that would have constituted practice in New York. Id. at 466. In 2011, the U.S. District Court for the Northern District of New York agreed with her that the law violated the Privileges and Immunities Clause (Article IV, Section 2) of the U.S. Constitution. Id. at 465-66 (citingSchoenefeld v. New York, 907 F. Supp.2d 252, 266 (N.D.N.Y. 2011)). Shortly thereafter, New York appealed the ruling to the Second Circuit Court of Appeals.

In striking § 470’s in-state office mandate, U.S. District Judge Lawrence Kahn opined that § 470 was discriminatory on the basis of residency, that it infringed the right to practice law in New York on that basis, and that New York failed to articulate a “substantial interest for the discrimination” and a “close or substantial relation” between such an interest and the rule. 907 F. Supp.2d 252, 259-266. Judge Kahn’s ruling rejected three proffered justifications for the discrimination: (1) ensuring attorneys can be efficiently served with process and made available for court proceedings; (2) facilitating the observation and discipline of non-resident attorneys; and (3) enabling attachment as a remedy against non-resident attorneys. Id. at 262-266.

New York appealed to the Second Circuit in October, 2011, and a hearing followed a year later, in October, 2012. A year-and-a-half delay ensued until, in April, 2014, the Second Circuit announced that it was reserving judgment and certifying a “controlling question” to the New York Court of Appeals. Schoenefeld, 748 F.3d at 467. That question, which the state court may “expand, alter, or reformulate . . . as it deems appropriate,” seeks to identify the “minimum requirements” that would satisfy § 470’s in-state office mandate. Id. at 471. The New York Court of Appeals acknowledged the certification and agreed to take up the question on May 6, 2014. See Schoenefeld v. State, 23 N.Y.3d 941, 2014 N.Y. Slip. Op. 71266 (2014).

Arguments on appeal emphasized the parties’ differing perspectives regarding the extent of the burden imposed by § 470’s in-state office mandate. Appellants stressed that either the mandate imposes only an incidental burden justified by a substantial relation to “sufficient state interests,” or that it can be construed not to implicate the Privileges and Immunities Clause at all—perhaps by requiring so little as the designation of an in-state agent for service. Schoenefeld, 748 F.3d at 466. In contrast, Ms. Schoenefeld argued that the term “office” cannot be and has not been so broadly construed, and that it “means nothing less but a physical place where a person—here, an attorney—conducts the business of practicing law.” (Appellee’s Br. at 19, April 17, 2012.)

Both sides, in their respective appellate briefs, anticipated that the question might be certified to the New York Court of Appeals. Ms. Schoenefeld sought to avoid certification, asserting that “[t]here is no need for the Court to certify a question to the New York Court of Appeals as to the meaning of the word “office,” and touting the unambiguousness of the term. (Appellee’s Br. at 18.) In contrast, Appellants sought certification should the Second Circuit be inclined to strike the law, arguing that, before doing so, it should submit the question of whether the law is capable of a non-discriminatory reading to the New York Court of Appeals. (Appellants’ Br. at 29, Jan. 18, 2012.)

That the Second Circuit did ultimately certify a question does not lead inescapably to the conclusion that it was about to strike the law, but its opinion does reveal doubts regarding the broad reading advocated by Appellants:

. . . [T]he term “office,” by itself, although not exactly pellucid, implies more than just an address or an agent appointed to receive process. And the statutory language that modifies “office”—“for the transaction of law business”—may further narrow the scope of permissible constructions. In light of New York’s existing jurisprudence, for a federal court to construe the statute such that the word “office” means either an in-state agent authorized to receive process or simply an address for service of papers will take us far beyond the limits of statutory construction that would comfortably apply here.

Schoenefeld, 748 F.3d at 469 (internal footnote omitted). Furthermore, the Second Circuit noted that, although New York’s top court has not chimed in on the matter, other New York courts have never found that anything short of keeping a physical office space satisfied § 470’s office requirement. Id. at 468.

Factors applied by the Second Circuit in determining that certification was appropriate include: “(1) whether the New York Court of Appeals has addressed the issue and, if not, whether the decisions of other New York courts permit [the Second Circuit] to predict how the Court of Appeals would resolve it; (2) whether the question is of importance to the state and may require value judgments and public policy choices; and (3) whether the certified question is determinative of a claim before [the Second Circuit].” Schoenefeld, 748 F.3d at 470 (citation omitted). Absent pertinent precedent from New York’s highest court, Judge Hall easily dispatched with the first criterion. As to the second, he opined that the “requirements imposed on a nonresident attorney to be able to practice law in New York are important to the state and clearly implicate value judgments and policy choices—ones that should not be ceded to a federal court of appeals when it is unnecessary to do so in the first instance.” Id.Regarding the third criterion, whether the certified question is determinative of a claim, Judge Hall predicted that the answer “in all likelihood” would dictate the outcome of the Court’s constitutional analysis. Id. at 471. Indeed, the Court perceives “no question that resolution of this appeal turns on the meaning of ‘office for the transaction of law business’ as used in [§ 470]”. Id. at 469.

Relegated to a footnote, though, and not thoroughly analyzed in the opinion, are factors that weigh against certification, which include: (1) when the question “does not present a complex issue”; (2) when “there is no split of authority”; and (3) when the existing precedents are sufficient to make a determination. Schoenefeld, 748 F.3d at 470, fn. 5 (citation omitted). Though the Court briefly addresses the sufficiency of existing precedent (finding it inadequate to support a prediction of how the New York Court of Appeals would rule), the other criteria are largely unexplored in the opinion. Id. at 468. That these factors are substantially unanalyzed is perhaps unfortunate, as one might question the complexity of a matter construing a discrete turn of phrase, particularly where there is no diametric split of opinion and, as the Second Circuit itself observed, where numerous state court opinions have never embraced so broad a reading as that proffered by Appellants. See, e.g., id.(listing cases and observing that New York courts “have never interpreted” the statute “to be satisfied by something less that [sic] the maintenance of physical office space in New York state.”)

But, as suggested by the eighteen months it took the Second Circuit to decide that it couldn’t—yet—decide the ultimate question of the case, the ostensible simplicity of the subject matter is deceptive. One may reasonably infer from the Second Circuit’s declaration that the certified question likely “dictates the outcome of the constitutional privileges and immunities analysis” that the Court perceives some formulation of the office requirement that would pass constitutional muster and some formulation that would not. If the Second Circuit were to draw that line and endorse, for example, an office to include a non-physical presence in the state, widespread implications related to “virtual” law offices could follow, without a deliberate legislative process defining the state’s intentions.

Thus, while the case may appear to hinge on a matter of relatively straightforward statutory construction, a host of ramifications regarding how law is practiced in New York may arise if Judiciary Law Section 470 is again deemed unconstitutional or, for example, if the definition of an “office for the transaction of law business” were construed to include non-physical presence in the state. It remains to be seen how and if the New York Court of Appeals will undertake to draw this line (at a point that may or may not be deemed constitutional by the Second Circuit).

In an analysis of this case at an earlier stage, we underscored the potential connection between it and the emerging trend of virtual law offices or “VLOs.” We anticipated that New York may have to, willingly or unwillingly, revisit its notion of an office requirement, and we expressed hope that it might do so “in a fashion that addresses emerging multi-jurisdictional practice issues in what may well be a growing trend toward virtual law offices.” Indeed, the New York City Bar Association has recently issued a formal opinion blessing the use of VLOs as a means of complying with another state rule closely related to § 470 (New York Rule of Professional Conduct 7.1). See Formal Opinion 2014-2 of The Association of the Bar of the City of New York Committee on Professional Ethics. The Committee on Professional Ethics, likely recognizing the direction that the wind is blowing on multi jurisdictional practice issues, raised the possibility that “modern law practice may enable lawyers to comply with all requirements of the New York Rules . . . and may enable lawyers to satisfy the policy goals of those rules (availability to clients, acceptance of legal process, etc.) without any physical street address at all.” Id. at note 7. Although the Committee’s formal opinion covered only those VLOs represented by “a physical location,” it recognized that, with the ubiquity of mobile devices and the emergence of new communication technologies, “the concern that a client might not be able to contact a lawyer simply because the lawyer does not have a traditional brick-and-mortar law office is less compelling than in the past,” and that “[i]mposing an inflexible requirement on lawyers to maintain a traditional brick-and-mortar office does not necessarily provide enhanced protection to clients or the public.” Id. at part I.B.

With New York’s appeal similarly seeming to endorse an expansive interpretation of what may be understood to be an “office,” and in light of indications that a burdensome physical presence may not pass constitutional muster, the stage appears set for non-resident attorneys to see a potential rapid evolution of New York’s legal landscape—perhaps both literally and “virtually.”

Keywords: litigation, ethics, professionalism, MJP, residency

Chad Jira is an associate at Jones Day in Cleveland, Ohio.

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