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Follow-up — Out Of State Attorneys Admitted In New York, Cannot Rely On New York Virtual Offices If They Intend To Practice In New York

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  • Posted on: Jan 2 2019

Our July 3, 2018 Blog post, entitled: “OUT OF STATE ATTORNEYS ADMITTED IN NEW YORK, CANNOT RELY ON NEW YORK VIRTUAL OFFICES IF THEY INTEND TO PRACTICE IN NEW YORK” (the full text of which is reprinted below), addressed issues related to the need for attorneys admitted to practice law in New York, but who do not reside in New York, to have physical offices in New York.  One of the cases discussed in the Blog was Arrowhead Capital Finance v. Cheyne Specialty Finance Fund, 154 A.D.3d 523 (1st Dep’t 2017), in which the First Department dismissed the action, without prejudice, because it was commenced by a non-resident attorney without an office in New York.  In November of 2017, the Arrowhead plaintiff/appellant moved for leave to appeal to the Court of Appeals and in January of 2018 the requested leave was granted.  The matter has been fully briefed and the Court of Appeals has scheduled oral argument for January 9, 2019, at 2:00 P.M.

In its brief, Arrowhead argues, among other things, that the “nullity” rule, which is applied in the First Department and provides that an action commenced by an attorney admitted in New York, but who failed to maintain an office as required by section 470 of New York’s Judiciary Law, must be dismissed as a nullity, should not be the law in New York State.  Instead, Arrowhead argues that the New York Court of Appeals should resolve the conflict that exists amongst the Departments by adopting the rule followed by the Second and Third Departments, which permits a party to cure a section 470 violation.  See, e.g., Elm Mgmt. Corp. v. Sprung, 33 A.D.3d 753 (2nd Dep’t 2006); Sovereign Bank v. Calderone, 84 A.D.3d 778 (2nd Dep’t 2011); Stegemann v. Rensselaer County Sheriff’s Office, 153 A.D.3d 1053 (3d Dep’t 2017).

In their brief, the Arrowhead defendants/respondents urge, inter alia, that adopting a “cure” rule like Second and Third Departments, would render section 470 meaningless.  Accordingly, the respondents argue that the Court of Appeals should, like the First Department, establish the “nullity” rule as the law in New York for violations of Judiciary Law section 470.

Arrowhead, however, does not address the issue of virtual offices.

This Blog will address the Court of Appeals’ decision when rendered by the Court.

What follows is our original Blog article from July 3, 2018.

Out Of State Attorneys Admitted In New York, Cannot Rely On New York Virtual Offices If They Intend To Practice In New York

Virtual offices are all the rage nowadays. However, if you are admitted to practice in New York State, but reside outside of New York State, a virtual office is insufficient to satisfy the requirements of section 470 of New York’s Judiciary Law, which provides:

A person, regularly admitted to practice as an attorney and counsellor, in the courts of record of this state, whose office for the transaction of law business is within the state, may practice as such attorney or counsellor, although he resides in an adjoining state.

Section 470 requires that “non-resident attorneys must maintain an office within New York to practice in [New York State].”  (Schoenefeld v. State, 25 N.Y.3d 22 (2015).)  Courts, however, have interpreted section to require a physical office. The ramifications for the failure to comply with section 470, which was initially enacted when Abraham Lincoln was president, can be significant.   

The history and significance of section 470 is illustrated in Schoenefeld.  The plaintiff in Schoenefeld was a member of the New York bar, practicing and residing in New Jersey.  While taking a New York CLE course, she learned about the requirements of section 470 and commenced an action in federal district court challenging the constitutionality of section 470 as violative of the Privileges and Immunities Clause of the United States Constitution. In support of her position she argued that: (1) she could not practice in New York because she did not maintain an office in New York despite having satisfied all of her admission requirements: and, (2) no substantial state interest was served by requiring an office in New York for non-residents, when such a requirement did not apply to resident attorneys.  The federal district court sided with Schoenefeld. On appeal, however, the Second Circuit determined that “the constitutionality of the statute was dependent upon the interpretation of the law office requirement” observing that “the requirements that must be met by non-resident attorneys in order to practice law in New York reflect an important state interest and implicate significant policy issues”. Accordingly, the Second Circuit certified the following question to the New York Court of Appeals: “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.”

In answering the certified question, the Schoenefeld Court of Appeals interpreted section 470 as requiring an attorney admitted to practice in New York State, but residing out of state, “to maintain a physical law office within the State.”  The Court found that the statute presupposed a residency requirement for the practice of law in New York State,” but made an exception “by allowing nonresidents attorneys practicing in New York to maintain a physical law office here.”  The Schoenefeld defendants urged that if the statute was interpreted to require a physical presence for the receipt of service (whether an address or an appointed agent), the “legislative purpose” of the statute could be fulfilled in a manner that would “withstand constitutional scrutiny”.

The Schoenefeld Court of Appeals recognized that while section 470 is presently silent on the issue of service, when the statute was originally enacted in 1862, it required that “an attorney who maintained an office in New York, but lived in an adjoining state, could practice in this State’s courts and that service, which could ordinarily be made upon a New York Attorney at his residence, could be made upon the nonresident attorney through mail addressed to his office.”  In 1877, the provision was codified and in 1909 it was divided into two parts: (1) a service provision (which remained in the provision codified in 1877); and, (2) a law office requirement (which ultimately became section 470). The Court of Appeals also noted that in Matter of Gordon, 48 N.Y.2d 266 (1979), it found that then CPLR 9406(2), which required that an applicant to the New York bar provide proof of residency in New York for “six months immediately preceding the submission of his application for admission to practice,” violated the Privileges and Immunities Clause of the U.S. Constitution and thereafter, numerous provisions of the Judiciary Law and the CPLR (but not section 470) were amended to conform to Gordon.

Thus, it is clear that in New York a non-resident attorney admitted in New York must maintain an office in New York in order to practice in New York.  The failure to comply with section 470 could have significant ramifications for the non-compliant attorney and her client. In Arrowhead Capital Finance v. Cheyne Specialty Finance Fund, 154 A.D.3d 523 (1st Dep’t 2017), the Court affirmed the dismissal, without prejudice, of the action because it was commenced by a non-resident attorney without an office in New York and “[p]laintiff’s subsequent retention of co-counsel with an in-state office did not cure the violation since the commencement of the action in violation of Judiciary Law § 470 was a nullity.”  Upon reviewing the supreme court files in Arrowhead, it appears that the defendant’s counsel hired an investigator to investigate the office situation of plaintiff’s counsel and, thereafter, moved to dismiss the action based counsel’s failure to maintain an office in New York.

Two recent cases hold that the requirement that a non-resident attorney maintain an office in New York is not satisfied if that attorney maintains a “virtual office”.  In Marina District Dev. Co. v. Taledano, 60 Misc.3d 1203A (NOR) (Sup. Ct., New York Co. June 18, 2018), plaintiff moved for summary judgment in lieu of complaint based on a New Jersey default judgment.  The court refused to reach the merits of the motion and, instead, dismissed the action because plaintiff’s counsel did not maintain a physical office in New York. In rejecting counsel’s claim that his “virtual office at the New York City Bar” satisfied the requirements of Judiciary Law § 470, the court stated:

By definition, a virtual office is not an actual office.  The court is not persuaded to the contrary by the affidavit the attorney provides from a person affiliated with the…organization [where counsel maintained his virtual office].  That affidavit states that the organization will take telephone messages for a member and that it will forward mail to the member. It also states that meeting rooms may be made available to that member.  However, the attorney’s own papers negate any possibility that he uses the City Bar’s facilities as his office and actually demonstrate that he does not use this as an office [because, inter alia, he directs mail to his Philadelphia address and lists his Philadelphia phone number on his papers].

Similarly, in Law Office of Angela Barker v. Broxton, ____ Misc.3d ____, 2018 Slip Op.2816 (App. Term 1st Dep’t June 11, 2018), a case relied upon by the Marina District court, the court reversed the civil court of the City of New York and dismissed plaintiff’s complaint, and stated:

Plaintiff’s counsel’s use of a “virtual office” at a specified New York City address, instead of maintaining a physical office for the practice of law within New York at the time the action was commenced, was a violation of Judiciary Law § 470, and requires dismissal of the underlying action.  The term “office” as contained in section 470 “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”. (Quoting Schonefeld, supra, (some citations omitted).)

TAKEAWAY

Technology has caused a sharp rise in the use of virtual offices by countless and varied professions and businesses.  Attorneys admitted in New York, however, are bound by, inter alia, the Judiciary Law and may have to consider the ramifications of section 470 (such as the running of applicable statutes of limitations in light of a dismissal, addressing incurred costs and legal fees after a dismissal and the potential for disciplinary proceedings or other ramifications for violations of the Judiciary Law) before relying on a virtual office to satisfy the “office” requirement contained therein.  Similar rules exist in some states and attorneys who are considering working in states in which they are admitted, but do not reside, might consider the looking into whether “virtual offices” satisfy any in-state office requirements that may exist.

Also, bear in mind that this issue can be used as leverage by opposing counsel to pressure the violating attorney into recommending a resolution or a course of action that may not in the best interest of the client.

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