Update: Schoenefeld v. State of New York – Can a Non-Resident Attorney Maintain a New York City Virtual Office

Schoenefeld v. State of New York remanded to the New York Court of Appeals.

On Wednesday, April 8, 2014, The United States Court of Appeals For the Second Circuit remanded Schoenefeld v. New York to the New York Court of Appeals and certified the following question:

Under New York Judiciary Law s. 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?

What does this ruling mean?

Simply, it means that the 2nd Circuit will not decide on the case until the NY Court of Appeals makes a decision. This being said, the 2nd Circuit will maintain jurisdiction over the case in the event of appeal.

Brief Summary:

Schoenefeld v. New York essential poses the following question: Can a non-resident, New York admitted attorney practice law in New York only maintaining a virtual office presence as opposed to a physical office?

For more on Schoenefeld v. New York and the ethical issues surrounding a non-New York domiciled attorney maintaining a legal presence in New York, please read below.

Law Firm Suites will keep you and your practice updated as this case progresses. The United States Court of Appeals For the Second Circuit decision can be read here.

Can a non-resident attorney ethically maintain a New York City Virtual Office?

Fairly often, prospective out-of-state clients ask us about the ethical implications of having a New York City virtual office. Many small firm attorneys erroneously believe virtual office rental arrangements exist in an ethical “gray area.”

This post will attempt to address this ethical issue with respect to the New York ethics rules for attorneys.

To do so, it is critical to first make a distinction between a “virtual office rental arrangement” and a “virtual law practice”, as they are two very different concepts that are frequently confused.

What is a Virtual Law Practice?

A virtual law practice (“VLP”) is a legal practice that does not necessarily have a bricks-and-mortar office, but instead, maintains a law practice structure that is entirely web-based.  Legal work product is typically delivered to clients using secure, cloud-based software that has a log-in portal and can be accessed by both client and attorney anywhere an Internet connection is available.  Typically, the firm’s attorneys work from their homes or satellite offices. Client meetings can be done at the client’s location, in a rented conference room or via phone or video conference.

What is a virtual office rental arrangement?

A virtual office rental arrangement (“VORA”), like those provided in Law Firm Suites’ virtual office plans, is a financial arrangement where attorneys pay a low monthly fee (typically starting at under $100 month) to rent the use of a premium commercial address in an executive office suite and the non-exclusive use of office space and amenities.

VORAs are frequently used by solo attorneys and small law firms who, for lifestyle or budgetary reasons, prefer to produce legal work-product from one place (out of town or from a home office) but want a premium commercial office address and a professional office suite to conduct face-to-face business.

Instead of a big, up-front monthly expense associated with a traditional office lease, attorneys can rent office space and conference rooms by the hour or day on an as-needed basis. Guest reception and mail services are provided as part of the monthly subscription fee and other office services, like phone answering and copy services, can be purchased on a monthly or per-use basis.

Essentially, a virtual office rental arrangement is the same as any traditional office rental in shared law office space, except with unbundled fees.  The VORA is the “bricks & mortar storefront” for attorneys who prefer to produce legal work product somewhere other than a traditional office.

The office suite is always staffed with receptionists, so clients can go to the suite to drop off packages, and the law firm can receive service of process, mail and hand deliveries, whether the attorney is physically present in the office or not.

What is the difference between a virtual office rental arrangement and virtual law firm?

The main difference between a virtual law firm and a virtual office rental arrangement is that the former does not necessarily have any bricks and mortar place of business associated with it.  The firm can operate in a purely online capacity.  And while attorneys who operate virtual law firms often also subscribe for a virtual office rental arrangement, it is not done universally.

By contrast, a virtual office rental arrangement has the same features amenities as any traditional leased office space in a shared law office suite, but with an unbundled financial arrangement and non-exclusive use of a workspace.

The ethical implications of a virtual office rental arrangement (or lack thereof).

Under New York Judiciary Law (“NYJL”) s. 470, an out-of-state attorney who is licensed to practice in New York can do so if they maintain an “office for the transaction of law business” within the State of New York. Section 470 differentiates between instate and out-of-state residents, presumably, because an instate resident can use his or her home within New York State as the firm’s law office.

Accordingly, NYJL s. 470 would not restrict an instate resident from maintaining virtual office rental arrangement.

The remainder of this article will discuss the NYJL’s restrictions on out-of state attorneys and what constitutes an “office” under NYLS s. 470.

Desk rentals, family member’s homes, hotels, are all considered “offices”.

There are several New York cases from the late 1980’s and early 1990’s that define an “office” under NYLS s. 470. New York courts seem to take a liberal approach, specifically noting that nothing in NYJL s. 470 states the size or type of office required to be maintained.

According to the courts, rental of desk space is adequate, even if the desk is not exclusive to the attorney. An office in a family member’s home and/or hotel also sufficed. Instances where phone calls were forwarded to an attorney and where mail was received and forwarded to the attorney met the requirements of the statute, even where the staff member receiving mail or calls was not on the attorney’s payroll.

See, for example, Austria v. Shaw, 143 Misc. 2d 970 (1989); Rosenshein v. Ernstoff, 176 AD 2d 686 (App. Div. 1991); and Matter of Scarsella, 195 AD 2d 513 (App. Div 1993).

The opinions pre-date the commonplace use of cell phones or VOIP by attorneys, or the prolific availability of executive suite virtual office services.  Accordingly, it is our belief that, today, with the availability of technology and telephone services, the concept of physical workspace would play a reduced role in any analysis about the definition of an office.

Notwithstanding, with virtual office rental services like those provided by Law Firm Suites, every virtual office rental client has the non-exclusive use of desk space that includes telephone services.  Further, mail, package and service of process collection services are handled by the operator’s staff, and interested parties can come to the executive office suite for meetings, or to drop off or receive paperwork.

Thus, we believe that a virtual office rental arrangements similar to those offered by Law Firm Suites fit squarely within the definition of an “office” with respect to NYJL s. 470. However, in the spectrum of virtual offices operators, Law Firm Suites services are consistent with other full-service virtual office operators.  This conclusion may not be true with respect to cheap virtual office providers, who offer significantly fewer services.

The changing landscape of the instate office requirement for out-of-state attorneys.

A 2011 federal court opinion from the Northern District of New York may be a game changer for NYJL s. 470 and the instate office requirement for out-of-state attorneys.  In Schoenefeld v. State, No. 1:09-CV-0504 (LEK/RFT), 2011 U.S. Dist. LEXIS 10639 (N.D.N.Y. Sept. 7, 2011), New Jersey resident and New York attorney Ekaterina Schoenefeld filed a complaint against the State of New York citing that the instate office requirement for out-of-state resident attorneys under NYJL s. 470 violates the Privileges and Immunities Clause of the Constitution. Schoenefeld’s claim survived the State’s motion to dismiss.

In its opinion on the State’s motion, the court stated that:

The state has offered no substantial reason for s. 470’s differential treatment of resident and nonresident attorneys nor any substantial relationship between that differential treatment and State objectives. Given this failure, and because case law does not necessitate dismissal of Plaintiff’s claims as a matter of law, the Court denies Defendants’ Motion to dismiss Plaintiff’s claim that s. 470 violates the Privileges and Immunities Clause.

In its motion to dismiss, the State had argued that it currently requires nonresident attorneys to maintain an office presence in New York State to “ensure that nonresident attorneys are amenable to in-state service of process and available for court proceedings and contact by interested parties.”

We believe that a virtual office rental arrangement like those offered by Law Firm Suites satisfies each of the three prongs of the State’s argument:

1.       Nonresident attorneys amenable to in-state service of process.

Executive office suite operators like Law Firm Suites maintain a physical office space within the State of New York staffed with employees at the age of majority who will receive service of process on behalf of virtual office rental clients. As discussed above, the mere fact that the operator’s staff is not on the attorney’s payroll has been long established as irrelevant.

2.       Available for contact by interested parties.

With the advent of cell phones, VOIP, Skype, email and instant messaging, it is no longer necessary for telephonic communication to be associated with a physical office, though every virtual office operator can provide these services to virtual office rental clients. What remains is physical correspondence, such as mail, hand deliveries and courier services. As indicated above, the operator’s staff handles mail and package collection on behalf of clients, and either forwards it or otherwise makes it available for pickup by the client.

3.       Availability for court proceedings.

The mere fact that an attorney has an office within the State of New York by no means ensures his or her availability for court proceedings.  It’s not a stretch to argue that an attorney with an office in Jersey City is more available for a court appearance in Brooklyn Supreme than an attorney with an office in Utica.

It was a weak argument, and likely part of the reason the State lost its motion to dismiss. Nevertheless, a strong argument can be made that, with a virtual office rental in a facility like Law Firm Suites, which has a robust community of small firm attorneys who routinely cover court appearance for virtual office suitemates, that the nonresident attorney’s firm is more available for court proceedings.

Office requirement still applies for nonresident attorneys in New York.

The State’s appeal on the Court’s decision is still pending, and the instate office requirement for nonresident attorneys under NYJL s. 470 still applies.  However, the opinion in Shoenefeld resonated with solo attorneys around the country who have licenses in multiple jurisdictions.  This has motivated professional ethics regulators in many states to reexamine their instate law office requirements. New Jersey is the most recent state to do so.

Currently, attorneys maintaining a virtual law firm are more susceptible under NYJL than those maintaining a virtual office rental arrangement. We highly suggest VLF attorneys living outside of New York insulate their ethical liability with a VORA until the Schoenefeld case is resolved.

Law Firm Suites will keep you and your practice updated as this case progresses in the United States Court of Appeals for the Second Circuit. The oral argument was heard on October 3, 2012.