Lawyers, clients, and judges are all too well aware of the time commitment attendant to litigating complex business disputes. Whether due to the high stakes at issue in many commercial cases, or the sheer depth and breadth of evidence because of the proliferation of electronically stored information, or perhaps a concern as seemingly pedestrian as ever-increasing caseloads, it is challenging for business court judges to complete a commercial trial in a manner that ensures that each party has its “day in court” while simultaneously ensuring that each case that will follow that trial can also avail itself of scarce judicial resources. Indeed, the number of “in-court” hours that a judge can offer each year, without incurring overtime for non-judicial personnel, is less than 1,500—and that assumes that the judge is never reflecting in chambers, much less taking a vacation day.

New York State, which continues to pride itself on offering a specialized court—the Commercial Division of the Supreme Court—to state, national, and international businesses that wish to litigate their disputes, offers a solution to this dilemma. More specifically, Chief Administrative Judge Lawrence Marks, upon the advice and consent of the Administrative Board of the New York State Courts, has approved two key measures that allow judges to conduct and complete trials with even greater efficiency:

(1) Permitting the judge to require direct testimony by affidavit, in lieu of live testimony, in non-jury proceedings, and

(2) Permitting the judge to limit each party’s total number of trial hours.

These measures were recommended by the Chief Judge’s Commercial Division Advisory Council, chaired by Robert L. Haig of Kelley Drye & Warren. As with the other initiatives spearheaded by the Advisory Council since its inception in March 2013 by then-Chief Judge Jonathan Lippman and continuing under Chief Judge Janet DiFiore, these measures are designed to further ensure that the Commercial Division remains an efficient and cost-effective forum for the resolution of business disputes. When deployed together, these measures offer a powerful tool for judges to manage their (and trial counsel’s) in-court time.

Direct Testimony by Affidavit

Direct testimony by affidavit in non-jury proceedings is now codified in Rule 32-a of the Rules of the Commercial Division:

The court may require that direct testimony of a party’s own witness in a non-jury or evidentiary hearing shall be submitted in affidavit form, provided, however, that the court may not require the submission of a direct testimony affidavit from a witness who is not under the control of the party offering the testimony. The submission of direct testimony in affidavit form shall not affect any right to conduct cross-examination or re-direct examination of the witness.

Thus, this somewhat modest proposal applies only when (1) there is a non-jury trial or hearing, and (2) the witness is under the party’s control. Moreover, presenting an affidavit in lieu of live direct testimony will not change the adversary’s ability to cross-examine the witness, or the proponent’s ability to utilize re-direct examination.

While Rule 32-a is, of course, a potential time-saver, it is not the first attempt by Commercial Division judges to use its technique. Indeed, the concept in the Commercial Division that a party present direct testimony by affidavit for witnesses under its control has its genesis in the courtroom rules of the Honorable Charles Edward Ramos, who has presided in the Commercial Division since shortly after its inception over 20 years ago. In turn, Judge Ramos’s practices are supported by Civil Practice Law and Rules 4011, which permits the trial judge to “regulate the conduct of the trial in order to achieve a speedy and unprejudiced disposition of the matters at issue in a setting of proper decorum.”

The mechanics of implementing Rule 32-a are within the discretion of the trial judge. Trial judges may wish to consider (1) the timing of the exchange of affidavits and objections to the proposed testimony by affidavit, and (2) the form of the affidavit, such as whether it should follow the sequentially numbered paragraph format of many affidavits, or a “question and answer” format akin to a transcript of trial proceedings. Counsel directed to follow Rule 32-a should consider exchanging affidavits electronically, which readily facilitates lodging objections as a “comment” to the proposed objectionable testimony.

The Timed Trial

Recognizing that trial judges can no longer metaphorically offer lawyers “all you want” in their time to try cases, the Advisory Council promulgated an amendment to Commercial Division Rule 26, which will take effect on July 1, 2017. The amendment recognizes that, just as a judge may set time limits for components of the trial (such as opening statements), so too may the judge limit the total amount of in-court trial time for each party’s presentation:

At least ten days prior to trial or such other time as the court may set, the parties, after considering the expected testimony of and, if necessary, consulting with their witnesses, shall furnish the court with a realistic estimate of the length of the trial. If requested by the court, the estimate shall also contain a request by each party for the total number of hours which each party believes will be necessary for its direct examination, cross examination, redirect examination and argument during the trial. The court may rule on the total number of trial hours which the court will permit for each party. The court in its discretion may extend the total number of trial hours.

Thus, Rule 26 implicitly provides that any time limit set by the court is not some Deus Ex Machina pronouncement, but rather is set in reliance on counsel’s initial estimate of the time needed if the case were tried in the “conventional” manner. There is also a fail-safe that permits the court to extend the number of hours, although counsel would do well not to claim that the unpredictability of trial—which is by nature unpredictable—requires an increase in the number of hours.

The mechanics of timing the trial are unremarkable. The author often uses a “chess clock,” and has the “belt and suspenders” of the courtroom clerk’s minutes sheet. An estimate is then provided to counsel at the end of each day as to how much time each side has used and how much time remains. Counsel may also assume the timing function themselves, and confer at the end of each court day as to how much time has been used.

Timed trials are, of course, neither limited to nor the invention of the Commercial Division. As Gregory Diskant of Patterson Belknap recognized in his article “Timed Trials—Worth a Try” (Litigation, Volume 43, Number 1, Fall 2016), many federal judges since at least 1984 have limited the amount of in-court time each party may take in its presentation. In addition to convenience of the jury (which is not typically a concern in commercial litigation as most trials are bench trials), Mr. Diskant noted several salutary purposes of such a technique:

1. Convenience of witnesses (especially expert witnesses), who can know in advance with some assurance when they must appear,
2. Convenience of the court, as the judge can schedule other proceedings with confidence,
3. Convenience of counsel, who know when they can re-focus their attention on the “next” case, and
4. Sharpening the focus of attorneys who can leave extraneous issues on the proverbial cutting-room floor.

Perhaps an addition to those purposes could be an increased confidence in the judicial system, as the public at large can readily see the efforts made by judges, non-judicial personnel and counsel to manage the court’s caseload.

Direct by Affidavit AND the Timed Trial—Together

Taken together, direct testimony by affidavit and a timed trial can exponentially increase efficiency and production. Indeed, any potential hostility that lawyers may have to the time limitation can be tempered by permitting direct testimony by affidavit, which effectively removes live direct testimony (at least for witnesses under each party’s control) from the number of in-court hours. The author has employed such a protocol—without significant articulated resistance—for the past three years. More specifically:

1. Shortly after the close of discovery, counsel provide an estimate of how long it would take to try their case in the “conventional” way.
2. If the estimate is longer than one week, the court sets a time limit, typically with equal hours per side, of the amount of in-court hours available.
3. The court further provides that, in an effort to assist counsel in using their in-court time productively, any party may offer direct testimony by affidavit.
4. To the extent that any party wishes to offer direct testimony by affidavit, such affidavit(s) should be exchanged electronically, and provided to the court, at least six weeks before trial.
5. Any objections to the proposed affidavit(s) should be filed and exchanged electronically at least three weeks before trial.
6. The court rules on the proposed objections two weeks prior to trial.
7. Each side may supplement, with live direct testimony, any direct testimony offered by affidavit. Such supplementation may be necessary to cure proposed objectionable testimony, or lay a foundation for the admissibility of documents to which there is not consent to admission, or simply to elucidate potentially complicated issues. Such live testimony, like all other live direct, cross examination, and redirect examination, is “on the clock.”

This process is designed to meet the goals identified by Mr. Diskant, while giving trial counsel an avenue to use their in-court time even more efficiently than merely limiting the time for in-court presentations.

Just as no two cases are alike, so too are there no hard-and-fast rules for how much time each trial should take. Moreover, in the author’s view, counsel should have the opportunity—within the time constraints—to try their case as they wish. Combining direct testimony by affidavit with a timed trial permits the court to control its calendar, while offering counsel the flexibility to present its case as it desires within the time limits.

Introduction

Prior to September 2015, directors and officers generally have not been held individually liable for a company’s failure to provide timely notice under the federal and Wisconsin WARN Acts. However, a recent decision issued by a Delaware bankruptcy court has clouded the issue of whether individual corporate officials fall within the ambit of the WARN Act. In Stanziale v. MILK072011, LLC, the court refused to dismiss the chapter 7 trustee’s claims against the sole manager and president of an insolvent corporation for breach of fiduciary duty based on these individuals’ failure to provide the requisite 60-day notice under the WARN Act.

Stanziale v. MILK072011, LLC

Stanziale arose out of a claim filed in the bankruptcy case of Golden Guernsey Dairy, LLC. Before bankruptcy, the company had operated a dairy and milk processing facility in Wisconsin, and was wholly owned by MILK072011, LLC, which was a portfolio company of a private equity firm owned by Andrew Nikou. On January 5, 2013, Golden Guernsey abruptly ceased operations, and three days later filed a petition under Chapter 7 of the Bankruptcy Code.

On January 3, 2014, the Wisconsin Department of Workforce Development filed an amended proof of claim on behalf of some of Golden Guernsey’s former employees claiming damages in an amount not less than $1.56 million based on the company’s alleged violation of the Wisconsin WARN Act. On November 4, 2014, the bankruptcy trustee instituted an adversary proceeding against MILK072011, as well as Nikou and Golden Guernsey’s former president for damages cause by their alleged failure to issue a WARN notice. In his complaint, the trustee alleged that the individuals breached their fiduciary duties to the debtor by maintaining the debtor’s business operations until the last moment and by ignoring their responsibility to issue appropriate notices to its employees, thereby exposing the company to liability under the Wisconsin WARN Act.

The managers filed a motion to dismiss the breach of fiduciary duty claims asserted in the complaint on the ground that the alleged facts, even if true, did not give rise a valid legal claim. The managers argued that the company was already insolvent at the time when they might have given the WARN notice, and that the additional liability caused by closing without having given the notice merely deepened the insolvency. Since Delaware has rejected the “deepening insolvency” theory of director and officer liability, the managers argued that the complaint did not state a valid cause of action against them. The court ultimately concluded that the trustee’s complaint alleged facts which, if established at trial, would support a finding that the Defendants had breached their fiduciary duties to Golden Guernsey.

Importantly, although the WARN Act only provides for recourse directly against the “employer,” the chapter 7 trustee sought to hold the officers personally liable for the violation on based on the alleged breach of fiduciary duty claims.

The WARN Act

Legislative History

The Worker Adjustment and Retraining Notification (WARN) Act prohibits certain employers from ordering any long-term plant closing, mass layoff, or worker dislocation without first giving 60 days advance notice. The advance notice period is intended to afford employees time to find other jobs, obtain retraining or otherwise adjust to their soon-to-be-changed employment situation.

Despite its history, there have been surprisingly few lawsuits filed under the WARN Act. Various reasons for the lack of WARN Act litigation have been suggested. Whatever the reason for the low volume of WARN cases, the sole enforcement mechanism appears to lie within the federal courts, and judicial interpretation of the statute and its exceptions is therefore extremely important.

Summary of the WARN Act and Its Exceptions

The WARN Act, which is codified in nine sections, requires that certain employers provide 60 days’ notice in advance of a plant closing or other mass layoff. An employer covered under the WARN Act is one who either employs 100 or more employees (excluding part-time employees) or 100 or more employees who in the aggregate work at least 4,000 hours per week (exclusive of hours of overtime). The WARN Act defines a “plant closing” as the “the permanent or temporary shutdown of a single site of employment, or one or more facilities or operating units within a single site of employment, if the shutdown results in an employment loss at the single site of employment during any 30-day period for 50 or more employees excluding any part-time employees.” The statute defines “mass layoff” as “a reduction in force which (A) is not the result of a plant closing; and (B) results in an employment loss at [a] single site of employment during any 30-day period for (i) at least 33 percent of the employees (excluding part-time employees) and (II) at least 50 employees (excluding part-time employees); or (ii) at least 500 employees (excluding part-time employees).”

The statute specifies that written notice of such an order must be given to: (1) each affected employee’s representative, or, if there is no such representative, to each affected employee; (2) the state or entity designated by the state to carry out rapid response activities; and (3) the chief elected official of the unit of local government within which such closing or layoff is to occur.

If an employer is found to have violated the WARN Act, the employer will be liable to each employee for an amount equal to back pay and for the period of the violation, up to 60 days. A violating employer may also be subject to a civil penalty of up to $500 per day for each day of such violation, payable to the unit of local government entitled to receive advance notice under this Act.

Exceptions to or Exemptions from the Notice Requirement

The WARN Act contains several exceptions to or exemptions from its requirement that employers provide 60 days’ notice of an impending plant closing or mass layoff. Such exceptions and exemptions primarily concern business circumstances which were not reasonably foreseeable at the time an employer would have been required to issue notice under the act. In practical terms, the exceptions may not be as expansive as the literal language of the statute suggests.

The statute provides for a shortened notice period under three distinct circumstances. First, reduction of the notice period is permitted in situations involving a “faltering company” where notice would have precluded efforts to gain new capital or customers. To be sure, even if an employer is able to show that it was actively seeking capital or new business which would have otherwise enabled him to avoid or postpone the shutdown, the employer must still give as much notice as is reasonably practicable under such circumstances. Despite being responsible for a considerable amount of WARN Act litigation, this defense has only proved successful in a limited number of cases.

Second, in the event that a closing is the result of a natural disaster, the requirement is to give as much advance notice as possible under the circumstances. Third, employers can provide reduced notice if they could not reasonably foresee the business circumstances that provoked the plant closings or mass layoffs. The statute does not specify which events constitute business circumstances that are not reasonably foreseeable as of the notice, but the regulations provide some specific examples, such as a major client termination, sudden termination of a large contract with the employer, a strike at a supplier of key parts to the employer or the swift onset of a deep economic downturn or a non-natural disaster.

In terms of exceptions to WARN Act’s notice requirement, an employer does not need to give notice of a plant closing or mass layoff if the employer is temporarily closing a facility or the closing or layoff is the result of completing a temporary project, in which case the employees are presumed to know at the time of hiring that their employment was limited to the time necessary to complete such project. WARN Act liability may be reduced at the discretion of the court if the employer can show that its act or omission that constituted the violation was in good faith and that it had reasonable grounds for believing that the act or omission was not a violation.

The WARN Act and Personal Liability

The WARN Act does not expressly provide for personal liability of corporate officers—only the employer. Moreover, the use of the term “business enterprise” in the definition of “employer” has led some courts to the conclusion that individuals cannot be liable for damages under the WARN Act.

Moreover, Hollowell v. Orleans Reg’l Hosp., 1998 WL 283298 (E.D. La. May 29, 1998), involved a case brought under the WARN Act (29 U.S.C. §§2101-2109) in connection with employment terminations that occurred in advance of the ultimate closing of Orleans Regional Hospital, a psychiatric and substance abuse treatment facility in New Orleans. Orleans Regional Hospital was a Louisiana limited liability company, as were co-defendants, Brentwood Behavioral Healthcare, L.L.C. and Magnolia Health Systems. The plaintiffs’ claims included claims against individual members of the LLCs which were premised upon several different arguments, including that individuals could be liable under the WARN Act. The court ordered summary judgement in the WARN Act claims in favor of the individual defendants, holding “[t]he statutory language of the WARN Act, its legislative history, and the caselaw interpreting  both, all indicate that an individual may not be held directly liable for WARN Act violations.” Hollowell at *9.

In Cruz v. Robert Abbey, Inc., 778 F. Supp. 605, 609 (E.D.N.Y. 1991), the court held that the term “employer” as it is defined in the WARN Act does not include individual persons, and therefore, did not include the individual defendants. The court looked to the regulations and legislative history of the statute and determined that when Congress defined “employer” it meant that term to be synonymous with “business enterprise,” and that a “business enterprise” means a corporate entity, in other words, a corporation, limited partnership, or partnership, not an individual. While recognizing that WARN is a remedial statute and must be construed broadly, the court nonetheless stated that such a view does not permit it to disregard entirely the plain meaning of the words used by Congress.

A Deeper Look at the Decision in Stanziale v. MILK072011, LLC

In Stanziale, the trustee was able to secure the debtor’s electronically stored information prior to filing the complaint, thereby enabling the trustee to allege, among other things, that the debtor and its management accurately projected in the debtor’s 16-week cash flow forecast that the debtor would run out of cash in late December and that the debtor and the defendants knew of the requirements of the federal and Wisconsin WARN Acts. Additionally, the electronically stored information showed that despite such knowledge the debtor and the individual defendants failed to give the requisite notices.

Without citing any precedent, the court concluded that the trustee’s complaint alleged facts which, if established at trial, would support a finding that the individual defendants had breached their fiduciary duties to Golden Guernsey. In so holding, the court explained that the defendants maintained the Golden Guernsey’s operations until the last moment, thereby exposing the company to the WARN Act claims. They never gave the requisite notice, which may constitute a breach of their fiduciary duties.

The court began its discussion by stating that Delaware law has long recognized that directors owe a fiduciary duty to the company they serve. A breach of the duty of loyalty may be found when the fiduciary has failed to act in good faith. Thus, the court concluded that the complaint alleged facts that could support a finding that the defendants breached their fiduciary duties to Golden Guernsey, and denied the motion to dismiss. In so holding, the court explained: “Where directors fail to act in the face of a known duty to act, demonstrating a conscious disregard for their responsibilities, they breach their duty of loyalty by failing to discharge that fiduciary obligation in good faith.” In re Bridgeport Holdings, Inc., 388 B.R. 548, 564 (Bankr. D. Del 2008).

The court also rejected the defendants’ argument that the breach of fiduciary duty cause of action was a disguised “deepening insolvency” claim and that such a claim is not recognized under Delaware law. Likewise, the court rejected the defendants’ argument that debtor suffered no damages as a result of the Wisconsin WARN Act claim. The defendants argued that the fact that the insolvent debtor’s liabilities grew from the violation was unfortunate but did not give rise to a cause of action. The court held that the increase in liabilities could be found to have damaged the debtor.

Future Implications of Stanziale v. MILK072011, LLC

Prior to Stanziale, directors and officers generally have not been held individually liable for a company’s failure to provide timely notice under the WARN Act, as the WARN Act does not expressly provide for personal liability of “individuals”—only the employer. It remains to be seen whether Stanziale will signal a shift away from the court’s refusing to dismiss claims against the individual defendants in Stanziale. In light of Stanziale, there is at least a colorable argument for trustees and plaintiffs to assert a claim for breach of fiduciary duty against corporate officials as a result of this opinion. This possibility of exposure to WARN Act liability will hopefully impact pre-bankruptcy planning by making it more likely that a company will give, or carefully consider the implications of not giving, the requisite 60-day notice. Moreover, insurers should take notice as an increase in the litigation of breach of fiduciary cases for failure to give the requisite notice is likely to result in claims for coverage under directors’ and officers’ insurance policies. And finally, for attorneys who advise boards of directors and corporate managers, it is important to take note of this opinion in the event that a client may find itself in a position in which it must be counseled to provide the requisite notice when operating a business that is forecasted to have insufficient resources to continue operating in the meantime.

On April 6 and 7, 2017, during the ABA Business Law Section Spring meeting in New Orleans, the Dispute Resolution Committee presented a dynamic three-part program entitled “The 1-2-3s of Mediation of a Merger & Acquisition Dispute” that reviewed the anatomy of a mediation from the earliest planning stages through settlement.

This article shares some thoughts from several of the participants concerning the value of preparing for, as well as fully participating in, a mediation to obtain the best results for your clients and your clients’ companies.

Judge Elizabeth Stong, a U.S. Bankruptcy Court judge in the Eastern District of New York, served as the “mediator” during the program and shared her advice for advocates, clients, and mediators. First, she noted that advocates and clients should be “focused on being prepared in every conceivable way—of course on the law and the facts,” but that this is only the starting point in a successful mediation. She wisely pointed out that participants should not disregard the “business context, including any future opportunities or issues and also . . . the opportunity to agree to something that is outside the narrow scope of what a judge could decide.” Thus, the parties should look both “backwards (to assess the parties’ positions and rights) and forward (to see future opportunities)” in evaluating the range of ways to resolve the pending dispute. Further, she noted that it is important to examine “how the situation looks from every other seat at the table, including that of your adversary’s counsel and their client, as well as any other affected party.”

As for advice to the neutral conducting the mediation, Judge Stong remarked that the program reminded her how important it is for the neutral “to be prepared as well in all the same ways noted above for counsel and clients,” and she commented that it is also important to remember that parties sometimes need a third-party neutral to create an opportunity to think outside the box—and to encourage them to work as hard at working things out as they have been working to fight and win the case.”

Along these same lines, Michele Johnson, a partner in the litigation department at Latham & Watkins LLP in their Orange County, California, office, served as one of the advocates and highlighted all the various issues that “come into play in a mediation, outside of legal theories of plaintiff and defendant.” She pointed to just a few examples, including “the timing of other unrelated business endeavors; the personalities of the parties and how they view the distractions of litigation; and how the decision-makers for the litigation can change with the signing or closing of a strategic transaction.”

Maureen Beyers of Beyers Farrell PLLC in Phoenix, Arizona, served as the “settlement counsel” during this program and reminded all of us that “the clock should not dictate the success of a mediation.” Setting an internal clock for how long a party may choose to buy into the mediation process not only can be a distraction, but also can serve to derail the process, if the parties believe that if the matter does not resolve in a certain time frame, it never will. Ms. Beyers also reminded us that it was important for every party at the mediation, both mediator and participant, to “understand the various hats each party is wearing and roles each party is playing at the mediation and in the underlying transaction as well.”

Since the mediation during the program focused on M&A transactions, Sophie Lamonde, a partner at Stikeman Elliott LLP and head of the firm’s mergers and acquisition practice in Montreal, noted that when engaging in a transaction, if you feel a deal is going sideways, then “there is only upside in involving your litigators early on . . . , [as] the better off you may be.” David Cellitti, a partner in the Chicago office of Quarles & Brady LLP and a member of the firm’s Business Law Practice Group, pointed out that as part of a team, he tries to ascertain what his client’s interests and goals are so that perhaps a deal can be “salvaged by . . . rebuilding trust that may have been lost during the course of the dispute by trying to be reasonable and by being practical as a deal-maker.” He noted that his role as M&A counsel is often to help both “the client and co-counsel by sharing the history of the negotiations to aid them in building a record, making an assessment of the case, and prepare for the mediation; this way all of the facts have been developed.”

Finally, both Ryan McLeod, a partner in the litigation department of the New York firm of Wachtell, Lipton, Rosen & Katz, and David Lorry, managing director and senior counsel of Versa Capital Management LLC in Philadelphia, focused on the potential flexibility and creativity in the mediation process.

Ryan highlighted that while “busted deals can be complicated and sensitive,” the best part of mediation is that “parties can customize the mediation process so that it suits their needs—needs that will vary, based upon a multitude of factors.” He contrasted this with litigation in which the court must make a more narrowly focused decision. David noted that “parties to a commercial transaction should consider alternative dispute resolution as an option to achieve an outcome, as opposed to investing in a process—litigation—with an uncertain outcome and the risk of an unfavorable decision by a judge.” He added that “parties tend to drink their own Kool-Aid, and introducing a neutral party may allow them to become more reflective (or creative) and accepting of alternative structures or approaches they had not otherwise considered, which will allow both sides to realize positive results.”

What lessons can be gleaned from these insights for those of us serving as clients, advocates, or neutrals in the dispute-resolution process? First, always ensure that you look beyond the dispute at hand and consider the bigger context for the companies and individuals on all sides of the dispute. Second, remember that the negotiation may look very different from each seat at the table. Third, consider how you can work to creatively carve a path to resolution that addresses the parties’ interests, rather than a narrower decision that may come from a court.

The decision to use voice-controlled digital assistants, like Amazon’s Alexa, Apple’s Siri, Microsoft’s Cortana, and the Google Assistant, may present a Faustian bargain. While these technologies offer great potential for improving quality of life, they also expose users to privacy risks by perpetually listening for voice data and transmitting it to third parties.

Adding a voice-controlled digital assistant to any space presents a series of intriguing questions that touch upon fundamental privacy, liability, and constitutional issues. For example, should one expect privacy in the communications he engages in around a voice-controlled digital assistant? The answer to this question lies at the heart of how Fourth Amendment protections might extend to users of these devices and the data collected about those users.

Audio-recording capabilities also create the potential to amass vast amounts of data about specific users. The influx of this data can fundamentally change both the strength and the nature of the predictive models that companies use to inform their interactions with consumers. Do users have rights in the data they generate or in the individual profile created by predictive models based on that user’s data?

On another front, could a voice-controlled device enjoy its own legal protections? A recent case questioned whether Amazon may have First Amendment rights through Alexa. Whether a digital assistant’s speech is protected may be a novel concept, but as voice-controlled digital assistants become more “intelligent,” the constitutional implications become more far-reaching.

Further, digital assistants are only one type of voice-controlled device available today. As voice-controlled devices become more ubiquitous, another question is whether purveyors of voice-controlled devices should bear a heightened responsibility towards device users. Several security incidents related to these devices have caused legislators and regulators to consider this issue, but there remains no consensus regulatory approach. How will emerging Internet-of-Things frameworks ultimately apply to voice-controlled devices?

Voice-Activated Digital Assistants and the Fourth Amendment

Voice-activated digital assistants can create a record of one’s personal doings, habits, whereabouts, and interactions. Indeed, features incorporating this data are a selling point for many such programs. Plus, this technology can be available to a user virtually anywhere, either via a stand-alone device or through apps on a smartphone, tablet, or computer. Because a digital assistant may be in perpetual or “always-on” listening mode (absent exercise of the “mute” or “hard off” feature), it can capture voice or other data that the user of the device may not intend to disclose to the provider of the device’s services. To that end, users of the technology may give little thought to the fact their communications with digital assistants can create a record that law enforcement (or others) potentially may access by means of a warrant, subpoena, or court order.

A recent murder investigation in Arkansas highlights Fourth Amendment concerns raised by use of voice-controlled digital assistants. While investigating a death at a private residence, law enforcement seized an Amazon Echo device and subsequently issued a search warrant to Amazon seeking data associated with the device, including audio recordings, transcribed records, and other text records related to communications during the 48-hour period around the time of death. See State of Arkansas v. Bates, Case No. CR-2016-370-2 (Circuit Court of Benton County, Ark. 2016).

Should one expect privacy in the communications he engages in around a voice-activated digital assistant? The Arkansas homeowner’s lawyer seemed to think so: “‘You have an expectation of privacy in your home, and I have a big problem that law enforcement can use the technology that advances our quality of life against us.’” Tom Dotan and Reed Albergolti, “Amazon Echo and the Hot Tub Murder.” The Information (Dec. 27, 2016) (hereinafter “Dotan”).

To challenge a search under the Fourth Amendment, one must have an expectation of privacy that society recognizes as reasonable. With few exceptions, one has an expectation of privacy in one’s own home, Guest v. Leis, 255 F.3d 325, 333 (6th Cir. 2001), but broadly, there is no reasonable expectation of privacy in information disclosed to a third party. Any argument that a digital-assistant user has a reasonable expectation of privacy in information disclosed through the device may be undercut by the service provider’s privacy policy. Typical privacy policies provide that the user’s personal information may be disclosed to third parties who assist the service provider in providing services requested by the user, and to third parties as required to comply with subpoenas, warrants, or court orders.

The Bates case suggests that data collected by digital assistants would bear no special treatment under the Fourth Amendment. The police seized the Echo device from the murder scene and searched its contents. Unlike a smartphone that would require a warrant to search its contents, see Riley v. California, 134 S. Ct. 2473, 2491 (2014), the Echo likely had little information saved to the device itself. Instead, as an Internet-connected device, it would have transmitted information to the cloud, where it would be processed and stored. Thus, the Arkansas law enforcement obtained a search warrant to access that information from Amazon.

Under existing law, it is likely a court would hold that users of voice-activated technology should expect no greater degree of privacy than search engine users. One who utilizes a search engine and knowingly sends his search inquiries or commands across the Internet to the search company’s servers should expect that the information will be processed, and disclosed as necessary, to provide the requested services.

Perhaps there is a discernible difference in that voice data, to the extent a service provider records and stores it as such, may contain elements that would not be included in a text transmission. For example, voice data could reveal features of the speaker’s identity (such as a regional accent), state of mind (such as excitement or sadness), or unique physical characteristics (such as hoarseness after yelling or during an illness), that would not be present in text.

Or perhaps it is significant that some information transmitted might enjoy a reasonable expectation of privacy but for the presence of the device. Although digital-assistants usually have visible or audio indicators when “listening,” it is not inconceivable that a digital assistant could be compromised and remotely controlled in a manner contrary to those indicators.

Further, the device could be accidentally engaged, particularly when the “wake word” includes or sounds like another common name or word. This could trigger clandestine or unintentional recording of background noises or conversations when the device has not been otherwise intentionally engaged. See Dotan (“[T]he [Echo’s seven] microphones can often be triggered inadvertently. And those errant recordings, like ambient sounds or partial conversations, are sent to Amazon’s servers just like any other. A look through the user history in an Alexa app often reveals a trove of conversation snippets that the device picked up and is stored remotely; people have to delete those audio clips manually.”).

The technology of voice-activated digital assistants continues to advance, as evidenced by the recent introduction of voice-controlled products that include video capabilities and can sync with other “smart” technology. Increasing use of digital assistants beyond personal use will raise more privacy questions. As these devices enter the workplace, what protections should businesses adopt to protect confidential information potentially exposed by the technology? What implications does the technology have for the future of discovery in civil lawsuits? If employers utilize digital assistants, what policies should they adopt to address employee privacy concerns? And what are the implications under other laws governing electronic communications and surveillance?

First Amendment Rights for Digital Personal Assistants?

The Arkansas v. Bates case also implicates First Amendment issues. Amazon filed a motion to quash the search warrant, arguing that the First Amendment affords protections for both users’ requests and Alexa’s responses to the extent such communications involve requests for “expressive content.” The concept is not new or unique. For example, during the impeachment investigation of former President Bill Clinton, independent counsel, Kenneth Starr, sought records of Monica Lewinsky’s book purchases from a local bookstore. See In re Grand Jury Subpoena to Kramerbooks & Afterwords Inc., 26 Media L. Rep. at 1599 (D. D.C. 1998).

Following a motion to quash filed by the bookstore, the court agreed the First Amendment was implicated by the nature of expressive materials, including book titles, sought by the warrant. Ms. Lewinsky’s First Amendment rights were affected, as were those of the book seller, whom the court acknowledged was engaged in “constitutionally protected expressive activities.” Content that may indicate an expression of views protected by free speech doctrine may be protected from discovery due to the nature of the content. Government investigation of one’s consumption and reading habits is likely to have a chilling effect on First Amendment rights. See U.S. v. Rumely, 345 U.S. 41, 57-58 (1953) (Douglas, J., concurring); see also Video Privacy Protection Act of 1988, 18 U.S.C. § 2710 (2002) (protecting consumer records concerning videos and similar audio-visual material).

Amazon relied on the Lewinsky case, among others, contending that discovery of expressive content implicating free speech laws must be subject to a heightened standard of court scrutiny. This heightened standard requires a discovering party (such as law enforcement) to show that the state has a “compelling need” for the information sought (including that it is not available from other sources) and a “sufficient nexus” between the information sought and the subject of the investigation.

The first objection raised by Amazon did not involve Alexa’s “right to free speech,” but instead concerned the nature of the “expressive content” sought by the Echo user and Amazon’s search results in response to the user’s requests. The murder investigation in question, coupled with the limited scope of the request to a 48-hour window, may present a compelling need and sufficient nexus that withstands judicial scrutiny.

However, Amazon raised a second argument that Alexa’s responses constitute an extension of Amazon’s own speech protected under the First Amendment. Again, the argument is supported by legal precedent.

In Search King, Inc. v. Google Tech., Inc., an Oklahoma federal court held that Google’s search results were constitutionally protected opinion. 2003 WL 21464568 (W.D. Okla. 2003). More recently, a New York federal court determined that Baidu’s alleged decision to block search results containing articles and other expressive material supportive of democracy in China was protected by the First Amendment. Jian Zhang v. Baidu.com, Inc., 10 F.Supp.3d 433 (S.D.N.Y. 2014). Accordingly, no action could lie for injunctive or other relief arising from Baidu’s constitutionally protected decisions.

The court considered search results an extension of Baidu’s editorial control, similar to that of a newspaper editor, and found that Baidu had a constitutionally protected right to display, or to consciously not display, content. The court also analogized to a guidebook writer’s judgment about which attractions to feature or a political website aggregator’s decision about which stories to link to and how prominently to feature them.

One unique issue that arises in the context of increasingly “intelligent” computer searches is the extent to which results are not specifically chosen by humans, but instead returned according to computer algorithms. In Baidu, the court was persuaded by the fact that the algorithms are written by humans and thus “inherently incorporate the search engine company engineers’ judgments about what materials” to return for the best results. By its nature, such content-based editorializing is subject to full First Amendment protection because a speaker is entitled to autonomy to choose the content of his message. In other words, to the extent a search engine might be considered a “mere conduit” of speech, First Amendment protection might be less (potentially subject to intermediate scrutiny), but when the search results are selected or excluded because of the content, the search engine, as the speaker, enjoys the greatest protection.

Search results arising from computer algorithms that power search engines and digital assistants may currently be considered an extension of the respective companies’ own speech (through the engineers they employ). Current digital assistants are examples of “weak artificial intelligence.” Thornier legal questions will arise as the artificial intelligence in digital assistants gets smarter. The highest extreme of so-called “strong” artificial intelligence might operate autonomously and be capable of learning (and responding) without direct human input. The First Amendment rights of such systems will no doubt be debated as the technology matures.

Voice Data and Predictive Models

Digital assistants have the potential to gather massive amounts of data about users. Current voice data analytic tools can capture not only the text of human speech, but also the digital fingerprint of a speaker’s tone, intensity, and intent. Many predictive models rely extensively on lagging indicators of consumption, such as purchases made. Voice data might be able to provide companies with leading indicators, such as information about the user’s state of mind and triggering events that may result in the desired interactions with a company.

Incorporating voice data into current predictive models has the potential to make them vastly more accurate and specific. A digital assistant might record and transmit the message “Pat is going to the hospital for the last time.” Based on only text of the message, an algorithm might predict that a tragic event is about to take place. But with a recording, analysis of the voice’s pitch, intensity, amplitude, and tone could produce data that indicates that the speaker is very happy. Adding such data into the predictive model, might result in the user beginning to see ads for romantic tropical vacations, instead of books about coping with grief.

User interactions with digital assistants will also give rise to new predictive models. Before going to sleep, a user might ask a digital assistant to play relaxing music, lower the temperature of the home, and turn off certain lights. With a new predictive model, when the user asks the digital assistant to play relaxing music at night, the digital assistant might recognize the user’s “going to sleep sequence,” and proceed to lower the temperature of the home and turn off lights automatically.

In addition to the richness of data in a single voice recording, predictive models based on voice interactions with digital assistants are potentially more robust because digital assistants are always “listening.” This “listening” largely takes the form of recording the voice interactions between the user and the digital assistant. Terms of service of the most popular digital assistants typically do not indicate the precise moment when recording starts. Some voice-controlled products have been marketed with an increased focus on privacy concerns. Apple’s forthcoming HomePod speaker, for instance, is said to be designed so that no voice data is transmitted from the device until the “wake word” is spoken.

A digital assistant may begin recording and analyzing voice data even when it is not specifically “turned on” by the user. This makes the potential data set about the user much larger, which results in a more robust predictive model. If the digital assistant is always “listening,” its owners’ statement, “I’m going to take a nap,” could trigger the “going to sleep sequence” described above. If voice recordings are used in conjunction with current predictive models, a user’s statement, “we’re expecting a child,” could be used as a very powerful leading indicator of specific future purchases.

Legal analysis in this growing field should distinguish voice-data recordings (and data derived from these recordings) from the text of these recordings. The current legal framework applicable to voice recordings captured by digital assistants and their use in predictive models is very limited. California has enacted a statute governing certain uses of voice recordings collected from connected televisions. See CA Bus. & Prof. Code §22948.20. However, the states generally have not regulated the use of voice recordings from digital assistants, and have permitted use of voice data in various predictive models with relatively little restriction.

Each digital assistant has terms of service and privacy policies that their parent companies promulgate (and change from time to time). Users, therefore, should know that voice recordings are captured by digital assistants with their consent. The terms of service for some digital assistants specifically note that voice recordings may be used to improve the digital assistant itself and may be shared with third parties. Thus, voice data is likely to be used in predictive models.

Call centers have been using real-time voice-data analytics systems. Interestingly, as part of these technology packages, certain voice-data analytics systems can detect and scrub personally identifiable information from voice recordings. Digital assistants may use similar technologies to avoid recording and storing regulated content (e.g., health information, financial information, etc.) to avoid becoming subject to privacy regulations. Doing so may expose those recordings for use in various predictive models.

Even if digital assistants only record interactions between the user and the device, the richness of voice data means that predictive models may become finely tuned to each individual user. Every interaction with a digital assistant may help build a unique user profile based on predictive modeling.

As discussed in this article, certain elements of a user’s interaction with the digital assistant may include “expressive content,” and both the user and the digital assistant may have constitutional protections. If a digital assistant develops a rich user profile based on both “expressive content,” and data from other sources, how much of that profile still enjoys constitutional protections? As individuals sacrifice privacy for convenience offered by digital assistants, will their profile will become more akin to a private journal? As the technologies develop, what rights can the individual be said to have given up to the discretionary use of the service provider and third parties?

Voice Data and the Internet of Things

Digital assistants are not the only voice-controlled devices available to consumers. What about voice-controlled devices that may seem innocuous, or might not even be used by the actual purchaser, like an Internet-connected children’s toy? Unsurprisingly, there have already been a few well-publicized data security incidents involving voice data from these types of products. Although the products may be relatively niche at present, the issues raised are not and underscore broader risks associated with the use and collection of consumer-voice data.

One security incident involved a line of Internet-connected stuffed-animal toys. The toys had the ability to record and send voice messages between parents (or other adults) and children through a phone-based app. Voice data from both parents and children was collected and stored on a hosted service. Unfortunately for users, the voice-recording database was publicly accessible and not password protected. Over two million voice recordings were exposed. Worse still, third parties gained unauthorized access to the voice data and leveraged it for ransom demands. Over 800,000 user account records were compromised.

Another recent incident involved a doll offering interactive “conversations” with users. Voice data was transferred to a third-party data processor, who reserved the right to share data with additional third parties. When this toy was paired with an accompanying smartphone app, voice data could be accessed even without physical access to the toy. Security researchers discovered paths to use an unsecured Bluetooth device embedded in the toy to listen to—and speak with—the user through the doll.

Concerns over this doll and other similar products have triggered responses from European governmental agencies. For example, in December 2016, the Norwegian Consumer Council published a white paper analyzing the end-user terms and technical security features of several voice-controlled toys. Forbrukerrådet, #Toyfail: An analysis of consumer and privacy issues in three internet-connected toys (Dec. 2016). Complaints have also been filed with privacy watchdog agencies in several European Union member states, including France, the Netherlands, Belgium, and Ireland. Some complain that voice data is collected and processed by third parties in non-EU states, like the United States, who are not subject to EU privacy and use regulations. Third parties include voice-data processors who also perform voice-matching services for law-enforcement agencies.

More recently, German regulators announced that the sale or ownership of one such toy was illegal under German privacy laws after the toy was classified as a “hidden espionage device.” Although German regulators are not pursuing penalties against owners, they have instructed parents to physically destroy the toy’s recording capabilities. This unusual step may ultimately signal increased regulation of voice controlled consumer products under German law.

Complaints regarding similar products have also been filed in the United States with the Federal Trade Commission and other bodies. Privacy groups have questioned whether these devices comply with the consent requirements of the Children’s Online Privacy Protection Act (COPPA) and its associated rules and regulations. COPPA applies to operators of online sites and services involved in collecting personal information from children under 13 years of age and provides additional protections that may be applicable to voice-controlled toys.

Aside from COPPA, given the lack of comprehensive legislation or regulation at the federal level, there remains a patchwork of state and federal laws that may regulate voice-controlled products. One bill that covers voice data (as part of a broad class of personal information) has passed the Illinois State Senate and is now pending in the Illinois State House. The Right to Know Act, HB 2774, would require operators of websites and online services that collect personally identifiable information to: (i) notify customers of certain information regarding the operators’ sharing of personal information, including the types of personal information that may be shared and all categories of third-parties to whom such information may be disclosed; (ii) upon disclosure to a third-party, notify consumers of the categories of personal information that has been shared and the names of all third parties that received the information; and (iii) provide an email or toll-free phone number for consumers to access that information. Importantly, the current draft of the Illinois Right to Know Act also creates a private right of action against operators who violate the act. Whether this bill or similar laws will be enacted remains an open question.

Conclusion

Data collected by voice-controlled digital assistants and other connected devices presents a variety of unresolved legal issues. As voice-controlled features continue to develop, so too will litigation, regulation, and legislation that attempt to balance the rights of users, service providers, and perhaps even the underlying technology itself. The issues presented in this article are deeply interrelated. When even one of the associated legal questions is settled, other issues in this emerging field could quickly follow suit, but new issues will likely emerge.

On June 5, 2017, in Kokesh v. SEC, the Supreme Court held that disgorgement by the Securities and Exchange Commission (SEC) is subject to the five-year limitations period of 18 U.S.C. § 2462, severely restricting the commission’s ability to force companies to disgorge profits prior to five years before an action is brought. The decision could also impact attempts by the Department of Justice (DOJ) to force companies to disgorge profits from allegedly illegal conduct.

In Kokesh, the court considered the SEC’s efforts to disgorge $34.9 million from defendant Charles Kokesh, $29.9 million of which resulted from violations before the five-year limit imposed by Section 2462. Kokesh, 581 U.S. —, 2017 WL 2407471, at *4 (2017). Disgorgement of profits has been a typical remedy sought by the SEC—in addition to civil or criminal fines sought by DOJ—when prosecuting cases, including for alleged violations of the law such as the Foreign Corrupt Practices Act (FCPA). Kokesh, who ran two investment firms that siphoned off money from investors, argued that Section 2462 limited the SEC’s disgorgement request. Section 2462 bars “an action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise” that is not “commenced within five years from the date when the claim first accrued.” The SEC countered to the district court and the Tenth Circuit that, as an equitable remedy, disgorgement did not fall under Section 2462. Both courts agreed with the SEC that disgorgement of profits was not a penalty. The Tenth Circuit went further, holding that disgorgement was also not a forfeiture.

Prior to Kokesh, application of Section 2462 to civil disgorgement actions varied by circuit. The First Circuit (SEC v. Tambone, 550 F.3d 106, 148 (1st Cir. 2008)) and the D.C. Circuit (Riordan v. SEC, 627 F.3d 1230, 1234 (D.C. Cir. 2010)) held that Section 2462 applies only to penalties sought by the SEC, not to disgorgement. In 2016, prior to the Tenth Circuit’s Kokesh decision, the Eleventh Circuit disagreed with the First Circuit and D.C. Circuit and found that Section 2462 applies to disgorgement, which created a circuit split. SEC v. Graham, 823 F.3d 1357, 1363-64 (11th Cir. 2016). Despite acknowledging the Eleventh Circuit’s decision, the Tenth Circuit nevertheless departed from the Eleventh Circuit’s reasoning in holding that Section 2462 did not apply to SEC disgorgement. With its Kokesh decision, the Supreme Court resolved the split.

In an unanimous opinion penned by Justice Sotomayor, the Supreme Court held that the SEC’s disgorgements amount to a penalty and are subject to Section 2462. In so holding, the court looked to two factors: (1) whether the “‘wrong sought to be redressed is a wrong to the public, or a wrong to the individual’” and (2) whether the sanction is sought “‘for the purpose of punishment, and to deter others from offending in like manner’—as opposed to compensating a victim for his loss.” Kokesh, 2017 WL 2407471, at *5 (quoting Huntington v. Attrill, 146 U.S. 657, 667-68 (1892)).

The Supreme Court held that the SEC’s disgorgement sanction qualified as a penalty under both factors. The court observed that the SEC imposed disgorgement as “a consequence for violating what [the Court] described … as public laws”—meaning that the money collected goes to the U.S. Treasury rather than to victims as a restitution payment might. As the court pointed out, violations of the securities laws—for which the SEC seeks disgorgement—are committed “against the United States rather than an aggrieved individual.” The court further found that under the second prong—the purpose of the sanction—disgorgement can be punitive in nature. The court rejected the SEC’s argument that disgorgement puts defendants into the same position they would have been absent violations and therefore is only remedial, rather than punitive. The court observed that in many cases “disgorgement does not simply restore the status quo; it leaves the defendant worse off” because SEC disgorgement is at times ordered without consideration of expenses that may reduce the illegal profit.

Although Kokesh answers only the narrow question of whether SEC disgorgement is subject to Section 2462’s five-year limitation, the ripples of the decision may be felt more broadly, particularly with respect to the DOJ’s FCPA Pilot Program. The DOJ traditionally has not pursued disgorgement against companies, leaving that remedy to the SEC. See Daniel Patrick Wendt, “So how does the DOJ calculate disgorgement?” FCPA Blog, (Nov. 30, 2016), available at http://www.fcpablog.com/blog/2016/11/30/daniel-patrick-wendt-so-how-does-the-doj-calculate-disgorgem.html (last visited June 12, 2017) (Noting that in “nearly 40 years of FCPA history,” the DOJ began using disgorgement only in 2016). If the SEC was not involved, DOJ historically would have sought either just criminal fines, or restitution to victims, plus forfeiture. In 2016, however, the DOJ announced a new policy (called the Pilot Program) designed to encourage companies to self report potential violations of the law by offering to reduce penalties for such self-disclosed violations, and by threatening to punish companies that are aware of conduct but do not self-report. A requirement of participating in the Pilot Program is for companies to “disgorge all profits resulting from the FCPA violation.” U.S. Dept. of Justice, Criminal Division, “The Fraud Section’s Foreign Corrupt Practices Act Enforcement Plan and Guidance,” (Apr. 5, 2016), available at https://www.justice.gov/archives/opa/blog-entry/file/838386/download (last visited June 12, 2017). In 2016, DOJ required civil disgorgement from two privately-held companies as conditions to its declinations to prosecute the company criminally. As noted, disgorgement of profits would have been unusual for DOJ historically, but probably occurred here because of the statement about disgorgement in the Pilot Program and the lack of involvement by the SEC in those matters. See HMT LLC, Declination Letter, Sept. 29, 2016, available at https://www.justice.gov/criminal-fraud/file/899116/download (last visited June 12, 2017); NCH Corp., Declination Letter, Sept. 29, 2016, available at https://www.justice.gov/criminal-fraud/file/899121/download (last visited June 12, 2017).

In light of the Supreme Court’s determination that SEC disgorgement is a “penalty,” Section 2462 would on its face also limit any civil disgorgement—even if sought by the DOJ—on the same theory that it constitutes a punishment.

A footnote in Kokesh suggests that the practice of disgorgement could itself be in jeopardy. The court noted that “[n]othing in this opinion should be interpreted as an opinion on whether courts possess authority to order disgorgement in SEC enforcement proceedings or on whether courts have properly applied disgorgement principles in this context.” Kokesh, 2017 WL 2407471, at *5 n.3. The court may be inviting a case challenging the entire practice of SEC disgorgement. Combined with two other decisions this term, Nelson v. Colorado and Honeycutt v. United States, which limited state and federal forfeiture, the court has shown a skepticism for such powerful—and often less regulated—government penalties. See Honeycutt v. United States, 581 U.S. —, 2017 WL 2407468, at *5-6 (2017) (Comprehensive Forfeiture Act does not permit joint and several liability for forfeiture of proceeds of crime); Nelson v. Colorado, 581 U.S. —, 137 S. Ct. 1249, 1257 (2017) (state could not require defendant whose criminal conviction is overturned or who is on retrial acquitted of crime to prove innocence in proceeding for return of assets seized pursuant to the wrongful conviction).

It is also interesting to consider where else this decision could lead. For example, a few years ago the court held in Southern Union Co. v. United States that a jury must “find beyond a reasonable doubt facts that determine [a criminal] fine’s maximum amount” to comply with the Sixth Amendment. 567 U.S. 343, 132 S. Ct. 2344, 2351 (2012). Typically sentencing had been handled entirely by the judge, not a jury, and with a lower standard of proof than “proof beyond a reasonable doubt,” which is what is required for the government to obtain a criminal conviction of an individual or company. The application of the Southern Union standard to fines or disgorgement paid by corporations in DOJ and SEC investigations could severely limit the government’s power, considering how difficult it could be for the prosecutors to prove its damage theories to a jury in the context of a corporate malfeasance case.

What This Means For You

This decision continues a trend by the Supreme Court limiting the government’s expansive reading of statutes and the imposition of heavy fines in corporate investigations. By limiting the period during which the SEC can seek disgorgement of illegally obtained profits, Kokesh could put pressure on both the SEC and the DOJ to expedite their investigations (or to seek tolling agreements to extend statutes of limitations earlier in investigations). It should be noted, though, that nothing in this decision would seem to limit the DOJ’s authority to seek heavy criminal fines from corporations, even for conduct that is more than five years old. That is because of conspiracy charges. The law of conspiracy provides that the statute of limitations is based on the last act of a conspiracy. In other words, the criminal law of conspiracy would allow the government to seek damages for the full scope of a conspiracy even if older than five years so long as some act in furtherance of the conspiracy had occurred within the last five years.

Still, the Supreme Court has handed us another effective tool in representing our clients aggressively in investigations brought by one or both government agencies.

Prologue—Choice of Law

When a litigator argues for a particular choice of law, the litigator seeks retrospectively the law most favorable to a particular claim or claims. When a business lawyer chooses a state of formation for a business entity, the lawyer seeks prospectively the governing law whose characteristics most favor the client’s interests.

Although in particular situations one characteristic may dominate, in general the business lawyer should look for governing law that is clear, comprehensive, coherent, accessible, and stable (or at least predictable). With these five metrics in mind, this column explains why lawyers forming limited liability companies should not dabble in Delaware.

The Preeminence of the Delaware Law of LLCs

Although Wyoming, not Delaware, pioneered the modern limited liability company, Delaware has long since overcome that embarrassing origins story. Most experienced LLC practitioners consider the Delaware Limited Liability Company Act (Delaware Act or Act) to be the statute of choice for sophisticated ventures organized as LLCs, and in many deals involving entrepreneurs or investors from more than one state, the lawyers routinely “default” to using the Delaware Act rather than the LLC statute of any of the states actually involved in the deal.

According to Bishop & Kleinberger, Limited Liability Companies ¶ 14.01[2], “Delaware law seems to exert an almost gravitational pull on attorneys.” For example, at the ABA Section of Business Law’s 2016 LLC Institute, the discussion of recent case developments allocated approximately equal time to Delaware case law and to case law from the other 49 states, the District of Columbia, and U.S. territories.

The Delaware Act

The Delaware Act is a complex, sophisticated, and eminently flexible statute that exalts freedom of contract even to the point of permitting an operating agreement to eliminate some or all fiduciary duties. However, the Act’s attractiveness has little to do with its inherent qualities. To the contrary, the Act’s drafting style is arcane, with substantive requirements embedded in definitions, sentences in which length seems a virtue, and provisions that overlap and intertwine so as to require substantial efforts of deconstruction. For example, section 18-101(7) of the Act’s definition of “limited liability company agreement” comprises 411 words, and in the Act’s provisions on protected series, subsection 18-215(b) comprises 577 words.

As Delaware’s own Supreme Court has written in Atochem N. Am., Inc. v. Jaffari, 727 A.2d 286, 291 (Del. 1999), “To understand the overall structure and thrust of the Act, one must wade through provisions that are prolix, sometimes oddly organized, and do not always flow evenly.” In sum, the Delaware Act lacks clarity, coherence, and ease of access.

As for comprehensiveness, the Delaware Act has only a skeletal set of default rules, unlike the Uniform Limited Liability Company Act (2006) (Last Amended 2013) (ULLCA) and the LLC statutes of most nonuniform states. As for stability, Delaware amends the Act every year. Sometimes the changes are inconsequential; sometimes they are fundamental. Moreover, Delaware eschews the normal “strike and underline” method for showing statutory changes and uses instead an antiquated method requiring decryption. The result is more symbolic than substantive, but consider for example section 9 of 2007 Del. Laws, chapter 105:

Amend § 18-201(d), Chapter 18, Title 6 of the Delaware Code by deleting the word “may” in the first place where such word appears therein and substituting in lieu thereof the word “shall”, by inserting the words “or otherwise existing” immediately after both appearances of the words “entered into”, and by inserting the words “or reflected by” immediately after the words “as provided in”.

As for substance, many other states have statutes offering comparable flexibility and an essentially equal commitment to enforcing agreements made by LLC members. The Delaware Act does stand out by authorizing an operating agreement to eliminate all fiduciary duties, but the LLC acts of several other states do so as well. Moreover, in Leo E. Strine Jr. & J. Travis Laster, “The Siren Song of Unlimited Contractual Freedom,” Research Handbook on Partnerships, LLCs and Alternative Forms of Business Organizations (Robert W. Hillman and Mark J. Loewenstein, eds.), two of Delaware’s leading jurists have criticized that approach as resting on false premises and being otherwise misguided. In any event, even under a Delaware operating agreement that successfully waives all fiduciary duties, the implied contractual covenant of good faith and fair dealing remains in place to constrain unduly opportunistic behavior. See “In the World of Alternative Entities What Does ‘Good Faith’ Mean?” and “Delineating the Implied Covenant and Providing for ‘Good Faith’”.

The Inherent Quality of the Delaware Judiciary

Why, then, do many non-Delaware practitioners choose Delaware when forming LLCs? The answer lies in the reputation of the Delaware judiciary. The Delaware Court of Chancery has jurisdiction over claims relating to the internal affairs of a Delaware LLC, and that court is the preeminent business court in the United States. It is comfortable with business disputes and is capable of handling esoteric and even arcane issues of law. The Delaware Supreme Court is likewise comfortable and capable; many of its judges have served previously in the Court of Chancery.

Both the Court of Chancery and the Delaware Supreme Court accept and adhere to the policy of the Delaware Act “to give maximum effect to the principle of freedom of contract and to the enforceability of limited liability company agreements” under section 18-1101(b). Indeed, Delaware courts are conservative about contracts in general. They lean away from modernist notions that all agreements are necessarily indeterminate and toward the old-fashioned approach that a contract is a contract and that a court is not a proper forum for salving the pain of “buyer’s remorse.”

But Delaware case law has its disadvantages. First, keeping pace is almost a full-time job. As a court of equity, the Court of Chancery often ladens its decisions with voluminous statements of facts. Fifty-page decisions are not unusual, and some decisions can be understood only in the context of previous decisions in the same case. For example in Renco Grp., Inc. v. MacAndrews AMG Holdings LLC, No. CV 7668-VCN, 2015 WL 394011, at *1, n.1 (Del. Ch. Jan. 29, 2015), the court states that it “focuses on the facts related to the specific disputes in the pending motion and assumes general familiarity based on related proceedings.” For that familiarity, the court refers to two of its earlier decisions in the same matter.

Second, a “Delaware LLC lawyer” must stay up to date on more than just LLC law; Delaware LLC and limited partnership law are reciprocally precedential. Knowledge of Delaware contract law is also essential. For example, B.M. Gottesman & S.E. Swenson state in “More Than Bargained For? Topics for Consideration in the Issuance and Acceptance of Delaware LLC Opinions,” 81 N.Y. St. B.J. 20, 22 (2009), that when an attorney is asked for a formal legal opinion pertaining to a Delaware limited liability company, “[i]t is . . . the responsibility of the opinion-giver to navigate Delaware common law [especially contract law] prior to rendering a Delaware LLC opinion, and to keep abreast of its shifting landscape.”

Third, sometimes a “Delaware LLC lawyer” must take into account Delaware corporate law. On more than one occasion, the Court of Chancery has applied that law to resolve a dispute among members of a Delaware LLC. For example in Bay Ctr. Apartments Owner, LLC v. Emery Bay PKI, LLC, No. CIV. A. 3658-VCS, 2009 WL 1124451, at *8 (Del. Ch. Apr. 20, 2009), the court noted that “[t]he LLC cases have generally, in the absence of provisions in the LLC agreement explicitly disclaiming the applicability of default principles of fiduciary duty, treated LLC members as owing each other the traditional fiduciary duties that directors owe a corporation.” Similarly, in a case in which an LLC member sought judicial dissolution, Haley v. Talcott, 864 A.2d 86, 96–97 (Del. Ch. 2004), the court gave pivotal importance to 8 Del. C. § 273, a corporate statute addressing dissolution of a joint venture corporation having two stockholders.

Moreover, Delaware corporate law can be inordinately complicated. For example, for many years “new standards of [judicial] review [of director conduct] proliferated when a smaller number of functionally-thought-out standards would have provided a more coherent analytical framework,” according to William T. Allen, Jack B. Jacobs & Leo E. Strine, Jr., Function over Form: A Reassessment of Standards of Review in Delaware Corporation Law, 56 Bus. Law. 1287, 1292 (2001).

Fourth, Delaware entity law is not especially stable. For example, Smith v. Van Gorkom, 488 A.2d 858, 864 (Del. 1985), shocked the corporate bar and led to prompt corrective action—i.e., exculpation statutes adopted in Delaware and around the country. For unincorporated business organizations, Gotham Partners, LP v. Hallwood Realty Partners, LP, 817 A.2d 160, 167–68 (Del. 2002) provides a similar example. In Gotham Partner, the Delaware Supreme Court criticized dicta in Court of Chancery opinions, indulged in its own dicta, and stated that a limited partnership agreement could restrict but not eliminate fiduciary duty. This dicta, equally applicable to limited liability companies, prompted another legislative correction: 2004 Del. Laws, ch. 275 (HB 411), §§ 13, 14 (expressly stating that an LLC operating agreement may eliminate fiduciary duties); 2004 Del. Laws, ch. 265 (SB 273), §§ 15 and 16, and ch. 266 (SB 274), §§ 3 and 4 (same as to limited partnership agreements and general partnership agreements). The most recent example comprises Gatz Properties, LLC v. Auriga Capital Corp., 59 A.3d 1206 (Del. 2012) and 2013 Del. Laws, ch. 74, § 8. The case called into question whether fiduciary duties even exist in a limited liability company; the statutory, albeit obliquely, that in the default mode, LLC law includes “rules of law and equity relating to fiduciary duties.”

A Report Card and an Explanation

Thus, Delaware LLC law does not fare well under the five metrics set forth at the beginning of this column (clarity, comprehensiveness, coherence, accessibility, and stability). Yet Delaware remains fundamentally important to the law and practice of limited liability companies, and in countless sophisticated circumstances, a Delaware LLC is the most effective and practicable vehicle available.

This situation is no conundrum. For the cognoscenti, the drawbacks in the Delaware law are immaterial. For a lawyer whose practice centers on Delaware LLCs, assiduous study and continuous attention dissipate the drawbacks of the Delaware Act. The Delaware case law is indeed lengthy and plentiful almost to the extent of being fulsome, but the decisions: (i) address issues of great importance that often require sophisticated analysis and subtlety; and (ii) are authored by carefully vetted jurists for whom concepts like ROI, waterfall distributions, dilution, and marginal cost hold no mysteries. For transactional lawyers focused on Delaware LLCs, the weekly “assigned reading” has a more than acceptable “average cost.”

But for any dabbler in these mysteries, the average cost is insupportable, and the resulting risks are substantial. Therefore, don’t dabble in Delaware.

With parents who immigrated from Cuba to the United States, Brigida Benitez grew up immersed in two cultures. That upbringing influenced her career path, giving it an international flavor. A partner at Steptoe & Johnson, Benitez focuses on complex litigation, global anti-corruption matters, and internal investigations. She’s also served as Chief of the Office of Institutional Integrity of the Inter-American Development Bank, which provides development financing for Latin America and the Caribbean. She served as president of the D.C. Bar, the second largest unified bar in the country. The highlight of her career—so far—was representing the University of Michigan for six years in the case that led to a victory for diversity in higher education before the U.S. Supreme Court.

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Tell us about your upbringing. I read your parents immigrated from Cuba.

My parents immigrated from Cuba and came to the United States pursuing the American dream. I grew up in a working-class community just north of Miami and many of my friends and peers had similar backgrounds. My parents did not have much formal education. My father started working at age 12 to support his family. But they instilled in my brother and me a strong work ethic and a belief that hard work and education were the keys to success.

Did you grow up speaking Spanish and English? And my follow-up question, did your immersion in two cultures influence your decision to have a global practice?

I grew up speaking only Spanish at home, and I learned English when I started kindergarten in public school. I’ve been immersed in two cultures my entire life. I’m sure that at some level that influenced some of my choices along the way. My Spanish fluency and my background led to opportunities early on, such as my work in Latin America. That certainly had an effect on my career path.

One of your specialties is internal investigation, including investigations in front of enforcement agencies. What skills are required for this, and how are they the same or different from being a lawyer?

I started my career as a litigator, which I still am. About 20 years ago, I also started doing internal corporate investigations when that emerged as a practice. Conducting an investigation as a lawyer requires that you look at a problem strategically and figure out the best approach and solution for the client. It’s critical to have good judgment and strong communication skills and to be able to connect with people and to build trust.

Ultimately, as with anything that one does as a lawyer, it’s about finding the optimal solution for the client. So the skills that make one a successful litigator and investigator are those that make you a good lawyer.

You also focus on complex litigation and global anticorruption matters. What is involved in a global anticorruption practice?

I counsel multinational companies on anticorruption issues, such as the Foreign Corrupt Practices Act, anti-money laundering, ethics and violations of codes of conduct, and sanctions laws, including OFAC and the sanctions procedures of the World Bank and other leading international financial institutions. I help these companies with the development and implementation of policies, procedures, and training on all of these issues. Then I advise them if anything serious comes up in these areas. Sometimes it means there’s a question or issue that has arisen about a certain law or policy. Other times there’s a significant problem that requires an internal investigation, for example, and maybe potentially disclosing to and negotiating with a regulator such as the Department of Justice or the Securities and Exchange Commission.

Is your practice exclusively U.S. based?

I know some about the anti-corruption laws, for example, that have been passed recently in a number of countries around the world. But ultimately, my specialty is U.S. law and advising companies that have exposure under U.S. law, and that may be U.S. companies who are doing business in other parts of the world. But it could just as easily be what we think of as non-U.S. companies that, because they’re listed on the exchanges here or they do a lot of business in the U.S., have exposure under U.S. laws.

You were part of a team in the landmark case, Grutter vs. Bollinger, in which the affirmative action admissions policy of University of Michigan was upheld by the U.S. Supreme Court. Can you describe the experience for us and how you were involved and just having that win?

The University of Michigan case has really been one of the highlights of my career, and an experience that I will cherish my entire life. I represented the university for six years from the filing of the complaint to a very successful resolution before the U.S. Supreme Court. As a litigator, it is such a rare experience to work on a case through all of the possible stages of a litigation from the beginning all the way through a Supreme Court resolution, which is rare in and of itself.

This was a case in which we had to be very creative from the outset and think long-term and strategically about building a defense that no one had crafted before. It was truly an incredible professional experience, a great team effort. I worked closely with the late John Payton, who was a terrific civil rights lawyer and became a great friend and mentor. On a personal level, given my own background, it was also very meaningful to achieve a victory for diversity in higher education.

And no one thought the Supreme Court would decide the way it did?

That’s correct. The issue had not come before the Supreme Court for 25 years and given the climate at the time, in the wake of the Hopwood case out of the Fifth Circuit, few were optimistic that the court would rule in our favor.

You’ve also had an interesting experience as Chief of the Office of Institutional Integrity of the Inter-American Development Bank. What does this entity do and what did you set out to achieve?

The Inter-American Development Bank is a multilateral development bank. It’s a leading source of financing for development throughout Latin America and the Caribbean. It functions in a manner similar to the World Bank, except its focus is on Latin America. I headed the office that was responsible for investigating potential fraud and corruption in any project financed by the bank, as well as implementing compliance policies and procedures relating to anti-corruption, anti-money laundering, sanctions laws, and the like.

I was a member of the senior management team and reported to the president of the bank and the audit committee of the board of executive directors. My work encompassed 26 countries in Latin America and the Caribbean. It was a very challenging yet rewarding experience.

Former Attorney General Richard Thornburgh had made a number of recommendations, including that the head of the Office of Institutional Integrity be elevated to a senior management position. At that time, the bank was trying to figure out how to build that office. That’s why I was recruited and ultimately hired. One of the things I did was implement policies relating to anti-corruption and anti-money laundering laws. For example, one policy concerned the use of offshore financial centers and how to tell where there are red flags in the use of off-shore financial centers. Another one was having a policy relating to the sanctions laws and regulations administered by the Office of Foreign Assets Control. There was a lot of opportunity to implement policy in the office.

You’re an adjunct professor at Georgetown University Law Center where you teach a course on International Business Litigation and Federal Practice. What do you enjoy about teaching?

One of the things I enjoy most is interacting and getting to know the students. I find that the students are eager to learn, always in need of mentoring, and it’s just fun to get to know them.

Also, because of the class I teach, I end up having a number of JD students as well as LLM students from around the world, some of whom already have practiced law. So it leads to very interesting discussions about how law is practiced elsewhere.

Can you give an example?

We get a lot of non-U.S. plaintiffs who come to the U.S. because of the availability of certain types of damages, of potentially larger verdicts, and broad discovery that’s simply not available in other countries. If you’re litigating a matter in France, for example, you’re not going to have the access to discovery that you do in the context of U.S. litigation. It’s always interesting to have those discussions with students who come from these other countries where the practice is very different.

You served as past president of the D.C. Bar. What are you most proud of accomplishing in that position?

I’m very proud to have been able to have served in that position. For me, it was a great honor to be able to lead the D.C. Bar, which is a fantastic organization. It’s the second largest mandatory bar in the country, with more than 100,000 members worldwide. I was very honored to have been elected and to have served in that position.

With team effort, we accomplished a great deal during my tenure. We bought a building, for example, that is being built and will be ready in January. It will be the new headquarters for the D.C. Bar and will be not only the first building that the Bar owns, but will ultimately save members millions of dollars over the course of the next 20 years. It’s going to offer technological resources, meeting spaces, and all of the advantages that an organization like the D.C. Bar can provide to its members. We also accomplished a number of other things, including developing and implementing a five-year strategic plan that sought unprecedented input from the membership to determine the D.C. Bar’s course moving forward. I also appointed a global legal practice task force to study and make recommendations on some of these issues and how the D.C. Bar can continue to be on the cutting edge in that area.

You’ve won many awards. Is there one that stands out for you or most meaningful?

I’ve been very fortunate to have been recognized during the course of my career and very proud of that. I would say that one award that stands out goes back to my work on the University of Michigan case. The first award that I won in connection with that case came from MALDEF, the Mexican-American Legal Defense and Education Fund.

For me, the fact that a national civil rights organization such as MALDEF that’s so well-known and well-respected presented me with its Excellence in the Legal Profession Award for the work that I had done in the University of Michigan case is something that I’m very proud of.

I’m wondering if you have any suggestions to law schools or law firms on how to promote diversity.

It’s a difficult issue and unfortunately, while there have been many efforts made, I think that there’s still much work to be done in the area of diversity, both in law schools and certainly in the legal profession. I would say that initiative, grit, and resilience can be more important than top grades from a top law school. It is essential to look at these attributes and to consider the potential of individuals to become great lawyers.

What advice would you give to a new attorney who’s just starting out?

The first thing I would say is welcome to the profession. It’s a great profession. There’s a lot of opportunity and a lot of potential to do many great things. It is first and foremost a service profession, and so I would encourage them to keep that in mind as they move forward; it’s whether you’re servicing your clients or giving back to the profession or doing pro bono work and serving those in need, I think that’s an important principle of our profession and a commitment for all of us to observe.

I would also say, be proactive about your career. It’s tempting when you get a job, whether it’s at a law firm or in-house corporate department, to just put your head down and do good work and, of course, that’s important. But it’s also essential for your professional development to look up, to connect with other lawyers, to network, to get involved in bar associations, to get involved with issues that you care about, because you learn of opportunities, you figure out what you want to do, you can contribute to the profession, and you have a more exciting and fulfilling career.

What has been the value of the ABA to you?

The ABA offers an amazing network of lawyers in diverse practice areas throughout the world. And for me, it’s been valuable to be able to be part of that network and connect with other lawyers. That’s really one of the key values of the ABA.

What do you like to do for fun?

I love to run. I discovered running about 10 years ago, and now I’m hooked. I regularly run races. I’ve run everything from 5Ks to marathons throughout the U.S. and even internationally. I find it to be a good stress relief and it keeps me balanced. I also enjoy travelling and spending time with my family and friends.

Thank you so much for your time!

“Pro Bono Publico” is a Latin phrase meaning “for the good of the public.” The phrase has come to refer to something done or donated without charge, especially with respect to legal representation.

Every year the nation celebrates National Pro Bono Week. Pro Bono Week was started over eight years ago by the Standing Committee on Pro Bono of the American Bar Association as “a coordinated national effort, to meet the ever-growing needs of this country’s most vulnerable citizens by encouraging and supporting local efforts to expand the delivery of pro bono legal services and by showcasing the great difference that pro bono lawyers make to the nation, its system of justice, its communities and, most of all, to the clients they serve.”

Pro Bono Week events take place all over the country, and even overseas. Pro Bono Net, a national nonprofit, has an interactive map that highlights everything happening around the world at www.probono.net. Of course, the need for pro bono legal assistance, and the opportunity to provide pro bono services, is year round. This need is ever growing, and the impending loss of federal funding of the Legal Services Corporation makes pro bono volunteerism even more critical.

While the ABA, through Model Rule 6.1, and many states through their respective rules governing the practice of law, encourage, and in some cases, require, attorneys to provide legal services to those unable to pay, there is still a tremendous difference nationwide between the number of attorneys admitted to practice, and those actually providing pro bono services. There are a variety of reasons that attorneys are reluctant to take a pro bono case. There are those that say they don’t have the time. There are those that say they have no way to waive the conflicts. There are concerns about malpractice coverage. There are those who are associates in firms and their firms do not give them credit for taking a pro bono case. And most popular among business lawyers—they do not want to go to court.

Let’s start with the time commitment. Yes, there are some pro bono cases that can take a great deal of time. Just ask any attorney who has worked on a death penalty case or a Hague Convention child custody case. But there are many pro bono opportunities that will take no more than a couple of hours of time—for example, staffing walk-in clinics, manning small claims hotlines, or going to public libraries to demonstrate how to use and understand different legal and court websites. If you are not certain what programs are available in your area, you can go to the ABA website, to the webpage for the Standing Committee on Pro Bono & Public Service, where you will find a Directory of Local Pro Bono Programs. That directory will guide you to a pro bono provider in your area, who will, in turn, advise you what volunteer opportunities are available to you.

Attorneys working for “big law” are concerned about the conflicts that pro bono work can trigger, especially attorneys working to help borrowers or debtors seeking to save their homes or discharge credit card debt. How does the representation avoid violating Model Rule 1.7?

Client-Lawyer Relationship

Rule 1.7 Conflict Of Interest: Current Clients

(a) Except as provided in paragraph (b), a lawyer shall not represent a client if the representation involves a concurrent conflict of interest. A concurrent conflict of interest exists if:

(1) the representation of one client will be directly adverse to another client; or

(2) there is a significant risk that the representation of one or more clients will be materially limited by the lawyer’s responsibilities to another client, a former client or a third person or by a personal interest of the lawyer.

(b) Notwithstanding the existence of a concurrent conflict of interest under paragraph (a), a lawyer may represent a client if:

(1) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client;

(2) the representation is not prohibited by law;

(3) the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal; and

(4) each affected client gives informed consent, confirmed in writing.

All states, as well as the District of Columbia, have adopted Model Rule 1.7 in some form.

If an attorney is working at a walk-in or phone-in clinic, there is no time or opportunity to clear conflicts or get written waivers. Moreover, some attorneys are concerned about providing legal help that would conflict with the interests of banking clients—cases, for example, involving foreclosure assistance or bankruptcy. Some states have exceptions to these conflict rules when the attorney is doing a pro bono case as part of a walk-in clinic or small claims hotline. For example the New York Rule of Professional Conduct 6.5 has a limited exception to the conflict rules if the lawyer “under the auspices of a program sponsored by a court, government agency, bar association or not-for-profit legal services organization, provides short-term limited legal services to a client without expectation by either the lawyer or the client that the lawyer will provide continuing representation in the matter.” “Short-term limited legal services” is defined in the rule as “services providing legal advice or representation free of charge as part of [a program described above] with no expectation that the assistance will continue beyond what is necessary to complete an initial consultation, representation or court appearance.”

Another benefit of taking a pro bono case through a legal aid provider is that the attorney has malpractice coverage. Thus, so long as the case is referred through the appropriate agency, malpractice insurance should not be an issue.

Often business lawyers tell me they don’t take pro bono cases because they will not go to court. Many pro bono cases do not involve court appearances at all. Many legal aid providers around the country have small claims clinics or landlord tenant clinics that, whether by telephone or walk-in, require a commitment of a couple of hours. The clinic organizers usually have scripts that provide the answers to the most common questions and “experts” available if the answers are not readily ascertainable. 

There are also opportunities for business lawyers to advise companies whether those companies are in the start-up phase or are dealing with ongoing business issues. For example, the Florida Bar Business Law Section conducts pro se clinics for not-for-profit businesses in different cities around the state. Clients have included a job training program for veterans, a collective for visual artists, and a cooperative for micro-businesses for women in poverty. Their needs have varied from creating all the documents necessary to start the business, to filing annual reports, to drafting resolutions to lease space or equipment, to creating documents for fundraising under section 501(c). And, unfortunately, once in a while, volunteers have provided legal advice relating to financial distress.

Many law schools around the country are doing business start-up clinics. For example, Duke Law School has the Start-Up Ventures Clinic, which “provides legal advice and assistance to seed and early state entrepreneurial ventures . . . including formation, intellectual property protection, commercialization strategies and operational issues.” These programs are springing up all over the country and it is likely that a law school near you either has such a program or is considering such a program. The students in these start-up clinics need mentors. Where the new venture qualifies as a pro bono client in your state, you can get pro bono credit for being a mentor.

Pro bono service is something that every law firm should encourage. For those young lawyers in your firms that want trial experience, pro bono cases give those young lawyers the opportunity to get courtroom experience not usually available for attorneys at entry level positions in firms. Those law firms that don’t have a formal pro bono policy should consider adopting a policy. Even if your firm encourages pro bono participation without a policy, the lack of a formal policy may discourage young lawyers from pursuing those opportunities. If your firm doesn’t encourage pro bono participation, you need to ask yourself why.

If your firm does have a pro bono policy make sure it is up to date. If your law firm does not have a pro bono policy, or it needs updating, take a look at the resources available at the webpage of the ABA Standing Committee for Pro Bono & Public Service, or on the Pro Bono Institute’s website. You can also take a look at the Florida Bar Business Law Section’s Best Practices Guide for a Firm Pro Bono Policy, located here. The Pro Bono Committee of the Florida Bar Business Law Section developed this Guide to encourage law firms to adopt a formal pro bono policy, or, if a firm already has a policy, to provide suggestions for improvements.

In sum, there is no reason not to do pro bono. And it makes business sense to do pro bono. As my colleague Judge Catherine McEwen from the Middle District of Florida is fond of saying  “pro bono is like a box of assorted donuts; open it up and you will find the flavor just for you.”

Judges can be significant contributors to pro bono service. No, they certainly cannot jump across the bench and represent poor litigants in the well of the courtroom. But there are other meaningful ways judges can participate in promoting access to the courts for indigent parties. So how can judges foster pro bono service to parties who otherwise cannot afford an attorney? And how do judges learn about what they can and should be doing to advance this important goal?

Those questions are answered in my area by a biennial Judicial Pro Bono Summit. The organizer is my state circuit’s Florida Supreme Court–mandated pro bono committee (of which I am a member). We invite all judges—state and federal—who sit within the boundaries of our state judicial circuit (which comprises our county) to attend an informal, box-lunch meeting away from their courthouses.  During the summit, we educate judges about referral resources and actions the judges can take to promote pro bono representation. The summit is easy to organize, inexpensive, and enjoyable. Indeed, a great byproduct of these judges-only gatherings is getting to know our state and federal colleagues better. 

Organizing the Summit

We meet in a casual, private setting, our local general bar association building’s meeting hall. The cost of the boxed lunch can be handled in two ways: The local pro bono committee can find sponsors (law firms), or each judge and pay the modest cost of the lunch. A great time for holding a judicial pro bono summit is during National Celebrate Pro Bono Week, which this year runs October 22–28, 2017. (Go here for more information on the celebration: www.probono.net/celebrateprobono/.)

The summit’s format is simple and designed to take no more than one hour. The first part features a few local pro bono legal service providers making brief presentations on what populations those organizations serve and in what subject matters. And then we discuss various ways judges can perform pro bono service personally and can encourage and promote pro bono service by attorneys. We also provide a handbook-style compilation of useful resources, including referral information for legal services providers in the area, so that these resources will be within arm’s reach on the bench. Excerpts of the written materials can also be posted on our local bar association’s website. The materials also list ways a judge may participate in pro bono, and the lunch discussion usually generates more ideas. Below is a sampling of permissible activities.

Hands-on Pro Bono Service

• Work with the local bar to create a self-help desk and materials for pro se parties (see, e.g., www.flmd.uscourts.gov/pro_se/docs/USDC-MDFL-Civil_Case_Flowchart.pdf, and http://www.flmd.uscourts.gov/pro_se/docs/FLMD_ProSe_Handbook.pdf)
• Work with the local bar to create a courthouse walk-in clinic, open during specified hours and staffed by volunteer attorneys
• Create a legal assistance program in which judges may appoint volunteer lawyers to staff cases involving indigent parties (see, e.g., www.mieb.uscourts.gov/programs-services and www.flmb.uscourts.gov/legal_assistance/)
• Alert bar organizations to opportunities for pro bono funding, such as Bench Bar Funds (attorney admission fees), undistributable funds in a chapter 11 case, or cy pres funds in other cases
• Act as a notary or intake assistant at legal clinics, such as the ABA’s Homeless Experience Legal Protection program that is run in many major cities
• Create a pro bono toolkit for judges (see, e.g., Missouri’s at www.courts.mo.gov/page.jsp?id=4975)
• Provide training for pro bono attorneys
• Lecture on consumer law topics at local libraries
• Reach for your wallet and donate money to a local pro bono provider and/or your state bar’s foundation (incidentally, I obtained an ethics opinion from the Judicial Conference of the United States saying this is okay for federal judges to do in most circumstances, and one of my state colleagues obtained similar advice for Florida judges; contact me if you’d like copies)

Encouraging and Promoting Pro Bono Service

• Participate as a member of a local or state bar association pro bono committee
• Urge your federal judicial law clerk to engage in pro bono work consistent with the Code of Conduct for Judicial Employees, Canon 4D (a judicial employee may provide pro bono service on his or her own time under certain circumstances set out in the canon) or your state code’s counterpart
• Advocate for pro bono publicly by writing op-ed pieces for local news media or appearing on radio or TV (see, e.g., www.tbo.com/list/news-opinion-commentary/national-celebrate-pro-bono-week-should-be-cheered-20151025/ and www.tbo.com/list/news-opinion-commentary/a-wish-list-for-access-to-the-courts-20150110/)
• Write a letter to newly barred attorneys asking them to take a pro bono case or provide other pro bono service
• Express appreciation of pro bono attorneys in open court, court newsletters, or personalized letters
• Provide perks and accommodations for pro bono attorneys such as “go to the front of the line” privileges or even providing a special parking place at the courthouse
• Display pro bono opportunities/promotional materials in the courtroom
• Nominate pro bono lawyers and voluntary bar associations for pro bono awards
• Permit unbundled (limited scope) services in pro bono cases
• Appear at pro bono award ceremonies
• Speak on pro bono service at bar association luncheons, swearing-in ceremonies, and other legal organization gatherings
• And, last but not least, organize a Judicial Pro Bono Summit to spread the word to your area’s colleagues on the bench

Judges, by planning a judicial pro bono summit in your area for some time in the coming year, I bet you could double this list!

Editor’s Note: This article is a substantial revision of an article that first appeared in the National Conference of Bankruptcy Judges’ Conference News.